AMERISOURCE DISTRIBUTION CORP, DEF 14A, 1997-01-14

AMERISOURCE DISTRIBUTION CORP
DEF 14A, 1997-01-14
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

Previous: AMERICAN OPPORTUNITY INCOME FUND INC, SC 13D/A, 1997-01-14

Next: FRANKLIN VALUE INVESTORS TRUST, 497, 1997-01-14

<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

AmeriSource Health Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

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

(2) Aggregate number of securities to which transaction applies:

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

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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

(4) Proposed maximum aggregate value of transaction:

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

(5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.

(1) Amount previously paid:

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

(2) Form, schedule or registration statement no.:

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

(3) Filing party:

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

(4) Date filed:

- --------------------------------------------------------------------------------
<PAGE> 2

[AMERISOURCE LOGO]

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 11, 1997
------------------------

TO THE STOCKHOLDERS OF AMERISOURCE HEALTH CORPORATION:

NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of the Stockholders of
AMERISOURCE HEALTH CORPORATION will be held at The Desmond Great Valley Hotel
and Conference Center, One Liberty Boulevard, Malvern, Pennsylvania 19355 on
Tuesday, February 11, 1997, at 8:30 a.m. local time, for the purpose of:

(1) electing eight directors;

(2) approving an amendment to the Company's 1995 Stock Option Plan;

(3) adopting the 1996 Employee Stock Option Plan;

(4) adopting the 1996 Non-Employee Directors Stock Option Plan; and

(5) transacting such other business as may properly come before the
meeting.

The Board of Directors has fixed the close of business on December 30, 1996
as the record date for determining the stockholders of the Company entitled to
notice of and to vote at the Annual Meeting and any adjournments thereof; only
holders of stock of the Company of record on that date are entitled to notice of
and to vote at the Annual Meeting and any adjournments. A list of stockholders
will be available at the time and place of the meeting, and during the 10 days
prior to the meeting, at the office of the Secretary, Teresa T. Ciccotelli,
Esq., at AmeriSource Health Corporation, 300 Chester Field Parkway, Malvern,
Pennsylvania 19355.

It is important that your shares be represented at the meeting regardless
of the number of shares that you own. Please complete and sign the enclosed
proxy card, which is being solicited by the Board of Directors of the Company,
and return it in the enclosed postage pre-paid envelope as soon as you can,
whether or not you expect to attend the Annual Meeting in person.

A proxy statement for your additional information is attached to this
notice.

You are cordially invited to attend the Annual Meeting.

Respectfully,

/s/ TERESA T. CICCOTELLI
-----------------------------------
TERESA T. CICCOTELLI
Vice President, General Counsel and
Secretary

January 15, 1997
<PAGE> 3

AMERISOURCE HEALTH CORPORATION
P.O. BOX 959
VALLEY FORGE, PENNSYLVANIA 19482
------------------------

PROXY STATEMENT
------------------------

GENERAL INFORMATION

This proxy statement is furnished by the Board of Directors of AmeriSource
Health Corporation (the "Company") in connection with its solicitation of
proxies for use at the Annual Meeting of Stockholders to be held February 11,
1997 and at any adjournments thereof. The Company's annual report to
stockholders, including financial statements, accompanies this notice and proxy
statement, but is not incorporated as part of the proxy statement and is not to
be regarded as part of the proxy solicitation material. The proxy and this proxy
statement are being mailed to stockholders on or about January 15, 1997.

Proxies are solicited by the Board of Directors of the Company in order to
provide every stockholder an opportunity to vote on all matters scheduled to
come before the meeting, whether or not he or she attends the meeting in person.
When the enclosed proxy card is returned properly signed, the shares represented
thereby will be voted by the proxy holders named on the proxy card in accordance
with the stockholder's directions. You are urged to specify your choices by
marking the appropriate boxes on the enclosed proxy card. If the proxy is signed
and returned without specifying choices, the shares will be voted as recommended
by the Board of Directors.

Solicitation of proxies is made on behalf of the Board of Directors of the
Company, and the cost of preparing, assembling, and mailing the notice of Annual
Meeting, proxy statement, and form of proxy will be borne by the Company. In
addition to the use of the mail, proxies may be solicited by directors, officers
and regular employees of the Company, without additional compensation, in person
or by telephone or other electronic means. The Company will reimburse brokerage
houses and other nominees for their expenses in forwarding proxy material to
beneficial owners of the Company's stock.

REVOCABILITY OF PROXY

Execution of the enclosed proxy will not affect your right to attend the
Annual Meeting and vote in person. If you do attend, you may, if you wish, vote
by ballot at the meeting, thereby effectively canceling any proxies previously
given. In addition, a stockholder giving a proxy may revoke it at any time
before it is voted at the meeting by filing with the Secretary of the Company
any instrument revoking it, or by filing with the Company a duly executed proxy
bearing a later date.

VOTING AT THE ANNUAL MEETING

Only the holders of shares of Class A Common Stock, par value $.01 per
share (the "Common Stock") of the Company of record at the close of business on
December 30, 1996 are entitled to receive notice of, and to vote at, the Annual
Meeting. Each holder of Common Stock entitled to vote will have the right to one
vote for each share held on all matters to come before the meeting. On that
date, there were 16,941,218 shares of Common Stock issued and outstanding. There
were also 6,490,370 shares of the Class B Common Stock, par value $.01 per share
(the "Class B Common Stock"), and 241,098 shares of the Class C Common Stock,
par value $.01 per share (the "Class C Common Stock"), of the Company issued and
outstanding. Holders of the 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. A
share of Class C Common Stock will automatically be

1
<PAGE> 4

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.

The holders of a majority of the shares of Common Stock entitled to vote
must be present in person or by proxy at the Annual Meeting to constitute a
quorum for the purpose of transacting business at the meeting. Except for the
election of directors, the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy at the meeting and entitled
to vote on a proposal is required to ratify and approve the proposal.
Abstentions are counted in tabulations of the votes cast by stockholders on the
proposals and will have the effect of a negative vote. Broker non-votes will not
be counted for purposes of determining whether any proposal has been approved.
Directors are elected by a plurality of the votes present or represented by
proxy at the meeting and entitled to vote on the election of directors. Because
directors are elected by a plurality of votes, abstentions and broker non-votes
will not have an impact on their election.

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 30, 1996, certain
information regarding the beneficial ownership of Common Stock of the Company,
including shares of Common Stock as to which a right to acquire ownership within
60 days exists, of each director, each nominee for director, each executive
officer named in the Summary Compensation Table, of all the directors and named
executive officers of the Company as a group, and of each person known to the
Company to have been the beneficial owner of more than 5% of the outstanding
Common Stock.

<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF SHARES PERCENT
TITLE OF BENEFICIALLY OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNER OWNED(1) CLASS
- ---------------------------------- ---------------------------------- ---------------- -------
<S> <C> <C> <C>
John F. McNamara(2) Chairman, President and Chief
Executive Officer................. 525,700 2.2%
David M. Flowers(2) Executive Vice President,
Marketing......................... 86,650 *
R. David Yost(2) Executive Vice President,
Operations........................ 224,600 *
Kurt J. Hilzinger(2) Vice President, Chief Financial
Officer and Treasurer............. 83,750 *
Bruce C. Bruckmann(3) Director.......................... 53,320 *
Michael A. Delaney(4) Director.......................... 0 *
Richard C. Gozon(3) Director.......................... 5,000 *
Lawrence C. Karlson(3) Director.......................... 5,000 *
George H. Strong(3) Director.......................... 0 *
James A. Urry(4) Director.......................... 0 *
Barton J. Winokur Director.......................... 19,750 *

All directors and named executive officers as a group
(11 persons)(2)(3)(4)............................................... 1,003,770 4.3%

399 Venture Partners, Inc. ("VPI")(5)(6).............................. 6,721,073 28.7%
1209 Orange Street
Wilmington, DE 19801
</TABLE>

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

* Less than 1%.

(1) Based on information furnished to the Company by the respective
stockholders. Except as indicated below, the Company is informed that the
beneficial owners have sole voting and investment power over the shares
shown opposite their names.

2
<PAGE> 5

(2) Common Shares and the percent of class listed as being beneficially owned by
the Company's named executive officers include outstanding options to
purchase Common Stock which are exercisable within 60 days of December 30,
1996, as follows: Mr. McNamara -- 25,000 shares; Mr. Flowers -- 16,250
shares; Mr. Yost -- 16,250 shares; and Mr. Hilzinger -- 10,000 shares.

(3) Pursuant to the Non-Employee Director Stock Option Plan adopted by the
Company in fiscal 1995, Messrs. Bruckmann, Gozon, Karlson, Strong and
Winokur each received options, with limitations on exercise, to acquire
5,000 shares of Common Stock. None of these options are currently
exercisable, and the options are not included in the information set forth
in the above table. The Compensation Committee of the Board of Directors
has approved the granting of options to acquire 5,000 shares of Common
Stock to each of Messrs. Bruckmann, Gozon, Karlson, Strong and Winokur
pursuant to the Company's 1996 Non-Employee Director Stock Option Plan,
adopted by the Company in 1996, and subject to stockholder approval at the
1997 Stockholders' Meeting. These options will become immediately
exercisable and are not included in the information set forth in the above
table.

(4) Messrs. Delaney and Urry disclaim beneficial ownership relating to the
shares of Common Stock held by VPI.

(5) Includes 6,486,147 shares of Class B Common Stock, which is convertible into
Common Stock, owned by VPI.

(6) VPI disclaims beneficial ownership as to shares of Common Stock held by
investors currently or previously affiliated with VPI. VPI is a
wholly-owned, indirect subsidiary of Citicorp.

PROPOSAL 1

ELECTION OF DIRECTORS

The Company's Board of Directors consists of eight (8) directors each
serving annual terms. It is proposed that eight (8) directors be elected to hold
office until the next annual meeting of stockholders and until their successors
have been elected and qualified. Unless otherwise specified by the stockholders,
it is intended that the shares represented by proxies will be voted for the
eight (8) nominees for director listed below. All of the nominees are presently
serving as directors of the Company. Each nominee for director has consented to
his nomination and, so far as the Board of Directors and management are aware,
will serve as a director if elected. However, if any of the nominees should
become unavailable prior to the election, the shares represented by proxies may
be voted for the election of such other persons as the Board of Directors may
recommend, unless the Board of Directors chooses to reduce the number of
directors to be elected. There is no family relationship between any of the
directors or nominees. There is no arrangement or understanding between any
director or nominee for director and any other person(s) pursuant to which he
was or is to be selected as a director or nominee.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES SET FORTH IN THIS PROPOSAL. PROXIES WILL BE SO
VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE ON THEIR PROXY CARDS. THE EIGHT (8)
NOMINEES RECEIVING THE HIGHEST NUMBER OF AFFIRMATIVE VOTES OF THE SHARES OF
COMMON STOCK PRESENT OR REPRESENTED AND ENTITLED TO BE VOTED SHALL BE ELECTED AS
DIRECTORS.

JOHN F. MCNAMARA Age 61 Director since 1989

Chairman, President and Chief Executive Officer, AmeriSource Health
Corporation and AmeriSource Corporation

Mr. McNamara has been Chairman, President and Chief Executive Officer
of the Company and AmeriSource Corporation, the Company's chief operating
subsidiary ("AmeriSource"), since 1989 and has been President of
AmeriSource since 1987. Mr. McNamara served on the executive committee of
the National Wholesale Druggists' Association from 1991 through 1994 and
served as its chairman of the

3
<PAGE> 6

board from November 1993 to November 1994. Mr. McNamara is a member of the
Capital Appropriations Committee of the Company's Board of Directors.

BRUCE C. BRUCKMANN Age 43 Director since 1992

Managing Director, Bruckmann, Rosser, Sherrill & Co., Inc.

Mr. Bruckmann previously served as a director of the Company from 1989
to December 1991, and as a director of AmeriSource Corporation from 1988 to
December 1991, prior to his reelection as a director of the Company in
1992. 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 serves as a director of Chromcraft Revington, Inc., Cort Business
Services Corporation, Jitney Jungle Stores of America, Inc. and Mohawk
Industries, Inc. Mr. Bruckmann is a member of the Compensation Committee of
the Company's Board of Directors.

MICHAEL A. DELANEY Age 42 Director since 1995

Vice President, Citicorp Venture Capital Ltd.

Mr. Delaney has been a Vice President of Citicorp Venture Capital Ltd.
since 1989. Mr. Delaney is also a director of Sybron Chemicals, Inc., GVC
Holdings, JAC Holdings, Delco Remy International, Inc., Delco Remy America,
Inc., Reman Holdings, Inc., Ballantrae Corporation, Enterprise Radio
Corporation, SC Processing, Inc., Triumph Group, Inc., FF Holdings
Corporation, Cort Business Services Corporation, Cort Furniture Rental
Corporation, Palomar Technologies Corporation, Palomar Products, Inc., MSX
International, IKS Corporation and CLARK Material Handling Corporation. Mr.
Delaney is a member of the Compensation Committee of the Company's Board of
Directors.

RICHARD C. GOZON Age 58 Director since 1994

Executive Vice President, Weyerhaeuser Company

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. and Triumph Group, Inc.. Mr. Gozon is Chairman of the
Compensation Committee and a member of the Audit Committee of the Company's
Board of Directors.

LAWRENCE C. KARLSON Age 54 Director since 1994

Private Investor

Mr. Karlson is a private investor and serves as a director of CDI
Corporation. Mr. Karlson is a member of the Capital Appropriations
Committee of the Company's Board of Directors.

GEORGE H. STRONG Age 70 Director since 1994

Private Investor

Mr. Strong is a private investor and serves as a director of
Corefunds, Health South Rehabilitation Corp. and Integrated Health
Services, Inc. Mr. Strong is Chairman of the Audit Committee of the
Company's Board of Directors.

4
<PAGE> 7

JAMES A. URRY Age 43 Director since 1995

Vice President, Citicorp Venture Capital Ltd.

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
Corporation, IKS Corporation, Hancor Holdings, CLARK Material Handling
Corporation, and Cort Business Services Corporation. Mr. Urry is a member
of the Compensation Committee of the Company's Board of Directors.

BARTON J. WINOKUR Age 56 Director since 1990

Chairman, Dechert Price & Rhoads

Mr. Winokur is Chairman of the law firm of Dechert Price & Rhoads and
serves as a director of CDI Corporation, FF Holdings Corporation, Farm
Fresh, Inc. and Davco Restaurants, Inc. Mr. Winokur is Chairman of the
Capital Appropriations Committee and a member of the Audit Committee of the
Company's Board of Directors.

BOARD OF DIRECTORS

The Board of Directors of the Company held four (4) meetings during fiscal
year 1996. All of the directors attended 75% or more of the meetings of the
Board of Directors and the Committees of the Board of Directors on which they
served, except Mr. Urry who attended 71% of the meetings.

COMMITTEES OF THE BOARD OF DIRECTORS

The standing committees of the Board of Directors are the Compensation,
Audit, and Capital Appropriations Committees.

The Compensation Committee reviews and recommends actions to the Board of
Directors on such matters as salary and other compensation of officers and the
administration of certain benefit plans. The Compensation Committee also has the
authority to administer, grant and award stock and stock options under the
Company's incentive equity plans. The Compensation Committee held three (3)
meetings during fiscal year 1996. The current Chairman of the Compensation
Committee is Mr. Gozon and its current members are Messrs. Delaney, Urry and
Bruckmann.

The Audit Committee meets with management, the Company's independent
auditors and its internal audit department to consider the adequacy of the
Company's internal controls and other financial reporting matters. The Audit
Committee recommends to the Board of Directors the engagement of the Company's
independent auditors, discusses with the independent auditors their audit
procedures, including the proposed scope of their audit, the audit results and
the accompanying management letters and, in connection with determining their
independence, reviews the services performed by the independent auditors. The
Audit Committee held four (4) meetings during fiscal year 1996. The current
Chairman of the Audit Committee is Mr. Strong and its current members are
Messrs. Gozon and Winokur.

The Capital Appropriations Committee authorizes and approves investments by
the Company, other than investments in the ordinary course of business. The
Capital Appropriations Committee held four (4) meetings during fiscal year 1996.
The current Chairman of the Capital Appropriations Committee is Mr. Winokur and
its current members are Messrs. McNamara and Karlson.

5
<PAGE> 8

PROPOSAL 2

APPROVAL OF AN AMENDMENT TO THE 1995 STOCK OPTION PLAN

The Company's 1995 Stock Option Plan (the "1995 Option Plan") was adopted
by the Board of Directors on February 21, 1995 and approved by the stockholders
on March 27, 1995. The 1995 Option Plan provides for the granting of
nonqualified stock options ("1995 Options") to acquire up to approximately 1.2
million shares of Common Stock to employees of the Company.

PROPOSED AMENDMENT TO THE 1995 OPTION PLAN

On November 12, 1996, the Board of Directors approved, subject to
stockholder approval, an amendment to the 1995 Option Plan to (i) remove the
mandatory one year holding period applicable to Common Stock acquired after
exercise of a 1995 Option, which restriction presently begins on the date of
grant of each 1995 Option and continues for four years thereafter, and (ii)
expand the circumstances under which the 1995 Options become immediately
exercisable upon a Change in Control (as defined in the 1995 Option Plan) to
include option holders whose employment with the Company terminates on account
of death or disability during the one-year period following such Change in
Control. The full text of the amendment is set forth as Appendix A. Proposal 2
seeks stockholder approval of this amendment.

The Board of Directors considers the amendments necessary to align the 1995
Option Plan with the other public company stock option plans in the Company's
industry. The Board of Directors further believes that the 1995 Option Plan
focuses management on increasing stockholder value. As of September 30, 1996,
approximately 185 of the Company's eligible employees were participating in the
1995 Option Plan. For executive officer participation in the 1995 Option Plan,
see "Management -- Stock Options."

SUMMARY OF THE 1995 OPTION PLAN

The following summary describes features of the Company's 1995 Option Plan.
This summary is qualified in its entirety by reference to the specific
provisions of the 1995 Option Plan, the full text of which is set forth as
Appendix B.

Purpose. The purpose of the 1995 Option 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.

Administration. The 1995 Option Plan is administered by a committee of two
or more persons designated by the Board of Directors (the "1995 Committee"), all
of whom are Disinterested Persons as defined in the 1995 Option Plan as well as
directors of the Company. The 1995 Committee has the power and authority to,
among other things, determine whether, to what extent and under what
circumstances options may be granted, determine whether, to what extent and
under what circumstances options may be exercised, determine the extent to which
exceptions to the exercisability of options may be granted, determine the effect
of certain dispositions or a change in control of the Company on outstanding
options, establish procedures, loans, or financing arrangements to assist in the
exercise of options and the satisfaction of tax withholding obligations, adopt
regulations to carry out the 1995 Option Plan and amend options granted under
the 1995 Option Plan to carry out the purpose of the 1995 Option Plan.

Eligibility. Any officer or other key employee of the Company or a
subsidiary of the Company (an "Employee"), including a director who is such an
employee, is eligible to participate in the 1995 Option Plan. As of September
30, 1996, there were approximately 200 employees eligible to participate in
the 1995 Option Plan, of whom approximately 185 were participants.

6
<PAGE> 9

Grant of Option. Awards under the 1995 Option Plan shall consist of grants
of non-qualified stock options. Each 1995 Option shall give the grantee 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 grants of 1995 Options are
evidenced by 1995 Option award certificates. Such certificates conform to the
requirements of the 1995 Option Plan. Options granted to employees under the
1995 Option Plan must be exercised by the date specified by the 1995 Committee
in the 1995 Option award certificate. The number of shares for which 1995
Options may be exercised is subject to adjustment as set forth in the 1995
Option Plan.

Exercise Price. The exercise price for 1995 Options is determined with
respect to each holder and with respect to a portion of shares of Common Stock,
when such holder is granted a 1995 Option. The 1995 Options which were granted
on April 3, 1995 may be exercised at a price of $21.00 per share. The 1995
Options which were granted on March 1, 1996 may be exercised at a price of
$28.00 per share and the 1995 Options which were granted on September 25, 1996
may be exercised at a price of $41.875 per share. Additional 1995 Options which
may be granted by the Board of Directors, subject to the provisions of the 1995
Plan, shall be exercisable at a price not less than the fair market value of the
Common Stock on the date of such grant. The fair market value of the Common
Stock shall equal, on any given date, the previous day's closing price of actual
sales of shares of the Common Stock on the principal national securities
exchange on which the Common Stock is listed, or if not listed, as reported on
the NASDAQ National Market, on such date.

Form of Consideration. The 1995 Option Plan permits payment for shares
issued upon exercise of a 1995 Option to be made in cash or, upon consent by the
1995 Committee and if permitted by the restrictions in the Company's or
AmeriSource's financing agreements, in whole or in part in Common Stock owned by
the holder for at least six months (or other period of time as determined by the
1995 Committee), valued at fair market value on the date of exercise.

Term of Option. The term of each 1995 Option shall be six years from the
date such option was granted.

Termination of Employment. If a grantee ceases his or her employment with
the Company for any reason other than death, Disability (as defined in the 1995
Option Plan), or retirement, the grantee's 1995 Options shall terminate 30 days
after the date of such termination of employment. If a grantee ceases his or her
employment with the Company by reason of Disability, retirement or death, any
1995 Option held by such grantee may be thereafter exercised by the grantee (or
in the event of death, by the legal representative of the grantee), to the
extent such Option was exercisable at the time of Disability, retirement or
death, as the case may be, or on such 1995 Committee determined accelerated
basis, until the expiration of the term of the 1995 Option (or within a shorter
period of time as may be determined by the 1995 Committee).

Rights of Participants. Nothing in the 1995 Option Plan or any 1995 Option
shall confer upon any Employee any right to continued employment with the
Company or a subsidiary, nor interfere with the right of the Company or a
subsidiary to terminate the employment of any Employee at any time.

Non-assignability. No 1995 Option shall be transferable otherwise than by
will or the laws of descent and distribution. Only the grantee may exercise
rights under a 1995 Option. If the grantee dies, the person to whom the rights
have passed by will or by the laws of descent and distribution may exercise such
rights.

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 the Common Stock, or any distribution to stockholders in
respect of stock other than a cash dividend, the 1995 Committee shall make
appropriate adjustment in the number and kind of shares authorized by the 1995
Option Plan and any adjustments to outstanding 1995 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

7
<PAGE> 10

fractional shares resulting from adjustments pursuant to the 1995 Option Plan
shall, where appropriate, be paid in cash to the holder.

Amendment and Termination of the Plan. The Board of Directors may amend,
suspend or terminate the 1995 Option Plan at any time. No amendment to the 1995
Option Plan shall be made without stockholder approval if such amendment would
increase the total number of shares available for issuance pursuant to the 1995
Option Plan, change the class of employees eligible to be holders of 1995
Options, change the terms of the provision setting forth the Board of Directors'
ability to amend and terminate the 1995 Option Plan, or make any other change
for which stockholder approval is required under Rule 16b-3 or any successor
rule of the Securities Exchange Act of 1934 (the "Exchange Act"). Termination of
the 1995 Option Plan shall not affect 1995 Options outstanding under the 1995
Option Plan at the time of termination.

Expiration. Unless terminated earlier, the 1995 Option Plan shall
terminate ten years from the date of its adoption by the Board of Directors.

Certain Federal Income Tax Consequences. The following description of
certain income tax consequences of the 1995 Option Plan is based upon current
statutes, regulations and interpretations and does not include state or local
income tax consequences. This description is not intended to address specific
tax consequences applicable to an Employee of the Company who receives a stock
option under the 1995 Option Plan.

All 1995 Options to be granted under the 1995 Option Plan are not intended
to qualify as "incentive stock options" as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). Neither the 1995
Option holder nor the Company will incur any federal income tax consequences as
a result of the grant of a 1995 Option. Upon the exercise of a 1995 Option, the
difference between the exercise price and the fair market value of the shares on
the date of exercise will be taxable as ordinary income to the option holder.

At the time of a subsequent sale of any shares of common stock obtained
upon the exercise of a 1995 Option, any gain or loss will be a capital gain or
loss to the 1995 Option holder. The 1995 Option holder's tax basis in such stock
for purposes of determining capital gain or loss will be the exercise price paid
pursuant to the 1995 Option plus the amount of ordinary income recognized on
exercise of the 1995 Option. Any capital gain or loss recognized on a subsequent
sale of common stock will be a long-term gain or loss if the sale occurs more
than one year after the date of exercise and a short-term capital gain or loss
if the sale occurs one year or less after the date of exercise.

The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount that the holder of a 1995 Option
recognizes ordinary income, to the extent that such income is considered
reasonable compensation under the Code.

VOTE REQUIRED

The affirmative vote of holders of a majority of the outstanding shares of
Common Stock present in person or by proxy at the meeting and entitled to vote
on a proposal is required to approve the amendment to the 1995 Option Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR
OF PROPOSAL 2.

8
<PAGE> 11

PROPOSAL 3

APPROVAL OF THE 1996 STOCK OPTION PLAN

GENERAL

On November 12, 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Stock Option Plan (the "1996 Option Plan"). The
1996 Option Plan provides for the granting of non-qualified stock options (the
"1996 Options") to acquire up to approximately 800,000 shares of common stock of
the Company to employees of the Company.

The Company believes that the 1996 Option Plan will encourage the
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's stockholders, and will align the economic interests of
the participants with those of the stockholders.

SUMMARY OF THE 1996 OPTION PLAN

The following summary describes features of the Company's 1996 Option Plan.
This summary is qualified in its entirety by reference to the specific
provisions of the 1996 Option Plan, the full text of which is set forth as
Appendix C.

Purpose. The purpose of the 1996 Option Plan is to provide designated
employees of the Company and its subsidiaries with the opportunity to receive
grants of nonqualified stock options.

Administration. The 1996 Option Plan shall be administered by a committee
of two or more persons appointed by the Board (the "1996 Committee"), all of
whom shall be "outside directors" as defined under section 162(m) of the Code
and related Treasury regulations, and "non-employee directors," as defined under
Rule 16b-3 under the Exchange Act. The 1996 Committee shall have the sole
authority to, among other things, determine the individuals to whom grants shall
be made under the 1996 Option Plan, determine the type, size and terms of the
grants to be made to each such individual, determine the time when the grants
will be made and any applicable exercise or restriction period, condition grants
on an individual's execution of a non-compete or similar agreement and deal with
other matters arising under the 1996 Option Plan. The 1996 Committee shall have
full power and authority to administer and interpret the 1996 Option Plan, to
make factual determinations and to adopt or amend such rules, regulations,
agreements and instruments for implementing the 1996 Option Plan and for the
conduct of its business as it deems necessary or advisable, in its sole
discretion.

Eligibility. All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board of
Directors, shall be eligible to participate in the 1996 Option Plan. The 1996
Committee shall select the Employees that are to receive 1996 Options.

Grant of Option. Awards under the 1996 Option Plan shall consist of grants
of non-qualified stock options. The 1996 Committee shall determine the number of
shares of the Company's common stock that will be subject to each grant of 1996
Options to Employees. The maximum aggregate number of shares of common stock of
the Company that shall be subject to the 1996 Options granted under the 1996
Option Plan to any individual during any calendar year shall be 100,000 shares.
The shares may be authorized but unissued shares of the Company's common stock
or reacquired shares of the common stock, including shares purchased by the
Company on the open market for purposes of the 1996 Option Plan. The 1996
Options are exercisable as specified in the grant instrument or an amendment
thereto and the 1996 Committee may accelerate the exercisability of any or all
outstanding 1996 Options at any time for any reason. The number of shares for
which the 1996 Options may be exercised is subject to adjustment as set forth in
the 1996 Option Plan.

9
<PAGE> 12

Exercise Price. The exercise price for 1996 Options shall be determined by
the 1996 Committee and shall not be less than the fair market value of a share
of common stock of the Company on the date of grant or on the date the 1996
Option Plan is approved by the Stockholders, whichever last occurs. If the
common stock is publicly traded, then the fair market value per share shall be
the last reported sales price thereof on the relevant date if the common stock
is principally traded on a national securities exchange or the NASDAQ National
Market; if, however, the common stock is not principally traded on such exchange
or market, then the fair market value per share shall be the mean between the
last reported "bid" and "asked" prices of the common stock of the Company on the
relevant date as reported on NASDAQ, by the National Daily Quotation Bureau,
Inc., or in a customary financial reporting service, as determined by the 1996
Committee. If the common stock of the Company is not publicly traded or not
subject to "bid" and "asked" quotations as described above, then the fair market
value per share shall be as determined by the 1996 Committee.

Form of Consideration. The 1996 Option Plan permits payment for shares
issued upon exercise of a 1996 Option to be made in cash or, upon consent by the
1996 Committee, through a broker in accordance with procedures established by
the 1996 Committee consistent with Regulation T of the Federal Reserve Board.
Each 1996 Option may be exercised in whole or in part.

Term of Option. The term of each 1996 Option shall be determined by the
1996 Committee, which shall not exceed ten years from the date of grant.

Termination of Employment. The 1996 Options may only be exercised while
the grantee is employed by the Company as an Employee (except as provided
below). If a grantee ceases his or her employment with the Company for any
reason other than Disability (as defined in the 1996 Option Plan), death or
Termination For Cause (as defined in the 1996 Option Plan), the grantee's 1996
Options shall terminate unless exercised within 90 days after the date on which
the grantee ceases his or her employment with the Company (or within such other
period of time as may be specified by the 1996 Committee), but no later than the
date of expiration of the term of the 1996 Option. If a grantee ceases his or
her employment with the Company on account of a Termination For Cause, the
grantee's 1996 Options shall terminate as of the date on which the grantee
ceases to be employed by the Company. If a grantee ceases his or her employment
with the Company because the grantee is Disabled or if the grantee dies while
employed by the Company or within 90 days after the date on which the grantee
ceases to be employed with the Company not on account of a Termination For Cause
or Disability (or within such other period of time as may be specified by the
1996 Committee), the grantee's 1996 Options shall terminate unless exercised
within one year after the date on which the grantee ceases his or her employment
with the Company (or within such other period of time as may be specified by the
1996 Committee), but no later than the date of expiration of the term of the
1996 Option.

Rights of Participants. Nothing in the 1996 Option Plan shall entitle any
Employee to any right to receive 1996 Options under the 1996 Option Plan and
neither the 1996 Option Plan nor any actions taken thereunder shall be construed
as giving any individual any employment rights.

Non-assignability. No option shall be transferable otherwise than by will
or the laws of descent and distribution or, if permitted under Rule 16b-3 of the
Exchange Act and if permitted by the 1996 Committee, pursuant to a domestic
relations order. Notwithstanding the foregoing, the 1996 Committee may provide,
in an option instrument, that a grantee may transfer 1996 Options to family
members or other persons or entities according to such terms as the 1996
Committee may determine. Except as provided above, only the grantee or his or
her authorized representative may exercise rights under a 1996 Option. If a
grantee dies, the personal representative or other person entitled to succeed to
the rights of the grantee may exercise such rights.

10
<PAGE> 13

stock of the Company without the Company's receipt of consideration, or if the
value of outstanding shares of the common stock is substantially reduced as a
result of a spin-off or the Company's payment of an extraordinary dividend or
distribution, the maximum number of shares of common stock of the Company
available for the 1996 Options, the maximum number of shares of common stock of
the Company for which any individual participating in the 1996 Option Plan may
receive 1996 Options in any year, the number of shares covered by outstanding
1996 Options, the kind of shares issued under the 1996 Option Plan and the price
per share of each 1996 Option may be adjusted by the 1996 Committee to preclude,
to the extent possible, the enlargement or dilution of rights and benefits under
such 1996 Options. Any fractional shares resulting from such adjustment shall be
eliminated.

Amendment and Termination of the 1996 Option Plan. The Board of Directors
may amend or terminate the 1996 Option Plan at any time; the Board of Directors,
however, shall not amend the 1996 Option Plan without stockholder approval if
such approval is required by Section 162(m) of the Code. Any extension of the
1996 Option Plan shall be approved by both the Board of Directors and the
stockholders of the Company. No such action by the Board of Directors shall
materially impair the grantee's rights under a previously granted 1996 Option
unless the grantee consents or the 1996 Committee acts to remain in compliance
with all applicable laws and approvals of governmental or regulatory agencies.
Termination of the 1996 Option Plan shall not impair the 1996 Committee's power
and authority with respect to an outstanding 1996 Option. Whether or not the
1996 Option Plan has terminated, the 1996 Committee may terminate or amend an
outstanding 1996 Option upon the agreement between the Company and the grantee
or to remain in compliance with all applicable laws and approvals of
governmental or regulatory agencies.

Expiration. Unless terminated or extended earlier, the 1996 Option Plan
shall terminate on the day immediately preceding the tenth anniversary of its
effective date.

Certain Federal Income Tax Consequences. The following description of
certain income tax consequences of the 1996 Option Plan is based upon current
statutes, regulations and interpretations and does not include state or local
income tax consequences. This description is not intended to address specific
tax consequences applicable to an Employee of the Company who receives a stock
option under the 1996 Option Plan.

All 1996 Options to be granted under the 1996 Option Plan are not intended
to qualify as "incentive stock options" as that term is defined in Section 422
of the Code. Neither the 1996 Option holder nor the Company will incur any
federal income tax consequences as a result of the grant of a 1996 Option. Upon
the exercise of a 1996 Option, the difference between the exercise price and the
fair market value of the shares on the date of exercise will be taxable as
ordinary income to the option holder.

At the time of a subsequent sale of any shares of common stock obtained
upon the exercise of a 1996 Option, any gain or loss will be a capital gain or
loss to the 1996 Option holder. The 1996 Option holder's tax basis in such stock
for purposes of determining capital gain or loss will be the exercise price paid
pursuant to the 1996 Option plus the amount of ordinary income recognized on
exercise of the 1996 Option. Any capital gain or loss recognized on a subsequent
sale of common stock will be a long-term gain or loss if the sale occurs more
than one year after the date of exercise and a short-term capital gain or loss
if the sale occurs one year or less after the date of exercise.

The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount that the holder of a 1996 Option
recognizes ordinary income, to the extent that such income is considered
reasonable compensation under the Code.

11
<PAGE> 14

VOTE REQUIRED

The affirmative vote of the holders of a majority of the outstanding shares
of common stock of the Company present in person or by proxy at the meeting and
entitled to vote on a proposal is required to ratify and approve this Proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR
OF PROPOSAL 3.

PROPOSAL 4

APPROVAL OF THE 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

GENERAL

On November 12, 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Non-Employee Directors Stock Option Plan (the
"1996 Directors Plan"). The 1996 Directors Plan provides for the granting of
non-qualified stock options (the "1996 Directors Options") to acquire up to
approximately 50,000 shares of common stock of the Company to non-employee
directors of the Company (as defined below).

The Company believes that the 1996 Directors Plan will encourage the
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's stockholders, and will align the economic interests of
the participants with those of the stockholders.

SUMMARY OF THE 1996 DIRECTORS PLAN

The following summary describes features of the Company's 1996 Directors
Plan. This summary is qualified in its entirety by reference to the specific
provisions of the 1996 Directors Plan, the full text of which is set forth as
Appendix D.

Purpose. The purpose of the 1996 Directors Plan is to provide members of
the Board of Directors of the Company who are not employees of the Company or
its subsidiaries with grants of nonqualified stock options.

Administration. The 1996 Directors Plan shall be administered by a
committee of two or more persons appointed by the Board of Directors (the
"Directors Plan Committee"), all of whom shall be "non-employee directors" as
defined under Rule 16b-3 under the Exchange Act. The Directors Plan Committee
shall have full power and authority to administer and interpret the 1996
Directors Plan, to make factual determinations and to adopt or amend such rules,
regulations, agreements and instruments for implementing the 1996 Directors Plan
and for the conduct of its business as it deems necessary or advisable, in its
sole discretion.

Eligibility. All members of the Board of Directors who are not employees
of the Company or a subsidiary ("Non-Employee Directors") shall be eligible to
participate in the 1996 Directors Plan.

Grant of Option. Awards under the 1996 Directors Plan shall consist of
grants of two types of non-qualified stock options - initial grants and annual
grants. Under the initial grants, each Non-Employee Director who first becomes a
member of the Board of Directors after the effective date of the 1996 Directors
Plan shall be given the option to purchase 5,000 shares of common stock from the
Company, such option to be granted on the date as of which he or she first
becomes a member of the Board of Directors. Under the annual grants, each
Non-Employee Director who is in office immediately after the annual election of
directors (other than a director who is first elected to the Board of Directors
at such meeting) shall be given the option to purchase 5,000 shares of common
stock from the Company, such option to be granted on each date that the

12
<PAGE> 15

Company holds its annual meeting of stockholders (commencing with the 1998
annual meeting). The 1996 Directors Options are fully exercisable as of the date
of grant. The number of shares for which the 1996 Directors Options may be
exercised is subject to adjustment as set forth in the 1996 Directors Plan.

Exercise Price. The exercise price for 1996 Directors Options shall be
equal to the fair market value of a share of common stock of the Company on the
date of grant. If the common stock is publicly traded, then the fair market
value per share shall be the last reported sales price thereof on the relevant
date if the common stock is principally traded on a national securities exchange
or the NASDAQ National Market; if, however, the common stock is not principally
traded on such exchange or market, then the fair market value per share shall be
the mean between the last reported "bid" and "asked" prices of the common stock
of the Company on the relevant date as reported on NASDAQ, by the National Daily
Quotation Bureau, Inc., or in a customary financial reporting service, as
determined by the Directors Plan Committee. If the common stock of the Company
is not publicly traded or not subject to "bid" and "asked" quotations as
described above, then the fair market value per share shall be as determined by
the Directors Plan Committee.

Form of Consideration. The 1996 Directors Plan permits payment for shares
issued upon exercise of a 1996 Directors Option to be made in cash or, upon
consent by the Directors Plan Committee, through a broker in accordance with
procedures established by the Directors Plan Committee consistent with
Regulation T of the Federal Reserve Board. Each 1996 Directors Option may be
exercised in whole or in part.

Term of Option. The term of each 1996 Directors Option shall be ten years.

Termination of Membership on Board of Directors. The 1996 Directors
Options may only be exercised while the grantee is a member of the Board of
Directors (except as provided below). If a grantee ceases to be a member of the
Board of Directors for any reason other than Cause (as defined in the 1996
Directors Plan), the grantee's 1996 Directors Options shall terminate unless
exercised within one year after the date on which the grantee ceases to be a
member of the Board of Directors, or, if earlier, the date of expiration of the
term of the 1996 Directors Option. If a grantee ceases to be a member of the
Board of Directors for Cause, the grantee's 1996 Directors Options shall
terminate as of the date on which the grantee ceases to be a member of the Board
of Directors.

Non-assignability. No option shall be transferable otherwise than by will
or the laws of descent and distribution or, if permitted under Rule 16b-3 of the
Exchange Act and if permitted by the Directors Plan Committee, pursuant to a
domestic relations order. Notwithstanding the foregoing, the Directors Plan
Committee may provide, in an option instrument, that a grantee may transfer 1996
Directors Options to family members or other persons or entities according to
such terms as the Directors Plan Committee may determine. Except as provided
above, only the grantee or his or her authorized representative may exercise
rights under a 1996 Directors Option. If a grantee dies, the personal
representative or other person entitled to succeed to the rights of the grantee
may exercise such rights.

Adjustments Upon Changes in Capitalization. In the event that the common
stock of the Company changes by reason of any stock dividend, spin-off,
recapitalization, stock split or combination or exchange of shares, merger,
reorganization or consolidation in which the Company is the surviving company,
reclassification or change in par value or any other extraordinary or unusual
event affecting the outstanding common stock of the Company without the
Company's receipt of consideration, or if the value of outstanding shares of the
common stock is substantially reduced as a result of a spin-off or the Company's
payment of an extraordinary dividend or distribution, the maximum number of
shares of common stock of the Company available for the 1996 Directors Options,
the number of shares covered by outstanding 1996 Directors Options, the kind of
shares issued under the 1996 Directors Plan and the price per share of each 1996
Directors Option may be adjusted by the Directors Plan Committee to preclude, to
the extent possible, the enlargement or dilution of rights and benefits under
such 1996 Directors Options. Any fractional shares resulting from such
adjustment shall be eliminated.

13
<PAGE> 16

Amendment and Termination of the 1996 Directors Plan. The Board of
Directors may amend or terminate the 1996 Directors Plan at any time. Any
extension of the 1996 Directors Plan shall be approved by both the Board of
Directors and the stockholders of the Company. No such action by the Board of
Directors shall materially impair the grantee's rights under a previously
granted 1996 Directors Option unless the grantee consents or the Directors Plan
Committee acts to remain in compliance with all applicable laws and approvals of
governmental or regulatory agencies. Termination of the 1996 Directors Plan
shall not impair the Directors Plan Committee's power and authority with respect
to an outstanding 1996 Directors Option. Whether or not the 1996 Directors Plan
has terminated, the Directors Plan Committee may terminate or amend an
outstanding 1996 Directors Option upon the agreement between the Company and the
grantee or to remain in compliance with all applicable laws and approvals of
governmental or regulatory agencies.

Expiration. Unless terminated or extended earlier, the 1996 Directors Plan
shall terminate on the day immediately preceding the tenth anniversary of its
effective date.

Certain Federal Income Tax Consequences. The following description of
certain income tax consequences of the 1996 Directors Plan is based on current
statutes, regulations and interpretations and does not include state or local
income tax consequences. This description is not intended to address specific
tax consequences applicable to a director of the Company who receives a stock
option under the 1996 Directors Plan.

All 1996 Directors Options to be granted under the 1996 Directors Plan are
not intended to qualify as "incentive stock options" as that term is defined in
Section 422 of the Code. Neither the 1996 Directors Option holder nor the
Company will incur any federal income tax consequences as a result of the grant
of a 1996 Directors Option under the 1996 Directors Plan. Upon the exercise of a
1996 Directors Option, the difference between the exercise price and the fair
market value of the shares on the date of exercise will be taxable as ordinary
income to the option holder.

At the time of a subsequent sale of any shares of common stock obtained
upon the exercise of a 1996 Directors Option under the 1996 Directors Plan, any
gain or loss will be a capital gain or loss to the 1996 Directors Option holder.
The 1996 Directors Option holder's tax basis in such stock for purposes of
determining capital gain or loss will be the exercise price paid pursuant to the
1996 Directors Option plus the amount of ordinary income recognized on exercise
of the 1996 Directors Option. Any capital gain or loss recognized on a
subsequent sale of common stock will be a long-term gain or loss if the sale
occurs more than one year after the date of exercise and a short-term capital
gain or loss if the sale occurs one year or less after the date of exercise.

The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount that the holder of any option recognizes
ordinary income, to the extent that such income is considered reasonable
compensation under the Code.

VOTE REQUIRED

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.

NEW PLAN BENEFITS

Set forth below are the total number of shares of Common Stock and the
value thereof for which options were awarded by the Board of Directors of the
Company during 1996, subject to stockholder approval of the 1996 Non-Employee
Directors Stock Option Plan and the 1996 Employee Stock Option Plan at this
Annual Meeting:

14
<PAGE> 17

NEW PLAN BENEFITS

<TABLE>
<CAPTION>
1996 NON-EMPLOYEE
1996 EMPLOYEE STOCK DIRECTORS 1995 STOCK OPTION PLAN
OPTION PLAN STOCK OPTION PLAN (AS AMENDED)
---------------------- ---------------------- ----------------------
DOLLAR VALUE NUMBER DOLLAR VALUE NUMBER DOLLAR VALUE NUMBER
NAME AND POSITION ($)(1) OF UNITS ($)(1) OF UNITS ($)(1) OF UNITS
- ------------------------------------------- ------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
John F. McNamara........................... -- 40,000 -- 0 -- 0
Chairman of the Board,
President and Chief Executive Officer
David M. Flowers........................... -- 20,000 -- 0 -- 0
Executive Vice President, Marketing
R. David Yost.............................. -- 20,000 -- 0 -- 0
Executive Vice President, Operations
Kurt J. Hilzinger.......................... -- 20,000 -- 0 -- 0
Vice President, Chief
Financial Officer and Treasurer
Current Executive Officer Group............ -- 100,000 -- 0 -- 0
Non-Executive Officer Director Group....... -- 0 -- 25,000 -- 0
Non-Executive Officer Employee Group....... -- 255,964 -- 0 -- 36,036
</TABLE>

- ---------------
(1) Dollar value is dependent upon the future share price of the Company's
Common Stock. The grants, when issued, will have an exercise price equal to
the closing price of the Common Stock on the date of the annual
stockholders' meeting.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

Executive Compensation Program. The role of the Compensation Committee
(the "Compensation Committee") is to recommend, establish, oversee and direct
the Company's executive compensation policies and programs and to recommend to
the Board of Directors compensation for executive officers. In carrying out this
role, we believe it is important to align executive compensation with Company
values and objectives, business strategies, management initiatives, business
financial performance and enhanced stockholder value.

Our Compensation Committee is comprised of independent outside directors,
none of whom is or was an officer or employee of the Company or its
subsidiaries. Periodically we solicit and receive recommendations and advice
from independent third-party compensation consultants who have acted in this
capacity since 1994.

Our executive compensation program is designed to attract and retain key
executives with outstanding abilities and to motivate them to perform to the
full extent of their abilities. We believe that executives should have a greater
portion of their compensation at risk than other employees, and that executive
compensation should be tied directly to the performance of the business and be
aligned with benefits realized by the Company's stockholders.

Compensation for Company executives consists of both cash and equity-based
opportunities. The annual cash compensation consists of (i) base salary and (ii)
annual incentive opportunity. Equity-based opportunities are provided on a
long-term basis through the Company's stock option plans.

The Compensation Committee's compensation consultants have advised that the
salaries when coupled with annual incentive awards paid to the Company's chief
executive officer and other executive officers are consistent with industry
competitive practices. In making this determination, the consultants analyzed
the compensation payable at the pharmaceutical wholesale distribution companies
included in the Peer Group Index described in the discussion of Stockholder
Return Performance below, and also relied upon survey data covering a broader
range of wholesale and distribution companies. The Compensation Committee has
reviewed the base salaries of executive officers making adjustments that, in its
judgment, are appropriate. The Compensation Committee reviews executive officer
salaries annually, to make adjustments based on

15
<PAGE> 18

judgments of past performance, changed job duties, scope and responsibilities,
competitive pay data and expected future contributions of each executive
officer.

The Compensation Committee also oversees the Company's annual incentive
payments to executive officers. Each year we establish challenging objectives
based on business prospects for that year. For Messrs. McNamara, Yost, Flowers
and Hilzinger, and for the other senior members of management, annual incentive
opportunities are based on achieving both current financial performance
objectives and individual strategic and operating objectives related to
longer-term earnings, with greater weight given to the current financial
performance objectives. Following the end of each fiscal year, after completion
of the audit of the Company's financial statements, the Compensation Committee
reviews business results and individual performance of each executive officer
and each senior member of management, and determines and recommends to the Board
of Directors annual incentive payments. In 1996, the Company exceeded its
financial performance goals. Strategic and operating objectives were met by
Messrs. McNamara, Yost, Flowers and Hilzinger as well. Consequently, Messrs.
McNamara, Yost, Flowers and Hilzinger earned their bonuses attributable to their
respective financial objectives and to their strategic and operating objectives.

The Company's long-term equity-based 1995 Option Plan was approved by the
Company's Board of Directors in February 1995 and approved by the stockholders
in March 1995, prior to the Company's public offering of its Common Stock. The
Compensation Committee oversees the 1995 Option Plan for executives. The 1995
Option Plan consists of non-qualified stock option grants, generally to be made
only at one time each year. The Compensation Committee believes that grants made
under the 1995 Option Plan will focus executives on increasing stockholder
value. A total of 92,000 options were granted pursuant to the 1995 Option Plan
to the named executive officers in fiscal year 1996 as follows: 40,000 shares to
Mr. McNamara; 20,000 shares to Mr. Flowers; 20,000 shares to Mr. Yost; and
12,000 shares to Mr. Hilzinger. See "Management -- Stock Options." These awards
were within the range that the Compensation Committee's compensation consultants
advised was reasonable for executive officers at the time.

The Company's long-term equity-based 1996 Option Plan (Proposal 3 herein)
was approved by the Company's Board of Directors in November 1996, subject to
stockholder approval. The Compensation Committee shall oversee the 1996 Option
Plan for executives. The 1996 Option Plan shall consist of non-qualified stock
option grants, generally to be made only at one time each year. The Compensation
Committee believes that grants made under the 1996 Option Plan will focus
executives on increasing stockholder value.

Management has initiated new stock ownership guidelines to support the
objective of closely aligning the interests of management level employees with
those of stockholders. The guidelines provide that within two fiscal years,
senior management members should attain an investment position in AmeriSource
stock that is equal to one to five times their base salary, depending on the
position of the executive.

1996 Chief Executive Officer Compensation. The Compensation Committee
determined the 1996 compensation for John F. McNamara, in accordance with the
above discussion.

Deductibility of Compensation. Section 162(m) of the Internal Revenue Code
imposes a $1 million limit on the deductibility of compensation paid to certain
executive officers of public companies, unless the compensation meets certain
requirements for "performance based" compensation. The Compensation Committee
believes that all of the compensation awarded to the Company's executive
officers will be fully deductible in accordance with these rules.
COMPENSATION COMMITTEE
Richard C. Gozon, Chairman
Bruce C. Bruckmann
Michael A. Delaney
James A. Urry

16
<PAGE> 19

COMPENSATION OF DIRECTORS

Directors who are full-time employees of the Company receive no additional
compensation for services as a director. Each outside director of the Company is
paid an annual fee of $15,000 for services as a director of the Company, plus an
additional fee of $1,000 for attendance in person 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 Health Corporation
Non-Employee Directors Stock Option Plan (the "1995 Directors Plan") and upon
its approval by the stockholders, the 1996 Directors Plan. The 1995 Directors
Plan provides for non-discretionary, automatic grants on an annual basis of an
option to purchase shares of Common Stock to certain non-employee directors who
are not affiliates of VPI. Such options become fully exercisable on the first
anniversary of their respective grant dates, except for options under the
initial grant, which become fully exercisable on the third anniversary of their
grant date. The option exercise price is equal to 100% of the fair market value
of the Common Stock on the date of grant of the option. An aggregate of 50,000
shares of Common Stock have been reserved for issuance under the 1995 Directors
Plan. Options granted to directors under the 1995 Directors Plan are treated as
nonstatutory stock options under the Code. The 1995 Directors Plan is
administered by a committee of disinterested directors.

The 1995 Directors Plan permits, 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 option
holder, 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 Directors Plan permits 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 1995 Directors
Plan at any time; provided, however, that stockholder approval is required for
any amendment to the 1995 Directors 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 1995 Plan. However, no action by the
Board of Directors or stockholders may alter or impair any option previously
granted to an option holder without such option holder's consent.

During fiscal year 1996, the Company made the grant of stock options under
the 1995 Directors Plan as follows: Messrs. Bruckmann, Gozon, Karlson, Strong
and Winokur were each granted options to purchase 5,000 shares of Common Stock
at $28.00 per share, all of which were outstanding and none of which were
exercisable at September 30, 1996.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries. To the Company's knowledge,
there were no other relationships involving members of the Compensation
Committee requiring disclosure in this section of this Proxy Statement.

17
<PAGE> 20

MANAGEMENT

EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------------------------------- --- ------------------------------------------------------
<S> <C> <C>
John F. McNamara...................... 61 Chairman, President and Chief Executive Officer
David M. Flowers...................... 49 Executive Vice President, Marketing
R. David Yost......................... 49 Executive Vice President, Operations
Kurt J. Hilzinger..................... 36 Vice President, Chief Financial Officer and Treasurer
</TABLE>

Mr. McNamara is described above as a nominee for director.

Mr. Flowers has been Executive Vice President, Marketing since December
1995. Prior to that he held the position of Group President -- Eastern Region
since 1989.

Mr. Yost has been Executive Vice President, Operations since December 1995.
Prior to that he held the position of Group President -- Central Region since
1989.

Mr. Hilzinger has served as Vice President, Chief Financial Officer and
Treasurer since February 1995. Prior to that he served as Vice President,
Finance, and Treasurer since October 1993, and as Vice President, Financial
Planning since March 1991.

There are no arrangements or understandings between any of the officers and
any other person pursuant to which he was elected an officer. There are no
family relationships between any director, executive officer, or nominee for
director.

SUMMARY COMPENSATION OF NAMED EXECUTIVE OFFICERS

The following table sets forth, for fiscal years ending September 30, 1994,
1995, and 1996, 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 named executive officers of the Company, in all capacities in
which they served:

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------- -------------------------------------
AWARDS PAYOUTS
OTHER ------------------------ ----------
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSA- STOCK UNDERLYING LTIP COMPENSA-
POSITION YEAR SALARY($) BONUS($)(1) TION($) AWARD(S)($) OPTIONS(#) PAYOUTS($) TION($)
- ------------------------- ---- --------- ----------- --------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. McNamara......... 1996 444,600 440,000 -- -- 40,000 -- 56,703(2)
Chairman, President and 1995 414,780 250,000 -- -- 100,000 -- (2)
Chief Executive
Officer.............. 1994 396,609 200,000 -- -- -- -- (2)
David M. Flowers......... 1996 224,600 200,000 -- -- 20,000 -- (3)
Executive Vice
President, 1995 202,145 110,000 -- -- 65,000 -- (3)
Marketing 1994 169,430 100,000 -- -- -- -- (3)
R. David Yost............ 1996 238,350 235,000 -- -- 20,000 -- (4)
Executive Vice
President, 1995 212,235 125,000 -- -- 65,000 -- 10,759(4)
Operations 1994 179,790 100,000 -- -- -- -- 8,704(4)
Kurt J. Hilzinger........ 1996 160,167 150,000 -- -- 12,000 -- 5,842(5)
Vice President, Chief 1995 140,000 80,000 -- -- 40,000 -- 6,500(5)
Financial Officer and 1994 137,833 65,000 -- -- -- -- 985(5)
Treasurer
</TABLE>

- ---------------
(1) The amounts shown consist of cash bonuses earned in the fiscal year
identified but paid in the subsequent fiscal year.

18
<PAGE> 21

(2) "All Other Compensation" for Mr. McNamara in 1996, 1995, and 1994,
respectively, includes the following: (i) $698, $40,675 and $967 in club
dues, (ii) $4,900, $1,350 and $1,450 in tax return preparation fees, (iii)
$5,400, $6,750 and $4,497 in contributions under the Company's Employee
Investment Plan, (iv) $6,206, $2,438 and $1,554 for spousal travel expenses,
(v) for fiscal 1996 and 1995, respectively, $5,125 and $2,708 for personal
use of a Company-owned condominium and (vi) $34,374 in fiscal 1996 for
premiums for a life insurance policy.
(3) "All Other Compensation" for Mr. Flowers in 1996, 1995, and 1994,
respectively, includes the following: (i) $7,885, $6,345 and $4,175 in club
dues, (ii) $5,400, $6,750 and $4,497 in contributions under the Company's
Employee Investment Plan, (iii) for fiscal 1994, $150 for spousal travel
expenses, (iv) for fiscal 1996, $22,600 in premiums paid for a split dollar
life insurance policy, and (v) for fiscal 1996, $750 in miscellaneous items.
(4) "All Other Compensation" for Mr. Yost in 1996, 1995, and 1994, respectively,
includes the following: (i) $2,421, $2,209 and $2,311 in club dues, (ii)
$1,900, $1,800 and $1,850 in tax return preparation fees, (iii) $5,400,
$6,750 and $4,497 in contributions under the Company's Employee Investment
Plan, (iv) for fiscal 1996 and 1994, respectively, $144 and $46 for spousal
travel expenses, (v) for fiscal 1996, $22,600 in premiums for a split dollar
life insurance policy, and (vi) for fiscal 1996, $2,079 in miscellaneous
items.
(5) "All Other Compensation" for Mr. Hilzinger in 1996, 1995 and 1994,
respectively, includes the following: (i) $5,172, $6,300 and $985 in
contributions under the Company's Employee Investment Plan, (ii) in fiscal
1995, $200 in club dues, and (iii) in fiscal 1996, $670 for spousal travel
expenses.

STOCK OPTIONS

OPTION GRANTS IN FISCAL YEAR 1996

The following table sets forth certain information with respect to options
granted to and exercised by the named executive officers of the Company during
fiscal year 1996. The information set forth in these tables relates to options
granted to and exercised by the named executive officers of the Company to
purchase shares of Common Stock under the 1995 Option Plan.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS EXERCISE
OPTIONS/ GRANTED TO OR BASE
SARS EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE PRESENT VALUE($)(2)
- ----------------------------------------- ----------- ------------- -------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
John F. McNamara......................... 40,000 14.93% $28.00 March 1, 2002 475,600
David M. Flowers......................... 20,000 7.46% $28.00 March 1, 2002 237,800
R. David Yost............................ 20,000 7.46% $28.00 March 1, 2002 237,800
Kurt J. Hilzinger........................ 12,000 4.48% $28.00 March 1, 2002 142,680
</TABLE>

- ---------------
(1) The Options granted under the 1995 Option Plan become exercisable at a rate
of 25% each year, beginning March 1, 1997.

(2) Present values were calculated using the Black-Scholes American option
valuation method. The actual value, if any, that an executive officer may
receive is dependent on the excess of the stock price over the exercise
price. Use of this model should not be viewed as a forecast of the future
performance of the Company's stock price. The estimated grant date present
value of each stock option is $11.89 based on the following defined option
terms and assumptions: (a) a stock price of $28.00; (b) an exercise price of
$28.00; (c) a term of 6 years; (d) a risk-free interest rate of 6.03%, which
represents the yield on Treasury Bonds with maturity dates corresponding to
that of the options; (e) a dividend yield of 0% representing the stock's
current yield; (f) a stock price volatility rate of .398, which reflects how
much the

19
<PAGE> 22

stock price varied on a daily basis since the initial public offering of the
Company's Common Stock on April 4, 1995; and (g) a discount of 12.5% to
represent the 25% per year vesting provision of the options.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information regarding the number of
exercised options and the value of unexercised in-the-money options held by the
named executive officers of the Company as of September 30, 1996.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END (#) AT FY-END ($)
VALUE -------------- ------------------
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE (1)
- ----------------------------------------------- --------------- -------- -------------- ------------------
<S> <C> <C> <C> <C>
John F. McNamara............................... 0 0 25,000/115,000 587,500/2,422,500
David M. Flowers............................... 0 0 16,250/ 68,750 381,875/1,475,625
R. David Yost.................................. 0 0 16,250/ 68,750 381,875/1,475,625
Kurt J. Hilzinger.............................. 0 0 10,000/ 42,000 235,000/ 903,000
</TABLE>

- ---------------
(1) Value calculated as the difference between the fair market value of the
Common Stock on September 30, 1996 and the option exercise price.

PENSION PLANS

AMERISOURCE CORPORATION PARTICIPATING COMPANIES PENSION PLAN. AmeriSource
has a pension plan providing for continuation of pension benefit coverage for
salaried sales and office employees of AmeriSource previously covered under Alco
Standard's Participating Companies Pension Plan. The pension plan also covers
other salaried, sales, and office employees of AmeriSource who meet the plan's
eligibility requirements. Under AmeriSource's pension plan, the executive
officers compensated by AmeriSource are entitled to annual pension benefits at
age 65 equal to the number of years of credited service multiplied by 1% of
average annual compensation earned during the consecutive three years within the
last ten years of participation in the pension plan which yield the highest
average.

All pension plan costs are paid by AmeriSource and the pension plan, and
benefits are funded on an actuarial basis. Compensation earned by executive
officers for purposes of the plan includes salaries and bonuses set forth in the
cash compensation table under "Summary Compensation Table" above, except that
compensation recognized under the plan may not exceed certain limits, as
required by the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Code. For 1996, the compensation limit was $150,000.

The years of credited service (with AmeriSource, predecessor companies or
Alco Standard) as of October 1, 1996 for each of the named executive officers of
the Company were John F. McNamara -- 15.00 years; David M. Flowers -- 20.75
years; R. David Yost -- 22.08 years; and Kurt J. Hilzinger -- 5.58 years.

As required by ERISA and the Code, the pension plan limits the maximum
annual benefits payable at Social Security retirement age as a single life
annuity to the lesser of $90,000, with cost-of-living adjustments, or 100% of a
plan participant's average total taxable earnings during his highest three
consecutive calendar years of participation, subject to certain exceptions for
benefits which accrued prior to September 30, 1988. For 1995, the annual benefit
limit was $120,000.

SUPPLEMENTAL RETIREMENT PLAN. AmeriSource also has a Supplemental
Retirement Plan (the "Supplemental Plan"). Coverage under the Supplemental Plan
is limited to participants in AmeriSource's pension

20
<PAGE> 23

plan whose benefits under the pension plan are limited due to (a) restrictions
imposed by the Code on the amount of benefits to be paid from a tax-qualified
plan, (b) restrictions imposed by the Code on the amount of an employee's
compensation that may be taken into account in calculating benefits to be paid
from a tax-qualified plan, or (c) any reductions in the amount of compensation
taken into account under the pension plan due to an employee's participation in
certain deferred compensation plans sponsored by AmeriSource or one of its
subsidiaries. The Supplemental Plan provides for a supplement to the annual
pension benefit paid under AmeriSource's pension plan to participants who attain
early or normal retirement under such pension plan or who suffer a total and
permanent disability while employed by AmeriSource or one of its subsidiaries
and to the pre-retirement death benefits payable under the pension plan on
behalf of such participants who die with a vested interest in AmeriSource's
pension plan. The amount of the supplement will be the difference, if any,
between the pension or pre-retirement death benefit paid under AmeriSource's
pension plan and that which would otherwise have been payable but for the
restrictions imposed by the Code and any reduction in the participant's
compensation for purposes of AmeriSource's pension plan due to his participation
in certain deferred compensation plans of AmeriSource or one of its
subsidiaries.

The following table shows estimated annual retirement benefits that would
be payable to participants under AmeriSource's pension plan and, if applicable,
the Supplemental Plan, upon normal retirement at age 65 under various
assumptions as to final average annual compensation and years of credited
service and on the assumption that benefits will be paid in the form of a single
life annuity. The benefit amounts listed are not subject to any deduction for
Social Security benefits.

ESTIMATED ANNUAL RETIREMENT BENEFITS ($)

<TABLE>
<CAPTION>
FINAL AVERAGE
COMPENSATION 10 20 30 35
-------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
100,000.................................... 10,000 20,000 30,000 35,000
150,000.................................... 15,000 30,000 45,000 52,500
200,000.................................... 20,000 40,000 60,000 70,000
250,000.................................... 25,000 50,000 75,000 87,500
300,000.................................... 30,000 60,000 90,000 105,000
500,000.................................... 50,000 100,000 150,000 175,000
600,000.................................... 60,000 120,000 180,000 210,000
700,000.................................... 70,000 140,000 210,000 245,000
800,000.................................... 80,000 160,000 240,000 280,000
900,000.................................... 90,000 180,000 270,000 315,000
1,000,000................................... 100,000 200,000 300,000 350,000
</TABLE>

OTHER FORMS OF COMPENSATION

EMPLOYEE INVESTMENT PLAN. In fiscal year 1986, AmeriSource adopted a stock
participation plan pursuant to Section 401(k) of the Code, which plan was
amended and restated as a 401(k) Employee Investment Plan (the "EIP") effective
January 1, 1989. Participation in the EIP is generally available to salaried,
office, sales and certain hourly employees of AmeriSource. As of December 31,
1995, participation in the EIP was available to approximately 1,824 employees,
of whom approximately 1,310 were participants. A participant may contribute to
the EIP between 2% and 6% of his or her salary on a "before-tax" basis,
entitling the participant to contributions by his or her employer in an amount
equal to one-half of the participant's contributions. Highly compensated
employees, as defined by the Code, may receive matching employer contributions
of less than one-half of their participant contributions made after April 1,
1993. An additional employer matching contribution, in an amount to be
determined by AmeriSource but not to exceed one-half of the participant's
contributions, may be made to the EIP. The combined amount of employer matching
contributions for the plan year ending December 31, 1995 was 60% of each
participant's contribution. For calendar year 1995, a participant's
contributions could not exceed $9,240. The cost of the matching employer
contributions is ultimately charged to the division or subsidiary of AmeriSource
employing the participant. Matching employer contributions to the EIP are held
in trust and vest to the benefit of the participant over a

21
<PAGE> 24

period of five years, measured from the date the participant's employment
commenced (as long as the participant continues as an employee). The EIP is
administered by trustees who have selected six mutual funds managed by Fidelity
Investments and AmeriSource Health Corporation common stock among which
participants may direct the investment of their entire account balances.

DEFERRED COMPENSATION PLAN. In September 1985, AmeriSource adopted a
deferred compensation plan (the "1985 Deferred Compensation Plan") which
permitted eligible employees of AmeriSource to defer a portion of their
compensation during a period of up to 48 months after October 1, 1985 and, in
return, to receive retirement or survivor benefits, and in certain
circumstances, disability benefits. The amount of the benefits the participant
will be entitled to receive is based on the total number of years the
participant remains employed by AmeriSource or an affiliated company. A
participant's interest in the benefits vests over a period of five years. Mr.
McNamara is a participant in the 1985 Deferred Compensation Plan. Assuming Mr.
McNamara retires from employment with AmeriSource at or after age 65, his
monthly retirement benefits under the 1985 Deferred Compensation Plan would be
$2,901, payable over a 15-year period.

AGREEMENTS WITH EMPLOYEES

The Company intends to offer employment contracts to Messrs. McNamara,
Flowers and Yost. 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 the employment contract. The contracts may also
provide for acceleration of all or a portion of the employee's Company 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, Flowers, Yost and Hilzinger. The agreements provide that the employee
will not (i) during the course of employment by the Company 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.

STOCKHOLDER RETURN PERFORMANCE

The following graph compares the percentage change in cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return of the Standard & Poor's 500 Index and an index of peer companies
selected by the Company (the "Peer Group Index") from the market close on April
4, 1995 to September 30, 1996. April 4, 1995 is the first trading date on which
the Company's Common Stock was registered under Section 12 of the Exchange Act.
Cumulative total return to stockholders is measured by dividing (x) the sum of
(i) total dividends for the period (assuming dividend reinvestment) plus (ii)
per-share price change for the period by (y) the share price at the beginning of
the period. The graph is based on an investment of $100 at the market close on
April 4, 1995 in the Common Stock and in each index.

22
<PAGE> 25

COMPARISON OF 18 MONTH CUMULATIVE TOTAL RETURN*
AMONG AMERISOURCE HEALTH CORPORATION, THE S & P 500 INDEX
AND A PEER GROUP

<TABLE>
<CAPTION>
AMERISOURCE
MEASUREMENT PERIOD HEALTH COR-
(FISCAL YEAR COVERED) PORATION PEER GROUP S & P 500
<S> <C> <C> <C>
4/04/95 100 100 100
9/95 129 110 117
8/96 212 133 141
</TABLE>

* $100 INVESTED ON 4/04/95 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS,
FISCAL YEAR ENDING SEPTEMBER 30.

The Peer Group Index (which is weighted on the basis of market
capitalization) consists of the Company and the following companies which were
engaged primarily in the wholesale drug distribution business: Bergen Brunswig
Corporation, Bindley Western Industries, Inc., Cardinal Health, Inc., Foxmeyer
Health Corporation, McKesson Corporation, and Owens & Minor, Inc.

CERTAIN RELATIONSHIPS AND TRANSACTIONS

During fiscal year 1996, Dechert Price & Rhoads performed, and currently
does perform, legal services for the Company. Barton J. Winokur, Chairman of
Dechert Price & Rhoads and a director of the Company, owns 19,750 shares of the
Common Stock of the Company.

In May 1996, the Company completed a public offering of 4,800,000 shares of
Common Stock at a price of $35.00 per share. Of the 4,800,000 shares sold,
1,500,000 were sold by the Company and 3,300,000 shares were sold by VPI. The
Company did not receive any of the proceeds from the shares sold by VPI. The net
proceeds of $49.3 million from the 1,500,000 shares sold by the Company were
used to repay long-term debt.

INDEPENDENT PUBLIC AUDITORS

Since 1988, the Company has retained Ernst & Young LLP as its independent
public auditors and it intends to retain Ernst & Young LLP for the current year
ending September 30, 1997. Representatives of Ernst & Young LLP are expected to
be present at the Annual Meeting, and such representatives will have an
opportunity at the Annual Meeting to make a statement if they desire to do so
and will be available to respond to appropriate questions.

23
<PAGE> 26

COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities (the "10% Stockholders") to file reports of
ownership and changes in ownership of Common Stock and other equity securities
of the Company with the Securities and Exchange Commission (the "SEC") and the
New York Stock Exchange. Officers, directors and 10% Stockholders are required
by SEC regulation to furnish the Company with copies of all forms they file
under Section 16(a). Based solely on its review of the copies of such forms
received by it and written representations from certain reporting persons that
no other reports were required from those persons, the Company believes that
during the period October 1, 1995 through September 30, 1996, its officers,
directors and 10% Stockholders complied with all applicable Section 16(a) filing
requirements, except that Mr. Yost inadvertently filed a Statement of Changes in
Beneficial Ownership on Form 4 for the month of July 1996, reflecting a
disposition of shares of the Company's Common Stock, after the applicable filing
period.

1998 STOCKHOLDER PROPOSALS

In the event that a stockholder desires to have a proposal included in the
proxy statement and form of proxy for the Annual Meeting of Stockholders to be
held in 1998, the proposal must be received by the Company in writing on or
before October 14, 1997, by certified mail, return receipt requested, and must
comply in all respects with applicable rules and regulations of the Securities
and Exchange Commission, the laws of the State of Delaware, and the By-Laws of
the Company relating to such inclusion. Stockholder proposals may be mailed to
the Secretary, AmeriSource Health Corporation, P.O. Box 959, Valley Forge, PA
19482.

ANNUAL REPORT ON FORM 10-K

A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR
ENDED SEPTEMBER 30, 1996 MAY BE OBTAINED, WITHOUT CHARGE, BY ANY STOCKHOLDER,
UPON WRITTEN REQUEST DIRECTED TO INVESTOR RELATIONS DEPARTMENT, AMERISOURCE
HEALTH CORPORATION, P.O. BOX 959, VALLEY FORGE, PA 19482.

OTHER BUSINESS

The Company is not aware of any other business to be presented at the 1997
Annual Meeting of Stockholders. If any other matter should properly come before
the Annual Meeting, however, the enclosed proxy confers discretionary authority
with respect thereto.

By order of the Board of Directors,

/s/ TERESA T. CICCOTELLI
----------------------------------
TERESA T. CICCOTELLI
Vice President, General Counsel and
Secretary

Dated: January 15, 1997
Malvern, Pennsylvania

24
<PAGE> 27

APPENDIX A

1996 AMENDMENT TO THE
AMERISOURCE HEALTH CORPORATION
1995 STOCK OPTION PLAN

1. Section 6.06, "Mandatory Holding Period After Exercise," is hereby
deleted in its entirety.

2. Section 9.08 is amended by revising the first sentence to read as
follows:

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 (A)
such Holder is employed by the Company on the first anniversary date of the
Change in Control, (B) such Holder's employment is subsequently terminated
by the Company other than for Cause during the one-year period following
such Change in Control, (C) 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, or (D) such Holder's
employment with the Company terminates on account of death or disability
(as determined by the Committee) during the one-year period following the
Change in Control.

A-1
<PAGE> 28

APPENDIX B

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.

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.

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.

B-1
<PAGE> 29

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.

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
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 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 interest and shall be full recourse.

B-2
<PAGE> 30

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
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 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 been 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.

B-3
<PAGE> 31

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 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 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 30, 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

B-4
<PAGE> 32

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.

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.

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 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 laws 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

B-5
<PAGE> 33

(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 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.

B-6
<PAGE> 34

APPENDIX C

AMERISOURCE HEALTH CORPORATION
1996 EMPLOYEE STOCK OPTION PLAN

The purpose of the AmeriSource Health Corporation 1996 Stock Option Plan
(the "Plan") is to provide designated employees of AmeriSource Health
Corporation (the "Company") and its subsidiaries with the opportunity to receive
grants of nonqualified stock options. The Company believes that the Plan will
encourage the participants to contribute materially to the growth of the
Company, thereby benefitting the Company's shareholders, and will align the
economic interests of the participants with those of the shareholders.

1. ADMINISTRATION

(a) Committee. The Plan shall be administered and interpreted by a
committee (the "Committee"), which shall consist of two or more persons
appointed by the Board of Directors of the Company (the "Board"), all of whom
shall be "outside directors", as defined under section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and related Treasury regulations,
and "non-employee directors", as defined under Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act").

(b) Committee Authority. The Committee shall have the sole authority to
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv)
condition grants on the individual's execution of a non-compete, non-disclosure
or other agreement deemed appropriate by the Committee, and (v) deal with any
other matters arising under the Plan.

(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.

2. OPTIONS

Awards under the Plan shall consist of grants of nonqualified stock options
that are not intended to qualify as "incentive stock options" within the meaning
of section 422 of the Code ("Options" or "Nonqualified Stock Options"), as
described in Section 5. All Options shall be subject to the terms and conditions
set forth herein and to such other terms and conditions consistent with this
Plan as the Committee deems appropriate and as are specified in writing by the
Committee to the individual in a grant instrument (the "Option Instrument") or
an amendment to the Option Instrument. The Committee shall approve the form and
provisions of each Option Instrument. Options need not be uniform as among the
grantees.

3. SHARES SUBJECT TO THE PLAN

(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 797,000 shares, and the maximum
aggregate number of shares of Company Stock that shall be subject to Options
granted under the Plan to any individual during any calendar year shall be
100,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including

C-1
<PAGE> 35

shares purchased by the Company on the open market for purposes of the Plan. If
and to the extent Options granted under the Plan terminate, expire, or are
canceled, forfeited, exchanged or surrendered without having been exercised, the
shares subject to such Options shall again be available for purposes of the
Plan.

(b) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Options, the maximum number of shares of Company Stock for
which any individual participating in the Plan may receive Options in any year,
the number of shares covered by outstanding Options, the kind of shares issued
under the Plan, and the price per share of Options may be appropriately adjusted
by the Committee to reflect any increase or decrease in the number of, or change
in the kind or value of, issued shares of Company Stock to preclude, to the
extent practicable, the enlargement or dilution of rights and benefits under
such Options; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.

4. ELIGIBILITY FOR PARTICIPATION

(a) Eligible Persons. All employees of the Company and its subsidiaries
("Employees"), including Employees who are officers or members of the Board,
shall be eligible to participate in the Plan.

(b) Selection of Grantees. The Committee shall select the Employees to
receive Options and shall determine the number of shares of Company Stock
subject to a particular Option in such manner as the Committee determines.
Employees who receive Options under this Plan shall hereinafter be referred to
as "Grantees".

5. GRANT OF OPTIONS

(a) Number of Shares. The Committee shall determine the number of shares
of Company Stock that will be subject to each grant of Options to Employees.

(b) Exercise Price.

(i) The purchase price (the "Exercise Price") of Company Stock subject
to an Option shall be determined by the Committee and shall not be less
than the Fair Market Value (as defined below) of a share of Company Stock
on the date the Option is granted or on the date the Plan is approved by
the Stockholders, whichever last occurs.

(ii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or
the Nasdaq National Market, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest
preceding date on which a sale was reported, or (y) if the Company Stock is
not principally traded on such exchange or market, the mean between the
last reported "bid" and "asked" prices of Company Stock on the relevant
date, as reported on Nasdaq or, if not so reported, as reported by the
National Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee determines.
If the Company Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.

C-2
<PAGE> 36

(c) Option Term. The Committee shall determine the term of each Option,
which shall not exceed ten years from the date of grant.

(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Option Instrument or an
amendment to the Option Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.

(e) Termination of Employment, Disability or Death.

(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by the Company as an Employee. In the event that a
Grantee ceases his or her employment with the Company for any reason other
than a "disability" (as defined below), death, or "termination for cause"
(as defined below), any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on
which the Grantee ceases his or her employment with the Company (or within
such other period of time as may be specified by the Committee), but in any
event no later than the date of expiration of the Option term. Any of the
Grantee's Options that are not exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such
date, unless the Committee determines otherwise.

(ii) In the event the Grantee ceases his or her employment with the
Company on account of a "termination for cause" by the Company, any Option
held by the Grantee shall terminate as of the date the Grantee ceases to be
employed by the Company.

(iii) In the event the Grantee's employment terminates because the
Grantee is "disabled", any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within one year after the date on
which the Grantee ceases to be employed by the Company (or within such
other period of time as may be specified by the Committee), but in any
event no later than the date of expiration of the Option term. Any of the
Grantee's Options which are not exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such
date, unless the Committee determines otherwise.

(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed on account
of a termination specified in Section 5(e)(i) above (or within such other
period of time as may be specified by the Committee), any Option that is
otherwise exercisable by the Grantee shall terminate unless exercised
within one year after the date on which the Grantee ceases his or her
employment with the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date of
expiration of the Option term. Any of the Grantee's Options that are not
exercisable as of the date on which the Grantee ceases to be employed by
the Company shall terminate as of such date, unless the Committee
determines otherwise.

(v) For purposes of this Section 5(e) and Section 9(a):

(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations.

(B) "Disability" shall mean a Grantee's becoming disabled within
the meaning of section 22(e)(3) of the Code.

(vi) For purposes of this Section 5(e), "termination for cause" shall
mean, except to the extent specified otherwise by the Committee, a finding
by the Committee that the Grantee has breached his or her employment or
service contract with the Company, or has been engaged in disloyalty to the
Company, including, without limitation, fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment or service, or has disclosed trade secrets or confidential
information of the Company to persons not entitled to receive such
information. In the event a Grantee's

C-3
<PAGE> 37

employment is terminated for cause, in addition to the immediate
termination of all Options, the Grantee shall automatically forfeit all
shares underlying any exercised portion of an Option for which the Company
has not yet delivered the share certificates, upon refund by the Company of
the Exercise Price paid by the Grantee for such shares.

(f) Exercise of Options. A Grantee may exercise an Option that has become
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price in cash. Subject to Committee
consent, a Grantee may pay the Exercise Price for an Option through a broker in
accordance with procedures established by the Committee consistent with
Regulation T of the Federal Reserve Board. The Grantee shall pay the Exercise
Price and the amount of any withholding tax due (pursuant to Section 6) at the
time of exercise. Shares of Company Stock shall not be issued upon exercise of
an Option until the Exercise Price is fully paid and any required tax
withholding is made.

6. WITHHOLDING OF TAXES

(a) Required Withholding. All Options under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require the Grantee or other person receiving such
shares to pay to the Company the amount of any such taxes that the Company is
required to withhold with respect to such Options, or the Company may deduct
from other compensation payable by the Company the amount of any withholding
taxes due with respect to such Options.

(b) Election to Withhold Shares. If the Committee so permits, a Grantee
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option by having shares withheld up to an amount that does not
exceed the Grantee's maximum marginal tax rate for federal (including FICA),
state and local tax liabilities. The election must be in a form and manner
prescribed by the Committee and shall be subject to the prior approval of the
Committee.

7. TRANSFERABILITY OF OPTIONS

(a) Nontransferability of Options. Except as provided below, only the
Grantee or his or her authorized representative may exercise rights under an
Option. A Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, if permitted under Rule 16b-3 of the Exchange Act
and if permitted by the Committee, pursuant to a domestic relations order (as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the regulations thereunder). When a Grantee dies, the
personal representative or other person entitled to succeed to the rights of the
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the
Option under the Grantee's will or under the applicable laws of descent and
distribution.

(b) Permitted Transfer of Options. Notwithstanding the foregoing, the
Committee may provide, in an Option Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members or other persons or entities
according to such terms as the Committee may determine.

8. CHANGE OF CONTROL OF THE COMPANY

As used herein, a "Change of Control" shall be deemed to have occurred if:

(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) (other than 399 Venture Partners, Inc. or its affiliates) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing more than 35%
of the voting power of the then outstanding securities of the Company, and such
person owns more aggregate voting

C-4
<PAGE> 38

power of the Company's then outstanding securities entitled to vote generally in
the election of directors than any other person;

(b) The shareholders of the Company approve (or, if shareholder approval is
not required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to 50% or more of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other disposition of all
or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company; or

(c) After the date this Plan is approved by the shareholders of the
Company, directors are elected such that a majority of the members of the Board
shall have been members of the Board for less than two years, unless the
election or nomination for election of each new director who was not a director
at the beginning of such two-year period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period.

9. CONSEQUENCES OF A CHANGE OF CONTROL

(a) Notice and Acceleration.

(i) Upon a Change of Control, the Company shall provide each Grantee
who holds outstanding Options written notice of the Change of Control.

(ii) Upon a Change of Control, each outstanding Option shall become
fully exercisable, provided that (i) the Grantee is employed by the Company
at the time of the Change of Control and (ii) either (A) the Grantee is
employed by the Company on the first anniversary of the Change of Control,
(B) the Grantee's employment is terminated by the Company, other than for
"cause" (as defined below), during the one year period following the Change
of Control, (C) the Grantee voluntarily terminates employment with the
Company during the one year period following the Change of Control as a
result of a "constructive termination" (as defined below), or (D) the
Grantee's employment with the Company terminates on account of death or
disability (as defined in Section 5(e)) during the one year period
following the Change of Control. Any portion of an Option that would not be
exercisable after a Change of Control but for the provisions of the
preceding sentence may be exercised after the conditions of the preceding
sentence have been met.

(iii) For purposes of this Section, "cause" means willful misconduct
or dishonesty, or conviction of or failure to contest prosecution for a
felony, or excessive absenteeism unrelated to illness.

(iv) For purposes of this Section, "constructive termination" will
occur if the Company (a) requires the Grantee to assume duties inconsistent
with, or the Company makes a significant diminution or reduction in the
nature or scope of the Grantee's authority or duties from, the authorities
or duties assigned to or held by the Grantee during the 30 days immediately
prior to the Change of Control, (b) materially reduces the Grantee's base
salary, incentive compensation opportunities or fringe benefits, or (c)
relocates the Grantee's site of employment to a location more than 50 miles
away from the Grantee's site of employment 30 days immediately before the
Change of Control.

(v) Notwithstanding the foregoing, a Grantee shall be eligible to
exercise Options both before and after a Change of Control to the full
extent otherwise permitted under the Plan.

(b) Assumption of Options. Upon a Change of Control described in Section
8(b)(i) where the Company is not the surviving corporation (or survives only as
a subsidiary of another corporation), unless the

C-5
<PAGE> 39

Committee determines otherwise, all outstanding Options that are not exercised
shall be assumed by, or replaced with comparable options by, the surviving
corporation.

(c) Other Alternatives. Notwithstanding the foregoing, subject to
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options in exchange for a payment by the
Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's outstanding Options exceeds the Exercise Price of
the Options, or (ii) after giving Grantees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender or termination shall take place
as of the date of the Change of Control or such other date as the Committee may
specify.

(d) Limitations. Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.

10. AMENDMENT AND TERMINATION OF THE PLAN

(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required by Section 162(m) of the Code.

(b) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or unless extended by the Board with the
approval of the shareholders.

(c) Termination and Amendment of Outstanding Options. A termination or
amendment of the Plan that occurs after an Option is granted shall not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 17(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Option. Whether or not the Plan has terminated, an outstanding Option may be
terminated or amended under Section 17(b) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.

(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.

11. FUNDING OF THE PLAN

This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of shares with respect to Options under this Plan.

12. RIGHTS OF PARTICIPANTS

Nothing in this Plan shall entitle any Employee or other person to any
claim or right to be granted an Option under this Plan. Neither this Plan nor
any action taken hereunder shall be construed as giving any individual any
rights to be retained by or in the employ of the Company or any other employment
rights.

C-6
<PAGE> 40

13. NO FRACTIONAL SHARES

No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Option. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.

14. REQUIREMENTS FOR ISSUANCE OF SHARES

No Company Stock shall be issued or transferred in connection with any
Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Option granted to any Grantee hereunder on such Grantee's undertaking in
writing to comply with such restrictions on his or her subsequent disposition of
such shares of Company Stock as the Committee shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation
thereof, and certificates representing such shares may be legended to reflect
any such restrictions. Certificates representing shares of Company Stock issued
under the Plan will be subject to such stop-transfer orders and other
restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.

15. HEADINGS

Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.

16. EFFECTIVE DATE OF THE PLAN.

Subject to the approval of the Company's shareholders, this Plan shall be
effective on November 12, 1996.

17. MISCELLANEOUS

(a) Options in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to grant Options under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Options
granted to employees thereof who become Employees of the Company, or for other
proper corporate purposes, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may grant an Option to an employee of another
corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option grant made by such corporation ("Substituted Stock Incentives"). The
terms and conditions of the substitute grant may vary from the terms and
conditions required by the Plan and from those of the Substituted Stock
Incentives. The Committee shall prescribe the provisions of the substitute
grants.

(b) Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Option if it is contrary to law or modify an Option to bring it
into compliance with

C-7
<PAGE> 41

any valid and mandatory government regulation. The Committee may, in its sole
discretion, agree to limit its authority under this Section.

(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a shareholder with respect to any shares of Company Stock covered by
an Option until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.

(d) Governing Law. The validity, construction, interpretation and effect
of the Plan and Option Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the State of Delaware.

C-8
<PAGE> 42

APPENDIX D

AMERISOURCE HEALTH CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

The purpose of the AmeriSource Health Corporation 1996 Non-Employee
Directors Stock Option Plan (the "Plan") is to provide members of the Board of
Directors (the "Board") of AmeriSource Health Corporation (the "Company") who
are not employees of the Company or its subsidiaries with grants of nonqualified
stock options. The Company believes that the Plan will encourage the
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.

1. ADMINISTRATION

(a) Committee. The Plan shall be administered and interpreted by a
committee (the "Committee"), which shall consist of two or more persons
appointed by the Board, all of whom shall be "non-employee directors", as
defined under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act").

(b) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.

2. OPTIONS

3. SHARES SUBJECT TO THE PLAN

(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 50,000 shares. The shares may be
authorized but unissued shares of Company Stock or reacquired shares of Company
Stock, including shares purchased by the Company on the open market for purposes
of the Plan. If and to the extent Options granted under the Plan terminate,
expire, or are canceled, forfeited, exchanged or surrendered without having been
exercised, the shares subject to such Options shall again be available for
purposes of the Plan.

D-1
<PAGE> 43

consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Options, the number of shares covered by outstanding
Options, the kind of shares issued under the Plan, and the price per share of
Options may be appropriately adjusted by the Committee to reflect any increase
or decrease in the number of, or change in the kind or value of, issued shares
of Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Options; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.

4. ELIGIBILITY FOR PARTICIPATION

All members of the Board who are not employees of the Company or a
subsidiary ("Non-Employee Directors") shall be eligible to participate in the
Plan.

5. GRANT OF OPTIONS

(a) Initial Grant. Each Non-Employee Director who first becomes a member
of the Board after the effective date of this Plan (as specified in Section 15)
shall receive a grant of a Nonqualified Stock Option to purchase 5,000 shares of
Company Stock on the date as of which he or she first becomes a member of the
Board.

(b) Annual Grants. On each date that the Company holds its annual meeting
of shareholders, commencing with the 1998 annual meeting, each Non-Employee
Director who is in office immediately after the annual election of directors
(other than a director who is first elected to the Board at such meeting) shall
receive a grant of a Nonqualified Stock Option to purchase 5,000 shares of
Company Stock. The date of grant of each such annual Option grant after the 1997
annual meeting shall be the date of the annual meeting of the Company's
shareholders. The date of the first grant shall be November 12, 1996, subject to
the approval of the stockholders at the 1997 annual meeting of stockholders.

(c) Exercise Price. The purchase price per share of Company Stock subject
to an Option (the "Exercise Price") shall be equal to the Fair Market Value of a
share of Company Stock on the date of grant or on the date the Plan is approved
by the Stockholders, whichever last occurs. If the Company Stock is publicly
traded, then the Fair Market Value per share shall be determined as follows: (x)
if the principal trading market for the Company Stock is a national securities
exchange or the Nasdaq National Market, the last reported sale price thereof on
the relevant date or (if there were no trades on that date) the latest preceding
date upon which a sale was reported, or (y) if the Company Stock is not
principally traded on such exchange or market, the mean between the last
reported "bid" and "asked" prices of Company Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Committee determines. If the Company Stock is
not publicly traded or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth above, the Fair Market
Value per share shall be as determined by the Committee.

(d) Option Term and Exercisability. The term of each Option shall be ten
years. Options shall be fully exercisable as of the date of grant.

(e) Termination of Employment, Disability or Death.

(i) Except as provided below, an Option may only be exercised while
the Grantee is a member of the Board. If a Grantee ceases to be a member of
the Board for any reason other than "cause" (as defined below), the
Grantee's Options shall terminate unless exercised within one year after
the date on which the Grantee ceases to be a member of the Board, or, if
earlier, the date of expiration of the Option term.

D-2
<PAGE> 44

(ii) If the Grantee ceases to be a member of the Board for "cause",
any Option held by the Grantee shall terminate as of the date the Grantee
ceases to a member of the Board.

(iii) "Cause" shall mean a finding by the Committee that the Grantee
has breached his or her service contract with the Company, or has been
engaged in disloyalty to the Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the
course of his or her service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive
such information. In the event a Grantee ceases to be a member of the Board
for cause, in addition to the immediate termination of all Options, the
Grantee shall automatically forfeit all shares underlying any exercised
portion of an Option for which the Company has not yet delivered the share
certificates, upon refund by the Company of the Exercise Price paid by the
Grantee for such shares.

(f) Exercise of Options. A Grantee may exercise an Option, in whole or in
part, by delivering a notice of exercise to the Company with payment of the
Exercise Price in cash. Subject to Committee consent, a Grantee may pay the
Exercise Price for an Option through a broker in accordance with procedures
established by the Committee consistent with Regulation T of the Federal Reserve
Board. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 6) at the time of exercise. Shares of
Company Stock shall not be issued upon exercise of an Option until the Exercise
Price is fully paid and any required tax withholding is made.

6. WITHHOLDING OF TAXES

(a) Required Withholding. All Options under the Plan shall be subject to
any applicable federal (including FICA), state and local tax withholding
requirements. The Company may require the Grantee or other person receiving such
shares to pay to the Company the amount of any such taxes that the Company is
required to withhold with respect to such Options, or the Company may deduct
from other compensation payable by the Company the amount of any withholding
taxes due with respect to such Options.

7. TRANSFERABILITY OF OPTIONS

(a) Nontransferability of Options. Except as provided below, only the
Grantee or his or her authorized representative may exercise rights under an
Option. A Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, if permitted under Rule 16b-3 of the Exchange Act
and if permitted by the Committee, pursuant to a domestic relations order (as
defined under the Code or Title I of the Employee Retirement Income Act of 1974,
as amended, or the regulations thereunder). When a Grantee dies, the personal
representative or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights. A Successor Grantee must furnish
proof satisfactory to the Company of his or her right to receive the Option
under the Grantee's will or under the applicable laws of descent and
distribution.

D-3
<PAGE> 45

8. CHANGE OF CONTROL OF THE COMPANY

As used herein, a "Change of Control" shall be deemed to have occurred if:

9. CONSEQUENCES OF A CHANGE OF CONTROL

(a) Assumption of Options. Upon a Change of Control described in Section
8(b)(i) where the Company is not the surviving corporation (or survives only as
a subsidiary of another corporation), unless the Committee determines otherwise,
all outstanding Options that are not exercised shall be assumed by, or replaced
with comparable options by, the surviving corporation.

(b) Other Alternatives. Notwithstanding the foregoing, subject to
subsection (c) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options in exchange for a payment by the
Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's outstanding Options exceeds the Exercise Price of
the Options, or (ii) after giving Grantees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender or termination shall take place
as of the date of the Change of Control or such other date as the Committee may
specify.

(c) Limitations. Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (b) above) that would make the Change of Control
ineligible for pooling of interest accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.

10. AMENDMENT AND TERMINATION OF THE PLAN

(a) Amendment. The Board may amend or terminate the Plan at any time.

D-4
<PAGE> 46

(c) Termination and Amendment of Outstanding Options. A termination or
amendment of the Plan that occurs after an Option is granted shall not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 16(a). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Option. Whether or not the Plan has terminated, an outstanding Option may be
terminated or amended under Section 16(a) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.

11. FUNDING OF THE PLAN

12. NO FRACTIONAL SHARES

13. REQUIREMENTS FOR ISSUANCE OF SHARES

14. HEADINGS

Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.

15. EFFECTIVE DATE OF THE PLAN.

Subject to the approval of the Company's shareholders, this Plan shall be
effective on November 12, 1996.

D-5
<PAGE> 47

16. MISCELLANEOUS

(a) Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Option if it is contrary to law or modify an Option to bring it
into compliance with any valid and mandatory government regulation. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.

(b) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a shareholder with respect to any shares of Company Stock covered by
an Option until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.

(c) Governing Law. The validity, construction, interpretation and effect
of the Plan and Option Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of State of Delaware.

D-6