<PAGE>
As filed with the Securities and Exchange Commission on February 4, 1999.
Registration No. 333-71205
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERISOURCE HEALTH CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 5122 23-2546940
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
---------------
300 Chester Field Parkway, Malvern, PA 19355 (610) 296-4480
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
William D. Sprague, Esq.
AmeriSource Health Corporation
300 Chester Field Parkway
Malvern, PA 19355
(610) 296-4480
(Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
Copies to:
Craig L. Godshall, Esq. John Schuster, Esq.
Dechert Price & Rhoads Cahill Gordon & Reindel
4000 Bell Atlantic Tower, 1717 Arch 80 Pine Street New York, NY 10005
Street (212) 701-3000
Philadelphia, PA 19103-2793
(215) 994-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, dated February 4, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
February , 1999
[AmeriSource Logo]
6,000,000 Shares of Common Stock
- --------------------------------------------------------------------------------
The Company: The Offering:
. We are one of the . Existing
largest full- stockholders are
service wholesale offering to sell
distributors of all of the
pharmaceutical 6,000,000 shares.
products and
related health care
services in the
United States.
. There is an
existing trading
market for these
shares. The
reported last sale
price on February
3, 1999 was $77
3/16 per share.
. AmeriSource Health
Corporation
300 Chester Field
Parkway
Malvern, Pennsylvania
19355
(610) 296-4480 . We will not receive
any proceeds from
the shares sold in
this offering.
. NYSE Symbol: AAS
. Closing: February
, 1999.
<TABLE>
<CAPTION>
---------------------------------------------------
Per Share Total
---------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees: $ $
Proceeds to selling stockholders: $ $
---------------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on Page 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Joint Book-Running Managers
Salomon Smith Barney Donaldson, Lufkin & Jenrette
--------------------------
J.P. Morgan & Co.
First Union Capital Markets Corp.
McDonald Investments Inc.
Piper Jaffray Inc.
<PAGE>
[AmeriSource Logo]
"Putting national power
behind local performance"
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................. 3
Risk Factors........................ 6
Recent Developments................. 8
Use of Proceeds..................... 10
Market Price of Common Stock and
Dividend Policy.................... 10
Selected Consolidated Financial
Data............................... 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 12
Business............................ 19
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management and Directors............ 27
Selling Stockholders................ 29
Underwriting........................ 29
Where You Can Find More
Information--Incorporation of
Documents by Reference............. 31
Special Note on Forward-Looking
Statements......................... 32
Legal Matters....................... 33
Experts............................. 33
</TABLE>
<PAGE>
SUMMARY
The following is only a summary. You should carefully read the more detailed
information contained elsewhere in this prospectus and incorporated by
reference in this prospectus, including our financial statements and the notes
to such statements. Investing in the common stock of the Company involves risk.
Therefore, carefully consider the information provided on pages 6 and 7 under
the heading "Risk Factors." We urge you to read this prospectus in its
entirety. Unless otherwise indicated, "we," "us," "our" and similar terms, as
well as references to the "Company" and "AmeriSource," refer to AmeriSource
Health Corporation and its subsidiaries. The information in this prospectus
does not give effect to the two-for-one stock split announced on January 26,
1999, with an anticipated record date of March 3, 1999.
THE COMPANY
AmeriSource Health Corporation is one of the largest full-service wholesale
distributors of pharmaceutical products and related health care services in the
United States. Our suppliers are primarily pharmaceutical manufacturers. Our
customers include hospitals, alternate care facilities and independent and
chain pharmacies.
We serve customers nationwide through 20 drug distribution facilities and
three specialty products distribution facilities. We are typically the primary
source of supply for our customers, and offer a broad range of services
designed to enhance the operating efficiencies and competitive positions of our
customers and our suppliers.
Over the past five years we have grown significantly, primarily as a result
of market share gains in existing markets, geographic expansion and overall
industry growth. During that period, our operating revenues have increased at a
compound annual growth rate of 18.6%, and our operating income (before unusual
items and amortization) has increased at a compound annual growth rate of
15.8%.
We believe we can continue growing by executing a business strategy
consisting of the following core elements:
. expanding into new geographic markets through acquisitions and new
facility openings;
. increasing market share in existing and recently entered markets through
superior local service to our customers;
. developing or acquiring specialty value-added services and programs to
improve our customers' and suppliers' competitiveness; and
. maintaining our low-cost operating structure to ensure competitive
pricing.
We also believe our company is well-positioned to benefit from several trends
affecting our industry, including:
. an aging population;
. the increasing pace of new pharmaceutical product introductions;
. the more frequent use of outpatient drug therapy;
. an increased reliance on distributors by manufacturers and customers to
serve their needs; and
. price increases by pharmaceutical manufacturers.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered:
by 399 Venture Partners, Inc. .................. 5,480,000 Shares
by Citigroup Foundation......................... 520,000 Shares
-----------------
Total....................................... 6,000,000 Shares
Common stock to be outstanding after the offering.. 24,247,072 Shares
Use of Proceeds.................................... The common stock is being
offered by 399 Venture
Partners, Inc. and
Citigroup Foundation for
their own accounts. We
will not receive any
proceeds from the sale of
common stock in this
offering. We will pay
certain legal, accounting
and other expenses
incidental to the sale of
shares by the selling
stockholders. These costs
are estimated to be
$511,000.
</TABLE>
Our principal executive offices are located at 300 Chester Field Parkway,
Malvern, Pennsylvania 19355. Our telephone number is (610) 296-4480 and our web
site is www.AmeriSource.com.
Risk Factors
An investment in the common stock involves risks. Before you invest, you
should consider the risk factors described on pages 6 and 7.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data for
the periods indicated. You should read this information together with the
"Selected Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and our audited consolidated
financial statements and related notes, all included elsewhere or incorporated
by reference in this prospectus. Refer to the section entitled "Recent
Developments" included on page 8 of this prospectus for unaudited financial
information related to the interim three months ended December 31, 1997 and
1998 and as of September 30, 1998 and December 31, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1994(A) 1995 1996 1997(B) 1998(C)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Data:
Total revenues (d)..... $4,301,832 $4,776,290 $5,662,717 $7,940,898 $8,668,804
Gross profit........... 235,191 266,355 302,433 387,476 421,345
Operating expenses,
excluding
amortization.......... 149,137 168,343 204,244 266,804 295,265
Operating income
(loss)................ (101,992) 97,835 97,889 119,613 124,944
Income (loss) before
extraordinary items
and in 1994 the
cumulative effect of
accounting changes.... (172,417) 28,218 42,650 47,449 50,519
Net income (loss) ..... $ (207,671) $ 10,181 $ 35,408 $ 45,467 $ 50,519
========== ========== ========== ========== ==========
Earnings (loss) per
share--assuming
dilution (e):
Income (loss) before
extraordinary items
and in 1994 the
cumulative effect of
accounting changes... $(11.69) $1.54 $1.86 $1.97 $2.08
Net income (loss) .... (14.08) .56 1.55 1.89 2.08
Weighted average common
shares outstanding--
assuming
dilution (e)(f)....... 14,750 18,319 22,896 24,060 24,275
BALANCE SHEET DATA:
Cash, cash equivalents
and restricted cash... $ 25,311 $ 46,809 $ 71,201 $ 68,931 $ 85,505
Working capital........ 133,355 243,192 329,282 494,555 403,146
Total assets........... 711,644 838,673 1,187,960 1,745,040 1,552,282
Long-term debt (g)..... 487,575 435,764 433,693 589,819 453,761
Stockholders' equity
(deficit)............. (300,726) (135,724) (36,808) 14,311 75,309
</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. Operating
income before the write-off of goodwill was $77.8 million.
(b) Includes the effect of $11.6 million of costs related to facility
consolidations and employee severance. Operating income before these costs
was $131.2 million.
(c) Includes the effect of $18.4 million of merger costs and $8.3 million of
costs related to facility consolidations and employee severance. Operating
income before these costs was $151.6 million.
(d) Fiscal years 1994 through 1997 have been restated to include bulk
deliveries to self-warehousing customers. Previously only the gross margin
from these sales had been included in revenues.
(e) Fiscal years 1994 through 1997 have been restated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
These share and per share amounts have not been adjusted to reflect the
proposed two-for-one stock split discussed in the "Recent Developments"
section included on page 8 of this prospectus.
(f) 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.
(g) Long-term debt at September 30, 1998 consists of: $145.0 million
outstanding under the revolving credit facility; $299.9 million outstanding
under the receivables securitization financings; and $8.8 million of other
long-term debt.
5
<PAGE>
RISK FACTORS
An investment in shares of AmeriSource common stock involves risk. You
should carefully consider the following factors as well as the other
information contained and incorporated by reference in this prospectus before
deciding to invest.
INTENSE COMPETITION MAY ERODE PROFIT MARGINS
The wholesale distribution of pharmaceuticals and related health care
services is highly competitive. We compete primarily with the following:
. National wholesale distributors of pharmaceuticals such as Bergen
Brunswig Corporation, Bindley Western Industries, Inc., Cardinal Health,
Inc., and McKessonHBOC Corporation;
. Regional and local distributors of pharmaceuticals;
. Warehousing chain drug stores;
. Direct-selling manufacturers; and
. Other specialty distributors.
Some of our competitors have greater financial resources and geographic
coverage than we have. Competitive pressures have contributed to a decline in
our gross profit margins on operating revenues from 6.52% in fiscal 1991 to
4.91% in fiscal 1998. This trend may continue and our business could be
adversely affected as a result.
DEBT AND INTEREST EXPENSE MAY AFFECT EARNINGS AND OPERATIONS
Our balance sheet is highly leveraged with approximately $640.3 million in
aggregate long-term debt and $98.2 million of stockholders' equity at December
31, 1998. This could negatively affect our operations in a number of ways,
including:
. We may be unable to obtain additional financing when needed for our
operations or when desired for acquisitions or expansions.
. A large part of our cash flow from operations must be dedicated to
interest payments on our debt, thereby reducing funds available for
other corporate purposes.
. Since much of our debt is at variable or floating interest rates, a rise
in market interest rates will increase our interest expense.
. The level of our debt could limit our flexibility in responding to
downturns in the economy or in our business.
. The terms of our debt agreements limit our ability to borrow additional
money, pay dividends, divest assets and make acquisitions.
KEY MANAGERS MAY LEAVE THE COMPANY
AmeriSource depends on its senior and regional management. If some of these
employees leave the Company, operating results could be adversely affected.
Although AmeriSource has employment contracts with its chief executive
officer, chief operating officer and one other key employee, the Company
cannot be assured that it will be able to retain these or any other key
employees.
6
<PAGE>
RISKS OF ACQUISITION STRATEGY
Since our initial public offering in April 1995, we have completed four
acquisitions. Through these acquisitions and other investments, we have
expanded our geographic presence and our breadth of service offerings. We
expect to continue to acquire companies as an element of our growth strategy.
However, no substantive negotiations for material acquisitions are pending.
Acquisitions involve certain risks that could cause our actual growth to
differ from our expectations. For example:
. We may not be able to continue to identify suitable acquisition
candidates or to complete acquisitions on favorable terms.
. We compete with other companies to acquire companies. We cannot predict
whether this competition will increase. If competition does increase,
there may be fewer suitable companies available to be acquired and the
price for suitable acquisitions may increase.
. We may not be able to successfully integrate acquired businesses in a
timely manner. We may also incur substantial costs, delays or other
operational or financial problems during the integration process.
YEAR 2000; INFORMATION TECHNOLOGY
AmeriSource relies on both information technology systems and operating
equipment with embedded chips or software. Historically, certain computerized
systems have used two digits rather than four to define the applicable year.
Computer equipment and software and devices with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than
the year 2000, resulting in system failure or miscalculations. This problem is
generally referred to as the "Year 2000 issue."
We have developed a plan to address the Year 2000 issue, but we have not yet
completed all necessary phases of our Year 2000 plan. There is a range of
possible issues and many variables involved in our Year 2000 plan. This makes
it impossible for us to quantify the potential costs to AmeriSource of the
Year 2000 issue. We believe that the most likely risks include the following:
. the disruption of utility, telecommunication and transportation
services; and
. the failure of our customers due to their own problems stemming from the
Year 2000 issue.
If we do not complete our Year 2000 plan, we may be unable to perform
certain core business functions, such as taking orders, distributing goods and
processing invoices. We could also be sued for computer systems failure. We
cannot estimate the amount of potential liability and lost revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General Description of the Year 2000 Issue and the Nature and
Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems" on
page 16.
POSSIBLE VOLATILITY OF OUR STOCK PRICE
The stock market and the price of our common stock may be subject to
volatile fluctuations based on general economic and market conditions. Since
our initial public offering in April 1995, our closing sale price to January
25, 1999 has ranged from a low of $20 per share to a high of $81 1/16 per
share. The market price for our common stock may also be affected by our
ability to meet analysts' expectations. Failure to meet such expectations,
even slightly, could have an adverse effect on the market price of our common
stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. If similar litigation were instituted
against us, it could result in substantial costs and a diversion of our
management's attention and resources, which could have an adverse effect on
our business.
7
<PAGE>
RECENT DEVELOPMENTS
Stock Split. On January 26, 1999, we announced that the Board of Directors
approved a two-for-one stock split, subject to shareholders authorizing
additional shares. Assuming shareholder approval, the shareholders of record
on March 3, 1999 will receive one additional share for each share of common
stock held on such date. Shares resulting from the split are expected to be
distributed by our transfer agent near the end of March 1999.
New Contract Awards. Effective January 2, 1999, Premier, Inc. and the
Company announced AmeriSource as one of two preferred business partners for
pharmaceutical supply management to Premier hospitals and health systems
across the country. In addition, on January 11, 1999, we announced that the
Department of Veterans Affairs had chosen AmeriSource as its prime
pharmaceutical vendor for approximately 95% of its total pharmaceutical
purchases. A portion of this contract award is currently under protest. See
"Legal Proceedings" on page 24.
Recent Financial Results. On January 26, 1999, we announced our financial
results for the quarter ended December 31, 1998. The complete financial
statements for the period are not currently available. Highlights from our
first fiscal quarter include the following:
. For the three months ended December 31, 1998, net income increased 23%
to $17.8 million versus $14.5 million for the same period one year ago.
Net income per share--assuming dilution increased by 22% to $0.73 as
compared to $0.60 for the same period one year ago.
. Revenue for the first quarter of fiscal 1999 was $2.2 billion compared
to $2.3 billion one year ago. The slight decrease of 4% reflected last
year's termination of service contracts with two major warehousing chain
customers and one large mail order customer whose purchases resulted in
operating margins below our average.
. For the first quarter of fiscal 1999, gross margin as a percentage of
operating revenue increased to 4.71% as compared to 4.68% for the same
period one year ago.
. Our operating margin expanded in the first quarter of fiscal 1999 to
1.71% of operating revenue versus 1.61% one year ago. Operating expenses
were 3.00% of operating revenue compared to 3.07% for the same period
one year ago.
. Our interest expense for the first quarter of fiscal 1999 showed a
significant decrease of 36% to $8.1 million as compared to $12.7 million
for the same quarter one year ago. This was due to a reduction in
average borrowings from the prior year, which were impacted by the
purchase of Walker Drug Company and the expansion of our Thorofare, New
Jersey distribution facility, both of which occurred in the prior fiscal
year. Our return on committed capital was 25.3%, exceeding our stated
objective of 20% or greater.
The following tables present certain unaudited consolidated financial data
for the three months ended December 31, 1997 and 1998, and as of September 30,
1998 and December 31, 1998. The results presented are not necessarily
indicative of the results that may occur for the full fiscal year. You should
also read the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our audited consolidated financial statements and
related notes, all included elsewhere or incorporated by reference in this
prospectus.
8
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ---------------------
1997 1998
(unaudited)
<S> <C> <C> <C>
Revenue:
Operating revenue................................... $2,254,560 $2,160,904
Bulk deliveries to customer warehouses.............. 24,998 8,762
---------- ----------
Total revenue......................................... 2,279,558 2,169,666
Costs of goods sold:
Operating cost of goods sold........................ 2,148,954 2,059,211
Cost of goods sold - bulk deliveries................ 24,998 8,762
---------- ----------
Total cost of goods sold.............................. 2,173,952 2,067,973
---------- ----------
Gross profit.......................................... 105,606 101,693
Operating expenses:
Selling and administrative.......................... 65,765 61,013
Depreciation........................................ 3,155 3,500
Amortization........................................ 282 256
---------- ----------
Operating income...................................... 36,404 36,924
Interest expense...................................... 12,662 8,141
---------- ----------
Income before taxes................................... 23,742 28,783
Taxes on income....................................... 9,259 10,938
---------- ----------
Net income............................................ $ 14,483 $ 17,845
========== ==========
Earnings per share: (a)
Basic............................................... $0.61 $0.74
Assuming dilution................................... 0.60 0.73
Weighted average common shares outstanding: (a)
Basic............................................... 23,856 24,184
Assuming dilution................................... 24,224 24,434
</TABLE>
(a)These share and per share amounts have not been adjusted to reflect the
proposed stock split discussed above.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1998
(DOLLARS IN THOUSANDS) (UNAUDITED)
<CAPTION>
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 48,461 $ 44,406
Restricted cash............................... 37,044 31,526
Accounts receivable, less allowance for
doubtful accounts............................ 458,238 522,044
Merchandise inventories....................... 870,223 1,066,567
Prepaid expenses and other.................... 4,356 3,150
---------- ----------
Total current assets...................... 1,418,322 1,667,693
Property and equipment, net..................... 60,789 59,851
Other assets, less accumulated amortization..... 73,171 79,374
---------- ----------
Total assets.............................. $1,552,282 $1,806,918
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.............................. $ 873,181 $ 908,529
Accrued expenses and other.................... 48,532 42,158
Accrued income taxes.......................... 78 11,629
Deferred income taxes......................... 93,385 97,430
---------- ----------
Total current liabilities................. 1,015,176 1,059,746
Long-term debt:
Revolving credit facility..................... 145,000 331,660
Receivables securitization financing.......... 299,948 299,956
Other debt.................................... 8,813 8,654
Other liabilities............................... 8,036 8,730
Total stockholders' equity...................... 75,309 98,172
---------- ----------
Total liabilities and stockholders' equity...... $1,552,282 $1,806,918
========== ==========
</TABLE>
9
<PAGE>
USE OF PROCEEDS
The common stock is being offered by 399 Venture Partners, Inc. and
Citigroup Foundation for their own accounts. We will not receive any proceeds
from the sale of common stock in this offering. We will pay certain legal,
accounting and other expenses incidental to the sale of shares by the selling
stockholders. These costs are estimated to be $511,000.
MARKET PRICE OF COMMON STOCK
AND DIVIDEND POLICY
Our common stock has been traded on the New York Stock Exchange under the
symbol AAS since May 27, 1996. The following table sets forth, for the periods
indicated, the range of high and low closing sale prices for our common stock
as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
Price Range
of Common Stock
------------------
High Low
<S> <C> <C>
Year ended September 30, 1997
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
Year ended September 30, 1998
First Quarter............................................ $65 5/8 $53 5/8
Second Quarter........................................... $63 3/8 $53 3/4
Third Quarter............................................ $65 11/16 $51
Fourth Quarter........................................... $76 3/4 $45 7/16
Year ending September 30, 1999
First Quarter............................................ $65 1/8 $49 3/16
Second Quarter (through January 25, 1999) ............... $81 1/16 $70 9/16
</TABLE>
Payment of dividends is within the discretion of our Board of Directors and
will depend, among other factors, upon our earnings, financial condition and
capital requirements, and the terms of our financing agreements. We have not
paid any cash dividends to our stockholders. Moreover, certain financial tests
contained in our agreements with lenders restrict the amount of dividends that
we may pay.
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data and
other operating data. The statement of operations data and balance sheet data
are derived from our audited consolidated financial statements. You should
read the selected consolidated financial data together with the audited
consolidated financial statements and related notes, and the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all included elsewhere or incorporated by reference in this
prospectus. Refer to the section entitled "Recent Developments" on page 8 of
this prospectus for unaudited financial information related to the interim
three months ended December 31, 1997 and 1998 and as of September 30, 1998 and
December 31, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1994(A) 1995 1996 1997(B) 1998(C)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenue Bulk $4,182,193 $4,668,948 $5,551,671 $7,815,942 $8,575,443
deliveries to customer
warehouses............... 119,639 107,342 111,046 124,956 93,361
---------- ---------- ---------- ---------- ----------
Total revenues (d)........ 4,301,832 4,776,290 5,662,717 7,940,898 8,668,804
Gross profit.............. 235,191 266,355 302,433 387,476 421,345
Operating expenses, ex-
cluding amortization..... 149,137 168,343 204,244 266,804 295,265
Operating income (loss)... (101,992) 97,835 97,889 119,613 124,944
Income (loss) before
extraordinary items
and in 1994 the cumu-
lative effect of ac-
counting changes......... (172,417) 28,218 42,650 47,449 50,519
Net income (loss) ........ $ (207,671) $ 10,181 $ 35,408 $ 45,467 $ 50,519
========== ========== ========== ========== ==========
Earnings (loss) per
share--assuming dilu-
tion (e):
Income (loss) before
extraordinary items
and in 1994 the cumu-
lative effect of ac-
counting changes......... $ (11.69) $ 1.54 $ 1.86 $ 1.97 $ 2.08
Net income (loss) ........ (14.08) .56 1.55 1.89 2.08
Weighted average common
shares outstanding--
assuming dilution (e)(f). 14,750 18,319 22,896 24,060 24,275
BALANCE SHEET DATA:
Cash, cash equivalents
and restricted cash...... $ 25,311 $ 46,809 $ 71,201 $ 68,931 $ 85,505
Accounts receivable--
net...................... 272,281 318,652 390,331 533,319 458,238
Merchandise inventories... 351,676 404,522 650,296 1,017,782 870,223
Property and equip-
ment--net................ 41,182 45,244 51,666 67,462 60,789
Total assets.............. $ 711,644 $ 838,673 $1,187,960 $1,745,040 $1,552,282
Accounts payable.......... $ 449,991 $ 462,804 $ 714,984 $1,036,462 $ 873,181
Long-term debt (g)........ 487,575 435,764 433,693 589,819 453,761
Stockholders' equity
(deficit)................ (300,726) (135,724) (36,808) 14,311 75,309
Total liabilities and
stockholders' equity..... $ 711,644 $ 838,673 $1,187,960 $1,745,040 $1,552,282
</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) Includes the effect of $11.6 million of costs related to facility
consolidations and employee severance.
(c) Includes the effect of $18.4 million of merger costs and $8.3 million of
costs related to facility consolidations and employee severance.
(d) Fiscal years 1994 through 1997 have been restated to include bulk
deliveries to self-warehousing customers. Previously only the gross margin
from these sales had been included in revenues.
(e) Fiscal years 1994 through 1997 have been restated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
These share and per share amounts have not been adjusted to reflect the
proposed two-for-one stock split discussed in the "Recent Developments"
section included on page 8 of this prospectus.
(f) 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.
(g) Long-term debt at September 30, 1998 consists of: $145.0 million
outstanding under the revolving credit facility; $299.9 million
outstanding under the receivables securitization financings; and $8.8
million of other long-term debt.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our Selected
Consolidated Financial Information included elsewhere in this prospectus and
our audited financial statements, which are incorporated by reference in this
prospectus. See "Where You Can Find More Information" on page 31.
RESULTS OF OPERATIONS
Quarter Ended December 31, 1998 Compared with Quarter Ended December 31, 1997
See "Recent Developments" on page 8 for unaudited financial information
related to the interim three months ended December 31, 1997 and 1998 and as of
September 30, 1998 and December 31, 1998.
Year Ended September 30, 1998 Compared with Year Ended September 30, 1997
Operating revenues for the fiscal year ended September 30, 1998 increased
10% to $8.6 billion from $7.8 billion in fiscal 1997. During the fiscal year
ended September 30, 1998, sales to hospitals and managed care facilities
increased 9%, sales to independent drug store customers increased 14%, and
sales to the chain drug store customer group increased 4%, as compared with
the prior year. During the fiscal year ended September 30, 1998, sales to
hospitals and managed care facilities accounted for 47% of total operating
revenues, while sales to independent drug stores accounted for 34% and sales
to chain drug stores accounted for 19% of the total.
The majority of the operating revenue growth in fiscal 1998 was due to the
growth of relationships with existing customers. Approximately one-fourth of
the increase relates to the impact of the Walker Drug Company, L.L.C. ("Walker
Drug Company") acquisition in March 1997. The rate of growth was less than in
the prior year due to the termination of service contracts with two major
warehousing chains and one large mail order customer during the third fiscal
quarter that collectively accounted for approximately $300 million of revenue
per quarter. Sales to chain drug stores decreased to 13% of operating revenues
in the fourth quarter of fiscal 1998, as a result of the service contract
terminations. The Company does not expect that future operating income will be
significantly affected as the lost customers generated lower than average
operating margins and the Company expects that it will be able to reduce
expenses in line with the loss of gross profit. Future operating revenues may
also be impacted by continued consolidations of customers and price
competition in the industry.
Along with other companies in its industry, the Company has begun reporting
as revenue bulk shipments to customer warehouses, whereby the Company acts as
an intermediary in the ordering and subsequent delivery of pharmaceutical
products. All periods presented have been restated to reflect these bulk
shipments as revenue. Previously, only the service fees from these bulk
shipments were included in revenue. Due to the insignificant service fees
generated from these bulk shipments, fluctuations in volume have no
significant impact on operating margins.
Gross profit of $421.3 million in fiscal 1998 increased by 9% compared to
fiscal 1997. As a percentage of operating revenues, the gross profit in fiscal
1998 was 4.91% as compared to 4.96% in the prior fiscal year. The decline in
gross profit percentage was due to a reduction in selling margin percentage
due to strong competition in the industry as well as continued customer
consolidation offset in part by an increase in inventory appreciation profits.
Gross profit may continue to be impacted by price competition, changes in
customer and product mix, and distribution center performance.
On September 22, 1997, the Company and McKesson Corporation signed a
definitive merger agreement which was subsequently approved by both companies'
shareholders on February 9, 1998. On July 31, 1998, the United States District
Court for the District of Columbia granted the Federal Trade Commission's
request for an injunction to halt the proposed merger. On August 7, 1998, the
Company and McKesson jointly terminated the merger agreement. Merger related
costs consisting of professional fees and stay-put bonuses totaling $18.4
million were expensed in the fourth quarter of fiscal 1998 as a result of the
termination of the merger agreement.
12
<PAGE>
In the fourth quarter of fiscal 1998, the Company began to centralize its
data processing, accounting, contract administration, and purchasing
functions, reorganize its pharmaceutical distribution facilities into six
regions, and consolidate one pharmaceutical distribution facility into another
facility. These initiatives are expected to be completed by the end of 1999
and when completed are expected to provide annual cost savings of $5 to $6
million. A charge of $8.3 million was recognized in the fourth quarter of
fiscal 1998 related to this effort, and included severance of $3.3 million for
approximately 350 administrative and warehouse personnel and asset write-downs
and lease cancellation costs of $5.0 million primarily consisting of owned and
leased data processing assets to be abandoned after the consolidation dates of
the affected data processing centers.
In the third quarter of fiscal 1997, the Company commenced cost reduction
plans to consolidate three of its pharmaceutical distribution facilities into
other existing facilities and to restructure its sales force. These cost
reduction initiatives resulted in a $6.4 million charge in the third fiscal
quarter of 1997. In addition, the Company incurred charges of $5.2 million
related to the retirement of its former President and CEO as well as other
executive terminations. The $6.4 million charge included $1.8 million for the
severance of approximately 240 warehouse and sales personnel and $4.6 million
of asset write-downs and lease cancellation costs primarily for buildings,
warehouse and computer equipment and other assets to be disposed of related to
the facility consolidations. The fiscal 1997 cost reduction initiatives were
completed in early fiscal 1998.
Selling and administrative expenses and depreciation increased by $13.3
million or 5% in fiscal 1998 compared with the prior fiscal year, and as a
percentage of operating revenues, were 3.13% in fiscal 1998 and 3.27% in
fiscal 1997. The increase in selling and administrative expenses and
depreciation for the year is primarily due to the impact of a full year of
expenses from the February 1997 acquisition of Walker Drug Company. The
decrease in the expense to operating revenue ratio for the year was primarily
due to benefits resulting from the fiscal 1997 cost reduction initiatives
discussed above as well as the shift in customer mix resulting from the
termination of service contracts with the two large warehousing chain
customers.
Operating income of $124.9 million for the year ended September 30, 1998,
increased by 4% from the prior year. The Company's operating margin decreased
to 1.46% in fiscal 1998 from 1.53% in fiscal 1997. This decrease in operating
margin is due to the $18.4 million of merger costs described above. In
addition, both years have been impacted by the charges related to facility
consolidations and employee severance discussed above.
Interest expense of $42.1 million in fiscal 1998 represents an increase of
1% compared to the prior year as average borrowings for the year increased by
6% offset in part by a 50 basis point step-down in the interest rate under the
Company's revolving credit facility during fiscal 1998 as a result of
attaining certain financial ratios under the facility. Average borrowings
during the year ended September 30, 1998, were $639 million as compared to
average borrowings of $602 million in the prior fiscal year.
Income tax expense of $32.3 million in fiscal 1998 was based on an effective
tax rate of 39.0% versus 39.2% in the prior year. The decrease in the rate was
due to a reduction in the effective state and local income tax rate.
Income before extraordinary items increased to $50.5 million in fiscal 1998
from $47.4 million in fiscal 1997. Income before extraordinary items per
share-assuming dilution was $2.08 in fiscal 1998, a 6% increase over fiscal
1997. The effect of the merger costs and charges related to facility closings
and employee severance are included in these amounts.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Earnings per share-assuming dilution is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods presented prior to fiscal 1998 have
been restated to conform to the SFAS No. 128 requirements.
13
<PAGE>
Year Ended September 30, 1997 Compared with Year Ended September 30, 1996
Operating 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
operating revenue gains reflect increases across all customer groups and all
geographic regions. The acquisitions of 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 was 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 operating revenues. As a percentage of operating
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.
Selling and administrative expenses and depreciation, increased by $51.0
million or 25% in fiscal 1997 compared with the prior fiscal year, and as a
percentage of operating revenues, were 3.27% in fiscal 1997 and 3.68% in
fiscal 1996. 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 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,
Florida facility.
Operating income of $119.6 million in fiscal 1997 increased by 22% from the
prior year. Included in operating income is the effect of the $11.6 million of
facility consolidations and employee severance in fiscal 1997 and a $10.9
million cumulative non-cash charge to costs of goods sold in fiscal 1996. The
Company's operating margin declined to 1.53% in fiscal 1997 from 1.76% in
fiscal 1996. The decline is due to the decrease in gross profit percentage
discussed above, offset in part by reduced selling and administrative expenses
as a percentage of operating 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.
14
<PAGE>
Income before extraordinary items increased to $47.4 million in fiscal 1997
from $42.7 million in fiscal 1996 and income before extraordinary items per
share-assuming dilution was $1.97, a 6% increase over fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended September 30, 1998, the Company's operating activities
generated $125.8 million in cash primarily due to a decrease in accounts
receivable of $70.4 million. The reduction in accounts receivable was due to a
combination of a two day reduction in days sales outstanding due to improved
collection efforts and term negotiations as well as the impact of the loss of
the three major customers discussed above. As a result of the reduction in
accounts receivable, the collateral base for the receivables securitization
facility as of September 30, 1998 was less than the $299.9 million of fixed
certificates outstanding. Therefore, cash was deposited in the master trust to
supplement the collateral base, which resulted in the increase in restricted
cash at September 30, 1998. The provision for deferred income taxes increased
operating cash flow by $19.2 million primarily due to an increase in deferred
tax liabilities related to inventory. A decrease in merchandise inventory of
$147.6 million was offset by a related decrease of $161.8 million in accounts
payable and accrued expenses. These decreases were also impacted by the
termination of service contracts of the three large customers as well as the
reversal of the prior year end build-up of inventory related to the Company's
expansion of its Thorofare, New Jersey distribution facility. Operating cash
uses during the year ended September 30, 1998 included $44.4 million in
interest payments and $16.0 million in income tax payments. In addition, in
fiscal 1998, the Company paid a total of $5.5 million of severance and $0.6
million of lease cancellation costs and other related to its fiscal 1998 and
1997 cost reduction plans discussed above. Severance accruals of $4.3 million
and remaining lease obligations of $3.0 million at September 30, 1998 are
included in accrued expenses and other.
In fiscal 1997, the Company's operating activities used $9.3 million of cash
as increases in merchandise inventories of $271.8 million and accounts
receivable of $76.2 million were offset in part by the $274.9 million increase
in accounts payable and accrued expenses. These increases were caused by the
working capital requirements of the Company's significant revenue growth
during fiscal 1997, as well as the year end temporary build-up of inventory
and accounts payable related to the Company's expansion of its Thorofare, New
Jersey facility.
Capital expenditures for the year ended September 30, 1998 were $10.4
million and relate principally to investments in warehouse improvements,
information technology and warehouse automation. These expenditures decreased
from prior years due to delays in starting certain projects due to the
proposed McKesson merger. Expenditures for similar purposes of approximately
$18 to $20 million are expected in fiscal 1999.
Cash used by financing activities during fiscal 1998 represents net
repayments of the Company's revolving credit facility from cash generated by
operations. In fiscal 1997, net borrowings of $148.7 million primarily funded
the acquisition of Walker Drug Company in March 1997. At September 30, 1998,
borrowings under the Company's $500 million revolving credit facility were
$145.0 million (at an average interest rate of 6.9%) and borrowings under the
$375 million receivable securitization financings were $299.9 million (at an
average interest rate of 5.9%). The revolving credit facility expires in
January 2002 and provides for interest rates ranging from LIBOR plus 25 basis
points to LIBOR plus 125 basis points based upon certain financial ratios. The
receivable securitization facility represents a financing vehicle utilized by
the Company because of the availability of attractive interest rates relative
to traditional financing sources. The Company securitizes its trade accounts
and notes receivable, which are generally non-interest bearing, in
transactions that do not qualify as sales transactions under SFAS No. 125. The
details of the receivable securitization financing program are summarized in
Note 4 to the consolidated financial statements. In December 1998, the Company
entered into a short-term supplemental $100 million revolving credit agreement
with substantially the same terms as the Credit Agreement. This agreement
expires March 31, 1999, and is intended to fund seasonal inventory purchases
if necessary.
The Company's primary exposure to market risk consists of changes in
interest rates on borrowings. An increase in interest rates would adversely
affect the Company's operating results and the cash flow available after
15
<PAGE>
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 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 through
January 1999 and has interest rate cap agreements expiring in May 1999, which
provide protection on $115 million of its long-term borrowings. For every $100
million of unhedged variable rate debt, a 75 basis point increase in interest
rates would increase the Company's annual interest rate expense by
approximately $0.75 million.
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
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.
A former customer of the Company has alleged that the Company failed to
fulfill its obligations under the service contract between the Company and the
former customer. In connection with this claim, the former customer withheld
payment on $22 million of invoices. In response, the Company filed suit to
collect the outstanding amount. The former customer has countersued the
Company for an unspecified amount. The Company believes that there is no merit
to this counterclaim and intends to aggressively pursue collection of the
outstanding amount. Because the Company is unable at this time to determine
the outcome of this matter, no provision for loss has been made in the
financial statements.
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, remediation, and ongoing
monitoring costs. The accrued liability ($3.8 million at September 30, 1998),
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.
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business practices.
The Company began addressing the Year 2000 Issue in 1995 on a decentralized
basis at each of its regional data processing centers. In 1997, the Company
began monitoring progress on a corporate level and a formal Year 2000
committee, reporting to senior management, was established in early 1998 to
coordinate and monitor the Year 2000 Issue on an enterprise-wide basis. Based
on assessments made since 1995, the Company determined that modifications to
or in limited cases replacement of computer software and hardware was
necessary to enable those systems to operate properly after December 31, 1999.
The Company presently believes that with modifications to and replacement of
existing software and hardware, the Year 2000 Issue can be mitigated. However,
if such modifications and replacements are not made, or are not completed
timely, the Year 2000 Issue can have a material impact on the operations of
the Company.
16
<PAGE>
In the fourth quarter of fiscal 1998, the Company announced plans to
consolidate its data processing from its regional facilities to one corporate
facility by the end of 1999. However, the Company's plan to resolve the Year
2000 Issue described below is not dependent on the timely completion of the
Company's consolidation efforts.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date,
the Company has completed its assessment of all systems that could be
significantly affected by the Year 2000. The assessment indicated that most of
the Company's significant information technology systems could be affected,
particularly the Company's warehouse and distribution operating and accounting
systems. The assessment also indicated that software and hardware (embedded
chips) used in warehouse automation, scanning, and ordering as well as other
equipment used in the distribution process (operating equipment) are also at
risk. Because the Company is a distributor of pharmaceuticals, the Company's
products are not at risk.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase. The following estimates of completion
percentages and dates are based on the Company's best estimates. However,
there can be no guarantee that these dates can be achieved and actual results
may differ. For its information technology exposures, to date the Company is
approximately 95% complete on the remediation phase and expects to be
completed with its software reprogramming and replacement no later than March
31, 1999. Once software is reprogrammed or replaced for a system, the Company
begins testing and implementation. These phases run concurrently for different
systems. To date, the Company has completed 90% of its testing and has
implemented 85% of its remediated systems. Completion of the testing phase for
all significant operating systems is expected by March 31, 1999, with all
remediated systems fully tested and implemented by June 30, 1999.
The remediation of operating equipment with embedded chips or software is
approximately 95% complete and is expected to be completed by March 31, 1999.
Testing of the affected equipment is approximately 90% complete and
implementation of affected equipment is 85% complete. Testing is expected to
be complete by March 31, 1999, and implementation by June 30, 1999.
Nature and Level of Importance of Third Parties and their Exposure to the
Year 2000. Many of the Company's customers order products from the Company
using ECHO(R), the Company's proprietary software system. ECHO(R) was
developed in-house and has been Year 2000 compliant from its inception. The
Company also issues the majority of its purchase orders to vendors through the
use of Electronic Data Interchange ("EDI"). The Company is approximately 50%
complete with its remediation efforts relating to EDI software and expects to
be complete by March 31, 1999. Testing and implementation of this software is
expected to be completed by June 30, 1999.
The Company is planning to survey its significant customers and vendors as
to their Year 2000 compliance in February and March, 1999. Based on the nature
of their responses, the Company will develop contingency plans as appropriate.
However, the Company has no means of assuring that external customers and
vendors will be Year 2000 compliant. The inability of these third parties to
complete their Year 2000 resolution process in a timely fashion could
materially impact the Company.
Costs. The Company has utilized and will continue to utilize both internal
and external resources to reprogram or replace, test, and implement the
software and operating equipment for Year 2000 modifications. Many of the
program fixes were completed in conjunction with other projects and had little
incremental cost. The Company estimates that incremental costs relating to
Year 2000 projects to date approximate $2 million. These costs have been
expensed as incurred. The Company expects to spend less than $1 million on
Year 2000 projects in fiscal 1999. Year 2000 costs are difficult to estimate
accurately and the projected cost could change due to unanticipated technical
difficulties, project delays, and third party non-compliance, among other
things.
17
<PAGE>
Risks. Management of the Company believes that it has an effective program
in place to resolve the Year 2000 Issue in a timely manner. As noted above,
the Company has not yet completed all necessary phases of its Year 2000 plan.
Because of the range of possible issues and the large number of variables
involved, it is impossible to quantify the potential cost of problems should
the Company or its trading partners not properly complete their Year 2000
plans and become Year 2000 compliant. Such costs and any failure of compliance
efforts could have a material adverse effect on the Company. The Company
believes that the most likely risks of serious Year 2000 business disruption
are external in nature, including continuity of utility, telecommunication and
transportation services, and the potential failure of the Company's customers
due to their own non-compliance or the non-compliance of their business
partners. In the event the Company does not properly complete its Year 2000
efforts or is affected by the disruption of outside services, the Company
could be unable to take orders, distribute goods, invoice customers or collect
payments. In addition, disruptions in the economy generally resulting from
Year 2000 could have a material adverse effect on the Company. The Company
could be subject to litigation for computer systems failure. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans. The Company is currently in process of developing
contingency plans to address the above Year 2000 risks as necessary. The
Company plans to evaluate the status of completion of its Year 2000 efforts by
March 31, 1999, and determine what contingency plans are necessary at that
time. In the normal course of business, the Company has contingency plans for
disruption of business events and intends to augment those plans with specific
Year 2000 considerations.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In fiscal 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130 "Reporting Comprehensive Income," which requires that an
enterprise report, by major component and as a single total, the change in its
net assets during the period from nonowner sources and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas, and major customers. In fiscal 1998, the FASB issued SFAS
No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pensions and
other postretirement benefits and expands disclosures on changes in benefit
obligations and fair values of plan assets. These statements are effective for
fiscal years beginning after December 15, 1997. Also, in fiscal 1998, the FASB
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," which requires companies to recognize all derivatives as either
assets or liabilities in the balance sheet and measure such instruments at
fair value. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures.
18
<PAGE>
BUSINESS
AmeriSource Health Corporation, through its subsidiary AmeriSource
Corporation, is the fourth largest full-service wholesale distributor of
pharmaceutical products and related health care services in the United States.
We serve our customers nationwide through 20 drug distribution facilities and
three specialty products distribution facilities. We are typically the primary
source of supply for our customers, and offer a broad range of services
designed to enhance the operating efficiencies and competitive positions of
our customers and our suppliers. AmeriSource benefits from a diverse customer
base that includes hospitals and managed care facilities (accounting for 47%
of operating revenue in fiscal 1998), independent community pharmacies (34%)
and chain drug stores, including pharmacy departments of supermarkets and mass
merchandisers (19%).
Over the past five years, our operating revenues and operating income
(before unusual items and amortization) have grown significantly. Operating
revenues increased from $3.7 billion in fiscal 1993 to $8.6 billion in fiscal
1998, representing a compound annual growth rate of 18.6%. Operating income
before unusual items and amortization increased from $73.3 million in fiscal
1993 to $152.8 million in fiscal 1998, representing a compound annual growth
rate of 15.8%. Our growth results primarily from market share gains in
existing markets, geographic expansion and overall industry growth.
BUSINESS STRATEGY
Over the past five years, we have significantly expanded our national
presence as a leading, innovative wholesale distributor of pharmaceutical
products and related health care services. By executing the following key
elements of our business strategy, we believe we can continue revenue growth
and increase operating income.
Expand into New Geographic Markets. We believe there are substantial
opportunities to grow by opening distribution facilities in new geographic
areas and making selective, complementary acquisitions. We have added seven
new distribution centers since October 1993, including facilities in Texas,
Oregon, Massachusetts, California, Arizona and Florida. Each new facility
began operations with an existing customer base in its regional marketplace.
We have also acquired several regional wholesale pharmaceutical distributors,
including Idaho-based Newbro Drug Company in 1995, Florida-based Gulf
Distribution Inc. in 1996 and Alabama-based Walker Drug Company in 1997. As
industry consolidation pressures continue, we believe AmeriSource may have
opportunities to selectively acquire additional local and regional drug
wholesale companies, facilitating our expansion into other geographic areas
and enhancing our competitive position in existing markets.
Increase Market Share in Existing Markets. We believe we can continue
growing in existing markets by emphasizing the following factors, which have
allowed us to compete effectively and generate above-average industry sales
growth over the last five years:
. providing superior distribution services coupled with advanced
information systems to reduce costs throughout the pharmaceutical supply
channel;
. continuing to develop or acquire specialty value-added services and
programs to improve our customers' and suppliers' competitiveness;
. maintaining our low-cost operating structure to ensure our services are
priced competitively; and
. preserving our decentralized operating structure to respond to
customers' needs more quickly and efficiently and ensure continued
development of local and regional management talent.
Continue Growth of Specialty Services. We work closely with customers and
suppliers to develop an extensive range of specialty services such as the ones
described below. In addition to enhancing our profitability, these services
increase customer loyalty and strengthen our role in the pharmaceutical supply
channel.
. ECHO(R), our proprietary software system, provides sophisticated
ordering and inventory management assistance to hospital and retail
customers. In addition to facilitating primary supply and
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<PAGE>
communications between us and our customers, ECHO(R) enables our
customers to reduce their costs by ordering more efficiently, selecting
from best price alternatives and maintaining formulary compliance. With
approximately 6,200 systems nationwide, we believe our 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 by providing them with:
. access to disease management and pharmaceutical care programs;
. enhanced access to pharmaceutical benefit programs of large health
care groups, including third-party payor programs;
. value-added merchandising programs, including private label product
lines; and
. innovative advertising, marketing and promotional campaigns.
With over 2,550 Family Pharmacy(R) member stores, Family Pharmacy(R) in
effect constitutes one of the largest drugstore chains in the United
States.
. Our Income Rx(R) program provides a value-added service for retail and
hospital 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 1998, we focused on our AmeriSource Select(R) automatic
substitution generic compliance program and currently have over 4,500
customers in the program. AmeriSource Select(R) provides enables
customers to generate additional profits by channeling their generic
purchases to preferred products, reducing acquisition costs and
decreasing product redundancy. Revenues attributable to AmeriSource's
sales of generic and multi-source pharmaceuticals (including the Income
Rx(R) program) increased to approximately $665 million in fiscal 1998.
. American Health Packaging(R) is our pharmaceutical packaging division.
In fiscal 1996, we expanded our packaging business by opening a new
state-of-the-art facility in Columbus, Ohio to provide customized
packaging solutions for customers and suppliers. The facility is capable
of packaging pharmaceuticals into both unit-of-use and unit-dose
formats, providing higher productivity, better control and improved
profitability throughout the pharmaceutical supply channel.
. MedAssess(TM) is our innovative patient care program designed to help
pharmacies generate new patient care revenue and differentiate
themselves from their competition. It offers opportunities for
pharmacies to expand their role in patient care by providing specialized
services to help patients better manage drug therapy and wellness.
MedAssess(TM) provides pharmacists with continuing education, self-
directed training, patient care software and technical and practice
support. MedAssess CareBuilderSM programs provide all the materials and
information needed to implement and promote a variety of practical,
revenue-generating patient care services.
. The Diabetes Shoppe(TM) program develops pharmacy-based diabetes care
centers to market over 600 specialized products and training for the
diabetes patient. The program offers a range of marketing tools,
including direct mailings to customers, doctors, signage and radio
advertising. Since we acquired The Diabetes Shoppe(TM) in 1996,
membership has grown from 215 to over 525 retail pharmacy members
nationwide.
. Our Health Services Plus(R) business distributes vaccines, injectables,
plasma and oncology products to alternate care sites such as clinics,
physicians' offices and surgery centers. In addition, Health Services
Plus(R) provides specialty distribution services such as warehousing,
order processing and telemarketing for pharmaceutical and medical
companies requiring distribution of specialized niche products.
Maintain Low-Cost Operating Structure. We believe we have the lowest
operating cost structure compared to our four major national competitors. Over
the past five years, we have significantly reduced operating expenses and
investment in net working capital as a percentage of revenues. Specifically,
we have
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reduced selling and administrative expenses and depreciation, as a percentage
of operating revenues, from 3.72% in fiscal 1993 to 3.13% in fiscal 1998. In
addition, our operations continue to be more productive and profitable as a
result of continued investments in management information systems and
warehouse automation technology. Greater operating leverage, achieved by
increasing sales volume on a per-facility basis, has also enhanced
productivity. In addition, new facilities have been added with minimal
incremental investment in corporate overhead. We believe our sales and profits
will continue to grow as these facilities continue to expand in their regional
markets.
INDUSTRY OVERVIEW
We have benefited from the significant growth of the full-service drug
wholesale industry in the United States. Industry sales grew from
approximately $30 billion in 1990 to approximately $73 billion in 1997. The
industry is growing because of, among other factors:
. the aging population;
. the pace of new pharmaceutical product introductions is increasing;
. outpatient drug therapies are being used more often to contain health
care costs;
. manufacturers and customers are relying more on distribution by
wholesalers to serve their needs; and
. pharmaceutical prices are rising.
Aging Population. The number of individuals over age 65 in the United States
grew 22% from approximately 26 million in 1980 to approximately 31 million in
1990 and is projected to increase an additional 12% 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. We believe 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, we believe 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 11% 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
through 1997, the percentage of pharmaceutical sales through wholesale drug
distributors increased from approximately 46% to approximately 56%. There has
been a recent reduction in percentage of sales through wholesalers reflecting
the shift by some manufacturers to sell directly to self-warehousing chains--
transactions which previously had been handled as pre-arranged sales through
wholesalers at insignificant margins to the wholesalers. Order processing,
inventory management and product delivery by wholesale drug distributors allow
manufacturers to allocate their resources to research and development,
manufacturing and marketing their products. Customers benefit from this shift
by having a single source of supply for a full line of pharmaceutical products
as well as lower inventory costs, more timely and efficient delivery, and
improved purchasing and inventory information. Customers also benefit from the
range of value-added programs developed
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<PAGE>
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. We believe that price
increases by pharmaceutical manufacturers will continue to equal or exceed the
overall Consumer Price Index. We believe this increase will be due in large
part to the relatively constant demand for new patented drugs, the costs and
prices of which have been increasing as manufacturers have attempted to recoup
costs associated with their development, testing and regulatory approval.
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 43 as of December 1998. Industry analysts
expect this consolidation trend to continue, with the industry's largest
companies increasing their percentage of total industry sales.
OPERATING STRUCTURE
We believe operating economies of scale exist principally at the
distribution facility level. AmeriSource currently operates 20 drug
distribution facilities and three specialty products distribution facilities,
organized among five regions across the United States. Unlike our more
centralized competitors, we are structured as an organization of locally
managed profit centers. The management of each distribution facility has
fiscal responsibility for their facility. Each distribution facility's
results, including earnings and achievement of asset management goals, have a
direct impact on management compensation at that facility. Our distribution
facilities utilize the Company's corporate staff for marketing, financial,
purchasing, legal and executive management resources and corporate
coordination of asset and working capital management. In the fourth quarter of
fiscal 1998, we began to centralize our data processing, accounting, and
contract administration functions, and we intend to centralize our purchasing
function. We believe that centralizing these administrative functions will
make us more efficient without undermining our decentralized operational and
management structure.
SALES AND MARKETING
We have an organization of over 225 sales professionals organized regionally
and specialized by customer segment. Customer service representatives are
located in each distribution facility to respond to customer needs in a timely
and effective manner. In addition, a specially trained group of telemarketing
representatives makes regular contact with customers regarding special
promotions. Our corporate marketing department designs and develops the
Company's value-added programs and works with manufacturer-suppliers to
develop national promotions. Tailored to specific customer classes, these
programs can be further customized at the distribution facility 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 our distribution facilities carries an inventory line necessary for
its local market. Efficient distribution of small orders is made possible
through extensive 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. We typically deliver products to
customers on a daily basis. We use a fleet of owned and leased vans and trucks
and contract carriers. Night order picking operations in our distribution
facilities have further reduced delivery time. Orders are generally delivered
in less than 24 hours. Our 20 distribution facilities and three specialty
products facilities, as of January 1999, were organized into five regions
throughout the United States.
CUSTOMERS AND MARKETS
We have 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. No single
customer represented more than 5% of the Company's total operating revenues
during
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fiscal 1998, except that the federal government accounted for approximately
16%. Excluding the federal government, our top ten customers represented
approximately 17% of total operating revenues during fiscal 1998. A profile of
each customer class follows:
. Hospitals and Managed Care Facilities. We are one of the United States'
top three distributors in serving the hospital and managed care market.
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 17.4% from fiscal 1994 through fiscal 1998.
. Independent Community Pharmacies. Independent community pharmacy owners
provide the greatest opportunity for our value-added services. Our sales
to independent customers have risen at a compound rate of 22.9% from
fiscal 1994 through fiscal 1998 due to the general growth of this
customer class, our recent acquisition activity and the success of our
customized marketing and merchandising programs, such as the Family
Pharmacy(R) program.
. Chain Drug Stores. This class includes chain drug stores and the
pharmacy departments of supermarkets and mass merchandisers. Our sales
to chains have risen at a compound rate of 20.1% from fiscal 1994
through fiscal 1998. This growth results from AmeriSource entering into
new contracts with several drug store chains as well as the growth of
our existing chain customers. Sales to chain drug stores decreased to
13.0% of operating revenues in the last quarter of fiscal 1998 due to
the termination of service contracts with two large warehousing chains.
SUPPLIERS
We obtain pharmaceutical and other products from a number of manufacturers.
In fiscal 1998, no single manufacturer supplied products that together
accounted for more than approximately 8.0% of our net sales. Products of our
five largest suppliers in fiscal 1998 together accounted for approximately
29.0% of net sales. Historically, we have not experienced difficulty in
purchasing desired products from suppliers. We have agreements with many of
our 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. Our business
could suffer if we were to lose some suppliers and alternate sources of supply
were not available. We believe our relationships with suppliers are good.
MANAGEMENT INFORMATION SYSTEMS
We have continually invested in advanced management information systems and
automated warehouse technology. Our 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. Our customized systems strengthen customer
relationships by allowing customers to lower operating costs and by providing
the basis for a number of the value-added services we provide to customers,
including marketing data, inventory replenishment, single-source billing,
computer price updates and price labels. In order to eliminate redundant
processes and related expenses, we began to centralize management information
systems from six regional data processing facilities to one corporate facility
in July 1998. This effort is proceeding on a facility-by-facility basis, and
we expect to complete the conversion by the end of 1999. We believe our
management information systems are capable of serving our needs for the
foreseeable future.
EMPLOYEES
As of December 31, 1998, we had 3,200 employees. Approximately 3,000 were
full-time employees. Approximately 11% of full and part-time employees are
covered by collective bargaining agreements. We believe our relationships with
employees are good.
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<PAGE>
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, we are subject to these
regulations. We have received all necessary regulatory approvals and believe
that we are in substantial compliance with all applicable wholesale
distribution requirements.
At our 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. Our 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. Outside consultants prepared a preliminary
engineering analysis 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. We are working with the appropriate
state and federal regulatory agencies 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 December 31, 1998), which is
reflected in other long-term liabilities on our 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. We are
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 we intend to vigorously pursue
our rights and remedies.
PROPERTIES
As of December 1998, we conducted our business from office and operating
unit facilities at 41 locations throughout the United States. In the
aggregate, our operating units occupy approximately 2.4 million square feet of
office and warehouse space. We own approximately 872,000 square feet of this
space and lease the balance under lease agreements with expiration dates
ranging from 1998 to 2012. Our 20 drug distribution facilities range in size
from approximately 20,000 square feet to 218,200 square feet. Leased
facilities are located in the following states: Alabama, Arizona, California,
Delaware, Florida, Idaho, Kentucky, Massachusetts, Minnesota, New Jersey,
North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Virginia and
West Virginia. Owned facilities are located in the following states: Alabama,
Indiana, Kentucky, Maryland, Missouri, Ohio, Tennessee and Virginia. We
utilize a fleet of owned and leased vans and trucks, as well as contract
carriers to deliver our products. We believe that our properties are adequate
to serve our current and anticipated needs without making capital expenditures
materially higher than historical levels.
LEGAL PROCEEDINGS
A former customer of ours has alleged that we failed to fulfill our
obligations under the service contract between us and the former customer. In
connection with this claim, the former customer withheld payment on $22
million of invoices. In response, we filed suit to collect the outstanding
amount. The former customer has countersued us for an unspecified amount. We
believe there is no merit to this counterclaim and intend to aggressively
pursue collection of the outstanding amount. Because we are unable at this
time to determine the outcome of this matter, no provision for loss has been
made.
In November 1993, we were 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 and
alleging violations of various antitrust laws stemming from the use of
chargeback agreements. In addition, we were added with four other wholesale
distributors as defendants in a series of related antitrust lawsuits brought
by
24
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independent pharmacies and chain drug stores, both of which opted out of the
class cases. We were also named a defendant in parallel suits filed in state
courts in Minnesota, Alabama, Tennessee and Mississippi. The federal class
actions were originally filed in the United States District Court for the
Southern District of New York, but were 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,
we entered into a Judgment Sharing Agreement with the other wholesaler and
pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement:
(a) the manufacturer defendants agreed to reimburse the wholesaler defendants
for litigation costs incurred, up to an aggregate of $9 million; and (b) if a
judgment is entered against both manufacturers and wholesalers, our total
exposure for joint and several liability is limited to the lesser of 1% of
such judgment or $1 million. In addition, we have released any claims which we
might have had against the manufacturers for the claims presented by the
plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the
federal court litigation as well as the cases which have been filed in various
state courts.
On April 4, 1996, the District Court granted our motion for summary judgment
in the class case. Plaintiffs subsequently appealed the grant of summary
judgment 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 judgment in our favor and in favor of the other wholesalers.
The Court of Appeals also denied our petition for rehearing. We filed, along
with the other wholesalers, a petition for a writ of certiorari to the United
States Supreme Court; the petition was denied. Trial in the class case
commenced in the United States District Court for the Northern District of
Illinois on September 23, 1998. After a ten-week trial, the Court granted all
of the defendants' motions for a directed verdict and dismissed the claims the
class plaintiffs had asserted against us, the other wholesale distributors and
the pharmaceutical manufacturers.
On or about October 2, 1997, a group of retail chain drug stores and
individual pharmacies, both of which had opted out of the class cases, filed a
motion with the United States District Court for the Northern District of
Illinois seeking to add us and the other wholesale distributors as defendants
in their cases against the manufacturer defendants, which cases are
consolidated before the same judge who is presently presiding over the class
cases. This motion was granted and we, and the other wholesale distributors,
have been added as defendants in those cases as well. As a result, we have
been served with approximately 120 additional complaints on behalf of
approximately 4,000 pharmacies and chain retailers. Discovery and motion
practice is presently underway in all of these opt-out cases. We believe we
have meritorious defenses to the claims asserted in these lawsuits and intend
to vigorously defend ourself in all of these cases.
AmeriSource has been named as a defendant in three 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. We believe that we are entitled to full indemnification by our
vendors with respect to these lawsuits and any other lawsuits involving these
products in which AmeriSource may be named in the future. We believe that our
insurance coverage and indemnification rights are adequate to cover any
losses, if they should occur.
The Department of Veterans Affairs recently awarded us a significant
contract. See "Recent Developments" on page 8. On January 19, 1999 two related
companies filed a protest with the General Accounting Office challenging
approximately 30% of the award of the contract with the Department of Veterans
Affairs. Upon filing of the protest the applicable statute provides that the
award is to be suspended pending final decision by the GAO. However, the
statute permits the Department of Veterans Affairs to override the suspension,
if it deems it to be in the best interests of the United States. If the
suspension is not overridden, the GAO has 100 days in which to make a decision
on the protest.
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We understand that the Department of Veterans Affairs rated AmeriSource
equal to or better than the protesting bidders on the top three criteria for
the award. AmeriSource intends to challenge this protest vigorously.
We are a party to various lawsuits arising in the ordinary course of
business; however, we do not believe that the outcome of these lawsuits,
individually or in the aggregate, will have a material adverse effect on our
business or financial condition.
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MANAGEMENT AND DIRECTORS
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers, certain key employees and directors, and
their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
R. David Yost......... 51 President, Chief Executive Officer and Director
Kurt J. Hilzinger..... 38 Senior Vice President, Chief Operating Officer and
Chief Financial Officer
Vice President and President of American Health
David M. Flowers...... 51 Packaging
John A. Aberant....... 42 Vice President, Treasurer
Eileen C. Clark....... 33 Vice President, Human Resources and Employment
Counsel and Asst. Secretary
Thomas P. Connolly.... 46 Vice President, Sales & Marketing
Michael D. DiCandilo.. 38 Vice President, Controller
Terry P. Haas......... 33 Vice President, Strategic Integration
Bonnie J. Keith....... 50 Vice President, Chief Procurement Officer
William D. Sprague.... 57 Vice President, General Counsel and Secretary
Denny W. Steele....... 55 Vice President, Chief Information Officer
Lawrence C. Karlson... 56 Non-executive Chairman of the Board
Bruce C. Bruckmann.... 45 Director
Michael A. Delaney.... 44 Director
Richard C. Gozon...... 60 Director
George H. Strong...... 72 Director
James A. Urry......... 45 Director
Barton J. Winokur..... 58 Director
</TABLE>
The following are brief descriptions of our executive officers, certain key
employees and directors.
R. David Yost has been President and Chief Executive Officer and a director
of the Company since May 1997. Mr. Yost previously served as Executive Vice
President--Operations of the Company since 1995. Prior to that, Mr. Yost
served as Group President--Central Region of the Company since 1989.
Kurt J. Hilzinger was appointed Senior Vice President, Chief Operating
Officer and Chief Financial Officer in January 1999. Prior to that time, he
served as Senior Vice President, Chief Financial Officer since 1997, Vice
President, Chief Financial Officer and Treasurer from 1995 to 1997 and as Vice
President, Finance and Treasurer from 1993 to 1995.
David M. Flowers was appointed Vice President of AmeriSource Health
Corporation and President of American Health Packaging(R), a division of
AmeriSource Health Services Corporation, in January 1999. Prior to that time
he had been Executive Vice President, Sales & Marketing since December 1995.
He held the position of Group President--Eastern Region from 1989 through
December 1995.
John A. Aberant was appointed Vice President, Treasurer of AmeriSource in
August 1997. Previously, he served as Vice President, Assistant Treasurer
since October 1995. From 1989 through 1997, Mr. Aberant held the positions of
Vice President, Insurance and Benefits and Assistant Corporate Controller of
the Company.
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Eileen C. Clark was appointed Vice President, Human Resources and Employment
Counsel and Assistant Secretary of AmeriSource in August 1998. She has also
served as Assistant Secretary of the Company since October 1996. Prior to that
she held the position of Associate Counsel, Employment Practices of the
Company from 1995-1998. Ms. Clark held the positions of Senior Associate from
1994 to 1995 and Junior Associate from 1991 to 1994 at Powell, Trachtman,
Logan, Carrle & Bowman, P.C.
Thomas P. Connolly was appointed Vice President, Sales & Marketing of
AmeriSource in January 1999. Prior to that he held the positions of Regional
Vice President, Central Region of AmeriSource Corporation from June 1998 to
January 1999 and Vice President, General Manager of AmeriSource Corporation's
Toledo division from 1989 to June 1998 of AmeriSource Corporation.
Michael D. DiCandilo was appointed Vice President, Controller of AmeriSource
in November 1995. Previously, he served as Vice President, Finance and
Administration, of the North Eastern Region of AmeriSource since October 1990.
Prior to that he had been a Senior Manager with Ernst & Young.
Terry P. Haas was appointed Vice President, Strategic Integration of
AmeriSource in October 1998. From June to September 1998, he held the position
of Regional Vice President and General Manager, South Central Region of
AmeriSource Corporation. Prior to that he held the positions of Vice
President, General Manager of AmeriSource Corporation's Paducah division from
December 1995 to June 1998, Vice President-Operations from March 1990 to
December 1995.
Bonnie J. Keith was appointed Vice President, Chief Procurement Officer of
AmeriSource in December 1998. From December 1996 until December 1998, she
served as Vice President of PepsiCo, Inc. and as Vice President of Tricon
Global Restaurants Inc., formerly part of PepsiCo. From 1993 until December
1996, she was Vice President of ABB, Inc.
William D. Sprague was appointed Vice President, General Counsel and
Secretary of AmeriSource Health Corporation in November 1998. He previously
held the same positions with Lukens Inc., a steel manufacturer, for more than
five years prior to June 1998.
Denny W. Steele was appointed Vice President, Chief Information Officer of
AmeriSource in October 1997. From 1989 to 1996, he served as Executive Vice
President of Bergen Brunswig Corporation.
Lawrence C. Karlson has served as the Non-executive Chairman of the Board
since May 1997. Mr. Karlson is a private investor and serves as a director of
CDI Corp., Spectra-Physics Lasers, Inc. and Vlasic Foods International, Inc.
Bruce C. Bruckmann has been a director of the Company since 1992. He
previously served as a director of the Company from 1989 to December 1991, and
as a director of AmeriSource Corporation from 1988 to December 1991, prior to
his reelection as a director of the Company in 1992. Mr. Bruckmann is a
Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc. Until January
1995, Mr. Bruckmann was a Managing Director of Citicorp Venture Capital Ltd.
and of Court Square Capital Limited. Mr. Bruckmann serves as a director of
Chromcraft Revington, Inc., Cort Business Services Corporation, Jitney-Jungle
Stores of America, Inc., Mohawk Industries, Inc., Town Sports International,
Inc., Anvil Knitwear, Inc., MEDIQ Incorporated and Penhall International Corp.
Michael A. Delaney has been a director of the Company since 1995. He has
been a Managing Director of Citicorp Venture Capital Ltd. since 1989. Mr.
Delaney is also a director of GVC Holdings, JAC Holdings, Delco Remy
International, Inc., Enterprise Media Corporation, SC Processing, Inc.,
Triumph Group, Inc., Cort Business Services Corporation, Palomar Technologies
Corporation, MSX International, Inc., International Knife & Saw, Inc., CLARK
Material Handling Company, Aetna Industries, Inc., Fabri-Steel Products
Incorporated, Great Lakes Dredge & Dock Corporation and Allied Digital
Technologies Corp.
Richard C. Gozon has been a director of the Company since 1994. He has been
Executive Vice President of Weyerhaeuser Company since June 1994. Mr. Gozon
formerly was President and Chief Operating Officer of Alco Standard
Corporation from 1988 to 1993. He is also a director of UGI Corporation,
Triumph Group, Inc. and Amerigas Partners, L.P.
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<PAGE>
George H. Strong has been a director of the Company since 1994. He is a
private investor and serves as a director of Health South Rehabilitation
Corp., Integrated Health Services, Inc. and Balanced Care Corporation.
James A. Urry has been a director of the Company since 1995. He has been
with Citibank, N.A. since 1981, serving as a Vice President since 1986. He has
been a Vice President of Citicorp Venture Capital Ltd. since 1989. He is also
a director of York International Corporation, International Knife & Saw, Inc.,
Hancor Holdings, CLARK Material Handling Company, Cort Business Services
Corporation, Airxcel, Inc., Palomar Technologies Corporation and Brunner Mond
Limited.
Barton J. Winokur has been a director of the Company since 1990. He is
Chairman of the law firm of Dechert Price & Rhoads and has been a partner of
that firm since 1972. Mr. Winokur serves as a director of CDI Corp. and Davco
Restaurants, Inc.
SELLING STOCKHOLDERS
The following table sets forth certain information known to AmeriSource with
respect to the beneficial ownership of common stock of each of the selling
stockholders before and after the offering covered by this prospectus.
<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED AFTER
TO THIS OFFERING THIS OFFERING
--------------------- SHARES ---------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
399 Venture Partners,
Inc. (1)............... 6,201,073 25.7% 5,480,000 721,073 3.0%
Citigroup Foundation.... 520,000 2.2 520,000 0 0
</TABLE>
- ---------------------
(1) Includes, as of the date of this preliminary prospectus, 2,746,560 shares
of non-voting common stock owned by 399 Venture Partners, Inc. which are
convertible into shares of voting common stock. Prior to the offering, all
of such shares will be converted into the shares of common stock being
registered in this offering and offered under this prospectus.
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
February , 1999, the underwriters named below, who are represented by Salomon
Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities Corporation, J.P.
Morgan Securities Inc., First Union Capital Markets Corp., McDonald
Investments Inc. and Piper Jaffray Inc. have severally agreed to purchase from
the selling stockholders the respective number of shares set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Salomon Smith Barney Inc..............................................
Donaldson, Lufkin & Jenrette Securities Corporation...................
J.P. Morgan Securities Inc............................................
First Union Capital Markets Corp......................................
McDonald Investments Inc..............................................
Piper Jaffray Inc.....................................................
---------
Total............................................................... 6,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares if they purchase any of the shares. The
underwriters initially propose to offer some of the shares directly to the
29
<PAGE>
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the representatives may change the public offering price
and such concessions at any time without notice.
The underwriting fees to be paid to the underwriters by the selling
stockholders in connection with this offering will be $ per share and $ in
total.
AmeriSource and the selling stockholders have agreed to indemnify the
underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, or to contribute to payments that the underwriters
may be required to make in respect of any of those liabilities. AmeriSource,
the executive officers and certain directors and the selling stockholders have
agreed that, for a period of 90 days from the date of this prospectus, they
will not, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation: (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or (2) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any common stock
(regardless of whether any of the transactions described in clause (1) or (2)
is to be settled by the delivery of common stock, or such other securities, in
cash or otherwise). These restrictions do not apply in connection with certain
transactions with affiliates, certain private transactions and the sale or
transfer by directors of up to 156,000 shares of common stock, in the
aggregate. In addition, during such period, AmeriSource has also agreed not to
file any registration statement (other than in connection with employee
benefit plans) with respect to, and its executive officers, certain directors
and the selling stockholders have agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
The common stock is listed on the New York Stock Exchange under the symbol
"AAS."
Other than in the United States, no action has been taken by AmeriSource,
the selling stockholders or the underwriters that would permit a public
offering of the shares of common stock included in this offering in any
jurisdiction where action for that purpose is required. The shares included in
this offering may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of such jurisdiction. Persons who receive
this prospectus are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of this prospectus.
This prospectus is not an offer to sell or a solicitation of an offer to buy
any shares of common stock included in this offering in any jurisdiction where
that would not be permitted or legal.
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover such syndicate
short position or to stabilize the price of the common stock. These activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The selling stockholders, 399 Venture Partners, Inc. and Citigroup
Foundation, which in aggregate beneficially own more than 10% of AmeriSource's
outstanding common stock, may be deemed to be an affiliate of Salomon Smith
Barney Inc., an NASD member firm participating in the offering. Additionally,
the selling stockholders will receive more than 10% of the net proceeds from
the sale of common stock. Accordingly, the offer will be conducted in
accordance with Rule 2720 of the NASD Conduct Rules.
30
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION --
INCORPORATION OF DOCUMENTS BY REFERENCE
AmeriSource files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any document
AmeriSource files at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. Please call the SEC at 800-SEC-0330 for further
information about the public reference room. SEC filings are also available to
the public on the SEC's web site at http://www.sec.gov.
AmeriSource has filed a registration statement on Form S-3 with the SEC to
register the shares offered by this prospectus. This prospectus is part of the
registration statement but, as permitted by SEC rules, this prospectus does
not contain all the information that you can find in the registration
statement or the exhibits to the registration statement.
The SEC allows the Company to "incorporate by reference" the information
that AmeriSource files with the SEC. This means that AmeriSource can disclose
important information to you by referring you to those filed documents. The
information incorporated by reference is considered to be a part of this
prospectus, except if it is superseded by information in this prospectus or by
later information that AmeriSource files with the SEC. Information that is
filed with the SEC after the date of this prospectus will automatically update
and supersede the information contained or incorporated by reference in this
prospectus.
The documents listed below are incorporated by reference in this prospectus.
In addition, any future filings AmeriSource may make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
before the time that all of the shares offered by this prospectus have been
sold or de-registered, are incorporated by reference in this prospectus. The
following documents contain important information about AmeriSource and its
financial condition:
. AmeriSource's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998, filed with the SEC on December 23, 1998 (SEC File
No. 000-20485);
. the description of AmeriSource's common stock contained in the Company's
Registration Statement on Form 8-A, filed May 14, 1996 (SEC File No.
000-20485), which incorporates by reference the section entitled
"Description of Capital Stock" in the Company's Registration Statement
on Form S-2 (SEC File No. 33-57513), filed March 8, 1995, and including
any amendment or report filed for the purpose of updating such
description.
You may request a copy of these filings, excluding all exhibits unless an
exhibit has been specifically incorporated by reference, at no cost, by
writing or telephoning the Company at:
AmeriSource Health Corporation
300 Chester Field Parkway
Malvern, PA 19355
(610) 296-4480
Attention: General Counsel
When you are deciding whether to purchase the shares being offered by this
prospectus, you should rely only on the information incorporated by reference
or provided in this prospectus or any supplement. AmeriSource has not
authorized anyone else to provide you with different information. This
prospectus is not an offer to sell shares of common stock in any state where
such an offer is not permitted. You should not assume that the information in
this prospectus or any supplement is accurate as of any date other than the
date on the front of those documents.
31
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
The statements incorporated by reference or contained in this prospectus
discuss AmeriSource's future expectations, contain projections of its results
of operations or financial condition, and include other "forward-looking"
information within the meaning of Section 27A of the Securities Act of 1933,
as amended. The Company's actual results may differ materially from those
expressed in forward-looking statements made or incorporated by reference in
this prospectus. Forward-looking statements that express AmeriSource's
beliefs, plans, objectives, assumptions or future events or performance may
involve estimates, assumptions, risks and uncertainties. Therefore,
AmeriSource's actual results and performance may differ materially from those
expressed in the forward-looking statements. Forward-looking statements often,
although not always, include words or phrases such as the following:
. ""will likely result"
. ""are expected to"
. ""will continue"
. ""is anticipated"
. ""estimate''
. ""intends''
. ""plans''
. ""projection''
. ""outlook''
You should not unduly rely on forward-looking statements contained or
incorporated by reference in this prospectus. Factors discussed in the
following documents describe various uncertainties, estimates, assumptions and
risks which may cause actual results or outcomes to differ materially from
those expressed in forward-looking statements. You should read and interpret
any forward-looking statements together with these documents.
. AmeriSource's most recent annual report on Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations;"
. AmeriSource's quarterly reports on Form 10-Q;
. The risk factors contained in this prospectus under the caption "Risk
Factors;" and
. AmeriSource's other SEC filings.
Any forward-looking statement speaks only as of the date on which that
statement is made. AmeriSource will not update any forward-looking statement
to reflect events or circumstances that occur after the date on which such
statement is made.
32
<PAGE>
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Dechert Price & Rhoads, Philadelphia, Pennsylvania. Barton J.
Winokur, a partner of Dechert Price & Rhoads, which performs various legal
services for the Company, is a director of the Company and beneficially owns
34,750 shares of its common stock. In connection with this offering, Cahill
Gordon & Reindel (a partnership including a professional corporation), New
York, New York, will pass upon certain legal matters for the underwriters.
EXPERTS
The consolidated financial statements and schedules of AmeriSource Health
Corporation appearing in AmeriSource Health Corporation's Annual Report (Form
10-K) for the year ended September 30, 1998 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and schedules are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
February , 1999
[AMERISOURCE LOGO]
6,000,000 SHARES OF COMMON STOCK
----------------------------------------------
PROSPECTUS
----------------------------------------------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
J.P. MORGAN & CO.
FIRST UNION CAPITAL MARKETS CORP.
MCDONALD INVESTMENTS INC.
PIPER JAFFRAY INC.
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell those securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the
company have not changed since the date hereof.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses that will be
incurred by AmeriSource in connection with the sale and distribution of the
common stock being registered in this registration statement.
<TABLE>
<S> <C>
SEC registration fee............................................. $133,807
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 100,000
Accounting fees and expenses..................................... 75,000
NASD filing fee.................................................. 30,500
Transfer Agent and Registrar fees and expenses................... 15,000
Blue Sky fees.................................................... 5,000
Miscellaneous.................................................... 1,693
--------
Total.......................................................... $511,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to information provided under Item 6 of the Company's
Registration Statement on Form S-8 (SEC File No. 333-45547), filed with the
SEC on February 3, 1998, which information is incorporated herein by
reference.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Underwriting agreement.
4.1* Certificate of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-
K for the year ended September 30, 1995 (SEC File No. 000-20485)).
4.2* Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, Amendment No. 1 (SEC
File No. 33-44244)).
4.3* Form of the Company's Class A Common Stock, $0.01 par value per share
(incorporated by reference to Exhibit 4.10 to the Company's
Registration Statement on Form S-2, Amendment No. 2 (SEC File No. 33-
57513)).
5 Opinion of Dechert Price & Rhoads.
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
24* Power of Attorney
</TABLE>
- --------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Securities
II-1
<PAGE>
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Malvern and
Commonwealth of Pennsylvania on February 4, 1999.
Amerisource Health Corporation
/s/ Kurt J. Hilzinger
By: _________________________________
Kurt J. Hilzinger
Senior Vice President, Chief
Operating Officer and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ R. David Yost President and Chief February 4, 1999
______________________________________ Executive Officer and
R. David Yost Director (principal
executive officer)
* Chairman of the Board
______________________________________
Lawrence C. Karlson
* Director
______________________________________
Bruce C. Bruckmann
Director February 4, 1999
______________________________________
Michael A. Delaney
* Director
______________________________________
Richard C. Gozon
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
* Director
______________________________________
George Strong
* Director
______________________________________
James A. Urry
Director February 4, 1999
______________________________________
Barton J. Winokur
/s/ Kurt J. Hilzinger Senior Vice President, February 4, 1999
______________________________________ Chief Operating Officer
Kurt J. Hilzinger and Chief Financial
Officer (principal
financial officer)
/s/ Michael D. DiCandilo Vice President and February 4, 1999
______________________________________ Controller (principal
Michael D. DiCandilo accounting officer)
*By: /s/ William D. Sprague February 4, 1999
______________________________________
William D. Sprague
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT 1.1
6,000,000 Shares
AMERISOURCE HEALTH CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
February 4, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
J.P. MORGAN SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.
MCDONALD INVESTMENTS INC.
PIPER JAFFRAY INC.
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Certain stockholders of AmeriSource Health Corporation, a Delaware
corporation (the "COMPANY"), named in Schedule II hereto (the "SELLING
STOCKHOLDERS") severally propose to sell to you hereto (the "UNDERWRITERS"), an
aggregate of 6,000,000 shares of the Class A Common Stock, par value $.01 per
share of the Company (the "SHARES"), each Selling Stockholder selling the amount
set forth opposite such Selling Stockholder's name in Schedule II hereto. The
shares of common stock of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK".
SECTION 1. Registration Statement and Prospectus. The Company has
-------------------------------------
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-3, including a
prospectus, relating to the Shares. The reg-
<PAGE>
-2-
istration statement, as amended at the time it became effective, including the
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to
as the "REGISTRATION STATEMENT"; and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred to as the "PROSPECTUS"
(including, in the case of all references to the Registration Statement or the
Prospectus, documents incorporated therein by reference).
The terms "SUPPLEMENT" and "AMENDMENT" or "AMEND" as used in this
Agreement with respect to the Registration Statement or the Prospectus shall
include all documents subsequently filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "EXCHANGE ACT") that
are deemed to be incorporated by reference in the Prospectus.
SECTION 2. Agreements to Sell and Purchase and Loc-Up Agreements. On
-----------------------------------------------------
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, each Selling Stockholder agrees, severally
and not jointly, to sell the number of Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and each Underwriter agrees, severally
and not jointly, to purchase from each Selling Stockholder at a price per Share
of $______ (the "PURCHASE PRICE") the number of Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Shares to be sold by such Selling
Stockholder as the number of Shares set forth opposite the name of such
Underwriter in Schedule I hereto bears to the total number of Shares.
The Company and each Selling Stockholder hereby agrees not to (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise), except to the
Underwriters pursuant to this Agreement, for a period of 90 days after the date
of the Prospectus
<PAGE>
-3-
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Notwithstanding the foregoing, during such period (A) the Company
(i) may grant stock options pursuant to the Company's existing stock option
plans and (ii) may issue shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof and
(B) each Selling Stockholder may engage in any of such transactions pursuant to
transfers to affiliated entities. The Company also agrees not to file any
registration statement with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 90 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, except for
registration statements on Form S-8 or S-3 relating to securities issued in
connection with employee benefit plans. In addition, each Selling Stockholder
agrees that, for a period of 90 days after the date of the Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, it will not make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock. Except as disclosed in the
Prospectus, the Company shall, prior to or concurrently with the execution of
this Agreement, deliver an agreement executed by each of the directors and
officers of the Company who is not a Selling Stockholder to the effect that such
person will not, during the period commencing on the date such person signs such
agreement and ending 90 days after the date of the Prospectus, without the prior
written consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in any
of the transactions described in the first sentence of this paragraph or (B)
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock; provided, however, that this shall not apply to
-------- -------
sales in private transactions (i.e., transactions not involving a public sale,
---
public distribution or other public disposition of shares of capital stock of
the Company, nor any sale pursuant to Rule 144A promulgated under the Act).
SECTION 3. Terms of Public Offering. The Company and Selling
------------------------
Stockholders are advised by you that the Underwriters propose (i) to make a
public offering of their respective portions of the Shares as soon after the
execution and delivery of this Agreement as in your judgment is advisable and
(ii) initially to offer the Shares upon the terms set forth in the Prospectus.
<PAGE>
-4-
SECTION 4. Delivery and Payment. The Shares shall be represented by
--------------------
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date. The
Shares shall be delivered by or on behalf of the Selling Stockholders, with any
transfer taxes thereon duly paid by the respective Selling Stockholders, to
Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of
The Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against payment to the Selling Stockholders of the Purchase Price
therefore by wire transfer of Federal or other funds immediately available in
New York City. The certificates representing the Shares shall be made available
for inspection not later than 9:30 A.M., New York City time, on the business day
prior to the Closing Date, at the office of DTC or its designated custodian (the
"DESIGNATED OFFICE"). The time and date of delivery and payment for the Shares
shall be 9:00 A.M., New York City time, on February __, 1999 or such other time
on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery and payment for the Firm Shares are hereinafter referred to as the
"CLOSING DATE".
The documents to be delivered on the Closing Date on behalf of the
parties hereto pursuant to Section 9 of this Agreement shall be delivered at the
offices of Cahill Gordon & Reindel, 80 Pine Street, New York, NY 10005 and the
Shares shall be delivered at the Designated Office, all on the Closing Date.
SECTION 5. Agreements of the Company. The Company agrees with you:
-------------------------
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus
or for additional information, (ii) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Shares for offering or sale in
any jurisdiction, or the initiation of any proceeding for such purposes,
(iii) when any amendment to the Registration Statement becomes effective,
(iv) if the Company files a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration
<PAGE>
-5-
Statement has become effective and (v) of the happening of any event during
the period referred to in Section 5(d) below which makes any statement of a
material fact made in the Registration Statement or the Prospectus untrue
or which requires any additions to or changes in the Registration Statement
or the Prospectus in order to make the statements therein not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you 3 signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including
all exhibits and documents incorporated therein by reference, and to
furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits but including documents incorporated
therein by reference, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall
be reasonably satisfactory to you, and to file the Prospectus in such form
with the Commission within the applicable period specified in Rule 424(b)
under the Act; during the period specified in Section 5(d) below, not to
file any further amendment to the Registration Statement and not to make
any amendment or supplement to the Prospectus of which you shall not
previously have been advised or to which you shall reasonably object after
being so advised; and, during such period, to prepare and file with the
Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or amendment or supplement to the Prospectus which
may be necessary or advisable in connection with the distribution of the
Shares by you, and to use its reasonable efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for
such period as in the opinion of counsel for the Underwriters a prospectus
is required by law to be delivered in connection with sales by an
Underwriter or a dealer, to furnish in New York City to each Underwriter
and any dealer as many copies of the Prospectus (and of any amendment or
supplement to the Pro-
<PAGE>
-6-
spectus) and any documents incorporated therein by reference as such
Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the judgment of the
Company or in the opinion of its counsel or in the opinion of counsel for
the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements of material facts therein not
misleading, or if, in the judgment of the Company or in the opinion of its
counsel or in the opinion of counsel for the Underwriters, it is necessary
to amend or supplement the Prospectus to comply with applicable law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements of material facts in
the Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may reasonably request, to continue such registration
or qualification in effect so long as required for distribution of the
Shares and to file such consents to service of process or other documents
as may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required in connection
therewith to qualify as a foreign corporation in any jurisdiction in which
it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters
and transactions relating to the Prospectus, the Registration Statement,
any preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering the twelve-month
period ending March 31, 2000 that shall satisfy the provisions of Sec-
<PAGE>
-7-
tion 11(a) of the Act, and to advise you in writing when such statement has
been so made available.
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as reasonably practicable after they
become available copies of all reports or other communications furnished to
the record holders of Common Stock or furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may
reasonably request.
(i) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of the Company's or the Selling
Stockholders' obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel, the Company's
accountants and any Selling Stockholder's counsel (in addition to the
Company's counsel) in connection with the registration and delivery of the
Shares under the Act and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Registration
Statement (including financial statements and exhibits), any preliminary
prospectus, the Prospectus and all amendments and supplements to any of the
foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs
and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii)
all costs of word processing or producing this Agreement and any other
agreements or documents in connection with the offering, purchase, sale or
delivery of the Shares, (iv) all reasonable expenses in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing
or producing any Blue Sky Survey in connection therewith (including the
filing fees and fees and disbursements of counsel for the Underwriters in
connection with such registration or qualification and memoranda relating
thereto), (v) the filing fees and disbursements of counsel for the
Underwriters in connection with the review and clearance of the offering of
the Shares by the National Association of Securities Dealers, Inc., (vi)
all costs and expenses incident to the listing of the Shares on the NYSE,
(vii) the
<PAGE>
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cost of printing certificates representing the Shares, (viii) the costs and
charges of any transfer agent, registrar and/or depositary, and (ix) all
other costs and expenses incident to the performance of the obligations of
the Company and the Selling Stockholders hereunder for which provision is
not otherwise made in this Section. The provisions of this Section shall
not supersede or otherwise affect any agreement that the Company and the
Selling Stockholders may otherwise have for allocation of such expenses
among themselves. Except as expressly provided in this paragraph (i), the
Underwriters agree to pay all of their costs and expenses, including fees
and disbursements of their counsel.
(j) During the period of three years after the date of this
Agreement, to mail and make generally available as soon as reasonably
practicable after the end of each fiscal year to the record holders of its
Common Stock a financial report of the Company and its subsidiaries on a
consolidated basis (and a similar financial report of all unconsolidated
subsidiaries, if any), all such financial reports to include a consolidated
balance sheet, a consolidated statement of operations, a consolidated
statement of cash flows and a consolidated statement of shareholders'
equity as of the end of and for such fiscal year, together with comparable
information as of the end of and for the preceding year, certified by
independent public accountants, and to mail and make generally available as
soon as reasonably practicable after the end of each quarterly period
(except for the last quarterly period of each fiscal year) to such holders,
a consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with
<PAGE>
-9-
the Commission registering the Shares not so covered in compliance with
Rule 462(b) by 11:00 A.M., New York City time, on the first business day
following the date of this Agreement and to pay to the Commission the
filing fee for such Rule 462(b) Registration Statement at the time of the
filing thereof or to give irrevocable instructions for the payment of such
fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement
filed after the effectiveness of this Agreement will become effective no
later than 10:00 P.M., New York City time, on the date of this Agreement;
and no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are pending
before or threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or
will comply when so filed in all material respects with the Exchange Act;
(ii) the Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this
Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iii) the Registration
Statement (other than any Rule 462(b) Registration Statement to be filed by
the Company after the effectiveness of this Agreement) and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Act, (iv) if the Company is required to file a
Rule 462(b) Registration Statement after the effectiveness of this
Agreement, such Rule 462(b) Registration Statement and any amendments
thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and
(v) the Prospectus does not contain and,
<PAGE>
-10-
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus (or any
supplements or amendments to them) based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
you expressly for use therein.
(c) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by or on behalf of such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties, and each is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
granted or issued by the Company or any of its subsidiaries relating to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of the Company or any of its subsidiaries, except as
otherwise disclosed in the Registration State-
<PAGE>
-11-
ment and except for options which may be granted pursuant to the Company's
stock option plans.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights; and the Shares to be sold
by the Selling Stockholders have been duly authorized and, when delivered
to the Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights.
(g) Except as described in the Prospectus, all of the outstanding
shares of capital stock of each of the Company's subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws or in default in the performance of
any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound,
except for any such default that would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securi-
<PAGE>
-12-
ties or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws of the Company or any of its subsidiaries or
any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property
is bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body
or agency having jurisdiction over the Company, any of its subsidiaries or
their respective property or (iv) result in the suspension, termination or
revocation of any Authorization (as defined below) of the Company or any of
its subsidiaries or any other impairment of the rights of the holder of any
such Authorization which, in the case of any conflict, breach, default,
violation, suspension, termination or revocation described in clauses (ii)
through (iv) of this paragraph (j), would result in a material adverse
effect on the Company and its subsidiaries taken as a whole.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described; nor are there any statutes,
regulations, contracts or other documents that are required to be described
in the Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not so described or filed as
required.
(l) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries has violated any foreign, federal, state or local
law or regulation relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or any provisions of
the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate,
would not have a material adverse effect on the business, prospects,
financial condition or results of
<PAGE>
-13-
operation of the Company and its subsidiaries, taken as a whole.
(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "AUTHORIZATION") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct
its business, except where the failure to have any such Authorization or to
make any such filing or notice would not, singly or in the aggregate, have
a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and its subsidiaries, taken as a
whole. Each such Authorization is valid and in full force and effect and
each of the Company and its subsidiaries is in compliance with all the
material terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect
thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows
or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after
notice or lapse of time or both, would result in any other impairment of
the rights of the holder of any such Authorization; and such Authorizations
contain no restrictions that are burdensome to the Company or any of its
subsidiaries; except as disclosed in the Prospectus or where such failure
to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would
not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(n) Except as disclosed in the Prospectus, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any
potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect
<PAGE>
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on the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered
by the Company.
(p) Ernst & Young are independent public accountants with respect to
the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly, in all
material respects, the consolidated financial position of the Company and
its subsidiaries at September 30, 1998 and 1997 and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998 in conformity with generally
accepted accounting principles; 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; the supporting schedules, if any, included in the Registration
Statement present fairly in accordance with generally accepted accounting
principles the information required to be stated therein; and the other
financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared
on a basis consistent with such financial statements and the books and
records of the Company.
(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement.
<PAGE>
-15-
(t) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiaries, taken as a whole, (ii)
there has not been any material adverse change or any development involving
a prospective material adverse change in the capital stock or in the long-
term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
SECTION 7. Representations and Warranties of the Selling Stockholders.
----------------------------------------------------------
Each Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on
the Closing Date will have, good and clear title to such Shares, free of
all restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever.
(b) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder in the manner
provided herein and therein.
(c) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder.
(d) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to
such Shares will pass to the Underwriters, free of all restrictions on
transfer,
<PAGE>
-16-
liens, encumbrances, security interests, equities and claims whatsoever,
except any restrictions, liens, encumbrances, security interests, equities
and claims arising out of any act of the Underwriters.
(e) The execution, delivery and performance of this Agreement by the
Selling Stockholders, the compliance by such Selling Stockholders with all
the provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the organizational documents of such Selling Stockholder or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
to which such Selling Stockholder is a party or by which such Selling
Stockholder or any property of such Selling Stockholder is bound or (iii)
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder, except such conflict, breach, default or violation
described in clauses (ii) through (iii) of this paragraph (e), which would
not result in a material adverse effect on such Selling Stockholder or the
Offering.
(f) The information in the Registration Statement under the caption
"Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(g) At any time during the period described in Section 5(d), if there
is any change in the information referred to in Section 7(f), such Selling
Stockholder will notify you of such change as soon as it is reasonably
practicable.
(h) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a rep-
<PAGE>
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resentation and warranty by such Selling Stockholder to the Underwriters as
to the matters covered thereby.
SECTION 8. Indemnification. (a) The Company agrees to indemnify and
---------------
hold harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any such
matter) caused by any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished in writing to the Company by such Underwriter through you
expressly for use therein; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter who failed to deliver a Prospectus, as then amended
or supplemented (so long as the Prospectus and any amendment or supplement
thereto was provided by the Company to the several Underwriters in the requisite
quantity and on a timely basis to permit proper delivery on or prior to the
Closing Date) to the person asserting any losses, claims, damages, liabilities
or judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in such preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented, and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person, unless such failure is the result of
noncompliance by the Company with Section 5(d) hereof.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, to the same extent and
<PAGE>
-18-
subject to the same exceptions and limitations as the foregoing indemnity from
the Company to such Underwriter, its directors, its officers and each person, if
any, who control such Underwriter, but only with reference to information
relating to such Selling Stockholder furnished in writing to the Company
expressly for use in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus. Notwithstanding the foregoing, the aggregate liability of any
Selling Stockholder pursuant to this Section 8(b) shall be limited to an amount
equal to the total proceeds (before deducting underwriting discounts and
commissions and expenses) received by such Selling Stockholder from the
Underwriters for the sale of the Shares sold by such Selling Stockholder
hereunder.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by or on behalf of such Underwriter through you expressly
for use in the Registration Statement (or any amendment thereto), the Prospectus
(or any amendment or supplement thereto) or any preliminary prospectus.
(d) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a), 8(b) or 8(c)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a), 8(b) and 8(c), the Underwriters shall not
be required to assume the defense of such action pursuant to this Section 8(d),
but may employ separate counsel and participate in the defense thereof, but the
fees and expenses of such counsel, except as provided below, shall be at the
expense of such Underwriter). Any indemnified party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and
<PAGE>
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expenses of such counsel shall be at the expense of the indemnified party unless
(i) the employment of such counsel shall have been specifically authorized in
writing by the indemnifying party, (ii) the indemnifying party shall have failed
to assume the defense of such action or employ counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for (i) the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Underwriters, their officers and directors and all persons, if
any, who control any Underwriter within the meaning of either Section 15 of the
Act or Section 20 of the Exchange Act, (ii) the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration Statement and all
persons, if any, who control the Company within the meaning of either such
Section and (iii) the fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for all Selling Stockholders and
all persons, if any, who control any Selling Stockholder within the meaning of
either such Section, and all such fees and expenses shall be reimbursed as they
are incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Donaldson, Lufkin & Jenrette Securities
Corporation. In the case of any such separate firm for the Company and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholders and such control persons of any Selling Stockholders,
such firm shall be designated in writing by 399 Venture Partners, Inc. The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action effected with its written consent or (ii)
effected without its written consent if the settlement is entered into more than
forty business days after the indemnifying party shall have re-
<PAGE>
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ceived a request from the indemnified party for reimbursement for the fees and
expenses of counsel (in any case where such fees and expenses are at the expense
of the indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement request.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(e) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 8(e)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
8(e)(i) above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand
shall be deemed to be in the same proportion as the total net proceeds from the
offering (after deducting underwriting discounts and commissions, but before
deducting expenses) received by the Selling Stockholders, and the total
underwriting discounts and commissions received by the Underwriters, bear to the
total price to the public of the Shares, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand
shall be
<PAGE>
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determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8(e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Selling Stockholders' and the
Underwriters' obligations to contribute pursuant to this Section 8(e) are
several in proportion to the respective number of Shares purchased or sold by
each of the Selling Stockholders or Underwriters hereunder, and not joint.
(f) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(g) Each Selling Stockholder hereby accepts the jurisdiction of any
state or federal court in the state of New York in such action, and waives, to
the fullest extent permitted by applicable law, any defense based upon lack of
personal
<PAGE>
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jurisdiction or venue. A copy of any such process shall be sent or given to such
Selling Stockholder, at the address for notices specified in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
---------------------------------------
obligations of the Underwriters to purchase the Shares under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the
same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York
City time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Kurt J. Hilzinger and Michael D. DiCandilo, in
their capacities as the Senior Vice President, Chief Operating Officer and
Chief Financial Officer and Vice President and Controller of the Company,
confirming the matters set forth in Sections 6(t), 9(a) and 9(b) and that
the Company has complied in all material respects with all of the
agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by the Company on or prior to the
Closing Date.
(d) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the
Company and its subsidiaries, taken as a whole, (ii) there shall not have
been any change or any development involving a prospective change in the
capital stock or in the long-term debt of the Company or any of its
subsidiaries and (iii) neither the Com-
<PAGE>
-23-
pany nor any of its subsidiaries shall have incurred any liability or
obligation, direct or contingent, the effect of which, in any such case
described in clause 9(d)(i), 9(d)(ii) or 9(d)(iii), in your judgment, is
material and adverse to the Company and its Subsidiaries taken as a whole
and, in your judgment, makes it impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling
Stockholder contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the
Closing Date and you shall have received on the Closing Date a certificate
dated the Closing Date from each Selling Stockholder to such effect and to
the effect that such Selling Stockholder has complied in all material
respects with all of the agreements and satisfied all of the conditions
herein contained and required to be complied with or satisfied by such
Selling Stockholder on or prior to the Closing Date.
(f) Cahill Gordon & Reindel, counsel for the Underwriters, shall have
furnished to you their written opinion, dated the Closing Date, with
respect to the matters covered in paragraphs (i), the last clause of (ii)
relating to the description of the Shares, (iii) and the first clause of
(vi) relating to compliance as to form of subsection (g) below as well as
such other related matters as you may reasonably request, and such counsel
shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(g) Dechert Price & Rhoads, counsel for the Company, shall have
furnished to you their written opinion, dated the Closing Date, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware,
with corporate power and corporate authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capital stock as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered on the Closing Date
by the Selling Stockholders when duly delivered and paid for
<PAGE>
-24-
as contemplated by the Underwriting Agreement) have been duly and
validly authorized and issued and are fully paid and non-assessable;
and the Shares conform in all material respects to the description of
the Stock contained in the Prospectus;
(iii) This Agreement has been duly authorized, executed and
delivered by the Company;
(iv) The Company is not an "investment company" or an entity
"controlled by an "investment company", as such terms are defined in
the Investment Company Act;
(v) The documents incorporated by reference in the
Prospectus and any further amendment or supplement thereto made by the
Company prior to the Closing Date (other than any exhibits to such
documents, the financial statements including the notes thereto and
related schedules and other financial data contained or incorporated
by reference therein, as to which such counsel need express no
opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Exchange Act, as applicable, and
the rules and regulations of the Commission thereunder; and a
statement to the effect that although they are not passing upon and do
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in such documents and have not
made any independent check or verification thereof, on the basis of
the foregoing (relying as to materiality, to the extent we deem
appropriate, upon the statements of officers and other representatives
of the Company), no facts have come to their attention that have
caused them to believe that any of such documents (other than the
financial statements including the notes thereto and related schedules
and other financial data contained or incorporated by reference
therein, as to which such counsel need express no opinion), when such
documents became effective or were so filed, as the case may be,
contained, in the case of a registration statement which became
effective under the Act, an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or, contained
in the case of other documents which
<PAGE>
-25-
were filed under the Exchange Act with the Commission, an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such documents were so
filed, not misleading; and
(vi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to the Closing Date (other than any exhibits to such documents, any
documents incorporated by reference in the Prospectus or any further
amendment or supplement thereto made by the Company prior to the
Closing Date and the financial statements including the notes thereto
and related schedules and the other financial data contained or
incorporated by reference therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder;
a statement to the effect that, although they are not passing upon and
do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus (except as set forth in the last clause of (ii) above),
and have not made any independent check or verification thereof, on
the basis of the foregoing (relying as to materiality, to the extent
we deem appropriate, upon the statements of officers and other
representatives of the Company), no facts have come to their attention
that have caused them to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to the Closing Date (other than the financial statements
including the notes thereto and related schedules and the other
financial data contained or incorporated by reference therein, as to
which such counsel need ex-
<PAGE>
-26-
press no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as of
its date, the Prospectus and any further amendment or supplement
thereto made by the Company prior to the Closing Date (other than the
financial statements including the notes thereto and related schedules
and other financial data contained or incorporated by reference
therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as
of the Closing Date, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Closing Date (other than the financial statements
including the notes thereto and related schedules and the other
financial data contained or incorporated by reference therein, as to
which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may state that their opinion
is limited to the laws of the United States of America, the State of New
York and the General Corporation Law of the State of Delaware, and that
such counsel expresses no opinion with respect to the effect of any laws or
regulations relating to the Drug Enforcement Agency, the Food and Drug
Administration, state boards of pharmacy and departments of health, the
Pharmaceutical Drug Marketing Act, the Department of Transportation or
government procurement laws and regulations. In rendering its statements
included in (vi) above, such counsel may state that they have participated
in conferences with officers and other representatives of the Company,
representatives of the independent public accountants of the Company and
representatives of the Underwriters, at which the contents of the
Registration Statement and the Prospectus and related matters were
discussed.
(h) William D. Sprague, Esq., Vice President, General Counsel and
Secretary for the Company, shall have furnished to you his written opinion,
dated the Closing Date in form and substance satisfactory to you, to the
effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in
<PAGE>
-27-
any such jurisdiction (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(ii) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and
(except as set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying upon
such opinions and certificates);
(iii) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is the subject which could reasonably be expected to be
determined adversely to the Company or any of its subsidiaries and
would individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(iv) The issue and sale of the Shares being delivered at the
Closing Date to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach or violation
<PAGE>
-28-
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the Company or
any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties except, in each case (other
than with respect to such Certificate of Incorporation or By-laws),
for such conflicts, violations, breaches or defaults which would not
result in a material adverse change in the business, prospects,
financial conditions or results of operations of the Company and its
subsidiaries taken as a whole;
(v) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or
Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters or under
the rules of the National Association of Securities Dealers, Inc.;
(vi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties may be
bound which breach or default (other than with respect to such
Certificate of Incorporation or By-laws) would have a material adverse
effect on the Company and its subsidiaries taken as a whole;
<PAGE>
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(vii) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by the
Company prior to the Closing Date (other than any exhibits to such
documents, the financial statements including the notes thereto and
related schedules and other financial data contained or incorporated
by reference therein, as to which such counsel need express no
opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder; although he does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in such
documents, no facts have come to his attention that have caused him to
believe that any of such documents, when such documents became
effective or were so filed, as the case may be, contained, in the case
of a registration statement which became effective under the Act, an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or, in the case of other documents which were
filed under the Exchange Act with the Commission, an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such documents were so
filed, not misleading; and
(viii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to the Closing Date (other than any exhibits to such documents, any
documents incorporated by reference in the Prospectus or any further
amendment or supplement thereto made by the Company prior to the
Closing Date and the financial statements including the notes thereto
and related schedules and the other financial data contained or
incorporated by reference therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder;
although he does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or
<PAGE>
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the Prospectus, no facts have come to his attention that have caused
him to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to the Closing Date (other than the financial statements including the
notes thereto and related schedules and the other financial data
contained or incorporated by reference therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to the
Closing Date (other than the financial statements including the notes
thereto and related schedules and the other financial data contained
or incorporated by reference therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact
or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading or that, as of the Closing Date, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to the Closing Date
(other than the financial statements including the notes thereto and
related schedules and the other financial data contained or
incorporated by reference therein, as to which such counsel need
express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and, to the best of his knowledge, there is not any
amendment to the Registration Statement required to be filed as an
exhibit to the Registration Statement or required to be incorporated
by reference into the Prospectus or required to be described in the
Registration Statement or the Prospectus which are not filed or
incorporated by reference or described as required.
(i) Counsel for each of the Selling Stockholders, Karen Kirchen for
399 Venture Partners, Inc. and Stephen E. Dietz for Citigroup Foundation,
each shall have furnished to you his or her written opinion with respect to
each of the Selling Stockholders for whom he or she is
<PAGE>
-31-
acting as counsel, dated the Closing Date, in form and substance
satisfactory to you, to the effect that:
(i) This Agreement has been duly executed and delivered by or
on behalf of such Selling Stockholder; and the sale of the Shares to
be sold by such Selling Stockholder hereunder and thereunder and the
compliance by such Selling Stockholder with all of the provisions of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or violation
of any terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel after due inquiry to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound, or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of
such Selling Stockholder if such Selling Stockholder is a corporation
or any statute, order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder (where
the consequences of such conflict, breach, violation or default would
affect the ability of such Selling Stockholder to sell its Shares to
the Underwriters pursuant to this Agreement or materially affect the
ability of such Selling Stockholder to perform its obligations under
this Agreement);
(ii) No consent, approval, authorization or order of any court
or the State of Delaware (as it relates to the Delaware General
Corporate Law, the State of New York or any federal governmental body
or agency) is required for the consummation of the transactions
contemplated by this Agreement in connection with the Shares to be
sold by such Selling Stockholder hereunder or thereunder, except such
consents, approvals, authorization or orders which have been duly
obtained and are in full force and effect, such as have been obtained
under the Act and such as may be required by the National Association
of Securities Dealers, Inc., under state securities or Blue Sky laws
in connection with the purchase and distribution of such Shares by the
Underwriters;
<PAGE>
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(iii) Good and valid title to such Shares, free and clear of
all liens, encumbrances, equities or claims, in each case created by
the Selling Stockholders, has been transferred to each of the several
Underwriters who have purchased such Shares in good faith and without
notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction outside the United States and in
rendering the opinion in subparagraph (iii) such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on the Shares
sold by such Selling Stockholder, provided that such counsel shall state
that they believe that both you and they are justified in relying upon such
certificate.
The opinions described above shall be rendered to you at the request
of the Company and the Selling Stockholders and shall so state therein.
In giving such opinions, Dechert Price & Rhoads and William D. Sprague
may state that their opinion and belief are based upon their participation
in the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and documents incorporated therein by
reference and review and discussion of the contents thereof, but is without
independent check or verification except as specified. In giving such
opinions, Cahill Gordon & Reindel may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto (other
than the documents incorporated therein by reference) and review and
discussion of the contents thereof (including the documents incorporated
therein by reference), but are without independent check or verification
except as specified.
(j) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Ernst & Young,
independent public accountants, containing the information and statements
of the type ordinarily included in accountants' "comfort letters" to
Underwriters with respect to
<PAGE>
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the financial statements and certain financial information contained in or
incorporated by reference into the Registration Statement and the
Prospectus.
(k) The Company shall have delivered to you the agreements specified
in Section 2 hereof which agreements shall be in full force and effect on
the Closing Date.
(l) The Company and the Selling Stockholders shall not have failed on
or prior to the Closing Date to perform or comply in any material respect
with any of the agreements herein contained and required to be performed or
complied with by the Company or the Selling Stockholders, as the case may
be, on or prior to the Closing Date.
(m) You shall have received on the Closing Date, a certificate of
each Selling Stockholder who is not a U.S. Person (as defined under
applicable U.S. federal tax legislation) to the effect that such Selling
Stockholder is not a U.S. Person, which certificate may be in the form of a
properly completed and executed United States Treasury Department Form W-8
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
SECTION 10. Effectiveness of Agreement and Termination. This
------------------------------------------
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by written notice to the Company and the Selling
Stockholders if any of the following has occurred: (i) any outbreak or
escalation of hostilities or other national or international calamity or crisis
or change in economic conditions or in the financial markets of the United
States or elsewhere that, in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus, (ii) the suspension or material
limitation of trading in securities or other instruments on the New York Stock
Exchange, the American Stock Exchange, the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq
National Market or limitation on prices for securities or other instruments on
any such exchange or the Nasdaq National Market, (iii) the suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute,
<PAGE>
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regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date any one or more of the Underwriters shall fail
or refuse to purchase the Shares which it has or they have agreed to purchase
hereunder on such date and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Shares to be purchased on such date by all
Underwriters, each non-defaulting Underwriter shall be obligated severally, in
the proportion which the number of Shares set forth opposite its name in
Schedule I bears to the total number of Shares which all the non-defaulting
Underwriters have agreed to purchase, or in such other proportion as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date any Underwriter or
Underwriters shall fail or refuse to purchase Shares and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased by all Underwriters and arrangements
satisfactory to you, the Company and the Selling Stockholders for purchase of
such Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case which does not result in
termination of this Agreement, either you, the Company or the Selling
Stockholders shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
<PAGE>
-35-
SECTION 11. Agreements of the Selling Stockholders. Each Selling
--------------------------------------
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold
by such Selling Stockholder pursuant to this Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any provision
-------------
of this Agreement shall be addressed as follows: (i) if to the Company, to
AmeriSource Health Corporation, 300 Chester Field Parkway, Malvern, Pennsylvania
19355, Attention: General Counsel, (ii) if to the Selling Stockholders, to
[NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS OF ATTORNEY-IN-FACT] and (iii) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Selling Stockholders agree, severally but
not jointly, to reimburse the several Underwriters for all out-of-pocket
expenses (including the fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which
<PAGE>
-36-
it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also agree,
jointly and severally, to reimburse the several Underwriters, their directors
and officers and any persons controlling any of the Underwriters for any and all
fees and expenses (including, without limitation, the fees disbursements of
counsel) incurred by them in connection with enforcing their rights hereunder
(including, without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York without regard to principles of conflicts of law
hereof.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
<PAGE>
S-1
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
AMERISOURCE HEALTH CORPORATION
By: _________________________________________
Title:
399 VENTURE PARTNERS, INC.
By: _________________________________________
Title:
CITIGROUP FOUNDATION
By: _________________________________________
Title:
<PAGE>
S-2
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
J.P. MORGAN SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.
MCDONALD INVESTMENTS INC.
PIPER JAFFRAY INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _____________________________
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
- ------------ ---------------------
Donaldson, Lufkin & Jenrette Securities
Corporation
Salomon Smith Barney, Inc.
J.P. Morgan Securities Inc.
First Union Capital Markets Corp.
McDonald Investments Inc.
Piper Jaffray Inc.
---------------------
Total 6,000,000
<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
Number of Firm
Shares Being Sold
-----------------
399 Venture Partners, Inc. 5,480,000
Citigroup Foundation 520,000
-----------------
Total 6,000,000
<PAGE>
EXHIBIT 5
DECHERT PRICE & RHOADS
4000 BELL ATLANTIC TOWER
1717 ARCH STREET
PHILADELPHIA, PA 19103-2793
February 4, 1999
AmeriSource Health Corporation
300 Chester Field Parkway
Malvern, Pennsylvania 19355
Re: 6,000,000 Shares of common stock, as described in the
Registration Statement on Form S-3 referred to below
-----------------------------------------------------
Gentlemen and Ladies:
We have acted as special counsel to AmeriSource Health Corporation, a
Delaware corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended, of 6,000,000 shares (the "Shares") of
the Company's Class A Common Stock, par value $0.01 per share, pursuant to a
Registration Statement on Form S-3 (the "Registration Statement") to be filed
today with the Securities and Exchange Commission.
We have participated in the preparation of the Registration Statement
and examined such corporate records and documents and matters of laws as we have
considered appropriate to enable us to give this opinion.
Based upon the foregoing, it is our opinion that the Shares have been
duly authorized and validly issued by the Company, and are fully paid and
nonassessable.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus portion of the Registration Statement, and to the
filing of this opinion letter as Exhibit 5 to the Registration Statement.
Yours very truly,
/s/ DECHERT PRICE & RHOADS
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3, No. 333-71205) and related
Prospectus of AmeriSource Health Corporation for the registration of 6,000,000
shares of its common stock and to the incorporation by reference therein of our
report dated November 3, 1998 (except for Note 13, as to which the date is
December 8, 1998), with respect to the consolidated financial statements and
schedules of AmeriSource Health Corporation included in its Annual Report (Form
10-K) for the year ended September 30, 1998, filed with the Securities and
Exchange Commission.
Philadelphia, Pennsylvania
February 4, 1999
