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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
[X]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
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<S> <C> <C>
33-27835-01 AmeriSource Health Corporation 23-2546940
(a Delaware Corporation)
P.O. Box 959, Valley Forge,
Pennsylvania 19482
(610) 296-4480
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
AMERISOURCE HEALTH CORPORATION:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
AMERISOURCE HEALTH CORPORATION:
COMMON STOCK, $.01 PAR VALUE PER
SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Non-affiliates of AmeriSource Health Corporation, as of December 1, 1997, held
16,205,112 shares of voting stock. The registrant's voting stock is traded on
the New York Stock Exchange under the trading symbol "AAS". The aggregate
market value of the registrant's voting stock held by non-affiliates of the
registrant (based upon the closing price of such stock on the New York Stock
Exchange on December 1, 1997 and the assumption for this computation only that
399 Venture Partners, Inc. and all directors and executive officers of the
registrant are affiliates) was $1,047,255,363.
The number of shares of common stock of AmeriSource Health Corporation
outstanding as of December 1, 1997 was: Class A--17,209,108; Class B--
6,490,370; Class C--164,495.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in the Part
of this report indicated below:
Part III--Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
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PART I
ITEM 1. BUSINESS
AmeriSource Health Corporation, through its direct wholly-owned subsidiary
AmeriSource Corporation (referred to interchangeably as "AmeriSource" and the
"Company"), is the fourth largest full-service wholesale distributor of
pharmaceutical products and related health care services in the United States.
The Company serves its customers nationwide through 19 drug distribution
facilities and three specialty products distribution facilities. AmeriSource
is typically the primary source of supply to its customers and offers a broad
range of services designed to enhance the operating efficiencies and
competitive position of its customers and suppliers. The Company benefits from
a diverse customer base that includes hospitals and managed care facilities
(47%), independent community pharmacies (33%), and chain drug stores including
pharmacy departments of supermarkets and mass merchandisers (20%).
Over the past five years, AmeriSource has achieved significant growth in
revenues and operating income before unusual items. The Company's revenues
have increased from $3.2 billion in fiscal 1992 to $7.8 billion in fiscal
1997, a compound annual growth rate of 19.3%, while operating income before
unusual items and amortization increased from $68.6 million in fiscal 1992 to
$132.2 million in fiscal 1997, a compound annual growth rate of 14.0%. The
Company's growth is primarily the result of market share gains in existing
markets, geographic expansion and overall industry growth.
AmeriSource Health Corporation was incorporated in Delaware in 1988. The
address of the principal executive office of the Company is P.O. Box 959,
Valley Forge, Pennsylvania 19482. The telephone number is (610) 296-4480.
BUSINESS STRATEGY
Over the past five years, AmeriSource has significantly expanded its
national presence as a leading, innovative wholesale distributor of
pharmaceutical products and related health care services. The Company believes
it is well-positioned to continue its revenue growth and increase operating
income through the execution of the following key elements of its business
strategy:
. Expanding into New Geographic Markets. The Company believes that there
are substantial opportunities to grow by expanding into new geographic
areas through opening new distribution facilities and making selective,
complementary acquisitions. Since October 1993, the Company has opened
six new distribution facilities. In October 1993, the Company opened a
facility in Dallas, Texas, and in November 1994, the Company opened two
additional facilities in Portland, Oregon and Springfield, Massachusetts.
In June 1995, the Company opened a new facility in Sacramento, California
and in October 1995, a new facility in Phoenix, Arizona was opened. In
December 1995, the Company opened its newest facility in Orlando,
Florida. Each of these new facilities began operations with an existing
customer base in its regional marketplace. In addition, in July 1995, the
Company acquired Newbro Drug Company, a regional wholesale pharmaceutical
distributor based in Idaho Falls, Idaho; in February 1996, the Company
acquired Gulf Distribution Inc., a regional wholesale pharmaceutical
distributor based in Miami, Florida; and in March 1997, the Company
acquired Walker Drug Company, a regional wholesale pharmaceutical
distributor based in Birmingham, Alabama. The Company believes that as
industry consolidation pressures continue, additional opportunities may
arise to selectively acquire additional local and regional drug wholesale
companies facilitating expansion into new geographic areas and
enhancement of its competitive position in existing markets.
. Increasing Market Share in Existing Markets. The Company believes that it
is well positioned to continue to grow in its existing markets by: (i)
providing superior distribution services coupled with advanced
information systems to reduce costs throughout the pharmaceutical supply
channel; (ii) continuing to develop or acquire specialty value-added
services and programs to improve the competitiveness of its customers and
suppliers; (iii) maintaining its low cost operating structure to ensure
that the Company's services are priced competitively in the marketplace;
and (iv) continuing its decentralized operating structure to respond to
customers' needs more quickly and efficiently and to ensure the continued
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development of local and regional management talent. These factors have
allowed AmeriSource to compete effectively in the marketplace and generate
above-average industry sales growth over the last five years.
. Continuing Growth of Specialty Services. The Company works closely with
both customers and suppliers to develop an extensive range of specialty
services. In addition to enhancing the Company's profitability, these
services increase customer loyalty and strengthen the Company's overall
role in the pharmaceutical supply channel. These services include:
--ECHO(R), the Company's proprietary software system, provides
sophisticated ordering and inventory management assistance to its
hospital and retail customers. In addition to facilitating the primary
supply and communications between the Company and its customers,
ECHO(R) enables the Company's customers to reduce their costs through
ordering more efficiently, selecting from best price alternatives and
maintaining formulary compliance. Since the introduction of ECHO(R) in
early fiscal 1991, the Company has installed approximately 6,000
systems nationwide, and believes that its installed base of systems is
one of the largest and most sophisticated in the wholesale drug
industry.
--Family Pharmacy(R) enables small chain and independent community
pharmacies to compete more effectively through: (i) innovative
advertising, marketing and promotional campaigns; (ii) value-added
merchandising programs including private label product lines; (iii)
enhanced access to pharmaceutical benefit programs of large health care
groups, including third-party payor programs; and (iv) access to
disease management and pharmaceutical care programs. Family Pharmacy(R)
has grown dramatically in recent years adding approximately 600 stores
in fiscal 1997. With over 2,800 Family Pharmacy(R) member-stores,
Family Pharmacy(R) in effect constitutes one of the largest drugstore
chains in the United States.
--The Company's Income Rx(R) program provides an integral value-added
service to its hospital and retail pharmacy customers by continually
reviewing the marketplace for generic products that offer the best
price, quality and availability. With the increasing importance of
generic pharmaceuticals, this program represents a significant
opportunity for growth and profitability. In fiscal 1996, the Company
introduced its AmeriSource Select(R) automatic substitution generic
compliance program and currently has over 3,000 customers in the
program. AmeriSource Select(R) provides customers additional profit
opportunity by channeling generic purchasing to preferred products in
order to reduce product acquisition cost and decrease redundancies in
other generic products stocked by the Company and its customers.
Revenues attributable to AmeriSource's sale of generic and multi-source
pharmaceuticals (including the Income Rx(R) program) have increased to
approximately $645 million in fiscal 1997.
--American Health Packaging(TM) (AHP) is the Company's pharmaceutical
packaging division. In fiscal 1996, the Company expanded its packaging
business by opening a new state-of-the-art facility in Columbus, OH in
order to provide customized packaging solutions to both customers and
suppliers. The facility is capable of packaging pharmaceuticals into
both unit of use and unit dose formats which provide higher
productivity, better controls, and improved profitability throughout
the pharmaceutical supply channel.
--MedAssess(TM) (formerly known as Encara) is the Company's innovative
pharmacy practice system which positions pharmacists to participate in
drug therapy counseling and disease management for their customers.
MedAssess, which includes comprehensive training programs, proprietary
software products, management services and ongoing support, allows
pharmacists to market reimbursable care-based services to managed care
organizations and other third-party payors.
--The Diabetes Shoppe(TM) program develops pharmacy-based diabetic care
centers to market specialized products and training for the diabetic
patient. Since the acquisition of The Diabetes Shoppe(TM) in September
1996, membership has grown from 215 to over 525 retail pharmacy members
nationwide.
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--The Company's Health Services Plus(TM) business distributes vaccines,
injectables and oncology products to physicians and clinics on a
national basis. Rita Ann Distributors markets cosmetics and fragrances
to chain drugstores and independent retail customers.
. Maintain Low-Cost Operating Structure. AmeriSource has the lowest
operating cost structure among its four major national competitors. Over
the past five years, the Company has significantly reduced operating
expenses and investment in net working capital as a percentage of
revenues. Specifically, the Company has reduced its selling and
administrative expenses and depreciation as a percentage of revenues from
4.05% in fiscal 1992 to 3.41% in fiscal 1997. In addition, the Company
continues to achieve productivity and operating income gains from
continued investments in advanced management information systems,
warehouse automation technology, and from operating leverage due to
increased volume per Rx distribution facility. The addition of new
facilities was accomplished with minimal incremental investment in
corporate overhead. As these facilities continue to expand in their
regional markets, the Company believes that its growth and profitability
will be further enhanced.
INDUSTRY OVERVIEW
The Company has benefited from the significant growth of the full-service
drug wholesale industry in the United States. Industry sales grew from $30
billion in 1990 to an estimated $78 billion in 1996. The factors contributing
to this growth, and the sources of future growth for the industry, include (i)
an aging population, (ii) the introduction of new pharmaceuticals, (iii) the
increased use of outpatient drug therapies, (iv) a higher concentration of
distribution through wholesalers by both manufacturers and customers, and (v)
rising pharmaceutical prices.
Aging Population. The number of individuals over age 65 in the United States
has grown 23% from approximately 26 million in 1980 to approximately 32
million in 1990 and is projected to increase an additional 9% to more than 35
million by the year 2000. This age group suffers from a greater incidence of
chronic illnesses and disabilities than the rest of the population and is
estimated to account for approximately two-thirds of total health care
expenditures in the United States.
Introduction of New Pharmaceuticals. Traditional research and development as
well as the advent of new research and production methods, such as
biotechnology, continue to generate new compounds that are more effective in
treating diseases. These compounds have been responsible for significant
increases in pharmaceutical sales. The Company believes that ongoing research
and development expenditures by the leading pharmaceutical manufacturers will
contribute to continued growth of the industry.
Cost Containment Efforts. In response to rising health care costs,
governmental and private payors have adopted cost containment measures that
encourage the use of efficient drug therapies to prevent or treat diseases.
While national attention has been focused on the overall increase in aggregate
health care costs, the Company believes drug therapy has had a beneficial
impact on overall health care costs by reducing expensive surgeries and
prolonged hospital stays. Pharmaceuticals currently account for less than 9%
of overall health care costs, and manufacturers' emphasis on research and
development is expected to continue the introduction of cost-effective drug
therapies.
Higher Concentration of Distribution Through Wholesalers. Over the past
decade, manufacturers of pharmaceuticals have significantly increased the
distribution of their products through wholesalers as the cost and complexity
of maintaining inventories and arranging for delivery of pharmaceutical
products has risen. Drug wholesalers offer their customers and suppliers more
efficient distribution and inventory management. As a result, from 1980 to
1996, the percentage of pharmaceutical sales through wholesale drug
distributors increased from approximately 46% to approximately 61%. Order
processing, inventory management and product delivery by wholesale drug
distributors allow manufacturers to allocate their resources to research and
development, manufacturing and marketing their products. Customers benefit
from this shift by having a single source of supply for a full line of
pharmaceutical products as well as lower inventory costs, more timely and
efficient
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delivery, and improved purchasing and inventory information. In addition,
customers also benefit from the range of value-added programs developed by
wholesale drug distributors that are targeted to the specific needs of these
customers, which, in turn, reduce their costs and increase their operating
efficiencies.
Pharmaceutical Price Increases By Drug Manufacturers. The Company believes
that price increases by pharmaceutical manufacturers will continue to equal or
exceed the overall Consumer Price Index. The Company believes that this
increase will be due in large part to the relatively inelastic demand in the
face of higher prices charged for patented drugs as manufacturers have
attempted to recoup costs associated with the development, clinical testing
and Food and Drug Administration ("FDA") approval of new products.
At the same time that sales through the wholesale drug industry have grown,
the number of pharmaceutical wholesalers in the United States has decreased
from 139 at the end of 1980 to approximately 39 as of September 1997. Industry
analysts expect this consolidation trend to continue, with the industry's
largest companies increasing their percentage of total industry sales.
OPERATIONS
Decentralized Structure. The Company believes that operating economies of
scale exist principally at the distribution facility level. In order to reduce
costs and improve operating leverage, the Company began in fiscal 1989 an
extensive consolidation program, which closed 17 of the 31 facilities open in
October 1988. During the course of this consolidation program, the Company
continued to significantly increase its revenues in each fiscal year.
To expand into new geographic markets, AmeriSource has opened six new
facilities since October 1993, and currently operates 19 drug wholesale
distribution facilities and three specialty products distribution facilities,
organized into four regions across the United States. Several operating units
of the Company have over 100 years of history in the business and are among
the nation's first drug distribution businesses. Unlike its more centralized
competitors, the Company is structured as an organization of locally managed
profit centers. Management of each operating unit has fiscal responsibility
for its unit, and each operating unit has an established executive, sales and
operations staff. The operating unit's results, including earnings and asset
management goals, have a direct impact on management compensation. The
operating units utilize the Company's corporate staff for marketing,
financial, legal and executive management resources and corporate coordination
of asset and working capital management.
Sales and Marketing. The Company has an organization of over 225 sales
professionals. A specially trained group of telemarketing/customer service
representatives makes regular contact with customers regarding special
promotions. The Company's corporate marketing department works with
manufacturer suppliers to develop national programs and promotions. Tailored
to specific customer classes, these programs can be further customized at the
operating unit level to adapt to local market conditions. The marketing
department gathers and disseminates information to each operating unit's
purchasing and sales organization in order to enhance their competitive
effectiveness.
Facilities. Each of the Company's operating units carries an inventory line
necessary for its local market. The efficient distribution of small orders is
possible through the extensive use of computerization and modern warehouse
techniques. These include computerized warehouse product location, routing and
inventory replenishment systems, gravity-flow racking, mechanized order
selection and efficient truck loading and routing. The Company typically
delivers its products to its customers on a daily basis. It utilizes a fleet
of owned and leased vans and trucks and contract carriers. Night picking
operations in its distribution facilities have further reduced delivery time.
Orders are generally delivered in fewer than 24 hours.
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The Company's 19 full-service Rx distribution facilities and three specialty
products facilities as of December, 1997, are organized into four regions
throughout the United States. The following table presents certain information
on a fiscal year basis regarding the Company's operating units in the
aggregate.
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FISCAL YEAR ENDED SEPTEMBER 30,
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1993 1994 1995 1996 1997
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(DOLLARS IN MILLIONS; SQUARE FEET IN THOUSANDS)
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Revenue....................... $3,658.9 $4,182.2 $4,668.9 $5,551.7 $7,815.9
Number of Rx distribution
facilities................... 15 14 18 20 21
Average revenue/Rx
distribution facility........ $ 243.0 $ 297.1 $ 257.8 $ 275.6 $ 367.3
Total square feet (Rx
facilities).................. 1,372.3 1,322.1 1,446.9 1,817.5 2,237.5
Average revenue/square feet
(in whole dollars)
(Rx facilities).............. $2,656 $3,146 $ 3,207 $3,033 $3,448
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Customers and Markets. The Company has a diverse customer base that includes
hospitals and managed care facilities, independent community pharmacies, and
chain drug stores including pharmacy departments of supermarkets and mass
merchandisers. The Company offers a broad range of services designed to
enhance the operating efficiencies and competitive position of its customers
and suppliers. In addition, AmeriSource is typically the primary source of
supply for its customers. The table below summarizes how the Company's
customer sales mix has changed over the last five fiscal years.
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FISCAL YEAR ENDED SEPTEMBER 30,
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1993 1994 1995 1996 1997
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(DOLLARS IN MILLIONS)
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Hospitals and Managed
Care Facilities........ $1,707 47% $2,126 51% $2,422 52% $2,673 48% $3,706 47%
Independents............ 1,244 34% 1,292 31% 1,396 30% 1,807 33% 2,579 33%
Chains.................. 708 19% 764 18% 851 18% 1,072 19% 1,531 20%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total................ $3,659 100% $4,182 100% $4,669 100% $5,552 100% $7,816 100%
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No single customer represented more than 5% of the Company's total revenues
during fiscal 1997 other than the federal government which, in the aggregate,
accounted for approximately 15%. Excluding the federal government, the
Company's top ten customers represented approximately 21% of total revenues
during fiscal 1997. A profile of each customer segment follows:
. Hospitals and Managed Care Facilities. AmeriSource is one of the nation's
top three distributors in serving the hospital and managed care market
segment. Because hospitals and managed care facilities purchase large
volumes of high-priced, easily handled pharmaceuticals, the Company
benefits from quick turnover of both inventory and receivables and lower-
than average operating expenses. Sales to hospitals and managed care
facilities have grown at a compound rate of 21.4% from fiscal 1993
through fiscal 1997.
. Independents. Independent community pharmacy owners represent the largest
segment of the industry and provide the greatest opportunity for the
Company's value-added services. The Company's sales to independent
customers have risen at a compound rate of 20.0% from fiscal 1993 through
fiscal 1997 due to the general growth of this customer segment the
Company's recent acquisition activity, and the success of the Company's
customized marketing and merchandising programs, such as its Family
Pharmacy(R) program.
. Chains. This category includes chain drug stores, including pharmacy
departments of supermarkets and mass merchandisers. The Company's sales
to chains have risen at a compound rate of 21.3% from fiscal 1993 through
fiscal 1997. This growth rate reflects the results from the Company
entering into new contracts with several drug store chains as well as the
growth of its existing chain customers.
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Suppliers. AmeriSource obtains pharmaceutical and other products from a
number of manufacturers, none of which account for more than approximately 7%
of its net sales in fiscal 1997. The five largest suppliers in fiscal 1997
accounted for approximately 29% of net sales. Historically, the Company has
not experienced difficulty in purchasing desired products from suppliers. The
Company has agreements with many of its suppliers which generally require the
Company to maintain an adequate quantity of a supplier's products in
inventory. The majority of contracts with suppliers are terminable upon 30
days notice by either party. The loss of certain suppliers could adversely
affect the Company's business if alternative sources of supply were
unavailable. The Company believes that its relationships with its suppliers
are good.
Management Information Systems. The Company has continually invested in
advanced management information systems and automated warehouse technology.
The Company's management information systems provide for, among other things,
electronic order entry by customers, invoice preparation and purchasing and
inventory tracking. As a result of electronic order entry, the cost of
receiving and processing orders has not increased as rapidly as sales volume.
The Company's customized systems strengthen customer relationships by allowing
the customer to lower its operating costs and by providing the basis for a
number of the value-added services the Company provides to its customers,
including marketing data, inventory replenishment, single-source billing,
computer price updates and price labels. AmeriSource believes that its
management information systems are capable of serving its needs for the
foreseeable future.
COMPETITION
The Company engages in the wholesale distribution of pharmaceuticals, health
and beauty aids and other products in a highly competitive environment. The
Company competes with numerous national and regional distributors, some of
which are larger and have greater financial resources than the Company. The
Company's national competitors include McKesson Corporation, Bergen Brunswig
Corporation, Cardinal Health, Inc., and Bindley Western Industries, Inc. In
addition, the Company competes with regional and local distributors, direct-
selling manufacturers and other specialty distributors. Competitive factors
include value-added service programs, breadth of product line, price, service
and delivery, credit terms, and customer support. There can be no assurance
that the Company will not encounter increased competition in the future that
could adversely affect the Company's business. The drug wholesale industry
continues to undergo significant consolidation, with the number of wholesalers
in the continental United States reduced from 139 at the end of 1980 to
approximately 39 as of September 1997.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 3,700 persons,
of which approximately 3,350 were full-time employees. Approximately 11% of
full and part-time employees are covered by collective bargaining agreements.
The Company believes that its relationship with its employees is good.
REGULATORY MATTERS
The United States Drug Enforcement Administration and the Food and Drug
Administration and various state boards of pharmacy regulate the distribution
of pharmaceutical products and controlled substances, requiring wholesale
distributors of these substances to register for permits and to meet various
security and operating standards. As a wholesale distributor of
pharmaceuticals and certain medical/surgical products, the Company is subject
to these regulations. The Company has received all necessary regulatory
approvals and believes that it is in substantial compliance with all
applicable wholesale distribution requirements.
The Company is aware that at its former Charleston, South Carolina
distribution center there is evidence of residual soil contamination remaining
from the fertilizer manufacturing process operated on that site by third
parties over thirty years ago. The Company's environmental consulting firm
conducted a soil survey and a groundwater study during fiscal 1994 and 1995.
The results of the studies indicate that there is lead on-site at levels
requiring further investigation and potential remediation. A preliminary
engineering analysis was prepared
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by outside consultants during the third quarter of fiscal 1994, and indicated
that if both soil and groundwater remediation are required, the most likely
cost is estimated to be $4.1 million. Accordingly, a liability of $4.1 million
was recorded during fiscal 1994 to cover future consulting, legal and
remediation and ongoing monitoring costs. The Company is working with the
appropriate state regulatory agency regarding further tests and potential site
remediation. That negotiation, investigation and remediation could take
several years and the actual costs may differ from the liability that has been
recorded. The accrued liability ($3.8 million at September 30, 1997), which is
reflected in other long-term liabilities on the Company's consolidated balance
sheet, is based on the present estimate of the extent of contamination, choice
of remedy, and enacted laws and regulations, including remedial standards;
however, changes in any of these could affect the estimated liability. The
Company is investigating the possibility of asserting claims against
responsible third parties for recovery of these costs. Whether or not any
recovery may be forthcoming is unknown at this time, although the Company
intends to vigorously enforce its rights and remedies.
ACQUISITIONS
On September 22, 1997, the Company and McKesson Corporation ("McKesson")
signed a definitive merger agreement providing for the Company to merge with
McKesson. McKesson is the largest distributor of pharmaceuticals and related
health care products and value-added services in the United States. Under the
terms of the agreement, stockholders of AmeriSource will receive a fixed
exchange ratio of 0.71 shares of McKesson common stock for each share of
AmeriSource common stock. McKesson will issue approximately 16.9 million new
shares of common stock in the merger. The merger of the two companies has been
structured as a tax-free transaction and will be accounted for as a pooling of
interests. The combined company will operate under the McKesson name and will
be headquartered in San Francisco, CA. Under certain circumstances, in the
event that the merger agreement is terminated, as a result of the Company
entering into a competing transaction, McKesson would be entitled to a
termination fee of $65 million from the Company.
Subject to regulatory approval and the approval of shareholders of both
companies, the transaction is expected to be completed in early 1998. There
can be no assurance that the merger will be completed, or that it will be
completed as contemplated.
Concurrently with the execution of the merger agreement, the Company and
McKesson entered into the AmeriSource Stock Option Agreement ("Option
Agreement"). Pursuant to the Option Agreement, AmeriSource has granted
McKesson an irrevocable option to purchase up to 3,418,601 shares of
AmeriSource common stock at an exercise price of $70.87 per share, under
certain circumstances in which the merger agreement is terminated. The Option
Agreement may have the effect of discouraging persons who may be interested in
acquiring an interest in, or otherwise effecting a business combination with
AmeriSource, from considering or proposing such a transaction.
During fiscal 1997, the Company acquired all of the equity interest of
Walker Drug Company, L.L.C., a Birmingham, Alabama-based regional wholesale
pharmaceutical distributor with annualized revenues of approximately $800
million.
ITEM 2. PROPERTIES
As of September 1997, the Company conducted its business from office and
operating unit facilities at 45 locations throughout the United States. In the
aggregate, the Company's operating units occupy approximately 2.4 million
square feet of office and warehouse space, of which approximately 957,000
square feet is owned and the balance is leased under lease agreements with
expiration dates ranging from 1997 to 2012. The Company's 21 drug distribution
facilities range in size from approximately 20,000 square feet to 217,500
square feet. Leased facilities are located in the following states: Alabama,
Arizona, California, Florida, Idaho, Kentucky, Massachusetts, Minnesota, New
Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, West
Virginia, and Wisconsin. Owned facilities are located in the following states:
Alabama, Indiana, Kentucky, Maryland, Missouri, Ohio, Pennsylvania, Tennessee
and Virginia. The Company utilizes a fleet of owned and
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leased vans and trucks, as well as contract carriers to deliver its products.
The Company believes that its properties are adequate to serve the Company's
current and anticipated needs without making capital expenditures materially
higher than historical levels.
ITEM 3. LEGAL PROCEEDINGS
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in a
series of purported class action antitrust lawsuits brought by retail
pharmacies, alleging violations of various antitrust laws stemming from the
use of chargeback agreements. In addition, the Company and four other
wholesale distributors were added as defendants in a series of related
antitrust lawsuits brought by independent pharmacies who have opted out of the
class cases and chain drug stores. The Company also is a defendant in parallel
suits filed in state courts in Minnesota, Alabama, and Mississippi. The
federal class actions were originally filed in the United States District
Court for the Southern District of New York, and have been transferred along
with the individual and chain drug store cases to the United States District
Court for the Northern District of Illinois for consolidated and coordinated
pretrial proceedings. In essence, these lawsuits all claim that the
manufacturer and wholesaler defendants have combined, contracted and conspired
to fix the prices charged to retail pharmacies for prescription brand name
pharmaceuticals. Specifically, plaintiffs claim that the defendants use
"chargeback agreements" to give some institutional pharmacies discounts that
allegedly are not made available to retail drug stores. Plaintiffs seek
injunctive relief, treble damages, attorneys' fees and costs. In October 1994,
the Company entered into a Judgement Sharing Agreement with the other
wholesaler and pharmaceutical manufacturer defendants. Under the Judgement
Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the
wholesaler defendants for litigation costs incurred, up to an aggregate of $9
million; and (b) if a judgement is entered into against both manufacturers and
wholesalers, the total exposure for joint and several liability of the Company
is limited to the lesser of 1% of such judgement or $1 million. In addition,
the Company has released any claims which it might have had against the
manufacturers for the claims presented by the Plaintiffs in these lawsuits.
The Judgement Sharing Agreement covers the federal court litigation as well as
the cases which have been filed in various state courts.
On April 4, 1996, the District Court granted the Company's motion for
summary judgement in the class case. Plaintiffs subsequently appealed the
Company's grant of summary judgement to the United States Court of Appeals for
the Seventh Circuit. On August 15, 1997, the Court of Appeals reversed the
District Court's order granting summary judgement in favor of the Company and
the other wholesalers. The Court of Appeals also denied the Company's petition
for rehearing. The Company and the other wholesalers intend to file a petition
for a writ of certiorari to the United States Supreme Court on or before
January 6, 1998. The Company believes it has meritorious defenses to the
claims asserted in these lawsuits and intends to vigorously defend itself in
all of these cases.
AmeriSource has been named as a defendant in two lawsuits based upon alleged
injuries attributable to a category of products typically referred to as fen-
phen. AmeriSource did not manufacture these products; however, prior to an FDA
recall, AmeriSource did distribute these products from several of its vendors.
The Company believes that it is entitled to full indemnification by its
vendors with respect to these lawsuits and any other lawsuits involving these
products in which AmeriSource may be named in the future. To date, the
indemnity of AmeriSource by its vendors in such lawsuits has not been in
dispute and, although the Company believes it is unlikely it will incur any
loss as a result of such lawsuits, the Company believes that its insurance
coverage and supplier endorsements are adequate to cover any losses in the
unlikely event they should occur.
The Company is a party to various lawsuits arising in the ordinary course of
business. The Company, however, does not believe that the outcome of these
lawsuits, individually or in the aggregate, will have a material adverse
effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(No response to this Item is required.)
8
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions, as of December 1, 1997. Each executive officer serves at the
pleasure of the Company's Board of Directors.
<TABLE>
<CAPTION>
CURRENT POSITION WITH
THE COMPANY AND OTHER POSITION HELD IN THE LAST
NAME AGE PERIOD OF SERVICE FIVE YEARS
---- --- ---------------------- ---------------------------------
<C> <C> <S> <C>
R. David Yost... 50 President and Chief Executive Vice President--
Executive Officer Operations (1995-1997)
(1997-Present) Group President--Central Region
(1989-1995)
David M. 50 Executive Vice Group President--Eastern Region
Flowers........ President-- (1989-1995)
Sales and Marketing
(1995-Present)
Kurt J. 37 Senior Vice President Vice President, Chief Financial
Hilzinger...... and Chief Financial Officer and Treasurer (1995-
Officer (1997- 1997); Vice President, Finance
Present) and Treasurer
(1993-1995); Vice President,
Financial Planning (1991-1993).
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since May 27, 1996, the Company's Class A Common Stock has been traded on
the New York Stock Exchange under the trading symbol "AAS". Prior to May 27,
1996, the Company's Class A Common Stock was traded over-the-counter in the
National Market System of the National Association of Securities Dealers, Inc.
(Nasdaq symbol ASHC). As of December 1, 1997, there were 298 record holders of
the Company's Class A Common Stock. The following table sets forth the high
and low closing sale prices of the Class A Common Stock for the periods
indicated.
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
YEAR ENDED 9/30/96
First Quarter................................................. $33 1/2 $25 1/4
Second Quarter................................................ 33 3/4 28
Third Quarter................................................. 37 1/2 32 1/8
Fourth Quarter................................................ 44 1/2 28
YEAR ENDED 9/30/97
First Quarter................................................. $48 1/4 $37 7/8
Second Quarter................................................ 53 43 1/2
Third Quarter................................................. 50 3/4 41 1/2
Fourth Quarter................................................ 60 1/4 46 3/8
</TABLE>
There is no established public trading market for the Company's Class B
Common Stock. As of December 1, 1997, there were 3 record holders of the
Company's Class B Common Stock.
The Company's Class C Common Stock was held by 7 holders of record as of
December 1, 1997. The Class C Common Stock trades on a limited basis in the
over-the-counter market, and information concerning the historical trading
prices for the Class C Common Stock is not published by nationally-recognized
independent sources.
The Company has not paid any cash dividends to its stockholders on any class
of its Common Stock, and anticipates that for the foreseeable future its
earnings will be retained for use in its business. Payment of
9
<PAGE>
dividends is within the discretion of the Company's Board of Directors and
will depend, among other factors, upon the Company's earnings, financial
condition and capital requirements and the terms of the Company's financing
agreements. A credit agreement between the Company and a syndicate of senior
lenders provides a secured credit facility of $500 million, and restricts the
Company's ability to make dividend payments unless certain financial tests are
met.
ITEM 6. SELECTED FINANCIAL DATA.
The following table should be read in conjunction with the Consolidated
Financial Statements, including
the notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $7,815,942 $5,551,671 $4,668,948 $4,182,193 $3,658,871 $3,237,708
Gross profit............ 387,476 302,433 266,355 235,191 209,438 199,723
Operating expenses (b).. 266,804 204,244 168,343 149,137 136,147 131,080
Operating income (loss). 119,613 97,889 97,835 (101,992) 65,601 60,850
Operating income,
excluding unusual items
and amortization
(c)(d)................. 132,243 109,088 98,012 86,054 73,291 68,643
Income (loss) before
extraordinary items and
in 1994 the cumulative
effect of accounting
changes................ 47,449 42,650 28,218 (172,417) (7,474) (12,824)
Net income (loss) ...... 45,467 35,408 10,181 (207,671) (18,618) (6,476)
Earnings (loss) per
share (fully diluted):
Income (loss) before
extraordinary items
and in 1994 the
cumulative effect of
accounting changes.... 1.94 1.84 1.53 (11.69) (.51) (.87)
Net income (loss) per
share................. 1.86 1.53 .55 (14.08) (1.26) (.44)
Weighted average common
shares outstanding
(fully diluted) (e).... 24,432 23,217 18,396 14,750 14,750 14,750
Balance Sheet:
Cash and cash equiva-
lents and restricted
cash.................. $ 68,931 $ 71,201 $ 46,809 $ 25,311 $ 27,136 $ 13,806
Accounts receivable--
net................... 533,319 390,331 318,652 272,281 251,999 249,070
Merchandise invento-
ries.................. 1,017,782 650,296 404,522 351,676 346,371 336,025
Property and equip-
ment--net............. 67,462 51,666 45,244 41,182 36,106 38,105
Total assets........... $1,745,040 $1,187,960 $ 838,673 $ 711,644 $ 867,944 $ 848,474
Accounts payable....... $1,036,462 $ 714,984 $ 462,804 $ 449,991 $ 379,826 $ 308,097
Long-term debt......... 589,819 433,693 435,764 487,575 549,220 587,983
Stockholders' equity... 14,311 (36,808) (135,724) (300,726) (93,040) (74,747)
Total liabilities and
stockholders' equity.. $1,745,040 $1,187,960 $ 838,673 $ 711,644 $ 867,944 $ 848,474
</TABLE>
(a) Includes the effect of: the $179.8 million write-off of goodwill, the
cumulative effect of accounting changes for income taxes of $33.4 million
and postretirement benefits other than pensions of $1.2 million.
(b) Represents selling and administrative expenses and depreciation, and
excludes amortization and unusual items.
(c) Excludes a $6.4 million charge to consolidate facilities and restructure
the sales force and a $5.2 million charge related to executive management
changes in fiscal 1997.
(d) Excludes the $10.9 million non-cash charge to cost of goods sold in fiscal
1996. See Note 12 to the Consolidated Financial Statements.
(e) Share and per share amounts prior to April 1995 have been adjusted for the
2.95-for-1 stock split effected in conjunction with the Company's initial
public offering.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AMERISOURCE HEALTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements contained herein.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996
Revenues for the fiscal year ended September 30, 1997 increased 41% to $7.8
billion from $5.6 billion in fiscal 1996. The year-to-year revenue gains
reflect increases across all customer groups and all geographic regions. The
acquisitions of Walker Drug Company, L.L.C. ("Walker Drug Company") in March
1997, and Gulf Distribution, Inc. in February 1996, contributed 9% of the 41%
increase in revenues for the fiscal year. During the fiscal year ended
September 30, 1997, sales to hospitals and managed care facilities increased
39%, sales to independent drug store customers increased 43%, and sales to the
chain drug store customer group increased 43%, as compared with the prior
year. Approximately 28% of the hospital and managed care revenue increase is
due to the addition of one large mail order pharmacy customer. During the
fiscal year ended September 30, 1997, sales to hospitals and managed care
facilities accounted for 47% of total revenues, while sales to independent
drug stores accounted for 33% and sales to chain drug stores accounted for 20%
of the total.
Gross profit of $387.5 million in fiscal 1997 increased by 28% over fiscal
1996 due to the increase in revenues. As a percentage of revenues, the gross
profit in fiscal 1997 was 4.96% as compared to 5.45% in the prior fiscal year.
The majority of the decline in gross profit percentage was due to a reduction
in selling margin percentage resulting from continuing price competition
throughout the industry and the higher-than average growth of the Company's
largest customers. Approximately 30% of the decline in gross profit percentage
from the prior fiscal year was due to the addition of a large ($290 million in
annualized revenues) mail order pharmacy customer at a gross profit percentage
significantly lower than normal percentages and a performance shortfall in one
of the Company's distribution centers. Gross profit may continue to be
impacted by price competition, changes in customer and product mix, and
distribution center performance.
The Company commenced cost reduction plans in the third quarter of fiscal
1997 to consolidate three of its pharmaceutical distribution facilities into
other existing facilities and to restructure its sales force. The cost
reduction initiatives will be completed by December 1997 and resulted in a
$6.4 million charge to selling and administrative expense in the third fiscal
quarter of 1997. Write-downs of $3.9 million of assets include buildings,
warehouse and computer equipment, and other assets to be disposed of related
to the facility closings. Severance charges of $1.8 million were recorded for
the termination of 240 sales and warehouse employees. Approximately 40 of
these employees were terminated by September 30, 1997 and the remainder are
expected to be terminated by December 31, 1997. Additionally, $0.7 million of
costs related to lease terminations were recorded. In addition to the cost
reduction initiatives, the Company incurred $5.2 million of charges related to
the retirement of its former President and CEO as well as other executive
terminations during the third quarter. Annualized cost savings of $6 to $8
million are expected as a result of the cost reduction initiatives.
Operating expenses, including the $11.6 million of special charges discussed
in the preceding paragraph, increased by $63.3 million or 31% in fiscal 1997
compared with the prior fiscal year, and as a percentage of revenues, were
3.43% in fiscal 1997 and 3.68% in fiscal 1996. Excluding the $11.6 million of
special charges discussed in the preceding paragraph, operating expenses as a
percentage of revenue were 3.28% for fiscal 1997. The increase in expenses was
due to increased delivery and warehouse expense associated with the
significant revenue increase. The decrease as a percentage of revenue in
fiscal 1997 is primarily due to improved economies
11
<PAGE>
of scale at the Company's established and newer locations and the low service
cost associated with the large mail order customer which has offset higher-
than anticipated integration costs of the Company's Orlando, FL facility.
Operating income of $119.6 million in fiscal 1997 increased by 22% from the
prior year. Excluding the effect of the special charges of $11.6 million in
the third quarter of fiscal 1997, and the $10.9 million cumulative non-cash
charge to cost of goods sold in fiscal 1996, operating income increased 21%
compared to the prior fiscal year. Excluding the special charges and the
cumulative non-cash charge to cost of goods sold, the Company's operating
margin declined to 1.68% in fiscal 1997 from 1.96% in fiscal 1996. The decline
is due to the decrease in gross profit percentage discussed above, offset in
part by reduced operating expenses as a percentage of revenues.
Interest expense of $41.6 million in fiscal 1997 represents an increase of
16% compared to the prior fiscal year. The increase over the prior year was
due to increased borrowings to fund the 41% revenue increase and the purchase
of Walker Drug Company in March 1997. Average borrowings during the fiscal
year ended September 30, 1997 were $602 million as compared to average
borrowings of $479 million in the prior fiscal year. The increased average
indebtedness was offset in part by reduced borrowing rates compared to the
prior year due to the redemption of the remaining $74.3 million of 11 1/4%
senior debentures in the third quarter of fiscal 1996 and rate reductions
under the Company's revolving credit facility and receivables securitization
financing ("Receivables Program").
Income tax expense of $30.6 million in fiscal 1997 was based on an annual
effective rate of 39.2% versus 31.1% in fiscal 1996. The fiscal 1996 rate was
reduced by 11.5% due to a favorable settlement of an Internal Revenue Service
audit of fiscal years 1987-1991. The extraordinary charge in fiscal 1997 of
$2.0 million, net of a tax benefit of $1.2 million, relates to the write-off
of unamortized deferred financing fees related to the retirement of the prior
$380 million revolving credit facility.
Income before extraordinary items increased to $47.4 million in fiscal 1997
from $42.7 million in fiscal 1996. Excluding the effect of the fiscal 1997
special charges of $11.6 million, income before extraordinary items would have
been $54.5 million, a 28% increase over the prior fiscal year, and income
before extraordinary items per share on a fully diluted basis would have been
$2.23, a 21% increase over fiscal 1996.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1995
Revenues of $5.6 billion for the fiscal year ended September 30, 1996
increased 18.9% over the prior fiscal year. The year-to-year revenue gains
reflect increases across all customer groups and the impact of the Company's
expansion into new geographic markets, especially in the western and
northeastern United States and Florida, and price increases. Revenues of the
Company's new geographic markets increased by 70% in fiscal 1996. The
acquisitions of Newbro Drug Company in July 1995, and Gulf Distribution, Inc.
in February 1996, accounted for 4% of the 19% increase in revenues for fiscal
1996. During the fiscal year ended September 30, 1996, sales to hospitals
increased 10%, sales to independent drug store customers increased 29%, and
sales to the chain drug store customer group increased 26%, as compared with
the prior fiscal year. During the fiscal year ended September 30, 1996, sales
to hospitals accounted for 48% of total revenues, while sales to independent
drug stores accounted for 33% and sales to chain drug stores 19% of the total.
In fiscal 1996, the Company has reclassified nursing homes and clinics from
its independent drug store segment to its hospital segment for all periods
presented. The reclass added 5% of total revenues to hospitals in fiscal 1996.
Gross profit of $302.4 million for fiscal 1996 increased by 13.5% over
fiscal 1995 due to the increase in revenues. As a percentage of revenues, the
gross profit margin in fiscal 1996 was 5.45% as compared to 5.70% in the prior
year. The decrease in gross profit margin percentage from the prior fiscal
year was due to a decline in selling margin percentage due to continuing price
competition throughout the industry and a cumulative non-cash charge of $10.9
million described below. Selling margins may continue to be impacted by price
competition
12
<PAGE>
and changes in customer mix. Increased sales of higher-margin generic drugs,
the continued introduction of new marketing programs with manufacturers, the
growth of higher margin specialty businesses such as pharmaceutical packaging,
and an increase in inventory investment buying activity, partly offset the
selling margin decline.
In the fourth quarter of fiscal 1996, cost of goods sold has been impacted
by a one-time cumulative non-cash charge of $10.9 million arising from the
misconduct of a former employee. In December 1996, the Company discovered
erroneous entries were made over a number of years to improperly understate
cost of goods sold and liabilities in one of its regions. The Company
immediately commenced a thorough investigation including the use of outside
advisors. Based on the investigation, the Company has concluded that: the
individual acted alone and was not enriched; the Company did not suffer any
loss of cash or other assets; no other irregularities, illegal acts or
improper transactions were caused by the former employee; and similar
activities did not occur elsewhere in the Company. The Company has concluded
the estimated impact of the erroneous entries was not material to operations
or the financial position of the Company in any individual year. Although the
Company cannot determine the actual impact of the erroneous entries on a year-
by-year basis, the Company believes over one-half of the amount of the charge
occurred prior to fiscal 1993.
Selling and administrative expenses and depreciation increased by 21.3% to
$204.2 million in fiscal 1996 from $168.3 million in fiscal 1995, and as a
percentage of revenues were 3.68% in 1996 and 3.61% in 1995. The increase as a
percentage of revenue in fiscal 1996 is primarily due to: the cost of opening
new distribution facilities in Orlando, Florida and Phoenix, Arizona and a new
pharmaceutical packaging facility in Columbus, Ohio; integration costs related
to the acquisitions of Newbro Drug Company and Gulf Distribution Inc.; above-
average growth of the higher cost to service independent drug store segment;
and the cost of developing new value-added marketing programs. These costs
have been somewhat offset by continued economies of scale at the Company's
established locations.
Operating income of $109.1 million in fiscal 1996, excluding the cumulative
non-cash charge of $10.9 million described above and amortization increased by
11.3% over the prior year. As a percentage of revenues, the Company's
operating margin, excluding the cumulative non-cash charge and amortization
declined to 1.96% in fiscal 1996 from 2.10% in fiscal 1995 due to the increase
in expenses and decline in gross margin discussed above.
Interest expense of $36.0 million in fiscal 1996 represents a decrease of
31.2% compared to fiscal 1995. The decrease was due to: the redemption in
January 1995 of the $166.1 million of 14 1/2% senior subordinated notes; the
redemption in May 1995 of $74.3 million of 11 1/4% senior debentures and the
repurchase and redemption in 1996 of the remaining $74.3 million of 11 1/4%
senior debentures; and lower average borrowing rates due to the implementation
of the receivables securitization financing in December 1994, and reductions
in the borrowing rates of the Company's revolving credit facility which was
amended in December 1994. Average borrowings during the year ended September
30, 1996 were $479 million as compared to average borrowings of $536 million
in the prior year.
Income tax expense of $19.3 million in fiscal 1996 was based on an annual
effective tax rate of 31.1% (38% in fiscal 1995). Income tax expense in fiscal
1996 was reduced by $7.1 million due to the favorable settlement of an
Internal Revenue Service audit of fiscal years 1987-1991. The extraordinary
charge in fiscal 1996 of $7.2 million (net of a tax benefit of $3.9 million)
relates to the purchase and redemption premiums and consequent write-off of
unamortized deferred financing fees due to the purchase and redemption of the
remaining $74.3 million of 11 1/4% senior debentures. The extraordinary charge
in fiscal 1995 of $18.0 million (net of a tax benefit of $7.2 million) relates
to the amendment of the revolving credit facility, the redemption of the 14
1/2% senior subordinated notes, the redemption of $74.3 million of 11 1/4%
senior debentures, and the consequent write-off of unamortized deferred
financing fees.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended September 30, 1997, the Company's operating
activities used $9.3 million in cash as increases in merchandise inventories
of $271.8 million and accounts receivable of $76.2 were offset in part by the
$274.9 million increase in accounts payable and accrued expenses. An increase
in inventory turns
13
<PAGE>
offset in part the increased working capital requirements of the significant
revenue growth. Operating cash uses during the fiscal year ended September 30,
1997 included $37.3 million in interest payments and $18.7 million in income
tax payments.
Capital expenditures for the fiscal year ended September 30, 1997 were $15.9
million and relate principally to investments in warehouse automation,
warehouse improvements, and information technology. Similar expenditures of
approximately $20 million are expected to occur in fiscal 1998.
In March 1997, the Company acquired all of the equity interests of Walker
Drug Company Inc. in a cash transaction. The transaction was funded by
borrowings under the revolving credit facility. Walker Drug Company is a
Pelham, Alabama-based pharmaceutical wholesaler with annualized revenues of
approximately $800 million. The purchase price was $138.7 million and the
transaction was accounted for by the purchase method. The excess of the
purchase price over net assets acquired of $27.4 million has been allocated to
goodwill and is being amortized over 40 years.
Cash provided by financing activities during fiscal 1997 represents
borrowings under the Company's revolving credit facility and its Receivables
Program primarily to fund its working capital requirements and the purchase of
Walker Drug Company. In January 1997, the Company entered into a new revolving
credit agreement (the "Credit Agreement") with a syndicate of senior lenders
providing a senior secured facility of $500 million. Proceeds from borrowings
under this Credit Agreement were used to retire the prior $380 million
revolving credit facility. Among other things, the Credit Agreement (1) is for
a term of five years, expiring in January 2002; (2) provides for interest rate
step-downs upon the attainment of certain financial ratios; (3) provides for
the release of security upon the attainment of certain financial ratios or
once the Company achieves investment grade senior, unsecured debt ratings from
two credit rating agencies; (4) provides for a borrowing base of 70% of the
eligible inventory; and (5) provides higher limits for potential acquisitions.
At September 30, 1997, borrowings under the Company's $500 million revolving
credit facility were $281 million (at an average interest rate of 7.5%) and
borrowings under the $375 million Receivables Program were $300 million (at an
average interest rate of 6.1%). In April 1997, the Company issued $90 million
of Floating Rate Class A Trade Receivable Participation Certificates Series
1997-1 under its Receivables Program. These certificates consist of AAA rated
fixed principal, variable rate certificates with a term of five years and a
rate of LIBOR plus .20%. The proceeds from the issuance were used to pay down
borrowings under the Credit Agreement. In November 1997, the Company entered
into a short-term, supplemental $100 million revolving credit agreement with
the same terms as its Credit Agreement. This agreement expires March 31, 1998
and is intended to fund seasonal inventory purchases if necessary.
An increase in interest rates would adversely affect the Company's operating
results and the cash flow available after debt service to fund operations and
expansion and, if permitted to do so under its revolving credit facility, to
pay dividends on its capital stock. The Company enters into interest rate
protection agreements to hedge the exposure to increasing interest rates with
respect to its long-term debt agreements. The Company provides protection to
meet actual interest rate exposures and does not speculate in derivatives. The
Company is required by its Credit Agreement to maintain interest rate cap
protection on a minimum of $112.5 million of its long-term debt through
January 1999 and has interest rate cap agreements expiring in May 1999, which
provide protection on $115 million of its long-term borrowings.
The Company's operating results have generated sufficient cash flow which,
together with borrowings under its debt agreements and credit terms from
suppliers, have provided sufficient capital resources to finance working
capital and cash operating requirements, fund capital expenditures, and fund
interest currently payable on outstanding debt. The Company's primary ongoing
cash requirements will be to fund payment of interest on indebtedness, finance
working capital, and fund capital expenditures and routine growth and
expansion through new business opportunities. Future cash flows from
operations and borrowings are expected to be sufficient to fund the Company's
ongoing cash requirements.
14
<PAGE>
The Company is subject to certain contingencies pursuant to environmental
laws and regulations at one of its former distribution centers that may
require remediation efforts. In fiscal 1994, the Company accrued a liability
of $4.1 million to cover future consulting, legal and remediation, and ongoing
monitoring costs. The accrued liability ($3.8 million at September 30, 1997),
which is reflected in other long-term liabilities on the accompanying
consolidated balance sheet, is based on an estimate of the extent of
contamination and choice of remedy, existing technology, and presently enacted
laws and regulation, however, changes in remediation standards, improvements
in cleanup technology, and discovery of additional information concerning the
site could affect the estimated liability in the future. The Company is
investigating the possibility of asserting claims against responsible parties
for recovery of these costs. Whether or not any recovery may be forthcoming is
unknown at this time.
The Company has conducted a review of its computer systems to identify and
address all necessary code changes, testing, and implementation procedures
necessary to make its systems year 2000 compliant. The Company presently
believes that with modifications to existing software, and converting to new
software, the year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. The Company
expects to be compliant by the end of fiscal 1998. Amounts expensed for year
2000 projects have not been and are not expected to be significant to the
Company's results of operations.
On September 22, 1997, the Company and McKesson Corporation ("McKesson")
signed a definitive merger agreement providing for the Company to merge with
McKesson. McKesson is the largest distributor of pharmaceuticals and related
health care products and value-added services in the United States. Under the
terms of the agreement, stockholders of AmeriSource will receive a fixed
exchange ratio of 0.71 shares of McKesson common stock for each share of
AmeriSource common stock. McKesson will issue approximately 16.9 million new
shares of common stock in the merger. The merger of the two companies has been
structured as a tax-free transaction and will be accounted for as a pooling of
interests. The combined company will operate under the McKesson name and will
be headquartered in San Francisco, CA. Under certain circumstances, in the
event that the merger agreement is terminated, as a result of the Company
entering into a competing transaction, McKesson would be entitled to a
termination fee of $65 million from the Company.
Subject to regulatory approval and the approval of the shareholders of both
companies, the transaction is expected to be completed in early 1998. There
can be no assurance that the merger will be completed, or that it will be
completed as contemplated.
Concurrently with the execution of the merger agreement, the Company and
McKesson entered into the AmeriSource Stock Option Agreement ("Option
Agreement"). Pursuant to the Option Agreement, AmeriSource has granted
McKesson an irrevocable option to purchase up to 3,418,601 shares of
AmeriSource common stock at an exercise price of $70.78 per share, under
certain circumstances in which the merger agreement is terminated. The Option
Agreement may have the effect of discouraging persons who may be interested in
acquiring an interest in, or otherwise effecting a business combination with
AmeriSource, from considering or proposing such a transaction.
Certain information in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements as such term is defined in Section 27A of the Securities Act and
Section 21E of the Exchange Act. Certain factors such as changes in interest
rates, competitive pressures, customer and product mix, inventory investment
buying opportunities, regulatory changes, and capital markets could cause
actual results to differ materially from those in forward-looking statements.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
AmeriSource Health Corporation
We have audited the accompanying consolidated balance sheets of AmeriSource
Health Corporation and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
September 30, 1997. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedules. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement and schedule presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AmeriSource Health Corporation and subsidiaries at September 30, 1997 and
1996 and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Philadelphia, Pennsylvania
November 3, 1997
16
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 60,045 $ 65,575
Restricted cash........................................ 8,886 5,626
Accounts receivable, less allowance for doubtful
accounts: 1997--$22,562;
1996--$14,848......................................... 533,319 390,331
Merchandise inventories................................ 1,017,782 650,296
Prepaid expenses and other............................. 4,622 3,236
---------- ----------
Total current assets................................. 1,624,654 1,115,064
Property and equipment, at cost.......................... 114,979 91,508
Less accumulated depreciation.......................... 47,517 39,842
---------- ----------
67,462 51,666
Other assets, less accumulated amortization: 1997--
$6,110; 1996--$5,478.................................... 52,924 21,230
---------- ----------
$1,745,040 $1,187,960
========== ==========
</TABLE>
17
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $1,036,462 $ 714,984
Accrued expenses and other........................... 43,798 29,446
Accrued income taxes................................. 9,433 6,002
Deferred income taxes................................ 40,406 35,350
---------- ----------
Total current liabilities.......................... 1,130,099 785,782
Long-term debt:
Revolving credit facility............................ 280,768 205,047
Receivables securitization financing................. 299,913 226,878
Other debt........................................... 9,138 1,768
---------- ----------
589,819 433,693
Other liabilities...................................... 10,811 5,293
Stockholders' equity:
Common stock, $.01 par value:
Class A (voting and convertible):
50,000,000 shares authorized; issued 9/97--
17,540,629 shares;
9/96--17,291,100 shares........................... 175 173
Class B (nonvoting and convertible):
15,000,000 shares authorized; issued 9/97--
9,440,370 shares;
9/96--9,440,370 shares............................ 94 94
Class C (nonvoting and convertible):
2,000,000 shares authorized; issued 9/97--166,495
shares;
9/96--242,298 shares.............................. 2 3
Capital in excess of par value....................... 234,188 228,537
Retained earnings (deficit).......................... (213,928) (259,395)
Cost of common stock in treasury..................... (6,220) (6,220)
---------- ----------
14,311 (36,808)
---------- ----------
$1,745,040 $1,187,960
========== ==========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $7,815,942 $5,551,671 $4,668,948
Cost of goods sold......................... 7,428,466 5,249,238 4,402,593
---------- ---------- ----------
Gross profit............................... 387,476 302,433 266,355
Selling and administrative................. 255,424 195,350 160,887
Depreciation............................... 11,380 8,894 7,456
Amortization............................... 1,059 300 177
---------- ---------- ----------
Operating income........................... 119,613 97,889 97,835
Interest expense........................... 41,581 35,980 52,288
---------- ---------- ----------
Income before taxes and extraordinary
items..................................... 78,032 61,909 45,547
Taxes on income............................ 30,583 19,259 17,329
---------- ---------- ----------
Income before extraordinary items.......... 47,449 42,650 28,218
Extraordinary items--early retirement of
debt, net of income tax benefits.......... (1,982) (7,242) (18,037)
---------- ---------- ----------
Net income................................. $ 45,467 $ 35,408 $ 10,181
========== ========== ==========
Earnings per share:
Primary:
Income before extraordinary items...... $ 1.95 $ 1.85 $ 1.54
Extraordinary items.................... (.08) (.31) (.98)
---------- ---------- ----------
Primary net income per share......... $ 1.87 $ 1.54 $ .56
========== ========== ==========
Weighted average number of common
shares outstanding.................... 24,271 23,031 18,333
Fully diluted:
Income before extraordinary items...... $ 1.94 $ 1.84 $ 1.53
Extraordinary items.................... (.08) (.31) (.98)
---------- ---------- ----------
Fully diluted net income per share... $ 1.86 $ 1.53 $ .55
========== ========== ==========
Weighted average number of common
shares outstanding.................... 24,432 23,217 18,396
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN RETAINED COMMON
----------------------- EXCESS OF EARNINGS STOCK IN
CLASS A CLASS B CLASS C PAR VALUE (DEFICIT) TREASURY TOTAL
------- ------- ------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1994...... $ 5 $130 $ 15 $ 4,676 $ (304,984) $ (568) $(300,726)
Net income............. 10,181 10,181
Stock conversions...... 11 (11) --
Issuance of 7,590,000
shares in public
offering (net of
$1,293 of issuance
costs)................ 76 148,092 148,168
Exercise of stock
options............... 29 6,027 6,056
Purchase of 292,452
shares of Class A and
1,338,894 shares of
Class B common stock.. (5,652) (5,652)
Tax benefit from
exercise of stock
options............... 6,249 6,249
---- ---- ---- -------- ---------- -------- ---------
September 30, 1995...... 121 130 4 165,044 (294,803) (6,220) (135,724)
Net income............. 35,408 35,408
Stock conversions...... 37 (36) (1) --
Issuance of 1,500,000
shares in public
offering (net of $980
of issuance costs).... 15 49,285 49,300
Exercise of stock
options............... 42 42
Tax benefit from 1995
exercise of stock
options............... 14,166 14,166
---- ---- ---- -------- ---------- -------- ---------
September 30, 1996...... 173 94 3 228,537 (259,395) (6,220) (36,808)
Net income............. 45,467 45,467
Stock conversions ..... 1 (1) --
Excercise of stock
options................ 1 3,808 3,809
Tax benefit from
exercise of stock
options............... 1,843 1,843
---- ---- ---- -------- ---------- -------- ---------
September 30, 1997...... $175 $ 94 $ 2 $234,188 $(213,928) $(6,220) $ 14,311
==== ==== ==== ======== ========== ======== =========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................ $ 45,467 $ 35,408 $ 10,181
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation............................. 11,380 8,894 7,456
Amortization, including deferred
financing costs......................... 2,949 2,688 2,656
Provision for loss on accounts
receivable.............................. 6,587 2,074 5,449
Gain on disposal of property and
equipment............................... (176) (2) (60)
Debentures issued in lieu of payment of
interest................................ -- -- 4,572
Provision for deferred income taxes...... (5,055) 5,805 (1,400)
Loss on early retirement of debt......... 3,250 11,142 25,190
Non-cash charge to cost of goods sold.... -- 10,899 --
Write-downs of assets.................... 3,857 -- --
Changes in operating assets and
liabilities, excluding the effects of
acquisitions:
Restricted cash......................... (3,260) 9,012 (14,638)
Accounts and notes receivable........... (76,236) (48,953) (51,292)
Merchandise inventories................. (271,777) (213,112) (49,266)
Prepaid expenses........................ (1,019) 374 (774)
Accounts payable, accrued expenses, and
income taxes........................... 274,868 216,444 26,466
Miscellaneous........................... (149) (692) (179)
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES................................ (9,314) 39,981 (35,639)
INVESTING ACTIVITIES
Capital expenditures....................... (15,883) (15,711) (13,664)
Cost of companies acquired................. (130,962) (29,467) (4,872)
Proceeds from sales of property and
equipment................................. 1,934 533 2,229
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES...... (144,911) (44,645) (16,307)
FINANCING ACTIVITIES
Long-term debt borrowings.................. 2,103,638 1,607,501 1,839,945
Long-term debt repayments.................. (1,954,977) (1,618,775) (1,914,099)
Net proceeds from public offerings......... -- 49,300 148,168
Deferred financing costs and other ........ (3,775) -- (10,122)
Exercise of stock options.................. 3,809 42 566
Purchases of treasury stock................ -- -- (5,652)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.. 148,695 38,068 58,806
---------- ---------- ----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................... (5,530) 33,404 6,860
Cash and cash equivalents at beginning of
year...................................... 65,575 32,171 25,311
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR... $ 60,045 $ 65,575 $ 32,171
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
AmeriSource Health Corporation, and its wholly-owned subsidiaries (the
"Company") as of the dates and for the periods indicated. All intercompany
transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual amounts may differ from these estimated amounts.
Business
The Company is a wholesale distributor of pharmaceuticals and related health
care products.
Cash Equivalents
The Company classifies highly liquid investments with original maturities of
three months or less at date of purchase as cash equivalents.
Concentrations of Credit Risk
The Company sells its merchandise inventories to a large number of customers
in the health care industry including independent drug stores, chain drug
stores, hospitals, mass merchandisers, clinics, and nursing homes. The
Company's trade accounts receivable are exposed to credit risk, however, the
risk is limited due to the diversity of the customer base and the customer
base's wide geographic dispersion. The Company performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
reserves for potential bad debt losses and such bad debt losses have been
within the Company's expectations.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method, which results in a matching of
current costs and revenues. If the first-in, first-out (FIFO) method of
valuation had been used for determining costs, inventories would have been
approximately $100,711,000 and $97,970,000 higher than the amounts reported at
September 30, 1997 and 1996, respectively.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets by the straight-line method.
Revenue Recognition
The Company recognizes revenues when products are delivered to customers.
Additionally, the Company acts as an intermediary in the bulk shipment of
pharmaceuticals from manufacturers to customers' warehouses, which have been
excluded from revenues and totaled $125 million, $111 million, and $107
million in fiscal years 1997, 1996, and 1995, respectively. The service fees
earned related to these bulk shipments are included in revenues and were
insignificant.
Stock-Based Compensation
The Company follows Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock-based compensation (See Note 7).
22
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Earnings Per Share and Share Data
Earnings per share is computed on the basis of the weighted average number
of shares of common stock outstanding during the periods presented
(23,728,000, 22,689,000 and 18,295,000 for fiscal years 1997, 1996, and 1995,
respectively) plus the dilutive effect of stock options (543,000 and 704,000
for the fiscal 1997, 342,000 and 528,000 for the fiscal 1996, and 38,000 and
101,000 for the fiscal 1995 primary and fully diluted calculations,
respectively). Share and per share amounts prior to April 1995 have been
adjusted for the 2.95-for-1 stock split effected in conjunction with the
Company's initial public offering.
Recently Issued Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary (referred to as
"basic" under Statement No. 128) earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an
increase in basic earnings per share of $.05, and $.02 for the years ended
September 30, 1997 and 1996, respectively with no change to the year ended
September 30, 1995. The impact of Statement 128 on the calculation of fully
diluted (referred to as "diluted" under Statement No. 128) earnings per share
for these periods is not material.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information." Both Statements are effective for fiscal periods
beginning after December 15, 1997 with early adoption permitted. The Company
is evaluating the effects these Statements will have on its financial
reporting and disclosures. These Statements are expected to have no material
effect on the Company's results of operations, financial position, capital
resources or liquidity.
23
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--ACQUISITIONS
During fiscal 1997, the Company acquired all of the equity interests of
Walker Drug Company, L.L.C. in a cash transaction. Walker Drug Company, L.L.C.
is a wholesale pharmaceutical distributor based in Pelham, Alabama which had
annualized revenues of approximately $800 million. During fiscal 1996, the
Company acquired all of the stock of Gulf Distribution, Inc., a Miami,
Florida-based wholesale pharmaceutical distributor which had annualized
revenues of approximately $180 million, and substantially all of the assets of
The Diabetic Shoppe, Inc., a Wisconsin-based provider of diabetic disease
management programs to retail pharmacies. During fiscal 1995, the Company
acquired substantially all of the assets of Newbro Drug Company, a wholesale
pharmaceutical distributor located in Idaho Falls, Idaho and of Liberty Drug
Systems, a North Carolina-based provider of pharmacy software and hardware.
The aggregate purchase price for these acquisitions, including the
assumption of long-term debt, was approximately $138.7 million, $29.5 million
and $4.9 million in fiscal 1997, 1996, and 1995, respectively, and they were
financed by borrowings under the Company's revolving credit facility. These
acquisitions were accounted for by the purchase method and their results of
operations are included in the financial statements from their dates of
acquisition. The excess of purchase price over net assets acquired of $27.4
million, $8.2 million, and $0.4 million in fiscal 1997, 1996, and 1995,
respectively, has been allocated to goodwill (which is included in other
assets) and is being amortized on a straight-line basis over 40 years.
The following unaudited table reflects financial results on a pro forma
basis, assuming the fiscal 1997 and 1996 acquisitions had occurred at the
beginning of the periods presented (the effects of the fiscal 1996 and 1995
acquisitions were not material to the fiscal 1995 consolidated operations).
Pro forma adjustments include: increased amortization for the cost over net
assets acquired; increased interest expense associated with financing the
acquisitions; and related income tax effects. Cost savings from combining the
operations are not reflected because it is not practical to do so.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues................................................ $8,193,611 $6,376,049
Income before extraordinary items....................... 47,334 43,504
Net income.............................................. 45,352 36,262
Earnings per share (fully diluted):
Income before extraordinary item...................... $ 1.94 $ 1.87
Extraordinary item.................................... (.08) (.31)
---------- ----------
Net income.......................................... $ 1.86 $ 1.56
========== ==========
</TABLE>
The unaudited pro forma information is provided for information purposes
only and does not purport to be indicative of the Company's results of
operations that would actually have been achieved had the acquisitions been
completed for the periods presented, or results that may be obtained in the
future.
24
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--TAXES ON INCOME
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current provision:
Federal........................................ $29,747 $10,181 $16,767
State and local................................ 5,891 3,273 1,962
------- ------- -------
35,638 13,454 18,729
Deferred provision:
Federal........................................ (4,127) 4,725 (1,120)
State and local................................ (928) 1,080 (280)
------- ------- -------
(5,055) 5,805 (1,400)
------- ------- -------
Provision for income taxes....................... $30,583 $19,259 $17,329
======= ======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
SEPTEMBER 30,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0% 35.0% 35.0%
State and local income tax rate, net of federal tax
benefit............................................... 4.3 3.9 2.8
Tax effect of operating loss carryover utilized........ -- -- (5.9)
Other.................................................. (0.1) (7.8) 6.1
---- ---- ----
Effective income tax rate.............................. 39.2% 31.1% 38.0%
==== ==== ====
</TABLE>
The Company had received notices from the Internal Revenue Service asserting
deficiencies in federal corporate income taxes for the Company's taxable years
1987 through 1991. The proposed adjustments indicated a net increase to
taxable income for these years of approximately $24 million and related
principally to the deductibility of costs incurred with respect to the
leveraged buyout transaction which occurred in 1988. Legislation enacted in
August 1996, eliminated approximately $20 million of the proposed adjustments
relating to the deductibility of costs incurred with respect to the leveraged
buyout transaction. In addition, the Company reached a settlement with the
Appeals Office of the Internal Revenue Service on all remaining audit issues,
resulting in an assessment of $2.1 million, including interest. As a result of
the settlement, the Company reduced accrued income taxes and income tax
expense by $7.1 million in fiscal 1996.
25
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--TAXES ON INCOME--(CONTINUED)
Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts. Significant components of the Company's deferred tax liabilities
(assets) are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Inventory............................................. $ 55,625 $ 47,469
Fixed assets.......................................... 4,951 4,996
Other................................................. 575 946
-------- --------
Gross deferred tax liabilities.................... 61,151 53,411
Net operating losses and tax credit carryovers........ (4,125) (11,446)
Allowance for doubtful accounts....................... (7,682) (6,111)
Accrued expenses...................................... (4,437) (1,668)
Other postretirement benefits......................... (525) (527)
Other................................................. (4,460) (3,569)
-------- --------
Gross deferred tax assets......................... (21,229) (23,321)
Valuation allowance for deferred tax assets........... 3,173 4,232
-------- --------
Net deferred tax liabilities.......................... $ 43,095 $ 34,322
======== ========
</TABLE>
In 1997, a tax benefit of $1.8 million related to the exercise of employee
stock options was recorded as capital in excess of par value. In 1996 and
1995, tax benefits of $14.2 million and $6.2 million related to the exercise
of employee stock options in connection with the Company's April 1995 public
offering of common stock described in Note 5, were recorded as capital in
excess of par value.
As of September 30, 1997, the Company has a $3.9 million alternative minimum
tax credit carryforward.
Income tax payments amounted to $18.7 million, $6.9 million, and $2.8
million in the fiscal years ended September 30, 1997, 1996, and 1995,
respectively.
NOTE 4--LONG-TERM DEBT
Receivable Securitization Financing
In fiscal 1995, the Company sold substantially all of its trade accounts and
notes receivable (the "Receivables") to AmeriSource Receivables Corporation
("ARC"), a special-purpose, wholly-owned subsidiary, pursuant to a trade
receivables securitization program (the "Receivables Program").
Contemporaneously, the Company entered into a Receivables Purchase Agreement
with ARC, whereby ARC agreed to purchase on a continuous basis Receivables
originated by the Company. Pursuant to the Receivables Program, ARC will
transfer such Receivables to a master trust in exchange for, among other
things, certain trade receivables-backed certificates (the "Certificates").
During the term of the Receivables Program, the cash generated by collections
on the Receivables will be used to purchase, among other things, additional
Receivables originated by the Company. The Company has accounted for the
transactions pursuant to the terms of the Receivables Purchase Agreement as a
sale of Receivables from AmeriSource to ARC and as a financing transaction by
ARC on the Company's consolidated financial statements. The assets and
liabilities of the master trust have been consolidated with the Company at
September 30, 1997.
26
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT--(CONTINUED)
Pursuant to the Receivables Program in fiscal 1995, the Company issued: (i)
$175 million of Floating Rate Class A Trade Receivables Participation
Certificates ("Class A Certificates") and (ii) $35 million of Floating Rate
Class B Trade Receivables Participation Certificates ("Class B Certificates"),
which represent fractional undivided interests in the Receivables and other
assets of the master trust. The Class A Certificates bear interest at one
month LIBOR plus .35% and the Class B Certificates, which are subordinated to
the Class A Certificates, bear interest at one month LIBOR plus .70%. In
fiscal 1997, the Company issued an additional $90 million of Floating Rate
Class A Trade Receivables Participation Certificates Series 1997-1 (the
"Series 1997-1 Certificates"). The Series 1997-1 Certificates bear interest at
one month LIBOR plus .20%. The Class A, Class B and Series 1997-1 Certificates
each have a five-year term. In addition, the Company issued Floating Rate
Revolving Principal Trade Receivables Participation Certificates ("Revolving
Certificates"), pursuant to which investors may purchase up to $75 million of
interests in the master trust, which Certificates will bear interest, at the
Company's option, at either LIBOR plus .35% or the federal funds rate plus
1.00%. The Revolving Certificates rank pari passu in right of payment with the
Class A Certificates. There were $0 and $17 million of Revolving Certificates
outstanding at September 30, 1997 and 1996. Fees of $0.7 million and $4.6
million incurred in fiscal 1997 and fiscal 1995 in connection with
establishing the Receivables Program have been deferred and are being
amortized on a straight-line basis over a period of five years. Class A
Certificates of $175 million principal amount (at an interest rate of 6.0%),
Class B Certificates of $35 million principal amount (at an interest rate of
6.4%) and Series 1997-1 Certificates of $90 million principal amount (at an
interest rate of 5.9%) were outstanding under the Receivables Program at
September 30, 1997. The Company is required to pay a commitment fee of 1/4 of
1% per annum on the average unused portion of the Certificates. Restricted
cash of $8.9 million and $5.6 million at September 30, 1997 and 1996,
represents amounts temporarily deposited in the master trust from collections
on the Receivables, which are designated for specific purposes pursuant to the
Receivables Program.
Revolving Credit Agreement
In January 1997, the Company entered into a new revolving credit agreement
(the "Credit Agreement") with a syndicate of senior lenders providing a senior
secured facility of $500 million. Among other things, the Credit agreement:
(1) is for a term of five years, expiring in January 2002; (2) provides for
interest rate step-downs to as low as LIBOR plus 25 basis points upon the
attainment of certain financial ratios; (3) provides for the release of
security upon the attainment of certain financial ratios or once the Company
achieves investment grade senior, unsecured debt ratings from two credit
rating agencies; (4) provides for a borrowing base of 70% of the eligible
inventory; and (5) provides higher limits for possible acquisitions. An
extraordinary loss of $2.0 million (net of tax benefits of $1.3 million) was
recorded in fiscal 1997, representing the write-off of the unamortized
financing fees related to the retirement of the prior $380 million revolving
credit facility. In connection with the Credit Agreement, the Company incurred
approximately $3.0 million, of financing fees which have been deferred and are
being amortized on a straight-line basis over the five-year term of the Credit
Agreement.
Revolving loans made under the Credit Agreement may be prepaid during its
term without premium and may subsequently be reborrowed. Commitments under the
Credit Agreement may be permanently reduced in full or in part at any time at
the option of the Company upon prior written notice.
Borrowings under the Credit Agreement bear interest at the rate of LIBOR
plus an applicable margin (1.25% at September 30, 1997) or the applicable
prime rate. Interest on loans under the Credit Agreement is payable quarterly.
Under the terms of the Credit Agreement, the Company granted the senior
lenders a perfected first priority security interest in the Company's
inventory for collateral against borrowings under the Credit Agreement. The
Company is required to pay a commitment fee on the average unused portion of
the Credit
27
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT--(CONTINUED)
Agreement (.31% per annum at September 30, 1997) plus an annual administration
fee. At September 30, 1997, the $280.8 million outstanding under the Credit
Agreement bore interest at the rate of 7.5% per annum.
An extraordinary loss of $2.4 million (net of a $1.0 million tax benefit)
was recorded during the fiscal year ended September 30, 1995 representing the
write-off of unamortized financing fees related to a former revolving credit
facility.
Senior Subordinated Notes
Contemporaneously with the consummation of the Receivables Program and the
execution of the prior revolving credit facility in fiscal 1995, the Company
redeemed all of the outstanding 14 1/2% senior subordinated notes at a
redemption price of 106% of the principal amount plus accrued interest through
the redemption date. In connection with the redemption of the 14 1/2% senior
subordinated notes, the Company recorded an extraordinary charge of $8.7
million (net of a $3.4 million tax benefit) during the fiscal year ended
September 30, 1995 related to the write-off of unamortized deferred financing
fees and premiums paid on the redemption.
Senior Debentures
On July 26, 1993, the Company issued $126.5 million principal amount of 11
1/4% Senior Debentures ("Senior Debentures") due 2005. In conjunction with its
initial public offering of common stock, the Company, in May 1995, redeemed
one-half of the Senior Debentures outstanding for 110% of the principal amount
plus accrued interest through the date of redemption (approximately $84.4
million), which resulted in an extraordinary charge of $6.9 million (net of a
$2.7 million tax benefit) related to the write-off of unamortized deferred
financing fees and premiums paid on the redemption. In April 1996, the Company
purchased and retired $26.7 million of the Senior Debentures for 111.25% of
the principal amount (including fees) plus accrued interest. In June 1996, the
Company redeemed the remaining $47.6 million of the Senior Debentures via a
tender offer and related consent solicitation for 110.75% of the principal
amount (including fees) plus accrued interest and a consent amount equal to
2.0% of the principal amount. The fiscal 1996 transactions were funded by
proceeds from the Company's 1996 public offering and borrowings under the
Company's revolving credit agreement and resulted in an extraordinary charge
of $7.2 million (net of a $3.9 million tax benefit), related to the open
market purchase and tender offer premiums, transaction fees and the write-off
of related unamortized deferred financing fees.
The Company enters into interest-rate cap agreements to hedge the exposure
to increasing interest rates with respect to its long-term debt. The Company
provides protection to meet actual interest rate exposures and does not
speculate in derivatives. The interest rate caps under these agreements exceed
the current market rates at the time they are entered into and their cost is
included in interest expense ratably over the life of the agreement. The
unamortized cost of the agreements is included in other assets. The Company is
required by its Credit Agreement to maintain interest rate protection on a
minimum of $112.5 million of its long-term debt through January 1999. The
Company has entered into two-year interest rate cap agreements expiring in May
1999 which specify that the 3-month LIBOR base rate will not be greater than
7.50% with respect to $115 million of borrowings under the Credit Agreement.
The indentures governing the Receivables Program and the Credit Agreement
contain restrictions and covenants which include limitations on incurrence of
additional indebtedness, restrictions on distributions and dividends to
stockholders, the repurchase of stock and the making of certain other
restricted payments, the issuance of preferred stock, the creation of certain
liens, transactions with subsidiaries and other affiliates, and
28
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT--(CONTINUED)
certain corporate acts such as mergers, consolidations, and the sale of
substantially all assets. Additional covenants require compliance with
financial tests, including leverage, fixed charge coverage, and maintenance of
minimum net worth.
Interest paid on the above indebtedness during the fiscal years ended
September 30, 1997, 1996, and 1995 was $37.3 million, $36.2 million, and $43.6
million, respectively.
Total amortization of financing fees and expenses (included in interest
expense) for the fiscal years ended September 30, 1997, 1996, and 1995 was
$1.9 million, $2.4 million, and $2.5 million, respectively.
As of September 30, 1997, the Company's revolving credit facility and
receivables securitization financing had fair values that approximated their
carrying amounts.
NOTE 5--STOCKHOLDERS' EQUITY
In April 1995, the Company issued 7,590,000 shares of Class A common stock
in a public offering at $21.00 per share. The net proceeds from the offering
of $148.2 million were used to reduce the Company's outstanding indebtedness
(see Note 4). On a pro forma basis, income and earnings per share before
extraordinary items for fiscal 1995 would have been $35.0 million and $1.57,
respectively, if the public offering had occurred on October 1, 1994. The pro
forma information assumes reduced interest expense and applicable income tax
adjustments resulting from the application of the net proceeds from the
offering and it assumes 22,271,936 shares of common stock outstanding for the
year. The pro forma information does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results.
In May 1996, the Company completed a public offering of 4,800,000 shares of
Class A common stock at a price of $35 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
certain stockholders of the Company (the "Selling Stockholders"). The Company
did not receive any of the proceeds from the shares sold by the Selling
Stockholders. The net proceeds of $49.3 million from the 1,500,000 shares sold
by the Company were used to repay long-term debt. On a pro forma basis,
assuming historical data is adjusted to reflect the public offering and
related pay-down of long-term debt as if they occurred on October 1, 1995,
earnings per share before extraordinary items for fiscal 1996 would not be
materially different from reported earnings per share.
The holders of the Class A common stock are entitled to one vote per share
on all matters on which holders of Class A common stock are entitled to vote.
The holders of the Class A common stock may elect at any time to convert any
or all such shares into the Class B common stock on a share-for-share basis
(but only to the extent that such record holder of Class A common stock shall
be deemed to be required to convert such Class A common stock into Class B
common stock pursuant to applicable law).
The rights of holders of Class B and Class C common stock and holders of
Class A common stock are substantially identical and entitle the holders
thereof to the same rights, privileges, benefits, and notices, except that
holders of Class B and Class C common stock generally do not possess the right
to vote on any matters to be voted upon by the stockholders of the Company,
except as provided by law. Holders of Class B and Class C 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.
The Class C common stock is subject to substantial restrictions on transfer
and has certain registration and "take-along" rights. A share of Class C
common stock will automatically be converted into a share of Class A common
stock (a) immediately prior to its sale in a future public offering or (b) at
such time as such share of Class C common stock has been sold publicly.
During fiscal 1995, the Company issued 2,893,766 shares of Class A common
stock upon the exercise of stock options (see Note 7), purchased as treasury
stock 1,338,894 shares of Class B common stock from 399
29
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--STOCKHOLDERS' EQUITY--(CONTINUED)
Ventures Partners Inc., a wholly-owned indirect subsidiary of Citicorp
pursuant to a prior agreement, and purchased as treasury stock 292,452 shares
of Class A common stock from option holders to enable the holders to satisfy
certain minimum tax withholding obligations.
NOTE 6--PENSION AND OTHER BENEFIT PLANS
The Company provides a benefit for the majority of its employees under
noncontributory defined benefit pension plans. For each employee, the benefits
are based on years of service and average compensation. Pension costs, which
are computed using the projected unit credit cost method, are funded on at
least the minimum amount required by government regulations.
A summary of the components of net periodic pension cost charged to expense
for the Company-sponsored defined benefit pension plans together with
contributions charged to expense for a multi-employer union-administered
defined benefit pension plan the Company participates in follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost......................................... $ 2,994 $ 2,599 $ 2,267
Interest cost on projected benefit obligation........ 3,275 2,835 2,495
Actual return on plan assets......................... (4,196) (2,380) (2,876)
Net amortization and deferral........................ 1,404 (14) 519
------- ------- -------
Net pension cost of defined benefit plans............ 3,477 3,040 2,405
Net pension cost of multi-employer plan.............. 245 196 178
------- ------- -------
Total pension expense............................ $ 3,722 $ 3,236 $ 2,583
======= ======= =======
</TABLE>
The following table sets forth (in thousands) the funded status and amount
recognized in the consolidated balance sheets for the Company-sponsored
defined benefit pension plans:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plan assets at fair
value.................. $36,349 $ 917 $30,883 $ 706
Actuarial present value
of benefit obligations:
Vested................ 31,444 1,706 28,650 1,231
Accumulated, not
vested............... 608 510 404 388
------- ------- ------- -------
Accumulated benefit
obligations............ 32,052 2,216 29,054 1,619
Effect of future pay
increases............ 10,119 1,280 10,948 576
------- ------- ------- -------
Projected benefit
obligation............. 42,171 3,496 40,002 2,195
------- ------- ------- -------
Plan assets less than
projected benefit
obligation............. (5,822) (2,579) (9,119) (1,489)
Unrecognized net
transition asset....... (485) -- (655) --
Unrecognized prior
service cost........... 2,553 572 2,777 626
Adjustment to recognize
minimum liability...... -- (424) -- (400)
Unrecognized net loss
related to assumptions. 3,985 1,132 6,950 350
------- ------- ------- -------
Pension asset
(liability) recognized. $ 231 $(1,299) $ (47) $ (913)
======= ======= ======= =======
</TABLE>
30
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PENSION AND OTHER BENEFIT PLANS--(CONTINUED)
Assumptions used in computing the funded status of the plans were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Discount rate.............................................. 7.75% 7.75% 7.25%
Rate of increase in compensation levels.................... 6.25% 6.25% 5.75%
Expected long-term rate of return on assets................ 10.00% 10.00% 10.00%
</TABLE>
Plan assets at September 30, 1997 are invested principally in listed stocks,
corporate and government bonds, and cash equivalents.
Additionally, the Company sponsors the Employee Investment Plan, a defined
contribution 401(k) plan, which covers salaried and certain hourly employees.
Eligible participants may contribute to the plan up to 2% to 18% of their
regular compensation before taxes. The Company matches the employee
contributions up to a maximum of 6% of their regular compensation in an amount
equal to 50% of the participants' contributions. An additional discretionary
Company contribution in an amount not to exceed 50% of the participants'
contributions may also be made depending upon the Company's performance. All
contributions are invested at the direction of the employee in one or more
funds. Employer contributions vest over a five-year period depending upon an
employee's years of service. Costs of the plan charged to expense for the
fiscal years ended September 30, 1997, 1996, and 1995 amounted to $0.9
million, $1.8 million, and $0.9 million, respectively.
As a result of special termination benefit packages previously offered, the
Company provides medical, dental, and life insurance benefits to only a
limited number of retirees and their dependents. These benefit plans are
unfunded. The accumulated postretirement benefit obligation was $0.9 million
as of September 30, 1997. The weighted average discount rate used in
determining the accumulated postretirement benefit obligations was 7.50% at
September 30, 1997 and 1996, respectively. The annual expense for such
benefits is not material.
NOTE 7--STOCK OPTION PLANS
Effective October 1, 1996, the Company adopted the disclosure-only option
under SFAS No. 123, "Accounting for Stock-Based Compensation." The Company
continues to use the accounting method under APB Opinion No. 25 ("APB 25") and
related interpretations for its employee stock options. Under APB 25,
generally when the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In fiscal 1989, the Company adopted the AmeriSource Health Corporation and
Subsidiaries Employee Stock Purchase Plan (the "Purchase Plan") to enable
certain members of management to participate in the equity ownership of the
Company. Pursuant to the Purchase Plan, management investors, on November 3,
1989, purchased options on 1,716,347 shares of the Company's Class A common
stock which were exercisable at $.34 per share. The remaining 1,531,603
options outstanding under the Purchase Plan were exercised during fiscal 1995.
No further awards will be granted under the Purchase Plan.
In fiscal 1990, the Company adopted the Partners Stock Option Plan (the
"Partners Plan") to enable other employees of the Company to participate in
the equity ownership of the Company. On March 2, 1991, options to acquire
368,160 shares of Class A common stock were granted at an exercise price of
$.34 per share. During fiscal 1995, 3,392 options were canceled, and the
remaining 336,448 options were exercised. No further awards will be granted
under the Partners Plan.
In fiscal 1992, the Company adopted the 1991 Stock Option Plan (the "1991
Option Plan") for the granting of nonqualified stock options to acquire up to
an aggregate of 1,069,375 shares of Class A common stock. The options were
granted to certain members of the Company's management at an exercise price of
$.34 per share on April 8, 1992. During fiscal 1995, 14,160 options were
canceled and the remaining 1,025,715 options outstanding under the 1991 Option
Plan were exercised. No further awards will be granted under the 1991 Option
Plan.
31
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
During fiscal 1995, the Company adopted the AmeriSource Health Corporation
1995 Stock Option Plan (the "1995 Option Plan"), which provides for the
granting of nonqualified stock options to acquire up to approximately 1.2
million shares of common stock to employees of the Company at a price not less
than the fair market value of the common stock on the date the option is
granted. The option terms and vesting periods are determined at the date of
grant by a committee of the Board of Directors. Options expire six years after
the date of grant unless an earlier expiration date is set at the time of
grant.
During fiscal 1995, the Company also adopted the AmeriSource Health
Corporation Non-Employee Director Stock Option Plan (the "1995 Directors
Plan"), which provides for the grant of stock options to the Company's non-
employee directors. Under the 1995 Directors Plan, stock options are granted
annually at the fair market value of the Company's common stock on the date of
grant. The number of options so granted annually is fixed by the plan. Such
options become fully exercisable on the first anniversary of their respective
grant, except for the options under the initial grant, which are fully
exercisable on the third anniversary of the grant. The total number of shares
to be issued under the 1995 Directors Plan may not exceed 50,000 shares.
During fiscal 1997, the Company adopted the 1996 Employee Stock Option Plan
(the "1996 Option Plan") and the 1996 Non-Employee Directors Stock Option Plan
(the "1996 Directors Plan"). The 1996 Option Plan and the 1996 Directors Plan
provide for the granting of nonqualified stock options to acquire up to
797,000 and 50,000 shares of common stock, respectively, to employees and non-
employee directors at a price not less than the fair market value of the
common stock on the date the option is granted. The option terms and vesting
periods of the 1996 Option Plan are determined at the date of grant by a
committee of the Board of Directors. The number of options to be granted
annually under the 1996 Directors Plan is fixed by the plan and vest
immediately. Options expire ten years after the date of grant unless an
earlier expiration date is set at the time of grant.
A summary of the Company's stock option activity for its 1996 and 1995
option plans, and related information for the fiscal years ended September 30
follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000) PRICE (000) PRICE (000) PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
year....................... -- $ -- 907 $21 1,175 $23
Granted................... 915 21 298 28 457 49
Exercised................. -- -- (2) 21 (174) 22
Forfeited................. (8) 21 (28) 22 (192) 32
--- ------ ------
Outstanding end of year..... 907 $ 21 1,175 $23 1,266 $31
=== ====== ======
Exercisable at end of year.. -- -- 214 $21 316 $24
Weighted average fair value
of options granted during
the year................... $11.01 $19.14
</TABLE>
A summary of the status of fixed options outstanding at September 30, 1997
follows:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
OUTSTANDING OPTIONS ---------------------------
-----------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE RANGE (000) LIFE PRICE (000) PRICE
- ----------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$21-$28 864 4 years $23 291 $22
$42-$53 402 9 years 49 25 49
</TABLE>
In December 1997, a grant of 450,000 stock options was made under the 1996
Option Plan.
32
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
Pro forma disclosures, as required by SFAS No. 123, regarding net income and
earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method.
Option valuation models use highly subjective assumptions to determine the
fair value of traded options with no vesting or trading restrictions. Because
options granted under the Company's Stock Option Plans have vesting
requirements and cannot be traded, and because changes in the assumptions can
materially affect the fair value estimate, in management's opinion, the
existing valuation models do not necessarily provide a reliable measure of the
fair value of its employee stock options.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for fiscal 1997 and fiscal 1996: risk-free interest rate of 6.0%;
no dividends; a volatility factor of the expected market price of the
Company's common stock of .321 and a weighted-average expected life of the
options of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' assumed vesting period. SFAS
No. 123 requires only that the income effects of options granted during fiscal
1997 and fiscal 1996 be included in the pro forma disclosures. Since a portion
of the Company's stock options vest over several years and additional options
may be granted each year, the pro forma effect on net income reported, below,
is not representative of the effect of fair value stock option expense on
future years' pro forma net income. The Company's pro forma information
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR ENDED
SEPTEMBER 30,
---------------
1997 1996
------- -------
<S> <C> <C>
Pro forma net income........................................... $43,532 $35,057
Pro forma earnings per share:
Primary ...................................................... $ 1.80 $ 1.52
Fully diluted................................................. 1.79 1.51
</TABLE>
NOTE 8--LEASES
At September 30, 1997, future minimum payments totaling $50.0 million under
noncancelable operating leases with remaining terms of more than one fiscal
year were due as follows: 1998--$11.8 million; 1999--$9.7 million; 2000--$6.4
million; 2001--$4.1 million; 2002--$2.9 million; and thereafter (through
2009)--$15.1 million. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
Total rental expense was $14.0 million in fiscal 1997, $9.7 million in
fiscal 1996, and $7.6 million in fiscal 1995.
33
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--FACILITY CONSOLIDATIONS AND OTHER CHARGES
The Company commenced cost reduction plans in the third quarter of fiscal
1997 to consolidate three of its pharmaceutical distribution facilities into
other existing facilities and to restructure its sales force. The cost
reduction initiatives will be completed by December 1997 and resulted in the
following charges included in selling and administrative expense in fiscal
1997.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Write-downs of assets............................... $3,857
Severance........................................... 1,832
Lease cancellations................................. 727
------
$6,416
======
</TABLE>
Write-downs of assets include buildings, warehouse and computer equipment,
and other assets to be disposed of primarily related to the facility closings.
Severance includes the termination costs of 240 warehouse and sales employees.
Approximately 40 of these employees were terminated by September 30, 1997 and
the remainder are expected to be terminated by December 1997.
In addition to the above charges, the Company incurred $5.2 million of
charges related to the retirement of its former President and CEO as well as
other executive terminations during fiscal 1997.
NOTE 10--LEGAL MATTERS AND CONTINGENCIES
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, and governmental investigations,
including antitrust, environmental, product liability, and regulatory agency
and other matters. In some of these proceedings, plaintiffs may seek to
recover large and sometimes unspecified amounts and the matters may remain
unresolved for several years. On the basis of information furnished by counsel
and others, the Company does not believe that these matters, individually or
in the aggregate, will have a material adverse effect on its business or
financial condition.
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in a
series of purported class action antitrust lawsuits brought by retail
pharmacies, alleging violations of various antitrust laws stemming from the
use of chargeback agreements. In addition, the Company and four other
wholesale distributors were added as defendants in a series of related
antitrust lawsuits brought by independent pharmacies who have opted out of the
class cases and chain drug stores. The Company also is a defendant in parallel
suits filed in state courts in Minnesota, Alabama, and Mississippi. The
Federal class actions were originally filed in the United States District
Court for the Southern District of New York, and have been transferred along
with the individual and chain drug store cases to the United States District
Court for the Northern District of Illinois. Plaintiffs seek injunctive
relief, treble damages, attorneys' fees and costs. In October 1994, the
Company entered into a Judgement Sharing Agreement with the other wholesaler
and pharmaceutical manufacturer defendants. Under the Judgement Sharing
Agreement; (a) the manufacturer defendants agreed to reimburse the wholesaler
defendants for litigation costs incurred, up to an aggregate of $9 million;
and (b) if a judgement is entered into against both manufacturers and
wholesalers, the total exposure for joint and several liability of the Company
is limited to the lesser of 1% of such judgement or $1 million. In addition,
the Company has released any claims which it might have had against the
manufacturers for the claims presented by the Plaintiffs in these lawsuits.
The Judgement Sharing Agreement covers the federal court litigation as well as
the cases which have been filed in various state courts.
On April 4, 1996, the District Court granted the Company's motion for
summary judgement in the class case. Plaintiffs subsequently appealed the
Company's grant of summary judgement to the United States Court of
34
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LEGAL MATTERS AND CONTINGENCIES--(CONTINUED)
Appeals for the Seventh Circuit. On August 15, 1997, the Court of Appeals
reversed the District Court's order granting summary judgement in favor of the
Company and the other wholesalers. The Court of Appeals also denied the
Company's petition for rehearing. The Company and the other wholesalers intend
to file a petition for a writ of certiorari to the United States Supreme Court
on or before January 6, 1998. The Company believes it has meritorious defenses
to the claims asserted in these lawsuits and intends to vigorously defend
itself in all of these cases.
The Company is subject to contingencies pursuant to environmental laws and
regulations at one of its former distribution centers that may require the
Company to take remediation efforts. In fiscal 1994, the Company accrued $4.1
million to cover future consulting, legal, and remediation and ongoing
monitoring costs. The accrued liability, which is reflected in other long-term
liabilities on the accompanying consolidated balance sheet ($3.8 million at
September 30, 1997), is based on an engineering analysis prepared by outside
consultants and represents an estimate of the extent of contamination and
choice of remedy, existing technology and presently enacted laws and
regulations. However, changes in remediation standards, improvements in
cleanup technology and discovery of additional information concerning the site
could affect the estimated liability in the future. The Company is
investigating the possibility of asserting claims against responsible parties
for recovery of these costs. Whether or not any recovery may be forthcoming is
unknown at this time, although the Company intends to vigorously enforce its
rights and remedies.
NOTE 11--PROPOSED MCKESSON CORPORATION MERGER
On September 22, 1997, the Company and McKesson Corporation ("McKesson")
signed a definitive merger agreement providing for the Company to merge with
McKesson. McKesson is the largest distributor of pharmaceuticals and related
health care products and value-added services in the United States. Under the
terms of the agreement, stockholders of AmeriSource will receive a fixed
exchange ratio of 0.71 shares of McKesson common stock for each share of
AmeriSource common stock. McKesson will issue approximately 16.9 million new
shares of common stock in the merger. The merger of the two companies has been
structured as a tax-free transaction and will be accounted for as a pooling of
interests. The combined company will operate under the McKesson name and will
be headquartered in San Francisco, CA. Under certain circumstances, in the
event that the merger agreement is terminated, as a result of the Company
entering into a competing transaction, McKesson would be entitled to a
termination fee of $65 million from the Company.
Subject to regulatory approval and the approval of shareholders of both
companies, the transaction is expected to be completed in early 1998. There
can be no assurance that the merger will be completed, or that it will be
completed as contemplated.
Concurrently with the execution of the merger agreement, the Company and
McKesson entered into the AmeriSource Stock Option Agreement ("Option
Agreement"). Pursuant to the Option Agreement, AmeriSource has granted
McKesson an irrevocable option to purchase up to 3,418,601 shares of
AmeriSource common stock at an exercise price of $70.87 per share, under
certain circumstances in which the merger agreement is terminated. The Option
Agreement may have the effect of discouraging persons who may be interested in
acquiring an interest in, or otherwise effecting a business combination with
AmeriSource, from considering or proposing such a transaction.
35
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues..................... $1,746,935 $1,785,469 $2,064,174 $2,219,364
Gross profit................. 86,152 92,901 100,460 107,963
Selling and administrative
expenses, depreciation and
amortization................ 57,162 60,314 79,468 70,919
Operating income............. 28,990 32,587 20,992 37,044
Income before extraordinary
items....................... 11,817 13,132 6,332 16,168
Extraordinary item--Early
retirement of debt.......... -- (1,982) -- --
Net income................... 11,817 11,150 6,332 16,168
Per share (fully diluted):
Income before extraordinary
item...................... .49 .54 .26 .66
Extraordinary item......... -- (.08) -- --
Net income per share..... .49 .46 .26 .66
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996 1996
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues..................... $1,282,513 $1,362,056 $1,420,006 $1,487,096
Gross profit................. 69,725 78,158 80,531 74,019
Selling and administrative
expenses, depreciation and
amortization................ 45,334 50,875 53,807 54,528
Operating income............. 24,391 27,283 26,724 19,491
Income before extraordinary
item........................ 8,850 10,100 10,405 13,295
Extraordinary item--Early
retirement of debt.......... -- -- (7,242) --
Net income................... 8,850 10,100 3,163 13,295
Per share (fully diluted):
Income before extraordinary
item...................... .39 .45 .45 .55
Extraordinary item......... -- -- (.31) --
Net income per share..... .39 .45 .14 .55
</TABLE>
In the third quarter of fiscal 1997, the Company incurred a $6.4 million
charge to consolidate facilities and restructure its sales force and a $5.2
million charge related to executive management changes. See Note 9.
In the fourth quarter of fiscal 1996, cost of goods sold was impacted by a
one-time cumulative non-cash charge of $10.9 million arising from the
misconduct of a former employee. In December 1996, the Company discovered
erroneous entries were made over a number of years to improperly understate
cost of goods sold and liabilities in one of its regions. The Company has
concluded the estimated impact of the erroneous entries was not material to
operations or the financial position of the Company in any individual year.
Although the Company cannot determine the actual impact of the erroneous
entries on a year-to-year basis, the Company believes that over one-half of
the amount of the charge occurred prior to fiscal 1993.
As a result of the settlement with the Internal Revenue Service, the Company
reduced income tax expense by $7.1 million in the fourth quarter of fiscal
1996. (See Note 3.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
(No response to this Item is required.)
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information appearing under "Election of Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Company's Notice
of Annual Meeting of Stockholders and Proxy Statement for the 1998 annual
meeting of stockholders (the "1998 Proxy Statement") is incorporated herein by
reference. The Company will file the 1998 Proxy Statement with the Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year.
Information regarding executive officers is set forth in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation appearing under "Management,"
"Compensation of Directors," "Compensation Committee Interlocks and Insider
Participation," "Report of the Compensation Committee of the Board of
Directors," and "Stockholder Return Performance" in the 1998 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management appearing under "Security Ownership of Certain Beneficial Owners
and Management" in the 1998 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Relationships and Transactions" in the
1998 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND SCHEDULES.
Financial Statements: The following consolidated financial statements are
submitted in response to Item 14(a)(1):
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... 16
Consolidated Balance Sheets as of September 30, 1997 and 1996............. 17
Consolidated Statements of Operations for the fiscal years ended September
30, 1997, 1996 and 1995.................................................. 19
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended September 30, 1997, 1996 and 1995............................ 20
Consolidated Statements of Cash Flows for the fiscal years ended September
30, 1997, 1996 and 1995.................................................. 21
Notes to Consolidated Financial Statements................................ 22
</TABLE>
Financial Statement Schedules: The following financial statement schedules
are submitted in response to Item 14(a)(2) and Item 14(d):
<TABLE>
<S> <C>
Schedule I--Condensed Financial Information of AmeriSource Health
Corporation as of
September 30, 1997 and 1996 and for the fiscal years ended
September 30, 1997, 1996 and 1995................................ S-1
Schedule II--Valuation and Qualifying Accounts............................ S-5
</TABLE>
37
<PAGE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
(A)(3) LIST OF EXHIBITS.*
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 22, 1997, by and
among McKesson Corporation, AmeriSource Health Corporation and Patriot
Acquisition Corp. (incorporated by reference to Exhibit 99.1 to
Registrant's Current Report on Form 8-K filed with the Commission on
September 24, 1997).
2.2 Stock Option Agreement, dated September 22, 1997, by and between
McKesson Corporation and AmeriSource Health Corporation (incorporated
by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-
K filed with the Commission on September 24, 1997).
2.3 Voting/Support Agreement, dated September 22, 1997, by and among 399
Venture Partners, Inc., McKesson Corporation and Patriot Acquisition
Corp. (incorporated by reference to Exhibit 99.3 to Registrant's
Current Report on Form 8-K filed with the Commission on September 24,
1997).
2.4 Registration Rights Agreement, dated September 22, 1997, by and
between McKesson Corporation and 399 Venture Partners, Inc.
(incorporated by reference to Exhibit 99.4 to Registrant's Current
Report on Form 8-K filed with the Commission on September 24, 1997).
3.1 Certificate of Incorporation of the Registrant, (incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-
K for the fiscal year ended September 30, 1995).
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Indenture, dated as of May 30, 1986, between AmeriSource Corporation
("AmeriSource") and Bankers Trust Company, as trustee relating to the
6 1/4% Convertible Subordinated Debentures due 2001 of AmeriSource
(the "Convertible Debentures") including the form of Convertible
Debenture (incorporated by reference to Exhibit 4 to AmeriSource's
Current Report, dated July 1, 1986, on Form 8-K).
4.2 First Supplemental Indenture, dated as of October 31, 1989, to
Indenture, dated as of May 30, 1986 (incorporated by reference to
Exhibit 4.23 to Registrant's and AmeriSource's Annual Report on Form
10-K for the fiscal year ended September 30, 1989).
4.3 Second Supplemental Indenture, dated as of October 31, 1989, to
Indenture, dated as of May 30, 1986 (incorporated by reference to
Exhibit 4.24 to Registrant's and AmeriSource's Annual Report on Form
10-K for the fiscal year ended September 30, 1989).
4.4 Indenture dated July 15, 1993 between Registrant and Security Trust
Company, N.A., as trustee relating to the 11 1/4% Senior Debentures
due 2005 (the "Senior Debentures") of Registrant including the form of
the Senior Debentures (incorporated by reference to Exhibit 4 to
Registrant's and AmeriSource's Form 10-Q for the quarter ended June
30, 1993).
4.5 Receivables Purchase Agreement, dated as of December 13, 1994 between
AmeriSource, as Seller and AmeriSource Receivables Corporation, as
Purchaser (incorporated by reference to Exhibit 4.11 to Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994).
4.6 AmeriSource Receivables Master Trust Pooling and Servicing Agreement,
dated as of December 13, 1994 among AmeriSource Receivables
Corporation, as transferor, AmeriSource, as the initial Servicer, and
Manufacturers and Traders Trust Company, as Trustee (incorporated by
reference to Exhibit 4.12 to Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).
4.7 Revolving Certificate Purchase Agreement, dated as of December 13,
1994 among AmeriSource Receivables Corporation, AmeriSource, The
Revolving Purchasers and Bankers Trust Company, as Agent and Revolving
Purchaser (incorporated by reference to Exhibit 4.13 to Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.8 Series 1994-1 Supplement to Pooling and Servicing Agreement, dated as
of December 13, 1994 among AmeriSource Receivables Corporation, as
Transferor, AmeriSource, as Initial Servicer, and Manufacturers and
Traders Trust Company, as Trustee (incorporated by reference to
Exhibit 4.14 to Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994).
4.9 Credit Agreement, dated as of January 8, 1997 among AmeriSource
Corporation as Borrower, AmeriSource Health Corporation and Certain
Subsidiaries and Affiliates, as Guarantors and Nations Bank, N.A. as
Administrative Agent (incorporated by reference to Exhibit 4.14 to
Registrant's Quarterly Report Form 10-Q for its fiscal quarter ended
December 31, 1996).
4.10 Amendment No. 1, dated as of February 26, 1997 to the Credit Agreement
(incorporated by reference to Exhibit 4.15 to Registrant's Quarterly
Report on Form 10-Q for its fiscal quarter ended March 31, 1997).
4.11 Amendment to Pooling and Servicing Agreement and Receivables Purchase
Agreement, dated as of March 5, 1997 among AmeriSource Receivables
Corporation, AmeriSource Corporation, and Manufacturers and Traders
Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended June 30, 1997).
4.12 Certificate Purchase Agreement, dated as of April 11, 1997, among
AmeriSource Corporation, AmeriSource Receivables Corporation, BT
Securities Corporation, Bankers Trust International PLC, and Bankers
Trust Australia Limited (incorporated by reference to Exhibit 4.2 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended June 30, 1997).
4.13 Amendment to Pooling and Servicing Agreement and Receivables Purchase
Agreement dated as of April 17, 1997 among AmeriSource Receivables
Corporation, AmeriSource Corporation, and Manufacturers and Traders
Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended June 30, 1997).
4.14 Series 1997-1 Supplement to Pooling and Servicing Agreement dated as
of April 17, 1997 among AmeriSource Receivables Corporation as
Transferor, AmeriSource Corporation as initial Servicer and
Manufacturers and Traders Trust Company as Trustee (incorporated by
reference to Exhibit 4.4 to Registrant's Quarterly Report on Form 10-Q
for its fiscal quarter ended June 30, 1997).
4.15 Amendment No. 3, dated October 1997, to the Credit Agreement.
4.16 Credit Agreement, dated as of November 10, 1997, among AmeriSource as
Borrower, AmeriSource Health and certain subsidiaries and affiliates
as Guarantors and CoreStates Bank as Documentation Agent, Bankers
Trust as Sydication Agent and NationsBank as Administrative Agent.
9 Not Applicable.
10.1 Stock Purchase and Stockholders' Agreement, dated December 29, 1988,
among Drexel Burnham Lambert Incorporated, the other purchasers named
therein, Registrant and Citicorp Venture Capital Ltd. (incorporated by
reference to Exhibit 10.3 to the Registration Statement on Form S-1,
Registration No. 33-27835, filed March 29, 1989).
10.2 Stock Purchase Agreement, dated as of December 29, 1988, among
Registrant, Anthony C. Howkins, The NTC Group, Inc., Barton J. Winokur
and Citicorp Venture Capital Ltd. (incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form S-1, Registration
No. 33-27835, filed March 29, 1989).
10.3 AmeriSource Master Pension Plan (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form S-1, Registration No. 33-
27835, filed March 29, 1989).
10.4 AmeriSource 1988 Supplemental Retirement Plan (incorporated by
reference to Exhibit 10.10 to the Registration Statement on Form S-1,
Registration No. 33-27835, filed March 29, 1989).
10.5 AmeriSource 1985 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1985).
10.6 Form of Securities Purchase and Holders Agreement among Registrant,
Citicorp Venture Capital Ltd. and a Management Investor (incorporated
by reference to Exhibit 10.14 to Amendment No. 1, filed August 15,
1989, to the Registration Statement on Form S-1, Registration No. 33-
27835).
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 Form of Take-Along and Registration Rights Agreement between
Registrant and Citicorp Venture Capital Ltd. (incorporated by
reference to Exhibit 4.19 to Amendment No. 2, filed September 7, 1989,
to the Registration Statement on Form S-1, Registration No. 33-27835).
10.8 Agreement, dated October 14, 1994, among certain manufacturers and
wholesalers of prescription products, including AmeriSource
(incorporated by reference to Exhibit 10.13 to Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994).
10.9 Registrant's 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.16 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513).
10.10 Registrant's Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit 10.17 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-2 dated April 3, 1995, Registration
No. 33-57513).
10.11 Registration Rights Agreement dated as of March 30, 1995 among
Registrant and 399 Venture Partners, Inc. (incorporated by reference
to Exhibit 10.18 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513).
10.12 Employment Agreement, dated September 4, 1997, between AmeriSource and
R. David Yost.
10.13 Employment Agreement, dated September 4, 1997, between AmeriSource and
David M. Flowers.
10.14 Employment Agreement, dated September 4, 1997, between AmeriSource and
Kurt J. Hilzinger.
10.15 AmeriSource Health Corporation 1996 Stock Option Plan (incorporated by
reference to Appendix C to Registrant's Proxy Statement dated January
15, 1997 for the Annual Meeting of Stockholders held on February 11,
1997).
10.16 AmeriSource Health Corporation 1996 Non-Employee Directors Stock
Option Plan (incorporated by reference to Appendix D to Registrant's
Proxy Statement dated January 15, 1997 for the Annual Meeting of
Stockholders held on February 11, 1997).
10.17 1996 Amendment to the AmeriSource Health Corporation 1995 Stock Option
Plan (incorporated by reference to Appendix A to Registrant's Proxy
Statement dated January 15, 1997 for the Annual Meeting of
Stockholders held on February 11, 1997).
10.18 Consulting Agreement, dated October 31, 1997, between AmeriSource
Corporation and John F. McNamara.
11 Not Applicable.
12 Not Applicable.
13 Not Applicable.
16 Not Applicable.
18 Not Applicable.
21 Subsidiaries of Registrant.
22 Not Applicable.
23 Consent of Independent Auditors.
24 Not Applicable.
27 Financial Data Schedule.
99 Not Applicable.
</TABLE>
- --------
* Copies of the exhibits will be furnished to any security holder of the
Registrant upon payment of the reasonable cost of reproduction.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K on September 24, 1997 to
report that it had entered into an Agreement and Plan of Merger with McKesson
Corporation.
40
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AmeriSource Health Corporation
/s/ Kurt J. Hilzinger
Date: December 19, 1997 By: _________________________________
(KURT J. HILZINGER) SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON DECEMBER 19, 1997 BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
/s/ R. David Yost President and Chief
- ------------------------------------- Executive Officer
(R. DAVID YOST) (Principal
Executive Officer)
/s/ Kurt J. Hilzinger Senior Vice
- ------------------------------------- President and Chief
(KURT J. HILZINGER) Financial Officer
(Principal
Financial Officer)
/s/ Michael D. DiCandilo Vice President,
- ------------------------------------- Controller
(MICHAEL D. DICANDILO) (Principal
Accounting Officer)
/s/ Bruce C. Bruckmann Director
- -------------------------------------
(BRUCE C. BRUCKMANN)
/s/ Michael A. Delaney Director
- -------------------------------------
(MICHAEL A. DELANEY)
/s/ Richard C. Gozon Director
- -------------------------------------
(RICHARD C. GOZON)
/s/ Lawrence C. Karlson Chairman
- -------------------------------------
(LAWRENCE C. KARLSON)
/s/ John F. McNamara Director
- -------------------------------------
(JOHN F. MCNAMARA)
/s/ George H. Strong Director
- -------------------------------------
(GEORGE H. STRONG)
/s/ James A. Urry Director
- -------------------------------------
(JAMES A. URRY)
/s/ Barton J. Winokur Director
- -------------------------------------
(BARTON J. WINOKUR)
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERISOURCE HEALTH CORPORATION
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
ASSETS
<S> <C> <C>
Cash..................................................... $ 2 $ 9
Receivable from AmeriSource Corporation.................. 28,549 24,718
Other assets ............................................ 252 266
Investment at equity in AmeriSource Corporation (accumu-
lated losses of AmeriSource in excess of investment).... (14,148) (61,457)
--------- ---------
$ 14,655 $ (36,464)
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses......................................... $ 344 $ 344
Stockholders' equity:
Common Stock, $.01 par value
Class A (voting and convertible):
50,000,000 shares authorized; issued 9/97--
17,540,629 shares; 9/96-- 17,291,100 shares......... 175 173
Class B (nonvoting and convertible):
15,000,000 shares authorized; issued 9/97--9,440,370
shares; 9/96-- 9,440,370 shares..................... 94 94
Class C (nonvoting and convertible):
2,000,000 shares authorized; issued 9/97--166,495
shares; 9/96--242,298 shares........................ 2 3
Capital in excess of par value......................... 234,188 228,537
Retained earnings (deficit)............................ (213,928) (259,395)
Cost of common stock in treasury....................... (6,220) (6,220)
--------- ---------
14,311 (36,808)
--------- ---------
$ 14,655 $ (36,464)
========= =========
</TABLE>
See notes to condensed financial statements.
S-1
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERISOURCE HEALTH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues......................................... $ -- $ 7 $ 726
Administrative expenses.......................... -- (55)
Interest expense................................. -- 5,669 13,573
-------- -------- --------
Loss before equity in net income of subsidiary,
taxes and extraordinary items................... -- (5,662) (12,792)
Equity in net income of subsidiary before
extraordinary items............................. 47,449 47,246 33,937
Income tax benefit............................... -- (1,066) (7,073)
-------- -------- --------
Income before extraordinary items................ 47,449 42,650 28,218
Extraordinary items--early retirement of debt,
net of income tax benefits...................... (1,982) (7,242) (18,037)
-------- -------- --------
Net income.................................... $ 45,467 $ 35,408 $ 10,181
======== ======== ========
Earnings per share (fully diluted)
Income before extraordinary items .............. $ 1.94 $ 1.84 $ 1.53
Extraordinary items............................. (.08) (.31) (.98)
-------- -------- --------
Net income per share.......................... $ 1.86 $ 1.53 $ .55
======== ======== ========
Weighted average number of common shares
outstanding..................................... 24,432 23,217 18,396
---------------
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 45,467 $ 35,408 $ 10,181
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization.................................. -- 138 361
Equity in net income of subsidiary............ (47,449) (47,246) (22,062)
Loss on early retirement of debt.............. -- 11,142 9,638
Debentures issued in lieu of payment of
interest..................................... -- 4,572
Income tax benefit invested in AmeriSource
Corporation.................................. -- (10,621) (8,498)
Changes in operating assets and liabilities:
Receivable from AmeriSource Corporation..... (1,988) 6,622 (1,874)
Accrued expenses............................ -- (1,467) 1,755
Miscellaneous............................... 14 3
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES....... (3,956) (6,021) (5,927)
FINANCING ACTIVITIES
Long-term debt repayments....................... -- (83,460) (81,722)
Net proceeds from public offerings.............. -- 49,300 148,168
Deferred financing costs and other.............. -- 43 (28)
Exercise of stock options....................... 3,809 42 566
Purchases of treasury stock..................... -- (5,652)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................. 3,809 (34,075) 61,332
INVESTING ACTIVITIES
Capital contribution, net....................... 140 40,083 (55,421)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................. 140 40,083 (55,421)
-------- -------- --------
DECREASE IN CASH................................. (7) (13) (16)
Cash at beginning of year........................ 9 22 38
-------- -------- --------
CASH AT END OF YEAR.............................. $ 2 $ 9 $ 22
======== ======== ========
</TABLE>
See notes to condensed financial statements.
S-2
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE-I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements present the financial
position, results of operations and cash flows of AmeriSource Health
Corporation (the "Company") as of the dates and for the periods indicated in
accordance with Rule 12-04 of Regulation S-X of the Securities Exchange Act of
the Securities and Exchange Commission and, accordingly, do not include the
accounts of its wholly-owned subsidiaries. The Company's primary asset is its
investment in and receivables from AmeriSource Corporation which is a wholly-
owned subsidiary of the Company. Substantially all of the Company's operations
are transacted by AmeriSource Corporation. The ability of the Company to pay
its obligations depends on the operations of AmeriSource Corporation.
These condensed financial statements should be read in conjunction with the
Consolidated Financial Statements of AmeriSource Health Corporation and
Subsidiaries contained in Item 8 of this document for more information on
long-term debt, stockholders' equity and other disclosures.
NOTE 2--LONG-TERM DEBT
In July 1993, the Company issued $126.5 million principal amount of 11 1/4%
Senior Debentures due in 2005. In connection with the April 1995 initial
public offering described below, the Company redeemed one-half of the Senior
Debentures outstanding which resulted in an extraordinary charge of $9.6
million (less a $2.7 million tax benefit) related to the write-off of
unamortized deferred financing fees and premiums paid on redemption. In April
1996, the Company purchased and retired $26.7 million of the Senior Debentures
for 111.25% of the principal amount (including fees) plus accrued interest. In
June 1996, the Company redeemed the remaining $47.6 million of the Senior
Debentures via a tender offer and related consent solicitation for 110.75% of
the principal amount (including fees) plus accrued interest and a consent
amount equal to 2.0% of the principal amount. These transactions resulted in
an extraordinary charge in fiscal 1996 of $11.1 million (less a $3.9 million
tax benefit) related to the open market purchase and tender offer premiums,
transaction fees and the write-off of related unamortized deferred financing
fees.
NOTE 3--STOCKHOLDERS' EQUITY
In April 1995, the Company issued 7,590,000 shares of Class A common stock
in a public offering at $21.00 per share. The net proceeds from the offering
of $148.2 million (net of $1.3 million of issuance costs) were used to redeem
a portion of the Senior Debentures ($81.7 million) described above and the
remaining amounts were invested in AmeriSource Corporation, which were used to
reduce its indebtedness.
In May 1996, the Company completed a public offering of 4,800,000 shares of
Class A common stock at a price of $35 per share. Of the 4,800,000 shares
sold, 1,500,000 were sold by the Company and 3,300,000 were sold by certain
stockholders of the Company (the "Selling Stockholders"). The Company did not
receive any of the proceeds from the shares sold by the selling stockholders.
The net proceeds of $49.3 million from the 1,500,000 shares sold by the
Company were invested in AmeriSource Corporation to reduce its indebtedness.
AmeriSource Corporation borrowings from its revolving credit facility were
used to retire and redeem the Senior Debentures as described in Note 2.
NOTE 4--PROPOSED MCKESSON CORPORATION MERGER
On September 22, 1997, the Company and McKesson Corporation ("McKesson")
signed a definitive merger agreement providing for the Company to merge with
McKesson. McKesson is the largest distributor of pharmaceuticals and related
health care products and value-added services in the United States. Under the
terms of the agreement, stockholders of AmeriSource will receive a fixed
exchange ratio of 0.71 shares of McKesson
S-3
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE-I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
common stock for each share of AmeriSource common stock. McKesson will issue
approximately 16.9 million new shares of common stock in the merger. The
merger of the two companies has been structured as a tax-free transaction and
will be accounted for as a pooling of interests. The combined company will
operate under the McKesson name and will be headquartered in San Francisco,
CA. Under certain circumstances, in the event that the merger agreement is
terminated, as a result of the Company entering into a competing transaction,
McKesson would be entitled to a termination fee of $65 million from the
Company.
Subject to regulatory approval and the approval of shareholders of both
companies, the transaction is expected to be completed in early 1998. There
can be no assurance that the merger will be completed, or that it will be
completed as contemplated.
Concurrently with the execution of the merger agreement, the Company and
McKesson entered into the AmeriSource Stock Option Agreement ("Option
Agreement"). Pursuant to the Option Agreement AmeriSource has granted McKesson
an irrevocable option to purchase up to 3,418,601 shares of AmeriSource common
stock at an exercise price of $70.87 per share, under certain circumstances in
which the merger agreement is terminated. The Option Agreement may have the
effect of discouraging persons who may be interested in acquiring an interest
in, or otherwise effecting a business combination with AmeriSource, from
considering or proposing such a transaction.
S-4
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE(1) DESCRIBE(2) PERIOD
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMERISOURCE HEALTH
CORPORATION AND
SUBSIDIARIES
- -------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1997
Allowance for doubtful
accounts.............. $14,848,000 $6,587,000 $5,363,000 $4,236,000 $22,562,000
=========== ========== ========== ========== ===========
YEAR ENDED SEPTEMBER 30,
1996
Allowance for doubtful
accounts.............. $12,941,000 $2,074,000 $1,062,000 $1,229,000 $14,848,000
=========== ========== ========== ========== ===========
YEAR ENDED SEPTEMBER 30,
1995
Allowance for doubtful
accounts.............. $ 9,370,000 $5,449,000 $1,878,000 $12,941,000
=========== ========== ========== ===========
</TABLE>
- --------
(1) Reserves acquired in connection with the Walker Drug Company L.L.C. and
Gulf Distribution Inc. acquisitions in fiscal 1997 and 1996, respectively.
(2) Accounts written off during year, net of recoveries.
S-5
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
AMERISOURCE CORPORATION
AS OF APRIL 23, 1997
ARTICLE 1
STOCKHOLDERS
------------
1.1 Meetings.
--------
(a) Place. Meetings of the stockholders shall be held at such place as may
-----
be designated by the board of directors.
(b) Annual Meeting. An annual meeting of the stockholders for the
--------------
election of directors, and for other business shall be held on such date and at
such time as may be fixed by the board of directors.
(c) Special Meetings. Special meetings of the stockholders may be called
----------------
at any time by the president, or the board of directors, or the holders of a
majority of the outstanding shares of stock of the Company entitled to vote at
the meeting.
(d) Quorum. The presence, in person or by proxy, of the holders of a
------
majority of the outstanding shares of stock of the Company entitled to vote on a
particular matter shall constitute a quorum for the purpose of considering such
matter.
1.2 Voting Rights. Except as otherwise provided herein, in the certificate of
-------------
incorporation or by law, every stockholder shall have the right at every
stockholders' meeting to one vote for every share standing in his name on the
books of the Company which is entitled to vote at such meeting. Every
stockholder may vote either in person or by proxy.
1
<PAGE>
ARTICLE II
DIRECTORS
---------
2.1 Number and Term. The board of directors shall have authority to (i)
---------------
determine the number of directors to constitute the board and (ii) fix the terms
of office of the directors.
2.2 Meetings.
--------
(a) Place. Meetings of the board of directors shall be held at such place
-----
as may be designated by the board or in the notice of the meeting.
(b) Regular Meetings. Regular meetings of the board of directors shall be
----------------
held at such times as the board may designate. Notice of regular meetings need
not be given.
(c) Special Meetings. Special meetings of the board may be called by
----------------
direction of the president or any two members of the board on three days' notice
to each director, either personally or by mail, telegram or facsimile
transmission.
(d) Quorum. A majority of all the directors in office shall constitute a
------
quorum for the transaction of business at any meeting.
(e) Voting. Except as otherwise provided herein, in the certificate of
------
incorporation or by law, the vote of a majority of the directors present at any
meeting at which a quorum is present shall constitute the act of the board of
directors.
2.3 Committees. The board of directors may, by resolution adopted by a majority
----------
of the whole board, designate one or more committees, each committee to consist
of one or more directors and such alternate members (also directors) as may be
designated by the board. Unless otherwise provided herein, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another director
to act at the meeting in the place of any such absent or disqualified member.
Except as otherwise provided herein, in the certificate of incorporation or
bylaws, any such committee shall have and may exercise the powers of the full
board of directors to the extent provided in the resolution of the board
directing the committee.
2
<PAGE>
ARTICLE III
OFFICERS
--------
3.1 Election. At its first meeting after each annual meeting of the
---------
stockholders, the board of directors shall elect a president, treasurer,
secretary, and such other officers as it deems advisable.
3.2 Authority, Duties and Compensation. The officers shall have such authority,
-----------------------------------
perform such duties and serve for such compensation as may be determined by
resolution of the board of directors. Except as otherwise provided by board
resolution, (i) the president shall be the chief executive officer of the
Company, shall have general supervision over the business and operations of the
Company, may perform any act and execute any instrument for the conduct of such
business and operations, and shall preside at all meetings of the board and
stockholders, (ii) the other officers shall have the duties customarily related
to their respective offices, and (iii) any vice president, or vice presidents in
the order determined by the board, shall, in the absence of the president, have
the authority and perform the duties of the president.
ARTICLE IV
INDEMNIFICATION
---------------
4.1 Right to Indemnification. The Company shall indemnify any person who was
-------------------------
or is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that such person is or was
a director or officer of the Company or a constituent corporation absorbed in a
consolidation or merger, or is or was serving at the request of the Company or a
constituent corporation absorbed in a consolidation or merger, as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or is or was a director or officer of the Company serving at its
request as a administrator, trustee or other fiduciary of one or more of the
employee benefit plans of the Company or other enterprise, against expenses
(including attorney's fees), liability and loss actually and reasonably incurred
or suffered by such person in connection with such proceeding, whether or not
the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in the right of the Company, except to the extent
that (i) such person is otherwise indemnified and (ii) such indemnification is
prohibited by applicable law.
4.2 Advance of Expenses. Expenses incurred by a director or officer of the
--------------------
Company in defending a proceeding shall be paid by the Company in advance of
the final disposition of such proceeding subject to the provisions of any
applicable statute.
3
<PAGE>
4.3 Procedure for Determining Permissibility. To determine whether any
---------------------------------------
indemnification or advance of expenses under this Article IV is permissible, the
board of directors by a majority vote of a quorum consisting of directors not
parties to such proceeding may, and on request of any person seeking
indemnification or advance of expenses shall be required to, determine in each
case whether the applicable standards in any applicable statute have been met,
or such determination shall be made by independent legal counsel if such quorum
is not obtainable, or, even if obtainable, a majority vote of a quorum of
disinterested directors so directs, provided that, if there has been a change in
control of the Company between the time of the action or failure to act giving
rise to the claim for indemnification or advance of expenses and the time such
claim is made, at the option of the person seeking indemnification or advance of
expenses, the permissibility of indemnification or advance of expenses shall be
determined by independent legal counsel. The reasonable expenses of any director
or officer in prosecuting a successful claim for indemnification, and the fees
and expenses of any special legal counsel engaged to determine permissibility of
indemnification or advance of expenses, shall be borne by the Company.
4.4 Contractual Obligation. The obligations of the Company to indemnify a
----------------------
director or officer under this Article IV, including the duty to advance
expenses, shall be considered a contract between the Company and such director
or officer, and no modification or repeal of any provision of this Article IV
shall affect, to the detriment of the director or officer, such obligations of
the Company in connection with a claim based on any act or failure to act
occurring before such modification or repeal.
4.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification and
-------------------------------------------------
advance of expenses provided by this Article IV shall not be deemed exclusive of
any other right to which one indemnified may be entitled under any statute,
provision of the Certificate of Incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall inure to the benefit of the heirs, executors and
administrators of any such person.
4.6 Insurance and Other Indemnification. The board of directors shall have the
-----------------------------------
power to (i) authorize the Company to purchase and maintain, at the Company's
expense, insurance on behalf of the Company and on behalf of others to the
extent that power to do so has not been prohibited by statute, (ii) create any
fund of any nature, whether or not under the control of a trustee, or otherwise
secure any of its indemnification obligations, and (iii) give other
indemnification to the extent permitted by statute.
4
<PAGE>
ARTICLE V
TRANSFER OF SHARE CERTIFICATES
------------------------------
Transfers of share certificates and the shares represented thereby shall be
made on the books of the Company only by the registered holder or by duly
authorized attorney. Transfers shall be made only on surrender of the share
certificate or certificates.
ARTICLE VI
AMENDMENTS
----------
These bylaws may be amended or repealed at any regular or special meeting
of the board of directors by vote of a majority of all directors in office or at
any annual or special meeting of stockholders by vote of holders of a majority
of the outstanding stock entitled to vote. Notice of any such annual or special
meeting of stockholders shall set forth the proposed change or a summary
thereof.
5
<PAGE>
EXHIBIT 4.13
AMENDMENT NO.3
THIS AMENDMENT NO.3, dated as of October______, 1997 (the "Amendment")
---------
relating to the Credit Agreement referenced below, by and among AMERISOURCE
CORPORATION, a Delaware corporation, certain subsidiaries and affiliates party
to the Credit Agreement and identified on the signature pages hereto, and
NATIONSBANK, N.A., as Administrative Agent for and on behalf of the Lenders.
Terms used but not otherwise defined shall have the meanings provided in the
Credit Agreement.
W I T N E S S E T H
WHEREAS, a $500 million credit facility has been extended to AmeriSource
Corporation pursuant to the terms of that Credit Agreement dated as of January
8, 1997 (as amended and modified, the "Credit Agreement") among AmeriSource
----------------
Corporation, the Guarantors and Lenders identified therein, and NationsBank,
N.A., as Administrative Agent;
WHEREAS, the Borrower plans to enter into liquidity financing to provide
for general corporate purposes, including the build-up of inventory and
receivables;
WHEREAS, the Company has requested certain modifications described herein
connection therewith which require the consent of the Required Lenders; and
WHEREAS, the Required Lenders have consented to the requested modifications
on the terms and conditions set forth herein and have authorized the
Administrative Agent to enter into this Amendment on their behalf to give effect
to this Amendment;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended and modified in the following
respects:
1. Section 1.1 shall be amended to include the following
additional terms (or such existing terms shall be amended to read as follows):
"Borrowing Base" means, at any time, an amount equal to (i)
--------------
seventy percent (70%) of Eligible Inventory minus (ii) Obligations
-----
outstanding under the Liquidity Facility.
"Debt Transaction" means, other than the Liquidity Facility which
----------------
shall not be included within this definition, with respect to any member of the
Consolidated Group, any sale, issuance or placement of Funded Debt, whether or
not evidenced by promissory note or other written evidence of indebtedness.
<PAGE>
"Liquidity Facility" means such term as defined in Section 8.1(j).
------------------
"Liquidity Intercreditor Agreement" means that Intercreditor Agreement
---------------------------------
to be executed relating to the Liquidity Facility and the Obligations under
this Credit Agreement, among NationsBank, N.A., as Administrative Agent
under this Credit Agreement, NationsBank, N.A., as Administrative Agent
under the Liquidity Facility, and the Credit Parties, as amended and
modified.
2. The definition of "Credit Documents" in Section 1.1 shall be
amended to include "the Liquidity Intercreditor Agreement".
3. In the definition of "Permitted Liens" in Section 1.1, subsection
(xviii) is amended to read as follows:
(xviii) Liens to secure the Liquidity Facility referenced in Section
8.1(j), provided that any such property pledged or securing such Liquidity
--------
Facility shall also be pledged to secure the Obligations hereunder and such
Liens shall be the subject of the Liquidity Intercreditor Agreement
relating to the Liquidity Facility and the Obligations hereunder providing,
among other things, that such Liens will be shared by the Lenders hereunder
and the Lenders under the Liquidity Facility, respectively, on a pari passu
basis.
4. In Section 8.1, subsection (j) shall be amended to read as
follows:
(j) other senior secured Indebtedness of the Borrower in an aggregate
principal amount of up to $100,000,000 incurred pursuant to that Credit
Agreement dated as of October____, 1997, among the Borrower, the Guarantors
and Lenders identified therein and NationsBank, N.A. (the "Liquidity
---------
Facility"); and
--------
6. In Section 8.9(b) the reference at the end to "except to the
extent permitted by Section 8.10." is amended to read as follows:
"except as relates to the Liquidity Facility and to the extent permitted by
Section 8.10."
7. In Section 8.12, the "and" immediately preceding clause (iii) is
deleted and there shall be inserted at the end of clause (iii) immediately
following the reference to "Section 8.4(c)" the following:
", and (iv) the Liquidity Facility,"
8. In Section 9.1, in subsection (j) the "." at the end of such
subsection is replaced with the phrase "; or" and a new subsection (k) is added
to read as follows:
(k) Liquidity Facility. The occurrence and continuance of an Event of
------------------
Default under the Liquidity Facility.
2
<PAGE>
B. By execution of the Consent relating to this Amendment, the Required
Lenders authorize and direct the Administrative Agent, on behalf of the Lenders
under the Credit Agreement, to enter into the Liquidity Agreement with the
Credit Parties referred to therein and the Lenders under the Liquidity Facility,
or the Administrative Agent for the Lenders under the Liquidity Facility, in
substantially the form attached as Exhibit A.
---------
C. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits and Schedules) remain in full force and effect.
D. The Company agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
E. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
F. This Amendment, and the Credit Agreement as amended hereby, shall be
governed by and construed and interpreted in accordance with the laws of the
State of North Carolina.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
BORROWER: AMERISOURCE CORPORATION,
- --------
a Delaware corporation
By:___________________________
Name:
Title:
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- ----------
a Delaware corporation
By:___________________________
Name:
Title:
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By:___________________________
Name:
Title:
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By:___________________________
Name:
Title:
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By:___________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________
Name:
Title:
<PAGE>
ADMINISTRATIVE
AGENT: NATIONSBANK, N.A.,
- -----
as Administrative Agent for and on behalf of the Lenders
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT 4.14
CREDIT AGREEMENT
Dated as of November 10, 1997
among
AMERISOURCE CORPORATION
as Borrower,
AMERISOURCE HEALTH CORPORATION
and Certain Subsidiaries and Affiliates,
as Guarantors,
THE LENDERS NAMED HEREIN
AND
CORESTATES BANK, N.A.,
as Documentation Agent,
BANKERS TRUST COMPANY,
as Syndication Agent,
NATIONSBANK, N.A.,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 DEFINITIONS.................................................... 1
1.1 Definitions ................................................ 1
1.2 Computation of Time Periods.................................... 7
1.3 Accounting Terms............................................... 7
SECTION 2 CREDIT FACILITIES.............................................. 7
2.1 Revolving Loans................................................ 8
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES................. 9
3.1 Default Rate................................................... 9
3.2 Extension and Conversion....................................... 9
3.3 Voluntary Prepayments.......................................... 10
3.4 Reductions in commitments and Mandatory Prepayments............ 10
3.5 Fees........................................................... 11
3.6 Capital Adequacy............................................... 12
3.7 Inability To Determine Interest Rate........................... 12
3.8 Illegality..................................................... 12
3.9 Requirements of Law............................................ 13
3.10 Taxes.......................................................... 14
3.11 Indemnity...................................................... 16
3.12 Pro Rata Treatment............................................. 17
3.13 Sharing of Payments............................................ 17
3.14 Payments, Computations, Etc.................................... 18
3.15 Evidence of Debt............................................... 19
SECTION 4 GUARANTY ...................................................... 20
4.1 The guarantee.................................................. 20
4.2 Obligations Unconditional...................................... 20
4.3 Reinstatement.................................................. 21
4.4 Certain Additional Waivers..................................... 22
4.5 Remedies....................................................... 22
4.6 Rights of Contribution......................................... 22
4.7 Continuing Guarantee........................................... 23
SECTION 5 CONDITIONS..................................................... 23
5.1 Conditions to Closing.......................................... 23
5.2 Conditions to Effectiveness.................................... 24
5.3 Conditions to All Extensions of Credit......................... 25
SECT10N 6 REPRESENTATIONS, WARRANTIES AND COVENANTS...................... 25
6.1 Incorporation.................................................. 25
6.2 Additional Representations..................................... 26
6.3 Additional Covenants........................................... 26
SECTION 7 EVENTS OF DEFAULT.............................................. 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.1 Events of Default............................................... 27
7.2 Acceleration; Remedies.......................................... 29
SECTION 8 AGENCY PROVISIONS.............................................. 30
8.1 Appointment..................................................... 30
8.2 Delegation of Duties............................................ 30
8.3 Exculpatory Provisions.......................................... 30
8.4 Reliance on Communications...................................... 31
8.5 Notice of Default............................................... 31
8.6 Non-Reliance on Administration Agent and Other Lenders.......... 31
8.7 Indemnification................................................. 32
8.8 Administrative Agent in its Individual Capacity................. 32
8.9 Successor Administrative Agent.................................. 33
8.10 Intercreditor Agreements....................................... 33
SECTION 9 MISCELLANEOUS.................................................. 34
9.1 Notices......................................................... 34
9.2 Right of Set-Off................................................ 35
9.3 Benefit of Agreement............................................ 35
9.4 No Waiver; Remedies Cumulative.................................. 37
9.5 Payment of Expenses, etc........................................ 37
9.6 Amendments, Waivers and Consents................................ 38
9.7 Counterparts.................................................... 39
9.8 Headings........................................................ 39
9.9 Survival........................................................ 39
9.10 Governing Law Submission to Jurisdiction; Venue................ 39
9.11 Severability................................................... 40
9.12 Entirety....................................................... 40
9.13 Binding Effect; Termination.................................... 40
9.14 ConfidentialitY................................................ 41
9.15 Source of Funds................................................ 41
9.16 Conflict....................................................... 42
</TABLE>
ii
<PAGE>
SCHEDULES
Schedule 2.1(a) Schedule of Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.1(e)Form of Revolving Note
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 5.1(g)(v) Form of Secretary's Certificate
Schedule 5.1(g)(vi)(A) Form of Solvency Certificate - AmeriSource Corporation
Schedule 5.l(g)(vi)(B) Form of Solvency Certificate - AmeriSource Health
Corporation
Schedule 8.10(a) Form of Securitization Intercreditor Agreement
Schedule 8.10(b) Form of Liquidity intercreditor Agreement
Schedule 9.3(b) Form of Assignment and Acceptance
iii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of November 10, 1997 (the "Credit
------
Agreement"), is by and among AMERISOURCE CORPORATION, a Delaware corporation
- ---------
(the "Borrower"), AMERICSOURCE HEALTH CORPORATION, a Delaware corporation
--------
(the "Company") and the subsidiaries and affiliates identified on the signature
-------
pages hereto and such other subsidiaries and affiliates as may from time to time
become Guarantors hereunder in accordance with the provisions hereof
(collectively with the Company, the "Guarantors"), the lenders named herein and
----------
such other lenders as may become a party hereto (the "Lenders"), BANKERS TRUST
----------
COMPANY, as Syndication Agent, CORESTATES BANK, N.A., as Documentation Agent,
and NATIONSBANK, N.A., as Administrative Agent (in such capacity, the
"Administrative Agent").
--------------------
WITNESSETH
WHEREAS, the Borrower has requested that the Lenders provide a $100 million
revolving liquidity facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows;
SECTION 1
DEFINITIONS
-----------
1.1 DEFINITIONS.
-----------
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires, and provided
--------
that terms used but not otherwise defined shall have the meanings provided in
the Existing Credit Agreement:
"Additional Credit Party" means each Person that becomes a Guarantor
-----------------------
after the Closing Date by execution of a Joinder Agreement,
"Administrative Agent" shall have the meaning assigned to such term
--------------------
in the heading hereof, together with any successors or assigns.
"Administrative Agent's Fee Letter" means that certain letter
---------------------------------
agreement, dated as of October 23, 1997, between the Administrative Agent
and the Borrower, as amended, modified, supplemented or replaced from time
to time.
"Administrative Agent's Fees" shall have the meaning assigned to such
---------------------------
term in Section 3.5(b).
1
<PAGE>
"Agents" means, collectively, NationsBank N.A., as Administrative
------
Agent, Bankers Trust Company, as Syndication Agent, and CoreStates Bank,
N.A., as Documentation Agent.
"Aggregate Revolving Committed Amount" means the aggregate amount of
------------------------------------
Revolving Commitments in effect from time to time, being initially ONE
HUNDRED MILLION DOLLARS ($100,000,000).
"Base Rate" means, for any day, the rate per annum (rounded upwards,
---------
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
----
or (b) the Prime Rate in effect on such day. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable after due inquiry to
ascertain the Federal Funds Rate for any reason including the inability or
failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Base Rate shall be determined without
regard to clause (a) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime Rate
or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
--------------
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
--------
together with any permitted successors and assigns.
"Borrowing Base" means, at any time, an amount equal to (i) seventy
--------------
percent (70%) of Eligible Inventory minus (ii) Obligations outstanding
under the Existing Credit Agreement.
"Business Day" means a day other than a Saturday, Sunday or other
------------
day on which commercial banks in Charlotte, North Carolina or Philadelphia,
Pennsylvania are authorized or required by law to close, except that, when
-----------
used in connection with a Eurodollar Loan, such day shall also be a day on
which dealings between banks are carried on in U,S, dollar deposits in
London, England, Charlotte, North Carolina and New York, New York.
"Closing Date" means the date hereof.
------------
"Commitment" means the Revolving Commitment.
----------
"Commitment Fee" shall have the meaning given such term in Section
--------------
3.5(a).
"Commitment Percentage" means the Revolving Commitment Percentage.
---------------------
"Commitment Period" means the period from and including the Effective
-----------------
Date to but not including the earlier of (i) the Termination Date, or
(ii) the date on which the Revolving Commitments terminate in accordance
with the provisions of this Credit Agreement.
2
<PAGE>
"Company" means AmeriSource Health Corporation, a Delaware
-------
corporation, as referenced in the opening paragraph, its successors and
permitted assigns.
"Credit Documents" means a collective reference to this Credit
----------------
Agreement, the Notes, the Security Agreement, the Pledge Agreement, each
Joinder Agreement, the Administrative Agent's Fee Letter, the Liquidity
Intercreditor Agreement and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
------------
"Default" means any event, act or condition which with notice or lapse
-------
of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such time,
-----------------
(i) has failed to make an Extension of Credit required pursuant to the
terms of this Credit Agreement, (ii) has failed to pay to the
Administrative Agent or any Lender an amount owed by such Lender pursuant
to the terms of the Credit Agreement or any other of the Credit Documents,
or (iii) has been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means dollars in lawful currency of the United
------- -
States of America.
"Effective Date" means the date on or after the Closing Date on
--------------
which the conditions set out in Section 5.2 have been satisfied or waived.
"Eurodollar Loan" means any Loan bearing interest at a rate
---------------
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
---------------
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant
to the following formula.
Eurodollar Rate = Interbank Offered Rate
---------------------------------
I - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
-----------------------------
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar Loans is determined), whether or not Lender has any
Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be
3
<PAGE>
available from time to time to a Lender. The Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default" means such term as defined in Section 7.1.
----------------
"Existing Credit Agreement" means that Credit Agreement dated as of
-------------------------
January 8, 1997 among the Borrower, the Company and the other Guarantors
identified therein, the Lenders identified therein and NationsBank, N.A.,
as Administrative Agent, as amended and modified.
"Extension of Credit " means, as to any Lender, the making of, or
-------------------
participation in, a Loan by such Lender.
"Fees" means all fees payable pursuant to Section 3.5.
----
"Federal Funds Rate" means, for any day, the rate of interest per
------------------
annum (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day,
provided that (A) if such day is not a Business Day, the Federal Funds Rate
--------
for such day shall be such rate on such transactions on the next preceding
Business Day and (B) if no such rate is so published on such next preceding
Business Day, The Federal Funds Rate for such day shall be the average rate
quoted to the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Guarantor" means the Company and each of those other Persons
---------
identified as a "Guarantor" on the signature pages hereto, and each
Additional Credit Party which may hereafter execute a Joinder Agreement,
together with their successors and permitted assigns.
"Guaranteed Obligations" means, as to each Guarantor, without
----------------------
duplication, (i) all obligations of the Borrower to the Lenders and the
Administrative Agent, whenever arising, under this Credit Agreement, the
Notes or the Credit Documents relating to the Obligations hereunder, and
(ii) all liabilities and obligations, whenever arising, owing from the
Borrower to any Lender, or any Affiliate of a Lender, arising under any
Hedging Agreement relating to Loans or Obligations hereunder.
"Incorporated Covenants" means such term as defined in Section 6.1.
----------------------
"Incorporated Representations" means such term as defined in Section
----------------------------
6.1.
"Interbank Offered Rate " means, for the interest Period for each
----------------------
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal
to the rate of interest, determined by the Administrative Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day of
such Interest Period), appearing on Telerate Page 3750 (or, if, for any
reason, Telerate Page 3750 is not available, the Reuters Screen LIBO
4
<PAGE>
Page) as of approximately 11:00 A.M. (London time) two (2) Business Days
before the first day of such Interest Period. As used herein, "Telerate
Page 3750" means the display designated as page 3750 by Dow Jones Telerate,
Inc. (or such other page as may replace such page on that service for the
purpose of displaying the British Bankers Association London interbank
offered rates) and "Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuters Monitor Rates Service (or such other page as
may replace the LIBO page on that service for the purpose of displaying
London interbank offered rates of major banks).
"Interest Payment Date" means (i) as to any Base Rate Loan, the first
---------------------
day of each January, April, July and October, the date of repayment of
principal of such Loan and the Termination Date and (ii) as to any
Eurodollar Loan, the last day of each Interest Period for such Loan, the
date of repayment of principal of such Loan and on the Termination Date,
and in addition where the applicable Interest Period is more than 3 months,
then also on the date 3 months from the beginning of the Interest Period,
and each 3 months thereafter. If an Interest Payment Date falls on a date
which is not a Business Day, such Interest Payment Date shall be deemed to
be the next succeeding Business Day.
"Interest Period" means as to any Eurodollar Loan, a period of one,
---------------
two, or three month's duration, as the Borrower may elect, commencing in
each case, on the date of the borrowing (including conversions, extensions
and renewals) provided, however, (A) if any Interest Period would end on a
-------- -------
day which is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day (except that in the case of Eurodollar
Loans where the next succeeding Business Day falls in the next succeeding
calendar month, then on the next preceding Business Day), (B) no Interest
Period shall extend beyond the Termination Date, and (C) in the case of
Eurodollar Loans, where an Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last day
of such calendar month.
"Joinder Agreement" means a Joinder Agreement substantially in the
-----------------
form of Schedule 7.11-1 to the Existing Credit Agreement but relating to
---------------
this Credit Agreement and the obligations hereunder, executed and delivered
by an Additional Credit Party in accordance with the provisions of Section
6.3(b).
"Lenders" means each of the Persons identified as a "Lender" on the
-------
signature pages hereto, and their successors and assigns.
"Liquidity Intercreditor Agreement" means the Intercreditor Agreement
---------------------------------
dated as of the date hereof among NationsBank, N.A., as Administrative
Agent under the Existing Credit Agreement, NationsBank, N.A., as
Administrative Agent under this Credit Agreement, and the Credit Parties,
as amended and modified, as referenced in Section 8.10(b).
"Loan" or "Loans" means the Revolving Loans.
---- -----
"NationsBank" means NationsBank, N.A. and its successors.
-----------
"Non-Excluded Taxes" means such term as is defined in Section 3.10.
------------------
5
<PAGE>
"Note" or "Notes" means any Revolving Note.
---- -----
"Notice of Borrowing" means a written notice of borrowing in
-------------------
substantially the form of Schedule 2.1(b)(i), as required by Section
------------------
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of extension
------------------------------
or conversion in substantially the form of Schedule 3.2, as required by
------------
Section 3.2.
"Obligations" means, the Revolving Loans.
-----------
"Participation Interest" means the purchase by a Lender of a
----------------------
participation in Loans as provided in Section 3.13.
"Pledge Agreement" means the Pledge Agreement dated as of the date
----------------
hereof entered into by the Credit Parties in favor of the Administrative
Agent for the benefit of the Lenders (and affiliates of Lenders as to
certain obligations under Hedge Agreements), as amended and modified.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by NationsBank as its prime rate in effect at its
principal office in Charlotte, North Carolina, with each change in the
Prime Rate being effective on the date such change is publicly announced
as effective (it being understood and agreed that the Prime Rate is a
reference rate used by NationsBank in determining interest rates on
certain loans and is not intended to be the lowest rate of interest charged
on any extension of credit by NationsBank to any debtor).
"Register" shall have the meaning given such term in Section 9.3(c).
--------
"Required Lenders" means, at any time, Lenders having more than fifty
----------------
percent (50%) of the Commitments, or if the Commitments have been
terminated, Lenders having more than fifty percent (50%) of the aggregate
principal amount of the Obligations outstanding (taking into account in
each case Participation Interests or obligation to participate therein);
provided that the Commitments of, and outstanding principal amount of
--------
Obligations (taking into account Participation Interests therein) owing
to, a Defaulting Lender shall be excluded for purposes hereof in making a
determination of Required Lenders.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment of such Lender to make Revolving Loans in an aggregate principal
amount at any time outstanding of up to such Lender's Commitment Percentage
of the Aggregate Revolving Committed Amount as specified in Schedule
--------
2.1.(a), as such amount may be reduced from time to time in accordance with
-------
the provisions hereof.
"Revolving Commitment Percentage" means, for each Lender, a fraction
-------------------------------
(expressed as a decimal) the numerator of which is the Revolving
Commitment of such Lender at such time and the denominator of which is the
Aggregate Revolving
6
<PAGE>
Committed Amount at such time. The initial Revolving Commitment
Percentages are set out on Schedule 2.1(a).
---------------
"Revolving Committed Amount" means, collectively, the aggregate
--------------------------
amount of all of the Revolving Commitments as referenced in Section 2.1(a)
and, individually, the amount of each Lender's Revolving Commitment as
specified in Schedule 2.1(a).
---------------
"Revolving Loans" shall have the meaning assigned to such term in
---------------
Section 2.l(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
-------------- ---------------
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
in substantially the form attached as Schedule 2.1(e), individually or
---------------
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time.
"Security Agreement" means the Security Agreement dated as of the date
------------------
hereof entered into by the Credit Parties in favor of the Administrative
Agent for the benefit of the Lenders (and affiliates of Lenders as to
certain obligations under Hedge Agreements), as amended and modified.
"Termination Date" means March 31, 1998.
----------------
1.2 COMPUTATION OF TIME PERIODS.
---------------------------
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 ACCOUNTING TERMS.
----------------
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 of
the Incorporated Covenants (or, prior to the delivery of the first financial
statements pursuant to Section 7.1 of the Incorporated Covenants, consistent
with the annual audited financial statements referenced in Section 6.1(i) of the
Incorporated Covenants); provided, however, if (a) the Company shall object
-------- -------
to determining such compliance on such basis at the time of delivery of such
financial statements due to any change in GAAP or the rules promulgated with
respect thereto or (b) the Administrative Agent or the Required Lenders shall
so object in writing within 30 days after delivery of such financial statements,
then such calculations shall be made on a basis consistent with the most recent
financial statements delivered by the Borrower to the Lenders as to which no
such objection shall have been made.
SECTION 2
CREDIT FACILITIES
-----------------
7
<PAGE>
2.1 REVOLVING LOANS.
---------------
(a) Revolving Commitment. During the Commitment Period, subject to the
--------------------
terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (the "Revolving loans") to the Borrower from time to time in the
---------------
amount of such Lender's Revolving Commitment Percentage of such Revolving Loans
for the purposes hereinafter set forth; provided that Revolving Loans hereunder
--------
shall be available (and existing Revolving Loans may be extended and renewed)
only if and where the Existing Credit Agreement shall be fully drawn upon and
there shall be no remaining availability thereunder (that is, the liquidity
facility established hereby shall be in the nature of an overadvance line); and
provided further that (i) with regard to the Lenders collectively, the aggregate
- -------- -------
principal amount of Obligations outstanding at any time shall not exceed the
lesser of (A) ONE HUNDRED MILLION DOLLARS ($100,000,000) (as referenced on
Schedule 2.1(a), the "Revolving Committed Amount") or (B) until the
- -------------- --------------------------
Security Release Date relating to inventory (but not thereafter), the Borrowing
Base, and (ii) with regard to each Lender individually, such Lender's Revolving
Commitment Percentage of Obligations outstanding at any time shall not exceed
such Lender's Revolving Committed Amount. Revolving Loans may consist of Base
Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may
request, and may be repaid and reborrowed in accordance with the provisions
hereof.
(b) Revolving Loan Borrowings.
-------------------------
(i) Notice of Borrowing. The Borrower shall request a Revolving Loan
-------------------
borrowing by delivery of a Notice of Borrowing (or telephone notice
promptly confirmed in writing) substantially in the form of Schedule 2.1
------------
(b)(i) to the Administrative Agent not later than 12:00 Noon (Charlotte,
-----
North Carolina time) on the date of the requested borrowing (which shall
be a Business Day) in the case of Base Rate Loans, and on the third
Business Day prior to the date of the requested borrowing in the case of
Eurodollar Loans. Each such request for borrowing shall be irrevocable and
shall specify (A) that a Revolving Loan is requested, (B) the date of the
requested borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination thereof
and if Eurodollar Loans are requested, the Interest Period(s) therefor. If
the Borrower shall fail to specify in any such Notice of Borrowing (I) an
applicable Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of one
month, or (II) the type of Revolving Loan requested, then such notice
shall be deemed to be a request for a Base Rate Loan hereunder. The
Administrative Agent shall give notice to each Lender promptly upon
receipt of each Notice of Borrowing pursuant to this Section 2.1 (b)(i),
the contents thereof and each such Lender's share of any borrowing to be
made pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan shall be in a minimum
---------------
aggregate principal amount of $1,000,000, in the case of Eurodollar Loans,
or $500,000 (or the remaining Revolving Committed Amount, if less), in the
case of Base Rate Loans.
(iii) Advances. Each Lender will make its Revolving Commitment
--------
Percentage of each Revolving Loan borrowing available to the Administrative
Agent for the account of the Borrower as specified in Section 3.14(a), or
in such other manner as the Administrative
8
<PAGE>
Agent may specify in writing by 2.00 P.M. (Charlotte, North Carolina time)
on the date specified in the applicable Notice of Borrowing in Dollars and
in funds immediately available to the Administrative Agent. Such borrowing
will then be made available to the Borrower by the Administrative Agent by
crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
---------
and payable in full on the Termination Date.
(d) Interest. Subject to the provisions of Section 3.1,
--------
(i) Base Rate Loans. During such periods as Revolving Loans shall be
---------------
comprised in whole or in part of Base Rate Loans, such Base Rate Loans
shall bear interest at a per annum rate equal to the Base Rate plus
----
one and one-fourth percent (1/4/%); and
(ii) Eurodollar Loans. During such periods as Revolving Loans shall
----------------
be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans
shall bear interest at a per annum rate equal to the applicable Eurodollar
Rate plus one and one-fourth percent (1-1/4%).
----
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans shall be evidenced by a duly
---------------
executed Revolving Note in favor of each Lender.
(f) Maximum Number of Eurodollar Loans. The Borrower will be limited to a
----------------------------------
maximum number of six (6) Eurodollar Loans outstanding at any time. For purposes
hereof, Eurodollar Loans with separate or different Interest Periods will be
considered as separate Eurodollar Loans even if their Interest Periods expire on
the same date.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
----------------------------------------------
3.1 DEFAULT RATE.
------------
Upon the occurrence, and during the continuance, of an Event of
Default, the principal of and, to the extent permitted by law, interest on the
Loans and any other amounts owing hereunder or under the other Credit Documents
shall bear interest, payable upon written demand by the Administrative Agent, at
a per annum rate 2% greater than the rate which would otherwise be applicable
(or if no rate is applicable, whether in respect of interest, fees or other
amounts, then 2% greater than the Base Rate).
3.2 EXTENSION AND CONVERSION.
------------------------
9
<PAGE>
Subject to the terms of Section 5.3, the Borrower shall have the
option, on any Business Day, to extend existing Loans into a subsequent
permissible Interest Period or to convert Loans into Loans of another interest
rate type; provided, however, that (i) except as provided in Section 3.8,
-------- -------
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar Loans, only if no Default
or Event of Default is in existence on the date of extension or conversion,
(iii) Loans extended as, or converted into, Eurodollar Loans shall be subject
to the terms of the definition of "Interest Period" set forth in Section 1.1
---------------
and shall be in such minimum amounts as provided in Section 2.1(b)(ii), and
(iv) any request for extension or conversion of a Eurodollar Loan which shall
fail to specify an Interest Period shall be deemed to be a request for an
Interest Period of one month. Each such extension or conversion shall be
effected by the Borrower by giving a Notice of Extension/Conversion
substantially in the form of Schedule 3.2 (or telephone notice promptly
------------
confirmed in writing) to the Administrative Agent prior to 12:00 Noon
(Charlotte, North Carolina time) on the Business Day of, in the case of the
conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business
Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (a) through (e) of Section 5.3.
In the event the Borrower fails to request extension or conversion of any
Eurodollar Loan in accordance with this Section, or any such conversion or
extension is not permitted or required by this Section, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Administrative Agent shall give each
Lender notice as promptly as practicable of any such proposed extension or
conversion affecting any Loan.
3.3 VOLUNTARY PREPAYMENTS.
---------------------
Revolving Loans may be repaid in whole or in part without premium or
penalty; provided that (i) Eurodollar Loans may be prepaid only upon three (3)
--------
Business Days' prior written notice to the Administrative Agent and must be
accompanied by payment of any amounts owing under Section 3.11, and (ii)
partial repayments shall be in minimum principal amounts of $1,000,000, in the
case of Eurodollar Loans, and $500,000, in the case of Base Rate Loans.
3.4 REDUCTIONS IN COMMITMENTS AND MANDATORY PREPAYMENTS.
---------------------------------------------------
(a) Voluntary Reduction in Revolving Commitment. The Revolving
---------------------------------------------
Commitments may be terminated or permanently reduced in whole or in part upon
three (3) Business Days' prior written notice to the Administrative Agent,
provided that (i) after giving effect to any voluntary reduction the aggregate
- --------
amount of Obligations shall not exceed the lesser of (A) the Aggregate
Revolving Committed Amount, as reduced, or (B) until the Security Release
Date relating to inventory (but not thereafter), the Borrowing Base, and (ii)
partial reductions shall be in minimum principal amounts of $5,000,000, and in
integral multiples of $1,000,000 in excess thereof.
(b) Mandatory Reductions in Revolving Commitments and Mandatory
------------------------------------------------------------
Prepayments. The Revolving Commitments shall be automatically and permanently
- -----------
reduced (and
10
<PAGE>
prepayments shall be required to the extent that outstanding Obligations exceed
the respective Revolving Commitment, as so reduced), by the amounts provided
below;
(i) Asset Dispositions. An amount equal to one hundred
------------------
percent (100%) of the Net Proceeds received from Asset Dispositions.
(ii) Debt and Equity Transactions. An amount equal to one
----------------------------
hundred percent (100%) of the Net Proceeds received from any Debt
Transaction or Equity Transaction.
(c) Mandatory Prepayments, Etc.
--------------------------
(i) If at any time the aggregate principal amount of
Obligations hereunder shall exceed the lesser of (A) the Aggregate
Revolving Committed Amount or (B) until the Security Release Date relating
to inventory (but not thereafter), the Borrowing Base, the Borrower shall
immediately make payment on the Revolving Loans hereunder in an amount
sufficient to eliminate the deficiency.
(ii) If at any time the Aggregate Revolving Committed Amount
under the Existing Credit Agreement shall exceed the Obligations owing
thereunder (that is, there is unused availability under the Existing Credit
Agreement determined for purposes hereof without giving effect to any
voluntary, optional or mandatory reduction in the Aggregate Revolving
Committed Amount thereunder in effect on the Closing Date hereof, being
$500,000,000), the Borrower shall immediately either (A) make payment on
the Revolving Loans hereunder in an amount sufficient to reduce the
Obligations outstanding hereunder to zero or (B) reborrow Revolving Loans
(or have Letters of Credit issued) under the Existing Credit Agreement in
an amount sufficient to eliminate such excess.
(iii) The Borrower will make prepayment on the Revolving Loans
hereunder in an amount equal to one hundred percent (100%) of the Net
Proceeds received from any Securitization Transaction (including for
purposes hereof any increase in aggregate Invested Amount relating to the
Excluded Securitization Transaction above $285,000,000).
(d) Application. Unless otherwise specified by the Borrower,
-----------
prepayments made hereunder shall be applied first to Base Rate Loans, then to
Eurodollar Loans in direct order of Interest Period maturities. Amounts prepaid
hereunder may be reborrowed in accordance with the provisions hereof.
(e) Mandatory Commitment Termination. The Commitments hereunder
--------------------------------
shall terminate on the Termination Date.
3.5 FEES.
----
(a) Commitment Fee. In consideration of the Revolving Commitments
--------------
hereunder, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a commitment fee (the "Commitment Fee") equal to
--------------
31.25 basis points (.3125%) per
11
<PAGE>
annum on the average daily unused amount of the Revolving Committed Amount for
the applicable period from the Closing Date. The Commitment Fee shall be
payable quarterly in arrears on the 15th day following the last day of each
calendar quarter for the immediately preceding quarter (or portion thereof)
beginning with the first such date to occur after the Closing Date.
(b) Administrative Fees. The Borrower agrees to pay to the
-------------------
Administrative Agent, for its own account, an annual administrative fee and
such other fees, if any, referred to in the Administrative Agent's Fee Letter
(collectively, the "Administrative Agent's Fees").
---------------------------
3.6 CAPITAL ADEQUACY.
----------------
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate
of return on such Lender's capital or assets as a consequence of its commitments
or obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender on an after-tax basis for such reduction. Each determination by any such
Lender of amounts owing under this Section shall, absent manifest error, be
conclusive and binding on the parties hereto.
3.7 INABILITY TO DETERMINE INTEREST RATE.
------------------------------------
If prior to the first day of any Interest Period, the Administrative
Agent shall have determined (which determination shall be conclusive and binding
upon the Borrower absent manifest error) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, the Administrative
Agent shall give telecopy or telephonic notice thereof to the Borrower and the
Lenders as soon as practicable thereafter. If such notice is given (a) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as Base Rate Loans and (b) any Loans that were to have been
converted on the first day of such Interest Period to or continued as Eurodollar
Loans shall be converted to or continued as Base Rate Loans. Until such notice
has been withdrawn by the Administrative Agent, no further Eurodollar Loans
shall be made or continued as such, nor shall the Borrower have the right to
convert Base Rate Loans to Eurodollar Loans.
3.8 ILLEGALITY.
----------
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar
12
<PAGE>
Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to
Eurodollar Loans shall forthwith be canceled and, until such time as it shall no
longer be unlawful for such Lender to make or maintain Eurodollar Loans, such
Lender shall then have a commitment only to make a Base Rate Loan when a
Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.11.
3.9 REQUIREMENTS OF LAW.
-------------------
If, after the date hereof, the adoption of or any change in any Requirement
of Law or in the interpretation or application thereof applicable to any Lender,
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, in each
case made subsequent to the Closing Date (or, if later, the date on which such
Lender becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever
with respect to any Eurodollar Loans made by it or its obligation to make
Eurodollar Loans, or change the basis of taxation of payments to such
Lender in respect thereof (except for (i) Non-Excluded Taxes covered by
Section 3.10 (including Non-Excluded Taxes imposed solely by reason of any
failure of such Lender to comply with its obligations under Section
3.10(b)) and (ii) changes in taxes measured by or imposed upon the overall
net income, or franchise tax (imposed in lieu of such net income tax), of
such Lender or its applicable lending office, branch, or any affiliate
thereof));
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding any
tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, upon notice to the
Borrower from such Lender, through the Administrative Agent, in accordance
herewith, the Borrower shall be obligated to promptly pay such Lender, upon its
demand, any additional amounts necessary to compensate such Lender on an after-
tax basis for such increased cost or reduced amount receivable, provided that,
--------
in any such case the Borrower may elect to convert the Eurodollar Loans made by
such Lender hereunder to Base Rate Loans by giving the Administrative Agent at
least one Business Day's notice of such election, in which case the Borrower
shall promptly pay to such Lender, upon demand, without duplication, such
amounts, if any, as may be required pursuant to Section 3.11. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall provide prompt notice thereof to the Borrower, through the Administrative
Agent,
13
<PAGE>
certifying (x) that one of the events described in this paragraph 3.9 has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Lender and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this subsection submitted by such Lender, through the
Administrative Agent, to the Borrower shall be conclusive and binding on the
parties hereto in the absence of manifest error. This covenant shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
3.10 TAXES.
-----
(a) Except as provided below in this subsection, all payments made by the
Borrower or any Guarantor under this Credit Agreement and any Notes shall be
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any court, or governmental body, agency or
other official, excluding taxes measured by or imposed upon the overall net
income of any Lender or its applicable lending office, or any branch or
affiliate thereof, and all franchise taxes, branch taxes, taxes on doing
business or taxes on the overall capital or net worth of any Lender or its
applicable lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the
laws of which such Lender, applicable lending office, branch or affiliate is
organized or is located, or in which its principal executive office is located,
or any nation within which such jurisdiction is located or any political
subdivision thereof; or (ii) by reason of any connection between the
jurisdiction imposing such tax and such Lender, applicable lending office,
branch or affiliate other than a connection arising solely from such Lender
having executed, delivered or performed its obligations, or received payment
under or enforced, this Credit Agreement or any Notes. If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-
----
Excluded Taxes") are required to be withheld from any amounts payable to the
- --------------
Administrative Agent or any Lender hereunder or under any Notes, (A) the amounts
so payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Credit Agreement and
any Notes, provided, however, that the Borrower shall be entitled to deduct and
-------- -------
withhold any Non-Excluded Taxes and shall not be required to increase any such
amounts payable to any Lender that is not organized under the laws of the United
States of America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes
are payable by the Borrower, and (B) as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof or other
evidence of remittance of Non-Excluded Taxes reasonably acceptable to the
Administrative Agent. If the Borrower fails to pay any Non-Excluded Taxes when
due to the appropriate taxing authority or fails to remit to the Administrative
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure. The agreements in this subsection
shall survive the termination of this Credit Agreement and the payment of the
Loans and all other amounts payable hereunder.
14
<PAGE>
(b) Each Lender that is not incorporated or organized under the laws of
the United States of America or a state thereof shall:
(X)(i) on or before the date it becomes a Lender, deliver to the
Borrower and the Administrative Agent (A) two (2) properly completed and
duly executed copies of United States Internal Revenue Service Form 1001
or 4224, or successor applicable form, as the case may be, certifying that
it is entitled to receive payments under this Credit Agreement and any
Notes without deduction or withholding of any United States federal
income taxes and (B) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be, certifying that it is
entitled to an exemption from United States backup withholding tax;
(ii) deliver to the Borrower and the Administrative Agent two (2)
further properly completed and duly executed copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the
Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent; or
(Y) in the case of any such Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (i) on or
before the date it becomes a Lender, deliver to the Borrower (for the
benefit of the Borrower and the Administrative Agent) (A) a statement under
penalties of perjury that it (1) is not a bank within the meaning of
Section 881(c)(3)(A) of the Internal Revenue Code, (2) is not a 10-percent
shareholder within the meaning of Section 881(c)(3)(B) of the Code, and (3)
is not a controlled foreign corporation receiving interest from a related
person within the meaning of Section 881(c)(3)(C) of the Code, and (B) two
(2) properly completed and duly executed copies of Internal Revenue Service
Form W-8, or successor applicable form certifying to such Lender's legal
entitlement at the date of such certificate to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the Internal
Revenue Code with respect to payments to be made under this Credit
Agreement and any Notes (ii) deliver to the Borrower and the Administrative
Agent two (2) further properly completed and duly executed copies of such
form on or before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recently provided
form, (iii) if necessary, obtain any extensions of time reasonably
requested by the Borrower or the Administrative Agent for filing and
completing such forms, and (iv) agree, to the extent legally entitled to do
so, upon reasonable request by the Borrower, to provide to the Borrower
(for the benefit of the Borrower and the Administrative Agent) such other
forms as may be reasonably required in order to establish the legal
entitlement of such Lender to an exemption from withholding with respect to
payments under this Credit Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has occurred
after the date such Person becomes a Lender hereunder which renders all such
forms inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender so advises the
Borrower and the Administrative Agent. Each Person that shall become a Lender
or a participant of a Lender pursuant to subsection 9.3 shall and each Lender
shall, upon a change in its applicable lending office, upon the effectiveness of
the related transfer, be required to provide all of
15
<PAGE>
the forms, certifications and statements required pursuant to this subsection,
provided that in the case of a participant of a Lender the obligations of such
- --------
participant of a Lender pursuant to this subsection (b) shall be determined as
if the participant of a Lender were a Lender except that such participant of a
Lender shall furnish all such required forms, certifications and statements to
the Lender from which the related participation shall have been purchased.
(c) If any Lender shall become aware that it is entitled to claim a
refund or credit (such credit to include any increase in any foreign tax credit)
in respect of any Non-Excluded Taxes (including any penalties or interest with
respect thereto) as to which it has been indemnified by the Borrower or with
respect to which the Borrower has paid increased amounts pursuant to this
Section 3.10, it shall promptly notify the Borrower of the availability of such
refund or credit and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund or credit. If any Lender receives a refund or
credit (such credit to include any increase in any foreign tax credit) in
respect of any Non-Excluded Taxes as to which it has been indemnified by The
Borrower or with respect to which the Borrower has paid increased amounts under
this Section 3.10, it shall promptly notify the Borrower of such refund or
credit and shall, within 30 days after receipt of such refund or the benefit of
such credit (such benefit to include any reduction of the taxes for which the
Lender would otherwise be liable due to any increase in any foreign tax credit
available to such Lender) repay the amount of such refund or benefit of such
credit to the Borrower (to the extent of amounts that have been paid by the
Borrower under this Section 3.10 with respect to Non-Excluded Taxes giving rise
to such refund or credit), plus any interest received with respect thereto, net
or all reasonable out-of-pocket expenses of such Lender and without interest
(other than interest actually received from the relevant taxing authority or
other governmental authority with respect to such refund or credit); provided,
--------
however, that the Borrower, upon the request of such Lender, agrees to return
- -------
the amount of such refund or benefit of such credit (plus interest) to such
Lender in the event such Lender is required to repay the amount of such refund
or benefit of such credit to the relevant taxing authority or other
governmental authority.
(d) Each Lender represents that it is not participating in, and will not
participate in, a conduit financing arrangement within the meaning of Treas.
Reg. (S) 1.881-3(a)(2)(iv) in connection with the Loans.
3.11 Indemnity.
---------
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than through such Lender's gross negligence or willful misconduct) as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a
day which is not the last day of an Interest Period with respect thereto. With
respect to Eurodollar Loans, such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Eurodollar Loans provided for
16
<PAGE>
herein (excluding, however, the Applicable Percentage included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. The covenants of the Borrower set forth in this Section 3.11 shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
3.12 PRO RATA TREATMENT.
------------------
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or prepayment of principal of any
-----
Loan, each payment of interest on the Loans, each payment of Commitment Fees,
each reduction of the Revolving Committed Amount and each conversion or
extension of any Loan, shall be allocated pro rata among the Lenders in
accordance with the respective principal amounts of their outstanding Loans and
Participation Interests.
(b) Advances. Unless the Administrative Agent shall have been notified
--------
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its ratable share of such borrowing available to
the Administrative Agent, the Administrative Agent may assume that such Lender
is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Administrative Agent by such Lender within the time period specified therefor
hereunder, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the Federal Funds Rate for the
period until such Lender makes such amount immediately available to the
Administrative Agent. A certificate of the Administrative Agent submitted to any
Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
3.13 SHARING OF PAYMENTS.
-------------------
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan or any other obligation owing to such
Lender under this Credit Agreement through the exercise of a right of setoff,
banker's lien or counterclaim, or pursuant to a secured claim under Section 506
of Title 11 of the United States Code or other security or interest arising from
or in lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
in excess of its pro rata share of such payment as provided for in this Credit
Agreement, such Lender shall promptly purchase from the other Lenders a
participation in such Loans, and other obligations in such amounts, and make
such other adjustments from time to time, as shall be equitable to the end that
all Lenders share such payment in accordance with their respective ratable
shares as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
participation theretofore sold, return its share of that benefit (together with
its share of any accrued interest payable with respect thereto) to each Lender
whose payment shall have been rescinded or otherwise restored. The Borrower
agrees that any Lender so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including
17
<PAGE>
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan, or other obligation in the
amount of such participation. Except as otherwise expressly provided in this
Credit Agreement, if any Lender or the Administrative Agent shall fail to remit
to the Administrative Agent or any other Lender an amount payable by such Lender
or the Administrative Agent to the Administrative Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made by the Administrative Agent or such Lender, as the case
may be, together with interest thereon for each date from the date such amount
is due until the date such amount is paid to the Administrative Agent or such
other Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.13 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.13 to share in the benefits of any recovery on such secured claim.
3.14 PAYMENTS, COMPUTATIONS, ETC.
---------------------------
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Administrative Agent in Dollars in immediately
available funds, without offset, deduction, counterclaim or withholding of any
kind, at the Administrative Agent's office specified in Section 9.1 not later
than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments
received after such time shall be deemed to have been received on the next
succeeding Business Day. The Borrower shall, at the time it makes any payment
under this Credit Agreement, specify to the Administrative Agent the Loans,
Fees, interest or other amounts payable by the Borrower hereunder to which such
payment is to be applied (and in the event that it fails so to specify, or if
such application would be inconsistent with the terms hereof, the Administrative
Agent shall distribute such payment to the Lenders in such manner as the
Administrative Agent may determine to be appropriate in respect of obligations
owing by the Borrower hereunder, subject to the terms of Section 3.12(a)). The
Administrative Agent will distribute such payments to such Lenders, if any such
payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a
Business Day in like funds as received prior to the end of such Business Day and
otherwise the Administrative Agent will distribute such payment to such Lenders
on the next succeeding Business Day. Whenever any payment hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day (subject to accrual of
interest and Fees for the period of such extension), except that in the case of
Eurodollar Loans, if the extension would cause the payment to be made in the
next following calendar month, then such payment shall instead be made on the
next preceding Business Day. Except as expressly provided otherwise herein, all
computations of interest and fees shall be made on the basis of actual number of
days elapsed over a year of 360 days, except with respect to computation of
interest on Base Rate Loans which (unless the Base Rate is determined by
reference to the Federal Funds Rate) shall be calculated based on a year of 365
or 366 days, as appropriate. Interest shall accrue from and include the date of
borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
---------------------------------------------
other provisions of this Credit Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Administrative Agent or any Lender on account of the Obligations
or any other amounts outstanding under any of the Credit Documents shall be paid
over or delivered as follows:
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<PAGE>
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Administrative Agent in connection with enforcing the rights of the Lenders
under the Credit Documents;
SECOND, to payment of any fees owed to the Administrative Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Obligations owing to such
Lender;
FOURTH, to the payment of all accrued interest and fees on or in
respect of the Obligations;
FIFTH, to the payment of the outstanding principal amount of the
Obligations;
SIXTH, to all other Obligations and other obligations which shall
have become due and payable under the Credit Documents or otherwise and not
repaid pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Obligations held by such Lender bears to the aggregate then outstanding
Obligations) of amounts available to be applied pursuant to clauses "THIRD",
"FOURTH", "FIFTH" and "SIXTH" above.
(c) Treatment. The Lenders agree that in the exercise of rights under
---------
Sections 3.6, 3.7, 3.8 and 3.9, they will accord the Borrower the treatment
generally accorded by the Lenders to similarly situated borrowers.
3.15 EVIDENCE OF DEBT.
----------------
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Credit Agreement. Each Lender will make reasonable efforts to
maintain the accuracy of its account or accounts and to promptly update its
account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to
Section 9.3(c) hereof, and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and Interest
Period of each such Loan hereunder, (ii) the amount of any principal or interest
due and payable or to become due and payable to each Lender hereunder and (iii)
the amount of any sum received by the Administrative Agent hereunder from or for
the account of the Borrower and each Lender's share thereof. The Administrative
Agent will make reasonable efforts to
19
<PAGE>
maintain the accuracy of the subaccounts referred to in the preceding sentence
and to promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent
with the entries of the Administrative Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender or the
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Administrative Agent to maintain any such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms hereof.
SECTION 4
GUARANTY
---------
4.1 THE GUARANTEE.
-------------
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, to each Affiliate of a Lender that enters into a Hedging Agreement and
to the Administrative Agent as hereinafter provided the prompt payment of the
Guaranteed Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, a mandatory cash collateralization or
otherwise) strictly in accordance with the terms thereof. The Guarantors hereby
further agree that if any of the Guaranteed Obligations are not paid in full
when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as mandatory cash collateralization or otherwise and after giving
effect to any grace periods), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration or otherwise and
after giving effect to any grace periods) in accordance with the terms of such
extension or renewal. This is a guaranty of payment and not of collection.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
4.2 OBLIGATIONS UNCONDITIONAL.
-------------------------
The obligations of the Guarantors under Section 4.1 hereof are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each
20
<PAGE>
Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against the Borrower or any other
Guarantor of the Guaranteed Obligations for amounts paid under this Guaranty
until such time as the Lenders (and any Affiliates of Lenders entering into
Hedging Agreements) have been paid in full, all Commitments under the Credit
Agreement have been terminated and no Person or Governmental Authority shall
have any right to request any return or reimbursement of funds from the Lenders
in connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Administrative Agent or
any Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected or shall be released or discharged in
whole or in part; or
(v) any of the Guaranteed Obligations shall be determined to be void
or voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Administrative Agent or any Lender
exhaust any right, power or remedy or proceed against any Person under any of
the Credit Documents, any Hedging Agreement or any other agreement or instrument
referred to in the Credit Documents or Hedging Agreements, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations.
4.3 REINSTATEMENT.
-------------
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Guaranteed Obligations is rescinded
or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or
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otherwise, and each Guarantor agrees that it will indemnify the Administrative
Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
4.4 CERTAIN ADDITIONAL WAIVERS.
--------------------------
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. (S)(S) 26-7
through 26-9, inclusive. Each Guarantor further agrees that such Guarantor shall
have no right of recourse to security for the Guaranteed Obligations, except
through the exercise of the rights of subrogation pursuant to Section 4.2.
4.5 REMEDIES.
--------
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Section 7.2 hereof (and shall be deemed
to have become automatically due and payable in the circumstances provided in
said Section 7.2) for purposes of Section 4.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing the
Guaranteed Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration (or the Guaranteed
Obligations being deemed to have become automatically due and payable), the
Guaranteed Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of said
Section 4.1.
4.6 RIGHTS OF CONTRIBUTION.
----------------------
The Guarantors hereby agree, as among themselves, that if any Guarantor
shall become an Excess Funding Guarantor (as defined below), each other
Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the
succeeding provisions of this Section 4.6), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the properties, assets,
liabilities and debts of such Excess Funding Guarantor) of such Excess Payment
(as defined below). The payment obligation of any Guarantor to any Excess
Funding Guarantor under this Section 4.6 shall be subordinate and subject in
right of payment to the prior payment in full of the obligations of such
Guarantor under the other provisions of this Section 4, and such Excess Funding
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For purposes
hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations
------------------------
arising under the other provisions of this Section 4 (hereafter, the "Guarantied
----------
Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata
- -----------
Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in
--------------
respect of any Guarantied Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and
(iii) "Pro Rata Share", for the purposes of this Section 4.6, shall mean, for
--------------
any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which
the aggregate present fair saleable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but excluding
the obligations of such Guarantor
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hereunder) to (b) the amount by which the aggregate present fair saleable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a
party hereto subsequent to the Closing Date, then for the purposes of this
Section 4.6 such subsequent Guarantor shall be deemed to have been a Guarantor
as of the Closing Date and the information pertaining to, and only pertaining
to, such Guarantor as of the date such Guarantor became a Guarantor shall be
deemed true as of the Closing Date).
4.7 CONTINUING GUARANTEE.
--------------------
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Guaranteed Obligations whenever arising.
SECTION 5
CONDITIONS
----------
5.1 CONDITIONS TO CLOSING.
---------------------
Closing of the liquidity facility pursuant to this Credit Agreement is
subject to satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement and Credit Documents. Receipt of
--------------------------------------------------
(i) multiple counterparts of this Credit Agreement, (ii) a Revolving Note for
each Lender, (iii) multiple counterparts of the Pledge Agreement and the
Security Agreement and UCC financing statements relating thereto, if any, in
each case executed by a duly authorized officer of each party thereto and in
each case conforming to the requirements of this Credit Agreement.
(b) Liquidity Intercreditor Agreement. Receipt of multiple executed
---------------------------------
counterparts of the Liquidity Intercreditor Agreement.
(c) Stock Certificates. Acknowledgment from NationsBank, N.A., as
------------------
Administrative Agent under the Existing Credit Agreement, (i) of its receipt of
original stock certificates evidencing the ownership interests of the Credit
Parties pledged pursuant to the Pledge Agreement, together in each case with
original undated stock powers executed in blank (evidencing, among other things,
100% of the voting stock of the Borrower), (ii) of the interests of the
Administrative Agent and the Lenders hereunder therein pursuant to the Pledge
Agreement and (iii) that it holds such stock certificates and stock powers as
bailee for the Administrative Agent hereunder.
(d) Financial Information. Receipt of financial information
---------------------
regarding the Company and the Borrower and their subsidiaries, as may be
requested by, and in each case in form and substance satisfactory to the Agents.
(e) Absence of Legal Proceedings. The absence of any action, suit,
----------------------------
investigation or proceeding pending in any court or before any arbitrator or
governmental instrumentality
23
<PAGE>
which could reasonably be expected to have a Material Adverse Effect on the
Consolidated Group taken as a whole.
(f) Legal Opinions. Receipt of multiple counterparts of opinions of
--------------
counsel for the Credit Parties relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to the
Agents and the Lenders,
(g) Corporate Documents. Receipt of the following (or their
-------------------
equivalent) for each of the Credit Parties:
(i) Articles of Incorporation. Copies of the certificate of
-------------------------
incorporation or charter documents certified to be true and complete as of
a recent date by the appropriate governmental authority of the state of its
incorporation.
(ii) Resolutions. Copies of resolutions of the Board of
-----------
Directors approving and adopting the respective Credit Documents, the
transactions contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary as of the Closing
Date to be true and correct and in force and effect as of such date.
(iii) Bylaws. Copies of the bylaws certified by a secretary or
------
assistant secretary as of the Closing Date to be true and correct and in
force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of (A)
-------------
certificates of good standing, existence or its equivalent certified as of
a recent date by the appropriate governmental authorities of the state of
incorporation and each other state in which the failure to so qualify and
be in good standing would have a Material Adverse Effect and (B) a
certificate indicating payment of all corporate franchise taxes certified
as of a recent date by the appropriate governmental taxing authorities in
the state of incorporation.
(v) Officer's Certificate. An officer's certificate for each
---------------------
of the Credit Parties dated as of the Closing Date substantially in the
form of Schedule 5.1(g)(v) with appropriate insertions and attachments.
------------------
(vi) Solvency Certificate. An officer's certificate for each
--------------------
of the Borrower and the Company, both dated as of the Closing Date and
substantially in the form of Schedule 5.1(g)(vi)(A) or Schedule
--------------------- --------
5.1(g)(vi)(B), as appropriate.
-------------
(h) Fees. Receipt of all fees, if any, owing pursuant to the
----
Administrative Agent's Fee Letter, Section 3.5 or otherwise.
(i) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Credit Agreement shall be
reasonably satisfactory in form and substance to the Agents and the Required
Lenders.
5.2 CONDITIONS TO EFFECTIVENESS.
---------------------------
24
<PAGE>
Effectiveness of the liquidity facility pursuant to this Credit Agreement,
and to the initial Extensions of Credit hereunder, are subject to satisfaction
of the following conditions precedent:
(a) Amendment No. 3 to Existing Credit Agreement. Receipt of an
--------------------------------------------
executed copy of Amendment No. 3 to the Existing Credit Agreement, in form and
substance satisfactory to the Lenders hereunder.
(b) Section 5.3 Conditions. The conditions specified in Section 5.3
----------------------
shall be satisfied.
5.3 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
--------------------------------------
The obligation of the Lenders to make any Extension of Credit hereunder
(including the initial Extension of Credit to be made hereunder) is subject to
the satisfaction of the following conditions precedent on the date of making
such Extension of Credit:
(a) Representations and Warranties. The representations and
------------------------------
warranties made by the Credit Parties herein or in any other Credit Documents
or which are contained in any certificate furnished at any time under or in
connection herewith shall be true and correct in all material respects on and as
of the date of such Extension of Credit as if made on and as of such date
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on such date or after giving effect to the
Extension of Credit to be made on such date unless such Default or Event of
Default shall have been waived or cured in accordance with this Credit
Agreement.
(c) No Material Adverse Effect. No circumstances, events or
--------------------------
conditions shall have occurred since the date of the audited financial
statements referenced in Section 6.1 of the Incorporated Representations which
would have a Material Adverse Effect.
(d) Additional Conditions to Revolving Loans. If a Revolving Loan is
----------------------------------------
made pursuant to Section 2.1, all conditions set forth therein shall have been
satisfied.
(e) No Availability under the Existing Credit Agreement. The
---------------------------------------------------
Existing Credit Agreement shall then be fully drawn upon and there shall be no
remaining availability thereunder.
Each request for an Extension of Credit (including extensions and
conversions) and each acceptance by the Borrower of an Extension of Credit
(including extensions and conversions) shall be deemed to constitute a
representation and warranty by the Borrower as of the date of such Extension of
Credit that the applicable conditions in paragraphs (a), (b), (c), (d) and (e)
of this subsection have been satisfied.
SECTION 6
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
6.1 INCORPORATION.
-------------
25
<PAGE>
The representations and warranties contained in Section 6 of the Existing
Credit Agreement (the "Incorporated Representations") and the affirmative and
----------------------------
negative covenants contained in Sections 7 and 8, respectively, of the Existing
Credit Agreement (the "Incorporated Covenants") as in effect on the Closing Date
----------------------
are incorporated herein by reference with the same effect as if stated at
length. The Credit Parties affirm and represent and warrant to the
Administrative Agent and the Lenders that the Incorporated Representations are
true and correct in all material respects as of the date hereof and covenant and
agree that the Incorporated Covenants shall be as binding on the Credit Parties
as if set forth fully herein, provided that (i) such Incorporated
--------
Representations and Incorporated Covenants as incorporated herein shall reflect
that they are delivered to and run in favor of the Administrative Agent and the
Lenders hereunder, rather than just to the Administrative Agent and the Lenders
under the Existing Credit Agreement as literally provided in the Existing Credit
Agreement, and references therein to the "Credit Agreement" and "Credit
Documents" shall be deemed for purposes hereof to include this Credit Agreement
and the Credit Documents relating hereto, (ii) any amendments or modifications
to such Incorporated Representations or Incorporated Covenants subsequent to the
date hereof must be consented to in writing by the Required Lenders hereunder,
and (iii) in the event that the Existing Credit Agreement shall be refinanced
or replaced by another credit agreement, then the Incorporated Representations
and Incorporated Covenants shall be as in effect immediately prior to such
refinancing or replacement.
6.2 ADDITIONAL REPRESENTATIONS.
--------------------------
(a) Purpose of Extensions of Credit. Notwithstanding the provisions
-------------------------------
of Section 6.15 of the Existing Credit Agreement, Extensions of Credit under
this Credit Agreement shall be used for general corporate purposes, including
the build-up of inventory and receivables.
6.3 ADDITIONAL COVENANTS.
--------------------
(a) Purpose of Revolving Loans. The proceeds of Revolving Loans
--------------------------
hereunder shall be used for general corporate purposes, including the build-up
of inventory and receivables.
(b) Additional Guaranties and Stock Pledges. The Company
---------------------------------------
will provide to the Administrative Agent for the benefit of the Lenders
hereunder a Joinder Agreement providing a guaranty of the obligations under this
Credit Agreement in the same form and from the same Subsidiaries and Affiliates
and a pledge of stock relating thereto as provided under the Existing Credit
Agreement in Section 7.11 thereof.
(c) Prepayments under the Existing Credit Facility. There shall be
----------------------------------------------
excepted from the operation of Section 8.9(a) of the Existing Credit Agreement
as incorporated herein amendment, modification or waiver of the provisions
of the Existing Credit Agreement and from the operation of Section 8.9(b) of the
Existing Credit Agreement as incorporated herein prepayment, mandatory, optional
or voluntary, on the Obligations under the Existing Credit Agreement.
(d) Prepayments and Commitment Reductions under the Existing Credit
---------------------------------------------------------------
Agreement. During the term of this Credit Agreement, the Borrower will not (i)
- ---------
make any
26
<PAGE>
optional or voluntary prepayment on or in respect of the Obligations under the
Existing Credit Agreement during any period when Revolving Loans are outstanding
hereunder, or (ii) make any optional or voluntary reduction in the Aggregate
Revolving Committed Amount under the Existing Credit Agreement.
SECTION 7
EVENTS OF DEFAULT
-----------------
7.1 EVENTS OF DEFAULT.
-----------------
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
----------------
(a) Payment. Any Credit Party shall
-------
(i) default in the payment when due of any principal of any of the
Loans, or
(ii) default, and such defaults shall continue for five (5) or more
Business Days, in the payment when due of any interest on the Loans, or of
any Fees or other reasonable fees and amounts owing hereunder, under any
of the other Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement made or
---------------
deemed to be made herein, in any of the other Credit Documents, or in any
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove untrue in any material respect on the date as of which it
was deemed to have been made; or
(c) Covenants.
---------
(i) Default in the due performance or observance of any term,
covenant or agreement contained in Section 7.3(a), 7.9, 7.11, 7.13 or 8.1
through 8.12 (except in the case of negative covenants contained in Sections
8.1 through 8.12, those Defaults which may occur or arise other than on
account of or by affirmative or intentional act of the Borrower or event or
condition which the Borrower shall with knowledge permit to exist, all of
which shall be subject to the provisions of clause (ii) hereof), inclusive,
in each case of the Incorporated Covenants, or
(ii) Default in the due performance or observance by it of any term,
covenant or agreement (other than those referred to in subsections (a), (b)
or (c)(i) of this Section 7.1) contained in this Credit Agreement and such
default shall continue unremedied for a period of at least 30 days after
the earlier of a Responsible Officer of a Credit Party becoming aware of
such default, or the giving of notice thereof by the Administrative Agent,
or with respect to Section 7.8 of the Incorporated Covenants, without a
response or investigation being initiated within such time period; or
27
<PAGE>
(d) Other Credit Documents. (i) Any Credit Party shall default in the due
----------------------
performance or observance of any material term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) except as to the Credit Party which is dissolved, released or
merged or consolidated out of existence as the result of or in connection with
a dissolution, merger or disposition permitted by Section 8.4(a), Section 8.4(b)
or Section 8.4(c) of the Incorporated Covenants, any Credit Document shall fail
to be in full force and effect or to give the Administrative Agent and/or the
Lenders any material part of the Liens, rights, powers and privileges purported
to be created thereby; or
(e) Guaranties. Except as to the Credit Party which is dissolved, released
----------
or merged or consolidated out of existence as the result of or in connection
with a dissolution, merger or disposition permitted by Section 8.4(a), Section
8.4(b) or Section 8.4(c) of the Incorporated Covenants, the guaranty given by
any Guarantor hereunder or any material provision thereof shall cease to be in
full force and effect, or any Guarantor hereunder or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations
under such guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any
---------------
member of the Consolidated Group; or
(g) Defaults under Other Agreements.
--------------------------------
(i) Any member of the Consolidated Group shall default in the
performance or observance (beyond the applicable grace period with respect
thereto, if any) of any material obligation or condition of any contract or
lease material to the Consolidated Group, taken as a whole which is
reasonably likely to have a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than Indebtedness
outstanding under this Credit Agreement) in excess of $10,000,000 in the
aggregate for the Consolidated Group taken as a whole, (A) (1) any member of
the Consolidated Group shall default in any payment (beyond the applicable
grace period with respect thereto, if any) with respect to any such
Indebtedness, or (2) the occurrence and continuance of a default in the
observance or performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the effect of which
is to cause any such Indebtedness to become due prior to its stated
maturity; or (B) any such Indebtedness shall be declared due and payable, or
required to be prepaid other than by a regularly scheduled required
prepayment, prior to the stated maturity thereof; or
(h) Judgments. Any member of the Consolidated Group shall fail within 30
---------
days of the date due and payable to pay, bond or otherwise discharge any
judgment, settlement or order for the payment of money which judgment,
settlement or order, when aggregated with all other such judgments, settlements
or orders due and unpaid at such time, exceeds $5,000,000, and which is not
stayed on appeal (or for which no motion for stay is pending) or is not
otherwise being executed or is not covered by insurance (subject to applicable
deductibles); or
28
<PAGE>
(i) ERISA. Any of the following events or conditions, if such event or
-----
condition could reasonably be expected to have a Material Adverse Effect: (1)
any "accumulated funding deficiency," as such term is defined in Section 302 of
ERISA and Section 412 of the Code, whether or not waived, shall exist with
respect to any Single Employer or Multiple Employer Plan, or any lien shall
arise on the assets of a member of the Consolidated Group or any ERISA Affiliate
in favor of the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a
Single Employer Plan, which is, in the reasonable opinion of the Administrative
Agent, likely to result in the termination of such Plan for purposes of Title IV
of ERISA; (3) an ERISA Event shall occur with respect to a Multiemployer Plan or
Multiple Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in (i) the termination of such Plan for
purposes of Title IV of ERISA, or (ii) a member of the Consolidated Group or any
ERISA Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or insolvency
of (within the meaning of Section 4245 of ERISA) such Plan; or (4) any
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) or breach of fiduciary responsibility shall occur which may
subject a member of the Consolidated Group or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which a member
of the Consolidated Group or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability; or
(j) Ownership. There shall occur a Change of Control; or
---------
(k) Existing Credit Agreement. The occurrence and continuance of an Event
-------------------------
of Default under the Existing Credit Agreement.
7.2 ACCELERATION; REMEDIES.
----------------------
Upon the occurrence of an Event of Default, and at any time thereafter
during the continuance of an Event of Default, the Administrative Agent shall,
upon the request and direction of the Required Lenders, by written notice to
the Credit Parties take any of the following actions:
(i) Termination of Commitments. Declare the Commitments terminated
--------------------------
whereupon the Commitments shall be immediately terminated.
(ii) Acceleration. Declare the unpaid principal of and any accrued
------------
interest in respect of all Loans and any and all other indebtedness or
obligations of any and every kind owing by the Credit Parties to the
Administrative Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each of the Credit Parties.
(iii) Enforcement of Rights. Enforce any and all rights and
---------------------
interests created and existing under the Credit Documents and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
7.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Administrative Agent and/or any
of the Lenders hereunder automatically shall immediately
29
<PAGE>
become due and payable without presentment, demand, protest or the giving of
any notice or other action by the Administrative Agent or the Lenders, all of
which are hereby waived by the Credit Parties.
SECTION 8
AGENCY PROVISIONS
-----------------
8.1 APPOINTMENT.
-----------
Each Lender hereby designates and appoints NationsBank, N.A. as
administrative agent (in such capacity, the "Administrative Agent") of such
--------------------
Lender to act as specified herein and the other Credit Documents, and each such
Lender hereby authorizes the Administrative Agent as the Administrative Agent
for such Lender, to take such action on its behalf under the provisions of this
Credit Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated by the terms hereof and of the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. Each Lender further directs and authorizes the
Administrative Agent to execute releases (or similar agreements) to give effect
to the provisions of this Credit Agreement and the other Credit Documents,
including specifically without limitation the provisions of Section 3.16 hereof
and Section 8.4 of the Incorporated Covenants hereof. Notwithstanding any
provision to the contrary elsewhere herein and in the other Credit Documents,
the Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth herein and therein, or any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Credit Agreement or any of
the other Credit Documents, or shall otherwise exist against the Administrative
Agent. The provisions of this Section are solely for the benefit of the
Administrative Agent and the Lenders and none of the Credit Parties shall have
any rights as a third party beneficiary of the provisions hereof. In performing
its functions and duties under this Credit Agreement and the other Credit
Documents, the Administrative Agent shall act solely as Administrative Agent of
the Lenders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for any Credit Party or
any of their respective Affiliates.
8.2 DELEGATION OF DUTIES.
---------------------
The Administrative Agent may execute any of its duties hereunder or under
the other Credit Documents by or through Administrative Agents or attorneys-in-
fact and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Administrative Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.
8.3 EXCULPATORY PROVISIONS.
----------------------
The Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report,
30
<PAGE>
document, financial statement or other written or oral statement referred to or
provided for in, received by the Administrative Agent under or in connection
herewith or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of
any Credit Party to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Credit Agreement, or any of the other Credit Documents or
for any representations, warranties, recitals or statements made herein or
therein or made by the Borrower or any Credit Party in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Lenders or by or on behalf
of the Credit Parties to the Administrative Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or the use of the Letters of Credit
or of the existence or possible existence of any Default or Event of Default or
to inspect the properties, books or records of the Credit Parties or any of
their respective Affiliates.
8.4 RELIANCE ON COMMUNICATIONS.
--------------------------
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Administrative Agent with reasonable care). The
Administrative Agent may deem and treat the Lenders as the owner of their
respective interests hereunder for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent in accordance with Section 9.3(b) hereof. The
Administrative Agent shall be fully justified in failing or refusing to take
any action under this Credit Agreement or under any of the other Credit
Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or under any of the other Credit Documents in
accordance with a request of the Required Lenders (or to the extent specifically
provided in Section 9.6. all the Lenders) and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders
(including their successors and assigns).
8.5 NOTICE OF DEFAULT.
-----------------
The Administrative Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
prompt notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders.
8.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
------------------------------------------------------
31
<PAGE>
Each Lender expressly acknowledges that each of the Administrative Agent
and its officers, directors, employees, agents, attorneys-in-fact or affiliates
has not made any representations or warranties to it and that no act by the
Administrative Agent or any affiliate thereof hereinafter taken, including any
review of the affairs of any Credit Party or any of their respective Affiliates,
shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower, the other Credit Parties or
their respective Affiliates and made its own decision to make its Loans
hereunder and enter into this Credit Agreement. Each Lender also represents that
it will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Credit Agreement, and to
make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower, the other Credit Parties and
their respective Affiliates. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Borrower, the other Credit Parties or any of their
respective Affiliates which may come into the possession of the Administrative
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
8.7 INDEMNIFICATION.
---------------
The Lenders agree to indemnify the Agents in their capacity as such (to
the extent not reimbursed by the Borrower and without limiting the obligation
of the Borrower to do so), ratably according to their respective Commitments (or
if the Commitments have expired or been terminated, in accordance with the
respective principal amounts of outstanding Loans and Participation Interests of
the Lenders), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following the final payment of all of the obligations of the Borrower
hereunder and under the other Credit Documents) be imposed on, incurred by or
asserted against the Agents in their capacity as such in any way relating to or
arising out of this Credit Agreement or the other Credit Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agents
under or in connection with any of the foregoing; provided that no Lender shall
--------
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or willful misconduct of the
Agents. If any indemnity furnished to the Agents for any purpose shall, in the
opinion of such Agent, be insufficient or become impaired, the Agent may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section shall survive the repayment of the Loans, and other obligations under
the Credit Documents and the termination of the Commitments hereunder.
8.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.
------------------------------------------------
32
<PAGE>
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Company,
the Borrower, its Subsidiaries or their respective Affiliates as though the
Administrative Agent were not the Administrative Agent hereunder. With respect
to the Loans made to and all obligations of the Borrower hereunder and under
the other Credit Documents, the Administrative Agent shall have the same rights
and powers under this Credit Agreement as any Lender and may exercise the same
as though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
8.9 SUCCESSOR ADMINISTRATIVE AGENT.
------------------------------
The Administrative Agent may, at any time, resign upon 20 days' written
notice to the Lenders, and may be removed, upon show of cause, by the Required
Lenders upon 30 days' written notice to the Administrative Agent. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the notice of resignation or notice of
removal, as appropriate, then the retiring Administrative Agent shall select a
successor Administrative Agent provided such successor is a Lender hereunder or
a commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and has a combined capital and surplus of at
least $400,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties obligations as Administrative Agent,
as appropriate, under this Credit Agreement and the other Credit Documents and
the provisions of this Section 8.9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Credit Agreement.
8.10 INTERCREDITOR AGREEMENTS.
-------------------------
(a) The terms of the Excluded Receivables Transaction require the
execution of an Intercreditor Agreement substantially in the form of Schedule
--------
8.10(a) (the "INTERCREDITOR AGREEMENT") as a condition to the grant of a
- ------- ------------------------
security interest by the Borrower in inventory and accounts. By execution
hereof, each Lender hereby acknowledges, and agrees to be bound by, the terms of
the Intercreditor Agreement (including specifically, without limitation, the
provisions of Sections 6, 7 and 10(b) thereof), and further authorizes and
directs the Administrative Agent to enter into the Intercreditor Agreement on
its behalf.
(b) In addition, inasmuch as the obligations under the Existing Credit
Agreement are secured by the same collateral as that securing the obligations
this Credit Agreement, an intercreditor agreement is required in order that the
respective obligations share in such collateral on a pari passu basis. By
execution hereof, each Lender hereby acknowledges and agrees to be bound by the
terms of an Intercreditor Agreement in substantially the form of Schedule 8.10
-------------
(b) (as defined herein, The "Liquidity Intercreditor Agreement") and further
- --- ---------------------------------
authorizes and directs the Administrative Agent to enter into the Liquidity
Intercreditor Agreement on its behalf.
33
<PAGE>
SECTION 9
MISCELLANEOUS
-------------
9.1 NOTICES.
-------
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (i) when
delivered, (ii) when transmitted via telecopy (or other facsimile device) to the
number set out below, (iii) the day following the day on which the same has
been delivered prepaid to a reputable national overnight air courier service, or
(iv) the third Business Day following the day on which the same is sent by
certified or registered mail, postage prepaid, in each case to the respective
parties at the address, in the case of the Borrower, Guarantors and the
Administrative Agent, set forth below, and, in the case of the Lenders, set
forth on Schedule 2.1 (a), or at such other address as such party may specify
----------------
by written notice to the other parties hereto:
if to the Borrower or the Guarantors:
AMERISOURCE CORPORATION
300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attn: John A. Aberant
Telephone: (610) 296-4480
Telecopy: (610) 993-9085
if to the Administrative Agent;
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-9371
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N.A.
NationsBank Healthcare Finance Group
100 N. Tryon Street
NationsBank Corporate Center, Eighth Floor
Charlotte, North Carolina 28255
Attn: Scott S. Ward
Telephone: (704) 388-7839
Telecopy: (704) 388-6002
34
<PAGE>
9.2 RIGHT OF SET-OFF.
----------------
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default, each Lender is authorized at any time and from time to
time, without presentment, demand, protest or other notice of any kind (all of
which rights being hereby expressly waived), to set-off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by such Lender (including, without limitation branches,
agencies or Affiliates of such Lender wherever located) to or for the credit or
the account of any Credit Party against obligations and liabilities of such
Person to such Lender hereunder, under the Notes the other Credit Documents or
otherwise, irrespective of whether such Lender shall have made any demand
hereunder and although such obligations, liabilities or claims, or any of them,
may be contingent or unmatured, and any such set-off shall be deemed to have
been made immediately upon the occurrence of an Event of Default even though
such charge is made or entered on the books of such Lender subsequent thereto.
Any Person purchasing a participation in the Loans and Commitments hereunder
pursuant to Section 3.13 or Section 9.3(d) may exercise all rights of set-off
with respect to its participation interest as fully as if such Person were a
Lender hereunder.
9.3 BENEFIT OF AGREEMENT.
--------------------
(a) Generally. This Credit Agreement shall be binding upon and inure
---------
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties may
--------
assign or transfer any of its interests or obligations without prior
written consent of the Lenders; provided further that the rights of each
-------- -------
Lender to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section 9.3,
provided however that nothing herein shall prevent or prohibit any Lender
--------
from (i) pledging its Loans hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank, or (ii)
granting assignments or selling participations in such Lender's Loans
and/or Commitments hereunder to its parent company and/or to any Affiliate
or Subsidiary of such Lender.
(b) Assignments. Each Lender may assign all or a portion of its rights
-----------
and obligations hereunder, pursuant to an assignment agreement
substantially in the form of Schedule 9.3(b), to (i) any Lender or any
---------------
Affiliate or Subsidiary of a Lender, or (ii) any other commercial bank
financial institution or "accredited investor" (as defined in Regulation D
of the Securities and Exchange Commission) reasonably acceptable to the
Administrative Agent; provided that (i) any such assignment (other than any
--------
assignment to an existing Lender) shall be in a minimum aggregate amount
of $5,000,000 (or, if less, the remaining amount of the Commitment being
assigned by such Lender) of the Commitments and in integral multiples of
$1,000,000 above such amount and (ii) each such assignment shall be of a
constant, not varying, percentage of all such Lender's rights and
obligations under this Credit Agreement. Any assignment hereunder shall be
effective upon delivery to the Administrative Agent of written notice of
the assignment together with a transfer fee of $3,500 payable to the
Administrative Agent for its own account from and after the later of (i)
the effective date specified in the applicable assignment agreement and
(ii) the date of recording of such assignment in the Register pursuant to
the terms of subsection (c) below. The assigning Lender will give prompt
notice to the Administrative Agent and the Borrower of any such
35
<PAGE>
assignment. Upon the effectiveness of any such Assignment (and after notice to,
and (to the extent required pursuant to the terms hereof), with the consent of,
the Borrower and the Administrative Agent as provided herein), the assignee
shall become a "Lender" for all purposes of this Credit Agreement and the other
Credit Documents and, to the extent of such assignment, the assigning Lender
shall be relieved of its obligations hereunder to the extent of the Loans and
Commitment components being assigned. Along such lines the Borrower agrees that
upon any such assignment and surrender of the appropriate Note or Notes, it will
promptly provide to the assigning Lender and to the assignee separate promissory
notes in the amount of their respective interests substantially in the form of
the original Note (but with notation thereon that it is given in substitution
for and replacement of the original Note or any replacement notes thereof). By
executing and delivering an assignment agreement in accordance with this Section
9.3(b), the assigning Lender thereunder and the assignee thereunder shall be
deemed to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Lender warrants that it is the legal and beneficial
owner of the interest being assigned thereby free and clear of any adverse
claim; (ii) except as set forth in clause (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement, any of the other Credit Documents or any other instrument or
document furnished pursuant hereto or thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Credit
Agreement, any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto or the financial condition of any Credit
Party or any of their respective Affiliates or the performance or observance by
any Credit Party of any of its obligations under this Credit Agreement, any of
the other Credit Documents or any other instrument or document furnished
pursuant hereto or thereto; (iii) such assignee represents and warrants that it
is legally authorized to enter into such assignment agreement; (iv) such
assignee confirms that it has received a copy of this Credit Agreement, the
other Credit Documents and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
assignment agreement; (v) such assignee will independently and without reliance
upon the Administrative Agent, such assigning Lender or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Credit Agreement and the other Credit Documents; (vi) such assignee
appoints and authorizes the Administrative Agent to take such action on its
behalf and to exercise such powers under this Credit Agreement or any other
Credit Document as are delegated to the Administrative Agent by the terms hereof
or thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Credit Agreement and the other
Credit Documents are required to be performed by it as a Lender.
(c) Maintenance of Register. The Administrative Agent shall maintain at
-----------------------
one of its offices in Charlotte, North Carolina a copy of each Lender assignment
agreement delivered to it in accordance with the terms of subsection (b) above
and a register for the recordation of the identity of the principal amount, type
and Interest Period of each Loan outstanding hereunder, the names, addresses and
the Commitments of the Lenders pursuant to the terms hereof from time to time
(the "Register"). The Administrative Agent will make reasonable efforts to
--------
maintain the accuracy of the Register and to promptly update the Register from
time to time, as necessary. The entries in the Register shall be conclusive in
the absence of manifest
36
<PAGE>
error and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Credit Agreement. The
Register shall be available for inspection by the Borrower and each Lender,
at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Each Lender may sell, transfer, grant or assign
--------------
participations in all or any part of such Lender's interests and
obligations hereunder, provided that (i) such selling Lender shall remain a
--------
"Lender" for all purposes under this Credit Agreement (such selling
Lender's obligations under the Credit Documents remaining unchanged) and
the participant shall not constitute a Lender hereunder, (ii) no such
participant shall have, or be granted, rights to approve any amendment or
waiver relating to this Credit Agreement or the other Credit Documents
except to the extent any such amendment or waiver would (A) reduce the
principal of or rate of interest on or Fees in respect of any Loans or any
Letter of Credit in which the participant is participating, (B) postpone
the date fixed for any payment of principal (including extension of the
Termination Date or the date of any mandatory prepayment), interest or Fees
in which the participant is participating, or (C) except as expressly
provided in the Credit Documents, release all or substantially all of the
collateral pledged to secure the Obligations hereunder or release all or
substantially all of the Guarantors from the guaranty obligations
hereunder, and (iii) sub-participations by the participant (except to an
affiliate, parent company or affiliate of a parent company of the
participant) shall be prohibited. In the case of any such participation,
the participant shall not have any rights under this Credit Agreement or
the other Credit Documents (the participant's rights against the selling
Lender in respect of such participation to be those set forth in the
participation agreement with such Lender creating such participation) and
all amounts payable by the Borrower hereunder shall be determined as if
such Lender had not sold such participation, provided, however, that such
--------
participant shall be entitled to receive the benefit of additional amounts
under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a
Lender.
9.4 NO WAIVER; REMEDIES CUMULATIVE.
------------------------------
No failure or delay on the part of the Administrative Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Administrative Agent or any Lender
and any of the Credit Parties shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Administrative Agent or any Lender would otherwise
have. No notice to or demand on any Credit Party in any case shall entitle the
Borrower or any other Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
9.5 PAYMENT OF EXPENSES, ETC.
------------------------
37
<PAGE>
The Borrower agrees to: (i) pay all reasonable out-of-pockets costs and
expenses (A) of the Administrative Agent in connection with the negotiation,
preparation, execution and delivery of this Credit Agreement and the other
Credit Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and expenses of Moore & Van
Allen, PLLC, special counsel to the Administrative Agent) and any amendment,
waiver of consent relating hereto and thereto including, but not limited to, any
such amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Credit Parties
under this Credit Agreement and (B) of the Administrative Agent and the Lenders
in connection with enforcement of or preservation of rights under the Credit
Documents and the documents and instruments referred to therein (including,
without limitation, in connection with any such enforcement, the reasonable fees
and disbursements of counsel for the Administrative Agent and each of the
Lenders); (ii) pay and hold each of the Lenders harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Lender, its officers, directors, employees, representatives and
Administrative Agents from and hold each of them harmless against any and all
losses, liabilities, claims, damages or reasonable expenses incurred by any of
them as a result of, or arising out of, or in any way related to, or by reason
of (A) any investigation, litigation or other proceeding (whether or not any
Lender is a party thereto) related to the entering into and/or performance of
any Credit Document or the use of proceeds of any Loans (including other
extensions of credit) hereunder or the consummation of any other transactions
contemplated in any Credit Document, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (other than investigations,
litigation or other proceedings relating solely to claims between or among the
Lenders) or (B) the presence or Release of any Materials of Environmental
Concern at, under or from any Property owned, operated or leased by the Borrower
or any of its Subsidiaries, or the failure by the Borrower or any of its
Subsidiaries to comply with any Environmental Law (but excluding, in the case of
either of clause (A) or (B) above, any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of gross negligence or willful
misconduct on the part of the Person to be indemnified).
9.6 AMENDMENTS, WAIVERS AND CONSENTS.
--------------------------------
Neither this Credit Agreement nor any other Credit Document not any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
-------- -------
(a) no such amendment, change, waiver, discharge or termination
shall, without the consent of each Lender directly affected thereby, (i)
reduce the rate or extend the time of payment of interest (other than as a
result of waiving the applicability of any post-default increase in
interest rates) on any Loan or the Commitment Fee or the Letter of Credit
Fee hereunder, (ii) extend (A) the Commitments of the Lenders, or (B) the
final maturity of any Loan, or (iii) reduce the principal amount on any
Loan;
(b) no such amendment, change, waiver, discharge or termination
shall, without the consent of each Lender affected thereby, (i) increase
the Commitments of the Lenders over the amount thereof in effect (it being
understood and agreed that a waiver of any Default
38
<PAGE>
or Event of Default or of a mandatory reduction in the total commitments
shall not constitute a change in the terms of any Commitment of any
Lender), (ii) except as the result of or in connection with a release of
collateral as provided in Section 3.16 or with a dissolution, merger or
disposition permitted under Section 8.4 of the Incorporated Covenants,
release all or substantially all of the collateral pledged to secure the
Obligations hereunder or release all or substantially all of the Guarantors
from the guaranty obligations hereunder, (iii) amend, modify or waive any
provision of this Section 11.6 or Section 3.6, 3.10, 3.11, 3.12, 3.13,
3.16, Section 4, 7.1(a), 9.3, 9.5 or 9.9. (iv) reduce any percentage
specified in, or otherwise modify, the definition of "Required Lenders," or
(v) consent to the assignment or transfer by the Borrower (or any
Guarantor) of any of its rights and obligations under (or in respect of)
the Credit Documents to which it is a party; and
(c) no provision of Section 8 may be amended without the consent of
the Administrative Agent.
9.7 COUNTERPARTS.
------------
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart.
9.8 HEADINGS.
--------
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
9.9 SURVIVAL.
--------
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.9, 3.11 or 7.8(c) of the Incorporated Covenants, 8.7 or 9.5 shall
survive the execution and delivery of this Credit Agreement, the making of the
Loans, the issuance of the Letters of Credit, the repayment of the Loans and
other obligations under the Credit Documents and the termination of the
Commitments hereunder, and all representations and warranties made by the Credit
Parties herein shall survive delivery of the Notes and the making of the Loans
hereunder.
9.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
------------------------------------------------
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. Any legal action or proceeding with respect to this Credit Agreement
or any other Credit Document may be brought in the courts of the State of North
Carolina in Mecklenburg County, or of the United States for the Western District
of North Carolina, and, by execution and delivery of this Credit Agreement, each
of the Credit Parties hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the nonexclusive jurisdiction of
such courts. Each of the Credit Parties further irrevocably
39
<PAGE>
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at the address set out for notices
pursuant to Section 9.1, such service to become effective three (3) days after
such mailing. Nothing herein shall affect the right of the Administrative Agent
to serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Credit Parry in any other
jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement or any other Credit Document brought in the courts referred to
in subsection (a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE AGENT, THE
LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
9.11 SEVERABILITY.
------------
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully serverable and
the remaining provisions shall remain in full force and effect and shall be
constructed without giving effect to the illegal, invalid or unenforceable
provisions.
9.12 ENTIRETY.
--------
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to he Credit Documents or the transactions
contemplated herein and therein.
9.13 BINDING EFFECT: TERMINATION.
---------------------------
(a) This Credit Agreement shall become effective at such time on or after
the Closing Date when it shall have been executed by the Borrower, the
Guarantors and the Administrative Agent, and the Administrative Agent shall have
received copies hereof (telefaxed or otherwise) which, when taken together, bear
the signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors, the
Administrative Agent and each Lender and their respective successors and
assigns.
(b) The term of this Credit Agreement shall be until no Loans, or any
other amounts payable hereunder or under any of the other Credit Documents shall
remain outstanding and until all of the Commitments hereunder shall have expired
or been terminated.
40
<PAGE>
9.14 CONFIDENTIALITY.
---------------
The Administrative Agent and the Lenders agree to keep Confidential (and to
cause their respective affiliates, officers, directors, employees,
Administrative Agents and representatives to keep confidential) all information,
materials and documents furnished to the Administrative Agent or any such Lender
by or on behalf of any Credit Party (whether before or after the Closing Date)
which relates to the Company, the Borrower or any of their Subsidiaries (the
"Information"). Notwithstanding the foregoing, the Administrative Agent and each
-----------
Lender shall be permitted to disclose Information (i) to its affiliates,
officers, directors, employees, Administrative Agents and representatives in
connection with its participation in any of the transactions evidenced by this
Credit Agreement or any other Credit Documents or the administration of this
Credit Agreement or any other Credit Documents; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any Governmental Authority; (iii) to the extent such Information
(A) becomes publicly available other than as a result of a breach of this Credit
Agreement or any agreement entered into pursuant to clause (iv) below, (B)
becomes available to the Administrative Agent or such Lender on a non-
confidential basis from a source other than a Credit Party or (C) was available
to the Administrative Agent or such Lender on a non-confidential basis prior to
its disclosure to the Administrative Agent or such Lender by a Credit Party;
(iv) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant (or prospective assignee or participant)
first specifically agrees in a writing furnished to and for the benefit of the
Credit Parties to be bound by the terms of this Section 9.14; or (v) to the
extent that the Borrower shall have consented in writing to such disclosure.
Nothing set forth in this Section 9.14 shall obligate the Administrative Agent
or any Lender to return any materials furnished by the Credit Parties.
9.15 SOURCE OF FUNDS.
---------------
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee benefit
plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets of
an insurance company's general account, such insurance company has complied
with all of the requirements of the regulations issued under Section
401(c)(l)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit
plans which such Lender has identified in writing to the Borrower.
41
<PAGE>
As used in this Section 9.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
9.16 CONFLICT.
--------
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
42
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: AMERISOURCE CORPORATION,
- ---------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- ----------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer and Asst. Secretary
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By: /s/ Teresa T. Ciccotelli
---------------------------------
Name: Teresa T. Ciccotelli
Title: Vice President
LENDERS: NATIONSBANK, N.A.,
- -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_________________________________
Name:
Title:
CORESTATES BANK, N.A.
By:_________________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
- -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By: /s/ SCOTT S. WARD
---------------------------------
Name: SCOTT S. WARD
Title: SENIOR VICE PRESIDENT
BANKERS TRUST COMPANY
By:_________________________________
Name:
Title:
CORESTATES BANK, N.A.
By:_________________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
- -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_________________________________
Name:
Title:
BANKERS TRUST COMPANY
By: /s/ Fredric W. Thomas Sr.
---------------------------------
Name: Fredric W. Thomas Sr.
Title: V.P.
CORESTATES BANK, N.A.
By:_________________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A,
- -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_________________________________
Name:
Title:
CORESTATES BANK, N.A.
By: /s/ Carol A. Williams
---------------------------------
Name: Carol A. Williams
Title: Senior Vice President
<PAGE>
SCHEDULE 2.1 (A)
----------------
Schedule of Lenders and Commitments
<TABLE>
<CAPTION>
REVOLVING
REVOlVING COMMITMENT
LENDER COMMITTED AMOUNT PERCENTAGE
------ ---------------- ----------
<S> <C> <C>
NationsBank, N.A. $ 33,333,334.00 33.333333%
101 North Tryon Street
15th Floor, Agency Services
NC1-001-15-04
Charlotte, NC 28255
Tel: (704) 386-9371
Fax: (704) 386-9923
Bankers Trust Company $ 33,333,333.00 33.333333%
14 Wall Street, 3rd Floor
New York, NY 10005
Tel: (212) 618-2615
Fax: (212) 618-2640
CoreStates Bank, N.A. $ 33,333,333.00 33.333333%
FC 1-8-3-8
1345 Chestnut Street
PO Box 7618
Philadelphia, PA 19101-7618
Tel: (215) 973-2315
Fax: (215) 973-6745
--------------- -----------
$100,000,000.00 100.000000%
</TABLE>
<PAGE>
SCHEDULE 2.1(B)(I)
------------------
FORM OF NOTICE OF BORROWING
NationsBank, N.A,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NCl-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of November 10, 1997 (as amended and
modified, the "Credit Agreement") among AmeriSource Corporation, the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, AMERISOURCE CORPORATI0N, a Delaware corporation, being the
Borrower under the above-referenced Credit Agreement hereby gives notice
pursuant to Section 2.1(b) of the Credit Agreement of a request for a Revolving
Loan as follows
(A) Date of Borrowing
(which is a Business Day) _____________________
(B) Principal Amount of
Borrowing _____________________
(C) Interest rate basis _____________________
(D) Interest Period and the
last day thereof _____________________
In accordance with the requirements of Section 5.3 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly relate to an earlier date).
<PAGE>
(b) No Default or Event of Default exits, or will exist after giving
effect to the requested Extension of Credit.
(c) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Incorporated Representations of the Credit Agreement which would have a Material
Adverse Effect.
(d) All conditions set forth in Section 2.1 as to the making of
Revolving Loans have been satisfied.
Very truly yours,
AMERISOURCE CORPORATION
By:_________________________
Name:
Title:
<PAGE>
SCHEDULE 2.1(E)
---------------
FORM OF REVOLVING NOTE
November 10, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay
to the order of ___________________, and its successors and assigns, on or
before the Termination Date to the office of the Administrative Agent in
immediately available funds as provided in the Credit Agreement, the principal
amount of such Lender's Revolving Committed Amount or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower; together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of November 10, 1997 (as amended and modified, the "Credit Agreement
----------------
among AmeriSource Corporation, a Delaware corporation, AmeriSource Health
Corporation, a Delaware corporation, the Guarantors and Lenders identified
therein and NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the meanings provided in the Credit
Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
AMERISOURCE CORPORATION,
a Delaware corporation
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE 3.2
------------
FORM OF NOTICE OF EXTENSION/CONVERSION
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NCI-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of November 10, 1997 (as amended and
modified, the "Credit Agreement") among AmeriSource Corporation, the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, AMERISOURCE CORPORATION (the "Borrower"), refers to the
--------
Credit Agreement dated as of November 10, 1997 (as amended, modified, extended
or restated from time to time, the "Credit Agreement"), among the Borrower, the
----------------
Lenders and NationsBank, N.A., as Administrative Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Borrower hereby gives notice pursuant to
Section 3.2 of the Credit Agreement that it requests an extension or conversion
of a Revolving Loan outstanding under the Credit Agreement, and in connection
therewith sets forth below the terms on which such extension or conversion is
requested to be made:
(A) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) __________________________
(B) Principal Amount of
Extension or Conversion __________________________
(C) Interest rate basis __________________________
(D) Interest Period and the
last day thereof __________________________
In accordance with the requirements of Section 5.3 of the Credit Agreement,
the undersigned Borrower hereby certifies that:
<PAGE>
(a) The representations and warranties contained in the Credit Agreement
and the other Credit Documents are true and correct in all material respects as
of the date of this request, and will be true and correct after giving effect to
the requested Extension of Credit (except for those which expressly relate to an
earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) No circumstances, events or conditions have occurred since the date of
the audited financial statements referenced in Section 6.1 of the Incorporated
Representations of the Credit Agreement which would have a Material Adverse
Effect.
Very truly yours,
AMERISOURCE CORPORATION
By: ____________________________
Name:
Title:
<PAGE>
SCHEDULE 5.1(G)(V)
-------------------
SECRETARY'S CERTIFICATE
Pursuant to Section 5.1(g)(v) of the Credit Agreement (the "Credit
------
Agreement"), dated as of November 10, 1997, among AMERISOURCE CORPORATION, a
- ---------
Delaware corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent, the undersigned ________________
Secretary of __________________________ (the "Corporation") hereby certifies as
-----------
follows:
1. Attached hereto as Annex I is a true and complete copy of resolutions
duly adopted by the Board of Directors of the Corporation on _____________,
1996. The attached resolutions have not been rescinded or modified and remain in
full force and effect. The attached resolutions are the only corporate
proceedings of the Corporation now in force relating to or affecting the
matters referenced to therein.
2. Attached hereto as Annex II is true and completed copy of the By-laws
of the Corporation as in effect on the date hereof.
3. Attached hereto as Annex III is a true and complete copy of the
Certificate of Incorporation of the Corporation and all amendments thereto as in
effect on the date hereof.
4. The following persons are now duly elected and qualified officers of
the Corporation, holding the offices indicated, and the signature appearing
opposite his name below is his true and genuine signature, and such officer is
duly authorized to execute and deliver on behalf of the Corporation the Credit
Agreement, the Notes to be issued pursuant thereto and the other Credit
Documents and to act as a Responsible Officer on behalf of the Corporation under
the Credit Agreement.
Name Office Signature
- ---- ------ ---------
___________________
IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and
affixed the corporate seal of the Corporation.
_______________________________,
Secretary
(CORPORATE SEAL)
Date: _____________, 1997
I, ____________, ________________ of _________________, hereby certify that
__________________, whose genuine signature appears above, is, and has been at
all times since ___________________, a duly elected, qualified and acting
__________ of ________________________.
_____________________________ of
_____________________________
_______________________, 1997
<PAGE>
SCHEDULE 5.1(G)(VI)(A)
----------------------
SOLVENCY CERTIFICATE
SOLVENCY CERTIFICATE
Pursuant to Section 5.1(g)(vi) of the Credit Agreement (the "Credit
------
Agreement;" terms used but not otherwise defined herein shall have the meanings
- ---------
provided in the Credit Agreement), dated as of November 10, 1997, among
AMERISOURCE CORPORATION, a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent, the
undersigned ________________ of AMERISOURCE CORPORATION, a Delaware corporation
(the "Corporation"), hereby certifies:
-----------
1. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, are able to pay their debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business.
2. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, do not intend to, and do not believe that they will,
incur debts or liabilities beyond their ability to pay as such debts and
liabilities mature in their ordinary course.
3. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, are not engaged in any business or transaction, and are
not about to engage in any business or transaction, for which the Property
of the Corporation and its Subsidiaries, on a consolidated basis, would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which Corporation and its
Subsidiaries are engaged or are to engage.
4. As of the date hereof, the present fair saleable value of the
consolidated assets of the Corporation and its Subsidiaries is not less
than the amount that will be required to pay the probable liability on the
debts of the Corporation and its Subsidiaries, on a consolidated basis, as
they become absolute and matured.
This the ____ day of November, 1997.
AMERISOURCE CORPORATION,
a Delaware corporation
By:_____________________
Name:
Title:
<PAGE>
SCHEDULE 5.1(G)(vi)(B)
----------------------
SOLVENCY CERTIFICATE
Pursuant to Section 5.1(g)(vi) of the Credit Agreement (the "Credit
------
Agreement," terms used but not otherwise defined herein shall have the meanings
- ---------
provided in the Credit Agreement), dated as of November 10, 1997, among
AMERISOURCE CORPORATION, a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent, the
undersigned _____________________ of AMERISOURCE HEALTH CORPORATION, a Delaware
corporation, hereby certifies:
1. As of the date hereof, the Credit Parties, on a consolidated basis,
are able to pay their debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business.
2. As of the date hereof, the Credit Parties, on a consolidated basis, do
not intend to, and do not believe that they will, incur debts or
liabilities beyond their ability to pay as such debts and liabilities
mature in their ordinary course.
3. As of the date hereof, the Credit Parties, on a consolidated basis,
are not engaged in any business or transaction, and are not about to engage
in any business or transaction, for which the Property of the Credit
Parties, on a consolidated basis, would contitute unreasonable small
capital after giving due consideration to the prevailing practice in the
industry in which Credit Parties are engaged or are to engage.
4. As of the date hereof, the present fair saleable value of the
consolidated assets of the Credit Parties is not less than the amount that
will be required to pay the probable liability on the debts of the Credit
Parties, on a consolidated basis, as they become absolute and matured.
This the ____ day of November, 1997.
AMERISOURCE HEALTH CORPORATION,
a Delaware corporation
By: _____________________________
Name:
Title:
<PAGE>
SCHEDULE 8.10(A)
----------------
SECURITIZATION INTERCREDITOR AGREEMENT
<PAGE>
SCHEDULE 8.10(B)
----------------
LIQUIDITY INTERCREDITOR AGREEMENT
<PAGE>
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT dated as of November 10, 1997 (this "Agreement")
---------
is by and among NATIONSBANK, N.A., as Administrative Agent for and on behalf of
the Lenders under the Existing Credit Agreement, NATIONSBANK, N.A., as
Administrative Agent for and on behalf of the Lenders under the Liquidity Credit
Agreement, and AMERISOURCE CORPORATION, a Delaware corporation, and certain
Subsidiaries and Affiliates identified on the signature pages hereto.
WITNESSETH
WHEREAS, a $500 million revolving credit facility (the "Existing Facility")
-----------------
has been extended to AmeriSource Corporation, a Delaware corporation (the
"Borrower") pursuant to the terms of that Credit Agreement dated as of January
--------
8, 1997 (as amended and modified, the "Existing Credit Agreement") among the
-------------------------
Borrower, the Guarantors and Lenders identified therein and NationsBank, N.A.,
as Administrative Agent:
WHEREAS, a $100 million revolving credit facility (the "Liquidity
---------
Facility") has been extended to the Borrower pursuant to the terms of that
- --------
Credit Agreement dated as of November 10, 1997 (as amended and modified, the
"Liquidity Credit Agreement") among the Borrower, the Guarantors and Lenders
--------------------------
identified therein and NationsBank, N.A., as Administrative Agent;
WHEREAS, it is a condition to the establishment of the Liquidity
Facility that such facility be secured by and share in the same collateral
securing the Existing Facility on a pari passu basis pursuant to the terms set
out in this Agreement;
WHEREAS, the Lenders under each of the respective Credit Facilities have
authorized and directed their respective Administrative Agent to enter into
this Agreement for and on their behalf;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, terms shall have the
-----------
meanings provided in the Liquidity Credit Agreement and in the Liquidity Credit
Documents.
"Commitments" means such term as defined under the Existing Credit
-----------
Agreement and/or the Liquidity Credit Agreement, as appropriate.
"Existing Agent" means NationsBank, N.A., in its capacity as
--------------
Administrative Agent for the Lenders under the Existing Credit Agreement,
and its successors and assigns in such capacity.
<PAGE>
"Existing Credit Agreement" shall have the meaning provided in the
-------------------------
Recitals.
"Existing Credit Documents" means the Credit Documents under the
-------------------------
Existing Credit Agreement, including the Existing Credit Agreement.
"Existing Facility" shall have the meaning provided in the Recitals.
-----------------
"Existing Lenders" means the Lenders under the Existing Credit
----------------
Agreement.
"Facility" or "Facilities" means the Existing Facility and/or the
-------- ----------
Liquidity Facility, as appropriate.
"Lenders" means the Existing Lenders and the Liquidity Lenders,
-------
collectively or individually, as appropriate.
"Liquidity Agent" means NationsBank, N.A., in its capacity as
---------------
Administrative Agent for the Lenders under the Liquidity Credit Agreement,
and its successors and assigns in such capacity.
"Liquidity Credit Agreement" shall have the meaning provided in the
--------------------------
Recitals.
"Liquidity Credit Documents" means the Credit Documents under the
--------------------------
Liquidity Credit Agreement, including the Liquidity Credit Agreement.
"Liquidity Facility" shall have the meaning provided in the Recitals.
------------------
"Liquidity Lenders" means the Lenders under the Liquidity Credit
-----------------
Agreement.
"Obligations" means such term as defined under the Existing Credit
-----------
Agreement and/or the Liquidity Credit Agreement, as appropriate.
"pari passu" means, with respect to any Administrative Agent or
----------
any Lender, or any lien or security interest in favor of such
Administrative Agent or Lender, that the obligations held by such
Administrative Agent or Lender or secured by such lien or security
interest are of equal dignity and priority with the interest of each other
Administrative Agent or Lender or the interest secured by any other lien
or security interest.
2. Collateral
----------
(a) Under the Security Agreement. The Borrower and the Guarantors
----------------------------
have pledged and granted security interests to the Administrative Agent in
inventory, accounts and certain other personal property pursuant to the terms of
the respective Security Agreements as more particularly described therein. The
collateral pledged and security interests granted are the same for each of the
respective Facilities.
2
<PAGE>
(b) Under the Pledge Agreement. The Borrower and certain of the
--------------------------
Guarantors have pledged and granted security interests to the Administrative
Agent in capital stock of the Borrower and certain Subsidiaries and Affiliates
pursuant to the terms of the respective Pledge Agreements as more particularly
described therein. The shares and interests pledged are the same for each of the
respective Facilities.
(c) NationsBank, N.A. as Collateral Agent and Bailee. The Existing
------------------------------------------------
Facility was established prior to establishment of the Liquidity Facility and
the collateral was pledged to and security interests were granted in favor of
the Existing Agent at such time. By execution hereof, it is acknowledged and
agreed that the Existing Agent shall act as administrative agent, collateral
agent and bailee for the Lenders under the Liquidity Facility, as well as for
the Lenders under the Existing Facility, for purposes of perfecting security
interests in and otherwise dealing with the collateral (and specifically, the
Existing Agent shall hold and possess the shares pledged pursuant to the Pledge
Agreement relating to the Liquidity Facility as bailee for purposes of
perfecting the pledge and security interest therein and references to
"NationsBank, N.A., as Administrative Agent for the Lenders" as the secured
party in the UCC financing statements recorded in connection with the
establishment of the Existing Facility shall be deemed to include the Lenders
under the Liquidity Facility as well as the Existing Facility).
3. Priority of Liens and Security Interests. Notwithstanding anything
----------------------------------------
to the contrary contained in any of the documents or agreements evidencing or
relating to either of the Facilities, or any other document relating thereto and
irrespective of the time, order or method of attachment, perfection, filing or
recording of any lien or security interest in favor of any Administrative Agent
or Lender, any provision of or filing or recording under the Uniform
Commercial Code or other applicable law, it is acknowledged and agreed that at
all times, whether before, during or after the commencement of bankruptcy,
reorganization or other insolvency proceeding, the liens and security interests
securing the Existing Facility and the Liquidity Facility, and payments in
respect thereof, shall rank pari passu with one another; provided, however,
---- ----- --------
notwithstanding the applicable provisions of the respective Pledge Agreements
and Security Agreements, the Lenders under the Existing Facility and the Lenders
under the Liquidity Facility shall share pro rata, any proceeds in respect
thereof based on the outstanding Obligations of each Facility. In furtherance
thereof, neither Administrative Agent will take or cause to be taken any action,
including commencement of any legal or equitable proceedings, the effect of
which is or could be to give its Facility a preference or priority therein over
the other Facility.
4. Amendments. This Agreement shall not amended or modified, nor shall
----------
waivers or consents be granted hereunder, except with the written consent of the
Administrative Agent for the Lenders under the Existing Facility at the
direction of the Required Lenders thereunder, the Administrative Agent for the
Lenders under the Liquidity Facility at the direction of the Required Lenders
thereunder and the Borrower.
5. Notices. Except as otherwise expressly provided herein, all notices
-------
and other communications shall have been duly given and shall be effective (i)
when delivered, (ii) when
3
<PAGE>
transmitted via telecopy (or other facsimile device) to the number set out
below, (iii) the day following the day on which the same has been delivered
prepaid to a reputable national overnight air courier service, or (iv) the third
Business Day following the day on which the same is sent by certified or
registered mail, postage prepaid, in each case to the respective parties at the
address set forth below or at such other address as such party may specify by
written notice to the other parties hereto:
if to the Borrower or the Guarantors:
AMERISOURCE CORPORATION
300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attn: John A. Aberant
Telephone: (610) 296-4480
Telecopy: (610) 993-9085
if to the Administrative Agent under either the Existing Facility or
the Liquidity Facility:
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NCI-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-9371
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N.A.
NationsBank Healthcare Finance Group
100 N. Tryon Street
NationsBank Corporate Center, Eighth Floor
Charlotte, North Carolina 28255
Attn: Scott S. Ward
Telephone: (704) 388-7839
Telecopy: (704) 388-6002
6. Conflict. In the event of a conflict or inconsistency between the
--------
provisions hereof, on the one hand, and the provisions of any of the Credit
Documents relating to either Facility, on the other hand, the terms of this
Agreement shall control.
7. Successors and Assigns. This Agreement shall be binding upon and shall
----------------------
inure to the benefit of the parties hereto and their successors and assigns.
4
<PAGE>
8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
9. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
NATIONSBANK, N.A., as Administrative Agent for
the Lenders under the Existing Facility
By:_________________________________
Name:
Title:
NATIONSBANK, N.A., as Administrative Agent for
the Lenders under the Liquidity Facility
By:_________________________________
Name:
Title:
BORROWER: AMERISOURCE CORPORATION,
- ---------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- ----------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
<PAGE>
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer and Asst. Secretary
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
SKYLAND HOSPITAL SUPPLY, INC.,
A Tennessee corporation
By: /s/ Teresa T. Ciccotelli
---------------------------------
Name: Teresa T. Ciccotelli
Title: Vice President
<PAGE>
SCHEDULE 9.3(B)
---------------
FORM OF ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE dated as of _______________, 199_ is entered
into between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNOR" (the
"Assignor") and THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES AS "ASSIGNEES"
--------
("Assignee").
--------
Reference is made to that Credit Agreement dated as of November 10, 1997
(as amended and modified, the "Credit Agreement") among AMERISOURCE CORPORATION,
----------------
a Delaware corporation (the "Borrower"), the Guarantors and Lenders identified
--------
therein and NationsBank, N.A., as Administrative Agent. Terms defined in the
Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignees, and the Assignees hereby purchase and assume, without recourse, from
the Assignor, effective as of the Effective Date shown below, those rights and
interests of the Assignor under the Credit Agreement identified below (the
"Assigned Interests"), including the Obligations and Commitments relating
------------------
thereto, together with unpaid interest and fees relating thereto accruing from
the Effective Date. The Assignor represents and warrants that it owns the
interests assigned hereby free and clear of liens, encumbrances or other claims.
Each of the Assignees represents that it is an Eligible Assignee within the
meaning of the term in the Credit Agreement. The Assignor and each of the
Assignees hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 9.3 of the Credit Agreement, a
copy of which has been received by each such party. From and after the Effective
Date (i) each Assignee, if it is not already a Lender under the Credit
Agreement, shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (ii) each
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement (other than the rights of indemnification referenced in Section
9.9 of the Credit Agreement).
2. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of North Carolina.
3. Terms of Assignment
(a) Date of Assignment: _____________, 199_
(b) Legal Name of Assignor: SEE SIGNATURE PAGE
<PAGE>
(c) Legal Name of Assignee: SEE SIGNATURE PAGE
(d) Effective Date of Assignment: ____________, 199_
See Schedule I attached for a description of the Loans and Obligations and
----------
Commitments (and the percentage interests therein and relating thereto) which
are the subject of this Assignment and Acceptance.
4. The fee payable to the Paying Agent in connection with this Assignment
is enclosed.
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
instrument by their duly authorized officers as of the date first above written.
ASSIGNOR: ASSIGNEE:
- -------- --------
By____________________ By_______________________
Name: Name:
Title: Title:
ACKNOWLEDGMENT AND CONSENT
- --------------------------
NATIONSBANK, N.A. AMERISOURCE CORPORATION
as Administrative Agent
By____________________ By_______________________
Name: Name:
Title: Title:
<PAGE>
SCHEDULE 1
----------
TO ASSIGNMENT AND ACCEPTANCE
AMERISOURCE CORPORATION
REVOLVING LOANS AND LETTERS OF CREDIT PRIOR TO ASSIGNMENT
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
------ ---------- -----------
ASSIGNOR
- --------
ASSIGNEES
- ---------
_________ _________ _________
$ $
REVOLVING LOANS AND LETTERS OF CREDIT INTERESTS SUBJECT TO THIS ASSIGNMENT
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
------ ---------- -----------
ASSIGNOR
- --------
_________ _________ _________
$ $
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, (the "Agreement") entered into on September
4, 1997, by and between AmeriSource Corporation, a Delaware corporation
("Company"), and R. David Yost (Executive"), effective as of August 1, 1997.
WHEREAS, the Executive is presently employed by Company as President
and CEO;
WHEREAS, the Executive is willing to continue to serve as President
and CEO, of the Company, and the Company desires to retain the Executive in such
capacity on the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Employment. The Company agrees to continue to employ the
----------
Executive, and the Executive agrees to continue to be employed by the Company,
upon the terms and conditions hereinafter provided for a period commencing as of
August 1, 1997 and continuing until July 31, 2000 (the "Term"). On each
anniversary date of this Agreement, commencing August 1, 1998, on which
Executive is employed by the Company, the Term shall be automatically extended
for one additional year, provided, however, that the Term shall not extend
beyond Executive's 65th birthday unless affirmatively extended in writing by the
Company.
2. Position and Duties. During the Term, the Company agrees to
-------------------
employ the Executive to serve in such executive capacities at levels comparable
to or greater than his current position, and the Executive will have such powers
and duties as are commensurate with such positions and as may be assigned to him
by the Company's Board of Directors or other appropriate supervising officer
after consultation with the Executive. During the Term, and except for illness
or incapacity and reasonable vacation periods of no more than four weeks in any
calendar year (or such other period as shall be consistent with the Company's
policies for other key executives), the Executive shall devote all of his
business time, attention, skill and efforts exclusively to the business and
affairs of the Company and its subsidiaries and affiliates, provided, however,
that the Executive may serve on other boards as a director or trustee if such
service does not interfere with his ability to discharge his duties and
responsibilities to the Company.
<PAGE>
3. Compensation. For all services rendered by the Executive in
------------
any capacity required hereunder during the Term, including, without limitation,
services as an executive, officer, director, or member of any committee of the
Company, or any subsidiary, affiliate or division thereof, the Executive shall
be compensated as follows:
(a) Base Salary. The Company shall pay the Executive a fixed
-----------
salary of $350,000 per annum or such higher annual amount as is being paid from
time to time pursuant to the terms hereof ("Base Salary"). The Base Salary shall
be subject to such periodic review (which shall occur in accordance with Company
policy) and such periodic increases as the Board of Directors shall deem
appropriate in accordance with the Company's customary procedures and practices
regarding the salaries of senior officers, provided, that the annual adjustment
--------
shall be no less than the increase in the "Consumer Price Index" now known as
the Consumer Price Index for Urban Wage Earners and Clerical Workers, All Items,
Philadelphia, Pennsylvania (1967=100), as published by the Bureau of Labor,
Statistics, United States Department of Labor. Base Salary shall be payable in
accordance with the customary payroll practices of the Company, but in no event
less frequently than monthly.
(b) Bonus Awards. The Executive shall be entitled to receive an
------------
annual incentive cash compensation award under the Company's policy of providing
for the payment of incentive cash compensation to key officers based upon the
performance of the Company and the officer's individual performance.
(c) Stock Options. The Executive shall be eligible to receive
-------------
grants under the Company's stock option plan(s) at the sole discretion of the
plan's committee subject to such terms and conditions as such committee may
decide.
(d) Supplemental Insurance. The Executive shall be entitled to
----------------------
such split dollar life insurance policy as was in place between the Company and
the Executive prior to December 31, 1996.
(e) Additional Benefits. Except as modified by this Agreement,
-------------------
the Executive shall be entitled to participate in all compensation or employee
benefit plans or programs (other than termination pay programs), and to receive
all benefits, perquisites and emoluments, for which any salaried employees of
the Company are eligible under any plan or program now or hereafter established
and maintained by the Company for senior officers, to the fullest extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof, including group hospitalization,
health, dental care, life or other insurance, tax-qualified pension, savings,
thrift and profit-sharing plans, sick-leave plans, travel or accident insurance,
disability insurance, automobile allowance or automobile lease plans, and
executive contingent compensation plans, including, without limitation, capital
-2-
<PAGE>
accumulation programs and stock purchase, restricted stock and stock option
plans.
Notwithstanding the foregoing, nothing in this Agreement shall preclude the
amendment or termination of any such plan or program, provided that such
amendment or termination is applicable generally to the senior officers of the
Company or any subsidiary or affiliate.
(f) Perquisites. Executive shall be entitled for each partial or
-----------
complete year this Agreement is in effect to reimbursement of tax planning and
tax preparation charges, not to exceed $5,000 annually, and to reimbursement of
club dues, not to exceed $10,000 annually.
4. Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable travel or other expenses incurred by the Executive
(and his spouse where there is a legitimate business reason for his spouse to
accompany him) in connection with the performance of his duties and obligations
under this Agreement, including, without limitation, expenses for entertainment,
travel (including automobile operating expenses), meals, hotel accommodations
and the like, in accordance with such rules and policies relating thereto as the
Company may from time to time adopt. Reimbursement shall be subject to the
Executive's presentation of appropriate vouchers in accordance with such
procedures as the Company may from time to time establish for senior officers
and to preserve any deductions for Federal income taxation purposes to which the
Company may be entitled.
5. Effect of Termination of Employment Other Than in Connection with
-----------------------------------------------------------------
a Change in Control.
- -------------------
(a) Certain Terminations. In the event the Executive's
--------------------
employment hereunder terminates due to either Permanent Disability, a Without
Cause Termination, or a Constructive Discharge, the Company shall, as severance
pay, continue, subject to the provisions of Section 7 below, to pay the
Executive's Base Salary (determined in accordance with the Company's usual
procedures) as in effect at the time of such termination until the expiration of
the Term or for one-year period beginning on the date of termination of
employment, if longer (the "Severance Period"), provided, that in the case of
--------
Permanent Disability, such payments shall be offset by any amounts otherwise
paid to the Executive under the Company's disability program generally available
to other employees. In addition, earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full. Group hospitalization,
health, dental care, life or other insurance, travel or accident insurance,
disability insurance and the perquisites set forth in Section 3(d) and Section
3(f) shall continue through the end of the Severance Period.
-3-
<PAGE>
(b) Other Terminations. In the event that the Executive's
------------------
employment hereunder terminates due to a Termination for Cause or Executive's
death, or the Executive voluntarily terminates employment with the Company for
reasons other than a Constructive Discharge or Permanent Disability (with
voluntary retirement being a voluntary termination for purposes of this
Agreement), earned but unpaid Base Salary as of the date of termination of
employment shall be payable in full. In the event of Executive's death, Company
shall also continue to pay Executive's Base Salary to his surviving spouse for a
period of six months (or to his estate, if he is not survived by a spouse), and
shall pay to her (or the estate) the bonus award in Section 3(b), prorated to
the date of Executive's death. However, no other payments shall be made, or
benefits provided, by the Company under this Agreement except for stock options
to the extent already exercisable hereunder, vested benefits payable under the
terms of the Pension Plan and Supplemental Employee Retirement Plan, and any
other benefits which the Executive is entitled to receive under the term of
employee benefit programs maintained by the Company or its affiliates for its
employees.
(c) Definitions. For purposes of this Agreement, the following
-----------
terms have the following meanings:
(i) The term "Termination for Cause" means (A) termination
of Executive's employment for willful or gross and repeated neglect of
duties hereunder, or willful or gross and repeated misconduct in the
performance of such duties, so as to cause material harm to the
Company and its subsidiaries considered as a whole, determined in good
faith by the Board of Directors; (B) termination following a judicial
determination that Executive has committed fraud, misappropriation or
embezzlement against the Company; or (C) termination due to
Executive's having committed any felony or misdemeanor for which he is
convicted and which, as determined in good faith by the Board of
Directors, constitutes a crime involving moral turpitude and results
in material harm to the Company and its subsidiaries considered as a
whole.
(ii) The term "Constructive Discharge" means a termination
of the Executive's employment by the Executive due to a failure of the
Company or its successors without the prior consent of the Executive
to fulfill the obligations under this Agreement in any material
respect, including (A) any failure of the Company or Parent to elect
or reelect or of the Company to appoint or reappoint the Executive as
an executive officer of the Company, or (B) any other material change
by the Company in the functions, duties or responsibilities of the
Executive's position with the Company which would, in Executive's
reasonable judgment, reduce the ranking or level, dignity,
responsibility, importance or scope of such
-4-
<PAGE>
position (other than a change after a Change in Control Event
resulting solely from the fact that the Company is a subsidiary of
another entity), or (C) any non-payment or reduction in the Base
Salary then in effect or any material breach by the Company of this
Agreement, or (D) following a Change in Control Event, any relocation
of Executive's site of employment to a location more than 50 miles
away from Executive's site of employment on the date of this
Agreement.
(iii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company, upon 30 days
notice to the Executive, other than due to Permanent Disability,
voluntary retirement or expiration of the Term, and other than a
Termination for Cause.
(iv) The term "Permanent Disability" means the inability of
the Executive to work for a period of six full calendar months during
any eight consecutive calendar months due to illness or injury of a
physical or mental nature, supported by the completion by the
Executive's attending physician of a medical certification form
outlining the disability and treatment.
6. Effect of Termination of Employment in Connection with a Change
---------------------------------------------------------------
in Control.
- ----------
(a) Definitions. For purposes of this Section 6, the
-----------
following terms shall have the following meanings:
(i) The term "Change in Control Event" means any of the
following events:
(A) the acquisition by any "person" or "group" within
the meaning of Section 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act") (other than the Company,
its affiliates and benefit plans sponsored by the Company or its
affiliates, and other than 399 Venture Partners, Inc. ("VPI") and
its Affiliates (as defined in Rule 12b-2 under the 1934 Act) of
"beneficial ownership" of securities of Parent representing more
than 35% of the total aggregate voting power of Parent's then
outstanding securities entitled to vote generally in the election
of directors, and such person or group owns more aggregate voting
power of Parent's then outstanding securities entitled to vote
generally in the election of directors than any other person or
group.
-5-
<PAGE>
(B) consummation of a transaction following the
approval by the stockholders of Company or Parent of (1) any
consolidation, merger, or other similar type of transaction
involving the Company or Parent in which all of the holders of
voting stock of the Company or Parent immediately before the
consolidation, merger, or similar transaction, will not own 50%
or more of the voting shares of the continuing or surviving
corporation immediately after such consolidation, merger, or
similar transaction, or (2) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of Company or Parent;
or
(C) a change of 25% (rounded to the next whole person)
in the membership of the Board of Directors of Company or Parent
or any successor within a 12-month period, unless the election or
nomination for election by stockholders of each new director
within such period was approved by the vote of 85% (rounded to
the next whole person) of the directors then still in office who
were in office at the beginning of the 12-month period.
(ii) "Separation Period" means the three-year period
beginning on the date of the Executive's Termination of Employment.
(iii) "Termination of Employment" shall mean the
termination of the Executive's actual employment relationship with the
Company.
(iv) "Termination upon a Change of Control" shall mean a
termination of Employment upon or within fifteen months after a
Change of Control Event either:
(A) initiated by Company for any reason other than (1)
the Executive's death, or (2) Termination for Cause, or
(B) initiated by the Executive (i) due to a
Constructive Discharge during the one-year period following the
Change in Control Event, or (ii) for any reason during the period
beginning twelve months and one day following the Change in
Control Event and ending 90 days thereafter.
-6-
<PAGE>
(b) Payments for Termination upon a Change in Control. Within
-------------------------------------------------
twenty days of the Executive's Termination upon a Change in Control, the Company
shall pay to the Executive in a single payment in cash and/or provide to the
Executive, as applicable, the following:
(i) the Executive's earned but unpaid Base Salary as of
the date of Termination of Employment;
(ii) the benefits, if any, to which the Executive is
entitled as a former employee under the employee benefit programs and
compensation plans and programs maintained for the benefit of the
Company's officers and employees;
(iii) continued group hospitalization, health, dental
care, life or other insurance, travel or accident insurance and
disability insurance, for the Separation Period, with coverage
equivalent to the coverage to which the Executive would have been
entitled had the Executive continued working for the Company during
the Separation Period at the highest annual rate of Base Salary
achieved during the Executive's period of actual employment with the
Company, provided, however, that the Executive may upon written notice
elect to receive the present value of such coverage in cash in a lump
sum, computed using a discount rate of 6% per year compounded monthly;
and
(iv) an amount equal to the Base Salary and annual bonus
the Executive would have earned if the Executive had continued working
for the Company during the Separation Period at the highest annual
rate or Base Salary, and received the highest annual percentage bonus,
achieved during the Executive's period of actual employment with the
Company.
(c) In the event that, on or after the occurrence of a Change in
Control Event, the Company fails to make any payment or provide any coverage to
Executive arising out of or relating in any way to this Agreement or to the
Executive's employment by the Company (collectively, "Employment Rights"),
then the Company shall pay to the Executive and reimburse the Executive for the
Executive's full costs (including, without limitation, the fees and expenses of
the Executive's attorneys and court and related costs) of enforcing the
Executive's Employment Rights.
(d) Notwithstanding anything under this Agreement to the
contrary, in the event that any payments or benefits under this Agreement
(taking into account payments under any other agreement or arrangement with the
Executive) would be considered "excess parachute payments" within the meaning of
Section 280G(b)(1) of
-7-
<PAGE>
the Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of benefits or amounts payable under this Agreement ("Agreement
Payments") shall be reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value that maximizes
the aggregate present value of Agreement Payments without causing any Agreement
Payments to be an excess parachute payment. For purposes of this Section 7,
present value shall be determined in accordance with section 280G(d)(4) of the
Code.
(e) All determinations under this Section 7 shall be made by a
national accounting firm selected by the Company (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Company and to the
Executive within 30 business days of the date the Executive's employment with
the Company terminates or such earlier time as is requested by the Company and
an opinion to the Executive that the Executive has substantial authority not to
report any excise tax on Executive's federal income tax return with respect to
Agreement Payments. Any such determination by the Accounting Firm shall be
binding on the Company and the Executive. Executive shall determine which of the
Agreement Payments shall be eliminated or reduced consistent with the
requirements of this Section 7, provided that, if the Executive does not make
such determination with 10 business days of the receipt of the calculation from
the Accounting Firm, the Company shall elect which and how much of the Agreement
Payments shall be eliminated or reduced consistent with the requirements of this
Section 7 and shall notify Executive promptly of such election. Within 5
business days thereafter, the Company shall pay to the Executive such amounts or
benefits that are then due to the Executive.
7. Other Duties of Executive During and After Term.
-----------------------------------------------
(a) Confidential Information. Executive acknowledges that by reason
------------------------
of his employment with the Company he has and will hereafter, from time to time
during the Employment Term, become exposed to an/or become knowledgeable about
proposals, plans inventions, practices, systems, programs, formulas, processes,
methods, techniques, research, records, supplier sources, customer lists, and
other forms of business information which are not known to the Company's
competitors and which are not recognized as being encompassed within standard
business or management practices and which are kept secret and confidential by
the Company (the "Confidential Information"). Executive therefore agrees that at
no time during or after the period of his employment by the Company will he
disclose or use the Confidential Information except as may be required in the
prudent course of business for the benefit of the Company; provided, that no
payment required to be made by the Company under the terms of this Agreement
after termination of the employment of Executive shall be subject to any right
of set-off, counterclaim, defense, abatement, suspension, deferment or reduction
by reason of any claim against Executive based upon breach of covenant
-8-
<PAGE>
in this Section 7(a) other than upon execution of an unsatisfied judgment
rendered by a court of competent jurisdiction.
(b) Non-Compete. In consideration of the mutual terms and agreements
-----------
set forth in this Agreement and the stock options that have been and may be
granted under the AmeriSource Health Corporation 1995 Stock Option Plan and 1996
Stock Option Plan, Executive hereby agrees that (i) while Executive is employed
during the Employment Term, (ii) during such time after the Employment Term as
Executive is employed by the Company, (iii) while Executive is receiving
payments of Base Salary or benefits pursuant to Sections 5(a) or 6 hereof, and
(d) for a period of one year after Executive's termination of employment, he
will not, unless authorized in writing to do so by the Company, directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed or otherwise connected in
any substantial manner with any business which directly or indirectly competes
to a material extent with any line of business of the Company or its
subsidiaries; provided, that nothing in this paragraph shall prohibit Executive
--------
from acquiring up to 5% of any class of outstanding equity securities of any
corporation whose equity securities are regularly traded on a national
securities exchange or in the "over-the-counter market." Executive agrees that
for a period ending one year after Executive's termination of employment
hereunder, Executive will not (x) recruit any employee of the Company or solicit
or induce, or attempt to solicit or induce, any employee of the company to
terminate his or her employment with, or otherwise cease his or her relationship
with, the Company, or (y) solicit, divert or take away, or attempt to solicit,
divert or take away, the business or patronage of any of the clients, customers
or accounts, or prospective clients, customers or accounts, of the Company that
were contracted, solicited or served by the Executive while employed by the
Company.
(c) Remedies. The Company and Executive confirm that the restrictions
--------
contained in Sections 7(a) and 7(b) hereof are, in view of the nature of the
business of the Company, reasonable and necessary to protect the legitimate
interests of the Company and that any violation of any provision of Section 7(a)
or 7(b) will result in irreparable injury to the Company. Executive hereby
agrees that, in the event of any breach or threatened breach of the terms or
conditions of this Agreement by Executive, the Company's remedies at law will be
inadequate and, in any such event, the Company shall be entitled to commence an
action for preliminary and permanent injunctive relief and other equitable
relief in any court of competent jurisdiction. Executive further irrevocable
consents to the jurisdiction of any Pennsylvania state court or federal court
located in the Commonwealth of Pennsylvania over any suit, action or proceeding
arising out of or relating to this Section 7(c) and hereby waives, to the
fullest extent permitted by law, any objection that he may now or hereafter have
to such jurisdiction or to the laying or venue of any such suit, action or
proceeding brought in such a court and any claim that such suit, action or
proceeding has been brought in an inconvenient forum.
-9-
<PAGE>
The Executive's Agreement as set forth in this Section 7 shall: (x) survive the
termination of this Agreement, and continue throughout the duration of the
Executive's employment with the Company, except as amended or modified by
written agreement of the parties; and (y) survive the Executive's termination of
employment with the Company.
(d) Modification of Terms. If any restriction in this Section 7 of
---------------------
the Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in any jurisdiction, the Executive
agrees that such may be modified and narrowed, either by a court or the Company,
to the maximum time, geographic, service or other limitations permitted by
applicable law so as to preserve and protect the Company's legitimate business
interest, without negating or impairing any other restrictions or undertaking
set forth in the Agreement.
8. Withholding Taxes. The Company may directly or indirectly withhold
-----------------
from any payments made under this Agreement all Federal, state, city or other
taxes as shall be required pursuant to any law or governmental regulation or
ruling.
9. Vesting of Stock Options. In the event of Executive's Without Cause
------------------------
Termination or Constructive Discharge after September 5, 1999 but prior to a
Change in Control Event, then any portion of Executive's Company stock options
which have been granted to Executive and are then outstanding but not then
exercisable pursuant to the terms of such stock options shall become immediately
exercisable to the extent that such stock options would have been exercisable on
or before two years subsequent to the date of termination of employment, had
such Without Cause Termination or Constructive Discharge not occurred, and such
stock options shall remain exercisable after the applicable termination date for
a period of 30 days. Upon the occurrence of a Change in Control Event, each of
Executive's Company stock options then outstanding shall become immediately
exercisable to the full extent of the shares of Common Stock subject thereto in
accordance with the terms of the applicable stock option plans and agreement.
10. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
----------------------------------------
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" as used herein shall mean such other corporation
and this Agreement shall continue in full force and effect.
11. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, postage prepaid, by same day or
overnight mail as follows:
-10-
<PAGE>
(a) To Company
300 Chester Field Parkway
Malvern PA 19355
(b) To the Executive:
165 N. Stanbery Avenue
Columbus, OH 43209
or to such other address as either party shall have previously specified in
writing to the other.
12. No Attachment. Except as required by law, no right to receive payments
-------------
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution,
attachment, levy, or similar process or assignment by operation or law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect; provided, however, that nothing in this Section 12 shall
-------- -------
preclude the assumption of such rights by executors, administrators or other
legal representatives of the Executive or his estate and their assigning any
rights hereunder to the person or persons entitled thereto.
13. No Mitigation. The Executive shall not be required to mitigate the
-------------
amount of any payment or benefit provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Agreement be reduced by any compensation earned by other employment
or otherwise.
14. Source of Payment. All payments provided for under this Agreement
-----------------
shall be paid cash from the general funds of the Company. The Company shall not
be required to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any investments
to aid it in meeting its obligations hereunder, the Executive shall have no
right, title or interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written instrument relating to
such investments. Nothing contained in this Agreement, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and the Executive or
any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right, without prejudice to rights
which employees may have, shall be no greater than the right of an unsecured
creditor of the Company.
15. Severability. If any provision of this Agreement of application
------------
thereof to
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<PAGE>
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provision or application and shall not invalidate or render unenforceable
such provision or application in any other jurisdiction.
16. Contents of Agreement. This Agreement supersedes all prior agreements
---------------------
and sets forth the entire understanding among the parties hereto with respect to
the subject matter hereof and cannot be changed, modified, extended or
terminated except upon written amendment approved by the parties hereto.
17. Governing Law. The validity, interpretation, performance, and
-------------
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania, and Executive consents to the jurisdiction of the state and
federal courts of Pennsylvania in any dispute arising under this Agreement.
18. Survival of Benefits. Any Section of this Agreement which provides a
--------------------
benefit to the Executive and which does not expressly provide for its
termination upon the expiration of the Term shall survive the expiration of the
Term and the obligation to provide benefits to the Executive as set forth in
such Section shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits provided under such Section are paid in full to the Executive.
19. Miscellaneous. All section headings are for convenience only. This
-------------
Agreement may be executed in any number of counterparts, each of which when
executed shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument. It shall not be necessary in marking
proof of this Agreement or any counterpart hereof to produce or account for any
of the other counterparts.
20. Arbitration. Except with respect to actions for preliminary and
-----------
permanent injunctive relief and other equitable relief under Section 7, any
controversy or claim arising out of or relating to this Agreement, or breach
thereof, shall be settled by arbitration in accordance with the rules any of the
American Arbitration Association, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Philadelphia, Pennsylvania, unless another location
shall be mutually agreed to by the parties at the time of the arbitration. If
Section 6(d) is not applicable, in any dispute between the parties as to which
Executive is sustained on the claim(s) by or against him, the Company shall pay
all legal fees incurred by Executive in connection with the dispute over such
claim(s). If more than one claim is involved in any dispute and if Executive is
sustained as to one or more of such claims but not as to all of such claims,
there shall be a reasonable
-12-
<PAGE>
allocation of applicable legal expenses. The Company will reimburse Executive
for those legal expenses determined by the arbitrator(s) or by the consent of
the parties to be allocable to the claim or claims as to which Executive is
upheld.
IN WITNESS WHEREOF, and intending to be legally bound, the Company has
caused this Agreement to the executed by its duly authorized officers and the
Executive has signed this Agreement this 4th day of September, 1997, effective
as of the day and year first above written.
AMERISOURCE CORPORATION
By: [SIGNATURE ILLEGIBLE]
---------------------------
Name:_________________________
Title:________________________
/s/ R. David Yost
------------------------------
R. David Yost
-13-
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, (the "Agreement") entered into on September
4, 1997, by and between AmeriSource Corporation, a Delaware corporation
("Company"), and David M. Flowers (Executive"), effective as of August 1, 1997.
WHEREAS, the Executive is presently employed by Company as Executive
Vice President, Sales and Marketing;
WHEREAS, the Executive is willing to continue to serve as Executive
Vice President, Sales and Marketing of the Company, and the Company desires to
retain the Executive in such capacity on the terms and conditions herein set
forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Employment. The Company agrees to continue to employ the
----------
Executive, and the Executive agrees to continue to be employed by the Company,
upon the terms and conditions hereinafter provided for a period commencing as of
August 1, 1997 and continuing until July 31, 2000 (the "Term"). On each
anniversary date of this Agreement, commencing August 1, 1998, on which
Executive is employed by the Company, the Term shall be automatically extended
for one additional year, provided, however, that the Term shall not extend
beyond Executive's 65th birthday unless affirmatively extended in writing by the
Company.
2. Position and Duties. During the Term, the Company agrees to
-------------------
employ the Executive to serve in such executive capacities at levels comparable
to or greater than his current position, and the Executive will have such powers
and duties as are commensurate with such positions and as may be assigned to him
by the Company's Chief Executive Officer or other appropriate supervising
officer after consultation with the Executive. During the Term, and except for
illness or incapacity and reasonable vacation periods of no more than four weeks
in any calendar year (or such other period as shall be consistent with the
Company's policies for other key executives), the Executive shall devote all of
his business time, attention, skill and efforts exclusively to the business and
affairs of the Company and its subsidiaries and affiliates, provided, however,
that the Executive may serve on other boards as a director or trustee if such
service does not interfere with his ability to discharge his duties and
responsibilities to the Company, and if approved, in advance, by the Chief
Executive Officer.
<PAGE>
3. Compensation. For all services rendered by the Executive in any
------------
capacity required hereunder during the Term, including, without limitation,
services as an executive, officer, director, or member of any committee of the
Company, or any subsidiary, affiliate or division thereof, the Executive shall
be compensated as follows:
(a) Base Salary. The Company shall pay the Executive a fixed
-----------
salary of $260,000 per annum or such higher annual amount as is being paid from
time to time pursuant to the terms hereof ("Base Salary"). The Base Salary shall
be subject to such periodic review (which shall occur in accordance with Company
policy) and such periodic increases as the Company shall deem appropriate in
accordance with the Company's customary procedures and practices regarding the
salaries of senior officers, provided, that the annual adjustment shall be no
--------
less than the increase in the "Consumer Price Index" now known as the Consumer
Price Index for Urban Wage Earners and Clerical Workers, All Items,
Philadelphia, Pennsylvania (1967=100), as published by the Bureau of Labor,
Statistics, United States Department of Labor. Base Salary shall be payable in
accordance with the customary payroll practices of the Company, but in no event
less frequently than monthly.
(b) Bonus Awards. The Executive shall be entitled to receive an
------------
annual incentive cash compensation award under the Company's policy of providing
for the payment of incentive cash compensation to key officers based upon the
performance of the Company and the officer's individual performance.
(c) Stock Options. The Executive shall be eligible to receive
-------------
grants under the Company's stock option plan(s) at the sole discretion of the
plan's committee subject to such terms and conditions as such committee may
decide.
(d) Supplemental Insurance. The Executive shall be entitled to
----------------------
such split dollar life insurance policy as determined by the Chief Executive
Officer.
(e) Additional Benefits. Except as modified by this Agreement,
-------------------
the Executive shall be entitled to participate in all compensation or employee
benefit plans or programs (other than termination pay programs), and to receive
all benefits, perquisites and emoluments, for which any salaried employees of
the Company are eligible under any plan or program now or hereafter established
and maintained by the Company for senior officers, to the fullest extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof, including group hospitalization,
health, dental care, life or other insurance, tax-qualified pension, savings,
thrift and profit-sharing plans, sick-leave plans, travel or accident insurance,
disability insurance, automobile allowance or automobile lease plans, and
executive contingent compensation plans, including, without limitation, capital
accumulation programs and stock purchase, restricted stock and stock option
plans.
-2-
<PAGE>
Notwithstanding the foregoing, nothing in this Agreement shall preclude the
amendment or termination of any such plan or program, provided that such
amendment or termination is applicable generally to the senior officers of the
Company or any subsidiary or affiliate.
(f) Perquisites. Executive shall be entitled for each partial or
-----------
complete year this Agreement is in effect to reimbursement of tax planning and
tax preparation charges, not to exceed $5,000 annually, and to reimbursement of
club dues, not to exceed $10,000 annually.
4. Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable travel or other expenses incurred by the Executive
(and his spouse where there is a legitimate business reason for his spouse to
accompany him) in connection with the performance of his duties and obligations
under this Agreement, including, without limitation, expenses for entertainment,
travel (including automobile operating expenses), meals, hotel accommodations
and the like, in accordance with such rules and policies relating thereto as the
Company may from time to time adopt. Reimbursement shall be subject to the
Executive's presentation of appropriate vouchers in accordance with such
procedures as the Company may from time to time establish for senior officers
and to preserve any deductions for Federal income taxation purposes to which the
Company may be entitled.
5. Effect of Termination of Employment Other Than in Connection with
-----------------------------------------------------------------
a Change in Control.
- -------------------
(a) Certain Terminations. In the event the Executive's
--------------------
employment hereunder terminates due to either Permanent Disability, a Without
Cause Termination, or a Constructive Discharge, the Company shall, as severance
pay, continue, subject to the provisions of Section 7 below, to pay the
Executive's Base Salary (determined in accordance with the Company's usual
procedures) as in effect at the time of such termination until the expiration of
the Term or for one-year period beginning on the date of termination of
employment, if longer (the "Severance Period"), provided, that in the case of
--------
Permanent Disability, such payments shall be offset by any amounts otherwise
paid to the Executive under the Company's disability program generally available
to other employees. In addition, earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full. Group hospitalization,
health, dental care, life or other insurance, travel or accident insurance,
disability insurance and the perquisites set forth in Section 3(d) and Section
3(f) shall continue through the end of the Severance Period.
(b) Other Terminations. In the event that the Executive's
------------------
employment hereunder terminates due to a Termination for Cause or Executive's
death,
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<PAGE>
or the Executive voluntarily terminates employment with the Company for reasons
other than a Constructive Discharge or Permanent Disability (with voluntary
retirement being a voluntary termination for purposes of this Agreement), earned
but unpaid Base Salary as of the date of termination of employment shall be
payable in full. In the event of Executive's death, Company shall also continue
to pay Executive's Base Salary to his surviving spouse for a period of six
months (or to his estate, if he is not survived by a spouse), and shall pay to
her (or the estate) the bonus award in Section 3(b), prorated to the date of
Executive's death. However, no other payments shall be made, or benefits
provided, by the Company under this Agreement except for stock options to the
extent already exercisable hereunder, vested benefits payable under the terms of
the Pension Plan and Supplemental Employee Retirement Plan, and any other
benefits which the Executive is entitled to receive under the term of employee
benefit programs maintained by the Company or its affiliates for its employees.
(c) Definitions. For purposes of this Agreement, the following
-----------
terms have the following meanings:
(i) The term "Termination for Cause" means (A) termination
of Executive's employment for willful or gross and repeated neglect of
duties hereunder, or willful or gross and repeated misconduct in the
performance of such duties, so as to cause material harm to the
Company and its subsidiaries considered as a whole, determined in good
faith by its Chief Executive Officer or the Board of Directors; (B)
termination following a judicial determination that Executive has
committed fraud, misappropriation or embezzlement against the Company;
or (C) termination due to Executive's having committed any felony or
misdemeanor for which he is convicted and which, as determined in
good faith by its Chief Executive Officer or the Board of Directors,
constitutes a crime involving moral turpitude and results in material
harm to the Company and its subsidiaries considered as a whole.
(ii) The term "Constructive Discharge" means a termination
of the Executive's employment by the Executive due to a failure of the
Company or its successors without the prior consent of the Executive
to fulfill the obligations under this Agreement in any material
respect, including (A) any failure of the Company or Parent to elect
or reelect or of the Company to appoint or reappoint the Executive as
an executive officer of the Company, or (B) any other material change
by the Company in the functions, duties or responsibilities of the
Executive's position with the Company which would, in Executive's
reasonable judgment, reduce the ranking or level, dignity,
responsibility, importance or scope of such position (other than a
change after a Change in Control Event resulting
-4-
<PAGE>
solely from the fact that the Company is a subsidiary of another
entity), or (C) any non-payment or reduction in the Base Salary then
in effect or any material breach by the Company of this Agreement, or
(D) following a Change in Control Event, any relocation of Executive's
site of employment to a location more than 50 miles away from
Executive's site of employment on the date of this Agreement.
(iii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company, upon 30 days
notice to the Executive, other than due to Permanent Disability,
voluntary retirement or expiration of the Term, and other than a
Termination for Cause.
(iv) The term "Permanent Disability" means the inability of
the Executive to work for a period of six full calendar months during
any eight consecutive calendar months due to illness or injury of a
physical or mental nature, suported by the completion by the
Executive's attending physician of a medical certification form
outlining the disability and treatment.
6. Effect of Termination of Employment in Connection with a Change
---------------------------------------------------------------
in Control.
- ----------
(a) Definitions. For purposes of this Section 6, the following
-----------
terms shall have the following meanings:
(i) The term "Change in Control Event" means any of the
following events:
(A) the acquisition by any "person" or "group"
within the meaning of Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (other than the
Company, its affiliates and benefit plans sponsored by the
Company or its affiliates, and other than 399 Venture Partners,
Inc. ("VPI") and its Affiliates (as defined in Rule 12b-2 under
the 1934 Act) of "beneficial ownership" of securities of Parent
representing more than 35% of the total aggregate voting power of
Parent's then outstanding securities entitled to vote generally
in the election of directors, and such person or group owns more
aggregate voting power of Parent's then outstanding securities
entitled to vote generally in the election of directors than any
other person or group.
-5-
<PAGE>
(B) consummation of a transaction following the
approval by the stockholders of Company or Parent of (1) any
consolidation, merger, or other similar type of transaction
involving the Company or Parent in which all of the holders of
voting stock of the Company or Parent immediately before the
consolidation, merger, or similar transaction, will not own 50%
or more of the voting shares of the continuing or surviving
corporation immediately after such consolidation, merger, or
similar transaction, or (2) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of Company or Parent;
or
(C) a change of 25% (rounded to the next whole
person) in the membership of the Board of Directors of Company or
Parent or any successor within a 12-month period, unless the
election or nomination for election by stockholders of each new
director within such period was approved by the vote of 85%
(rounded to the next whole person) of the directors then still in
office who were in office at the beginning of the 12-month
period.
(ii) "Separation Period" means the three-year period
beginning on the date of the Executive's Termination of Employment.
(iii) "Termination of Employment" shall mean the termination
of the Executive's actual employment relationship with the Company.
(iv) "Termination upon a Change of Control" shall mean a
Termination of Employment upon or within fifteen months after a Change
of Control Event either:
(A) initiated by Company for any reason other
than (1) the Executive's death, or (2) Termination for Cause, or
(B) initiated by the Executive (i) due to a
Constructive Discharge during the one-year period following the
Change in Control Event, or (ii) for any reason during the period
beginning twelve months and one day following the Change in
Control Event and ending 90 days thereafter.
(b) Payments for Termination upon a Change in Control. Within
-------------------------------------------------
twenty days of the Executive's Termination upon a Change in Control, the Company
shall
-6-
<PAGE>
pay to the Executive in a single payment in cash and/or provide to the
Executive, as applicable, the following:
(i) the Executive's earned but unpaid Base Salary as of
the date of Termination of Employment;
(ii) the benefits, if any, to which the Executive is
entitled as a former employee under the employee benefit programs and
compensation plans and programs maintained for the benefit of the
Company's officers and employees;
(iii) continued group hospitalization, health, dental care,
life or other insurance, travel or accident insurance and disability
insurance for the Separation Period, with coverage equivalent to the
coverage to which the Executive would have been entitled had the
Executive continued working for the Company during the Separation
Period at the highest annual rate of Base Salary achieved during the
Executive's period of actual employment with the Company, provided,
however, that the Executive may upon written notice elect to receive
the present value of such coverage in cash in a lump sum, computed
using a discount rate of 6% per year compounded monthly; and
(iv) an amount equal to the Base Salary and annual bonus
the Executive would have earned if the Executive had continued
working for the Company during the Separation Period at the highest
annual rate of Base Salary, and received the highest annual percentage
bonus, achieved during the Executive's period of actual employment
with the Company.
(c) In the event that, on or after the occurrence of a Change in
Control Event, the Company fails to make any payment or provide any coverage to
Executive arising out of or relating in any way to this Agreement or to the
Executive's employment by the Company (collectively, "Employment Rights"), then
the Company shall pay to the Executive and reimburse the Executive for the
Executive's full costs (including, without limitation, the fees and expenses of
the Executive's attorneys and court and related costs) of enforcing the
Executive's Employment Rights.
(d) Notwithstanding anything under this Agreement to the
contrary, in the event that any payments or benefits under this Agreement
(taking into account payments under any other agreement or arrangement with the
Executive) would be considered "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), then the aggregate present value of benefits or amounts payable under
this Agreement ("Agreement
-7-
<PAGE>
Payments") shall be reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be an amount expressed in present value that maximizes
the aggregate present value of Agreement Payments without causing any Agreement
Payments to be an excess parachute payment. For purposes of this Section 6(d),
present value shall be determined in accordance with section 28OG(d)(4) of the
Code.
(e) All determinations under Section 6(d) shall be made by a
national accounting firm selected by the Company (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Company and to the
Executive within 30 business days of the date the Executive's employment with
the Company terminates or such earlier time as is requested by the Company and
an opinion to the Executive that the Executive has substantial authority not to
report any excise tax on Executive's federal income tax return with respect to
Agreement Payments. Any such determination by the Accounting Firm shall be
binding on the Company and the Executive. Executive shall determine which of the
Agreement Payments shall be eliminated or reduced consistent with the
requirements of Section 6(d), provided that, if the Executive does not make such
determination within 10 business days of the receipt of the calculation from the
Accounting Firm, the Company shall elect which and how much of the Agreement
Payments shall be eliminated or reduced consistent with the requirements of
Section 6(d) and shall notify Executive promptly of such election. Within 5
business days thereafter, the Company shall pay to the Executive such amounts or
benefits that are then due to the Executive.
7. Other Duties of Executive During and After Term.
-----------------------------------------------
(a) Confidential Information. Executive acknowledges that by
------------------------
reason of his employment with the Company he has and will hereafter, from time
to time during the Employment Term, become exposed to an/or become knowledgeable
about proposals, plans inventions, practices, systems, programs, formulas,
processes, methods, techniques, research, records, supplier sources, customer
lists, and other forms of business information which are not known to the
Company's competitors and which are not recognized as being encompassed within
standard business or management practices and which are kept secret and
confidential by the Company (the "Confidential Information"). Executive
therefore agrees that at no time during or after the period of his employment by
the Company will he disclose or use the Confidential Information except as may
be required in the prudent course of business for the benefit of the Company;
provided, that no payment required to be made by the Company under the terms of
this Agreement after termination of the employment of Executive shall be subject
to any right of set-off, counterclaim, defense, abatement, suspension, deferment
or reduction by reason of any claim against Executive based upon breach of the
covenant in this Section 7(a) other than upon execution of an unsatisfied
judgment rendered by a court of competent jurisdiction.
-8-
<PAGE>
(b) Non-Compete. In consideration of the mutual terms and
-----------
agreements set forth in this Agreement and the stock options that have been and
may be granted under the AmeriSource Health Corporation 1995 Stock Option Plan
and 1996 Stock Option Plan, Executive hereby agrees that (i) while Executive is
employed during the Employment Term, (ii) during such time after the Employment
Term as Executive is employed by the Company, (iii) while Executive is
receiving payments of Base Salary or benefits pursuant to Sections 5(a) or 6
hereof, and (d) for a period of one year after Executive's termination of
employment, he will not, unless authorized in writing to do so by the Company,
directly or indirectly own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed or otherwise
connected in any substantial manner with any business which directly or
indirectly competes to a material extent with any line of business of the
Company or its subsidiaries; provided, that nothing in this paragraph shall
--------
prohibit Executive from acquiring up to 5% of any class of outstanding equity
securities of any corporation whose equity securities are regularly traded on a
national securities exchange or in the "over-the-counter market." Executive
agrees that for a period ending one year after Executive's termination of
employment hereunder, Executive will not (x) recruit any employee of the Company
or solicit or induce, or attempt to solicit or induce, any employee of the
company to terminate his or her employment with, or otherwise cease his or her
relationship with, the Company, or (y) solicit, divert or take away, or attempt
to solicit, divert or take away, the business or patronage of any of the
clients, customers or accounts, or prospective clients, customers or accounts,
of the Company that were contacted, solicited or served by the Executive while
employed by the Company.
(c) Remedies. The Company and Executive confirm that the
--------
restrictions contained in Sections 7(a) and 7(b) hereof are, in view of the
nature of the business of the Company, reasonable and necessary to protect the
legitimate interests of the Company and that any violation of any provision of
Section 7(a) or 7(b) will result in irreparable injury to the Company. Executive
hereby agrees that, in the event of any breach or threatened breach of the terms
or conditions of this Agreement by Executive, the Company's remedies at law will
be inadequate and, in any such event, the Company shall be entitled to commence
an action for preliminary and permanent injunctive relief and other equitable
relief in any court of competent jurisdiction. Executive further irrevocable
consents to the jurisdiction of any Pennsylvania state court or federal court
located in the Commonwealth of Pennsylvania over any suit, action or proceeding
arising out of or relating to this Section 7(c) and hereby waives, to the
fullest extent permitted by law, any objection that he may now or hereafter have
to such jurisdiction or to the laying of venue of any such suit, action or
proceeding brought in such a court and any claim that such suit, action or
proceeding has been brought in an inconvenient forum. The Executive's Agreement
as set forth in this Section 7 shall: (x) survive the termination of this
Agreement, and continue throughout the duration of the Executive's employment
with the Company, except as amended or modified by written agreement of
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<PAGE>
the parties; and (y) survive the Executive's termination of employment with the
Company.
(d) Modification of Terms. If any restriction in this Section 7
---------------------
of the Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in any jurisdiction, the Executive
agrees that such may be modified and narrowed, either by a court or the Company,
to the maximum time, geographic, service or other limitations permitted by
applicable law so as to preserve and protect the Company's legitimate business
interest, without negating or impairing any other restrictions or undertaking
set forth in the Agreement.
8. Withholding Taxes. The Company may directly or indirectly
-----------------
withhold from any payments made under this Agreement all Federal, state, city or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
9. Vesting of Stock Options. In the event of Executive's Without
------------------------
Cause Termination or Constructive Discharge after September 5, 1999 but prior to
a Change in Control Event, then any portion of Executive's Company stock options
which have been granted to Executive and are then outstanding but not then
exercisable pursuant to the terms of such stock options shall become
immediately exercisable to the extent that such stock options would have been
exercisable on or before September 30, 1999 (or two years subsequent to the date
of termination of employment, if later) had such Without Cause Termination or
Constructive Discharge not occurred, and such stock options shall remain
exercisable after the applicable termination date for a period of 30 days. Upon
the occurrence of a Change in Control Event, each of Executive's Company stock
options then outstanding shall become immediately exercisable to the full
extent of the shares of Common Stock subject thereto in accordance with the
terms of the applicable stock option plans and agreements.
10. Consolidation, Merger, or Sale of Assets. Nothing in this
-----------------------------------------
Agreement shall preclude the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" as used herein shall mean such other corporation
and this Agreement shall continue in full force and effect.
11. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, postage prepaid, by same day or
overnight mail as follows:
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<PAGE>
(a) To Company:
300 Chester Field Parkway
Malvern, PA 19355
(b) To the Executive:
44 Rockcrest
Signal Mountain, TN 37377
or to such other address as either party shall have previously specified in
writing to the other.
12. No Attachment. Except as required by law, no right to receive
-------------
payments under this Agreement shall be subject to anticipation, communication,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
-------- -------
12 shall preclude the assumption of such rights by executors, administrators or
other legal representatives of the Executive or his estate and their assigning
any rights hereunder to the person or persons entitle thereto.
13. No Mitigation. The Executive shall not be required to mitigate
-------------
the amount of any payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by other
employment or otherwise.
14. Source of Payment. All payments provided for under this
-----------------
Agreement shall be paid in cash from the general funds of the Company. The
Company shall not be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the Company shall make
any investments to aid it in meeting its obligations hereunder, the Executive
shall have no right, title or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate written instrument
relating to such investments. Nothing contained in this Agreement, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship, between the Company and the Executive
or any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right, without prejudice to rights
which employees may have, shall be no greater than the right of an unsecured
creditor of the Company.
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<PAGE>
15. Severability. If any provision of this Agreement or application
------------
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application and shall not invalidate or render
unenforceable such provision or application in any other jurisdiction.
16. Contents of Agreement. This Agreement supersedes all prior
---------------------
agreements and sets forth the entire understanding among the parties hereto with
respect to the subject matter hereof and cannot be changed, modified, extended
or terminated except upon written amendment approved by the parties hereto.
17. Governing Law. The validity, interpretation, performance,
-------------
and enforcement of this Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, and Executive consents to the jurisdiction of the
state and federal courts of Pennsylvania in any dispute arising under this
Agreement.
18. Survival of Benefits. Any Section of this Agreement which
--------------------
provides a benefit to the Executive and which does not expressly provide for its
termination upon the expiration of the Term shall survive the expiration of the
Term and the obligation to provide benefits to the Executive as set forth in
such Section shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits provided under such Section are paid in full to the Executive.
19. Miscellaneous. All section headings are for convenience only.
-------------
This Agreement may be executed in any number of counterparts, each of which when
executed shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument. It shall not be necessary in marking
proof of this Agreement or any counterpart hereof to produce or account for any
of the other counterparts.
20. Arbitration. Except with respect to actions for preliminary
-----------
and permanent injunctive relief and other equitable relief under Section 7, any
controversy or claim arising out of or relating to this Agreement, or any breach
thereof, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Philadelphia, Pennsylvania, unless another
location shall be mutually agreed to by the parties at the time of the
arbitration. If Section 6(d) is not applicable, in any dispute between the
parties as to which Executive is sustained on the claim(s) by or against him,
the Company shall pay all legal fees incurred by Executive in connection with
the dispute over such claim(s). If more than one claim is involved in any
dispute and if Executive is sustained as to one or
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<PAGE>
more of such claims but not as to all of such claims, there shall be a
reasonable allocation of applicable legal expenses. The Company will reimburse
Executive for those legal expenses determined by the arbitrator(s) or by the
consent of the parties to be allocable to the claim or claims as to which
Executive is upheld.
IN WITNESS OF, and intending to be legally bound, the Company has
caused this Agreement to be executed by its duly authorized officers and the
Executive has signed this Agreement this 4th day of September, 1997, effective
as of the day and year first above written.
AMERISOURCE CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
/s/ David M. Flowers
-----------------------------------
David M. Flowers
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<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, (the "Agreement") entered into on September
4, 1997, by and between AmeriSource Corporation, a Delaware corporation
("Company"); and Kurt J. Hilzinger ("Executive"), effective as of August 1,
1997.
WHEREAS, the Executive is presently employed by Company as Sr. Vice
President, CFO;
WHEREAS, the Executive is willing to continue to serve as Sr. Vice
President, CFO of the Company, and the Company desires to retain the Executive
in such capacity on the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Employment. The Company agrees to continue to employ the
----------
Executive, and the Executive agrees to continue to be employed by the Company,
upon the terms and conditions hereinafter provided for a period commencing as of
August 1, 1997 and continuing until July 31, 2000 (the "Term"). On each
anniversary date of this Agreement, commencing August 1, 1998, on which
Executive is employed by the Company, the Term shall be automatically extended
for one additional year, provided, however, that the Term shall not extend
beyond Executive's 65th birthday unless affirmatively extended in writing by the
Company.
2. Position and Duties. During the Term, the Company agrees to
-------------------
employ the Executive to serve in such executive capacities at levels comparable
to or greater than his current position, and the Executive will have such powers
and duties as are commensurate with such positions and as may be assigned to him
by the Company's Chief Executive Officer or other appropriate supervising
officer after consultation with the Executive. During the Term, and except for
illness or incapacity and reasonable vacation periods of no more than four weeks
in any calendar year (or such other period as shall be consistent with the
Company's policies for other key executives), the Executive shall devote all of
his business time, attention, skill and efforts exclusively to the business and
affairs of the Company and its subsidiaries and affiliates, provided, however,
that the Executive may serve on other boards as a director or trustee if such
service does not interfere with his ability to discharge his duties and
responsibilities to the Company, and if approved, in advance, by the Chief
Executive Officer.
<PAGE>
3. Compensation. For all services rendered by the Executive in any
------------
capacity required hereunder during the Term, including, without limitation,
services as an executive, officer, director, or member of any committee of the
Company, or any subsidiary, affiliate or division thereof, the Executive shall
be compensated as follows:
(a) Base Salary. The Company shall pay the Executive a fixed
-----------
salary of $200,000 per annum or such higher annual amount as is being paid from
time to time pursuant to the terms hereof ("Base Salary"). The Base Salary shall
be subject to such periodic review (which shall occur in accordance with Company
policy but in no event less than annually) and such periodic increases as the
Company shall deem appropriate in accordance with the Company's customary
procedures and practices regarding the salaries of senior officers, provided,
--------
that the annual adjustment shall be no less than the increase in the "Consumer
Price Index" now known as the Consumer Price Index for Urban Wage Earners and
Clerical Workers, All Items, Philadelphia, Pennsylvania (1967=100), as published
by the Bureau of Labor, Statistics, United States Department of Labor. Base
Salary shall be payable in accordance with the customary payroll practices of
the Company, but in no event less frequently than monthly.
(b) Bonus Awards. The Executive shall be entitled to receive an
------------
annual incentive cash compensation award under the Company's policy of providing
for the payment of incentive cash compensation to key officers based upon the
performance of the Company and the officer's individual performance.
(c) Stock Options. The Executive shall be eligible to receive
-------------
grants under the Company's stock option plan(s) at the sole discretion of the
plan's committee subject to such terms and conditions as such committee may
decide.
(d) Supplemental Insurance. The Executive shall be entitled to
----------------------
such split dollar life insurance policy as determined by the Chief Executive
Officer.
(e) Additional Benefits. Except as modified by this Agreement,
-------------------
the Executive shall be entitled to participate in all compensation or employee
benefit plans or programs (other than termination pay programs), and to receive
all benefits, perquisites and emoluments, for which any salaried employees of
the Company are eligible under any plan or program now or hereafter established
and maintained by the Company for senior officers, to the fullest extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof, including group hospitalization,
health, dental care, life or other insurance, tax-qualified pension, savings,
thrift and profit-sharing plans, sick-leave plans, travel or accident insurance,
disability insurance, automobile allowance or automobile lease plans, and
executive contingent compensation plans, including, without limitation, capital
accumulation programs and stock purchase, restricted stock and stock option
plans.
-2-
<PAGE>
Notwithstanding the foregoing, nothing in this Agreement shall preclude the
amendment or termination of any such plan or program, provided that such
amendment or termination is applicable generally to the senior officers of the
Company or any subsidiary or affiliate.
(f) Perquisites. Executive shall be entitled for each partial or
-----------
complete year this Agreement is in effect to reimbursement of tax planning and
tax preparation charges, not to exceed $5,000 annually, and to reimbursement of
club dues, not to exceed $10,000 annually.
4. Business Expenses. The Company shall pay or reimburse the
------------------
Executive for all reasonable travel or other expenses incurred by the Executive
(and his spouse where there is a legitimate business reason for his spouse to
accompany him) in connection with the performance of his duties and obligations
under this Agreement, including, without limitation, expenses for entertainment,
travel (including automobile operating expenses), meals, hotel accommodations
and the like, in accordance with such rules and policies relating thereto as the
Company may from time to time adopt. Reimbursement shall be subject to the
Executive's presentation of appropriate vouchers in accordance with such
procedures as the Company may from time to time establish for senior officers
and to preserve any deductions for Federal income taxation purposes to which the
Company may be entitled.
5. Effect of Termination of Employment Other Than in Connection with
-----------------------------------------------------------------
a Change in Control.
- -------------------
(a) Certain Terminations. In the event the Executive's
--------------------
employment hereunder terminates due to either Permanent Disability, a Without
Cause Termination, or a Constructive Discharge, the Company shall, as severance
pay, continue, subject to the provisions of Section 7 below, to pay the
Executive's Base Salary (determined in accordance with the Company's usual
procedures) as in effect at the time of such termination until the expiration of
the Term or for one-year period beginning on the date of termination of
employment, if longer (the "Severance Period"), provided, that in the case of
--------
Permanent Disability, such payments shall be offset by any amounts otherwise
paid to the Executive under the Company's disability program generally available
to other employees. In addition, earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full. Group hospitalization,
health, dental care, life or other insurance, travel or accident insurance,
disability insurance and the perquisites set forth in Section 3(d) and Section
3(f) shall continue through the end of the Severance Period. The Company shall
also pay Executive the bonus award in Section 3(b) prorated to the date of
termination of employment.
(b) Other Terminations. In the event that the Executive's
------------------
-3-
<PAGE>
employment hereunder terminates due to a Termination for Cause or Executive's
death, or the Executive voluntarily terminates employment (which he may do at
any time on 30 days notice to the Company) with the Company for reasons other
than a Constructive Discharge or Permanent Disability (with voluntary retirement
being a voluntary termination for purposes of this Agreement), earned but unpaid
Base Salary as of the date of termination of employment shall be payable in
full. In the event of Executive's death, Company shall also continue to pay
Executive's Base Salary to his surviving spouse for a period of six months (or
to his estate, if he is not survived by a spouse), and shall pay to her (or the
estate) the bonus award in Section 3(b), prorated to the date of Executive's
death. However, no other payments shall be made, or benefits provided, by the
Company under this Agreement except for stock options to the extent already
exercisable hereunder, vested benefits payable under the terms of the Pension
Plan and Supplemental Employee Retirement Plan, and any other benefits which the
Executive is entitled to receive under the term of employee benefit programs
maintained by the Company or its affiliates for its employees.
(c) Definitions. For purposes of this Agreement, the following
-----------
terms have the following meanings:
(i) The term "Termination for Cause" means (A) termination
of Executive's employment for willful or gross and repeated neglect of
duties hereunder, or willful or gross and repeated misconduct in the
performance of such duties, so as to cause material harm to the
Company and its subsidiaries considered as a whole, in each case after
Executive has been given notice of such conduct and, in circumstances
where such harm may be cured by Executive, offered the reasonable
opportunity to cure such conduct; (B) termination following a judicial
determination that Executive has committed fraud, misappropriation or
embezzlement against the Company; or (C) termination due to
Executive's having committed any felony or misdemeanor for which he is
convicted and which constitutes a crime involving moral turpitude and
results in material harm to the Company and its subsidiaries
considered as a whole.
(ii) The term "Constructive Discharge" means a termination
of the Executive's employment by the Executive due to a failure of the
Company or its successors without the prior consent of the Executive
to fulfill the obligations under this Agreement in any material
respect, including (A) any failure of the Company or Parent to elect
or reelect or of the Company to appoint or reappoint the Executive as
an executive officer of the Company, or (B) any other material change
by the Company in the functions, duties or responsibilities of the
Executive's position with the Company which would, in Executive's
reasonable judgment, reduce the
-4-
<PAGE>
ranking or level, dignity, responsibility, importance or scope of such
position (other than a change after a Change in Control Event
resulting solely from the fact that the Company is a subsidiary of
another entity), or (C) any non-payment or reduction in the Base
Salary then in effect or any material breach by the Company of this
Agreement, or (D) following a Change in Control Event, either any
relocation of Executive's site of employment to a location more than
50 miles away from Executive's site of employment on the date of this
Agreement, or any relocation of the Company's executive offices to a
location more than 50 miles away from their current location in
Malvern, Pennsylvania.
(iii) The term "Without Cause Termination" means a
termination of the Executive's employment by the Company, upon 30 days
notice to the Executive, other than due to Permanent Disability,
voluntary retirement or expiration of the Term, and other than a
Termination for Cause.
(iv) The term "Permanent Disability" means the inability of
the Executive to work for a period of six full calendar months during
any eight consecutive calendar months due to illness or injury of a
physical or mental nature, supported by the completion by the
Executive's attending physician of a medical certification form
outlining the disability and treatment.
6. Effect of Termination of Employment in Connection with a Change
---------------------------------------------------------------
in Control.
- ----------
(a) Definitions. For purposes of this Section 6, the following
-----------
terms shall have the following meanings:
(i) The term "Change in Control Event" means any of the
following events:
(A) the acquisition by any "person" or "group" within
the meaning of Section 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act") (other than the Company,
its affiliates and benefit plans sponsored by the Company or its
affiliates, and other than 399 Venture Partners, Inc. ("VPI") and
its Affiliates (as defined in Rule 12b-2 under the 1934 Act) of
"beneficial ownership" of securities of Amerisource Health
Corporation, a Delaware corporation, ("Parent") representing more
than 35% of the total aggregate voting power of Parent's then
-5-
<PAGE>
outstanding securities entitled to vote generally in the election
of directors, and such person or group owns more aggregate voting
power of Parent's then outstanding securities entitled to vote
generally in the election of directors than any other person or
group.
(B) consummation of a transaction following the
approval by the stockholders of Company or Parent of (1) any
consolidation, merger, or other similar type of transaction
involving the Company or Parent in which all of the holders of
voting stock of the Company or Parent immediately before the
consolidation, merger, or similar transaction, will not own 50%
or more of the voting shares of the continuing or surviving
corporation immediately after such consolidation, merger, or
similar transaction, or (2) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of Company or Parent;
or
(C) a change of 25% (rounded to the next whole
person) in the membership of the Board of Directors of Company or
Parent or any successor within a 12-month period, unless the
election or nomination for election by stockholders of each new
director within such period was approved by the vote of 85%
(rounded to the next whole person) of the directors then still in
office who were in office at the beginning of the 12-month
period.
(ii) "Separation Period" means the three-year period
beginning on the date of the Executive's Termination of Employment.
(iii) "Termination of Employment" shall mean the termination
of the Executive's actual employment relationship with the Company.
(iv) "Termination upon a Change of Control" shall mean a
Termination of Employment upon or within fifteen months after a Change of
Control Event either:
(A) initiated by Company for any reason other than
(1) the Executive's death, or (2) Termination for Cause, or
(B) initiated by the Executive (i) due to a
Constructive Discharge during the one-year period following the
Change in
-6-
<PAGE>
Control Event, or (ii) for any reason during the period beginning
twelve months and one day following the Change in Control Event
and ending 90 days thereafter.
(b) Payments for Termination upon a Change in Control. Within
-------------------------------------------------
twenty days of the Executive's Termination upon a Change in Control, the Company
shall pay to the Executive in a single payment in cash and/or provide to the
Executive, as applicable, the following:
(i) the Executive's earned but unpaid Base Salary as of
the date of Termination of Employment;
(ii) the benefits, if any, to which the Executive is
entitled as a former employee under the employee benefit programs and
compensation plans and programs maintained for the benefit of the
Company's officers and employees;
(iii) continued group hospitalization, health, dental care,
life or other insurance, travel or accident insurance and disability
insurance, for the Separation Period, with coverage equivalent to the
coverage to which the Executive would have been entitled had the
Executive continued working for the Company during the Separation
Period at the highest annual rate of Base Salary achieved during the
Executive's period of actual employment with the Company, provided,
however, that the Executive may upon written notice elect to receive
the present value of such coverage in cash in a lump sum, computed
using a discount rate of 6% per year compounded monthly; and
(iv) an amount equal to the Base Salary and annual bonus
the Executive would have earned if the Executive had continued working
for the Company during the Separation Period at the highest annual
rate of Base Salary, and received the highest annual percentage bonus,
achieved during the Executive's period of actual employment with the
Company.
(c) In the event that, on or after the occurrence of a Change in
Control Event, the Company fails to make any payment or provide any coverage to
Executive arising out of or relating in any way to this Agreement or to the
Executive's employment by the Company (collectively, "Employment Rights"), then
the Company shall pay to the Executive and reimburse the Executive for the
Executive's full costs (including, without limitation, the fees and expenses of
the Executive's attorneys and court and related costs) of enforcing the
Executive's Employment Rights.
-7-
<PAGE>
(d) Notwithstanding anything under this Agreement to the
contrary, in the event that any payments or benefits under this Agreement
(taking into account payments under any other agreement or arrangement with the
Executive) would be considered "excess parachute payments" within the meaning of
Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), then the aggregate present value of benefits or amounts payable under
this Agreement ("Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount expressed in
present value that maximizes the aggregate present value of Agreement Payments
without causing any Agreement Payments to be an excess parachute payment. For
purposes of this Section 6(d), present value shall be determined in accordance
with section 280G(d)(4) of the Code.
(e) All determinations under Section 6(d) shall be made by a
national accounting firm selected by the Company (the "Accounting Firm"), which
shall provide detailed supporting calculations both to the Company and to the
Executive within 30 business days of the date the Executive's employment with
the Company terminates or such earlier time as is requested by the Company and
an opinion to the Executive that the Executive has substantial authority not to
report any excise tax on Executive's federal income tax return with respect to
Agreement Payments. Any such determination by the Accounting Firm shall be
binding on the Company and the Executive. Executive shall determine which of
the Agreement Payments shall be eliminated or reduced consistent with the
requirements of Section 6(d), provided that, if the Executive does not make such
determination within 10 business days of the receipt of the calculation from the
Accounting Firm, the Company shall elect which and how much of the Agreement
Payments shall be eliminated or reduced consistent with the requirements of
Section 6(d) and shall notify Executive promptly of such election. Within 5
business days thereafter, the Company shall pay to the Executive such amounts or
benefits that are then due to the Executive.
7. Other Duties of Executive During and After Term.
-----------------------------------------------
(a) Confidential Information. Executive acknowledges that by
------------------------
reason of his employment with the Company he has and will hereafter, from time
to time during the Employment Term, become exposed to an/or become knowledgeable
about proposals, plans inventions, practices, systems, programs, formulas,
processes, methods, techniques, research, records, supplier sources, customer
lists, and other forms of business information which are not known to the
Company's competitors and which are not recognized as being encompassed within
standard business or management practices and which are kept secret and
confidential by the Company (the "Confidential Information"). Executive
therefore agrees that at no time during or after the period of his employment by
the Company will he disclose or use the Confidential Information except as may
be required in the prudent course of business for the benefit of the
-8-
<PAGE>
Company; provided, that no payment required to be made by the Company under the
terms of this Agreement after termination of the employment of Executive shall
be subject to any right of set-off, counterclaim, defense, abatement,
suspension, deferment or reduction by reason of any claim against Executive
based upon breach of the covenant in this Section 7(a) other than upon execution
of an unsatisfied judgment rendered by a court of competent jurisdiction.
(b) Non-Compete. In consideration of the mutual terms and
-----------
agreements set forth in this Agreement and the stock options that have been and
may be granted under the AmeriSource Health Corporation 1995 Stock Option Plan
and 1996 Stock Option Plan, Executive hereby agrees that (i) while Executive is
employed during the Employment Term, (ii) during such time after the Employment
Term as Executive is employed by the Company, (iii) while Executive is receiving
payments of Base Salary or benefits pursuant to Sections 5(a) hereof, and (d)
for a period of one year after Executive's termination of employment, he will
not, unless authorized in writing to do so by the Company, directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed or otherwise connected in
any substantial manner with any business which directly or indirectly competes
to a material extent with any line of business of the Company or its
subsidiaries; provided, that nothing in this paragraph shall prohibit Executive
--------
from acquiring up to 5% of any class of outstanding equity securities of any
corporation whose equity securities are regularly traded on a national
securities exchange or in the "over-the-counter market." Executive agrees that
for a period ending one year after Executive's termination of employment
hereunder, Executive will not (x) recruit any employee of the Company or solicit
or induce, or attempt to solicit or induce, any employee of the Company to
terminate his or her employment with, or otherwise cease his or her relationship
with, the Company, or (y) solicit, divert or take away, or attempt to solicit,
divert or take away, the business or patronage of any clients, customers or
accounts, or prospective clients, customers or accounts, of the Company that
were contacted, solicited or served by the Executive while employed by the
Company.
(c) Remedies. The Company and Executive confirm that the
--------
restrictions contained in Sections 7(a) and 7(b) hereof are, in view of the
nature of the business of the Company, reasonable and necessary to protect the
legitimate interests of the Company and that any violation of any provision of
Section 7(a) or 7(b) will result in irreparable injury to the Company. Executive
hereby agrees that, in the event of any breach or threatened breach of the terms
or conditions of this Agreement by Executive, the Company's remedies at law will
be inadequate and, in any such event, the Company shall be entitled to commence
an action for preliminary and permanent injunctive relief and other equitable
relief in any court of competent jurisdiction. Executive further irrevocable
consents to the jurisdiction of any Pennsylvania state court or federal court
located in the Commonwealth of Pennsylvania over any suit, action or proceeding
arising
-9-
<PAGE>
out of or relating to this Section 7(c) and hereby waives, to the fullest extent
permitted by law, any objection that he may now or hereafter have to such
jurisdiction or to the laying of venue of any such suit, action or proceeding
brought in such a court and any claim that such suit, action or proceeding has
been brought in an inconvenient forum. The Executive's Agreement as set forth in
this Section 7 shall: (x) survive the termination of this Agreement, and
continue throughout the duration of the Executive's employment with the
Company, except as amended or modified by written agreement of the parties; and
(y) survive the Executive's termination of employment with the Company.
(d) Modification of Terms. If any restriction in this Section 7
---------------------
of the Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in any jurisdiction, the Executive
agrees that such may be modified and narrowed, either by a court or the Company,
to the maximum time, geographic, service or other limitations permitted by
applicable law so as to preserve and protect the Company's legitimate business
interest, without negating or impairing any other restrictions or undertaking
set forth in the Agreement.
8. Withholding Taxes. The Company may directly or indirectly
-----------------
withhold from any payments made under this Agreement all Federal, state, city or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
9. Vesting of Stock Options. In the event of Executive's Without
------------------------
Cause Termination or Constructive Discharge after September 5, 1999 but prior to
a Change in Control Event, then any portion of Executive's Company stock options
which have been granted to Executive and are then outstanding but not then
exercisable pursuant to the terms of such stock options shall become immediately
exercisable to the extent that such stock options would have been exercisable on
or before September 30, 1999 (or two years subsequent to the date of termination
of employment, if later) had such Without Cause Termination or Constructive
Discharge not occurred, and such stock options shall remain exercisable after
the applicable termination date for a period of 30 days. Upon the occurrence of
a Change in Control Event, each of Executive's Company stock options then
outstanding shall become immediately exercisable to the full extent of the
shares of Common Stock subject thereto in accordance with the terms of the
applicable stock option plans and agreements.
-10-
<PAGE>
10. Consolidation, Merger, or Sale of Assets. Nothing in this
----------------------------------------
Agreement shall preclude the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" as used herein shall mean such other corporation
and this Agreement shall continue in full force and effect.
11. Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, postage prepaid, by same day or
overnight mail as follows:
(a) To Company:
300 Chester Field Parkway
Malvern, PA 19355
(b) To the Executive:
807 Maple Glen Lane
Wayne, PA 19087
or to such other address as either party shall have previously specified in
writing to the other.
12. No Attachment. Except as required by law, no right to receive
-------------
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
-------- -------
12 shall preclude the assumption of such rights by executors, administrators or
other legal representatives of the Executive or his estate and their assigning
any rights hereunder to the person or persons entitled thereto.
13. No Mitigation. The Executive shall not be required to mitigate
-------------
the amount of any payment or benefit provided for in this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by other
employment or otherwise.
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<PAGE>
14. Source of Payment. All payments provided for under this Agreement
-----------------
shall be paid in cash from the general funds of the Company. The Company shall
not be required to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any investments
to aid it in meeting its obligations hereunder, the Executive shall have no
right, title or interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written instrument relating to
such investments. Nothing contained in this Agreement, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and the Executive or
any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right, without prejudice to rights
which employees may have, shall be no greater than the right of an unsecured
creditor of the Company.
15. Severability. If any provision of this Agreement or application
-----------
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application and shall not invalidate or render
unenforceable such provision or application in any other jurisdiction.
16. Contents of Agreement. This Agreement supersedes all prior
---------------------
agreements and sets forth the entire understanding among the parties hereto with
respect to the subject matter hereof and cannot be changed, modified, extended
or terminated except upon written amendment approved by the parties hereto.
17. Governing Law. The validity, interpretation, performance, and
-------------
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania, and Executive consents to the jurisdiction of the state and
federal courts of Pennsylvania in any dispute arising under this Agreement.
18. Survival of Benefits. Any Section of this Agreement which
--------------------
provides a benefit to the Executive and which does not expressly provide for its
termination upon the expiration of the Term shall survive the expiration of the
Term and the obligation to provide benefits to the Executive as set forth in
such Section shall remain binding upon the Company until such time as the
Executive's employment relationship with the Company is terminated and the
benefits provided under such Section are paid in full to the Executive.
19. Miscellaneous. All section headings are for convenience only.
-------------
This Agreement may be executed in any number of counterparts, each of which
when executed shall be deemed to be an original and all of which together shall
be deemed to
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<PAGE>
be one and the same instrument. It shall not be necessary in marking proof of
this Agreement or any counterpart hereof to produce or account for any of the
other counterparts.
20. Arbitration. Except with respect to actions for preliminary and
-----------
permanent injunctive relief and other equitable relief under Section 7, any
controversy or claim arising out of or relating to this Agreement, or any breach
thereof, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Philadelphia, Pennsylvania, unless another location
shall be mutually agreed to by the parties at the time of the arbitration. If
Section 6(d) is not applicable, in any dispute between the parties as to which
Executive is sustained on the claim(s) by or against him, the Company shall pay
all legal fees incurred by Executive in connection with the dispute over such
claim(s). If more than one claim is involved in any dispute and if Executive is
sustained as to one or more of such claims but not as to all of such claims,
there shall be a reasonable allocation of applicable legal expenses. The Company
will reimburse Executive for those legal expenses determined by the
arbitrator(s) or by the consent of the parties to be allocable to the claim or
claims as to which Executive is upheld.
IN WITNESS WHEREOF, and intending to be legally bound, the Company
has caused this Agreement to be executed by its duly authorized officers and the
Executive has signed this Agreement this 4th day of September, 1997, effective
as of the day and year first above written.
AMERISOURCE CORPORATION
By: [SIGNATURE ILLEGIBLE]
---------------------------
Name: [SIGNATURE ILLEGIBLE]
-------------------------
Title: President CEO
------------------------
/s/ Kurt J. Hilzinger
-------------------------------
Kurt J. Hilzinger
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<PAGE>
EXHIBIT 10.18
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT is dated October 31, 1997 and is effective as of
May 19, 1997 between AmeriSource Corporation, a Delaware corporation (the
"Company") and John F. McNamara ("Mr. McNamara") (hereinafter, as amended or
modified and in effect called the Agreement").
BACKGROUND
----------
Mr. McNamara has been Chairman, President and Chief Executive Officer of
the Company since November 1988. On May 19, 1997, Mr. McNamara retired from all
of his positions with the Company and its affiliates, other than his position as
a director on the board of the Company and the board of AmeriSource Health
Corporation ("AmeriSource Health"). The Company has requested that Mr. McNamara
make himself available for consulting work for the Company and, subject to the
terms and conditions of this Agreement, Mr. McNamara has agreed to do so.
Mr. McNamara and the Company also wish to set forth their understandings
regarding all of Mr. McNamara's other arrangements with the Company.
TERMS
-----
INTENDING TO BE LEGALLY BOUND HEREBY, the parties agree as follows:
1. ENGAGEMENT. The Company hereby engages Mr. McNamara as a consultant
----------
and Mr. McNamara agrees to accept such engagement pursuant to the terms of this
Agreement. Mr. McNamara will perform such services in the capacity of Consultant
of the Company as may be assigned to him by the Board of Directors. Mr. McNamara
will devote such of his business skill, time and effort to his consulting
hereunder as shall be reasonably necessary to discharge his obligations
hereunder; provided, however, that Mr. McNamara shall not be required to devote
-------- -------
more than sixteen (16) hours per month in any single calendar month to the
performance of services hereunder. Mr. McNamara shall perform such services at a
location mutually acceptable to the Company and Mr. McNamara. The Company will
not provide Mr. McNamara office space to provide the contemplated consulting
services.
2. TERM. Mr. McNamara shall perform the services required hereunder
----
beginning May 19, 1997 and continuing until June 1, 2000 (the "Consulting
Term"), unless this Agreement is terminated earlier due to death or disability
or as provided in Section 6 hereof.
<PAGE>
3. COMPENSATION.
------------
3.1 For his consulting services hereunder during the Consulting
Term, Mr. McNamara shall receive the benefits payable under Section 4 hereof.
3.2 In recognition of past services to the Company, and
conditioned upon Mr. McNamara's complete compliance with the terms of this
Agreement and Mr. McNamara's confirmation in writing on October 15, 1997 to the
Company that this Agreement is in full force and effect, the Company shall pay
to Mr. McNamara $2,500,000 on October 15, 1997. This payment shall be made
notwithstanding the death or disability of Mr. McNamara prior to or subsequent
to October 15, 1997.
3.3 As an inducement to, and as consideration for, Mr.
McNamara's obligations set forth in Sections 11 and 12 hereof, and conditioned
upon Mr. McNamara's complete compliance with the terms of this Agreement, the
Company agrees to pay Mr. McNamara (or his estate, heirs, or personal
representative) $500,000 per year, payable every two weeks in arrears, for the
period beginning May 17, 1997 and ending May 18, 2000. These payments shall
continue notwithstanding the death or disability of Mr. McNamara prior to May
18, 2000.
4. BENEFITS.
--------
4.1 Mr. McNamara and, as applicable, Mr. McNamara's family,
shall be entitled to participate during the Consulting Term in the Company's
medical plan listed on Exhibit 1 hereto (as such plans may be amended, modified
or replaced during the term of this Agreement for the most senior executives of
the Company) in accordance with (S)4980B ("COBRA") of the Internal Revenue Code
of 1986. The premiums for such coverage shall be paid for by the Company. In
addition, during the Consulting Term the Company shall provide to Mr. McNamara
and, as applicable, Mr. McNamara's family, (a) coverage under the Company's life
insurance and disability plans listed on Exhibit 1, as such plans may be
amended, modified or replaced during the term if this Agreement for the most
senior executives of the Company, or (b) equivalent coverage.
4.2 For the term of this Agreement, the Company (a) agrees to
provide to Mr. McNamara split dollar insurance coverage with a death benefit of
approximately $1,000,000 pursuant to the Flexible Premium Adjustable Life
Policy, no. 1A2300590-0 previously entered into by the Company, and (b) agrees
to pay annual premiums of up to $40,000 per year pursuant to such contract.
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<PAGE>
5. TERMINATION. The Company may terminate this Agreement and the
-----------
Consulting Term upon the occurrence of any of the following events:
5.1 The death of Mr. McNamara;
5.2 The disability of Mr. McNamara;
5.3 The Company, by a vote of a majority of the directors of the
Company, determines in its sole discretion that after the date hereof Mr.
McNamara has or is (i) violating any terms or provisions of this Agreement;
and/or (ii) holding himself out in any manner as a representative or agent of
the Company, its parents, subsidiaries, divisions, affiliates and/or their
officers, directors, shareholders, employees or agents (other than as a director
and as a consultant); and/or (iii) making any statements or committing any acts
that are in any way injurious or detrimental to the Company, its parent,
subsidiaries, divisions, affiliates and/or their officers, directors,
significant shareholders, employees, agents, suppliers or customers;
5.4 Mr. McNamara having committed fraud, misappropriation or
embezzlement against the Company; or
5.5 Mr. McNamara's having committed any felony.
For purposes of this Agreement, "Disability" shall mean that Mr.
McNamara suffers from an illness or other physical or mental impairment which,
in the judgment of the Company, prevents Mr. McNamara from performing his duties
hereunder for a period of one hundred eighty (180) consecutive days.
6. EFFECT OF TERMINATION.
---------------------
6.1 Upon termination by the Company of this Agreement, (i) the
Company's obligations under this Agreement shall terminate, except (A)
continuation of the benefits under Section 4 hereof to the date of termination
and payment of approved expenses to the date of termination, (B) for the
provisions of Section 9, (C), in the case of a termination pursuant to Sections
5.1, for the provisions of Sections 3.2 and 3.3. (D) in the case of a
termination pursuant to Section 5.2, for the provisions of Sections 3.2, 3.3 and
4.1 and (E) all unexercised options under the Stock Option Plans shall terminate
and be forfeit, and (ii) Mr.McNamara's obligations under Section 1 of this
Agreement shall terminate. Mr. McNamara's other obligations under this Agreement
shall not terminate but shall continue to be in full force and effect in
accordance with the terms of this Agreement.
-3-
<PAGE>
6.2 Upon the termination to Mr. McNamara's services with the
Company for any reason Mr. McNamara shall promptly deliver to the Company all
correspondence, notes, notebooks, reports, programs, proposals, price lists,
customers lists and any documents concerning the Company's customers or its
business and, without limiting the foregoing, will promptly deliver to the
Company any and all other documents or materials containing or constituting
Confidential Information.
7. STOCK OPTIONS. Exhibit 2 hereto lists the stock options granted
-------------
to Mr. McNamara under the AmeriSource Health's 1995 Stock Option Plan and the
AmeriSource Health's 1996 Stock Option Plan (collectively, the "Stock Option
Plans"). Mr. McNamara acknowledges that the stock options listed as "unvested"
on Exhibit 2 have terminated and are of no further force and effect.
8. EXPENSES. In the event Mr. McNamara is requested by the Company
--------
to travel on the Company's behalf and Mr. McNamara agrees to such travel, the
Company will reimburse Mr. McNamara for reasonable expenses incurred in such
travel, including travel costs, hotel expenses and meal expenses. Mr. McNamara
shall not be reimbursed for any other expenses incurred for performing work
under this Agreement, other than telephone, postage, copying and overnight
courier charges, unless such expenses have been authorized in writing by the
Company. The Company shall pay reimbursable expenses monthly upon receipt of a
satisfactory bill and travel expense report, with appropriate receipts, in
accordance with the Company's policies and procedures.
9. CONFIRMATION OF EXISTING PLANS. The Company confirms to Mr.
------------------------------
McNamara that it will fulfill its obligations to Mr. McNamara under the
AmeriSource Corporation Participating Companies Pension Plan (the "Pension
Plan"), the Company's Supplemental Retirement Plan (the "SERP"), the Company's
401(k) Employee Investment Plan and the Company's Deferred Compensation Plan in
accordance with the provisions of those plans and applicable law. The Company
agrees to amend the SERP to increase the payments that Mr. McNamara would
otherwise be entitled to under the SERP (i) to give Mr. McNamara service credit
under the SERP as if he had continued as an employee until October 15, 1997, and
(ii) to reflect the increase in payments he otherwise would have received under
the Pension Plan as if he had continued as an employee until October 15, 1997.
-4-
<PAGE>
10. CONFIDENTIAL INFORMATION.
------------------------
10.1 Mr.McNamara acknowledges that by reason of his past
employment and future consulting services with the Company he has and will
hereafter, from time to time during the Consulting Term, become exposed to
and/or become knowledgeable about proposals, business plans, practices, systems,
programs, processes, methods, techniques, research, records, supplier sources,
customer lists, prices, profits and volume of sales, prospective customers and
other forms of business information which are kept secret and confidential by
the Company (the "Confidential Information"). Confidential Information shall not
include any information generally known to the public from a source other than
Mr. McNamara. Mr. McNamara recognizes and acknowledges that: (i) the
Confidential Information is the property of the Company; (ii) the use,
misappropriation or disclosure of the Confidential Information would cause
irreparable injury to the Company; and (iii) it is essential to the protection
of the Company's good will and to the maintenance of the Company's competitive
position that the Confidential Information be kept secret and that Mr. McNamara
not disclose the Confidential Information to others or use the Confidential
Information to Mr. McNamara's own advantage or the advantage of others.
10.2 Mr. McNamara agrees to hold and safeguard the Confidential
Information in trust for the Company, its successors and assigns and agrees that
he shall not, without the prior written consent of the Company, disclose or make
available to anyone for use outside the Company at any time, either during the
Consulting Term with the Company or subsequent to the termination of his
services with the Company for any reason, any of the Confidential Information,
whether or not developed by Mr. McNamara, except (i) as required in the
performance of Mr. McNamara's duties to the Company and then, only to the extent
previously approved in writing by the Company or (ii) to the extent required by
law or a court order (and then only after giving the Company prompt notice and
cooperating with the Company in its efforts to obtain a protective order).
11. COMPETITION: SOLICITATION. In consideration of the mutual terms
-------------------------
and agreements set forth in this Agreement, Mr. McNamara hereby agrees that (a)
during the Consulting Term, (b) while Mr. McNamara is receiving any payments or
benefits from the Company, and (c) for a period of one year after the expiration
or termination of Mr. McNamara's Consulting Term, he will not, unless authorized
in writing to do so by the Company, directly or indirectly own, manage, operate,
join, control or participate in the ownership, management, operation or control
of, or be employed or otherwise connected in any substantial manner with any
business
-5-
<PAGE>
which directly or indirectly competes to a material extent with any line of
business of the Company or its subsidiaries; provided, that nothing in this
--------
paragraph shall prohibit Mr. McNamara from acquiring up to 2% of any class of
outstanding equity securities of any corporation whose equity securities are
regularly traded on a national securities exchange or in the "over-the-counter
market." Mr. McNamara agrees that for a period ending one year after Mr.
McNamara's Consulting Term is terminated or expires hereunder, Mr. McNamara will
not (i) recruit any employee of the Company or solicit or induce, or attempt to
solicit or induce, any employee of the Company to terminate his or her
employment with, or otherwise cease his or her relationship with, the Company,
or (ii) solicit, divert or take away, or attempt to solicit, divert or to take
away, the business or patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the Company.
12. ADDITIONAL CONVENANTS BY MR. MCNAMARA.
-------------------------------------
12.1 During the Consulting Term and thereafter, Mr. McNamara will
not make any statements or commit any acts that are in any way injurious or
detrimental to the Company or any of its affiliates, employees, directors,
significant shareholders' images, businesses, operations, employees or relations
with employees, suppliers or customers.
12.2 Mr. McNamara shall comply with all securities laws relating
to his ownership of shares of Class A Common Stock and his ownership of options
to acquire Class A Common Stock of AmeriSource Health, including any
prohibitions related to trading while in the possession of inside information
and shall comply with the policies and procedures of AmeriSource Health related
to the trading of securities that apply to the most senior executives of the
Company that were provided to him prior to May 19, 1997 or have been sent to him
in the manner set forth in Section 17.2 hereof.
12.3 Mr. McNamara shall continue to comply with the terms and
conditions of the Confidentiality Agreement executed by him on November 18, 1996
attached as Exhibit 4 hereto.
12.4 Capitalized terms used in this Section 12 that are not
otherwise defined in this Agreement are defined in Exhibit 3 hereto. During the
period from the date hereof through June 1, 2000, Mr. McNamara agrees that he
will not, and will cause each of his Affiliates not to, directly or indirectly,
individually or as part of a "partnership," "limited partnership,"
"syndicate" or other "group" (as those terms are defined in Section 13(d)(3) of
the Exchange Act as in effect on the date hereof), or otherwise acting in
concert with others, unless in any such case specifically
-6-
<PAGE>
invited in writing to do so by the Board of Directors of the Company as
specifically expressed in a resolution adopted by a majority of the directors of
the Company:
(1) other than pursuant to the exercise of stock options,
acquire, offer or propose to acquire, or agree to acquire, whether by purchase,
tender or exchange offer, gift or otherwise (any such act, to "acquire"),
beneficial ownership of any additional Voting Securities or any rights to
acquire (whether currently, upon lapse of time, following the satisfaction of
any conditions, upon the occurrence of any event or any combination of the
foregoing) any Voting Securities, except pursuant to a stock split, stock
dividend, rights offering, recapitalization, reclassification or similar
transaction made available to holders of any Voting Securities generally;
(2) make, or in any way participate in any "solicitation"
of "proxies" to vote (as such terms are defined or used in Regulation 14A under
the Exchange Act as in effect on the date hereof), solicit any consent or
communicate with or seek to advise, encourage or influence any person (other
than members of his immediate family or trusts solely for the benefit of
immediate family members) or entity (whether or not relating to the election or
removal of directors) with respect to the voting of any Voting Securities or
become a "participant" in any "election contest" (as such terms are defined or
used in Rule 14a-11 under the Exchange Act as in effect on the date hereof) with
respect to AmeriSource Health or the Company, or execute any written consent in
lieu of a meeting of holders of Voting Securities or any class thereof;
(3) form, join, participate in or encourage the formation
of, any "person" or "group" within the meaning of Section 13(d)(3) of the
Exchange Act, as in effect as of the date hereof, with respect to any Voting
Securities;
(4) deposit any Voting Securities into a voting trust or
subject any such Voting Securities to a voting agreement or any other
arrangement or agreement with respect to the voting thereof;
(5) initiate, propose or otherwise solicit shareholders for
the approval of one or more shareholder proposals with respect to AmeriSource
Health or the Company whether made pursuant to Rule 14a-8 under the Exchange Act
(or any successor rule) or otherwise, or induce or attempt to induce any other
person to initiate any such shareholder proposal;
(6) petition or request the Board of Directors of
Amerisource Health or the Company to amend the Articles of
-7-
<PAGE>
Incorporation or Bylaws of AmeriSource Health or the Company, or induce or
attempt to induce any other person to initiate any such petition or request;
(7) call or seek to have called any meeting of the
shareholders of the Company;
(8) otherwise act, alone or in concert with others, or
solicit, propose, seek to effect, encourage or negotiate with or provide any
information to any other person with respect to, or make any statement
regarding, any form of business combination transaction (including without
limitation any merger, tender offer, exchange offer or other Takeover Proposal)
with the Company or any Affiliate thereof, or any restructuring,
recapitalization, liquidation or similar transaction with respect to the Company
or any Affiliate thereof, or solicit, make or propose or encourage or negotiate
with any other person with respect to, or announce an intent to make, any tender
offer or exchange offer for any Voting Securities or disclose an intent purpose,
plan or proposal with respect to the Company or any Voting Securities
inconsistent with the provisions of this Agreement, including an intent,
purpose, plan or proposal that is conditioned on or would require the Company to
waive the benefit of or amend any provision of this Agreement, or assist,
participate in, facilitate, instigate, encourage or solicit any effort or
attempt by any person to do or seek to do any of the actions specified in this
Section 12.4;
(9) enter into any transaction, agreement, arrangement or
understanding that, as a result of the consummation of such transaction or the
fulfillment of such agreement, arrangement or understanding, would substantially
diminish or otherwise eliminate the benefits intended to be afforded by this
Agreement (other than Mr. McNamara accepting full-time employment not prohibited
by Section 11 of this Agreement);
(10) disclose any intention, plan or arrangement
inconsistent with the provisions of this Section 12.4; or
(11) instigate, solicit, facilitate or encourage any effort
or attempt by, or render advice to make any recommendation or proposal to, any
third party to do or seek to do any of the actions specified in this Section
12.4.
12.5 If at any time during the term of this Agreement, Mr.
McNamara or any of his Affiliates are approached by any party concerning a
Takeover Proposal or any other business combination transaction involving the
Company, its assets,
-8-
<PAGE>
businesses or securities, Mr. McNamara will promptly inform the Company of the
nature of such contact, the parties involved and any other information
concerning such transaction which the Company may reasonably request.
13. GENERAL RELEASE.
---------------
13.1 In consideration of the mutual benefits contained in this
Agreement and intending to be legally bound, Mr. McNamara hereby releases and
discharges the Company, and each of its affiliates, parents, subsidiaries,
successors, and predecessors, and all of their employees, agents,
representatives, shareholders, officers and directors (hereinafter collectively
referred to as, the "Company Released Parties") from any and all claims and/or
causes of action, known or unknown, asserted or unasserted, that he may have or
could claim to have against any of the Company Released Parties up to and
including the date of this Agreement, including, but not limited to, all claims
arising from or during Mr. McNamara's past employment (including, but not limit
to, any and all claims with respect to compensation, benefits, right to
continued employment or other terms of employment), or as a result of all claims
arising under federal, state or local laws prohibiting employment discrimination
based upon age, race, sex, religion, handicap, national origin or any other
protected characteristic, including, but not limited to, any and all claims
arising under the Age Discrimination in Employment Act, Title VII of the Civil
Rights Act of 1964, and/or claims growing out of any legal restrictions,
expressed or implied, on any Company Released Party's right to control or
terminate the employment of its employees.
13.2 By initialing the space provided immediately below, Mr.
McNamara acknowledges that he has carefully read and fully understands the
provisions of this Section 13 -"GENERAL RELEASE". Mr. McNamara further
acknowledges that he is agreeing to this general release knowingly and
voluntarily and without duress, coercion or undue influence. Mr. McNamara
further agrees that should he file a lawsuit in court or commence any similar
legal proceeding that is found to be barred in whole or part by this general
release, he will be in breach of this Agreement and he will pay the legal fees
incurred by or on behalf of the applicable Released Party in defending those
claims found to be barred.
Agreed and Initialed:
/s/ John F. McNamara
--------------------
John F. McNamara
13.3 In consideration of the mutual benefits contained in this
Agreement and intending to be legally bound, the
-9-
<PAGE>
Company hereby releases and discharges Mr. McNamara, his successors and
representatives (hereinafter collectively referred to as, the "McNamara Released
Parties") from any and all claims and/or causes of action, known or unknown,
asserted or unasserted, that it may have or could claim to have against any of
the McNamara Released Parties up to and including the date of this Agreement,
including but not limited to, all claims arising from or during Mr. McNamara's
past employment.
14. EQUITABLE RELIEF. The Company and Mr. McNamara confirm that the
----------------
restrictions contained in Sections 10, 11, 12 and 13 hereof are, in view of the
nature of the business of the Company, reasonable and necessary to protect the
legitimate interests of the Company and that any violation of any provision of
Sections 10, 11, 12 or 13 will result in irreparable injury to the Company. Mr
McNamara hereby agrees that, in the event of any breach or threatened breach of
the terms or conditions of this Agreement by Mr. McNamara, the Company's
remedies at law will be inadequate and, in any such event, the Company shall be
entitled to commence an action for preliminary and permanent injunctive relief
and other equitable relief in any court of competent jurisdiction.
15. ARBITRATION. Except with respect to actions for preliminary and
-----------
permanent injunctive relief and other equitable relief under Section 14, any
controversy or claim arising out of or relating to this Agreement, or any breach
thereof, shall be settled by arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
arbitration shall be held in Philadelphia, Pennsylvania, unless another location
shall be mutually agreed to by the parties at the time of the arbitration. In
any dispute between the parties as to which Mr. McNamara is sustained on the
claim(s) by or against him, the Company shall pay all legal fees incurred by Mr.
McNamara in connection with the dispute over such claim(s). If more than one
claim is involved in any dispute and if Mr. McNamara is sustained as to one or
more of such claims, but not as to all of such claims there shall be a
reasonable allocation of applicable legal expenses. The Company will reimburse
Mr. McNamara for those legal expenses determined by the arbitrator(s) or by the
consent of the parties to be allocable to the claim or claims as to which Mr.
McNamara is upheld.
16. INDEPENDENT CONTRACTOR. Mr.McNamara shall be an independent
----------------------
contractor and not an employee of the Company. Nothing contained herein shall
serve to constitute a relationship of partnership or joint venture between the
parties. Mr. McNamara shall not be an agent of the Company and shall have no
power to bind or to otherwise obligate the Company in any manner whatsoever
-10-
<PAGE>
nor shall Mr. McNamara be authorized to enter into agreements or any other
contractual relationships on behalf of the Company, without the express prior
written consent of the Board of Directors of the Company and Mr. McNamara shall
not hold himself out as having any such authority.
17. ADDITIONAL PROVISIONS.
---------------------
17.1 Mr. McNamara's undertakings hereunder will be binding regardless
of (i) the duration of the Consulting Term with the Company; or (ii) the reasons
for or manner of termination of this Agreement. Mr. McNamara's rights under this
Agreement shall not, in any voluntary or involuntary manner (other than the laws
of descent and distribution), be assignable and may not be pledged or
hypothecated.
17.2 All notices hereunder shall be given in writing by personal
delivery by telecopy or by overnight mail addressed to the Company at its
principal place of business and to Mr. McNamara at his residence address as then
listed in the Company's records.
17.3 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania. Mr. McNamara and the Company
further irrevocably consent to the exclusive jurisdiction of any Pennsylvania
state court located in Chester County, Pennsylvania or Federal court located in
the Eastern District of Pennsylvania over any suit, action or proceeding arising
out of or relating to this Agreement and hereby waive, to the fullest extent
permitted by law, any objection that they may now or hereafter have to such
jurisdiction or to the laying of venue of any such suit, action or proceeding
brought in such a court and any claim that such suit, action or proceeding has
been brought in an inconvenient forum.
17.4 The waiver by the Company of a breach of any provision of this
Agreement by Mr. McNamara shall not operate or be construed as a waiver of any
other or subsequent breach by Mr. McNamara of such or any other provision. No
delay or omission by the Company in exercising any right, remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company
from the time to time and as often as may be deemed expedient or necessary by
the Company in its sole discretion.
17.5 If any term or provision of this Agreement or the application
thereof to any person or circumstances shall, to any extent, be held invalid or
unenforceable by a court of competent jurisdiction, the remainder of this
Agreement or the application of any such term or provision to persons or
circumstances other than
-11-
<PAGE>
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law. If any of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, scope, activity or subject, it shall be construed by limiting
and reducing it, so as to be valid and enforceable to the extent compatible with
the applicable law or the determination by a court of competent jurisdiction.
17.6 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument. The section headings of
this Agreement are for convenience of reference only.
17.7 This instrument constitutes the entire agreement with
respect to the subject matter hereof between the parties hereto and replaces and
supersedes as of the date hereof any and all prior oral or written agreements
and understandings between the parties hereto. This Agreement may only be
modified by an agreement in writing executed by both Mr. McNamara and the
Company.
18. REVOCATION RIGHTS. MR. MCNAMARA ACKNOWLEDGES THAT THIS IS A VERY
-----------------
IMPORTANT DOCUMENT AND THAT HE SHOULD CAREFULLY REVIEW AND UNDERSTAND THE TERMS
AND EFFECT OF THIS AGREEMENT BEFORE SIGNING IT. MR. MCNAMARA FURTHER
ACKNOWLEDGES THAT BY SIGNING THIS AGREEMENT HE IS AGREEING, AMONG OTHER THINGS,
TO COMPLETELY RELEASE THE RELEASED PARTIES FROM ALL LIABILITY TO HIM OTHER THAN
THE COMPANY'S OBLIGATIONS SET FORTH IN THIS AGREEMENT AND THAT HE SHOULD CONSULT
WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT. MR. MCNAMARA SHALL HAVE 21 DAYS
FROM THE DATE OF ITS DISTRIBUTION TO CONSIDER THIS AGREEMENT. IF MR. MCNAMARA
HAS NOT DELIVERED A SIGNED COPY OF THIS AGREEMENT TO COMPANY BY THAT TIME,
COMPANY WILL ASSUME THAT HE HAS ELECTED NOT TO SIGN THIS AGREEMENT. IF MR.
MCNAMARA CHOOSES TO SIGN THIS AGREEMENT, HE WILL HAVE AN ADDITIONAL SEVEN (7)
DAYS FOLLOWING THE DATE OF HIS SIGNATURE TO REVOKE THIS AGREEMENT. NEITHER THIS
AGREEMENT NOR ANY PROVISION HEREOF, INCLUDING, BUT NOT LIMITED TO, COMPANY'S
OBLIGATIONS TO MAKE ANY PAYMENTS TO MR. MCNAMARA, SHALL BECOME EFFECTIVE OR
ENFORCEABLE UNTIL THIS SEVEN-DAY REVOCATION PERIOD HAS EXPIRED AND UPON THE
EXPIRATION OF SUCH SEVEN-DAY PERIOD, COMPANY SHALL PAY ALL AMOUNTS RETROACTIVELY
DUE TO MR. MCNAMARA FROM THE DATE FIRST WRITTEN ABOVE.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AMERISOURCE CORPORATION
By:[SIGNATURE ILLEGIBLE]
--------------------------
Title:
/s/ John F. McNamara
-----------------------------
John F. McNamara 10/13/97
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AMERISOURCE CORPORATION
By:[SIGNATURE ILLEGIBLE]
--------------------------
Title:
_____________________________
John F. McNamara
-13-
<PAGE>
Exhibit 1
---------
1. AmeriSource Corporation Managed Medical Plan (CIGNA HealthCare, Claims
Administrator
2. AmeriSource Corporation Group Long Term Disability Plan (Liberty Life
Assurance Company of Boston)
3. AmeriSource Corporation Group Life Insurance (Liberty Life Assurance
Company of Boston)
<PAGE>
Exhibit 2
---------
<TABLE>
<CAPTION>
Date Exercise Plan Shares Vested Unvested
---- ------ --------
Granted Price Granted
- ------- ----- -------
<S> <C> <C> <C> <C> <C>
4/03/95 $21.00 1995 Stock 100,000 50,000 50,000
Option Plan
3/01/96 $28.00 1995 Stock 40,000 10,000 30,000
Option Plan
11/12/96 $48.625 1996 Stock 40,000 -0- 40,000
Option Plan
</TABLE>
-1-
<PAGE>
Exhibit 3
---------
DEFINITIONS. For purposes of Section 12 of this Agreement, the
-----------
following terms shall have the following meanings:
(1) Affiliate. An "Affiliate" of a Person shall have the
---------
meaning set forth in Rule 12b-2 of the Exchange Act as in effect on the date
hereof and, in addition, shall include "Associates" (as defined in Rule 12b-2 of
the Exchange Act as in effect on the date hereof) of such Person and its
Affiliates.
(2) Beneficial Owner. A Person shall be deemed to
----------------
"beneficially own," or to have "beneficial ownership" of, any Voting Securities
in accordance with the term "beneficial ownership" as defined in Rule 13d-3
under the Exchange Act as in effect on the date hereof and, in addition, such
terms shall include securities which such Person has the right to acquire
(irrespective of whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options, or
otherwise.
(3) Exchange Act. "Exchange Act" shall mean the Securities
------------
Exchange Act of 1934, as amended.
(4) Person. "Person" shall mean any individual, group (as
------
such term is defined in Section 13(d)(3) of the Exchange Act as in effect on the
date hereof), corporation, partnership, firm, government or agency or political
subdivision thereof, or other entity of whatever nature.
(5) Takeover Proposal. "Takeover Proposal" shall mean any
-----------------
solicited or unsolicited tender or exchange offer, proposal for a merger, share
exchange or other business combination involving AmeriSource Health or the
Company or any of its material subsidiaries or any proposal or offer to acquire
in any manner 20% or more of the outstanding Common Stock or Voting Securities
of the Company or AmeriSource Health, or a substantial equity interest in any of
the Company's material subsidiaries or a substantial portion of the assets of
AmeriSource Health, the Company or any of its material subsidiaries.
(6) Voting Securities. "Voting Securities" shall mean (x)
-----------------
any securities entitled, or which may be entitled, to vote generally in the
election of directors of the Company or AmeriSource Health, (y) any securities
convertible or exercisable into or exchangeable for such securities (whether or
not the right to convert, exercise or exchange is subject to the passage of time
-2-
<PAGE>
or contingencies or both), or (z) any direct or indirect rights or options to
acquire any such securities.
-3-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF AMERISOURCE HEALTH CORPORATION
As of December 1, 1997, the subsidiaries of AmeriSource Health Corporation,
together with their respective jurisdictions of incorporation, were as follows:
Subsidiary Jurisdictions of Incorporation
---------- ------------------------------
AmeriSource Corporation Delaware
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
No. 333-01951, 033-60051, 003-58329 and 033-58321 on Form S-8 of our report
dated November 3, 1997, with respect to the consolidated financial statements
and schedules of AmeriSource Health Corporation and subsidiaries included in the
Form 10-K for the fiscal year ended September 30, 1997.
Philadelphia, Pennsylvania
December 17, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 68,931
<SECURITIES> 0
<RECEIVABLES> 533,319
<ALLOWANCES> 22,562
<INVENTORY> 1,017,782
<CURRENT-ASSETS> 1,624,654
<PP&E> 114,979
<DEPRECIATION> 47,517
<TOTAL-ASSETS> 1,745,040
<CURRENT-LIABILITIES> 1,130,099
<BONDS> 589,819
0
0
<COMMON> 271
<OTHER-SE> 14,040
<TOTAL-LIABILITY-AND-EQUITY> 1,745,040
<SALES> 7,815,942
<TOTAL-REVENUES> 7,815,942
<CGS> 7,428,466
<TOTAL-COSTS> 7,428,466
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,587
<INTEREST-EXPENSE> 41,581
<INCOME-PRETAX> 78,032
<INCOME-TAX> 30,583
<INCOME-CONTINUING> 47,449
<DISCONTINUED> 0
<EXTRAORDINARY> (1,982)
<CHANGES> 0
<NET-INCOME> 45,467
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.86
</TABLE>
