-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, t39XzDGQYZN611hE5DCRc2Tll1yqlR5HTBoJx1AkojQg0WlRgVkvBGsDaq62hCCY H+AxerJkXw0J34kD7zLvxw== 0000950109-94-002378.txt : 19941227 0000950109-94-002378.hdr.sgml : 19941227 ACCESSION NUMBER: 0000950109-94-002378 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941222 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCO HEALTH SERVICES CORP CENTRAL INDEX KEY: 0000731269 STANDARD INDUSTRIAL CLASSIFICATION: 5122 IRS NUMBER: 232353106 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13813 FILM NUMBER: 94565921 BUSINESS ADDRESS: STREET 1: P O BOX 959 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 2152964480 MAIL ADDRESS: STREET 1: P.O. BOX 959 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERISOURCE DISTRIBUTION CORP CENTRAL INDEX KEY: 0000855042 STANDARD INDUSTRIAL CLASSIFICATION: 5122 IRS NUMBER: 232546940 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-27835-01 FILM NUMBER: 94565922 BUSINESS ADDRESS: STREET 1: PO BOX 959 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 2152964480 MAIL ADDRESS: STREET 1: P.O. BOX 959 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: ALCO HEALTH DISTRIBUTION CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AHSC HOLDINGS CORP DATE OF NAME CHANGE: 19920325 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-K ------------ (MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) [X] OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO
COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO. ----------- ------------------------------------ ------------------ 0-13813 AmeriSource Corporation 23-2353106 (a Delaware Corporation) P.O. Box 959, Valley Forge, Pennsylvania 19482 (610) 296-4480 33-27835-01 AmeriSource Distribution Corporation 23-2546940 (a Delaware Corporation) P.O. Box 959, Valley Forge, Pennsylvania 19482 (610) 296-4480
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: AMERISOURCE CORPORATION: NONE AMERISOURCE DISTRIBUTION CORPORATION: NONE AMERISOURCE CORPORATION: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: AMERISOURCE DISTRIBUTION CORPORATION: NONE Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Non-affiliates of AmeriSource Distribution Corporation, as of December 1, 1994, held 7,000 shares of voting stock. The original purchase price was $1.00 per share, after giving effect to a stock split, on September 14, 1989. There is no established public trading market for the voting stock of AmeriSource Distribution Corporation. There is no voting stock of AmeriSource Corporation held by non-affiliates of AmeriSource Corporation. The number of shares of common stock of AmeriSource Corporation outstanding as of December 1, 1994 was 1,000. The number of shares of common stock of AmeriSource Distribution Corporation outstanding as of December 1, 1994 was: Class A--160,512.5; Class B--3,854,162.5; Class C--500,000. AMERISOURCE CORPORATION AMERISOURCE DISTRIBUTION CORPORATION 1994 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.............................................................................. 1 Item 2. Properties............................................................................ 10 Item 3. Legal Proceedings..................................................................... 10 Item 4. Submission of Matters to a Vote of Security Holders................................... 10 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters................. 10 Item 6. Selected Financial Data............................................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 Item 8. Financial Statements and Supplementary Data........................................... 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 64 PART III Item 10. Directors and Executive Officers of the Registrants................................... 64 Item 11. Executive Compensation................................................................ 66 Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 72 Item 13. Certain Relationships and Related Transactions........................................ 73 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 74
PART I ITEM 1. BUSINESS AmeriSource Distribution Corporation, formerly named Alco Health Distribution Corporation, (the "Company"), through its direct wholly-owned subsidiary AmeriSource Corporation, formerly named Alco Health Services Corporation ("AmeriSource ") is one of the five largest, full-service drug wholesalers in the United States, currently operating 16 full-service drug wholesale distribution facilities and one specialty products distribution facility. Approximately 90% of fiscal 1994 revenues of $4.3 billion was attributable to sales of ethical pharmaceuticals. The remainder was comprised of sales of health and personal care products, cosmetics and fragrances, home health care supplies and general merchandise. The Company services, often on a daily basis, over 16,000 customers throughout the United States including hospitals, independent community pharmacies, chain drug stores, nursing homes, clinics and others. No single customer accounted for more than 10% of the Company's revenues during fiscal 1994. The Company has benefited from the dramatic growth of the full-service drug wholesale industry in the United States. Industry sales grew at a compound rate of approximately 14%, from $10.2 billion in 1982 to $47.5 billion in 1993. As both manufacturers and customers increased their reliance on drug wholesalers in order to improve distribution and inventory efficiencies, the percentage of total pharmaceutical sales through wholesale drug distributors increased from approximately 59% in 1981 to approximately 75.5% in 1992 and is projected to increase to 85% by the year 2000. In addition to this increased reliance on distributors, sales of pharmaceuticals have also increased due to the aging of the population, the use of new and more expensive pharmaceuticals, and the use of outpatient drug therapies instead of extended, expensive hospital stays. The Company's business strategy is: (i) to increase its market share in current customer segments including hospitals and managed care providers; (ii) to improve operating efficiencies through additional facility consolidations and enhancements of management information systems; (iii) to target growth opportunities by pursuing new types of customers (including the Veterans' Administration and other governmental entities) and new facility locations (such as the facilities the Company recently opened in Dallas, Texas, Springfield, Massachusetts and Portland, Oregon); and (iv) to improve working capital and asset management. The Company's operating strategy is to maintain its long-standing structure as an organization of decentralized operating units. This structure provides local management with the discretion to set operating policies and to respond to customers' needs quickly and efficiently. In addition, the Company will continue to offer its customers services that assist in pricing and inventory management, and will maintain an above-industry-average number of inventory items or stock keeping units ("SKUs") to facilitate a high order fill-rate and faster product delivery. Over the past five years, the Company has focused on improving operating efficiencies. The Company undertook an extensive facility consolidation program, which reduced the total number of facilities from 31 in fiscal 1989 to 17 (including the three new facilities) today, in order to reduce operating expenses and working capital requirements, and it substantially upgraded its regional management information systems. As a result of the consolidation program, since fiscal 1989 the Company significantly increased revenues per facility and reduced, as a percentage of revenues, operating expenses and its investment in working capital. The Company has increased revenues per facility from $91.9 million in fiscal 1989 to $287 million in fiscal 1994, while reducing operating expenses as a percentage of revenues from 5.0% in fiscal 1989 to 3.4% in fiscal 1994. The Company believes its revenues per facility is among the highest, and its operating expenses, as a percentage of revenues, is among the lowest, in the drug wholesale industry. The outstanding common stock of the Company is owned by 399 Venture Partners Inc. ("VPI"), certain management employees (the "Management Investors"), current and former directors and certain others, including purchasers of debt incurred to finance the Acquisition (as defined herein). The Company was incorporated in Delaware in November 1988. AmeriSource was incorporated in Delaware in June 1985. The address of the principal executive office of the Company (also defined herein as "Distribution") and AmeriSource is P.O. Box 959, Valley Forge, Pennsylvania 19482, and their telephone number is (610) 296-4480. 1 INDUSTRY OVERVIEW The Company has benefited from the dramatic growth of the full-service drug wholesale industry in the United States. Industry sales grew at a compound rate of approximately 14%, from $10.2 billion in 1982 to $47.5 billion in 1993. The factors causing this growth, and the sources of future growth for the industry, include (i) favorable demographics, (ii) the expanding role of the wholesaler, (iii) the introduction of new and more expensive pharmaceuticals, (iv) the use of more outpatient drug therapies instead of extended, expensive hospital stays or surgical procedures and (v) rising pharmaceutical prices that exceeds the Consumer Price Index. Favorable Demographics. The number of individuals over age 65 in the United States has grown 23% from approximately 26 million in 1980 to approximately 32 million in 1990 and is projected to increase an additional 9% to more than 35 million by the year 2000. This age group suffers from a greater incidence of chronic illnesses and disabilities than the rest of the population and is estimated to account for approximately two-thirds of total health care expenditures in the United States. Expanding Role of Wholesale Drug Distributors. 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. The percentage of total pharmaceutical sales through wholesale drug distributors increased from approximately 59% in 1981 to approximately 75.5% in 1992 and is projected to increase to 85% by the year 2000. By focusing on order processing, inventory management and product delivery, wholesale drug distributors have been able to service customers more efficiently than pharmaceutical manufacturers. This allows manufacturers to allocate their resources to research and development, manufacturing and marketing their products. Customers have benefitted 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. Certain customers (particularly independent drug stores, small chains and hospitals) have also benefitted from the range of value-added programs developed by wholesale drug distributors which are targeted to the specific needs of these customers. Introduction of New Pharmaceuticals. Advances in traditional pharmaceutical developments as well as the advent of new technologies, such as biotech drugs, have generated new compounds that are more effective in treating diseases. These developments have been responsible for significant increases in pharmaceutical sales. The Company believes that ongoing research and development expenditures by the leading pharmaceutical manufacturers will contribute to continued growth of the industry. Cost Containment Efforts. In response to rapidly rising health care costs, governmental and private payors have adopted cost containment measures which encourage, where appropriate, the use of efficient drug therapies to prevent or treat diseases instead of expensive prolonged hospital stays and surgical procedures. While national attention has been focused on the dramatic increase in overall health care costs, the Company believes drug therapy has had a beneficial impact on overall health care costs by reducing expensive surgeries and hospital stays. Pharmaceuticals account for less than 8% of healthcare costs, and manufacturers' emphasis on research and development is expected to continue the introduction of cost effective drug therapies. Pharmaceutical Manufacturing Price Increases. According to industry data, between 1988 and 1991 the Consumer Price Index for prescription products grew at a compound annual rate of 8.8%, outpacing the 4% annual rate for the overall Consumer Price Index. The Company believes that this increase has been due in large part to the relatively inelastic demand in the face of higher prices charged for patented drugs (as manufacturers have attempted to recoup costs associated with the development, clinical testing and Food and Drug Administration ("FDA") approval of new products). The Company believes that pharmaceutical price increases will continue to exceed increases in the overall Consumer Price Index, although not at the rates experienced historically. At the same time that sales through the wholesale drug industry have grown, the number of pharmaceutical wholesalers has decreased 59%, from 145 in 1980 to 60 as of December 31, 1993. In addition, 2 as a result of this concentration, the top ten wholesalers in 1993 distributed approximately 88% of the industry's annual volume. Industry analysts expect this consolidation trend to continue during the 1990s, with the industry's largest companies increasing their percentage of total industry sales. BUSINESS STRATEGY The Company's business strategy is: (i) to increase its market share in current customer segments including hospitals and managed care providers; (ii) to improve operating efficiencies through additional facility consolidations and enhancements of management information systems; (iii) to target growth opportunities by pursuing new types of customers and new facility locations; and (iv) to improve working capital and asset management. Increase Market Share in Existing Markets. The Company believes that its automated, high volume distribution facilities enable it to achieve an economies of scale advantage and to extend its business in these current markets. The Company intends to expand in the markets it currently serves by focusing on existing customer segments, such as hospitals and managed care providers, that are not fully serviced in its markets. The Company believes it is one of the leaders in serving the hospital market and believes this market offers substantial future growth opportunities. The Company believes that its increased sales in the hospital market are in part responsible for the improvements in the operating efficiencies and working capital management discussed below. Improve Operating Efficiencies. Over the past five years, the Company has focused on improving operating efficiencies through consolidation of facilities, reducing operating expenses as a percentage of revenues, lowering investment in working capital as a percentage of revenues, improving regional management information systems and divesting non-core businesses. Since fiscal 1989, the consolidation program has reduced the total number of facilities within the Company from 31 to 17 (including the three newly opened facilities) as of December 1, 1994. In conjunction with this reduction of facilities, the Company continued to increase its revenues in each fiscal year since 1989. During fiscal 1994, the Company's average revenue per facility was approximately $287 million, compared to the calendar year 1993 industry average of approximately $172.8 million. In addition, operating expenses as a percentage of revenues were reduced from 5.0% in fiscal 1989 to 3.4% for fiscal 1994. In the opinion of management, the Company's revenue per facility is among the highest, and the Company's operating expenses as a percentage of revenues are among the lowest, in the drug wholesale industry. The Company expects additional savings, as a percentage of revenues, to result from consolidations completed within the past twelve months. Additional consolidation opportunities are under review for implementation during the next two to three years. Target Growth Opportunities. The Company plans to pursue new types of customers, including government entities. Since 1993, the Company has been awarded eleven prime vendor contracts by the Veterans' Administration to provide pharmaceuticals to 184, or 80%, of the Veterans' Administration facilities nationwide. In addition, the Company has been awarded contracts to deliver pharmaceuticals to certain Department of Defense, Indian Health Service and Bureau of Prisons facilities. These facilities were formerly serviced directly by pharmaceutical manufacturers. By pursuing these opportunities, the Company believes that expansion opportunities may become available within or adjacent to markets currently served by the Company. The Company may take advantage of these situations by opening new distribution facilities such as the facilities the Company recently opened in Dallas, Texas, Springfield, Massachusetts and Portland, Oregon. In addition, the Company believes that industry consolidation pressure will continue, and that opportunities may arise to make selected acquisitions of existing facilities. These expansion opportunities could be used to fill gaps within the Company's current service area or to expand geographically. Improve Working Capital Management. Over the last five years, Amerisource has reduced its overall investment in net working capital through facility consolidations, by eliminating duplicate inventory investments, by limiting its investment in inventory in advance of manufacturers' price increases, through the use of computer-based purchasing systems, and through incentivizing management to maximize return on net assets employed. As a result, from September 30, 1989 to September 30, 1994, net working capital (on a FIFO basis) as a percentage of prior twelve month's revenues decreased from 11% to 6.1%, respectively. 3 OPERATING STRATEGY The Company's operating strategy is: (i) to maintain its long-standing structure as an organization of decentralized operating units; (ii) to continue to offer its customers services that assist in pricing and inventory management and (iii) to maintain an above-industry-average number of inventory items or SKUs to facilitate a high order fill-rate and faster product delivery. Decentralized Structure. The Company intends to maintain its long-standing structure as an organization of decentralized operating units. This structure provides local management with the discretion to set operating policies and to respond to customers' needs quickly and efficiently. Additionally, management of each operating unit has fiscal responsibility for its unit, and the operating unit's financial results affect management compensation. The Company believes its decentralized operating philosophy has facilitated in attracting and retaining experienced management at each of its facilities. Customized Services. The Company believes that its broad range of services assists in attracting new customers and developing customer loyalty. The Company is continually enhancing its services and packaging these services into programs designed to enable customers to improve sales and compete more effectively. The Company's Family Pharmacy (R) program, for example, provides independent pharmacies with many of the same services that chain drugstores have, including merchandising and pricing, shelf labels, store operations manuals, advertising and promotional campaigns, and monthly newsletters. The Company also distributes private label vitamins and health and beauty aids to member pharmacies under the Family Pharmacy (R) label, providing the retailer with higher profit margins. Under the Company's Prime Vendor program for hospitals, the Company services hospitals as a prime vendor distributor under long-term supply contracts, and the Company's PrimeNet (R) program allows hospital pharmacies to purchase as a group and to participate in the economies of collective purchasing. In addition, the Company offers Income RePax, Income Pax, Income Rx and Partner Pak programs to all of its customers. Under the Income RePax program, the Company purchases bulk quantities of pharmaceuticals from the manufacturer and repackages them into smaller dispensing units, allowing pharmacies to participate in bulk discount purchasing. The Company's Income Pax program provides customers with monthly promotional calendars highlighting vendor promotional programs available through the Company, the Income Rx program provides a wide range of reasonably priced generic pharmaceuticals to the Company's retail pharmacy customers and the Partner Pak program provides a quarterly promotional directory to the Company's pharmacy customers. Single Source Provider. The Company aims to become the single supplier of pharmaceuticals to each of its customers. The Company's operating units offer on average approximately 27,600 SKUs, higher than the 1993 industry average of 22,243. The Company's higher SKU count allows it to meet the needs of customers who require a broad variety of products, as demonstrated by the Company's consistently high order fill-rate, and positions it to pursue any customer segment in the market. The Company has managed to maintain its higher SKU count and high order fill-rates while maintaining an inventory turn ratio above the industry average. BUSINESS OPERATIONS General. The Company currently operates 16 full-service drug wholesale distribution facilities and one specialty products distribution facility, organized into two groups, Eastern and Central, and seven regions across the United States. Several operating units of the Company have over 100 years of history in the business and are among the nation's first drug distribution houses. Unlike its more centralized competitors, the Company is structured as an organization of locally managed operating units. Each operating unit has retained its historic identity in its local market but operates under the AmeriSource name. Management of each operating unit has fiscal responsibility for its unit, and each operating unit has an established executive, sales and operations staff. The operating unit's results, including earnings and asset management goals, have 4 a direct impact on management compensation. The operating units utilize the Company's corporate staff for marketing, financial, legal and executive management resources and corporate coordination of asset and working capital management. Customers and Markets. The Company's customer base is diverse, consisting of over 16,000 customers, including hospitals, independent community pharmacies and chain drug stores. The table below summarizes how the Company's customer sales mix has changed over time.
FISCAL YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 1991 1992 1993 1994 ---------- ---------- ---------- ---------- (DOLLARS IN MILLIONS) Hospitals....................... $1,001 35% $1,253 38% $1,554 42% $1,968 46% Independents(*)................. 1,203 43 1,356 41 1,397 37 1,450 34 Chains.......................... 623 22 721 21 768 21 884 20 ------ --- ------ --- ------ --- ------ --- Total......................... $2,827 100% $3,330 100% $3,719 100% $4,302 100% ====== === ====== === ====== === ====== ===
- - - -------- (*) Includes nursing homes and clinics. No single customer represented more than 10% of the Company's total business during fiscal 1994. The Company's top ten customers represented approximately 41% of total business during fiscal 1994. The Company believes it is less dependent on any single customer than its four largest competitors. A profile of each customer segment follows: . Hospitals. The Company believes it is one of the leaders in serving the hospital market segment, which is currently the fastest growing customer segment in the industry. Because hospitals purchase large volumes of high priced, easily handled pharmaceuticals, the Company benefits from quick turnover of both inventory and receivables and lower than average operating expenses. The contribution to overall AmeriSource sales from the hospital segment increased from 35% in fiscal 1991 to 46% in fiscal 1994, growing at a compounded rate of 25.3% over this period. . Independents. Independent community pharmacy owners represent the largest segment of the industry and provide the greatest opportunity for the Company's value-added services. In total, the Company currently has approximately 7,000 independent customers. The Company's sales to independent customers have risen at a compounded rate of 6.4% over the three-year period from fiscal 1991 through fiscal 1994 due to the general growth of this customer segment and to the success of the Company's customized marketing programs, such as its Family Pharmacy(R) program. . Chains. This category includes chain drug stores, food stores with pharmacies and the deep discount drug store segment. The Company's sales to chains have risen at a compounded rate of 12.4% over the three-year period from fiscal 1991 through fiscal 1994. This growth rate reflects the discontinuance of certain chain accounts, at the Company's election, because of their minimal profit contribution, offset by the Company entering into new contracts with several drug store chains. The Company plans to target the smaller chain business for which the Company can provide higher margin value-added services. Products and Services. The Company provides services which improve operating efficiencies of both its customers and suppliers. In addition, the Company strives to be the primary source of supply for its customers. To achieve these objectives, the Company is continually enhancing its services and packaging these services into programs designed to address the special needs of its various customer segments. These programs include a variety of management, merchandising and information processing services and programs, that enable customers to improve sales, operate more efficiently and compete more effectively. 5 The proportion of the Company's sales attributable to pharmaceutical products is approximately 90% of sales in fiscal 1994. The Company believes this is due to the increased number of pharmaceutical SKUs, the higher average cost per SKU of pharmaceutical products, and the increase in pharmaceutical-only hospital business. The Company's operating units offer on average approximately 27,600 SKUs, higher than the calendar 1993 industry average of 22,243. The Company's higher SKU count allows it to provide full service to accounts requiring a broad variety of products, as demonstrated by the consistently high order fill- rate, and positions it to pursue any customer segment in the market. Each facility maintains an assortment of products suited to its local market requirements. As with the industry, the Company has increased sales of generic and multi- source pharmaceuticals over the past five years. Revenues attributable to the sale of generic and multi-source pharmaceuticals have increased to approximately $200 million today, more than twice what they were three years ago. These products generate higher gross profit margins for wholesalers than branded pharmaceuticals. It is estimated that sales of these products will double by 1996 due to the number of brands losing patent protection as well as third party payors' continuing emphasis on cost containment. The Company provides its customers with an electronic order entry system, which permits a customer to transmit orders daily from its place of business over regular telephone lines. Orders are transmitted to a regional computer through a hand-held data terminal provided by the Company to the customer. The computer automatically prepares invoices, case labels and customized price stickers and shelf labels. It also assures rapid order processing by generating picking lists and packing slips for Company employees. As a result, the customer can achieve better inventory balance and reduced inventory investment. As an additional benefit, the computer records the reduction in the Company's inventory quantities and compares the reduced quantities to a predetermined service level. If needed, a warehouse replenishment order is automatically generated which in many cases can be communicated electronically to a manufacturer's computer. As a result of electronic order entry, the costs of receiving and processing orders have not increased as rapidly as sales volume. During the past several years, virtually all orders were generated by customers using electronic order entry. The Company believes its electronic order entry system strengthens relationships with its customers and facilitates providing value-added services to customers as described below. The Company anticipates developing additional customized systems in the future. Basic programs are developed internally by the Company's in-house MIS professionals. These programs are tested on a small scale with certain of the Company's customers and then are introduced on a large scale once they have been tailored to the customers' needs. For its hospital and managed care customers, the Company has introduced ECHO(R)--a software program that provides ordering and inventory management assistance for pharmaceutical products. The ECHO(R) system, which is currently utilized by approximately 2,000 customers, is an interactive computerized method for reviewing pricing history, placing orders and tracing purchasing effectiveness. By creating a master file for each customer, the system automatically updates pricing data, monitors contract compliance, provides generic and therapeutic equivalent alternative purchase information and suggests order quantity information based on the customer's historical purchasing. The Company offers Prime Vendor and PrimeNet(R) programs to its hospital customers. Under the Prime Vendor program, the Company services hospitals as a prime vendor distributor under long-term supply contracts and provides its hospital customers with specially designed inventory reports, 24 hour emergency delivery services, and lower inventory management costs. Under the PrimeNet(R) program, the Company serves as the purchasing agent and distribution center for not-for-profit member hospitals, allowing them to participate in the economies of collective purchasing. The Family Pharmacy(R) program provides independent and small chain community pharmacy customers with many of the same services that chain drugstore competitors receive from their headquarter organizations. These services include merchandising and pricing information, shelf labels and plan-o-grams, readily identifiable logos, signs and store decor, store operations manuals, advertising and promotional 6 campaigns, and monthly newsletters. The Company also distributes private label vitamins and health and beauty aids under the Family Pharmacy(R) label, which provides higher profit margins both to the Company and the retailer. The Family Pharmacy(R) program, initiated in 1982, had approximately 1,900 member stores as of September 30, 1994, and in effect constitutes America's fourth largest drug chain. For all customer segments, the Company offers its Income RePax, Income Pax, Income Rx and Partner Pak programs. The Income RePax drug repackaging program, through which the Company purchases bulk quantities of certain pharmaceuticals and repackages them into smaller dispensing units, enables pharmacists to market pharmaceuticals at prices competitive with those of national drug chain operations. The Company's repackaging facility, located in Louisville, Kentucky, is licensed by the FDA and maintains rigid quality control standards. Under the Income Pax program, the Company provides a monthly promotional calendar consisting of special promotional programs from nationally recognized suppliers. The Company's Income Rx generic program provides reasonably priced generic drugs to chain retail and hospital pharmacists. The Company reviews the market for generic values and incorporates them into the Income Rx program, relieving the pharmacist from the task of searching the market for the best value available. The Partner Pak program provides a quarterly promotional directory to approximately 4,500 of the Company's pharmacy customers. The directory chronicles current information relating to the Income Repax, Income Pax, Income Rx and Family Pharmacy(R) programs, highlights special purchase opportunities for selected products and supplies retail customers with advertising materials for use in promoting the products and their pharmacies. Sales and Marketing. The Company has an organization of over 200 sales professionals. A specially trained group of telemarketing/customer service representatives makes regular contact with customers regarding special offers. Within the sales organization, there is also a field force of 50 hospital representatives, including six regional hospital directors. The Company's corporate marketing department works with manufacturer suppliers to develop national programs and promotions. Tailored to specific customer classes, these programs can be further customized at the operating unit level to adapt to local market conditions. The marketing department gathers and disseminates information to each operating unit's purchasing and sales organization in order to enhance their competitive effectiveness. Operations. Each of the Company's operating units carries an inventory line necessary for its local market. The efficient distribution of small orders is possible through the extensive use of computerization and modern warehouse techniques. These include computerized warehouse product location, routing and inventory replenishment systems, gravity-flow racking, mechanized order selection and efficient truck loading and routing. The Company delivers its products on a scheduled basis, including on a daily basis where required. It utilizes a fleet of owned and leased vans and trucks and contract carriers. Night picking operations in its distribution facilities have further reduced delivery time. According to customer need, orders can be delivered in fewer than 24 hours. The Company's 16 full service distribution facilities and one specialty products facility are organized into seven regions throughout the United States. The following table presents certain information regarding the Company's operating units.
FISCAL YEAR ENDED SEPTEMBER 30, -------------------------------------------------- 1990 1991 1992 1993 1994 --------- --------- --------- --------- ---------- (DOLLARS IN MILLIONS; SQUARE FEET IN THOUSANDS) Revenue..................... $ 2,564.0 $ 2,827.2 $ 3,329.9 $ 3,719.0 $ 4,301.8 Number of facilities........ 19 19 18 16 15 Average revenue/facility.... $ 134.9 $ 148.8 $ 185.0 $ 232.4 $ 286.8 Total square feet........... 1,420.1 1,476.5 1,486.0 1,444.3 1,394.1 Average revenue/square foot. $ 1,806.0 $ 1,915.0 $ 2,241.0 $ 2,575.0 $ 3,086. 0
7 Beginning in fiscal 1989, the Company undertook an extensive consolidation program, which reduced the total number of facilities within the Company from 31 to 17 as of December 1, 1994. During the course of this consolidation program, the Company continued to increase its revenues in each fiscal year. Today, the Company operates some of the largest and most efficient warehouse facilities in the industry. During fiscal 1994, the Company's average revenue per facility was approximately $287 million, compared to the calendar 1993 industry average of $172.8 million. Five facilities have annual volume of over $400 million and an additional seven facilities have annual volume in excess of $175 million, which provides the Company significant leverage of fixed overhead and other costs. Average revenue per square foot for fiscal 1993 was $2,575, which was higher than the 1993 industry average of $2,256. For fiscal 1994, the Company's average revenue per square foot was $3,086. Purchasing and Suppliers. Purchasing is centralized on a regional basis in five major locations. Computerized inventory management systems and computer linkups with many of its suppliers enable the Company to purchase and manage its inventories more efficiently. This, in turn, enables the Company to provide just-in-time inventory management to customers. Computerized inventory management helps the Company minimize obsolete inventory and maximize inventory return-on-investment. The Company purchases pharmaceutical and other products from a number of manufacturers, none of which account for more than approximately 7% of its purchases. The five largest suppliers in fiscal 1994 accounted for approximately 27% of total purchases. Historically, the Company has not experienced difficulty in purchasing desired products from suppliers. The loss of a contract with a principal supplier could adversely affect the Company's business because many suppliers are the sole manufacturers of certain pharmaceuticals under their exclusive patents. To continue serving its customers, the Company would have to purchase these patented pharmaceuticals from other distributors on less favorable terms. The Company has agreements with many of its suppliers which generally require the Company to maintain an adequate quantity of a supplier's products in inventory. The majority of contracts with suppliers are terminable upon 30 days notice by either party. The Company believes that its relationships with its suppliers are good. The Company aims to become the single supplier of pharmaceuticals to each of its customers. The Company's operating units offer on average approximately 27,600 SKUs, higher than the 1993 industry average of 22,243. The Company's higher SKU count allows it to meet the needs of customers who require a broad variety of products, as demonstrated by the Company's consistently high order fill-rate and positions it to pursue any customer segment in the market. The Company has managed to maintain its highest SKU count and high order fill-rates while maintaining an inventory turn ratio above the industry average. While each facility on average carries a broad range of items from approximately 800 suppliers, purchases are concentrated among the top 25 manufacturers and about 250 items (SKUs). It is estimated that products from these 25 manufacturers account for approximately half the total annual sales volume of the Company. Management Information Systems. Management information systems serve several important functions in the Company's business. Due to the large volume of transactions processed, the quality and reliability of the internal management information systems and the accuracy and timeliness of the financial controls they produce are important for maximizing profitability. The Company's management information systems also provide for, among other things, electronic order entry by customers, invoice preparation and purchasing and inventory tracking. In addition, the Company's management information systems form the basis for a number of the value-added services the Company provides to its customers, including marketing data, inventory replenishment, single-source billing, computer price updates and price labels. Each region is responsible for maintaining its own management information system. All of the Company's regions utilize IBM computer equipment and complementary software packages. The Company believes that its management information systems are capable of serving the Company's needs for the foreseeable future. The Company has instituted programs to centralize selected management information 8 system functions, such as purchasing in advance of manufacturers' price increases and inventory level monitoring. In addition, during fiscal 1993, the Company installed a corporate clearinghouse computer that will act as a central depository for information on sales, products, vendors, customers and contracts. This has enhanced the information the Company provides to its large hospital group and chain customers, which span regional boundaries, and has increased the quality of information available to corporate and regional management. The Company believes that the clearinghouse computer has increased productivity by reducing the cost of making changes to application programs common to each region, and will enable the Company to centralize selected administrative functions that are currently performed regionally. COMPETITION The Company engages in the wholesale distribution of pharmaceuticals, health and beauty aids and other products in a highly competitive environment. The Company competes with numerous national and regional distributors, including McKesson Corporation, Bergen Brunswig Corporation, Cardinal Health, Inc. and FoxMeyer Corporation. In addition, the Company competes with local distributors, direct-selling manufacturers and other specialty distributors. Competitive factors include price, service and delivery, credit terms, breadth of product line, customer support and marketing programs. EMPLOYEES As of September 30, 1994, the Company employed approximately 2,370 persons, of which approximately 2,154 were full-time employees. Approximately 11% of full and part-time employees are covered by collective bargaining agreements. The Company believes that its relationship with its employees is good. REGULATORY MATTERS The United States Drug Enforcement Administration, the FDA and various state boards of pharmacy regulate the distribution of pharmaceutical products and controlled substances, requiring wholesale distributors of these substances to register for permits and to meet various security and operating standards. As a wholesale distributor of pharmaceuticals and certain medical/surgical products, the Company is subject to these regulations. The Company has received all necessary regulatory approvals and believes that it is in substantial compliance with all applicable wholesale distribution requirements. The Company has become aware that its former Charleston, South Carolina distribution center was previously owned by a fertilizer manufacturer and that there is evidence of residual soil contamination remaining from the fertilizer manufacturing process operated on that site over thirty years ago. The Company engaged an environmental consulting firm to conduct a soil survey and initiated a groundwater study during fiscal 1994. The preliminary results of the groundwater study indicate that there is lead in the groundwater at levels requiring further investigation and response. A preliminary engineering analysis was prepared by outside consultants and indicated that if both soil and groundwater remediation are required, the most likely cost of remediation efforts at the Charleston site is estimated to be $4.1 million. Accordingly, a liability of $4.1 million was recorded during fiscal 1994 to cover future consulting, legal and remediation and ongoing monitoring costs. The Company has notified the appropriate state regulatory agency from whom approval must be received before proceeding with any further tests or with the actual site remediation. The approval process and remediation could take several years to accomplish and the actual costs may differ from the liability that has been recorded. The accrued liability, which is reflected in other long-term liabilities on the Company's consolidated balance sheet, is based on an estimate of the extent of contamination and choice of remedy, existing technology and presently enacted laws and regulations. However, changes in remediation standards, improvements in cleanup technology and discovery of additional information concerning the site could affect the estimated liability in the future. The Company is investigating the possibility of asserting claims against responsible parties for recovery of these costs. Whether or not any recovery may be forthcoming is unknown at this time, although the Company intends to vigorously enforce its rights and remedies. 9 ITEM 2. PROPERTIES As of December 1, 1994, the Company conducted its business from office and operating unit facilities at 26 locations throughout the United States. In the aggregate, the Company's operating units occupy approximately 1.5 million square feet of office and warehouse space, of which approximately 754,000 square feet is owned and the balance is leased under lease agreements with expiration dates ranging from 1995 to 2009. The facilities range in size from approximately 3,900 square feet to 151,000 square feet. Leased facilities are located in the following states: Kentucky, Massachusetts, Minnesota, New Jersey, Ohio, Oregon, Pennsylvania, Tennessee and Texas. Owned facilities are located in the following states: Georgia, Indiana, Kentucky, Maryland, Missouri, Ohio, Pennsylvania, Tennessee and Virginia. ITEM 3. LEGAL PROCEEDINGS AmeriSource has been named as a defendant in several lawsuits based upon alleged injuries and deaths attributable to the product L-Tryptophan. AmeriSource did not manufacture L-Tryptophan; however, prior to an FDA recall, AmeriSource did distribute products containing L-Tryptophan from several of its vendors. The Company believes that AmeriSource is entitled to full indemnification by its suppliers and the manufacturer of L-Tryptophan with respect to these lawsuits and any other lawsuits involving L-Tryptophan in which AmeriSource may be named in the future. To date, the indemnity to AmeriSource in such suits has not been in dispute and, although the Company believes it is unlikely it will incur any loss as a result of such lawsuits, the Company believes that its insurance coverage and supplier endorsements are adequate to cover any losses should they occur. In November 1993, the Company was named a defendant, along with six other wholesale distributors and twenty-four pharmaceutical manufacturers, in fourteen civil actions filed by independent retail pharmacies in the United States District Court for the Southern District of New York. Plaintiffs seek to establish these lawsuits and over thirty-four others (to which the Company is not a party) filed by other pharmacies as class actions. In essence, these lawsuits all claim that the manufacturer and wholesaler defendants have combined, contracted and conspired to fix the prices charged to plaintiffs and class members for prescription brand name pharmaceuticals. Specifically, plaintiffs claim that the defendants use "chargeback agreements" to give some institutional pharmacies discounts that are not made available to retail drug stores. Plaintiffs seek injunctive relief, treble damages, attorneys' fees and costs. These actions have been transferred to the United States District Court for the Northern District of Illinois for consolidated and coordinated pretrial proceedings. Effective October 26, 1994, the Company entered into a Judgment Sharing Agreement with other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred, up to an aggregate of $9 million; and (b) if a judgment is entered into against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or one million dollars. In addition, the Company has released any claims which it might have had against the manufacturers for the claims presented by the plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. The Company believes it has meritorious defenses to the claims asserted in these lawsuits and intends to vigorously defend itself in all of these cases. AmeriSource is a party to various lawsuits arising in the ordinary course of business. AmeriSource , however, does not believe that the outcome of these lawsuits, individually or in the aggregate, will have a material adverse effect on its business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (No response to this Item is required.) PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Distribution is the only record holder of AmeriSource's common stock. 10 There is no established public trading market for Distribution's Class A Common Stock and Class B Common Stock. As of December 15, 1994, there were 24 record holders of Distribution's Class A Common Stock and 11 record holders of Distribution's Class B Common Stock. Distribution's Class C Common Stock was held by approximately 12 holders of record as of September 30, 1994. The Class C Common Stock trades on a limited basis in the over-the-counter market, and information concerning the historical trading prices for the Class C Common Stock is not published by nationally- recognized independent sources. AmeriSource has not paid any dividends to Distribution and no cash dividends have been declared on any class of Distribution's common stock. Restrictions contained in AmeriSource's and Distribution's financial arrangements currently materially limit their ability to pay dividends. The credit agreement with AmeriSource's senior lenders currently limits Distribution's ability to pay dividends, and the credit agreement and the indentures for AmeriSource's 14 1/2% Senior Subordinated Notes due 1999 and 14 1/2% Senior Subordinated Notes due 1999, Series A (collectively, the "Notes") allow AmeriSource to pay only limited dividends to Distribution for specified purposes, such as to allow Distribution to make payments with respect to certain specified indebtedness, to pay expenses and to repurchase securities pursuant to the terms of certain management investment and incentive plans. The indentures for the Notes, in addition, allow AmeriSource to make dividend payments if certain financial tests are met; however, AmeriSource does not currently meet these financial tests. On December 13, 1994, notices for redemption of the Notes were mailed to noteholders that specified a redemption date of January 12, 1995. ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data are derived from the audited consolidated financial statements of AmeriSource and Distribution. This data should be read in conjunction with the consolidated financial statements, including the notes thereto, included elsewhere in this report.
AMERISOURCE --------------------------------------------------------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- ------------- ------------- ------------- 1994 1993 1992 1991 1990 ------------- ------------- ------------- ------------- ------------- Revenues................ $4,301,832 $3,718,960 $3,329,909 $2,827,161 $2,564,008 Net Income (Loss)....... (207,728) 1,190 683 (14,532) (20,549) Total Assets............ 705,955 862,814 848,687 782,357 756,894 Long-Term Debt.......... 343,562 420,111 492,640 479,616 458,656 Per Share (1)
- - - -------- (1) Income (loss) per share of AmeriSource is not presented, as all of AmeriSource's common stock is owned by Distribution.
DISTRIBUTION --------------------------------------------------------------------- YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- ------------- ------------- ------------- 1994 1993 1992 1991 1990 ------------- ------------- ------------- ------------- ------------- Revenues................ $4,301,832 $3,719,025 $3,329,909 $2,827,161 $2,564,008 Net Income (Loss)....... (207,671) (18,618) (6,476) (23,319) (29,489) Total Assets............ 711,644 867,944 848,474 783,145 756,932 Long-Term Debt.......... 487,575 549,220 587,983 570,939 539,682 Per Share Primary Earnings (Loss)................ (41.53) (3.72) (1.30) (4.66) (5.90)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following presents a separate discussion and analysis of financial condition and results of operations for AmeriSource Corporation, the operating company, and for AmeriSource Distribution Corporation, the operating company consolidated with its parent. 11 AMERISOURCE CORPORATION The following discussion should be read in conjunction with the Consolidated Financial Statements contained elsewhere herein. RESULTS OF OPERATIONS
YEAR YEAR YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1994 1993 1992 ------------- ------------- ------------- Revenues............................ $4,301,832 $3,718,960 $3,329,909 Cost of goods sold.................. 4,066,641 3,509,587 3,130,186 ---------- ---------- ---------- Gross profit...................... 235,191 209,373 199,723 Operating expenses: Selling and administrative........ 142,393 129,908 125,672 Environmental remediation......... 4,075 Depreciation...................... 6,640 5,809 5,384 Amortization of intangibles....... 4,147 5,467 5,549 Write-off of excess of cost over net assets acquired.............. 179,824 ---------- ---------- ---------- Operating income (loss)........... (101,888) 68,189 63,118 Interest expense--in cash......... 43,734 42,561 49,757 Amortization of deferred financing costs............................ 3,539 3,862 4,004 Non-recurring charges............. 2,223 2,244 ---------- ---------- ---------- Income (loss) before taxes, extraordinary items and cumulative effects of accounting changes...... (149,161) 19,543 7,113 Taxes on income..................... 23,080 12,953 6,649 ---------- ---------- ---------- Income (loss) before extraordinary items and cumulative effects of accounting changes................. (172,241) 6,590 464 Extraordinary charge--early retirement of debt, net of income tax benefit........................ (442) (5,884) Extraordinary credit--reduction of income tax provision from carryforward of prior year operating losses................... 484 219 Cumulative effect of change in accounting for postretirement benefits other than pensions....... (1,199) Cumulative effect of change in accounting for income taxes....................... (33,846) ---------- ---------- ---------- Net income (loss)................. $ (207,728) $ 1,190 $ 683 ========== ========== ==========
YEAR ENDED SEPTEMBER 30, 1994 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1993 Revenues of $4.3 billion for the fiscal year ended September 30, 1994 represented an increase of 15.7% over the amount reported for the fiscal year ended September 30, 1993, reflecting real volume growth as well as the pass through to customers of price increases from manufacturers. Approximately one- tenth of the revenue increase resulted from higher selling prices. As compared with the prior fiscal year, sales to hospitals grew by 27%, sales to chain drug stores, excluding brokerage business, increased by 8% and sales to independent drug store customers increased by 4%. During 1994, sales to hospitals accounted for 46% of total revenues, while sales to independent drug stores represented 34% and sales to chain drug stores, 20% of the total. Gross profit of $235.2 million for 1994 increased by 12.3% over 1993, primarily due to the increase in revenues. As a percentage of revenues, gross profit declined to 5.47% in 1994 from 5.63% in 1993. The reduction in the gross profit percentage resulted from continued industry price competition and increased sales to larger volume, lower margin customers, such as hospitals. 12 Selling and administrative expenses for 1994 were $142.4 million compared to $129.9 million for 1993, an increase of 9.6%. The cost increases reflect inflationary increases and increases in warehouse and delivery expenses which are variable with the level of sales volume. Continued emphasis on cost containment programs as well as the economies associated with the significant revenue growth, reduced overall selling and administrative expenses as a percentage of revenues to 3.3% in 1994 from 3.5% in 1993. Operating expenses in 1994 include a provision of $4.1 million to cover the expected environmental remediation costs with respect to the Company's former Charleston, South Carolina distribution center. In addition, in the third quarter of fiscal 1994, the Company completed a detailed evaluation of the recovery of the recorded value of the excess of cost over net assets acquired ("goodwill") and concluded that projected operating results would not support the future recovery of the remaining goodwill balance. Accordingly, the Company wrote off the remaining goodwill balance of $179.8 million in the third quarter of fiscal 1994. Interest expense which is payable currently (cash interest), principally related to the revolving credit facility and the senior subordinated notes, was $43.7 million in 1994 as compared with $42.6 million in 1993, an increase of 2.8%. The increase was as a result of higher interest rates on the Company's variable rate borrowings offset in part by lower variable rate borrowing levels and the reduction in principal amount of the senior subordinated notes. Interest expense in 1994 reflects reductions as a result of the purchase and retirement of an aggregate principal amount of $8.9 million of senior subordinated notes, which occurred during the fourth quarter of fiscal 1993 and first quarter of fiscal 1994. Interest expense in 1994 includes $621,000 paid to the holders of an aggregate of $165.7 million in principal amount of senior subordinated notes (see Note 4 of "Notes to Consolidated Financial Statements"). During 1994, the average outstanding debt level was $430 million at an average interest rate of 10.0%. In 1993, the comparable average outstanding debt level was $444 million at an average interest rate of 9.6%. Interest expense in 1994 includes $3.5 million in amortization of financing fees as compared with $3.9 million in 1993. Income taxes provided have been determined as if the Company filed a tax return on a separate entity basis. As noted below, the Company changed its method of accounting for income taxes effective October 1, 1993. The extraordinary charge of $679,000 in 1994, net of a tax benefit of $237,000, relates to the purchase and retirement of an aggregate principal amount of $4.4 million of senior subordinated notes. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement 106) and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (Statement 109). The Company recorded, as of October 1, 1993, a total of $35.0 million in non-cash charges to net income for the effects of transition to these two new standards. Statement 106 requires that the expected cost of providing postretirement medical benefits be accrued during employees' working years rather than on a pay-as-you-go basis as was previously permitted. The cumulative effect of this change in accounting principle resulted in a non-cash charge to net income of $1.2 million as of October 1, 1993. Statement 109 requires a change in the method of accounting for income taxes from the deferred method to the liability method. Under the liability method, deferred taxes result from differences between the tax and financial reporting bases of assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. The cumulative effect of this change in accounting principle resulted in a non-cash charge to net income of $33.8 million as of October 1, 1993, principally related to the provision of deferred income taxes to reflect the tax consequences on future years of the difference between the tax and financial reporting basis of merchandise inventories. YEAR ENDED SEPTEMBER 30, 1993 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1992 Revenues for the fiscal year ended September 30, 1993 were $3.7 billion, an increase of 11.7% over the $3.3 billion in revenues for 1992. The revenue growth, which occurred for all customer groups, was attributable to the addition of new accounts, increased sales to existing accounts through value added services and price increases. Price increases accounted for approximately one-fourth of the revenue increase in 1993. As compared with the prior fiscal year, sales to hospitals increased by 24%, sales to independent drug store 13 customers increased by 3% and sales to chain stores grew by 7%. Sales to hospitals accounted for 42% of total revenues in 1993, while sales to independent drug stores represented 37% and sales to chain drug stores, 21% of the total. As a percentage of revenues, gross profit declined to 5.6% in 1993 from 6.0% in 1992. The decline in 1993 resulted from: increased sales to large volume, lower margin and lower-cost-to-service customers, principally hospitals; price competition within the industry; and a reduction in inventory purchasing gains associated with the decline in the rate and frequency of manufacturer price increases. Selling and administrative expenses for the year ended September 30, 1993 were $129.9 million, or 3.5% of revenues, compared to $125.7 million, or 3.8% of revenues for the prior year. Selling and administrative expenses, which increased by $4.2 million, or 3.4% from the prior year, reflect the economies associated with the revenue growth and reductions due to cost containment measures and productivity improvements. The expense percentage improvement in 1993 also reflects the partial benefits of two distribution facility consolidations completed during the latter part of 1993. Expenses in 1993 include $1 million in costs incurred with respect to the two completed facility consolidations as well as an additional consolidation which was begun in late 1993 and is expected to be completed during the first quarter of fiscal 1994. As a result of the above, operating income increased 8.0%, or $5.1 million, to $68.2 million for the fiscal year ended September 30, 1993 in comparison to the prior year, while operating income as a percentage of revenues was 1.83% in 1993 versus 1.90% in 1992. Interest expense which is payable currently (cash interest), principally related to the revolving credit facility and the senior subordinated notes, was $42.6 million in 1993 as compared with $49.8 million in 1992, a decrease of 14.5%. The decrease is attributable to reduced borrowings and lower average interest rates. During 1993, the average outstanding debt level was $444 million at an average interest rate of 9.6%. In 1992, the comparable average outstanding debt level was $480 million at an average interest rate of 10.3%. Interest expense in 1993 includes $3.9 million in amortization of financing fees as compared with $4.0 million in 1992. The non-recurring charges in 1993 consist of $1,254,000 in losses on the disposal of three warehouses and charges of $969,000 for the write-down to net realizable value of two additional warehouses no longer in operation which are designated for sale. The non-recurring charges in 1992 consist of a loss of $287,000 incurred on the sale of a warehouse no longer in operation and the write-off of $1,957,000 in professional fees incurred in connection with a public offering attempted during 1992 which was later abandoned due to market conditions. Income tax expense has been determined as if the Company filed a tax return on a separate entity basis. Income tax expense in 1993 has been computed on a regular tax basis. The effective tax rate in 1993 differed from the federal statutory rate primarily as a result of the non-deductibility of the goodwill amortization and the effect of timing differences for which no deferred tax benefits were provided. Income tax expense in 1992 was computed based on the alternative minimum tax system. The extraordinary charge of $9.9 million, net of a tax benefit of $4.0 million relates to the write-off of unamortized financing fees relating to the refinancings of the revolving credit facility and Distribution's debt and premiums paid on the purchase and retirement of a portion of the senior subordinated notes. The extraordinary credits in 1993 and 1992 represent the utilization of net operating losses carried forward from earlier periods. INFLATION The Company uses the LIFO method of accounting in order to minimize the effect of inflation on inventory value. Under this method, the effect of suppliers' price increases is charged directly to cost of goods sold. Concurrently, the Company increases selling prices, where possible, in order to maintain its gross profit 14 margin. The effect of price inflation, as measured by the excess of LIFO costs over FIFO costs, was $5.3 million in 1994, $13.5 million in 1993 and $13.2 million in 1992. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's operating results have generated sufficient cash flows which, together with borrowings under the revolving credit facility and credit terms from suppliers, have provided sufficient capital resources to finance working capital and cash operating requirements, fund capital expenditures and interest currently payable on outstanding debt. Future cash flows are expected to be sufficient to fund capital expenditures and interest currently payable over the near-term. During the fiscal year ended September 30, 1994, operating activities provided cash of $83.9 million, compared to a generation of $100.7 million in cash during the fiscal year ended September 30, 1993. Accounts receivable and merchandise inventories increased during fiscal 1994 by $24.9 million and $5.3 million, respectively, offset by an increase of $70.2 million in accounts payable. The increases in accounts receivable and merchandise inventories are commensurate with the Company's revenue growth. A portion of the increase in merchandise inventories was the result of the opening of the Dallas, Texas distribution facility, which occurred in the first quarter of fiscal 1994. Operating cash uses during fiscal 1994 included $46.1 million in interest payments and $3.9 million in income tax payments. Capital expenditures required for the Company's business historically have not been substantial. Capital expenditures for the fiscal year ended September 30, 1994 were $8.5 million and related principally to improvements in warehouse distribution and management information systems. Capital expenditures for fiscal 1995 are projected to approximate $9.5 million. Cash used in financing activities during fiscal 1994 included $5.0 million in payments associated with the redemption of an aggregate principal amount of $4.4 million of senior subordinated notes. As a result of the cash generated during fiscal 1994, borrowings under the Company's revolving credit facility were reduced to $175.9 million at September 30, 1994 from the $248.0 million outstanding at September 30, 1993. The Company has become aware that its former Charleston, South Carolina distribution center was previously owned by a fertilizer manufacturer and that there is evidence of residual soil contamination remaining from the fertilizer manufacturing process operated on that site over thirty years ago. The Company engaged an environmental consulting firm to conduct a soil survey and initiated a groundwater study during fiscal 1994. The preliminary results of the groundwater study indicate that there is lead in the groundwater at levels requiring further investigation and response. A preliminary engineering analysis was prepared by outside consultants during the third quarter of fiscal 1994, and indicated that, if both soil and groundwater remediation are required, the most likely cost of remediation efforts at the Charleston site is estimated to be $4.1 million. Accordingly, a liability of $4.1 million was recorded during the third quarter of fiscal 1994 to cover future consulting, legal and remediation and ongoing monitoring costs. The Company has notified the appropriate state regulatory agency from whom approval must be received before proceeding with any further tests or with the actual site remediation. The approval process and remediation could take several years to accomplish and the actual costs may differ from the liability which has been recorded. The accrued liability, which is reflected in other long-term liabilities on the accompanying consolidated balance sheet, is based on an estimate of the extent of contamination and choice of remedy, existing technology and presently enacted laws and regulations, however, changes in remediation standards, improvements in cleanup technology and discovery of additional information concerning the site could affect the estimated liability in the future. The Company is investigating the possibility of asserting claims against responsible parties for recovery of these costs. Whether or not any recovery may be forthcoming is unknown at this time, although the Company intends to vigorously enforce its rights and remedies. The Company's primary ongoing cash requirements will be to fund payment of principal and interest on indebtedness, finance working capital and fund capital expenditures. An increase in interest rates would adversely affect the Company's operating results and the cash flow available after debt service to fund 15 operations and any expansion and, if permitted to do so under its revolving credit facility and the indenture for the senior subordinated notes, to pay dividends on its capital stock. The goodwill was recorded at the time of the leveraged buyout transaction ("Acquisition") in 1988. Since the Acquisition, the Company has been unable to achieve the operating results projected at the time of the Acquisition. The projections at the time of the Acquisition were developed based on historical experience, industry trends and management's estimates of future performance. These projections assumed significant growth rates in revenues, stable gross profit margins and cash flow from operations to reduce Acquisition indebtedness and did not anticipate long-term losses or indicate an inability to recover the value of goodwill. Due to persistent competitive pressures and a shift in the customer mix to larger volume, lower margin customers, gross profit margins have declined from 7.10% in fiscal 1989 to 5.63% in fiscal 1993 and 5.47% in fiscal 1994, resulting in: operating results which are substantially below the projections made at the time of the Acquisition; an increase in the Company's indebtedness; and an accumulated deficit in Distribution's retained earnings at June 30, 1994 before the goodwill write-off of $126.4 million. During the period since the Acquisition, the Company has been affected by price competition for market share within the industry, health care industry consolidation and the impact of group purchasing organizations, managed care and health care reform on drug prices. As a result of the negative impact of these factors to date, and the Company's expectation that such factors will continue to negatively impact operating results into the foreseeable future, the Company initiated a detailed evaluation of the long-term expected effects of these factors on the ability to recover the recorded value of goodwill over its remaining estimated life. Based on current industry trends, interest rate trends and the health care reform environment, in the third quarter of fiscal 1994, the Company has revised its operating projections and has concluded that the projected operating results (the "Projection") would not support the future recovery of the remaining goodwill balance. The methodology employed to assess the recoverability of the Company's goodwill was to project results of operations forward 36 years, which approximates the remaining amortization period of the goodwill balance at June 30, 1994. The Company then evaluated the recoverability of goodwill on the basis of the Projection. The Company's Projection assumes that, based on current industry conditions and competitive pressures, future revenue growth will approximate 12.6% in the near-term gradually declining to approximately 5% over the longer-term. These assumptions reflect expected benefits in the near-term from continued industry consolidation, and an expectation that manufacturers will continue to increase their reliance on wholesalers in their own cost control measures in the face of healthcare reform. Over the next five to ten year period, growth in revenue is expected to moderate as the industry consolidation trend is completed, and over the long-term (next twenty years), stable growth of 5% is assumed. The gross profit percentage is projected to gradually decline over the projected period from the current rate to 3.60% in the fiscal year 2000 and to 2.68% in the longer term. The short-term gross profit declines reflect the impact of the worsened trends in 1994 caused by consolidation of certain major competitors and deteriorated gross profit margins from existing contracts with certain group purchasing organizations. The long-term decline in gross profit reflects the Company's belief that continued industry wide competitive pricing pressures will drive margins down, as the consolidated industry attempts to maintain market share. Operating expenses are projected to increase 6% per year in the near-term and 5% per year in the longer-term principally reflecting the Company's expectations regarding inflation. Working capital levels (as a percentage of revenues) are projected to improve as the Company aggressively manages its investment in receivables and inventory over the projected period. For purposes of the Projection, the Company has assumed that it will be able to refinance its current revolving credit facility when it expires in 1996. For purposes of the Projection, the Company has assumed that it will be able to increase its variable rate borrowings to finance increasing working capital and interest payment requirements. In order to meet the working capital and interest payment requirements projected in fiscal year 2000, the revolving credit facility will have to be increased to $460 million. Interest rates on the variable rate revolving credit facility were assumed to increase to 9.75% to reflect current expectations of future short-term borrowing rates. The Projection also indicates that cash flow from operations will not be sufficient to satisfy 16 maturities of the Company's fixed rate debt obligations, which consist of the 14 1/2% senior subordinated notes due in fiscal 1998 and fiscal 1999 and the 11 1/4% senior debentures due in fiscal 2005. The Projection assumes that these fixed rate debt obligations will be refinanced at the time of the scheduled maturities at identical interest rates. Unless the Company is able to develop successful strategic, operating or financing initiatives which would change these assumptions, the projected future operating results based on these assumptions is the best estimate of the Company's projected performance given the Company's existing high leverage and industry trends. The Projection reflects significant cumulative losses indicating that the carrying value of goodwill is not recoverable. Accordingly, the Company wrote off its remaining goodwill balance of $179.8 million in the third quarter of fiscal 1994. More importantly, while the Company believes the reliability of any projection over such an extended period is highly uncertain, the Projection also indicates that the Company's long-term viability will require modification of its current capital structure to reduce its indebtedness and increase its equity in the near to mid-term future. While the Projection indicates that in fiscal 1998 cash flow from operations will not be sufficient to satisfy required interest and principal payments on its current debt obligations, the Company believes and the Projection indicates, that cash flow generated from operations in the near-term (fiscal years 1995 through 1997) is sufficient to service its current debt obligations. No assurance can be given that the Company will be successful in efforts to restructure or recapitalize in order to be able to operate in a profitable manner for the long-term. In December 1994, the Company sold substantially all of its trade accounts and notes receivable (the "Receivables") to AmeriSource Receivables Corporation ("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade receivables securitization program (the "Receivables Program"). As contemplated by the Receivables Program, the Company formed and capitalized ARC through a contribution of $40 million. Contemporaneously, the Company entered into a Receivables Purchase Agreement with ARC, whereby ARC agreed to purchase on a continuous basis Receivables originated by the Company. Pursuant to the Receivables Program, ARC will transfer such Receivables to a master trust in exchange for, among other things, certain trade receivables-backed certificates (the "Certificates") representing a right to receive a variable principal amount. Contemporaneously, Certificates in an aggregate principal amount of up to $230 million face amount were sold to investors. During the five year term of the Receivables Program, the cash generated by collections on the Receivables will be used to purchase, among other things, additional Receivables originated by the Company. The Certificates bear interest at a rate selected by the Company equal to (i) the higher of (a) the prime lending rate and (b) the federal funds rate plus 50 basis points or (ii) LIBOR plus 50 basis points. In addition, during the first seventy five days of the Receivables Program, the Company may select an interest rate equal to the federal funds rate plus 125 basis points. The interest rates for the Certificates are subject to step-ups to a maximum amount of an additional 100 basis points over the otherwise applicable rate. At the same time that it entered into the Receivables Program, the Company and its senior lenders amended its existing Credit Agreement. Among other things, the Amended and Restated Credit Agreement: (i) extended the term of the Credit Agreement until January 3, 2000; (ii) established the amount the Company may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR plus 225 basis points and provided for further interest rate stepdowns upon the occurrence of certain events; (iv) modified the borrowing base availability from inventory and receivable based to inventory based; and (v) increased the Company's ability to make acquisitions and pay dividends. Contemporaneously with the consummation of the Receivables Program and the execution of the Amended and Restated Credit Agreement, the Company called for optional redemption all of the outstanding Notes and New Notes at a redemption price of 106% of the principal amount plus accrued interest through the redemption date of January 12, 1995. 17 AMERISOURCE DISTRIBUTION CORPORATION The following discussion should be read in conjunction with the Consolidated Financial Statements contained elsewhere herein. RESULTS OF OPERATIONS
YEAR YEAR YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1994 1993 1992 ------------- ------------- ------------- Revenues............................. $4,301,832 $3,719,025 $3,329,909 Cost of goods sold................... 4,066,641 3,509,587 3,130,186 ---------- ---------- ---------- Gross profit....................... 235,191 209,438 199,723 Operating expenses: Selling and administrative......... 142,497 130,338 125,696 Environmental remediation.......... 4,075 Depreciation....................... 6,640 5,809 5,384 Amortization of intangibles........ 4,147 5,467 5,549 Write-off of excess of cost over net assets acquired............... 179,824 ---------- ---------- ---------- Operating income (loss)............ (101,992) 67,824 63,094 Interest expense--in cash.......... 43,734 42,354 49,757 Interest expense--pay in kind...... 14,904 20,402 17,264 Amortization of deferred financing costs............................. 3,973 3,940 4,004 Non-recurring charges.............. 2,223 2,244 ---------- ---------- ---------- (Loss) before taxes, extraordinary items and cumulative effects of accounting changes ................. (164,603) (1,095) (10,175) Taxes on income...................... 7,814 6,379 2,649 ---------- ---------- ---------- (Loss) before extraordinary items and cumulative effects of accounting changes................ (172,417) (7,474) (12,824) Extraordinary charge--early retirement of debt, net of income tax benefit......................... (656) (11,890) Extraordinary credits: Settlement of litigation........... 4,486 Reduction of income tax provision from carryforward of prior year operating losses.................. 746 1,862 Cumulative effect of change in accounting for postretirement benefits other than pensions........ (1,199) Cumulative effect of change in accounting for income taxes......... (33,399) ---------- ---------- ---------- Net (loss)......................... $ (207,671) $ (18,618) $ (6,476) ========== ========== ==========
YEAR ENDED SEPTEMBER 30, 1994 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1993 Revenues of $4.3 billion for the fiscal year ended September 30, 1994 represented an increase of 15.7% over the amount reported for the fiscal year ended September 30, 1993, reflecting real volume growth as well as the pass through to customers of price increases from manufacturers. Approximately one- tenth of the revenue increase resulted from higher selling prices. As compared with the prior fiscal year, sales to hospitals grew by 27%, sales to chain drug stores, excluding brokerage business, increased by 8% and sales to independent drug store customers increased by 4%. During 1994, sales to hospitals accounted for 46% of total revenues, while sales to independent drug stores represented 34% and sales to chain drug stores, 20% of the total. 18 Gross profit of $235.2 million for 1994 increased by 12.3% over 1993, primarily due to the increase in revenues. As a percentage of revenues, gross profit declined to 5.47% in 1994 from 5.63% in 1993. The reduction in the gross profit percentage resulted from continued industry price competition and increased sales to larger volume, lower margin customers, such as hospitals. Selling and administrative expenses for 1994 were $142.5 million compared to $130.3 million for 1993, an increase of 9.3%. The cost increases reflect inflationary increases and increases in warehouse and delivery expenses which are variable with the level of sales volume. Continued emphasis on cost containment programs as well as the economies associated with the significant revenue growth, reduced overall selling and administrative expenses as a percentage of revenues to 3.3% in 1994 from 3.5% in 1993. Operating expenses in 1994 include a provision of $4.1 million to cover the expected environmental remediation costs with respect to the Company's former Charleston, South Carolina distribution center. In addition, in the third quarter of fiscal 1994, the Company completed a detailed evaluation of the recovery of the recorded value of the excess of cost over net assets acquired ("goodwill") and concluded that projected operating results would not support the future recovery of the remaining goodwill balance. Accordingly, the Company wrote off the remaining goodwill balance of $179.8 million in the third quarter of fiscal 1994. Interest expense which is payable currently (cash interest), principally related to the revolving credit facility and the senior subordinated notes, was $43.7 million in 1994 as compared with $42.4 million in 1993, an increase of 3.3%. The increase was as a result of higher interest rates on the Company's variable rate borrowings offset in part by lower variable rate borrowing levels and the reduction in principal amount of the senior subordinated notes. Interest expense in 1994 reflects reductions as a result of the purchase and retirement of an aggregate principal amount of $8.9 million of senior subordinated notes, which occurred during the fourth quarter of fiscal 1993 and first quarter of fiscal 1994. Interest expense in 1994 includes $621,000 paid to the holders of an aggregate of $165.7 million in principal amount of senior subordinated notes (see Note 4 of "Notes to Consolidated Financial Statements"). During 1994, the average outstanding debt level was $430 million at an average interest rate of 10.0%. In 1993, the comparable average outstanding debt level was $441 million at an average interest rate of 9.6%. The decrease in interest expense which is not currently payable (pay-in-kind interest) of $5.5 million was due to the refinancing in July, 1993 of the 18% senior subordinated debentures, 18 1/2% merger debentures and 19 1/2% junior subordinated debentures with the 11 1/4% senior debentures. Interest expense in 1994 includes $4.0 million in amortization of financing fees as compared with $3.9 million in 1993. Income taxes provided in 1994 and 1993 have been determined based on the alternative minimum tax system. As noted below, the Company changed its method of accounting for income taxes effective October 1, 1993. The extraordinary charge of $679,000, net of a tax benefit of $23,000, relates to the purchase and retirement of an aggregate principal amount of $4.4 million of senior subordinated notes. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement 106) and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (Statement 109). The Company recorded, as of October 1, 1993, a total of $34.6 million in non-cash charges to net income for the effects of transition to these two new standards. Statement 106 requires that the expected cost of providing postretirement medical benefits be accrued during employees' working years rather than on a pay-as-you-go basis as was previously permitted. The cumulative effect of this change in accounting principle resulted in a non-cash charge to net income of $1.2 million as of October 1, 1993. Statement 109 requires a change in the method of accounting for income taxes from the deferred method to the liability method. Under the liability method, deferred taxes result from differences between the tax and financial reporting bases of assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. The cumulative effect of this change in accounting principle resulted in a non-cash charge to net income of $33.4 million as 19 of October 1, 1993, principally related to the provision of deferred income taxes to reflect the tax consequences on future years of the difference between the tax and financial reporting basis of merchandise inventories. YEAR ENDED SEPTEMBER 30, 1993 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1992 Revenues for the fiscal year ended September 30, 1993 were $3.7 billion, an increase of 11.7% over the $3.3 billion in revenues for 1992. The revenue growth, which occurred for all customer groups, was attributable to the addition of new accounts, increased sales to existing accounts through value added services and price increases. Price increases accounted for approximately one-fourth of the revenue increase in 1993. As compared with the prior fiscal year, sales to hospitals increased by 24%, sales to independent drug store customers increased by 3% and sales to chain stores grew by 7%. Sales to hospitals accounted for 42% of total revenues in 1993, while sales to independent drug stores represented 37% and sales to chain drug stores, 21% of the total. As a percentage of revenues, gross profit declined to 5.6% in 1993 from 6.0% in 1992. The decline in 1993 resulted from: increased sales to large volume, lower margin and lower-cost-to-service customers, principally hospitals; price competition within the industry; and a reduction in inventory purchasing gains associated with the decline in the rate and frequency of manufacturer price increases. Selling and administrative expenses for the year ended September 30, 1993 were $130.3 million, or 3.5% of revenues, compared to $125.7 million, or 3.8% of revenues for the prior year. Selling and administrative expenses, which increased by $4.6 million, or 3.7% from the prior year, reflect the economies associated with the revenue growth and reductions due to cost containment measures and productivity improvements. The expense percentage improvement in 1993 also reflects the partial benefits of two distribution facility consolidations completed during the latter part of 1993. Expenses in 1993 include $1 million in costs incurred with respect to the two completed facility consolidations as well as an additional consolidation which was begun in late 1993 and is expected to be completed during the first quarter of fiscal 1994. As a result of the above, operating income increased 7.5%, or $4.7 million, to $67.8 million for the fiscal year ended September 30, 1993 in comparison to the prior year, while operating income as a percentage of revenues was 1.82% in 1993 versus 1.89% in 1992. Interest expense which is payable currently (cash interest), principally related to the revolving credit facility and the senior subordinated notes, was $42.4 million in 1993 as compared with $49.8 million in 1992, a decrease of 14.9%. The decrease is attributable to reduced borrowings and lower average interest rates. During 1993, the average outstanding debt level was $441 million at an average interest rate of 9.6%. In 1992, the comparable average outstanding debt level was $480 million at an average interest rate of 10.3%. Interest expense in 1993 includes $3.9 million in amortization of financing fees as compared with $4.0 million in 1992. Interest on the senior debentures, senior subordinated debentures, merger debentures and junior subordinated debentures which, at the option of the Company, is not currently payable (pay in kind interest), amounted to $20.4 million in 1993 as compared with $17.3 million in 1992. The non-recurring charges in 1993 consist of $1,254,000 in losses on the disposal of three warehouses and charges of $969,000 for the write-down to net realizable value of two additional warehouses no longer in operation which are designated for sale. The non-recurring charges in 1992 consist of a loss of $287,000 incurred on the sale of a warehouse no longer in operation and the write-off of $1,957,000 in professional fees incurred in connection with a public offering attempted during 1992 which was later abandoned due to market conditions. Income tax expense in both 1993 and 1992 was computed based on the alternative minimum tax system. The extraordinary charge of $16.7 million, net of a tax benefit of $4.8 million, relates to the write-off of unamortized financing fees relating to the refinancings of the revolving credit facility and Distribution's debt and premiums paid on the purchase and retirement of a portion of the senior subordinated notes. The 20 extraordinary credits for income taxes in 1993 and 1992 represent the utilization of net operating losses carried forward from earlier periods. INFLATION The Company uses the LIFO method of accounting in order to minimize the effect of inflation on inventory value. Under this method, the effect of suppliers' price increases is charged directly to cost of goods sold. Concurrently, the Company increases selling prices, where possible, in order to maintain its gross profit margin. The effect of price inflation, as measured by the excess of LIFO costs over FIFO costs, was $5.3 million in 1994, $13.5 million in 1993 and $13.2 million in 1992. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's operating results have generated sufficient cash flows which, together with borrowings under the revolving credit facility and credit terms from suppliers, have provided sufficient capital resources to finance working capital and cash operating requirements, fund capital expenditures and interest currently payable on outstanding debt. Future cash flows are expected to be sufficient to fund capital expenditures and interest currently payable over the near-term. During the fiscal year ended September 30, 1994, operating activities provided cash of $84.0 million, compared to a generation of $99.2 million in cash during the fiscal year ended September 30, 1993. Accounts receivable and merchandise inventories increased during fiscal 1994 by $24.9 million and $5.3 million, respectively, offset by an increase of $70.2 million in accounts payable. The increases in accounts receivable and merchandise inventories are commensurate with the Company's revenue growth. A portion of the increase in merchandise inventories was the result of the opening of the Dallas, Texas distribution facility, which occurred in the first quarter of fiscal 1994. Operating cash uses during fiscal 1994 included $46.1 million in interest payments and $3.9 million in income tax payments. Capital expenditures required for the Company's business historically have not been substantial. Capital expenditures for the fiscal year ended September 30, 1994 were $8.5 million and related principally to improvements in warehouse distribution and management information systems. Capital expenditures for fiscal 1995 are projected to approximate $9.5 million. Cash used in financing activities during fiscal 1994 included $5.0 million in payments associated with the redemption of an aggregate principal amount of $4.4 million of senior subordinated notes. As a result of the cash generated during fiscal 1994, borrowings under the Company's revolving credit facility were reduced to $175.9 million at September 30, 1994 from the $248.0 million outstanding at September 30, 1993. The Company has become aware that its former Charleston, South Carolina distribution center was previously owned by a fertilizer manufacturer and that there is evidence of residual contamination remaining from the fertilizer manufacturing process operated on that site over thirty years ago. The Company engaged an environmental consulting firm to conduct a soil survey and initiated a groundwater study during fiscal 1994. The preliminary results of the groundwater study indicate that there is lead in the groundwater at levels requiring further investigation and response. A preliminary engineering analysis was prepared by outside consultants during the third quarter of fiscal 1994, and indicated that, if both soil and groundwater remediation are required, the most likely cost of remediation efforts at the Charleston site is estimated to be $4.1 million. Accordingly, a liability of $4.1 million was recorded during the third quarter of fiscal 1994 to cover future consulting, legal and remediation and ongoing monitoring costs. The Company has notified the appropriate state regulatory agency from whom approval must be received before proceeding with any further tests or with the actual site remediation. The approval process and remediation could take several years to accomplish and the actual costs may differ from the liability which has been recorded. The accrued liability, which is reflected in other long-term liabilities on the accompanying consolidated balance sheet, is based on an estimate of the extent of contamination and choice of remedy, existing technology and presently enacted laws and regulations, however, changes in remediation standards, improvements in cleanup technology and 21 discovery of additional information concerning the site could affect the estimated liability in the future. The Company is investigating the possibility of asserting claims against responsible parties for recovery of these costs. Whether or not any recovery may be forthcoming is unknown at this time, although the Company intends to vigorously enforce its rights and remedies. The Company's primary ongoing cash requirements will be to fund payment of principal and interest on indebtedness, finance working capital and fund capital expenditures. An increase in interest rates would adversely affect the Company's operating results and the cash flow available after debt service to fund operations and any expansion and, if permitted to do so under its revolving credit facility and the indenture for the senior subordinated notes, to pay dividends on its capital stock. The goodwill was recorded at the time of the leveraged buyout transaction ("Acquisition") in 1988. Since the Acquisition, the Company has been unable to achieve the operating results projected at the time of the Acquisition. The projections at the time of the Acquisition were developed based on historical experience, industry trends and management's estimates of future performance. These projections assumed significant growth rates in revenues, stable gross profit margins and cash flow from operations to reduce Acquisition indebtedness and did not anticipate long-term losses or indicate an inability to recover the value of goodwill. Due to persistent competitive pressures and a shift in the customer mix to larger volume, lower margin customers, gross profit margins have declined from 7.10% in fiscal 1989 to 5.63% in fiscal 1993 and 5.47% in fiscal 1994, resulting in: operating results which are substantially below the projections made at the time of the Acquisition; an increase in the Company's indebtedness; and an accumulated deficit in retained earnings at June 30, 1994 before the goodwill write-off of $126.4 million. During the period since the Acquisition, the Company has been affected by price competition for market share within the industry, health care industry consolidation and the impact of group purchasing organizations, managed care and health care reform on drug prices. As a result of the negative impact of these factors to date, and the Company's expectation that such factors will continue to negatively impact operating results into the foreseeable future, the Company initiated a detailed evaluation of the long-term expected effects of these factors on the ability to recover the recorded value of goodwill over its remaining estimated life. Based on current industry trends, interest rate trends and the health care reform environment, in the third quarter of fiscal 1994, the Company has revised its operating projections and has concluded that the projected operating results (the "Projection") would not support the future recovery of the remaining goodwill balance. The methodology employed to assess the recoverability of the Company's goodwill was to project results of operations forward 36 years, which approximates the remaining amortization period of the goodwill balance at June 30, 1994. The Company then evaluated the recoverability of goodwill on the basis of the Projection. The Company's Projection assumes that, based on current industry conditions and competitive pressures, future revenue growth will approximate 12.6% in the near-term gradually declining to approximately 5% over the longer-term. These assumptions reflect expected benefits in the near-term from continued industry consolidation, and an expectation that manufacturers will continue to increase their reliance on wholesalers in their own cost control measures in the face of healthcare reform. Over the next five to ten year period, growth in revenue is expected to moderate as the industry consolidation trend is completed, and over the long-term (next twenty years), stable growth of 5% is assumed. The gross profit percentage is projected to gradually decline over the projected period from the current rate to 3.60% in the fiscal year 2000 and to 2.68% in the longer term. The short-term gross profit declines reflect the impact of the woresened trends in 1994 caused by consolidation of certain major competitors and deteriorated gross profit margins from existing contracts with certain group purchasing organizations. The long-term decline in gross profit reflects the Company's belief that continued industry wide competitive pricing pressures will drive margins down, as the consolidated industry attempts to maintain market share. Operating expenses are projected to increase 6% 22 per year in the near-term and 5% per year in the longer-term principally reflecting the Company's expectations regarding inflation. Working capital levels (as a percentage of revenues) are projected to improve as the Company aggressively manages its investment in receivables and inventory over the projected period. For purposes of the Projection, the Company has assumed that it will be able to refinance its current revolving credit facility when it expires in 1996. For purposes of the Projection, the Company has assumed that it will be able to increase its variable rate borrowings to finance increasing working capital and interest payment requirements. In order to meet the working capital and interest payment requirements projected in fiscal year 2000, the revolving credit facility will have to be increased to $460 million. Interest rates on the variable rate revolving credit facility were assumed to increase to 9.75% to reflect current expectations of future short-term borrowing rates. The Projection also indicates that cash flow from operations will not be sufficient to satisfy maturities of the Company's fixed rate debt obligations, which consist of the 14 1/2% senior subordinated notes due in fiscal 1998 and fiscal 1999 and the 11 1/4% senior debentures due in fiscal 2005. The Projection assumes that these fixed rate debt obligations will be refinanced at the time of the scheduled maturities at identical interest rates. Unless the Company is able to develop successful strategic, operating or financing initiatives which would change these assumptions, the projected future operating results based on these assumptions is the best estimate of the Company's projected performance given the Company's existing high leverage and industry trends. The Projection reflects significant cumulative losses indicating that the carrying value of goodwill is not recoverable. Accordingly, the Company wrote off its remaining goodwill balance of $179.8 million in the third quarter of fiscal 1994. More importantly, while the Company believes the reliability of any projection over such an extended period is highly uncertain, the Projection also indicates that the Company's long-term viability will require modification of its current capital structure to reduce its indebtedness and increase its equity in the near to mid-term future. While the Projection indicates that in fiscal 1998 cash flow from operations will not be sufficient to satisfy required interest and principal payments on its current debt obligations, the Company believes and the Projection indicates, that cash flow generated from operations in the near-term (fiscal years 1995 through 1997) is sufficient to service its current debt obligations. No assurance can be given that the Company will be successful in efforts to restructure or recapitalize in order to be able to operate in a profitable manner for the long-term. In December 1994, the Company sold substantially all of its trade accounts and notes receivable (the "Receivables") to AmeriSource Receivables Corporation ("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade receivables securitization program (the "Receivables Program"). As contemplated by the Receivables Program, the Company formed and capitalized ARC through a contribution of $40 million. Contemporaneously, the Company entered into a Receivables Purchase Agreement with ARC, whereby ARC agreed to purchase on a continuous basis Receivables originated by the Company. Pursuant to the Receivables Program, ARC will transfer such Receivables to a master trust in exchange for, among other things, certain trade receivables-backed certificates (the "Certificates") representing a right to receive a variable principal amount. Contemporaneously, Certificates in an aggregate principal amount of up to $230 million face amount were sold to investors. During the five year term of the Receivables Program, the cash generated by collections on the Receivables will be used to purchase, among other things, additional Receivables originated by the Company. The Certificates bear interest at a rate selected by the Company equal to (i) the higher of (a) the prime lending rate and (b) the federal funds rate plus 50 basis points or (ii) LIBOR plus 50 basis points. In addition, during the first seventy five days of the Receivables Program, the Company may select an interest rate equal to the federal funds rate plus 125 basis points. The interest rates for the Certificates are subject to step-ups to a maximum amount of an additional 100 basis points over the otherwise applicable rate. At the same time that it entered into the Receivables Program, the Company and its senior lenders amended its existing Credit Agreement. Among other things, the Amended and Restated Credit Agreement: (i) extended the term of the Credit Agreement until January 3, 2000; (ii) established the amount the Company may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR plus 225 basis points and 23 provided for further interest rate stepdowns upon the occurrence of certain events; (iv) modified the borrowing base availability from inventory and receivable based to inventory based; and (v) increased the Company's ability to make acquisitions and pay dividends. Contemporaneously with the consummation of the Receivables Program and the execution of the Amended and Restated Credit Agreement, the Company called for optional redemption all of the outstanding Notes and New Notes at a redemption price of 106% of the principal amount plus accrued interest through the redemption date of January 12, 1995. 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Stockholder of AmeriSource Corporation We have audited the accompanying consolidated balance sheets of AmeriSource Corporation (formerly Alco Health Services Corporation) and subsidiaries, as of September 30, 1994 and 1993, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for each of the three years in the period ended September 30, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14(a). AmeriSource Corporation is a wholly-owned subsidiary of AmeriSource Distribution Corporation (formerly Alco Health Distribution Corporation). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement and schedules presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmeriSource Corporation and subsidiaries at September 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in the notes to the consolidated financial statements (Notes 3 and 5), in 1994 the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. Ernst & Young LLP Philadelphia, Pennsylvania November 2, 1994, except for Note 10, as to which the date is December 13, 1994 25 AMERISOURCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
SEPTEMBER 30, SEPTEMBER 30, 1994 1993 ------------- ------------- Current Assets Cash............................................. $ 25,273 $ 27,098 Accounts receivable less allowance for doubtful accounts: 1994-$9,370; 1993-$7,681.............. 272,281 251,999 Merchandise inventories.......................... 351,676 346,371 Prepaid expenses................................. 2,442 1,977 -------- -------- Total current assets........................... 651,672 627,445 Property and Equipment, at cost.................... 67,598 57,282 Less accumulated depreciation.................... 26,416 21,176 -------- -------- 41,182 36,106 Other Assets Excess of cost over net assets acquired.......... 183,810 Deferred financing costs and other, less accumulated amortization: 1994-$6,727; 1993- $3,703.......................................... 13,101 15,453 -------- -------- 13,101 199,263 -------- -------- $705,955 $862,814 ======== ========
26 AMERISOURCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) LIABILITIES AND STOCKHOLDER'S EQUITY
SEPTEMBER 30, SEPTEMBER 30, 1994 1993 ------------- ------------- Current Liabilities Current portion of other debt.................... $ 133 $ 122 Accounts payable................................. 449,991 379,826 Accrued expenses................................. 22,047 24,507 Accrued income taxes............................. 19,542 7,899 Deferred income taxes............................ 32,366 -------- -------- Total current liabilities...................... 524,079 412,354 Long-Term Debt Revolving credit facility........................ 175,897 248,000 Senior subordinated notes........................ 166,134 170,562 Other debt....................................... 1,293 1,311 Convertible subordinated debentures.............. 238 238 -------- -------- 343,562 420,111 Other Liabilities Deferred compensation............................ 522 701 Other............................................ 9,264 740 -------- -------- 9,786 1,441 Stockholder's Equity Common stock, $.01 par value: 1,000 shares autho- rized and issued................................ 1 1 Capital in excess of par value................... 85,398 78,050 Retained earnings (deficit)...................... (256,871) (49,143) -------- -------- (171,472) 28,908 -------- -------- $705,955 $862,814 ======== ========
See notes to consolidated financial statements. 27 AMERISOURCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Revenues................................... $4,301,832 $3,718,960 $3,329,909 Costs and Expenses Cost of goods sold....................... 4,066,641 3,509,587 3,130,186 Selling and administrative............... 146,540 135,375 131,221 Environmental remediation................ 4,075 Depreciation............................. 6,640 5,809 5,384 Write-off of excess of cost over net assets acquired......................... 179,824 Interest................................. 47,273 46,423 53,761 Non-recurring charges.................... 2,223 2,244 ---------- ---------- ---------- 4,450,993 3,699,417 3,322,796 ---------- ---------- ---------- Income (Loss) Before Taxes, Extraordinary Items and Cumulative Effects of Accounting Changes................................... (149,161) 19,543 7,113 Taxes on Income............................ 23,080 12,953 6,649 ---------- ---------- ---------- Income (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes................................. (172,241) 6,590 464 Extraordinary Charge--early retirement of debt, net of income tax benefit........... (442) (5,884) Extraordinary Credit--reduction of income tax provision from carryforward of prior year operating losses..................... 484 219 Cumulative effect of change in accounting for postretirement benefits other than pensions.................................. (1,199) Cumulative effect of change in accounting for income taxes.......................... (33,846) ---------- ---------- ---------- Net Income (Loss)........................ $ (207,728) $ 1,190 $ 683 ========== ========== ==========
See notes to consolidated financial statements. 28 AMERISOURCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS)
CAPITAL IN RETAINED EXCESS OF EARNINGS COMMON STOCK PAR VALUE (DEFICIT) TOTAL ------------ ---------- --------- --------- September 30, 1991............... $ 1 $79,529 $ (51,016) $ 28,514 Net income..................... 683 683 Capital transactions with Distribution: Income tax benefit........... 1,839 1,839 Settlements of appraisal action...................... (8,723) (8,723) --- ------- --------- --------- September 30, 1992............... 1 72,645 (50,333) 22,313 Net income..................... 1,190 1,190 Capital transactions with Distribution: Conversion of convertible subordinated debentures..... 278 278 Income tax benefit........... 5,127 5,127 --- ------- --------- --------- September 30, 1993............... 1 78,050 (49,143) 28,908 Net (loss)..................... (207,728) (207,728) Capital transactions with Distribution: Income tax benefit........... 7,348 7,348 --- ------- --------- --------- September 30, 1994............... $ 1 $85,398 $(256,871) $(171,472) === ======= ========= =========
See notes to consolidated financial statements. 29 AMERISOURCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- OPERATING ACTIVITIES Net income (loss)......................... $ (207,728) $ 1,190 $ 683 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation............................. 6,640 5,809 5,384 Amortization............................. 7,686 9,329 11,510 Provision for losses on accounts receivable.............................. 4,612 3,186 3,443 Loss on disposal of property and equipment............................... 185 2,267 332 Write-off of excess of cost over net assets acquired......................... 179,824 Provision for deferred income taxes...... 1,890 Loss on early retirement of debt......... 679 9,871 Cumulative effects of changes in accounting principles .................. 35,045 Changes in operating assets and liabilities: Accounts receivable..................... (24,894) (6,115) (31,130) Merchandise inventories................. (5,305) (10,346) (65,048) Prepaid expenses........................ (465) (33) 377 Accounts payable, accrued expenses and income taxes........................... 84,770 85,249 62,697 Payments to settle litigation........... (5,250) Other long-term liabilities............. 4,075 Miscellaneous............................. (3,083) 319 (1,005) ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.............................. 83,931 100,726 (18,007) INVESTING ACTIVITIES Capital expenditures...................... (8,483) (7,571) (8,297) Proceeds from sales of property and equipment................................ 457 1,500 642 ---------- ---------- ---------- NET CASH (USED IN) INVESTING ACTIVITIES.. (8,026) (6,071) (7,655) FINANCING ACTIVITIES Long-term debt borrowings................. 854,661 902,364 882,000 Long-term debt repayments................. (931,857) (975,169) (873,197) Deferred financing costs.................. (534) (8,520) (3,131) ---------- ---------- ---------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.............................. (77,730) (81,325) 5,672 ---------- ---------- ---------- (DECREASE) INCREASE IN CASH................ (1,825) 13,330 (19,990) Cash at beginning of year.................. 27,098 13,768 33,758 ---------- ---------- ---------- CASH AT END OF YEAR........................ $ 25,273 $ 27,098 $ 13,768 ========== ========== ==========
See notes to consolidated financial statements. 30 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The accompanying financial statements present the consolidated financial position, results of operations and cash flows of AmeriSource Corporation (formerly Alco Health Services Corporation) ("AmeriSource" or the "Company"). All material intercompany accounts and transactions of AmeriSource have been eliminated in consolidation. AmeriSource is a wholly-owned subsidiary of AmeriSource Distribution Corporation (formerly Alco Health Distribution Corporation) ("Distribution"). Business The Company is a wholesale distributor of pharmaceuticals and related health care products. Concentrations of Credit Risk The Company sells its merchandise inventories to a large number of customers in the health care industry including independent drug stores, chain drug stores, hospitals, mass merchandisers, clinics and nursing homes. The Company's trade accounts receivable are exposed to credit risk, however, the risk is limited due to the diversity of the customer base and the customer base's wide geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial conditions. The Company maintains reserves for potential bad debt losses and such bad debt losses have been historically within the Company's expectations. Merchandise Inventories Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method, which results in a matching of current costs and revenues. On a supplemental basis, if the first-in, first-out (FIFO) method of valuation had been used for determining costs, inventories would have been approximately $88,327,000 and $83,022,000 higher than the amounts reported at September 30, 1994 and 1993, respectively. Depreciation The cost of property and equipment is depreciated over the estimated useful lives of the related assets by the straight-line method. Deferred Financing Costs Deferred financing fees and related expenses are being amortized over 3 to 10 years. Pension Plans Pension costs, which are primarily computed using the projected unit credit cost method, are funded based on the minimum required contribution under the Employee Retirement Income Security Act of 1974. Revenue Recognition The Company recognizes revenues at the point at which product is shipped. Earnings Per Share Earnings (loss) per share are not presented, as all of the Company's issued and outstanding common stock is owned by Distribution. 31 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets acquired ("goodwill") was recorded at the time of the leveraged buyout transaction ("Acquisition") in 1988. Since the Acquisition, the Company has been unable to achieve the operating results projected at the time of the Acquisition. The projections at the time of the Acquisition were developed based on historical experience, industry trends and management's estimates of future performance. These projections assumed significant growth rates in revenues, stable gross profit margins and cash flow from operations to reduce Acquisition indebtedness and did not anticipate long- term losses or indicate an inability to recover the value of goodwill. Due to persistent competitive pressures and a shift in the customer mix to larger volume, lower margin customers, gross profit margins have declined from 7.10% in fiscal 1989 to 5.63% in fiscal 1993 and 5.47% in fiscal 1994, resulting in: operating results which are substantially below the projections made at the time of the Acquisition; an increase in the Company's indebtedness; and an accumulated deficit in Distribution's retained earnings at June 30, 1994 before the goodwill write-off of $126.4 million. During the period since the Acquisition, the Company has been affected by price competition for market share within the industry, health care industry consolidation and the impact of group purchasing organizations, managed care and health care reform on drug prices. Until fiscal 1994, the Company believed the results since the Acquisition were not indicative of long-term market conditions affecting pricing within the industry. In fiscal 1994, the Company determined its poor operating results since the Acquisition and its expectations for future operating results were being significantly affected by fundamental changes in the market place in which the Company operates. As these factors became clear and in conjunction with the increases in interest rates, a detailed comprehensive evaluation of the Company's future prospects was prepared. The evaluation determined the Company's financial losses were and continue to be significantly affected by price sensitivity, aggressive pricing by better capitalized competitors, consolidations in the wholesale drug distribution industry and the impact of large buying groups. Based on current industry trends, interest rate trends and the health care reform environment, in the third quarter of fiscal 1994, the Company concluded that the projected operating results (the "Projection") would not support the future recovery of the remaining goodwill balance. The methodology employed to assess the recoverability of the Company's goodwill was to project results of operations forward 36 years, which approximated the remaining amortization period of the goodwill balance at June 30, 1994. The Company then evaluated the recoverability of goodwill on the basis of the Projection. The Projection reflects significant cumulative losses indicating that the carrying value of goodwill is not recoverable. Unless the Company is able to develop successful strategic, operating or financing initiatives which would change the assumptions used in the Projection, the projected future operating results based on these assumptions is the best estimate of the Company's projected performance given the Company's existing high leverage and industry trends. As a result, the Company concluded that the carrying value of goodwill could not be recovered from expected future operations. Accordingly, the Company wrote off its remaining goodwill balance of $179.8 million in the third quarter of fiscal 1994. More importantly, while the Company believes the reliability of any projection over such an extended period is highly uncertain, the Projection also indicates that the Company's long-term viability will require modification of its current capital structure to reduce its indebtedness and increase its equity in the near to mid-term future. While the Projection indicates that in fiscal 1998 cash flow from operations will not be sufficient to satisfy required interest and principal payments on its current debt obligations, the Company believes and the Projection indicates, that cash flow generated from operations in the near-term (fiscal years 1995 through 1997) is sufficient to service its current debt obligations. No assurance can be given that the Company will be successful in efforts to restructure or recapitalize in order to be able to operate in a profitable manner for the long-term. 32 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--TAXES ON INCOME AmeriSource is included in the consolidated federal income tax return of Distribution. The income tax provision for the years ended September 30, 1994, 1993 and 1992, computed on a separate entity basis, is as follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30 -------------------------------- 1994 1993 1992 ---------- ---------- ---------- Current provision Federal....................................... $20,337 $ 11,207 $6,574 State and local............................... 853 1,746 75 ---------- ---------- --------- 21,190 12,953 6,649 ---------- ---------- --------- Deferred provision Federal....................................... 1,451 State and local............................... 439 ---------- ---------- --------- 1,890 -- -- ---------- ---------- --------- Provision for income taxes...................... $23,080 $ 12,953 $6,649 ========== ========== =========
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Statutory federal income tax rate........... 35.0% 34.8% 34.0% State and local income tax rate, net of federal tax benefit........................ (.4) 5.8 .7 Effect of change in prior year loss carryback.................................. 11.7 Amortization of difference in book and tax bases of net assets acquired............... (43.1) 9.4 29.0 Alternative minimum tax..................... 10.4 Net effect of timing differences not recognized................................. (2.7) 10.2 Other....................................... (4.3) 6.1 7.7 ---------- --------- --------- Effective income tax rate................... (15.5)% 66.3% 93.5% ========== ========= =========
Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109), which requires a change in the method of accounting for income taxes from the deferred method to the liability method. In accordance with Statement 109, the Company recorded an adjustment of $33.8 million for the cumulative effect of adopting Statement 109 as of October 1, 1993. As permitted under Statement 109, prior period financial statements have not been restated. The cumulative effect adjustment relates principally to the provision of deferred income taxes to reflect the tax consequences on future years of the difference between the tax and financial reporting basis of merchandise inventories. 33 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--TAXES ON INCOME--(CONTINUED) Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts. Significant components of the Company's deferred tax liabilities (assets) as of September 30, 1994 are as follows (in thousands): Inventory.............................................................. $35,712 Fixed assets........................................................... 4,654 Other.................................................................. 351 ------- Gross deferred tax liabilities....................................... 40,717 ------- Net operating losses................................................... (1,994) Allowance for doubtful accounts........................................ (3,748) Accrued expenses....................................................... (3,524) Other postretirement benefits.......................................... (497) Other.................................................................. (3,173) ------- Gross deferred tax assets............................................ (12,936) ------- Valuation allowance for deferred tax assets............................ 7,931 ------- Net deferred tax liabilities......................................... $35,712 =======
The valuation allowance for deferred tax assets was $5.5 million at October 1, 1993. For the fiscal years ended September 30, 1993 and 1992, the deferred income tax provision (benefit) resulted from timing differences in the recognition of certain expenses for tax and financial reporting purposes. Due to limitations on the utilization of tax losses, the Company did not recognize any deferred income tax (benefit) in 1993 or 1992. The principal components of deferred taxes are as follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30 ------------------- 1993 1992 --------- -------- Bad debts.................................................. $ (254) $ 360 Deferred compensation...................................... (15) (31) Inventory.................................................. (725) (492) Insurance.................................................. 113 (207) Fixed assets............................................... (970) (108) Other...................................................... (138) (41) Amount not recognized...................................... 1,989 519 --------- -------- $ -- $ -- ========= ========
The Company was subject to the alternative minimum tax for the fiscal year ended September 30, 1992. The alternative minimum tax is imposed at a 20% rate on the Company's alternative minimum taxable income which is determined by making statutory adjustments to the Company's regular taxable income. Net operating loss carryforwards were used to offset 90% of the Company's 1992 alternative minimum taxable income, the effect of which is represented for financial reporting purposes as an extraordinary credit. Income tax refunds net of payments amounted to $3,457,000, $4,732,000 and $1,089,000 in the years ended September 30, 1994, 1993 and 1992, respectively. Refunds include $7,348,000, $5,127,000 and $1,839,000 in the years ended September 30, 1994, 1993 and 1992, respectively, attributed to losses generated by Distribution, which were contributed to the capital of the Company. 34 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT Substantially all of AmeriSource's indebtedness was incurred in connection with its acquisition by Distribution. Distribution incurred additional indebtedness, the proceeds of which were contributed to AmeriSource's capital in fiscal 1989 and 1990. Because Distribution is a holding company and its operations will be conducted entirely through its subsidiaries, the ability of Distribution to satisfy its obligations will be dependent upon the future performance of AmeriSource and its subsidiaries, which will be subject to financial, business and other factors affecting the operations of AmeriSource and its subsidiaries, including factors beyond the control of Distribution or AmeriSource as well as prevailing economic conditions. In addition, the ability of Distribution to service its indebtedness will be dependent upon its ability to receive funds from AmeriSource. AmeriSource's indebtedness, described herein, will significantly restrict the ability to make cash distributions to Distribution. On March 30, 1993, the Company entered into a credit agreement (the "Credit Agreement") with a syndicate of financial institutions providing senior secured facilities of up to $425 million. The Credit Agreement provides for initial borrowings based on commitments of $380 million, consisting of a term loan of $20 million and a revolving credit loan of up to $360 million. The maximum amount that may be borrowed under the Credit Agreement is limited to the extent of a sufficient borrowing base, which is essentially 85% of eligible accounts receivable and 60% of eligible inventory. Under the terms of the Credit Agreement, the Company has pledged substantially all its assets to secure its borrowings under the Credit Agreement and the Company's parent, Distribution, has pledged the common stock of the Company. The term loan matures, and the commitment of the syndicate to make revolving credit loans expires, on April 1, 1996. The term loan and the revolving credit loan bear interest at a rate per annum equal to, at the Company's option, LIBOR plus 3% or the prime rate plus 1 1/2%. The Company has entered into a two-year interest rate cap of 12% with respect to $100 million in borrowings under the revolving credit loan for the purpose of limiting the Company's exposure to an increase in interest rates. In addition, the Company is required to pay a fee of 1/2% per annum on the average unused portion of the revolving credit loan commitment plus a $200,000 annual administration fee. The Credit Agreement, as amended, contains certain restrictive covenants and requires the Company, among other things, to maintain minimum defined net worth levels, satisfy certain financial ratios and places certain limitations on investments, capital expenditures, additional debts, changes in capital structure and dividend payments. At September 30, 1994, the $20 million outstanding under the term loan and the $156 million outstanding under the revolving credit loan bore interest at the rate of 8.10% per annum. Initial borrowings under the Credit Agreement were used to extinguish the obligations outstanding under the Company's former revolving credit facility, which was due to expire in December 1993. An extraordinary loss of $3.3 million, net of a tax benefit of $1.3 million, was recorded during the fiscal year ended September 30, 1993 representing the write-off of the unamortized financing fees relating to the former revolving credit facility. In connection with the Credit Agreement, the Company incurred approximately $7.7 million in financing fees which have been deferred and are being amortized on a straight-line basis over the three year term of the indebtedness. The 14 1/2% Senior Subordinated Notes (the "Notes") were sold on September 15, 1989 in a public offering and are due September 15, 1999. The Notes are unsecured obligations and are subordinated to the Credit Agreement and certain other indebtedness, and may be redeemed at the option of the Company at a premium, together with accrued and unpaid interest to the redemption date, at any time on or after September 15, 1994. If, for the twelve-month period ending on each of August 31, 1996 and 1997, the Company's consolidated fixed charge ratio (as defined) exceeds 1.5 to 1, the Company shall be required to redeem or otherwise repurchase in the open market and retire 5% and 10%, respectively, of the principal amount of the Notes. The Company shall not be required to make such redemption or repurchase until such time, and 35 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT--(CONTINUED) to the extent, funds become available under the Credit Agreement or any successor or replacement facility. In addition, the Company is required to redeem on August 31, 1998, 50% of the aggregate principal amount of the Notes originally issued, reduced by any prior redemptions or repurchases. During the fiscal year ended September 30, 1993, the Company purchased and retired $4.4 million of the Notes. Premiums on the fiscal 1993 purchases resulted in an extraordinary loss of $549,000, net of a tax benefit of $222,000. During the fiscal year ended September 30, 1994, the Company purchased and retired an additional $4.4 million of Notes, resulting in an extraordinary charge of $679,000, net of a tax benefit of $237,000, consisting of the write-off of related unamortized financing fees and premiums paid on redemption. During the fiscal year ended September 30, 1994, the Company completed an exchange of $40,329,000 principal amount of 14 1/2% Senior Subordinated Notes due 1999, Series A (the "New Notes") and $101,000 in cash for $40,329,000 principal amount of its Notes. The only material difference between the terms of the New Notes and the terms of the Notes is that the indenture of the New Notes does not have the minimum consolidated net worth provisions set forth in the indenture of the Notes. The indenture of the Notes requires the Company to maintain a consolidated net worth (as defined) of $80 million. If the Company's consolidated net worth, as defined in the indenture of the Notes, is less than $80 million at the end of each of any two consecutive fiscal quarters, the Company is required to offer to purchase (the "Offer") an amount of Notes equal to 20% of the principal amount of Notes outstanding at the time the Offer is made. The purchase price in any Offer is equal to 100% of the principal amount purchased plus accrued interest to the date of purchase. The Offer required could be triggered if the Company generated losses from operations, had charges or expenses relating to a restructuring or recapitalization, or reductions in the book value of tangible or intangible assets, if in each case the losses or charges are of a sufficient magnitude. As a result of the elimination of the minimum consolidated net worth provision in the indenture of the New Notes, the Company would not be required to make an Offer to holders of the New Notes, even in the event of a material decrease in the Company's consolidated net worth. In addition to the exchange noted above, the Company paid the holders of an aggregate of $125,388,000 in principal amount of Notes cash consideration of $520,000 in exchange for each holder's agreement not to tender any of the Notes as a result of any required Company Offer or to exercise any rights they have or may have with respect to the consolidated net worth provision of the indenture of the Notes. The total cash consideration of $621,000 noted above as well as related fees and expenses of $600,000 were recognized as interest expense during the fiscal year ended September 30, 1994. The indentures governing the Credit Agreement, the Notes, the New Notes and the indebtedness of Distribution contain restrictions and covenants, as amended, which include limitations on incurrence of additional indebtedness, prohibition of indebtedness senior to the Notes and New Notes and junior to the Credit Agreement, restrictions on distributions and dividends to stockholders, including Distribution, transactions with affiliates and certain corporate acts such as mergers, consolidations and the sale of substantially all assets. Additional covenants require compliance with financial tests, including current ratio, leverage, interest coverage ratio, fixed charge coverage and maintenance of minimum net worth. Interest paid on the above indebtedness during the fiscal years ended September 30, 1994, 1993 and 1992 amounted to $46.1 million, $39.7 million and $52.2 million, respectively. Financing fees and expenses incurred with respect to the above indebtedness have been capitalized and are being amortized over the terms of the related indebtedness. Total amortization of these fees and expenses (included in interest expense) for the fiscal years ended September 30, 1994, 1993 and 1992 was $3.5 million, $3.9 million and $4.0 million, respectively. 36 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT--(CONTINUED) On July 26, 1993, Distribution issued $126.5 million principal amount of 11 1/4% Senior Debentures ("Senior Debentures") due 2005 in a public offering. Interest on the Senior Debentures will be payable semi-annually on January 15 and July 15 of each year, commencing January 15, 1994. Through and including the semi-annual interest payment due July 15, 1998, Distribution may elect, at its option, to issue additional Senior Debentures in satisfaction of its interest payment obligations. The Senior Debentures are senior unsecured obligations of Distribution and rank pari passu in right of payment with all senior borrowings of Distribution and senior in right of payment to all subordinated indebtedness of Distribution. As indebtedness of Distribution, the Senior Debentures are structurally subordinated to all indebtedness and other obligations of AmeriSource. Substantially all the net proceeds of the offering (approximately $122 million) were applied to redeem the 18% Senior Subordinated Debentures, 18 1/2% Merger Debentures and 19 1/2% Junior Subordinated Debentures of Distribution at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption. The indenture relating to the Senior Debentures contains restrictions relating to, among other things, the payment of dividends, the repurchase of stock and the making of certain other restricted payments, the incurrence of additional indebtedness and issuance of preferred stock, the creation of certain liens, certain asset sales, transactions with subsidiaries and other affiliates, dividends and other payment restrictions affecting subsidiaries, and mergers and consolidations. The debt refinancing resulted in an extraordinary charge to AmeriSource of $6.0 million during the fiscal year ended September 30, 1993 relating to the write-off of deferred financing costs, net of a tax benefit of $2.4 million. The carrying amount of the Company's revolving credit facility approximates fair value. The combined fair value of the Notes and New Notes is approximately $176 million and is based on quoted market prices. It was not practicable to estimate the fair value of the other debt or convertible subordinated debentures. NOTE 5--PENSION AND OTHER BENEFIT PLANS The Company provides a benefit for the majority of its employees under noncontributory defined benefit pension plans. For each employee, the benefits are based on years of service and average compensation. A summary of the components of net periodic pension cost charged to expense for the company-sponsored defined benefit pension plans together with contributions charged to expense for a multi-employer union administered defined benefit pension plan the Company participates in follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Service cost............................... $ 2,198 $ 1,912 $ 1,669 Interest cost on projected benefit obligation................................ 2,165 2,034 1,879 Actual return on plan assets............... (13) (2,842) (3,090) Net amortization and deferral.............. (2,038) 979 1,490 ---------- ---------- ---------- Net pension cost of defined benefit plans.. 2,312 2,083 1,948 Net pension cost of multi-employer plan.... 142 110 91 ---------- ---------- ---------- Total pension expense...................... $ 2,454 $ 2,193 $ 2,039 ========== ========== ==========
37 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--PENSION AND OTHER BENEFIT PLANS--(CONTINUED) The following table sets forth (in thousands) the funded status and amount recognized in the consolidated balance sheets for the company-sponsored defined benefit pension plans:
1994 1993 ----------------------- ----------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ----------- ----------- ----------- Plan assets at fair value...... $24,457 $ 333 $24,155 $ 280 Actuarial present value of benefit obligations: Vested....................... 22,420 1,168 20,898 603 Accumulated, not vested...... 421 210 576 171 ------- ------- ------- ----- Accumulated benefit obligations................... 22,841 1,378 21,474 774 Effect of future pay increases................... 8,559 17 7,987 113 ------- ------- ------- ----- Projected benefit obligation... 31,400 1,395 29,461 887 ------- ------- ------- ----- Plan assets (less than) projected benefit obligation.. (6,943) (1,062) (5,306) (607) Unrecognized net transition asset......................... (996) (1,167) Unrecognized prior service cost.......................... 3,380 733 3,680 357 Adjustment to recognize minimum liability..................... (813) (372) Unrecognized net loss related to assumptions................ 4,013 149 2,117 128 ------- ------- ------- ----- Pension (liability) recognized in balance sheet.............. $ (546) $ (993) $ (676) $(494) ======= ======= ======= =====
Assumptions used in computing the funded status of the plans were as follows:
1994 1993 1992 ------ ------ ----- Discount rate.......................................... 7.75% 7.25% 8.0% Rate of increase in compensation levels................ 6.25% 5.75% 6.5% Expected long-term rate of return on assets............ 10.00% 10.00% 10.0%
Plan assets at September 30, 1994 are invested principally in listed stocks, corporate and government bonds and cash equivalents. Additionally, the Company sponsors the Employee Investment Plan, a defined contribution 401(k) plan, which covers salaried and certain hourly employees. Eligible participants may contribute to the plan up to 2% to 6% of their regular compensation before taxes. The Company matches the employee contributions in an amount equal to 50% of the participants' contributions. An additional discretionary Company contribution in an amount not to exceed 50% of the participants' contributions may also be made depending upon the Company's performance. All contributions are invested at the direction of the employee in one or more funds. Employer contributions vest over a five-year period depending upon an employee's years of service. Costs of the plan charged to expense for the fiscal years ended September 30, 1994, 1993 and 1992 amounted to $1,093,000, $792,000 and $926,000, respectively. Distribution adopted the AmeriSource Distribution Corporation and Subsidiaries Employee Stock Purchase Plan (the "Distribution Plan") to enable key members of management of the Company to participate in the equity ownership of Distribution. As of September 30, 1994, there were options outstanding to acquire 519,187 1/2 shares of Distribution Class A common stock at an exercise price of $1.00 per share under the Distribution Plan. 38 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--PENSION AND OTHER BENEFIT PLANS--(CONTINUED) Distribution adopted the AmeriSource Distribution Corporation Partners Stock Option Plan (the "Partners Plan") to enable other employees of the Company to participate in the equity ownership of Distribution. As of September 30, 1994, there were options outstanding to acquire 115,200 shares of Distribution Class A common stock at an exercise price of $1.00 per share under the Partners Plan. Distribution adopted the AmeriSource Distribution Corporation 1991 Stock Option Plan (the "1991 Option Plan") for the granting of non-qualified stock options to acquire up to an aggregate of 362,500 shares of Distribution Class A common stock. The options granted to certain members of the Company's management under the 1991 Stock Option Plan represented the shares unallocated under the Distribution Plan and options never granted under a performance stock option plan originally announced by Distribution in 1989 and reflect achievement in the Company's operating performance through fiscal year ended September 30, 1991. As of September 30, 1994, there were 352,500 options outstanding at an exercise price of $1.00 per share under the 1991 Option Plan. As a result of special termination benefit packages previously offered, the Company provides medical, dental and life insurance benefits to certain retirees and their dependents. These benefit plans are unfunded. Prior to October 1, 1993, the Company recognized the expenses for these plans on the cash basis. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement 106), which requires that the cost of postretirement health care benefits be recognized on the accrual basis as employees render service to earn the benefit instead of on the cash basis when the benefits are paid. As of October 1, 1993, the Company adopted Statement 106 by recognizing the accumulated obligation related to these benefits. The cumulative effect of this change in accounting principle resulted in a non-cash charge to net income of $1.2 million. In addition to the cumulative effect adjustment, the expense for postretirement benefits other than pensions for the fiscal year ended September 30, 1994, was $80,000, approximately equal to the cash payments. The cash payments for such benefit in fiscal years 1993 and 1992, respectively, were approximately the same as fiscal 1994. Since the plans are unfunded and relate only to certain retirees, the fiscal 1994 expense accrual for these benefits consisted solely of an interest cost component. The accumulated postretirement benefit obligation was $1.1 million as of September 30, 1994. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% and 7.75% at October 1, 1993 and September 30, 1994, respectively. A health care cost trend rate of 11.4% was assumed for fiscal 1995, gradually declining to an ultimate level of 5.5% over 15 years. Increasing the assumed health care cost trend rates by 1% in each year and holding all other assumptions constant, would increase the accumulated postretirement benefit obligation as of September 30, 1994 by $77,500 and increase the postretirement benefit cost in fiscal 1994 by $7,000. NOTE 6--LEASES The costs of capital leases are included in property and equipment and the obligations therefor in other debt. Related amortization is included in depreciation. At September 30, 1994, future minimum payments totaling $21,346,000 under noncancelable operating leases with remaining terms of more than one year were due as follows: 1995--$6,214,000; 1996--$5,197,000; 1997-- $3,390,000; 1998--$1,885,000; 1999--$1,281,000; thereafter (through 2004)-- $3,379,000. In the normal course of business, operating leases are generally renewed or replaced by other leases. Total rental expense was $6,168,000 in 1994, $6,034,000 in 1993 and $5,647,000 in 1992. 39 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--LEGAL MATTERS AND CONTINGENCIES In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust, environmental, product liability and regulatory agency matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts and the matters may remain unresolved for several years. The Company does not believe that these matters, individually or in the aggregate, will have a material adverse effect on its business or financial condition. In November 1993, the Company was named a defendant, along with six other wholesale distributors and twenty-four pharmaceutical manufacturers, in fourteen civil actions filed by independent retail pharmacies in the United States District Court for the Southern District of New York. Plaintiffs seek to establish these lawsuits and over thirty-four others (to which the Company is not a party) filed by other pharmacies as class actions. In essence, these lawsuits all claim that the manufacturer and wholesaler defendants have combined, contracted and conspired to fix the prices charged to plaintiffs and class members for prescription brand name pharmaceuticals. Specifically, plaintiffs claim that the defendants use "chargeback agreements" to give some institutional pharmacies discounts that are not made available to retail drug stores. Plaintiffs seek injunctive relief, treble damages, attorneys' fees and costs. These actions have been transferred to the United States District Court for the Northern District of Illinois for consolidated and coordinated pretrial proceedings. Effective October 26, 1994, the Company entered into a Judgment Sharing Agreement with other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred, up to an aggregate of $9 million; and (b) if a judgment is entered into against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or one million dollars. In addition, the Company has released any claims which it might have had against the manufacturers for the claims presented by the plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. The Company believes it has meritorious defenses to the claims asserted in these lawsuits and intends to vigorously defend itself in all of these cases. The Company has become aware that its former Charleston, South Carolina distribution center was previously owned by a fertilizer manufacturer and that there is evidence of residual soil contamination remaining from the fertilizer manufacturing process operated on that site over thirty years ago. The Company engaged an environmental consulting firm to conduct a soil survey and initiated a groundwater study during fiscal 1994. The preliminary results of the groundwater study indicate that there is lead in the groundwater at levels requiring further investigation and response. A preliminary engineering analysis was prepared by outside consultants during the third quarter of fiscal 1994, and indicated that, if both soil and groundwater remediation are required, the most likely cost of remediation efforts at the Charleston site is estimated to be $4.1 million. Accordingly, a liability of $4.1 million was recorded during the third quarter of fiscal 1994 to cover future consulting, legal and remediation and ongoing monitoring costs. The Company has notified the appropriate state regulatory agency from whom approval must be received before proceeding with any further tests or with the actual site remediation. The approval process and remediation could take several years to accomplish and the actual costs may differ from the liability which has been recorded. The accrued liability, which is reflected in other long-term liabilities on the accompanying consolidated balance sheet, is based on an estimate of the extent of contamination and choice of remedy, existing technology and presently enacted laws and regulations, however, changes in remediation standards, improvements in cleanup technology and discovery of additional information concerning the site could affect the estimated liability in the future. The Company is investigating the possibility of asserting claims against responsible parties for recovery of these costs. Whether or not any recovery may be forthcoming is unknown at this time, although the Company intends to vigorously enforce its rights and remedies. 40 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--LEGAL MATTERS AND CONTINGENCIES--(CONTINUED) The Company has been named as a defendant in several lawsuits based upon alleged injuries and deaths attributable to the product L-Tryptophan. The Company did not manufacture L-Tryptophan; however, prior to an FDA recall, the Company did distribute products containing L-Tryptophan from several of its vendors. The Company believes that it is entitled to full indemnification by its suppliers and the manufacturer of L-Tryptophan with respect to these lawsuits and any other lawsuits involving L-Tryptophan in which the Company may be named in the future. To date, the indemnity to the Company in such suits has not been in dispute and, although the Company believes it is unlikely it will incur any loss as a result of such lawsuits, the Company believes that its insurance coverage and supplier endorsements are adequate to cover any losses should they occur. The Company has received Notices of Proposed Adjustment from the Internal Revenue Service in connection with an audit of the Company's federal income tax returns for the taxable years 1987 through 1991. The proposed adjustments indicate a net increase to taxable income for these years of approximately $23 million and relate principally to the deductibility of costs incurred with respect to the Acquisition. The Company has analyzed these matters with tax counsel, believes it has meritorious defenses to the adjustments proposed by the Internal Revenue Service and any amounts assessed will not have a material effect on the financial condition of the Company. At September 30, 1994, there were contingent liabilities with respect to taxes, guarantees of borrowings by certain customers, lawsuits and environmental and other matters occurring in the ordinary course of business. On the basis of information furnished by counsel and others, management believes that none of these contingencies will materially affect the Company. On December 3, 1991, AmeriSource entered into a settlement agreement with Bear Stearns & Co., Inc. ("Bear Stearns") resolving a civil action that had been filed on August 14, 1989 and Bear Stearns' interest in an appraisal action arising from the acquisition of the Company. The Company paid Bear Stearns $7,235,000 in 1992 and will pay $2,500,000 in November 2001, without interest and subject in certain circumstances to earlier payment. The present value of the payments to Bear Stearns reduced Distribution's investment in the Company and was recorded as a reduction in capital in excess of par value. The Delaware Chancery Court approved the settlement of Bear Stearns' interest in the appraisal action and the settlement of the remaining claims (representing less than 5% of the shares in the original action) on similar terms. Payments of $600,000 were made during fiscal 1992 in settlement of a portion of the remaining claims and were recorded as a reduction in capital in excess of par value. NOTE 8--NON-RECURRING CHARGES The non-recurring charges in 1993 consisted of $1,254,000 in losses on the disposal of three warehouses and charges of $969,000 for the write-down to net realizable value of two additional warehouses no longer in operation which were designated for sale. The non-recurring charges in 1992 consisted of a loss of $287,000 incurred on the sale of a warehouse no longer in operation and the write off of $1,957,000 in professional fees incurred in connection with a public offering attempted during 1992 which was later abandoned due to market conditions. NOTE 9--RELATED PARTY TRANSACTIONS On October 21, 1991, an involuntary bankruptcy petition under Chapter 7 of the United States Bankruptcy Code was filed against RDS Acquisition Corp. ("RDS"), which was a customer of the Company. Affiliates of 399 Venture Partners Inc. ("VPI," the primary stockholder of Distribution) had substantial equity and debt interests in RDS and related entities. VPI indemnified the Company for $5,800,000 of the amounts owed by RDS to the Company on October 25, 1991, for which the Company did not otherwise recover the amount owed. 41 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--SUBSEQUENT EVENTS In December 1994, the Company sold substantially all of its trade accounts and notes receivable (the "Receivables") to AmeriSource Receivables Corporation ("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade receivables securitization program (the "Receivables Program"). As contemplated by the Receivables Program, the Company formed and capitalized ARC through a contribution of $40 million. Contemporaneously, the Company entered into a Receivables Purchase Agreement with ARC, whereby ARC agreed to purchase on a continuous basis Receivables originated by the Company. Pursuant to the Receivables Program, ARC will transfer such Receivables to a master trust in exchange for, among other things, certain trade receivables-backed certificates (the "Certificates") representing a right to receive a variable principal amount. Contemporaneously, Certificates in an aggregate principal amount of up to $230 million face amount were sold to investors. During the five year term of the Receivables Program, the cash generated by collections on the Receivables will be used to purchase, among other things, additional Receivables originated by the Company. The Certificates bear interest at a rate selected by the Company equal to (i) the higher of (a) the prime lending rate and (b) the federal funds rate plus 50 basis points or (ii) LIBOR plus 50 basis points. In addition, during the first seventy five days of the Receivables Program, the Company may select an interest rate equal to the federal funds rate plus 125 basis points. The interest rates for the Certificates are subject to step-ups to a maximum amount of an additional 100 basis points over the otherwise applicable rate. At the same time that it entered into the Receivables Program, the Company and its senior lenders amended its existing Credit Agreement. Among other things, the Amended and Restated Credit Agreement: (i) extended the term of the Credit Agreement until January 3, 2000; (ii) established the amount the Company may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR plus 225 basis points and provided for further interest rate stepdowns upon the occurrence of certain events; (iv) modified the borrowing base availability from inventory and receivable based to inventory based; and (v) increased the Company's ability to make acquisitions and pay dividends. Contemporaneously with the consummation of the Receivables Program and the execution of the Amended and Restated Credit Agreement, the Company called for optional redemption all of the outstanding Notes and New Notes at a redemption price of 106% of the principal amount plus accrued interest through the redemption date of January 12, 1995. 42 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--OTHER INFORMATION (UNAUDITED) QUARTERLY FINANCIAL DATA (IN THOUSANDS)
THREE MONTHS ENDED(1) -------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1993 1994 1994 1994 ------------ ---------- ---------- ------------- Revenues.................... $1,045,776 $1,067,112 $1,079,302 $1,109,642 Gross Profit................ 53,999 58,480 57,455 65,257 Income (Loss) Before Extraordinary Item and Cumulative Effects of Accounting Changes......... 3,622 4,438 (177,953) (2,348) Extraordinary Item.......... (442) Cumulative Effects of Accounting Changes......... (35,045) Net Income (Loss)........... (31,865) 4,438 (177,953) (2,348) THREE MONTHS ENDED -------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1992 1993 1993 1993 ------------ ---------- ---------- ------------- Revenues.................... $ 917,681 $ 920,195 $ 918,499 $ 962,585 Gross Profit................ 51,378 53,385 50,302 54,308 Income Before Extraordinary Items...................... 969 2,726 1,771 1,124 Extraordinary Items......... (2,635) (2,765) Net Income (Loss)........... 969 91 1,771 (1,641)
- - - -------- (1) December 31, 1993 amounts reflect the cumulative effect of the accounting changes for postretirement benefits other than pensions and income taxes. June 30, 1994 amounts reflect the write-off of goodwill discussed in Note 2. 43 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Stockholders of AmeriSource Distribution Corporation We have audited the accompanying consolidated balance sheets of AmeriSource Distribution Corporation (formerly Alco Health Distribution Corporation) and subsidiaries as of September 30, 1994 and 1993 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement and schedules presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmeriSource Distribution Corporation and subsidiaries at September 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in the notes to the consolidated financial statements (Notes 3 and 6), in 1994 the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. Ernst & Young LLP Philadelphia, Pennsylvania November 2, 1994, except for Note 11, as to which the date is December 13, 1994 44 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
SEPTEMBER 30, SEPTEMBER 30, 1994 1993 ------------- ------------- Current Assets Cash............................................. $ 25,311 $ 27,136 Accounts receivable less allowance for doubtful accounts: 1994-$9,370; 1993-$7,681.............. 272,281 251,999 Merchandise inventories.......................... 351,676 346,371 Prepaid expenses................................. 2,442 1,977 -------- -------- Total current assets........................... 651,710 627,483 Property and Equipment, at cost.................... 67,598 57,282 Less accumulated depreciation.................... 26,416 21,176 -------- -------- 41,182 36,106 Other Assets Excess of cost over net assets acquired.......... 183,810 Deferred financing costs and other, less accumulated amortization: 1994-$7,239; 1993- $3,781.......................................... 18,752 20,545 -------- -------- 18,752 204,355 -------- -------- $711,644 $867,944 ======== ========
45 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, SEPTEMBER 30, 1994 1993 ------------- ------------- Current Liabilities Current portion of other debt.................... $ 133 $ 122 Accounts payable................................. 449,991 379,826 Accrued expenses................................. 27,485 29,771 Accrued income taxes............................. 11,488 604 Deferred income taxes............................ 29,258 -------- -------- Total current liabilities...................... 518,355 410,323 Long-Term Debt Revolving credit facility........................ 175,897 248,000 Senior subordinated notes........................ 166,134 170,562 Other debt....................................... 1,293 1,311 Convertible subordinated debentures.............. 238 238 Senior debentures................................ 144,013 129,109 -------- -------- 487,575 549,220 Other Liabilities Deferred compensation............................ 522 701 Other............................................ 5,918 740 -------- -------- 6,440 1,441 Stockholders' Equity Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued Common stock, $.01 par value: Class A (Voting and convertible): 30,000,000 shares authorized; 180,387 1/2 shares issued.. 2 2 Class B (Non-voting and convertible): 30,000,000 shares authorized; 4,400,300 shares issued........................................ 44 44 Class C (Non-voting and convertible): 2,000,000 shares authorized; 500,000 shares issued...... 5 5 Capital in excess of par value................... 4,775 4,775 Retained earnings (deficit)...................... (304,984) (97,313) Cost of common stock in treasury................. (568) (553) -------- -------- (300,726) (93,040) -------- -------- $711,644 $867,944 ======== ========
See notes to consolidated financial statements. 46 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Revenues................................... $4,301,832 $3,719,025 $3,329,909 Costs and Expenses Cost of goods sold....................... 4,066,641 3,509,587 3,130,186 Selling and administrative............... 146,644 135,805 131,245 Environmental remediation................ 4,075 Depreciation............................. 6,640 5,809 5,384 Write-off of excess of cost over net assets acquired......................... 179,824 Interest................................. 62,611 66,696 71,025 Non-recurring charges.................... 2,223 2,244 ---------- ---------- ---------- 4,466,435 3,720,120 3,340,084 ---------- ---------- ---------- (Loss) Before Taxes, Extraordinary Items and Cumulative Effects of Accounting Changes................................... (164,603) (1,095) (10,175) Taxes on Income ........................... 7,814 6,379 2,649 ---------- ---------- ---------- (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes................................. (172,417) (7,474) (12,824) Extraordinary Charge--early retirement of debt, net of income tax benefit......... (656) (11,890) Extraordinary Credits: Settlement of litigation................. 4,486 Reduction of income tax provision from carryforward of prior year operating losses.................................. 746 1,862 Cumulative effect of change in accounting for postretirement benefits other than pensions.................................. (1,199) Cumulative effect of change in accounting for income taxes.......................... (33,399) ---------- ---------- ---------- Net (Loss)............................. $ (207,671) $ (18,618) $ (6,476) ========== ========== ========== (Loss) per share (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes............................... $ (34.48) $ (1.49) $ (2.56) Extraordinary Items.................... (.13) (2.23) 1.26 Cumulative effect of change in accounting for postretirement benefits other than pensions................... (.24) Cumulative effect of change in accounting for income taxes.......................... (6.68) ---------- ---------- ---------- Net (Loss)........................... $ (41.53) $ (3.72) $ (1.30) ========== ========== ==========
See notes to consolidated financial statements. 47 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK CAPITAL IN RETAINED COMMON ----------------------- EXCESS OF EARNINGS STOCK IN CLASS A CLASS B CLASS C PAR VALUE (DEFICIT) TREASURY TOTAL ------- ------- ------- ---------- --------- -------- --------- September 30, 1991...... $2 $44 $5 $4,447 $ (72,219) $(550) $ (68,271) Net (loss)............. (6,476) (6,476) --- --- --- ------ --------- ----- --------- September 30, 1992...... 2 44 5 4,447 (78,695) (550) (74,747) Net (loss)............. (18,618) (18,618) Repurchase of stock options............... (18) (18) Purchase of 1,187 1/2 shares of Class A Common Stock.......... (3) (3) Capital contribution... 346 346 --- --- --- ------ --------- ----- --------- September 30, 1993...... 2 44 5 4,775 (97,313) (553) (93,040) Net (loss)............. (207,671) (207,671) Purchase of 15,000 shares of Class A Common Stock.......... (15) (15) --- --- --- ------ --------- ----- --------- September 30, 1994...... $2 $44 $5 $4,775 $(304,984) $(568) $(300,726) === === === ====== ========= ===== =========
See notes to consolidated financial statements. 48 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED SEPTEMBER 30 --------------------------------- 1994 1993 1992 --------- ----------- --------- OPERATING ACTIVITIES Net (loss)................................. $(207,671) $ (18,618) $ (6,476) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation.............................. 6,640 5,809 5,384 Amortization.............................. 8,120 9,407 11,510 Provision for losses on accounts receivable............................... 4,612 3,186 3,443 Loss on disposal of property and equipment................................ 185 2,267 332 Write-off of excess of cost over net assets acquired.......................... 179,824 Provision for deferred income taxes....... (5,055) Loss on early retirement of debt.......... 679 16,658 Gain on settlement of litigation.......... (4,486) Cumulative effects of accounting changes.. 34,598 Changes in operating assets and liabilities: Accounts receivable...................... (24,894) (6,115) (31,130) Merchandise inventories.................. (5,305) (10,346) (65,048) Prepaid expenses......................... (465) (33) 377 Accounts payable, accrued expenses and income taxes............................ 76,847 77,102 57,080 Payments to settle litigation............ (5,250) Debentures issued in lieu of payment of interest................................ 14,904 20,378 17,231 Other long-term liabilities.............. 4,075 Miscellaneous.............................. (3,083) (520) (974) --------- ----------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............................... 84,011 99,175 (18,007) INVESTING ACTIVITIES Capital expenditures....................... (8,483) (7,571) (8,297) Proceeds from sales of property and equipment................................. 457 1,500 642 --------- ----------- --------- NET CASH (USED IN) INVESTING ACTIVITIES... (8,026) (6,071) (7,655) FINANCING ACTIVITIES Long-term debt borrowings.................. 854,661 993,864 882,000 Long-term debt repayments.................. (931,857) (1,060,303) (873,197) Deferred financing costs................... (589) (13,660) (3,131) Capital contribution....................... 346 Repurchase of stock options................ (10) (18) Purchases of treasury stock................ (15) (3) --------- ----------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES............................... (77,810) (79,774) 5,672 --------- ----------- --------- (DECREASE) INCREASE IN CASH................. (1,825) 13,330 (19,990) Cash at beginning of year................... 27,136 13,806 33,796 --------- ----------- --------- CASH AT END OF YEAR......................... $ 25,311 $ 27,136 $ 13,806 ========= =========== =========
See notes to consolidated financial statements. 49 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation AmeriSource Distribution Corporation (formerly Alco Health Distribution Corporation) ("Distribution") is a Delaware corporation organized by an affiliate of 399 Venture Partners Inc. ("VPI"), and other investors, including members of management of AmeriSource Corporation ("AmeriSource") (formerly Alco Health Services Corporation). Distribution was formed in November 1988 to acquire AmeriSource in a leveraged buyout transaction (the "Acquisition"). The accompanying financial statements present the consolidated financial position, results of operations and cash flows of Distribution and its wholly-owned subsidiary, AmeriSource Corporation (collectively, the "Company") as of the dates and for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. Business The Company is a wholesale distributor of pharmaceuticals and related health care products. Concentrations of Credit Risk The Company sells its merchandise inventories to a large number of customers in the health care industry including independent drug stores, chain drug stores, hospitals, mass merchandisers, clinics and nursing homes. The Company's trade accounts receivable are exposed to credit risk, however, the risk is limited due to the diversity of the customer base and the customer base's wide geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial conditions. The Company maintains reserves for potential bad debt losses and such bad debt losses have been historically within the Company's expectations. Merchandise Inventories Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method, which results in a matching of current costs and revenues. On a supplemental basis, if the first-in, first-out (FIFO) method of valuation had been used for determining costs, inventories would have been approximately $88,327,000 and $83,022,000 higher than the amounts reported at September 30, 1994 and 1993, respectively. Depreciation The cost of property and equipment is depreciated over the estimated useful lives of the related assets by the straight-line method. Deferred Financing Costs Deferred financing fees and related expenses are being amortized over 3 to 12 years. Pension Plans Pension costs, which are primarily computed using the projected unit credit cost method, are funded based on the minimum required contribution under the Employee Retirement Income Security Act of 1974. Revenue Recognition The Company recognizes revenues at the point at which product is shipped. Earnings Per Share Earnings per share are based on 5,000,000 shares, representing the weighted average shares outstanding during the periods presented including the effect of the Distribution Plan and the 1991 Option Plan stock options (Note 6), since all of the options outstanding under these plans will be satisfied with shares purchased or to be purchased from VPI at $1.00 per share, pursuant to a prior agreement. 50 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets acquired ("goodwill") was recorded at the time of the Acquisition in 1988. Since the Acquisition, the Company has been unable to achieve the operating results projected at the time of the Acquisition. The projections at the time of the Acquisition were developed based on historical experience, industry trends and management's estimates of future performance. These projections assumed significant growth rates in revenues, stable gross profit margins and cash flow from operations to reduce Acquisition indebtedness and did not anticipate long-term losses or indicate an inability to recover the value of goodwill. Due to persistent competitive pressures and a shift in the customer mix to larger volume, lower margin customers, gross profit margins have declined from 7.10% in fiscal 1989 to 5.63% in fiscal 1993 and 5.47% in fiscal 1994, resulting in: operating results which are substantially below the projections made at the time of the Acquisition; an increase in the Company's indebtedness; and an accumulated deficit in retained earnings at June 30, 1994 before the goodwill write-off of $126.4 million. During the period since the Acquisition, the Company has been affected by price competition for market share within the industry, health care industry consolidation and the impact of group purchasing organizations, managed care and health care reform on drug prices. Until fiscal 1994, the Company believed the results since the Acquisition were not indicative of long-term market conditions affecting pricing within the industry. In fiscal 1994, the Company determined its poor operating results since the Acquisition and its expectations for future operating results were being significantly affected by fundamental changes in the market place in which the Company operates. As these factors became clear and in conjunction with the increases in interest rates, a detailed comprehensive evaluation of the Company's future prospects was prepared. The evaluation determined the Company's financial losses were and continue to be significantly affected by price sensitivity, aggressive pricing by better capitalized competitors, consolidations in the wholesale drug distribution industry and the impact of larger buying groups. Based on current industry trends, interest rate trends and the health care reform environment, in the third quarter of fiscal 1994, the Company concluded that the projected operating results (the "Projection") would not support the future recovery of the remaining goodwill balance. The methodology employed to assess the recoverability of the Company's goodwill was to project results of operations forward 36 years, which approximated the remaining amortization period of the goodwill balance at June 30, 1994. The Company then evaluated the recoverability of goodwill on the basis of the Projection. The Projection reflects significant cumulative losses indicating that the carrying value of goodwill is not recoverable. Unless the Company is able to develop successful strategic, operating or financing initiatives which would change the assumptions used in the Projection, the projected future operating results based on these assumptions is the best estimate of the Company's projected performance given the Company's existing high leverage and industry trends. As a result, the Company concluded that the carrying value of goodwill could not be recovered from expected future operations. Accordingly, the Company wrote off its remaining goodwill balance of $179.8 million in the third quarter of fiscal 1994. More importantly, while the Company believes the reliability of any projection over such an extended period is highly uncertain, the Projection also indicates that the Company's long-term viability will require modification of its current capital structure to reduce its indebtedness and increase its equity in the near to mid-term future. While the Projection indicates that in fiscal 1998 cash flow from operations will not be sufficient to satisfy required interest and principal payments on its current debt obligations, the Company believes and the Projection indicates, that cash flow generated from operations in the near-term (fiscal years 1995 through 1997) is sufficient to service its current debt obligations. No assurance can be given that the Company will be successful in efforts to restructure or recapitalize in order to be able to operate in a profitable manner for the long-term. 51 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--TAXES ON INCOME The income tax provision (benefit) is as follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30 -------------------------------- 1994 1993 1992 ---------- -------------------- Current provision Federal...................................... $12,147 $4,633 $ 2,574 State and local.............................. 853 1,746 75 ---------- --------- --------- 13,000 6,379 2,649 ---------- --------- --------- Deferred provision (benefit) Federal...................................... (5,625) State and local.............................. 439 ---------- --------- --------- (5,186) -- -- ---------- --------- --------- Provision for income taxes..................... $ 7,814 $6,379 $ 2,649 ========== ========= =========
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Statutory federal income tax rate.......... 35.0% 34.8% 34.0% State and local income tax rate, net of federal tax benefit....................... (.3) (104.1) (.5) Tax effect of operating loss carryover..... 6.1 (13.5) Amortization of difference in book and tax bases of net assets acquired.............. (39.2) (168.6) (20.3) Alternative minimum tax.................... (274.2) (20.3) Other...................................... (6.3) (70.5) (5.4) --------- ---------- --------- Effective income tax rate.................. (4.7)% (582.6)% (26.0)% ========= ========== =========
Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (Statement 109), which requires a change in the method of accounting for income taxes from the deferred method to the liability method. In accordance with Statement 109, the Company recorded an adjustment of $33.4 million for the cumulative effect of adopting Statement 109 as of October 1, 1993. As permitted under Statement 109, prior period financial statements have not been restated. The cumulative effect adjustment relates principally to the provision of deferred income taxes to reflect the tax consequences on future years of the difference between the tax and financial reporting basis of merchandise inventories. 52 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--TAXES ON INCOME--(CONTINUED) Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts. Significant components of the Company's deferred tax liabilities (assets) as of September 30, 1994 are as follows (in thousands): Inventory............................................................. $ 35,712 Fixed assets.......................................................... 4,654 Other................................................................. 351 -------- Gross deferred tax liabilities...................................... 40,717 -------- Net operating losses and tax credit carryovers........................ (11,554) Allowance for doubtful accounts....................................... (3,748) Accrued expenses...................................................... (3,524) Other postretirement benefits......................................... (497) Other................................................................. (3,173) -------- Gross deferred tax assets........................................... (22,496) -------- Valuation allowance for deferred tax assets........................... 10,350 -------- Net deferred tax liabilities........................................ $ 28,571 ========
The valuation allowance for deferred tax assets was $17.6 million at October 1, 1993. For the fiscal years ended September 30, 1993 and 1992, the deferred income tax provision (benefit) resulted from timing differences in the recognition of certain expenses for tax and financial reporting purposes. Due to limitations on the utilization of tax losses, the Company did not recognize any deferred income tax (benefit) in 1993 or 1992. The principal components of deferred taxes are as follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30 -------------- 1993 1992 ------ ------ Bad debts....................................................... $ (254) $ 360 Deferred compensation........................................... 164 (31) Interest........................................................ (491) Inventory....................................................... (725) (492) Insurance....................................................... 113 (207) Fixed assets.................................................... (970) Other........................................................... (138) (149) Amount not recognized........................................... 1,810 1,010 ------ ------ $ -- $ -- ====== ======
An unused tax net operating loss carry-over of $6,910,000 expiring in 2008, is available to offset future taxable income. The Company was subject to the alternative minimum tax for the fiscal years ended September 30, 1994 and September 30, 1992. The alternative minimum tax is imposed at a 20% rate on the Company's alternative minimum taxable income which is determined by making statutory adjustments to the Company's regular taxable income. Net operating loss carryforwards were used to offset up to 90% of the Company's alternative minimum taxable income. For 1992, the effect of utilizing the net operating loss carryforward is represented for financial reporting purposes as an extraordinary credit. The alternative minimum tax paid is allowed as an indefinite credit carryover against the Company's regular tax liability in the future when the Company's 53 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--TAXES ON INCOME--(CONTINUED) regular tax liability exceeds the alternative minimum tax liability. As of September 30, 1994, the Company has a $7,142,000 alternative minimum tax credit carryforward. Income tax payments (refunds) amounted to $3,891,000, $395,000 and $(1,089,000) in the years ended September 30, 1994, 1993 and 1992, respectively. NOTE 4--LONG-TERM DEBT On March 30, 1993, AmeriSource entered into a credit agreement (the "Credit Agreement") with a syndicate of financial institutions providing senior secured facilities of up to $425 million. The Credit Agreement provides for initial borrowings based on commitments of $380 million, consisting of a term loan of $20 million and a revolving credit loan of up to $360 million. The maximum amount that may be borrowed under the Credit Agreement is limited to the extent of a sufficient borrowing base, which is essentially 85% of eligible accounts receivable and 60% of eligible inventory. Under the terms of the Credit Agreement, AmeriSource has pledged substantially all its assets to secure its borrowings under the Credit Agreement and AmeriSource's parent, Distribution, has pledged the common stock of AmeriSource. The term loan matures, and the commitment of the syndicate to make revolving credit loans expires, on April 1, 1996. The term loan and the revolving credit loan bear interest at a rate per annum equal to, at AmeriSource's option, LIBOR plus 3% or the prime rate plus 1 1/2%. AmeriSource has entered into a two-year interest rate cap of 12% with respect to $100 million in borrowings under the revolving credit loan for the purpose of limiting AmeriSource's exposure to an increase in interest rates. In addition, AmeriSource is required to pay a fee of 1/2% per annum on the average unused portion of the revolving credit loan commitment plus a $200,000 annual administration fee. The Credit Agreement, as amended, contains certain restrictive covenants and requires AmeriSource, among other things, to maintain minimum defined net worth levels, satisfy certain financial ratios and places certain limitations on investments, capital expenditures, additional debts, changes in capital structure and dividend payments. At September 30, 1994, the $20 million outstanding under the term loan and the $156 million outstanding under the revolving credit loan bore interest at the rate of 8.10% per annum. Initial borrowings under the Credit Agreement were used to extinguish the obligations outstanding under AmeriSource's former revolving credit facility, which was due to expire in December, 1993. An extraordinary loss of $3.3 million, net of a tax benefit of $1.3 million, was recorded during the fiscal year ended September 30, 1993 representing the write-off of the unamortized financing fees relating to the former revolving credit facility. In connection with the Credit Agreement, the Company incurred approximately $7.7 million in financing fees which have been deferred and are being amortized on a straight-line basis over the three year term of the indebtedness. The 14 1/2% Senior Subordinated Notes (the "Notes") were sold on September 15, 1989 in a public offering and are due September 15, 1999. The Notes are unsecured obligations and are subordinated to the Credit Agreement and certain other indebtedness, and may be redeemed at the option of the Company at a premium, together with accrued and unpaid interest to the redemption date, at any time on or after September 15, 1994. If, for the twelve-month period ending on each of August 31, 1996 and 1997, the Company's consolidated fixed charge ratio (as defined) exceeds 1.5 to 1, the Company shall be required to redeem or otherwise repurchase in the open market and retire 5% and 10%, respectively, of the principal amount of the Notes. The Company shall not be required to make such redemption or repurchase until such time, and to the extent, funds become available under the Credit Agreement or any successor or replacement facility. In addition, the Company is required to redeem on August 31, 1998, 50% of the aggregate principal amount of the Notes originally issued, reduced by any prior redemptions or repurchases. During the fiscal year ended 54 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT--(CONTINUED) September 30, 1993, the Company purchased and retired $4.4 million of the Notes. Premiums on the fiscal 1993 purchases resulted in an extraordinary loss of $549,000, net of a tax benefit of $222,000. During the fiscal year ended September 30, 1994, the Company purchased and retired an additional $4.4 million of Notes, resulting in an extraordinary charge of $679,000, net of a tax benefit of $23,000, consisting of the write-off of related unamortized financing fees and premiums paid on redemption. During the fiscal year ended September 30, 1994, the Company completed an exchange of $40,329,000 principal amount of 14 1/2% Senior Subordinated Notes due 1999, Series A (the "New Notes") and $101,000 in cash for $40,329,000 principal amount of its Notes. The only material difference between the terms of the New Notes and the terms of the Notes is that the indenture of the New Notes does not have the minimum consolidated net worth provisions set forth in the indenture of the Notes. The indenture of the Notes requires the Company to maintain a consolidated net worth (as defined) of $80 million. If the Company's consolidated net worth, as defined in the indenture of the Notes, is less than $80 million at the end of each of any two consecutive fiscal quarters, the Company is required to offer to purchase (the "Offer") an amount of Notes equal to 20% of the principal amount of Notes outstanding at the time the Offer is made. The purchase price in any Offer is equal to 100% of the principal amount purchased plus accrued interest to the date of purchase. The Offer required could be triggered if the Company generated losses from operations, had charges or expenses relating to a restructuring or recapitalization, or reductions in the book value of tangible or intangible assets, if in each case the losses or charges are of a sufficient magnitude. As a result of the elimination of the minimum consolidated net worth provision in the indenture of the New Notes, the Company would not be required to make an Offer to holders of the New Notes, even in the event of a material decrease in the Company's consolidated net worth. In addition to the exchange noted above, the Company paid the holders of an aggregate of $125,388,000 in principal amount of Notes cash consideration of $520,000 in exchange for each holder's agreement not to tender any of the Notes as a result of any required Company Offer or to exercise any rights they have or may have with respect to the consolidated net worth provision of the indenture of the Notes. The total cash consideration of $621,000 noted above as well as related fees and expenses of $600,000 were recognized as interest expense during the fiscal year ended September 30, 1994. On July 26, 1993, Distribution issued $126.5 million principal amount of 11 1/4% Senior Debentures ("Senior Debentures") due 2005 in a public offering. Interest on the Senior Debentures will be payable semi-annually on January 15 and July 15 of each year, commencing January 15, 1994. Through and including the semi-annual interest payment due July 15, 1998, Distribution may elect, at its option, to issue additional Senior Debentures in satisfaction of its interest payment obligations. The Senior Debentures are senior unsecured obligations of Distribution and rank pari passu in right of payment with all senior borrowings of Distribution and senior in right of payment to all subordinated indebtedness of Distribution. As indebtedness of Distribution, the Senior Debentures are structurally subordinated to all indebtedness and other obligations of AmeriSource. Substantially all the net proceeds of the offering (approximately $122 million) were applied to redeem the 18% Senior Subordinated Debentures, 18 1/2% Merger Debentures and 19 1/2% Junior Subordinated Debentures of Distribution at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption. The indenture relating to the Senior Debentures contains restrictions relating to, among other things, the payment of dividends, the repurchase of stock and the making of certain other restricted payments, the incurrence of additional indebtedness and the issuance of preferred stock, the creation of certain liens, certain asset sales, transactions with subsidiaries and other affiliates, dividends and other payment restrictions affecting subsidiaries, and mergers and consolidations. The debt refinancing resulted in an extraordinary charge of $12.8 million during the fiscal year ended September 30, 1993 relating to the redemption of the Merger Debentures and the write-off of 55 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT--(CONTINUED) deferred financing costs, net of a tax benefit of $3.2 million. In connection with the Senior Debentures, the Company incurred approximately $5.1 million in financing fees which have been deferred and are being amortized on a straight- line basis over the twelve year life of the indebtedness. The indentures governing the Credit Agreement, the Notes, the New Notes and the Senior Debentures contain restrictions and covenants, as amended, which include limitations on incurrence of additional indebtedness, prohibition of indebtedness senior to the Notes and New Notes and junior to the Credit Agreement, restrictions on distributions and dividends to stockholders, including Distribution, transactions with affiliates and certain corporate acts such as mergers, consolidations and the sale of substantially all assets. Additional covenants require compliance with financial tests, including current ratio, leverage, interest coverage ratio, fixed charge coverage and maintenance of minimum net worth. Interest paid on the above indebtedness during the fiscal years ended September 30, 1994, 1993 and 1992 amounted to $46.1 million, $39.7 million and $52.2 million, respectively. Financing fees and expenses incurred with respect to the above indebtedness have been capitalized and are being amortized over the terms of the related indebtedness. Total amortization of these fees and expenses (included in interest expense) for the fiscal years ended September 30, 1994, 1993 and 1992 was $4.0 million, $3.9 million and $4.0 million, respectively. The carrying amount of the Company's revolving credit facility approximates fair value. The combined fair value of the Notes and New Notes is approximately $176 million and is based on quoted market prices. The fair value of the Senior Debentures is approximately $145 million and is based on quotes from brokers. It was not practicable to estimate the fair value of the other debt or convertible subordinated debentures. NOTE 5--COMMON STOCK The holders of the Class A common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of Distribution. Except as otherwise required by law, holders of the Class B common stock and Class C common stock generally do not possess the right to vote on any matters to be voted upon by the stockholders of Distribution. The holders of the Class A common stock may elect at any time to convert any or all such shares into the Class B common stock on a share-for-share basis. Holders of the Class B common stock may elect at any time to convert any or all of such shares into the Class A common stock, on a share-for-share basis, to the extent the holder thereof is not prohibited from owning additional voting securities by virtue of regulatory restrictions. The Class C common stock is subject to substantial restrictions on transfer and has certain registration and "take-along" rights. A share of Class C common stock will automatically be converted into a share of Class A common stock (a) immediately prior to its sale in a subsequent public offering or (b) at such time as such share of Class C common stock has been sold publicly after a subsequent public offering in a transaction that complies with any maximum quantity limitations applicable to such sale. Once a share of Class C common stock has been converted into Class A common stock it will no longer be subject to any restrictions on transfer nor will it be entitled to the benefits of registration and take-along rights. During fiscal 1992, the Company increased the number of shares of Class A common stock and Class B common stock authorized to be issued from 10,000,000 each to 30,000,000 each and increased the number of shares of Class C common stock authorized to be issued from 500,000 to 2,000,000. During fiscal 1993, 1,187 1/2 shares of Class A common stock were purchased as treasury stock. During fiscal 1994, 15,000 shares of Class A common stock were purchased as treasury stock. 56 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--PENSION AND OTHER BENEFIT PLANS AmeriSource provides a benefit for the majority of its employees under noncontributory defined benefit pension plans. For each employee, the benefits are based on years of service and average compensation. A summary of the components of net periodic pension cost charged to expense for the company-sponsored defined benefit pension plans together with contributions charged to expense for a multi-employer union administered defined benefit pension plan the Company participates in follows (in thousands):
FISCAL YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1993 1992 ---------- ---------- ---------- Service cost............................... $ 2,198 $ 1,912 $ 1,669 Interest cost on projected benefit obligation................................ 2,165 2,034 1,879 Actual return on plan assets............... (13) (2,842) (3,090) Net amortization and deferral.............. (2,038) 979 1,490 ---------- ---------- ---------- Net pension cost of defined benefit plans.. 2,312 2,083 1,948 Net pension cost of multi-employer plan.... 142 110 91 ---------- ---------- ---------- Total pension expense...................... $ 2,454 $ 2,193 $ 2,039 ========== ========== ==========
The following table sets forth (in thousands) the funded status and amount recognized in the consolidated balance sheets for the company-sponsored defined benefit pension plans:
1994 1993 ----------------------- ----------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ----------- ----------- ----------- Plan assets at fair value...... $24,457 $ 333 $24,155 $ 280 Actuarial present value of benefit obligations: Vested....................... 22,420 1,168 20,898 603 Accumulated, not vested...... 421 210 576 171 ------- ------- ------- ----- Accumulated benefit obligations................... 22,841 1,378 21,474 774 Effect of future pay increases................... 8,559 17 7,987 113 ------- ------- ------- ----- Projected benefit obligation... 31,400 1,395 29,461 887 ------- ------- ------- ----- Plan assets (less than) projected benefit obligation.. (6,943) (1,062) (5,306) (607) Unrecognized net transition asset......................... (996) (1,167) Unrecognized prior service cost.......................... 3,380 733 3,680 357 Adjustment to recognize minimum liability..................... (813) (372) Unrecognized net loss related to assumptions................ 4,013 149 2,117 128 ------- ------- ------- ----- Pension (liability) recognized in balance sheet.............. $ (546) $ (993) $ (676) $(494) ======= ======= ======= =====
Assumptions used in computing the funded status of the plans were as follows:
1994 1993 1992 ------ ------ ----- Discount rate............................................ 7.75% 7.25% 8.0% Rate of increase in compensation levels.................. 6.25% 5.75% 6.5% Expected long-term rate of return on assets.............. 10.00% 10.00% 10.0%
57 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--PENSION AND OTHER BENEFIT PLANS--(CONTINUED) Plan assets at September 30, 1994 are invested principally in listed stocks, corporate and government bonds and cash equivalents. Additionally, the Company sponsors the Employee Investment Plan, a defined contribution 401(k) plan, which covers salaried and certain hourly employees. Eligible participants may contribute to the plan up to 2% to 6% of their regular compensation before taxes. The Company matches the employee contributions in an amount equal to 50% of the participants' contributions. An additional discretionary Company contribution in an amount not to exceed 50% of the participants' contributions may also be made depending upon the Company's performance. All contributions are invested at the direction of the employee in one or more funds. Employer contributions vest over a five-year period depending upon an employee's years of service. Costs of the plan charged to expense for the fiscal years ended September 30, 1994, 1993 and 1992 amounted to $1,093,000, $792,000 and $926,000, respectively. Distribution adopted the AmeriSource Distribution Corporation and Subsidiaries Employee Stock Purchase Plan (the "Distribution Plan") to enable key members of management of AmeriSource to participate in the equity ownership of Distribution. The securities subject to the Distribution Plan are Distribution's Class A common stock. The purchase price for shares of Distribution was $1.00 per share. Eligible management participants with prior AmeriSource options were required to defer the purchase of some or all of the Distribution Class A common stock allocated to them. Pursuant to the Distribution Plan, management investors, on November 3, 1989, purchased options on 581,812 1/2 shares of Distribution's Class A common stock which became exercisable in 20% annual increments commencing on January 1, 1990 and expire five years after the date of grant, or if Distribution has not gone public or been sold within that five-year period, at the earlier of (i) 10 years from the date of grant, (ii) the date Distribution is sold or (iii) 90 days after the date Distribution goes public. During fiscal 1991 and 1993, respectively, 21,312 1/2 and 41,312 1/2 options purchased by management investors in fiscal 1990 were extinguished. No options were exercised during fiscal 1994 or 1993 and no additional options will be issued under the Distribution Plan. As of September 30, 1994, there were 519,187 1/2 options outstanding under the Distribution Plan, all of which were exercisable. Distribution adopted the AmeriSource Distribution Corporation Partners Stock Option Plan (the "Partners Plan") to enable other employees of AmeriSource to participate in the equity ownership of Distribution. On March 2, 1991, options to acquire 124,800 shares of Distribution Class A common stock were granted at an exercise price of $1.00 per share. The options under the Partners Plan became exercisable when they vested on September 30, 1994 and expire on December 31, 1994. If an option terminates or expires without having been exercised, no new options may be granted covering the shares subject to such option, and such shares shall cease to be reserved for future issuance under the Partners Plan. No additional options will be granted under the Partners Plan. During fiscal 1991, 3,200 options were canceled and during fiscal 1992 an additional 6,400 options were canceled, leaving 115,200 options outstanding under the Partners Plan as of September 30, 1994. Distribution adopted the AmeriSource Distribution Corporation 1991 Stock Option Plan (the "1991 Option Plan") for the granting of non-qualified stock options to acquire up to an aggregate of 362,500 shares of Distribution Class A common stock. The options granted to certain members of the Company's management under the 1991 Stock Option Plan represented the shares unallocated under the Distribution Plan and options never granted under a performance stock option plan originally announced by Distribution in 1989 and reflect achievement in the Company's operating performance through fiscal year ended September 30, 1991. The options granted under the 1991 Option Plan are not subject to forfeiture, exercisable at the rate of 50% per year on each of January 1, 1993 and January 1, 1994 and expire on November 3, 1994, or if prior to November 3,1994, Distribution has not gone public or been sold, then at the earlier of (i) November 58 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--PENSION AND OTHER BENEFIT PLANS--(CONTINUED) 3, 1999, (ii) the date Distribution is sold or (iii) 90 days after the date Distribution goes public. During fiscal 1994, 10,000 options were extinguished, leaving 352,500 options outstanding at an exercise price of $1.00 per share under the 1991 Option Plan as of September 30, 1994. The Company's 1992 Stock Option Plan (the "1992 Option Plan"), which was adopted by the Board of Directors on March 31, 1992 and approved by the stockholders on April 7, 1992, provides for the granting over time of non- qualified stock options to acquire up to approximately 1.7 million shares of Distribution Class A common stock to employees of the Company. Such options will be granted based upon performance and with vesting schedules to be determined at the time of grant. Under the 1992 Option Plan, the exercise price of options will not be less than the fair market value of the Class A common stock on the date of the grant. Options granted to employees will not be exercisable after the expiration of six years from the date of the grant or such sooner date as determined. No options have been granted under the 1992 Option Plan. As a result of special termination benefit packages previously offered, the Company provides medical, dental and life insurance benefits to certain retirees and their dependents. These benefit plans are unfunded. Prior to October 1, 1993, the Company recognized the expenses for these plans on the cash basis. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement 106), which requires that the cost of postretirement health care benefits be recognized on the accrual basis as employees render service to earn the benefit instead of on the cash basis when the benefits are paid. As of October 1, 1993, the Company adopted Statement 106 by recognizing the accumulated obligation related to these benefits. The cumulative effect of this change in accounting principle resulted in a non-cash charge to net income of $1.2 million. In addition to the cumulative effect adjustment, the expense for postretirement benefits other than pensions for the fiscal year ended September 30, 1994, was $80,000, approximately equal to the cash payments. The cash payments for such benefits in fiscal years 1993 and 1992, respectively, were approximately the same as fiscal 1994. Since the plans are unfunded and relate only to certain retirees, the fiscal 1994 expense accrual for these benefits consisted solely of an interest cost component. The accumulated postretirement benefit obligation was $1.1 million as of September 30, 1994. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% and 7.75% at October 1, 1993 and September 30, 1994, respectively. A health care cost trend rate of 11.4% was assumed for fiscal 1995, gradually declining to an ultimate level of 5.5% over 15 years. Increasing the assumed health care cost trend rates by 1% in each year and holding all other assumptions constant, would increase the accumulated postretirement benefit obligation as of September 30, 1994 by $77,500 and increase the postretirement benefit cost in fiscal 1994 by $7,000. NOTE 7--LEASES The costs of capital leases are included in property and equipment and the obligations therefor in other debt. Related amortization is included in depreciation. At September 30, 1994, future minimum payments totaling $21,346,000 under noncancelable operating leases with remaining terms of more than one year were due as follows: 1995--$6,214,000; 1996--$5,197,000; 1997-- $3,390,000; 1998--$1,885,000; 1999--$1,281,000; thereafter (through 2004) -- $3,379,000. In the normal course of business, operating leases are generally renewed or replaced by other leases. Total rental expense was $6,168,000 in 1994, $6,034,000 in 1993 and $5,647,000 in 1992. 59 AMERISOURCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7--LEGAL MATTERS AND CONTINGENCIES In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings and governmental investigations, including antitrust, environmental, product liability and regulatory agency matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts and the matters may remain unresolved for several years. The Company does not believe that these matters, individually or in the aggregate, will have a material adverse effect on its business or financial condition. In November 1993, the Company was named a defendant, along with six other wholesale distributors and twenty-four pharmaceutical manufacturers, in fourteen civil actions filed by independent retail pharmacies in the United States District Court for the Southern District of New York. Plaintiffs seek to establish these lawsuits and over thirty-four others (to which the Company is not a party) filed by other pharmacies as class actions. In essence, these lawsuits all claim that the manufacturer and wholesaler defendants have combined, contracted and conspired to fix the prices charged to plaintiffs and class members for prescription brand name pharmaceuticals. Specifically, plaintiffs claim that the defendants use "chargeback agreements" to give some institutional pharmacies discounts that are not made available to retail drug stores. Plaintiffs seek injunctive relief, treble damages, attorneys' fees and costs. These actions have been transferred to the United States District Court for the Northern District of Illinois for consolidated and coordinated pretrial proceedings. Effective October 26, 1994, the Company entered into a Judgment Sharing Agreement with other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred, up to an aggregate of $9 million; and (b) if a judgment is entered into against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or one million dollars. In addition, the Company has released any claims which it might have had against the manufacturers for the claims presented by the plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. The Company believes it has meritorious defenses to the claims asserted in these lawsuits and intends to vigorously defend itself in all of these cases. The Company has become aware that its former Charleston, South Carolina distribution center was previously owned by a fertilizer manufacturer and that there is evidence of residual soil contamination remaining from the fertilizer manufacturing process operated on that site over thirty years ago. The Company engaged an environmental consulting firm to conduct a soil survey and initiated a groundwater study during fiscal 1994. The preliminary results of the groundwater study indicate that there is lead in the groundwater at levels requiring further investigation and response. A preliminary engineering analysis was prepared by outside consultants during the third quarter of fiscal 1994, and indicated that, if both soil and groundwater remediation are required, the most likely cost of remediation efforts at the Charleston site is estimated to be $4.1 million. Accordingly, a liability of $4.1 million was recorded during the third quarter of fiscal 1994 to cover future consulting, legal and remediation and ongoing monitoring costs. The Company has notified the appropriate state regulatory agency from whom approval must be received before proceeding with any further tests or with the actual site remediation. The approval process and remediation could take several years to accomplish and the actual costs may differ from the liability which has been recorded. The accrued liability, which is reflected in other long-term liabilities on the accompanying consolidated balance sheet, is based on an estimate of the extent of contamination and choice of remedy, existing technology and presently enacted laws and regulations, however, changes in remediation standards, improvements in cleanup technology and discovery of additional information concerning the site could affect the estimated liability in the future. The Company is investigating the possibility of asserting claims against responsible parties for recovery of these costs. Whether or not any recovery may be forthcoming is unknown at this time, although the Company intends to vigorously enforce its rights and remedies. 60 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--LEGAL MATTERS AND CONTINGENCIES--(CONTINUED) The Company has been named as a defendant in several lawsuits based upon alleged injuries and deaths attributable to the product L-Tryptophan. The Company did not manufacture L-Tryptophan; however, prior to an FDA recall, the Company did distribute products containing L-Tryptophan from several of its vendors. The Company believes that it is entitled to full indemnification by its suppliers and the manufacturer of L-Tryptophan with respect to these lawsuits and any other lawsuits involving L-Tryptophan in which the Company may be named in the future. To date, the indemnity to the Company in such suits has not been in dispute and, although the Company believes it is unlikely it will incur any loss as a result of such lawsuits, the Company believes that its insurance coverage and supplier endorsements are adequate to cover any losses should they occur. The Company has received Notices of Proposed Adjustment from the Internal Revenue Service in connection with an audit of the Company's federal income tax returns for the taxable years 1987 through 1991. The proposed adjustments indicate a net increase to taxable income for these years of approximately $23 million and relate principally to the deductibility of costs incurred with respect to the Acquisition. The Company has analyzed these matters with tax counsel, believes it has meritorious defenses to the adjustments proposed by the Internal Revenue Service and any amounts assessed will not have a material effect on the financial condition of the Company. At September 30, 1994, there were contingent liabilities with respect to taxes, guarantees of borrowings by certain customers, lawsuits and environmental and other matters occurring in the ordinary course of business. On the basis of information furnished by counsel and others, management believes that none of these contingencies will materially affect the Company. On December 3, 1991, AmeriSource entered into a settlement agreement with Bear Stearns & Co., Inc. ("Bear Stearns") resolving a civil action that had been filed on August 14, 1989 and Bear Stearns' interest in an appraisal action arising from the Acquisition. AmeriSource paid Bear Stearns $7,235,000 in 1992 and will pay $2,500,000 in November 2001, without interest and subject in certain circumstances to earlier payment. The Delaware Chancery Court approved the settlement of Bear Stearns' interest in the appraisal action and the settlement of the remaining claims (representing less than 5% of the shares in the original action) on similar terms. Payments of $600,000 were made during fiscal 1992 in settlement of a portion of the remaining claims. These settlements with Bear Stearns and the other dissenters resulted in an extraordinary gain in 1992 of $4,486,000 from the extinguishment of the associated debt. NOTE 9--NON-RECURRING CHARGES The non-recurring charges in 1993 consisted of $1,254,000 in losses on the disposal of three warehouses and charges of $969,000 for the write-down to net realizable value of two additional warehouses no longer in operation which were designated for sale. The non-recurring charges in 1992 consisted of a loss of $287,000 incurred on the sale of a warehouse no longer in operation and the write off of $1,957,000 in professional fees incurred in connection with a public offering attempted during 1992 which was later abandoned due to market conditions. NOTE 10--RELATED PARTY TRANSACTIONS On October 21, 1991, an involuntary bankruptcy petition under Chapter 7 of the United States Bankruptcy Code was filed against RDS Acquisition Corp. ("RDS"), which was a customer of the Company. Affiliates of VPI had substantial equity and debt interests in RDS and related entities. VPI indemnified AmeriSource for $5,800,000 of the amounts owed by RDS to AmeriSource on October 25, 1991, for which AmeriSource did not otherwise recover the amount owed. 61 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--SUBSEQUENT EVENTS In December 1994, the Company sold substantially all of its trade accounts and notes receivable (the "Receivables") to AmeriSource Receivables Corporation ("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade receivables securitization program (the "Receivables Program"). As contemplated by the Receivables Program, the Company formed and capitalized ARC through a contribution of $40 million. Contemporaneously, the Company entered into a Receivables Purchase Agreement with ARC, whereby ARC agreed to purchase on a continuous basis Receivables originated by the Company. Pursuant to the Receivables Program, ARC will transfer such Receivables to a master trust in exchange for, among other things, certain trade receivables-backed certificates (the "Certificates") representing a right to receive a variable principal amount. Contemporaneously, Certificates in an aggregate principal amount of up to $230 million face amount were sold to investors. During the five year term of the Receivables Program, the cash generated by collections on the Receivables will be used to purchase, among other things, additional Receivables originated by the Company. The Certificates bear interest at a rate selected by the Company equal to (i) the higher of (a) the prime lending rate and (b) the federal funds rate plus 50 basis points or (ii) LIBOR plus 50 basis points. In addition, during the first seventy five days of the Receivables Program, the Company may select an interest rate equal to the federal funds rate plus 125 basis points. The interest rates for the Certificates are subject to step-ups to a maximum amount of an additional 100 basis points over the otherwise applicable rate. At the same time that it entered into the Receivables Program, the Company and its senior lenders amended its existing Credit Agreement. Among other things, the Amended and Restated Credit Agreement: (i) extended the term of the Credit Agreement until January 3, 2000; (ii) established the amount the Company may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR plus 225 basis points and provided for further interest rate stepdowns upon the occurrence of certain events; (iv) modified the borrowing base availability from inventory and receivable based to inventory based; and (v) increased the Company's ability to make acquisitions and pay dividends. Contemporaneously with the consummation of the Receivables Program and the execution of the Amended and Restated Credit Agreement, the Company called for optional redemption all of the outstanding Notes and New Notes at a redemption price of 106% of the principal amount plus accrued interest through the redemption date of January 12, 1995. 62 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--OTHER INFORMATION (UNAUDITED) QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED(1) -------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1993 1994 1994 1994 ------------ ---------- ---------- ------------- Revenues.................... $1,045,776 $1,067,112 $1,079,302 $1,109,642 Gross Profit................ 53,999 58,480 57,455 65,257 Income (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes......... 2,579 3,822 (180,057) 1,239 Extraordinary Charge-Early Retirement of Debt......... (656) Cumulative Effects of Accounting Changes......... (34,598) Net Income (Loss)........... (32,675) 3,822 (180,057) 1,239 Per Share: Income (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes......... .51 .77 (36.01) .25 Extraordinary Items......... (.13) Cumulative Effects of Accounting Changes......... (6.92) Net Income (Loss)........... (6.54) .77 (36.01) .25 THREE MONTHS ENDED -------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1992 1993 1993 1993 ------------ ---------- ---------- ------------- Revenues.................... $917,681 $920,195 $918,499 $962,650 Gross Profit................ 51,378 53,385 50,302 54,373 (Loss) Before Extraordinary Items...................... (2,895) (1,308) (2,257) (1,014) Extraordinary Charge-Early Retirement of Debt......... (2,635) (9,255) Extraordinary Credit-Income Taxes...................... 100 150 60 436 Net (Loss).................. (2,795) (3,793) (2,197) (9,833) Per Share: (Loss) Before Extraordinary Items...................... (.58) (.26) (.45) (.20) Extraordinary Items......... .02 (.50) .01 (1.76) Net (Loss).................. (.56) (.76) (.44) (1.96)
- - - -------- (1) December 31, 1993 amounts reflect the cumulative effect of the accounting changes for postretirement benefits other than pensions and income taxes. June 30, 1994 amounts reflect the write-off of goodwill discussed in Note 2. 63 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. (No response to this Item is required.) ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS. The following table sets forth information concerning the directors, executive officers and officers of Distribution and AmeriSource and key employees of AmeriSource.
NAME AGE TITLE ---- --- ----- DIRECTORS AND EXECUTIVE OFFICERS - - - -------------------------------- John F. McNamara(1)(2)............ 59 Chairman, President and Chief Executive Officer David M. Flowers.................. 47 Group President--Eastern Region R. David Yost..................... 47 Group President--Central Region OFFICERS - - - -------- Teresa T. Ciccotelli.............. 43 Vice President, Legal Counsel and Secretary Robert D. Gregory................. 65 Vice President, Human Resources and Assistant Secretary Kurt J. Hilzinger................. 34 Vice President, Finance and Treasurer 42 Vice President, Controller and Assistant John A. Kurcik.................... Treasurer Robert E. McHugh.................. 53 Vice President, Marketing J. Michael McNamara............... 38 Senior Vice President, Sales KEY EMPLOYEES - - - ------------- David C. Carter................... 57 President--Rita Ann Distributors division of AmeriSource Gary M. Davis..................... 56 Regional Vice President--South Central Region of AmeriSource and General Manager, Paducah Division of AmeriSource W. Phil Gibson.................... 49 Regional Vice President--West Central Region of AmeriSource Robert W. Meyer................... 55 Regional Vice President--North Central Region of AmeriSource Greg Zurlage...................... 47 Regional Vice President--Mid Central Region of AmeriSource and General Manager, Columbus Division of AmeriSource OTHER DIRECTORS - - - --------------- Bruce C. Bruckmann(1)............. 41 Director Richard C. Gozon(3)............... 56 Director Lawrence C. Karlson(2)............ 51 Director Harold O. Rosser(2)............... 46 Director George H. Strong(3)............... 68 Director Barton J. Winokur(1).............. 54 Director
- - - -------- (1) Member of Compensation Committee. (2) Member of Acquisition Committee. (3) Member of Audit Committee. John F. McNamara. Mr. McNamara has been Chairman, President and Chief Executive Officer of the Company and AmeriSource since 1989 and has been President of AmeriSource since 1987. Prior to holding these positions, he was Chief Operating Officer of AmeriSource from 1986 to 1989 and Executive Vice President of AmeriSource from 1985 to 1987. He also served as Chairman, from 1986 to 1990, and President, from 1981 to 1986, of the Kauffman-Lattimer division of AmeriSource. 64 David M. Flowers. Mr. Flowers has been Group President of the Eastern Region since 1989. Prior to that he was President of the AmeriSource Southeast Region from 1988 to 1989 and President of the Duff Brothers Division of AmeriSource from 1984 to 1987. R. David Yost. Mr. Yost has been Group President of the Central Region since 1989. Before serving in these positions he was President, from 1986 to 1989, and Executive Vice President and General Manager, from 1984 to 1986, of the Kauffman-Lattimer Division of AmeriSource. Teresa T. Ciccotelli. Ms. Ciccotelli has served as Vice President, Legal Counsel and Secretary since 1989. Prior to that, from 1985 to 1989, she was an attorney with Alco Standard Corporation. Robert D. Gregory. Mr. Gregory has been Vice President, Human Resources and Assistant Secretary of the Company since 1989 and Vice President, Human Resources of AmeriSource since 1986. Prior to that, from 1984 to 1986, he served as Manager, Employee Relations for Alco Standard Corporation. Kurt J. Hilzinger. Mr. Hilzinger has served as Vice President, Finance and Treasurer since October 1993. Prior to that, since March 1991, he served as Vice President, Financial Planning. Before joining the Company, he was a Vice President in the Corporate Advisory Division of Citicorp, from 1986 to 1991. John A. Kurcik. Mr. Kurcik has been Vice President, Controller and Assistant Treasurer of the Company since 1989. Mr. Kurcik was Controller, from 1987, and Director of Accounting, from 1985 to 1987, of AmeriSource. Robert E. McHugh. Mr. McHugh joined the Company as Vice President, Marketing in August 1991. Prior to that he was President of J.E. Goold from 1990 to 1991 and Vice President, Industry Affairs of the National Wholesale Druggists' Association from 1983 to 1990. David C. Carter. Mr. Carter has served as President of the Company's RitaAnn Distributors specialty products division since 1992. Until 1994 he also served as Senior Vice President, Industry and Corporate Affairs of AmeriSource. Prior to 1989, he served as President of the Northeastern Region of AmeriSource (formerly known as The Drug House) from 1979 to 1989. Gary M. Davis. Mr. Davis has been Regional Vice President of the South Central Region of AmeriSource and General Manager of AmeriSource's Paducah Division since 1989. Prior to that he was Executive Vice President of the Columbus Division of AmeriSource from 1988 to 1989, and Vice President General Manager of Toledo Division of AmeriSource from 1984 to 1988. W. Phil Gibson. Mr. Gibson has served as Regional Vice President, West Central Region since 1994. Mr. Gibson served as Regional Vice President, Atlantic Coast Region of AmeriSource between 1988 and 1994. Prior to that he was Regional Vice President, Greensboro Division of AmeriSource from 1987 to 1989. J. Michael McNamara. Mr. McNamara has served as Senior Vice President--Sales of the Company since November, 1994. Previously he served as Regional Vice President of the West Central Region of AmeriSource since April 1991. Prior to that he was Vice President, Sales and Marketing of the Company from 1990 to 1991, Vice President and General Manager of the Toledo Division of AmeriSource from 1988 to 1990, and Director of Marketing of the Columbus Division of AmeriSource from 1984 to 1988. Robert W. Meyer. Mr. Meyer has been Regional Vice President, North Central Region of AmeriSource since 1990. Prior to that he served as President of the Tiffin Division of AmeriSource (formerly known as Meyers & Son Co.) from 1985 to 1990. Greg Zurlage. Mr. Zurlage has served as Regional Vice President of the Mid Central Region of AmeriSource and General Manager of AmeriSource's Columbus Division since 1989. Prior to that he served as Vice President and Division Manager of the Louisville Division of AmeriSource from 1982 to 1989. 65 Bruce C. Bruckmann. Mr. Bruckmann has been a director since August 1992. Mr. Bruckmann previously was a director of Distribution since 1989 and of AmeriSource since 1988. Mr. Bruckmann resigned as a director of both companies in December 1991. Mr. Bruckmann is a Managing Director of Citicorp Venture Capital Ltd. and of Court Square Capital Limited and serves as a director of Cort Furniture Rental Corporation, New Cort Holdings Corporation, Mohawk Industries, Inc., Hancor Holding Corp., Fair Markets, Inc., FF Holdings Corporation and Farm Fresh, Inc. Harold O. Rosser. Mr. Rosser has been a director since December 1992. Mr. Rosser previously was a director of both companies since 1988. Mr. Rosser resigned as a director in June 1990. Mr. Rosser is a Managing Director of Citicorp Venture Capital Ltd. and of Court Square Capital Limited and serves as a director of Corral America Holdings, Davco Restaurants, Inc., FF Holdings Corporation, Farm Fresh, Inc. and Rax Restaurants, Inc. Barton J. Winokur. Mr. Winokur has been a director since 1990. Mr. Winokur is a partner of Dechert Price & Rhoads and serves as a director of CDI Corporation, FF Holdings Corporation, Farm Fresh, Inc., Davco Restaurants, Inc. and The Bibb Company. George H. Strong. Mr. Strong was elected to the board of directors in 1994. Mr. Strong is a private investor and serves as a director of Corefunds, Health South Corp. and Integrated HealthCorp. Richard C. Gozon. Mr. Gozon was elected to the board of directors in 1994. Mr. Gozon is Executive Vice President of Weyerhaeuser Company and serves as a director of UGI Corp. and Nocopi Technologies. Lawrence C. Karlson. Mr. Karlson was elected to the board of directors in 1994. Mr. Karlson is Chairman of Karlson Corporation and serves as a director of Meridian Bank Corp. and CDI Corporation. The directors were appointed to the boards of Distribution and AmeriSource to serve until their successors are elected and qualified. Each director is a citizen of the United States. Officers are elected annually by the Board of Directors to serve for the ensuing year and until their respective successors are elected. There are no arrangements or understandings between any of the officers and any other person pursuant to which he or she was elected an officer. J. Michael McNamara, Senior Vice President--Sales is the son of John F. McNamara, Chairman, President and Chief Executive Officer of the Company and AmeriSource. ITEM 11. EXECUTIVE COMPENSATION. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth, for fiscal years ending September 30, 1992, 1993 and 1994, certain information regarding the cash compensation paid by the Company, as well as certain other compensation paid or accrued for those years, to each of the executive officers of the Company, in all capacities in which they served: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------- (E) (I) (A) (B) (C) (D) OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION COMPENSATION(2) --------------------------- ---- ------- -------- ------------ --------------- [$] [$] [$] [$] JOHN F. MCNAMARA 1994 396,609 200,000 8,468(/3/) Chairman, President and 1993 380,340 150,000 110 7,434(/3/) Chief Executive Officer 1992 340,340 185,000 -- -- DAVID M. FLOWERS 1994 169,430 100,000 8,822(/4/) Group President--Eastern Region 1993 159,980 75,000 -- 8,428(/4/) 1992 149,480 65,000 -- -- R. DAVID YOST 1994 179,790 100,000 8,704(/5/) Group President--Central Region 1993 170,340 75,000 -- 9,079(/5/) 1992 156,840 75,000 -- --
66 - - - -------- (1) The amounts shown consist of cash bonuses earned in the fiscal year identified but paid in the subsequent fiscal year. (2) In accordance with SEC provisions, amounts of All Other Compensation are excluded for the Company's 1992 fiscal year. (3) "All Other Compensation" for Mr. McNamara in 1994 and 1993 respectively includes the following: (i) $966 and $782 in club dues, (ii) $1,450 and $1,200 in tax return preparation fees, (iii) $4,497 and $5,237 in contributions under AmeriSource's Employee Investment Plan, (iv) for fiscal 1994, $1,554 for spousal travel expenses and (v) for fiscal 1993, $215 in miscellaneous items. (4) "All Other Compensation" for Mr. Flowers in 1994 and 1993 respectively includes the following: (i) $4,175 and $3,191 in club dues, (ii) for fiscal 1994, $150 for spousal travel expenses, and (iii) $4,497 and $5,237 in contributions under AmeriSource's Employee Investment Plan. (5) "All Other Compensation" for Mr. Yost in 1994 and 1993 respectively includes the following: (i) $2,311 and $1,692 in club dues, (ii) $1,850 and $2,150 in tax return preparation fees, (iii) for fiscal 1994, $45.85 for spousal travel expenses, and (iv) $4,497 and $5,237 in contributions under AmeriSource's Employee Investment Plan. STOCK OPTIONS Distribution Stock Purchase Plan. As of October 31, 1989, the Company adopted the AmeriSource Distribution Corporation and Subsidiaries Employee Stock Purchase Plan (the "Distribution Plan") to enable certain management level employees (the "Management Investors") to participate in the equity ownership of the Company. The Management Investors include Messrs. Flowers, John McNamara and Yost, other current officers of the Company and additional members of management of the Company and its subsidiaries. The securities of the Company subject to the Distribution Plan originally included (a) up to 750,000 shares of the Company's Class A Common Stock and (b) $750,000 aggregate principal amount of the Company's 19.5% Junior Subordinated Debentures due 2001 (the "Junior Subordinated Debentures"). The Management Investors have been subject to restrictions on the sale or transfer of their Class A Common Stock. Before January 1, 1994, a Management Investor could not transfer his or her securities except with the consent of the Company or in connection with specified events, such as the sale of the Company. If a Management Investor's employment with the Company was terminated, the Company had the right to repurchase the Class A Common Stock owned or subject to options. VPI is required, under certain circumstances, to allow the Management Investors to participate if it proposes to sell shares of the Company's Class A Common Stock or Class B Common Stock. As of September 30, 1994, Management Investors had purchased 77,000 shares of the Company's Class A Common Stock, held options to purchase 519,187.5 shares of the Company's Class A Common Stock. Of the 519,187.5 shares subject to options, 116,362.5 shares will be repurchased from VPI by the Company for $1.00 per share before being issued pursuant to such options. No further awards will be granted under the Distribution Plan. 1991 Stock Option Plan. The Company's 1991 Stock Option Plan (the "1991 Option Plan"), which was adopted by the Board of Directors on February 19, 1992 and approved by the stockholders on April 7, 1992, provides for the granting of non-qualified stock options to acquire up to an aggregate of 362,500 shares of Class A Common Stock to the Management Investors and certain other members of the Company's management. The options once granted to the recipient are not subject to forfeiture and have an exercise price of $1.00 per share and were exercisable at a rate of 50% per year on each of January 1, 1993 and January 1, 1994. The options granted, which represent the shares unallocated under the Distribution Plan and options never granted under a performance stock option plan originally announced by the Company in 1989, reflect achievements in operating performance through fiscal 1991. Of the shares subject to options, 337,500 shares will be repurchased from VPI by the Company for $1.00 per share pursuant to a prior agreement. 67 Options granted to employees must be exercised by November 3, 1994, or, if the Company has not had a public offering or been sold by that date, then by the earlier of November 3, 1999, the date the Company is sold or 90 days after the date of a public offering. Employees whose employment terminates for reasons other than death, disability or retirement must hold the shares acquired upon exercise for a period of three years. The 1991 Option Plan permits, with the consent of the administering committee and if permitted by the restrictions in the Company's and AmeriSource's financing agreements, the exercise of options by delivery of shares of Class A Common Stock owned by the optionee, by withholding of such shares of Class A Common Stock upon exercise of the option in lieu of or in addition to cash or by financing made available by the Company. The 1991 Option Plan will continue to be administered by the Board of Directors of the Company until the Company registers the Class A Common Stock under Section 12 of the Exchange Act, whereupon, the 1991 Option Plan will be administered by a committee of Disinterested Persons as defined in the 1991 Option Plan. The Committee will have the power and authority to determine the extent to which exceptions to the exercisability of options may be granted, to determine the effect of certain dispositions or a change in control of the Company on outstanding options, to establish procedures, loans or financing arrangements to assist in the exercise of options and the satisfaction of tax withholding obligations, to adopt regulations to carry out the 1991 Option Plan and to amend options granted under the plan to carry out the purpose of the 1991 Option Plan. 1992 Stock Option Plan. The Company's 1992 Stock Option Plan (the "1992 Option Plan"), which was adopted by the Board of Directors on March 31, 1992 and approved by the stockholders on April 7, 1992, provides for the granting over time of non-qualified stock options to acquire up to approximately 1.7 million shares of Class A Common Stock to employees of the Company. Such options will be granted based upon performance and with vesting schedules to be determined at the time of grant. The 1992 Option Plan will be administered by a committee of Disinterested Persons as defined in the 1992 Option Plan, which will have the power and authority to determine the employees to whom awards are granted, the number of shares of Class A Common Stock with respect to such awards, and the terms of such awards, including the exercise price of the stock options and any vesting periods. Under the 1992 Option Plan, the exercise price of options will not be less than the fair market value of the Class A Common Stock on the date of the grant. Options granted to employees will not be exercisable after the expiration of six years from the date of the grant or such sooner date determined by the committee. The 1992 Option Plan permits, with the consent of the committee and if permitted by the restrictions in the Company's and AmeriSource's financing agreements, the exercise of options by delivery of shares of Class A Common Stock owned by the optionee, by withholding of such shares of Class A Common Stock upon exercise of the option in lieu of or in addition to cash or by financing made available by the Company. The 1992 Option Plan permits the committee to accelerate vesting upon a change of control and to adjust the number and kind of shares subject to options in the event of a reorganization, merger, consolidation, recapitalization, reclassification, stock split, stock dividend or combination of shares. As of December 1, 1994, no options had been granted under the 1992 Option Plan. Partners Plan. On December 11, 1990, the Company adopted the AmeriSource Health Distribution Corporation Partners Stock Option Plan (the "Partners Plan") to enable employees of AmeriSource other than the Management Investors to participate in the equity ownership of the Company. An aggregate of 263,158 shares of the Company's Class A Common Stock was originally available under the Partners Plan. On March 2, 1991, options ("Partners Options") for an aggregate of 124,800 shares of Class A Common Stock were granted to 39 optionees, each of whom received options for 3,200 shares. There are currently 115,200 shares subject to options under the Partners Plan held by 36 optionees. Each Partners Option became 100% exercisable on September 30, 1994 at an exercise price of $1.00 per share and must be exercised by December 31, 1994. If a holder of a Partners Option exercises, then he or she must hold the Class A Common Stock so acquired for two years. Certain exceptions to the limits on exercisability and the holding period may 68 be granted in the event of the sale of the Company, the death of the optionee, or a public offering. No further awards will be granted under the Partners Plan. Upon exercise of the Partners Plan options, the holders are subject to tax liability based upon the difference between the exercise price and the estimated $35 per share market value of Distribution Class A Common Stock. To assist holders of Partner Plan options with such tax liability, Distribution has offered to repurchase from such option holders up to 35% of their shares of Class A Common Stock obtained through exercise of their options. VALUE OF UNEXERCISED OPTIONS AS OF SEPTEMBER 30, 1994 The following table sets forth information regarding the number and value of unexercised options held by the named executive officers of the Company as of September 30, 1994. None of the named executive officers were granted or exercised any stock options in fiscal 1994. NUMBER OF SHARES COVERED BY OUTSTANDING OPTIONS AND OPTION VALUES AS OF SEPTEMBER 30, 1994
(C) (B) VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS AT FISCAL YEAR END FISCAL YEAR END ------------------------- ------------------------- (A) NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ------------- ----------- ------------- [#] [$] John F. McNamara Chairman, President and Chief Executive Officer.... 246,000 0 * * David M. Flowers Group President--Eastern Region.................... 72,000 0 * * R. David Yost Group President--Central Region.................... 81,000 0 * *
- - - -------- * As of September 30, 1994, there were less than 65 holders of record of Distribution's common stock. The stock is not actively traded. As a result, there are not any reliable indications of value for the common stock. Although there is no reliable independent indicator of value of the common stock, assuming a $35 per share value of the common stock, Messrs. McNamara, Flowers and Yost would have in-the-money options of $8,580,000, $2,510,000 and $2,825,000, respectively, as of September 30, 1994. PENSION PLANS AmeriSource Corporation Participating Companies Pension Plan. AmeriSource has a pension plan providing for continuation of pension benefit coverage for salaried sales and office employees of AmeriSource previously covered under Alco Standard's Participating Companies Pension Plan. The pension plan also covers other salaried, sales, and office employees of AmeriSource who meet the plan's eligibility requirements. Under AmeriSource's pension plan, the executive officers compensated by AmeriSource are entitled to annual pension benefits at age 65 equal to the number of years of credited service multiplied by 1% of average annual compensation earned during the consecutive three years within the last ten years of participation in the pension plan which yield the highest average. All pension plan costs are paid by AmeriSource and the pension plan, and benefits are funded on an actuarial basis. Compensation earned by executive officers for purposes of the plan includes salaries and bonuses set forth in the cash compensation table under "Executive Compensation" above, except that compensation recognized under the plan may not exceed $200,000, with adjustments for inflation, as required by the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Internal Revenue Code, as amended (the "Code"). For 1993, the compensation limit was $235,840. 69 The years of credited service (with AmeriSource, predecessor companies or Alco Standard) as of October 1, 1994 for each of the current officers of the Company were John F. McNamara--13 years; Robert D. Gregory--14 years; David M. Flowers--18.75 years; R. David Yost--20.08 years; Teresa T. Ciccotelli--9.25 years; John A. Kurcik--16 years; J. Michael McNamara--10 years; Robert E. McHugh--3.25 years; and Kurt J. Hilzinger--3.58 years. As required by ERISA and the Code, the pension plan limits the maximum annual benefits payable at Social Security retirement age as a single life annuity to the lesser of $90,000, with cost-of-living adjustments, or 100% of a plan participant's average total taxable earnings during his highest three consecutive calendar years of participation, subject to certain exceptions for benefits which accrued prior to September 30, 1988. For 1993, the annual benefit limit was $115,641. Supplemental Retirement Plan. AmeriSource also has a Supplemental Retirement Plan (the "Supplemental Plan"). Coverage under the Supplemental Plan is limited to participants in AmeriSource's pension plan whose benefits under the pension plan are limited due to (a) restrictions imposed by the Code on the amount of benefits to be paid from a tax-qualified plan, (b) restrictions imposed by the Code on the amount of an employee's compensation that may be taken into account in calculating benefits to be paid from a tax-qualified plan, or (c) any reductions in the amount of compensation taken into account under the pension plan due to an employee's participation in certain deferred compensation plans sponsored by AmeriSource or one of its subsidiaries. The Supplemental Plan provides for a supplement to the annual pension paid under AmeriSource's pension plan to participants who attain early or normal retirement under such pension plan or who suffer a total and permanent disability while employed by AmeriSource or one of its subsidiaries and to the pre-retirement death benefits payable under the pension plan on behalf of such participants who die with a vested interest in AmeriSource's pension plan. The amount of the supplement will be the difference, if any, between the pension or pre-retirement death benefit paid under AmeriSource's pension plan and that which would otherwise have been payable but for the restrictions imposed by the Code and any reduction in the participant's compensation for purposes of AmeriSource's pension plan due to his participation in certain deferred compensation plans of AmeriSource or one of its subsidiaries. The following table shows estimated annual retirement benefits that would be payable to participants under AmeriSource's pension plan and, if applicable, the Supplemental Plan, upon normal retirement at age 65 under various assumptions as to final average annual compensation and years of credited service and on the assumption that benefits will be paid in the form of a single life annuity. The benefit amounts listed are not subject to any deduction for Social Security benefits. ESTIMATED ANNUAL RETIREMENT BENEFITS
YEARS OF CREDITED SERVICE ------------------------------- FINAL AVERAGE COMPENSATION 10 20 30 35 ------------- ------- ------- ------- ------- $ 50,000........................................ $ 5,000 $10,000 $15,000 $17,500 100,000........................................ 10,000 20,000 30,000 35,000 150,000........................................ 15,000 30,000 45,000 52,500 200,000........................................ 20,000 40,000 60,000 70,000 250,000........................................ 25,000 50,000 75,000 87,500 300,000........................................ 30,000 60,000 90,000 105,000 500,000........................................ 50,000 100,000 150,000 175,000 600,000........................................ 60,000 120,000 180,000 210,000 700,000........................................ 70,000 140,000 210,000 245,000
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee of the Board of Directors during fiscal 1994 was composed of John F. McNamara, Bruce C. Bruckmann and Barton J. Winokur. Mr. McNamara is Chairman, President 70 and Chief Executive Officer of the Company and AmeriSource. Mr. Winokur is a partner of Dechert Price & Rhoads which performed legal services for the Company and AmeriSource during fiscal 1994. OTHER FORMS OF COMPENSATION Employee Investment Plan. In fiscal year 1986, AmeriSource adopted a stock participation plan pursuant to Section 401(k) of the Code, which plan was amended and restated as a 401(k) Employee Investment Plan (the "EIP") effective January 1, 1989. Participation in the EIP is generally available to salaried, office, sales and certain hourly employees of AmeriSource. As of December 31, 1993, participation in the EIP was available to approximately 1,922 employees, of whom approximately 1,360 were participants. A participant may contribute to the EIP between 2% and 6% of his or her salary on a "before-tax" basis, entitling the participant to contributions by his or her employer in an amount equal to one-half of the participant's contributions. Highly compensated employees, as defined by the Code, may receive matching employer contributions of less than one-half of their participant contributions made after April 1, 1993. An additional employer matching contribution, in an amount to be determined by AmeriSource but not to exceed one-half of the participant's contributions, may be made to the EIP. The combined amount of employer matching contributions for the plan year ending December 31, 1993 was 50% of each participant's contribution. For calendar years 1992 and 1993, a participant's contributions could not exceed $8,728 and $8,994 per year, respectively. The cost of the matching employer contributions is ultimately charged to the division or subsidiary of AmeriSource employing the participant. Matching employer contributions to the EIP are held in trust and vest to the benefit of the participant over a period of five years, measured from the date the participant's employment commenced (as long as the participant continues as an employee). The EIP is administered by trustees who have selected six mutual funds managed by Fidelity Investments among which participants may direct the investment of their entire account balances. Deferred Compensation Plan. In September 1985, AmeriSource adopted a deferred compensation plan (the "1985 Deferred Compensation Plan") which permitted eligible employees of AmeriSource to defer a portion of their compensation during a period of up to 48 months after October 1, 1985 and, in return, to receive retirement or survivor benefits, and in certain circumstances, disability insurability. The amount of the benefits the participant will be entitled to receive is based on the total number of years the participant remains employed by AmeriSource or an affiliated company. A participant's interest in the benefits vests over a period of five years. Mr. McNamara is a participant in the 1985 Deferred Compensation Plan. Assuming Mr. McNamara retired from employment with AmeriSource at or after age 65, his monthly retirement benefits under the 1985 Deferred Compensation Plan would be $2,901, payable over a 15-year period. 71 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. All of the shares of common stock of AmeriSource are owned by the Company. The following table sets forth as of December 15, 1994 certain information regarding the ownership of the Company's voting stock (assuming exercise of options exercisable currently or within 60 days of December 15, 1994, all of the Company's common stock (assuming exercise of options exercisable currently or within 60 days of December 15, 1994), and all of the Company's common stock (assuming exercise of all options), by each of the Company's directors, all directors and officers as a group, all members of management as a group and each person who is known by the Company to beneficially own five percent or more of the Company's voting stock (assuming the exercise of options exercisable currently or within 60 days of December 15, 1994).
NUMBER OF VOTING PERCENT NUMBER OF PERCENT SHARES OF SHARES OF BENEFICIALLY VOTING BENEFICIALLY ALL OWNED SHARES OWNED SHARES ------------ ------- ------------ ------- DIRECTORS AND EXECUTIVE OFFICERS: David M. Flowers(1).................. 72,000 6.3% 72,000 1.4% John F. McNamara(1).................. 246,000 21.4 246,000 4.9 Barton J. Winokur.................... 5,000 * 5,000 * R. David Yost(1)..................... 81,000 7.1 81,000 1.6 Bruce C. Bruckmann(2)................ 570 * 23,496 * Harold O. Rosser, II(2).............. 267 * 11,013 * All directors and executive officers as a group (6 persons)(3)...................... 404,837 35.3 438,509 8.7 Management Investors(4).............. 1,006,600 87.7 1,006,600 19.9 OTHER VOTING 5% STOCKHOLDERS: 399 Venture Partners Inc. ("VPI")(5). 79,636 6.7% 3,396,974 67.3%
- - - -------- * Less than 1%. (1) Pursuant to the AmeriSource Distribution Corporation and Subsidiaries Employee Stock Purchase Plan ("Distribution Plan"), Messrs. Flowers, McNamara and Yost received options, with limitations on exercise, to acquire 50,000, 150,000 and 50,000 shares, respectively, of the Company's voting stock. Pursuant to the AmeriSource Distribution Corporation 1991 Stock Option Plan ("1991 Option Plan"), Messrs. Flowers, McNamara and Yost received options, with limitations on exercise, to acquire 22,000, 96,000 and 31,000 shares, respectively, of the Company's voting stock. Of these amounts, Messrs. Flowers, McNamara and Yost have the right to exercise, currently or within 60 days of December 15, 1994, options to acquire 72,000, 246,000 and 81,000 shares, respectively. (2) Messrs. Bruckmann and Rosser disclaim beneficial ownership relating to the 79,636 shares of voting stock and 3,396,974 shares of non-voting stock held by VPI. (3) These figures include 5,837 shares of Company's voting stock and 33,672 shares of Company's non-voting stock owned currently by directors and officers. Pursuant to the Distribution Plan and the 1991 Option Plan, officers received options, with limitations on exercise, to acquire 250,000 shares and 149,000 shares, respectively, of Company's voting stock, all of which are exercisable currently. (4) These figures include 60,812.5 shares of the Company's voting stock owned currently by Management Investors. Pursuant to the Distribution Plan, the 1991 Option Plan, and the AmeriSource Distribution Corporation Partners Stock Option Plan ("Partners Plan"), Management Investors received options, with limitations on exercise, to acquire 511,687.5 shares, 328,500 shares and 105,600 shares, respectively, of the Company's voting stock. Of these amounts, Management Investors have the right to exercise, currently or within 60 days of December 15, 1994, options to acquire 511,687.5 shares, 328,500 shares and 105,600 shares pursuant to the Distribution Plan, the 1991 Option Plan and the Partners Plan, respectively. 72 (5) VPI disclaims beneficial ownership as to 2,064 shares of voting stock and 82,962 shares of non-voting stock held by investors currently or previously affiliated with VPI. VPI's address is 1209 Orange Street, Wilmington, Delaware 19801. VPI is a wholly-owned, indirect subsidiary of Citicorp. Pursuant to a prior agreement, the Company will repurchase for $1.00 per share, 116,362.5 shares and 337,500 shares from VPI upon exercise of options pursuant to the Distribution Plan and the 1991 Option Plan, respectively, for reissuance to management investors in connection with their exercise of options. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On July 26, 1993, Distribution issued $126.5 million principal amount of 11 1/4% Senior Debentures due 2005 (the "Senior Debentures") in a public offering. Substantially all the net proceeds of the offering (approximately $122 million) were applied to redeem debt of Distribution issued in connection with the acquisition of AmeriSource by Distribution in 1988 at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest thereon through the date of redemption. On July 26, 1993, Distribution redeemed the Senior Subordinated Debentures and the Junior Subordinated Dentures. As of July 26, 1993, the Company had outstanding $21.7 million principal amount of Senior Subordinated Debentures and $39.2 million principal amount of Junior Subordinated Debentures. On the date of redemption, VPI owned approximately $21.3 million principal amount of Senior Subordinated Debentures and $37.9 million principal amount of Junior Subordinated Debentures, certain investors currently or previously affiliated with VPI owned $0.4 million principal amount of Senior Subordinated Debentures and $0.8 million principal amount of Junior Subordinated Debentures and the Management Investors owned $0.5 million principal amount of Junior Subordinated Debentures. All the amounts set forth above include accrued and unpaid interest. As a result of the redemption of the Senior Subordinated Debentures and the Junior Subordinated Debentures, VPI, certain investors currently or previously affiliated with VPI and the Management Investors were paid $59.2 million, $1.2 million and $0.5 milliion, respectively. In the first quarter of fiscal 1995, the Company sold substantially all of its trade accounts and notes receivable (the "Receivables") to AmeriSource Receivables Corporation ("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade receivables securitization program (the "Receivables Program"). As contemplated by the Receivables Program, the Company formed and capitalized ARC through a contribution of $40 million. Contemporaneously, the Company entered into a Receivables Purchase Agreement with ARC, whereby ARC agreed to purchase on a continuous basis Receivables originated by the Company. Pursuant to the Receivables Program, ARC will transfer such Receivables to a master trust in exchange for, among other things, certain trade receivables- backed certificates (the "Certificates") representing a right to receive a variable principal amount. Contemporaneously, Certificates in an aggregate principal amount of up to $230 million face amount were sold to investors. During the five year term of the Trade Receivables Program, the cash generated by collections on the Receivables will be used to purchase, among other things, additional Receivables originated by the Company. The Certificates bear interest at a rate selected by the Company equal to (i) the higher of (a) the prime lending rate of Bankers Trust Company and (b) the federal funds rate plus 50 basis points or (ii) LIBOR plus 50 basis points. In addition, during the first seventy five days of the Receivables Program, the Company may select an interest rate equal to the federal funds rate plus 125 basis points. The interest rates for the Certificates are subject to step-ups to a maximum amount of an additional 100 basis points over the otherwise applicable rate. At the same time that it entered into the Trade Receivables Transaction, the Company and its senior lenders amended its existing Revolving Credit Agreement. Among other things, the Amended and Restated Credit Agreement: (i) extended the term of the Credit Agreement until January 3, 2000; (ii) established the amount the Company may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR plus 225 basis points and provided interest rate stepdowns upon the occurrence of certain events; (iv) modified the borrowing base availability from inventory and receivable based to inventory based; and (v) increased the Company's and Distribution's ability to make acquisitions and pay dividends. 73 Contemporaneously with the consummation of the Trade Receivables Transaction and the execution of the Amended and Restated Credit Agreement, the Company called for optional redemption all of the outstanding Notes at a redemption price of 106% of the principal amount plus accrued interest through the redemption date of January 12, 1995. During fiscal years 1992, 1993 and 1994, Dechert Price & Rhoads performed, and currently does perform, legal services for the Company and AmeriSource. Barton J. Winokur, a partner of Dechert Price & Rhoads and a director of the Company and AmeriSource, owns 5,000 shares of the Class A Common Stock of the Company. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND SCHEDULES. Financial Statements: The following consolidated financial statements are submitted in response to Item 14(a)(1):
PAGE ---- Amerisource Corporation and Subsidiaries Report of Ernst & Young LLP, independent auditors......................... 25 Consolidated Balance Sheets as of September 30, 1994 and 1993............. 26 Consolidated Statements of Operations for the fiscal years ended September 30, 1994, 1993 and 1992.................................................. 28 Consolidated Statements of Changes in Stockholder's Equity for the fiscal years ended September 30, 1994, 1993 and 1992............................ 29 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 1994, 1993 and 1992.................................................. 30 Notes to Consolidated Financial Statements................................ 31 AmeriSource Distribution Corporation and Subsidiaries (parent of AmeriSource Corporation) Report of Ernst & Young LLP, independent auditors.................................................................. 44 Consolidated Balance Sheets as of September 30, 1994 and 1993............. 45 Consolidated Statements of Operations for the fiscal years ended September 30, 1994, 1993 and 1992.................................................. 47 Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended September 30, 1994, 1993 and 1992............................ 48 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 1994, 1993 and 1992.................................................. 49 Notes to Consolidated Financial Statements................................ 50
Financial Statement Schedules: The following financial statement schedules are submitted in response to Item 14(a)(2) and Item 14(d): AmeriSource Corporation and Subsidiaries Schedule VIII--Valuation and Qualifying Accounts.......................... S-1 AmeriSource Distribution Corporation and Subsidiaries (parent of AmeriSource Corporation) Schedule III--Condensed Financial Information of Distribution as of and for the fiscal years ended September 30, 1994 and 1993....... S-2 Schedule VIII--Valuation and Qualifying Accounts.......................... S-4
74 All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) List of Exhibits.*
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Certificate of Incorporation of Distribution, as amended. 3.2 By-Laws of Distribution (incorporated by reference to Exhibit 3.2 to Distribution's Registration Statement on Form S-1, Amendment No. 1, Registration No. 33-44244). 3.3 Certificate of Incorporation of AmeriSource, as amended. 3.4 By-laws of AmeriSource (incorporated by reference to Exhibit 3.4 to Distribution's and AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1989). 4.1 Form of Indenture, dated as of September 25, 1989, between the former AmeriSource Distribution Corporation, previously known as AHSC Acquisition Corp. ("Acquisition") and Mellon Bank, N.A., as trustee relating to the Senior Subordinated Notes due 1999 of Acquisition (the "Senior Subordinated Notes") including the form of Senior Subordinated Note (incorporated by reference to Exhibit 4.6 to Amendment No. 4, filed September 15, 1989, to the Registration Statement on Form S-1, Registration No. 33-27835). 4.2 Indenture, dated as of May 30, 1986, between AmeriSource and Bankers Trust Company, as trustee relating to the 6 1/4% Convertible Subordinated Debentures due 2001 of AmeriSource (the "Convertible Debentures") including the form of Convertible Debenture (incorporated by reference to Exhibit 4 to AmeriSource's Current Report, dated July 1, 1986, on Form 8-K). 4.3 First Supplemental Indenture, dated as of October 30, 1989, to Indenture, dated as of September 25, 1989 (incorporated by reference to Exhibit 4.21 to Distribution's and AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1989). 4.4 Second Supplemental Indenture, dated as of October 31, 1989, to Indenture, dated as of September 25, 1989 (incorporated by reference to Exhibit 4.22 to Distribution's and AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1989). 4.5 First Supplemental Indenture, dated as of October 31, 1989, to Indenture, dated as of May 30, 1986 (incorporated by reference to Exhibit 4.23 to Distribution's and AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1989). 4.6 Second Supplemental Indenture, dated as of October 31, 1989, to Indenture, dated as of May 30, 1986 (incorporated by reference to Exhibit 4.24 to Distribution's and AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1989). 4.7 Indenture dated July 15, 1993 between Distribution and Security Trust Company, N.A., as trustee relating to the 11 1/4% Senior Debentures due 2005 (the "Senior Debentures") of Distribution including the form of the Senior Debentures (incorporated by reference to Exhibit 4 to Distribution's and AmeriSource's Form 10-Q for the quarter ended June 30, 1993). 4.8 Indenture, dated as of March 31, 1994, between AmeriSource and Bankers Trust Company, as Trustee relating to the 41 1/2% Senior Subordinated Notes due 1999, Series A (incorporated by reference to Exhibit 4 to Distribution's and AmeriSource's Form 10-Q for the quarter ended March 31, 1994). 4.9 Agreement, dated as of April 28, 1994 by and among AmeriSource W. R. Huff Asset Management Co., L.P. and certain holders of AmeriSource's 14 1/2% Senior Subordinated Notes due 1999 (incorporated by reference to Exhibit 4 to Distribution's and AmeriSource's Form 10-Q for the quarter ended March 31, 1994). 4.10 Amended and Restated Credit Agreement, dated as of December 13, 1994 among AmeriSource, General Electric Capital Corporation individually and as agent, Bankers Trust Company, as co-agent, and the banks and other financial institutions named therein. 4.11 Receivables Purchase Agreement, dated as of December 13, 1994 between AmeriSource Corporation, as Seller and AmeriSource Receivables Corporation, as Purchaser.
75
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.12 AmeriSource Receivables Master Trust Pooling and Servicing Agreement, dated as of December 13, 1994 among AmeriSource Receivables Corporation, as transferor, AmeriSource Corporation, as the initial Servicer, and Manufacturers and Traders Trust Company, as Trustee. 4.13 Revolving Certificate Purchase Agreement, dated as of December 13, 1994 among AmeriSource Receivables Corporation, AmeriSource Corporation, The Revolving Purchasers and Bankers Trust Company, as Agent and Revolving Purchaser. 4.14 Series 1994-1 Supplement to Pooling and Servicing Agreement, dated as of December 13, 1994 among AmeriSource Receivables Corporation, as transferor, AmeriSource Corporation, as initial Servicer, and Manufacturers and Traders Trust Company, as Trustee. 10.1 Stock Purchase and Stockholders' Agreement, dated December 29, 1988, among Drexel Burnham Lambert Incorporated, the other purchasers named therein, Distribution and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S- 1, Registration No. 33-27835, filed March 29, 1989). 10.2 Stock Purchase Agreement, dated as of December 29, 1988, among Distribution, Anthony C. Howkins, The NTC Group, Inc., Barton J. Winokur and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1, Registration No. 33-27835, filed March 29, 1989). 10.3 AmeriSource Master Pension Plan (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1, Registration No. 33- 27835, filed March 29, 1989). 10.4 AmeriSource 1988 Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1, Registration No. 33-27835, filed March 29, 1989). 10.5 AmeriSource 1985 Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1985). 10.6 Distribution and Subsidiaries Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13 to Amendment No. 1, filed August 15, 1989, to the Registration Statement on Form S-1, Registration No. 33-27835). 10.7 Form of Securities Purchase and Holders Agreement among Distribution, Citicorp Venture Capital Ltd. and a Management Investor (incorporated by reference to Exhibit 10.14 to Amendment No. 1, filed August 15, 1989, to the Registration Statement on Form S-1, Registration No. 33- 27835). 10.8 Form of Subordinated Debt Purchase Agreement between Distribution and a Management Investor (incorporated by reference to Exhibit (c)(5) to Amendment No. 1, filed August 15, 1989, to the Schedule 13E-3). 10.9 Form of Non-qualified Stock Option Plan Agreement between Distribution and a Management Investor (incorporated by reference to Exhibit (c)(4) to Amendment No. 1, filed August 15, 1989, to the Schedule 13E-3). 10.10 Form of Take-Along and Registration Rights Agreement between Distribution and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit 4.19 to Amendment No. 2, filed September 7, 1989, to the Registration Statement on Form S-1, Registration No. 33-27835). 10.11 Distribution 1991 Stock Option Plan (incorporated by reference to Exhibit 10.33 to Distribution's Registration Statement on Form S-1, Amendment No. 1, Registration No. 33-44244). 10.12 Distribution 1992 Stock Option Plan (incorporated by reference to Exhibit 10.34 to Distribution's Registration Statement on Form S-1, Amendment No. 1, Registration No. 33-44244). 10.13 Agreement, dated October 14, 1994, among certain manufacturers and wholesalers of prescription products, including AmeriSource Corporation. 11 Not Applicable. 12 Not Applicable. 13 Not Applicable. 16 Not Applicable. 18 Not Applicable. 19 Not Applicable.
76
EXHIBIT NUMBER DESCRIPTION ------- ----------- 21 Subsidiaries of AmeriSource and Distribution. 23 Not Applicable. 24 Not Applicable. 28 Not Applicable. 29 Not Applicable.
- - - -------- * Copies of the exhibits will be furnished to any security holder of AmeriSource or Distribution upon payment of the reasonable cost of reproduction. (b) Reports on Form 8-K. Neither AmeriSource nor Distribution filed a Current Report on Form 8-K during the fiscal quarter ended September 30, 1994. 77 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. AmeriSource Corporation Date: December 22, 1994 By: /s/ John A. Kurcik --------------------------------- (JOHN A. KURCIK) VICE PRESIDENT (PRINCIPAL ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON DECEMBER 22, 1994 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED. SIGNATURE TITLE --------- ----- /s/ John F. McNamara Chairman, President - - - ------------------------------------- and Chief Executive (JOHN F. MCNAMARA) Officer (Principal Executive Officer and Principal Financial Officer) Director - - - ------------------------------------- (BRUCE C. BRUCKMANN) /s/ Richard C. Gozon Director - - - ------------------------------------- (RICHARD C. GOZON) /s/ Lawrence C. Karlson Director - - - ------------------------------------- (LAWRENCE C. KARLSON) /s/ Harold O. Rosser Director - - - ------------------------------------- (HAROLD O. ROSSER) /s/ George Strong Director - - - ------------------------------------- (GEORGE STRONG) /s/ Barton J. Winokur Director - - - ------------------------------------- (BARTON J. WINOKUR) SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. AmeriSource Distribution Corporation Date: December 22, 1994 By: /s/ John A. Kurcik --------------------------------- (JOHN A. KURCIK) VICE PRESIDENT (PRINCIPAL ACCOUNTING OFFICER) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON DECEMBER 22, 1994 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED. SIGNATURE TITLE --------- ----- /s/ John F. McNamara Chairman, President - - - ------------------------------------- and Chief Executive (JOHN F. MCNAMARA) Officer (Principal Executive Officer and Principal Financial Officer) Director - - - ------------------------------------- (BRUCE C. BRUCKMANN) /s/ Richard C. Gozon Director - - - ------------------------------------- (RICHARD C. GOZON) /s/ Lawrence C. Karlson Director - - - ------------------------------------- (LAWRENCE C. KARLSON) /s/ Harold O. Rosser Director - - - ------------------------------------- (HAROLD O. ROSSER) /s/ George Strong Director - - - ------------------------------------- (GEORGE STRONG) /s/ Barton J. Winokur Director - - - ------------------------------------- (BARTON J. WINOKUR) AMERISOURCE CORPORATION AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
- - - ------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - - - ------------------------------------------------------------------------------------- ADDITIONS ------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS- END OF DESCRIPTION OF PERIOD EXPENSES -DESCRIBE DESCRIBE(1) PERIOD - - - ------------------------------------------------------------------------------------- AMERISOURCE CORPORATION AND SUBSIDIARIES - - - ------------------------ YEAR ENDED SEPTEMBER 30, 1994 Allowance for doubtful accounts.............. $7,681,000 $4,612,000 $2,923,000 $9,370,000 ========== ========== ========== ========== YEAR ENDED SEPTEMBER 30, 1993 Allowance for doubtful accounts.............. $6,952,000 $3,186,000 $2,457,000 $7,681,000 ========== ========== ========== ========== YEAR ENDED SEPTEMBER 30, 1992 Allowance for doubtful accounts.............. $7,627,000 $3,443,000 $4,118,000 $6,952,000 ========== ========== ========== ==========
- - - -------- (1) Accounts written off during year, net of recoveries. S-1 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT AMERISOURCE DISTRIBUTION CORPORATION CONDENSED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 ------------------ ------------------ ASSETS Cash..................................... $ 38 $ 38 Receivable from AmeriSource Corporation.. 15,300 7,373 Deferred financing costs and other....... 4,964 5,343 Investment at equity in AmeriSource Cor- poration (accumulated losses of AmeriSource in excess of investment).... (171,472) 28,908 --------- -------- $(151,170) $ 41,662 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accrued Expenses......................... $ 5,543 $ 5,593 Long-Term Debt Senior debentures...................... 144,013 129,109 Stockholders' Equity Common Stock, $.01 par value Class A (Voting and convertible): 30,000,000 shares authorized; 180,387 1/2 shares issued........... 2 2 Class B (Non-voting and convertible): 30,000,000 shares authorized; 4,400,300 shares issued............. 44 44 Class C (Non-voting and convertible): 2,000,000 shares authorized; 500,000 shares issued....................... 5 5 Capital in excess of par value......... 4,775 4,775 Retained earnings (deficit)............ (304,984) (97,313) Cost of common stock in treasury....... (568) (553) --------- -------- (300,726) (93,040) --------- -------- $(151,170) $ 41,662 ========= ========
S-2 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT AMERISOURCE DISTRIBUTION CORPORATION CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS)
FISCAL FISCAL YEAR ENDED YEAR ENDED SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 ------------------ ------------------ Revenues................................. $ $ 65 Administrative expenses.................. 104 430 Interest expense......................... 15,338 20,273 --------- -------- (Loss) Before Taxes, Extraordinary Items, Cumulative Effects of Accounting Changes and Equity in Net Income (Loss) of Subsidiary.............................. (15,442) (20,638) Equity in net income (loss) of subsidiary before extraordinary items and cumulative effects of accounting changes................................. (172,241) 6,590 Income tax (benefit)..................... (15,266) (6,574) --------- -------- (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes................................. (172,417) (7,474) Extraordinary Charge--early retirement of debt, net of income tax benefit......... (656) (11,890) Extraordinary Credits: Reduction of income tax provision of subsidiary from carryforward of prior year operating losses.................. 484 Reduction of income tax provision of Distribution from carryforward of prior year operating losses............ 262 Cumulative effect of change in accounting for postretirement benefits other than pensions................................ (1,199) Cumulative effect of change in accounting for income taxes........................ (33,399) --------- -------- Net (Loss)............................ $(207,671) $(18,618) ========= ======== (Loss) Per Share (Loss) Before Extraordinary Items and Cumulative Effects of Accounting Changes................................ $ (34.48) $ (1.49) Extraordinary Items..................... (.13) (2.23) Cumulative Effect of Change in Accounting for Postretirement Benefits Other Than Pensions.................... (.24) Cumulative Effect of Change in Accounting for Income Taxes............ (6.68) --------- -------- Net (Loss)............................ $ (41.53) $ (3.72) ========= ========
---------------- CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL FISCAL YEAR ENDED YEAR ENDED SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 ------------------ ------------------ OPERATING ACTIVITIES Net (loss).............................. $(207,671) $ (18,618) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Amortization.......................... 434 78 Equity in net (income) loss of subsidiary........................... 207,728 (1,190) Loss on early retirement of debt...... 6,787 Debentures issued in lieu of payment of interest.......................... 14,904 20,378 Income tax benefit invested in AmeriSource Corporation.............. (7,348) (5,127) Changes in operating assets and liabilities: Receivable from AmeriSource Corporation........................ (7,927) (3,083) Accrued expenses.................... (50) 63 Deferred compensation............... (539) Miscellaneous....................... 10 (300) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............... 80 (1,551) FINANCING ACTIVITIES Long-term debt borrowings............... 126,500 Long-term debt repayments............... (120,134) Deferred financing costs................ (55) (5,140) Capital contribution.................... 346 Repurchase of stock options............. (10) (18) Purchases of treasury stock............. (15) (3) --------- --------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES............... (80) 1,551 INCREASE IN CASH......................... -0- -0- Cash at beginning of year................ 38 38 --------- --------- CASH AT END OF YEAR...................... $ 38 $ 38 ========= =========
S-3 AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
- - - ------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - - - ------------------------------------------------------------------------------------- ADDITIONS ------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS- END OF DESCRIPTION OF PERIOD EXPENSES -DESCRIBE DESCRIBE(1) PERIOD - - - ------------------------------------------------------------------------------------- AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES (PARENT OF AMERISOURCE CORPORATION) - - - ------------------------ YEAR ENDED SEPTEMBER 30, 1994 Allowance for doubtful accounts.............. $7,681,000 $4,612,000 $2,923,000 $9,370,000 ========== ========== ========== ========== YEAR ENDED SEPTEMBER 30, 1993 Allowance for doubtful accounts.............. $6,952,000 $3,186,000 $2,457,000 $7,681,000 ========== ========== ========== ========== YEAR ENDED SEPTEMBER 30, 1992 Allowance for doubtful accounts.............. $7,627,000 $3,443,000 $4,118,000 $6,952,000 ========== ========== ========== ==========
- - - -------- (1) Accounts written off during year, net of recoveries. S-4 (ART) AMERISOURCE CORPORATION AmeriSource Distribution Corporation P.O. Box 959 Valley Forge, PA 19482 610.296.4480 Cover Printed on Recycled Paper EX-3.1 2 CERTIFICATE OF INCORPORATION Exhibit 3.1 CERTIFICATE OF INCORPORATION OF AMERISOURCE DISTRIBUTION CORPORATION 1. Name. The name of the corporation is AmeriSource Distribution ---- Corporation (the "Corporation"). 2. Registered Office and Agent. The address of its registered office --------------------------- in the State of Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. Purpose. The purposes for which the Corporation is formed are to ------- engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware and to possess and exercise all of the powers and privileges granted by such law and other law of Delaware. 4. Authorized Capital. The aggregate number of shares of stock which ------------------ the Corporation shall have authority to issue is 67,000,000 shares, divided into four (4) classes consisting of 5,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock"); 30,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"); 30,000,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"); and 2,000,000 shares of Class C Common Stock, par value $.01 per share ("Class C Common Stock"). Class A Common Stock, Class B Common Stock and Class C Common Stock are collectively referred to herein as "Common Stock". The following is a statement of the designations, preferences, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon the shares of each such class. (a) PREFERRED STOCK (i) Issue in Series. Preferred Stock may be issued from time to --------------- time in one or more series, each such series to have the terms stated herein and in the resolution of the Board of Directors of the Corporation providing for its issue. All shares of any one series of Preferred Stock will be identical, but shares of different series of Preferred Stock need not be identical or rank equally except insofar as provided by law or herein. (ii) Creation of Series. The Board of Directors will have authority by resolution to cause to be created one or more series of Preferred Stock, and to determine and fix with respect to each series prior to the issuance of any shares of the series to which such resolution relates: (A) The distinctive designation of the series and the number of shares which will constitute the series, which number may be increased or decreased (but not below the number of shares thereof then outstanding) from time to time by action of the Board of Directors; (B) The dividend rate and the times of payment of dividends on the shares of the series, whether dividends will be cumulative, and if so, from what date or dates; (C) The price or prices at which, and the terms and conditions on which, the shares of the series may be redeemed at the option of the Corporation; (D) Whether or not the shares of the series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof; (E) Whether or not the shares of the series will be convertible into, or exchangeable for, any other shares of stock of the Corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (F) The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (G) Whether or not the shares of the series will have priority over or be on a parity with or be junior to the shares of any other series or class in any respect or will be entitled to the benefit of limitations restricting the issuance of shares of any other series or class having priority over or being on a parity with the shares of such series in any respect, or restricting the payment of dividends on or the making of other distributions in respect of shares of any other series or class ranking junior to the shares of the series as to dividends or assets, or restricting the purchase or redemption of the shares of any such junior series or class, and the terms of any such restriction; (H) Whether the series will have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; and - 2 - (I) Any other preferences, qualifications, privileges, options and other relative, participating, optional or other special rights and limitations or restrictions of that series. (iii) Dividends. Holders of Preferred Stock shall be entitled --------- to receive, when and as declared by the Board of Directors, out of funds legally available for the payment thereof, dividends at the rates fixed by the Board of Directors for the respective series, and no more, before any dividends shall be declared and paid, or set apart for payment, on Common Stock with respect to the same dividend period. (iv) Preference on Liquidation. In the event of the voluntary or ------------------------- involuntary liquidation, dissolution or winding up of the Corporation, holders of each series of Preferred Stock will be entitled to receive the amount fixed for such series plus, in the case of any series on which dividends will have been determined by the Board of Directors to be cumulative, an amount equal to all dividends accumulated and unpaid thereon to the date of final distribution whether or not earned or declared before any distribution shall be paid, or set aside for payment, to holders of Common Stock. If the assets of the Corporation are not sufficient to pay such amounts in full, holders of all shares of Preferred Stock will participate in the distribution of assets ratably in proportion to the full amounts to which they are entitled or in such order or priority, if any, as will have been fixed in the resolution or resolutions providing for the issue of the series of Preferred Stock. Neither the merger nor consolidation of the Corporation into or with any other corporation, nor a sale, transfer or lease of all or part of its assets, will be deemed a liquidation, dissolution or winding up of the corporation within the meaning of this paragraph except to the extent specifically provided for herein. (v) Redemption. The Corporation, at the option of the Board of ---------- Directors, may redeem all or part of the shares of any series of Preferred Stock on the terms and conditions fixed for such series. (vi) Voting Rights. Except as otherwise required by law, as ------------- otherwise provided herein or as otherwise determined by the Board of Directors as to the shares of any series of Preferred Stock prior to the issuance of any such shares, the holders of Preferred Stock shall have no voting rights and shall not be entitled to a notice of meeting of stockholders. (b) CLASS A, CLASS B AND CLASS C COMMON STOCK Except as otherwise provided herein, all shares of Class A Common Stock, Class B Common Stock and Class C Common Stock will be identical and will entitle the holders thereof to the same rights and privileges. (i) Certain Definitions. As used herein, the following terms will ------------------- have the meanings set forth below: - 3 - (A) "Accredited Investor" shall have the meaning set forth for such term in Rule 501 of Regulation D promulgated under the Securities Act, as such Regulation may be amended from time to time. (B) "Brokers' Transactions" shall mean a sale of shares of Common Stock which are effected pursuant to a transaction by a broker in which such broker (i) does no more than execute the order or orders to sell the shares as agent for the person for whose account the shares are sold, and receives no more than the usual and customary broker's commission; and (ii) neither solicits nor arranges for the solicitation of customers' orders to buy the shares in anticipation of or in connection with the transaction; provided, that the foregoing shall not preclude (a) inquiries by the broker of other brokers or dealers who have indicated an interest in the shares within the preceding 60 days, (b) inquiries by the broker of his customers who have indicated an unsolicited bona fide interest in the shares within the preceding 10 business days; or (c) the publication by the broker of bid and ask quotations for the shares in an inter-dealer quotation system provided that such quotations are incident to the maintenance of a bona fide inter-dealer market for the shares for the broker's own account and that the broker has published bona fide bid and ask quotations for the shares in an inter-dealer quotation system on each of at least twelve days within the preceding thirty calendar days with no more than four business days in succession without such two-way quotations. (C) "Convertible Securities" shall mean evidences of indebtedness, shares of stock, options, warrants or other securities which are convertible into or exchangeable or exercisable for, with or without payment of additional consideration of cash or property, shares of Common Stock. (D) "Holdback Period" shall mean the period beginning on the day a registration statement filed under the Securities Act and relating to a Subsequent Public Offering is declared effective by the Securities and Exchange Commission (or its successor agency) and ending on the 90th day after the closing of the sale of shares pursuant to such Subsequent Public Offering. (E) "Public Sale" shall mean a sale of shares of Common Stock which meets all of the following requirements: (i) the securities shall be sold in Brokers' Transactions or in transactions directly with a "market maker," as that term is defined in Section 3(a)(38) of the Securities - 4 - Exchange Act of 1934, as amended; (ii) the person selling the shares shall not (1) solicit or arrange for the solicitation of orders to buy the shares in anticipation of or in connection with such transactions or (2) make any payment in connection with the offer or sale of the shares to any person other than the broker who executed the order to sell the shares; and (iii) the terms of the sale of such shares to the purchaser thereof have not been privately negotiation. (F) "Securities Act" shall mean the Securities Act of 1933, as amended. (G) "Subsequent Public Offering" shall mean the closing of a sale in an underwritten offering, whether primary or secondary, of any shares of Common Stock or Convertible Securities, pursuant to an effective registration statement under the Securities Act (other than a Unit Offering, a registration statement on Forms S-8 or S-4 or any successor forms or any other registration statement relating to a special offering to employees or security holders), unless such Common Stock or Convertible Securities that are the subject of such registration statement are subject to restrictions substantially similar to the restrictions with respect to Class C Common Stock set forth herein. (H) "Transfer" shall mean the transfer, sale, assignment, pledge, hypothecation or other disposition or encumbrance of shares of Common Stock. (I) "Transfer Restriction Termination Date" means the 90th day after the closing of the first Subsequent Public Offering to occur after the completion of the public offering of Class C Common Stock contemplated by the Corporation's Registration Statement No. 33-27835 filed with the Securities and Exchange Commission under the Securities Act. (J) "Unit Offering" shall mean a public offering of a combination of debt and equity securities of the Corporation and/or its subsidiaries in which not more than 10% of the gross proceeds received by the Corporation and its subsidiaries from the sale of such securities is attributable to such equity securities, provided that after giving effect to such offering, the Corporation does not have a class of equity securities required to be registered under the Securities Exchange Act of 1934, as amended. - 5 - (ii) Dividends. Holders of Common Stock will be entitled to --------- receive such dividends as may be declared by the Board of Directors, provided -------- that if dividends are declared which are payable in shares of Class A Common Stock, Class B Common Stock or Class C Common Stock, dividends will be declared which are payable at the same rate on each other class of Common Stock and the dividends payable in shares of Class A Common Stock will be payable to holders of Class A Common Stock, the dividends payable in shares of Class B Common Stock, and the dividends payable in shares of Class C Common Stock will be payable to holders of Class C Common Stock. (iii) Conversion. ---------- (A) Class A Common Stock and Class B Common Stock. Each --------------------------------------------- record holder of Class A Common Stock will be entitled to convert any or all of such holder's Class A Common Stock into the same number of shares of Class B Common Stock and each record holder of Class B Common Stock will be entitled to convert any or all of the shares of such holder's Class B Common Stock into the same number of shares of Class A Common Stock; provided, however, that at the -------- ------- time of conversion of shares of Class B Common Stock into shares of Class A Common Stock such holder would be permitted, pursuant to applicable law, to hold the total number of shares of Class A Common Stock which he would hold after giving effect to such conversion. Each conversion of shares of Class A Common Stock into shares of Class B Common Stock, or shares of Class B Common Stock into shares of Class A Common Stock, as the case may be, will be effected by the surrender of the certificate or certificates representing the shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of such shares stating the number of shares that any such holder desires to convert into the other class of Common Stock. Such conversion will be deemed to have been effected as of the close of business on the date on which such certificate or certificates have been surrendered and such notice has been received by the Corporation, and at such time the rights of any such holder with respect to the converted class of Common Stock will cease and the person or persons in whose name or names the certificate or certificates for shares of the other class of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of such other class of Common Stock represented thereby. Promptly after such surrender - 6 - and the receipt by the Corporation of the written notice from the holder hereinbefore referred to, the Corporation will issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates for the other class of Common Stock issuable upon such conversion and a certificate representing any shares of Common Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. The issuance of Certificates for the other class of Common Stock upon conversion will be made without charge to the holder or holders of such shares for any issuance tax (except stock transfer taxes) in respect thereof or other cost incurred by the Corporation in connection with such conversion. (B) Class C Common Stock. A share of Class C Common Stock -------------------- will automatically be converted into a share of Class A Common Stock (i) immediately prior to its sale in a Subsequent Public Offering, or (ii) at such time as such share of Class C Common Stock has been sold in a Public Sale after a Subsequent Public Offering, and in compliance with the maximum quantity limitations as set forth in paragraph 4(b)(iv)(C) hereof, if such maximum quantity limitations remain in effect. On the date of such automatic conversion, all rights with respect to the Class C Common Stock so converted will terminate, except for the rights of the holders thereof, upon surrender of their certificate or certificates therefor, to receive certificates for an equal number of shares of Class A Common Stock. As soon as practical after the date of such automatic conversion, the holder of shares of Class C Common Stock so converted shall surrender to the Corporation the certificate or certificates representing the shares so converted, and thereafter the Corporation shall cause to be issued and delivered to such holder a certificate for the number of shares of Class A Common Stock issuable upon such conversion in accordance with the provisions hereof. All certificates evidencing shares of Class C Common Stock which are automatically converted into Class A Common Stock in accordance with the provisions hereof shall, from and after the dates such certificates are so converted, be deemed to have been retired and cancelled and the shares of Class C Common Stock represented thereby converted into Class A Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates to the Corporation. The Corporation may thereafter take such appropriate action as may be necessary to reduce the authorized shares of Class C Common Stock accordingly. Upon such automatic conversion of a share of Class -7- C Common Stock into a share of Class A Common Stock, such share will no longer be subject to any of the restrictions on transfer described herein. (iv) Restrictions on Transfer. ------------------------ (A) Restrictions Prior to Transfer Restriction Termination Date ----------------------------------------------------------- and During Holdback Period. Except as provided in paragraph 4(b)(iv)(B) - - - -------------------------- hereof, prior to and on the Transfer Restriction Termination Date, and during any Holdback Period, a holder of shares of Class C Common Stock may not effect a Transfer of such shares, unless (1) the transferee is an Accredited Investor, (2) the Transfer under consideration is a privately negotiated transaction and (3) the number of shares of Class C Common Stock subject to the transfer is not less than 2,500 shares. The minimum number of shares set forth in the previous sentence shall be appropriately adjusted in the event of a stock split, reverse stock split, stock dividend or similar transaction by the Corporation. (B) Certain Exceptions. A Transfer of shares of Class C Common ------------------ Stock may be effected without regard to the provisions of paragraph 4(b)(iv)(A) hereof under the following circumstances: (1) If the holder of shares of Class C Common Stock is a natural person, pursuant to will or the laws of descent and distribution; (2) If the holder of shares of Class C Common Stock is not a natural person, pursuant to a merger of such holder into, consolidation of such holder with, or sale of all or substantially all of the assets of such holder to, another entity; (3) If the holder of shares of Class C Common Stock is not a natural person, pursuant to the liquidation or dissolution (voluntary or involuntary) or winding up of such holder; or (4) In order to enable the holder to exchange or transfer shares of Class C Common Stock in connection with a merger of the Corporation into, or the consolidation of the Corporation with, a corporation (other than a subsidiary of the Corporation) where such other corporation survives the merger. - 8 - (C) Restrictions After Transfer Restriction Termination Date. Except -------------------------------------------------------- during a Holdback Period, after the Transfer Restriction Termination Date, a holder of shares of Class C Common Stock may transfer such shares free of any restrictions on transfer contained herein, provided that, for a period of 270 days after the Transfer Restriction Termination Date, the number of shares of Class C Common Stock sold publicly in brokers' transactions (within the meaning of Section 4(4) of the Securities Act) by such holder and its affiliates, together with the number of shares of Common Stock sold publicly in such brokers' transactions by such holder and its affiliates within the preceding three months, shall not exceed the greater of (i) one percent of the shares of Common Stock outstanding as shown by the most recent report or statement published by the Corporation, or (ii) the average weekly reported volume of trading in Common Stock on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the date of such transfer. The calculation of the number of shares set forth in the preceding sentence shall be made as if a paragraph (e)(3)(i) through paragraph (e)(3)(v) of Rule 144 under the Securities Act (as in effect on September 14, 1989) were applicable. (D) Effect of Restrictions; Legends. -------------------------------- (1) Any purported Transfer in violation of the terms set forth herein shall be null and void and of no force and effect, and the purported transferee shall have no rights or privileges in or with respect to the Corporation. Before the Corporation registers a Transfer of Class C Common Stock on its stock record books, it may require proof, satisfactory to the Corporation, that the Transfer complies with the restrictions on Transfer contained herein. The Corporation shall, in its sole discretion, be entitled to resolve any and all disputes relating to compliance with the restrictions on Transfer set forth herein, including, but not limited to, the conversion of shares of Class C Common Stock into shares of Class A Common Stock under paragraph 4(b)(iii)(B) hereof. (2) Certificates representing shares of Class C Common will bear a legend indicating that such shares are subject to the restrictions on transfer set forth herein. (v) Transfers. The Corporation will not close its books against the --------- transfer of any share of Common Stock, or of any share of Common Stock issued or issuable upon conversion - 9 - of shares of the other Class of Common Stock, in any manner that would interfere with the timely conversion of such shares of Common Stock. (vi) Subdivision and Combinations of Shares. If the Corporation in any -------------------------------------- manner subdivides or combines the outstanding shares of any class of Common Stock, the outstanding shares of the other classes of Common Stock will be proportionately subdivided or combined. (vii) Reservation of Shares for Conversion. So long as any shares of ------------------------------------ any class of Common Stock are outstanding, the Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock and Class B Common Stock (or any shares of Class A Common Stock or Class B Common Stock which are held as treasury shares), the number of shares sufficient for issuance upon conversion. (viii) Distribution of Assets. In the event of the voluntary or ---------------------- involuntary liquidation, dissolution or winding up of the Corporation, holders of Common Stock will be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders after all amounts to which the holders of Preferred Stock are entitled have been paid or set aside in cash for payment. (ix) Voting Rights. The holders of Class A Common Stock shall have the ------------- general right to vote for all purposes, including the election of directors, as provided by law. Each holder of Class A Common Stock shall be entitled to one vote for each share thereof held. Except as otherwise required by law, the holders of Class B Common Stock and Class C Common Stock shall have no voting rights. (x) Merger, etc. In connection with any merger, consolidation, or ----------- recapitalization in which holders of Class A Common Stock generally receive, or are given, the opportunity to receive, consideration for their shares (a) all holders of Class B Common Stock and Class C Common Stock shall be given the opportunity to receive the same form of consideration for their shares as is received by holders of Class A Common Stock and (b) holders of Class B Common Stock and Class C Common Stock shall be entitled to receive the same amount of consideration per share as received by holders of Class A Common Stock. - 10 - 5. Incorporator. The name and mailing address of the incorporator are as ------------ follows: Name Mailing Address ---- --------------- Cathyann Bixby 3400 Centre Square West 1500 Market Street Philadelphia, PA 19102 6. Term. The corporation is to have perpetual existence. ---- 7. Bylaws. The bylaws of the Corporation may be altered, amended or ------ repealed by the vote of a majority of all of the directors or by the vote of holders of a majority of the outstanding stock entitled to vote. 8. Election of Directors. Election of directors need not be by written --------------------- ballot unless the bylaws of the Corporation shall so provide. 9. Right to Amend. The Corporation reserves the right to amend the -------------- provisions in this certificate and in any certificate amendatory hereof in the manner now or hereafter prescribed by law, and all rights conferred on stockholders or others hereunder or thereunder are granted subject to such reservation. 10. Unanimous Written Consent Required. If any action is to be taken by ---------------------------------- stockholders without a meeting, such action must be authorized by unanimous written consent signed by all of the holders of outstanding voting stock. 11. Limitation on Liability. The directors of the Corporation shall be ----------------------- entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the General Corporation Law of Delaware. Without limiting the generality of the foregoing, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 10 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. - 11 - IN WITNESS WHEREOF, the undersigned has executed the Certificate of Incorporation this 10th day of November, 1988. /s/Cathyann Bixby ---------------------------- Cathyann Bixby, Incorporator - 12 - EX-3.3 3 RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.3 RESTATED CERTIFICATE OF INCORPORATION OF AMERISOURCE CORPORATION AMERISOURCE CORPORATION (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows: A. The name of the corporation is AMERISOURCE CORPORATION. The Corporation was originally incorporated under the same name and the date of filing its original Certificate of Incorporation with the Secretary of State of the State of Delaware was June 24, 1985. B. This Restated Certificate of Incorporation restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this Corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. C. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware. D. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read in its entirety as follows: 1. Name. The name of the Corporation is AmeriSource Corporation. ---- 2. Registered Office and Agent. The address of the Corporation's --------------------------- registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. 3. Purpose. The purposes for which the Corporation is formed are to ------- engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware. 4. Authorized Capital. The aggregate number of shares of stock which ------------------ the Corporation shall have authority to issue is One Thousand (1,000) shares, all of which are of one class and are designated as Common Stock and each of which has a par value of $.01. -2- 5. Bylaws. The board of directors of the Corporation is authorized to ------ adopt, amend or repeal the bylaws of the Corporation, except as otherwise specifically provided therein. 6. Election of Directors. Election of directors need not be by written --------------------- ballot unless the bylaws of the Corporation shall so provide. 7. Right to Amend. The Corporation reserves the right to amend any -------------- provision contained in this Certificate as the same may from time to time be in effect in the manner now or hereafter prescribed by law, and all rights conferred on stockholders or others hereunder are subject to such reservation. 8. Limitation on Liability. The directors of the Corporation shall be ----------------------- entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the General Corporation Law of Delaware. Without limiting the generality of the foregoing, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 8 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. IN WITNESS WHEREOF, the undersigned corporation has caused this Restated Certificate of Incorporation to be executed in its name by its duly authorized representatives this 28th day of August, 1990. AMERISOURCE CORPORATION By:/s/ Donald E. Steinbacher ------------------------- Donald E. Steinbacher Vice President, Administration [Corporate Seal] ATTEST: By:/s/ Teresa T. Ciccotelli ------------------------ Teresa T. Ciccotelli Secretary EX-4.8 4 CREDIT AGREEMENT Exhibit 4.8 AMENDED AND RESTATED CREDIT AGREEMENT U.S. $380,000,000 Dated as of December 13, 1994 among AMERISOURCE CORPORATION, as Borrower, and GENERAL ELECTRIC CAPITAL CORPORATION, individually and in its capacities as the Administrative Agent and a Managing Agent, and BANKERS TRUST COMPANY, individually and in its capacities as the Issuing Lender and a Managing Agent, and BANKAMERICA BUSINESS CREDIT, INC. and HELLER FINANCIAL, INC., as Co-Agents, and THE BANKS AND OTHER FINANCIAL INSTITUTIONS NAMED HEREIN, as Lenders TABLE OF CONTENTS -----------------
Section Page - - - ------- ---- 1. DEFINITIONS AND RULES OF CONSTRUCTION........................... 2 ------------------------------------- 1.1 Definitions............................................... 2 ----------- 1.2 Rules of Construction..................................... 43 --------------------- 2. AMOUNT AND TERMS OF CREDIT...................................... 44 -------------------------- 2.1 Advances.................................................. 44 -------- 2.2 Making the Loans........................................... 47 ---------------- 2.3 Letters of Credit.......................................... 48 ----------------- 2.4 Mandatory Prepayment...................................... 55 -------------------- 2.5 Optional Reduction of Maximum Loan or Advance --------------------------------------------- Rate...................................................... 55 ---- 2.6 Use of Proceeds........................................... 56 --------------- 2.7 Single Loan............................................... 56 ----------- 2.8 Interest on Loans......................................... 56 ----------------- 2.9 Special Provisions Governing LIBOR Rate Loans............. 59 --------------------------------------------- 2.10 Eligible Inventory........................................ 63 ------------------ 2.11 Fees...................................................... 64 ---- 2.12 Cash Management System.................................... 65 ---------------------- 2.13 Receipt of Payments....................................... 66 ------------------- 2.14 Application and Allocation of Payments.................... 66 -------------------------------------- 2.15 Accounting................................................ 68 ---------- 2.16 Indemnity................................................. 68 --------- 2.17 Access.................................................... 69 ------ 2.18 Taxes..................................................... 70 ----- 2.19 Indemnification in Certain Events......................... 74 --------------------------------- 2.20 Replacement of Commitments................................ 75 -------------------------- 3. CONDITIONS PRECEDENT............................................ 76 -------------------- 3.1 Conditions to Effectiveness of this Agreement............. 76 --------------------------------------------- 3.2 Further Conditions........................................ 78 ------------------ 4. REPRESENTATIONS AND WARRANTIES.................................. 79 ------------------------------ 4.1 Corporate Existence; Compliance with Law.................. 79 ---------------------------------------- 4.2 Executive Offices......................................... 80 ----------------- 4.3 Subsidiaries.............................................. 80 ------------ 4.4 Corporate Power; Authorization; Enforceable ------------------------------------------- Obligations............................................... 80 ----------- 4.5 Solvency.................................................. 81 -------- 4.6 Financial Statements...................................... 81 -------------------- 4.7 Projections............................................... 82 ----------- 4.8 Ownership of Property; Liens.............................. 83 ---------------------------- 4.9 No Default................................................ 84 ---------- 4.10 Burdensome Restrictions................................... 84 ----------------------- 4.11 Labor Matters.............................................. 84 ------------- 4.12 Other Ventures............................................ 85 -------------- 4.13 Investment Company Act.................................... 85 ---------------------- 4.14 Margin Regulations........................................ 85 ------------------ 4.15 Taxes..................................................... 85 ----- 4.16 ERISA..................................................... 86 ----- 4.17 No Litigation............................................. 88 ------------- 4.18 Brokers................................................... 89 ------- 4.19 Ancillary Agreements...................................... 89 -------------------- 4.20 Outstanding Stock; Options; Warrants, Etc................. 89 ----------------------------------------- 4.21 Employment and Labor Agreements........................... 89 ------------------------------- 4.22 Patents, Trademarks, Copyrights and Licenses.............. 89 --------------------------------------------
i 4.23 Full Disclosure........................................... 90 --------------- 4.24 Liens..................................................... 90 ----- 4.25 Hazardous Materials....................................... 90 ------------------- 4.26 Insurance Policies........................................ 91 ------------------ 4.27 Bank Accounts............................................. 92 ------------- 4.28 Inventory................................................. 92 --------- 4.29 Indebtedness.............................................. 93 ------------ 5. FINANCIAL STATEMENTS AND INFORMATION............................ 93 ------------------------------------ 5.1 Reports and Notices....................................... 93 ------------------- 5.2 Additional Reports and Notices............................ 97 ------------------------------ 5.3 Communication with Accountants............................ 97 ------------------------------ 6. AFFIRMATIVE COVENANTS........................................... 98 --------------------- 6.1 Maintenance of Existence and Conduct of Business.......... 98 ------------------------------------------------ 6.2 Payment of Obligations.................................... 99 ---------------------- 6.3 Agent's and Lenders' Fees................................. 99 ------------------------- 6.4 Books and Records......................................... 99 ----------------- 6.5 Litigation................................................100 ---------- 6.6 Insurance.................................................100 --------- 6.7 Compliance with Laws......................................101 -------------------- 6.8 Agreements................................................101 ---------- 6.9 Supplemental Disclosure...................................101 ----------------------- 6.10 Employee Plans............................................102 -------------- 6.11 Environmental Matters.....................................102 --------------------- 6.12 Landlord's Agreements.....................................103 --------------------- 6.13 Subsidiary................................................103 ---------- 6.14 Interest Rate Contracts....................................103 ----------------------- 6.15 Minimum Tangible Net Worth................................103 -------------------------- 6.16 Interest Coverage Ratio...................................104 ----------------------- 6.17 Current Ratio.............................................104 ------------- 6.18 Stock Changes.............................................104 ------------- 6.19 Private Label Programs....................................104 ---------------------- 6.20 Receivables Securitization Facility........................105 ----------------------------------- 7. NEGATIVE COVENANTS..............................................106 ------------------ 7.1 Mergers and Acquisitions..................................106 ------------------------ 7.2 Investments; Loans and Advances...........................107 ------------------------------- 7.3 Indebtedness..............................................108 ------------ 7.4 Employee Loans............................................108 -------------- 7.5 Capital Structure.........................................109 ----------------- 7.6 Maintenance of Business...................................110 ----------------------- 7.7 Transactions with Affiliates..............................110 ---------------------------- 7.8 Guaranteed Indebtedness...................................111 ----------------------- 7.9 Liens.....................................................111 ----- 7.10 Sales of Assets...........................................111 --------------- 7.11 Cancellation of Indebtedness..............................112 ---------------------------- 7.12 Events of Default.........................................112 ----------------- 7.13 Speculative Transactions..................................112 ------------------------ 7.14 Restricted Payments; Dividends............................113 ------------------------------ 7.15 Payment or Modification of Obligations....................114 -------------------------------------- 7.16 Compensation..............................................114 ------------ 7.17 Real Property Leases......................................114 -------------------- 7.18 ERISA.....................................................114 ----- 7.19 Hazardous Materials.......................................115 ------------------- 7.20 Capital Expenditures......................................116 -------------------- 7.21 Operating Leases..........................................116 ---------------- 7.22 Fiscal Year...............................................116 -----------
ii 7.23 Tax Sharing...............................................117 ----------- 7.24 Amendments to Other Documents.............................117 ----------------------------- 8. TERM............................................................118 ---- 8.1 Termination...............................................118 ----------- 8.2 Survival of Obligations Upon Termination of ------------------------------------------- Financing Arrangement.....................................118 --------------------- 8.3 Events Prior to Restatement Closing Date..................119 ---------------------------------------- 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES..........................119 -------------------------------------- 9.1 Events of Default........................................119 ----------------- 9.2 Remedies.................................................123 -------- 9.3 Waivers by Borrower......................................124 ------------------- 9.4 Right of Setoff..........................................124 --------------- 10. AGENCY..........................................................125 ------ 10.1 Appointment...............................................125 ----------- 10.2 Delegation of Duties......................................126 -------------------- 10.3 Limitation of Liability...................................126 ----------------------- 10.4 Reliance by Agent.........................................126 ----------------- 10.5 Notice of Default.........................................127 ----------------- 10.6 Non-Reliance on Agent and the Other Lenders...............128 ------------------------------------------- 10.7 Indemnification...........................................128 --------------- 10.8 Payments..................................................129 -------- 10.9 Agent in Its Individual Capacity..........................129 -------------------------------- 10.10 Successor Agent...........................................129 --------------- 10.11 Adjustment................................................130 ---------- 10.12 Applicability of Section to Borrower......................130 ------------------------------------ 11. ASSIGNMENTS AND PARTICIPATIONS..................................130 ------------------------------ 11.1 Successors and Assigns....................................130 ---------------------- 11.2 Assignments...............................................131 ----------- 11.3 Participations............................................132 -------------- 11.4 Disclosure................................................133 ---------- 11.5 Assignments and Participations as Units...................134 --------------------------------------- 12. MISCELLANEOUS...................................................134 ------------- 12.1 Complete Agreement; Modification of Agreement.............134 --------------------------------------------- 12.2 Fees and Expenses.........................................135 ----------------- 12.3 No Waiver.................................................136 --------- 12.4 Remedies..................................................137 -------- 12.5 Severability..............................................137 ------------ 12.6 Parties...................................................137 ------- 12.7 Conflict of Terms.........................................137 ----------------- 12.8 Authorized Signature......................................137 -------------------- 12.9 GOVERNING LAW..............................................137 ------------- 12.10 Notices...................................................138 ------- 12.11 Survival..................................................140 -------- 12.12 Section Titles............................................140 -------------- 12.13 Counterparts..............................................140 ------------ 12.14 BTCo......................................................140 ---- 12.15 Designation of Senior Debt...............................141 -------------------------- 12.16 MUTUAL WAIVER OF JURY TRIAL...............................141 ---------------------------
iii INDEX OF EXHIBITS AND SCHEDULES ------------------------------- Exhibit A - Form of Notice of Advance [Section 2.1] Exhibit B - Form of Borrowing Base Certificate [Definitions] Exhibit C - Form of Assignment and Acceptance [Definitions] Exhibit D - Form of Landlord's Agreement [Definitions] Exhibit E - Form of Note [Definitions] Exhibit F - Form of Confidentiality Agreement [Section 11.4] Exhibit G - Form of Notice of LIBOR Advance [Section 2.8] Exhibit H - Form of Accountant's Letter [Section 5.2] Exhibit I - Form of Letter of Credit Request [Section 2.3] Schedule A - Lenders and Lenders' Proportionate Shares [Definitions] Schedule B - Schedule of Documents [Definitions] Schedule C - Quarterly Rate Adjustment Matrix [Definitions] Schedule D - L/C Guaranty Alternative [Section 2.3] Schedule E - Receivables Pooling Agreement Defined Terms [Section 7.24] Schedule 4.2 - Executive Offices Schedule 4.3 - Subsidiaries Schedule 4.6 - Material Events Schedule 4.8 - Real Estate and Leases Schedule 4.12 - Joint Ventures Schedule 4.15 - Tax Matters Schedule 4.16 - ERISA Plans Schedule 4.17 - Litigation Schedule 4.20 - Stock Ownership of Borrower and Parent Schedule 4.21 - Employment Matters Schedule 4.22 - Patents, Trademarks, Copyrights and Other Intellectual Property Rights Schedule 4.25 - Environmental Liabilities Schedule 4.26 - Insurance Policies Schedule 4.27 - Bank Accounts Schedule 6.1 - Names Schedule 6.11 - Environmental Remediation Plan Schedule 7.2 - Existing Advances Schedule 7.3 - Indebtedness Schedule 7.7 - Permitted Affiliate Transactions Schedule 7.9 - Liens Schedule 7.10 - Sales of Assets Schedule 7.16 - Management Incentive Program Schedule 12.8 - Authorized Signatures
iv This AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement") is entered into as of December 13, 1994, among AMERISOURCE CORPORATION, a Delaware corporation, formerly known as Alco Health Services Corporation ("Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, a corporation organized under the banking laws of the State of New York ("GE Capital"), individually and in its capacities as the administrative agent (in such capacity, "Agent") and a managing agent for each of the Lenders (as defined below) hereunder, BANKERS TRUST COMPANY, a corporation organized under the banking laws of the State of New York ("BTCo"), individually and in its capacities as the issuing lender and a managing agent for each of the Lenders hereunder, BankAmerica Business Credit, Inc., and Heller Financial, Inc., as co-agents, and the other banks and other financial institutions named herein and whose signatures appear on the signature pages hereto (GE Capital, BTCo, BankAmerica Business Credit, Inc., Heller Financial, Inc., and such other banks and other financial institutions and their respective successors and assigns, individually, a "Lender" and collectively, "Lenders"). RECITALS -------- A. Reference is made to that certain Credit Agreement dated as of March 30, 1993 by and among Borrower, Agent, Security Pacific Business Credit Inc., as co-agent, and each of the lenders party thereto, pursuant to which certain senior secured loans and other financial accommodations were made to and for the benefit of Borrower. The Credit Agreement dated as of March 30, 1993 was subsequently amended and modified by that certain First Amendment to Credit Agreement dated as of December 3, 1993 and that certain Amended and Restated Second Amendment to Credit Agreement dated as of March 31, 1994 (collectively, the "Original Credit Agreement"). B. Borrower has notified Agent and Lenders of its intention to restructure its outstanding indebtedness effective as of the date hereof, including, but not limited to, an amendment and restatement of its obligations under the Original Credit Agreement and consummation of an accounts receivable securitization program, each as hereinafter set forth. C. As part of such restructuring, Borrower has requested that Lenders provide to it a senior secured credit facility in the maximum principal amount of $380,000,000. D. Lenders are willing to extend such loans and other financial accommodations in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: DEFINITIONS AND RULES OF CONSTRUCTION ------------------------------------- 1.1 Definitions. Capitalized terms used in this Agreement shall ----------- have (unless otherwise provided elsewhere in this Agreement) the following respective meanings when used herein: "Accounts" shall mean all "accounts," as such term is defined in the Code, now owned or hereafter acquired by any Person and, in any event, including: (i) all accounts receivable, other receivables, book debts and 1 other forms of obligations (other than forms of obligations evidenced by chattel paper, documents or instruments) now owned or hereafter received or acquired by or belonging or owing to such Person whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligation which may be characterized as an account or contract right under the Code); (ii) all of such Person's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services; (iii) all of such Person's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (iv) all monies due or to become due to such Person under all purchase orders and contracts for the sale of goods or the performance of services or both by such Person or in connection with any other transaction (whether or not yet earned by performance on the part of such Person) now in existence or hereafter occurring, including the right to receive the proceeds of said purchase orders and contracts; and (v) all collateral security, letters of credit, and guaranties of any kind, now or hereafter in existence, given by any other Person with respect to any of the foregoing. "Acquisition Purchase Price" shall mean: (i) in the case of an asset acquisition, the sum of (x) all cash consideration paid or payable by or on behalf of the buyer to seller or on behalf of seller, plus (y) the fair ---- market value of any non-cash consideration made or payable by or on behalf of the buyer to seller or on behalf of seller, plus (z) the amount of all ---- Indebtedness (including Guaranteed Indebtedness) and other liabilities assumed or forgiven by or on behalf of the buyer that would be required to be reflected on the consolidated balance sheet of the Person assuming or forgiving such liabilities pursuant to GAAP; and (ii) in the case of a stock acquisition, the sum of (a) all cash consideration paid or payable by or on behalf of the buyer to seller or on behalf of seller, plus (b) the fair market value of any non-cash ---- consideration made or payable by or on behalf of the buyer to seller or on behalf of seller, plus (c) in the case of any acquisition through a merger or ---- a transaction after which the acquired Person would be a Subsidiary of the buyer, the amount of all Indebtedness (including Guaranteed Indebtedness) and other liabilities of the acquired Person guaranteed or assumed by Borrower. "Adjusted LIBOR Rate" shall mean, for any Interest Period, the per annum rate (rounded to the nearest one-sixteenth of one percent (0.0625%)), determined as the sum of: (i) the LIBOR Assessment Rate at the time, plus (ii) ---- the quotient of: (a) the LIBOR Rate divided by (b) (I) one hundred percent ------- -- (100%) minus (II) the LIBOR Reserve Percentage. ----- "Advance" shall have the meaning assigned to it in SECTION 2.1(A). "Affected Interest Period" shall have the meaning assigned to it in SECTION 2.9(B). "Affected Lender" shall mean any Lender affected by any of the events described in SECTION 2.9(B) or SECTION 2.9(C). "Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power in the election of directors of such Person, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (iii) each of such 2 Person's officers, directors, joint venturers and partners. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall have the meaning assigned to it in the preamble to this Agreement. "Agreement" shall mean this Amended and Restated Credit Agreement and any appendices, exhibits or schedules hereto, which Amended and Restated Credit Agreement amends and restates the Original Credit Agreement, and shall refer to this Agreement as the same may be in effect at the time such reference is operative. "Ancillary Agreements" shall mean those agreements, documents, and instruments (other than this Agreement) identified in the Schedule of Documents and any other supplemental agreement, undertaking, instrument, document or other writing executed by Borrower or Parent as a condition to advances or funding under this Agreement or otherwise in connection herewith, including the Subordinated Parent Notes, the Receivables Facility Documents, the Loan Documents, and all amendments, modifications or supplements thereto effected in accordance with this Agreement. "Applicable Letter of Credit Fee Rate" shall mean two percent (2.00%); provided, that the Applicable Letter of Credit Fee Rate is subject to -------- periodic adjustments, based on the following criteria: (i) based on the Interest Coverage Ratio calculated from Borrower's financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the last Fiscal Quarter in the most recent Testing Period, the Applicable Letter of Credit Fee Rate shall be adjusted to be as follows:
Then Applicable If Interest Coverage Ratio Letter of Credit is Greater Than or Equal to Fee Rate is --------------------------- ---------------- 3.75 to 1.00 but less than 1.75% 4.50 to 1.00 4.50 to 1.00 but less than 1.50% 5.50 to 1.00 5.50 to 1.00 but less than 1.25% 6.50 to 1.00 6.50 to 1.00 1.00%
The adjustments set forth in this subparagraph (i), if and when applicable, shall be made to the Applicable Letter of Credit Fee Rate for the Fiscal Quarter immediately following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Interest Coverage Ratio for the relevant Testing Period. The Quarterly Rate Adjustment 3 Matrix illustrates the timing of the effectiveness of the adjustments described in the preceding sentence. (ii) at any time after Borrower shall have received at least $100,000,000 of aggregate gross cash proceeds (before customary fees and expenses) from the sale of common equity of Borrower or Parent, based on the Total Debt to EBITDA Ratio calculated from the financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the most recent Rolling Period (with the initial Rolling Period to be that ending with the last Fiscal Quarter ending immediately prior to the consummation of such equity sale), the Applicable Letter of Credit Fee Rate shall be adjusted to be as follows:
Then Applicable If Total Debt to Letter of Credit EBITDA Ratio is Less Than Fee Rate is -------------------------- ---------------- 4.50 to 1.00 but greater than or 1.50% equal to 4.00 to 1.00 4.00 to 1.00 1.00%
The initial adjustment set forth in this subparagraph (ii), if and when applicable, shall be made to the Applicable Letter of Credit Fee Rate for the period (a) commencing on the first day of the calendar month following the receipt of the above-described equity proceeds (or, if later, the first day of the calendar month following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Total Debt to EBITDA Ratio for the relevant Rolling Period) and (b) ending on the last day of the Fiscal Quarter following the Fiscal Quarter in which the above- described equity proceeds are received. All subsequent adjustments set forth in this subparagraph (ii), if and when applicable, shall be made to the Applicable Letter of Credit Fee Rate for the second Fiscal Quarter following the end of the relevant Rolling Period, and the Quarterly Rate Adjustment Matrix illustrates the timing of the effectiveness of such subsequent adjustments. (iii) If more than one such adjustment described in subparagraphs (i) and (ii) above shall be applicable to the Applicable Letter of Credit Fee Rate for the same Fiscal Quarter, then only the lower (or, if equal, only one) Applicable Letter of Credit Fee Rate shall apply. "Applicable Margin" for any Prime Rate Loan shall be one percent (1.00%) and for any LIBOR Rate Loan shall be two and one-quarter percent (2.25%); provided, that the Applicable Margins are subject to periodic -------- adjustments, based on the following criteria: (i) with respect to Prime Rate Loans: (a) based on the Interest Coverage Ratio calculated from Borrower's financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the last Fiscal Quarter in the 4 most recent Testing Period, the Applicable Margin shall be adjusted to be as follows:
If Interest Coverage Ratio Then Applicable is Greater Than or Equal to Margin is --------------------------- --------------- 3.75 to 1.00 but less than 0.75% 4.50 to 1.00 4.50 to 1.00 but less than 0.50% 5.50 to 1.00 5.50 to 1.00 but less than 0.25% 6.50 to 1.00 6.50 to 1.00 0.00%
The adjustments set forth in this subparagraph (a), if and when applicable, shall be made to the Applicable Margin for the Fiscal Quarter immediately following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Interest Coverage Ratio for the relevant Testing Period. The Quarterly Rate Adjustment Matrix illustrates the timing of the effectiveness of the adjustments described in the preceding sentence. (b) at any time after Borrower shall have received at least $100,000,000 of aggregate gross cash proceeds (before customary fees and expenses) from the sale of common equity of Borrower or Parent, based on the Total Debt to EBITDA Ratio calculated from the financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the most recent Rolling Period (with the initial Rolling Period to be that ending with the last Fiscal Quarter ending immediately prior to the consummation of such equity sale), the Applicable Margin shall be adjusted to be as follows:
If Total Debt to Then Applicable EBITDA Ratio is Less Than Margin is ------------------------------ --------------- 4.50 to 1.00 but greater than or 0.50% equal to 4.00 to 1.00 4.00 to 1.00 0.00%
The initial adjustment set forth in this subparagraph (b), if and when applicable, shall be made to the Applicable Margin for the period (I) commencing on the first day of the calendar month following the receipt of the above-described equity proceeds (or, if later, the first day of the calendar month following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Total Debt to EBITDA Ratio for the relevant Rolling Period) and (II) ending on the last day of the Fiscal Quarter following the Fiscal Quarter in which the above-described equity proceeds are received. All subsequent adjustments set forth in 5 this subparagraph (b), if and when applicable, shall be made to the Applicable Margin for the second Fiscal Quarter following the end of the relevant Rolling Period, and the Quarterly Rate Adjustment Matrix illustrates the timing of the effectiveness of such subsequent adjustments. (c) If more than one such adjustment described in subparagraphs (a) and (b) above shall be applicable to the Applicable Margin with respect to the Prime Rate Loans for the same Fiscal Quarter, then only the lower (or, if equal, only one) Applicable Margin shall apply. (ii) with respect to LIBOR Rate Loans: (x) based on the Interest Coverage Ratio calculated from Borrower's financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the last Fiscal Quarter in the most recent Testing Period, the Applicable Margin shall be adjusted to be as follows:
If Interest Coverage Ratio Then Applicable is Greater Than or Equal to Margin is --------------------------- --------------- 3.75 to 1.00 but less than 2.00% 4.50 to 1.00 4.50 to 1.00 but less than 1.75% 5.50 to 1.00 5.50 to 1.00 but less than 1.50% 6.50 to 1.00 6.50 to 1.00 1.25%
The adjustments set forth in this subparagraph (x), if and when applicable, shall be made to the Applicable Margin for the Fiscal Quarter immediately following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Interest Coverage Ratio for the relevant Testing Period. The Quarterly Rate Adjustment Matrix illustrates the timing of the effectiveness of the adjustments described in the preceding sentence. (y) at any time after Borrower shall have received at least $100,000,000 of aggregate gross cash proceeds (before customary fees and expenses) from the sale of common equity of Borrower or Parent, based on the Total Debt to EBITDA Ratio calculated from the financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the most recent Rolling Period (with the initial Rolling Period to be that ending with the last Fiscal Quarter ending immediately prior to the consummation of such equity sale), the Applicable Margin shall be adjusted to be as follows: 6
If Total Debt to Then Applicable EBITDA Ratio is Less Than Margin is ------------------------- --------------- 4.50 to 1.00 but greater than or 1.75% equal to 4.00 to 1.00 4.00 to 1.00 1.25%
The initial adjustment set forth in this subparagraph (y), if and when applicable, shall be made to the Applicable Margin for the period (I) commencing on the first day of the calendar month following the receipt of the above-described equity proceeds (or, if later, the first day of the calendar month following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Total Debt to EBITDA Ratio for the relevant Rolling Period) and (II) ending on the last day of the Fiscal Quarter following the Fiscal Quarter in which the above-described equity proceeds are received. All subsequent adjustments set forth in this subparagraph (y), if and when applicable, shall be made to the Applicable Margin for the second Fiscal Quarter following the end of the relevant Rolling Period, and the Quarterly Rate Adjustment Matrix illustrates the timing of the effectiveness of such subsequent adjustments. (z) If more than one such adjustment described in subparagraphs (x) and (y) above shall be applicable to the Applicable Margin with respect to the LIBOR Rate Loans for the same Fiscal Quarter, then only the lower (or, if equal, only one) Applicable Margin shall apply. "Applicable Unused Line Fee Rate" shall mean one-half of one percent (0.50%); provided, that the Applicable Unused Line Fee Rate is subject -------- to periodic adjustments, based on the following criteria: (i) based on the Interest Coverage Ratio calculated from Borrower's financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the last Fiscal Quarter in the most recent Testing Period, the Applicable Unused Line Fee Rate shall be adjusted to be as follows:
Then Applicable If Interest Coverage Ratio Unused Line is Greater Than Fee Rate is -------------------------- --------------- 4.50 to 1.00 but less than or 0.375% equal to 5.50 to 1.00 5.50 to 1.00 0.250%
The adjustments set forth in this subparagraph (i), if and when applicable, shall be made to the Applicable Unused Line Fee Rate for the Fiscal Quarter immediately following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Interest Coverage Ratio for the relevant Testing Period. The Quarterly Rate Adjustment Matrix 7 illustrates the timing of the effectiveness of the adjustments described in the preceding sentence. (ii) at any time after Borrower shall have received at least $100,000,000 of aggregate gross cash proceeds (before customary fees and expenses) from the sale of common equity of Borrower or Parent, based on the Total Debt to EBITDA Ratio calculated from the financial statements that are required to be delivered to Agent and Lenders in accordance with SECTION 5.1(C) or SECTION 5.1(D) (with respect to financial statements to be delivered at the end of any Fiscal Year), as the case may be, for the most recent Rolling Period (with the initial Rolling Period to be that ending with the last Fiscal Quarter ending immediately prior to the consummation of such equity sale), the Applicable Unused Line Fee Rate shall be adjusted to be as follows:
Then Applicable If Total Debt to Unused Line EBITDA Ratio is Less Than Fee Rate is ------------------------------ --------------- 4.50 to 1.00 but greater than or 0.375% equal to 4.00 to 1.00 4.0 to 1.0 0.250%
The initial adjustment set forth in this subparagraph (ii), if and when applicable, shall be made to the Applicable Unused Line Fee Rate for the period (a) commencing on the first day of the calendar month following the receipt of the above-described equity proceeds (or, if later, the first day of the calendar month following the date that is three (3) Business Days after Borrower shall have delivered to Agent the required financial statements showing the requisite Total Debt to EBITDA Ratio for the relevant Rolling Period) and (b) ending on the last day of the Fiscal Quarter following the Fiscal Quarter in which the above- described equity proceeds are received. All subsequent adjustments set forth in this subparagraph (ii), if and when applicable, shall be made to the Applicable Unused Line Fee Rate for the second Fiscal Quarter following the end of the relevant Rolling Period, and the Quarterly Rate Adjustment Matrix illustrates the timing of the effectiveness of such subsequent adjustments. (iii) If more than one such adjustment described in subparagraphs (i) and (ii) above shall be applicable to the Applicable Unused Line Fee Rate for the same Fiscal Quarter, then only the lower (or, if equal, only one) Applicable Unused Line Fee Rate shall apply. "Assignment and Acceptance" shall mean the assignment, substantially in the form of EXHIBIT C, between the transferor Lender and the --------- proposed transferee, regarding the sale, assignment, transfer or other disposition (other than the sale of a participation) of all or any amount of such Lender's Proportionate Share of the Loans and its Commitment, together with all modifications, amendments, restatements or supplements thereto. "Auditors" shall mean a nationally-recognized firm of public accountants selected by Borrower and reasonably satisfactory to Agent. For purposes of this Agreement, Borrower's current firm of independent certified public accountants, Ernst & Young, shall be deemed to be satisfactory to Agent as of the Restatement Closing Date. 8 "Average Total Debt" shall mean, as of any date, the sum of (i) the average daily balance of the Advances during the most recent Rolling Period, (ii) the average daily balance of the Indebtedness under the Receivables Facility during the most recent Rolling Period, (iii) the average of the aggregate principal amounts of the Subordinated Parent Notes outstanding on the last day of each Fiscal Quarter during the most recent Rolling Period, (iv) the average of the aggregate principal amounts of any other Funded Debt of Borrower outstanding on the last day of each Fiscal Quarter during the most recent Rolling Period, (v) the average of the aggregate principal amounts of any other Funded Debt of Parent outstanding on the last day of each Fiscal Quarter during the most recent Rolling Period, and (vi) the average of the aggregate principal amounts of Funded Debt of any Subsidiaries outstanding on the last day of each Fiscal Quarter during the most recent Rolling Period (but excluding any Funded Debt of New Subsidiaries to the extent not guaranteed or assumed by Borrower). "Bankruptcy Code" shall mean title 11 of the United States Code. "Borrower" shall have the meaning assigned to it in the preamble to this Agreement. "Borrowing Base" shall mean, subject to SECTION 2.5(C), an amount equal to (i) sixty-five percent (65%) of Eligible Inventory during the Fiscal Year ending on September 30, 1995, (ii) sixty-two and one-half percent (62.5%) of Eligible Inventory during the Fiscal Year ending on September 30, 1996, and (iii) sixty percent (60%) of Eligible Inventory in each subsequent Fiscal Year, in each case reduced, to the extent applicable, by the Subordinated Borrower Notes Payoff Amount or the Subordinated Parent Notes Redemption Amount, and such other reserves as Agent, in its reasonable business judgment, after using diligent efforts to attempt to consult with the Managing Agents (but without any liability whatsoever for a failure or inability to do so), may deem necessary from time to time; provided, that in each Fiscal Year, for a -------- period of up to 120 consecutive days (such period (x) to be irrevocably designated by Borrower through written notice given to Agent, Managing Agents and Lenders at least 30 Business Days prior to the commencement of such period, and (y) not to commence sooner than 90 days after the end of the prior increased advance rate period for the preceding Fiscal Year), the then prevailing advance rates set forth in clauses (i), (ii) and (iii) will increase to seventy percent (70%), sixty-seven and one-half percent (67.5%), and sixty-five percent (65%), respectively; and provided further, that such period during --- -------- ------- the Fiscal Year ending on September 30, 1995 shall commence on the Restatement Closing Date and end on March 30, 1995. For purposes of this Agreement, Eligible Inventory shall be valued on a LIFO basis (at the lower of cost or market), adjusted by adding the Inventory LIFO Reserve. "Borrowing Base Certificate" shall mean a certificate in the form of EXHIBIT B. --------- "BTCo" shall have the meaning assigned to it in the preamble to this Agreement. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which commercial banks are required or permitted to be closed in the State of New York. When used in connection with the LIBOR Rate, this definition will also exclude any day on which commercial banks are not open for dealing in Dollar deposits in the London interbank market. 9 "Capital Expenditures" shall mean all payments for the acquisition of any fixed assets or improvements (including by way of Capital Lease Obligation) or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as a capital lease in a note to such balance sheet, other than, in the case of Borrower, any such lease under which Borrower is the lessor. "Capital Lease Obligation" shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed as a Capital Lease in a note to such balance sheet. "Cash Collateral Account" shall have the meaning assigned to it in SECTION 2.3(I). "Cash Equivalents" shall mean (i) securities issued, guaranteed or insured by the United States of America or any of its agencies with maturities of not more than one year from the date acquired, (ii) certificates of deposit with maturities of not more than one year from the date acquired that have been issued by a United States Federal or state chartered commercial bank of recognized standing, which bank has capital and unimpaired surplus in excess of $200,000,000, based on its most recent publicly available financial statements, and which bank or its holding company has a short-term commercial paper rating of at least A-2 or the equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by Moody's Investors Services, Inc., (iii) reverse repurchase agreements with terms of not more than seven days from the date acquired, for securities of the type described in (i) above and entered into only with commercial banks having the qualifications described in (ii) above, (iv) commercial paper or finance company paper issued by any Person incorporated under the laws of the United States of America or any state thereof and having a rating of at least A-1 or the equivalent from Standard & Poor's Corporation or at least P-1 or the equivalent by Moody's Investors Service, Inc., in each case with maturities of not more than 30 days from the date acquired, and (v) investments in money market funds registered under the Investment Company Act of 1940, which have net assets of at least $200,000,000 and at least eighty-five percent (85%) of whose assets consist of securities and other obligations of the type described in clauses (i) through (iv) above. "Change of Control Date" shall mean the date on which either of the following occurs: (i) Parent shall fail to own and control, beneficially and of record, one hundred percent (100%) of the issued and outstanding Stock of Borrower; provided, that (a) if such failure occurs due to a Qualified -------- Borrower Public Offering, then such failure shall not constitute a Change of Control Date if and for so long as (I) Parent owns and controls, beneficially and of record, not less than thirty percent (30%) of the issued and outstanding Stock of Borrower, and (II) no Person or "group" (as defined under Section 13d-3 and Regulation 10 13D of the Exchange Act) becomes the beneficial owner, directly or indirectly, of shares of Voting Stock of Borrower, the voting power of which is greater than the voting power of the Stock of Borrower held at that time by Parent, and (b) if such failure occurs due to a Qualified Borrower Equity Sale, then such failure shall not constitute a Change of Control Date if and for so long as Parent and VPI own and control, directly or indirectly, an aggregate of more than fifty percent (50%) of the issued and outstanding Voting Stock of Borrower; or (ii) VPI, its employees, its Affiliates, and employees of Borrower shall fail to own and control, beneficially and of record, an aggregate of more than fifty percent (50%) of the issued and outstanding Stock of Parent; provided, that (x) if such failure occurs following a -------- Qualified Parent Public Offering from which Parent obtains net offering proceeds, after deduction of all fees, commissions, and other costs and expenses in connection therewith, of not less than $100,000,000, then such failure shall not constitute a Change of Control Date if and for so long as a majority of the Board of Directors of Parent shall consist of Independent Directors except that a Change of Control Date under this clause (x) shall not be deemed to have occurred as a result of the death or resignation of an Independent Director unless such vacancy is not filled by an Independent Director within 45 days of such vacancy, and (y) if such failure occurs due to a Qualified Parent Public Offering from which Parent obtains net offering proceeds, after deduction of all fees, commissions and other costs and expenses in connection therewith, of less than $100,000,000 or a Qualified Parent Equity Sale or following a Qualified Parent Equity Sale due to the termination of an employee of VPI or Borrower, then such failure shall not constitute a Change of Control Date if and for so long as (I) VPI, its employees, its Affiliates, and employees of Borrower own and control, directly or indirectly, an aggregate of more than thirty percent (30%) of the issued and outstanding Voting Stock of Parent, and (II) no Person or "group" (as defined under Section 13d-3 and Regulation 13D of the Exchange Act) becomes the beneficial owner, directly or indirectly, of shares of Voting Stock of Parent, the voting power of which is greater than the voting power of the Stock of Parent held at that time by VPI, its employees, its Affiliates, and employees of Borrower; or (iii) so long as any of the Subordinated Parent Notes are outstanding, a "Change in Control" (as defined in the Subordinated Parent Note Indenture), which is not otherwise described in clauses (i) or (ii) of this definition of "Change of Control Date," has occurred and is not cured or waived within 30 days of such occurrence. "Charges" shall mean all Federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to either (A) PBGC or (B) DEA, FDA or any other Federal, state or local governmental agency in connection with the sale of pharmaceutical or health care products) at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii) the employees, payroll, income or gross receipts of Borrower, (iv) Borrower's ownership or use of any of its assets, or (v) any other aspect of Borrower's business. "Co-Agent" shall mean BankAmerica Business Credit, Inc. and Heller Financial, Inc., each in its capacity as co-agent for Lenders hereunder, or any successor to any such co-agent. 11 "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, that in the -------- event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of the Agreement relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. "Collateral" shall mean the property covered by the Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a Lien in favor of Agent, for the benefit of Lenders, to secure the Obligations. "Collateral Documents" shall mean the Security Agreement, the Parent Guaranty, the Patent, Trademark and Copyright Assignment, the Amended and Restated Pledge Agreement between Borrower, as pledgor, and Agent, as pledgee, and the Real Property Collateral Documents. "Collection Account" shall mean that certain account of Agent, account number 50-232-854 in the name of "GECC/CAF Depository, Attention: AmeriSource" at Bankers Trust Company, One Bankers Trust Plaza, New York, New York 10006, ABA number 021 001 033, or such other account as may be designated by Agent. "Commitment" of any Lender shall mean the amount set forth opposite such Lender's name on SCHEDULE A, as such schedule may be amended from ---------- time to time, under the heading "Commitment." "Commitment Termination Date" shall mean the earliest of (i) January 3, 2000, (ii) the date of termination of Lenders' obligation to advance funds or permit existing advances to remain outstanding pursuant to SECTION 9.2, and (iii) the date of prepayment in full by Borrower of the Loans in accordance with the provisions of SECTION 2.5(A). "Conduit Financing Arrangement" shall mean a financing arrangement in which a Lender is participating as a conduit entity within the meaning of Section 7701(l) of the IRC and proposed Regulations (S)(S) 1.881 through 1.883 or any successor provision thereto. "Consolidated" when used with respect to any of the terms defined in this Agreement refers to such terms as reflected in a consolidation of Borrower and its Subsidiaries in conformity with GAAP. "Consolidated Borrower Group" shall mean Borrower and its Subsidiaries (excluding New Subsidiaries). "Conversion" shall mean the conversion of the interest rate on all or any portion of the Loans from the Stated Prime Rate to the Stated LIBOR Rate, in accordance with the provisions of SECTION 2.8(E). "Covered Taxes" shall have the meaning assigned to it in SECTION 2.18(A). 12 "Current Assets" shall mean, as at any date of determination, the total assets of the Consolidated Borrower Group that are properly classified as current assets in conformity with GAAP, but excluding, if applicable, any of the assets of Receivables Corporation under the Receivables Pooling Agreement (provided, that such term shall include cash, Cash Equivalents and marketable --------- securities only to the extent that they do not exceed $30,000,000 in the aggregate at any time), plus the Inventory LIFO Reserve. ---- "Current Liabilities" shall mean, as at any date of determination, the total liabilities of the Consolidated Borrower Group that are properly classified as current liabilities in conformity with GAAP, but excluding, if applicable, any of the Obligations or the liabilities of Receivables Corporation under the Receivables Pooling Agreement. "DEA" shall mean the Federal Drug Enforcement Agency. "Default" shall mean any event that, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall have the meaning assigned to it in SECTION 2.8(F). "Defaulting Lender" shall have the meaning assigned to it in SECTION 2.2(A). "Disbursement Account" shall have the meaning assigned to it in SECTION 2.12(E). "Dividend/Acquisition Basket" shall mean the sum of the following amounts: (i) the net cash proceeds received by Borrower from (a) sales of the common Stock of Borrower or Parent or (b) capital contributions to Borrower's equity account in the form of cash, which are not used to permanently repay Indebtedness of Borrower in accordance with its terms; PLUS ---- (ii) the product of (a) the cumulative amount of Borrower's Excess Cash Flow since January 1, 1995, multiplied by (b) the percentage that ---------- -- corresponds to the applicable Interest Coverage Ratio (as set forth below), in each case based on Borrower's financial statements required to be delivered pursuant to SECTION 5.1 for the most recent Testing Period, for the applicable Testing Period: 13
If Interest Then Applicable Coverage Ratio is Percentage is ----------------- --------------- less than or equal to 50% 3.75 to 1.00 less than or equal to 4.50 to 1.00 65% but greater than 3.75 to 1.00 less than or equal to 5.50 to 1.00 75% but greater than 4.50 to 1.00 less than or equal to 6.50 to 1.00 85% but greater than 5.50 to 1.00 greater than 6.50 to 1.00 100%
MINUS ----- (iii) (a) the amount of all dividends to Parent (other than dividends to Parent permitted under SECTION 7.14 that are used for (I) Taxes due and payable by Parent and (II) the reasonable legal, accounting and operational expenses of Parent incurred in the ordinary course of its business, so long as the aggregate amount of dividends described in this subclause (II) does not exceed $350,000 in any Fiscal Year) and (b) the aggregate Acquisition Purchase Price of all acquisitions permitted under SECTION 7.1 to the extent aggregating in excess of $20,000,000; MINUS ----- (iv) the amount, if any, by which (a) the amount of all investments made by Borrower in any Person acquired through an acquisition of Stock subsequent to such acquisition exceeds (b) the amount of cash transfers made to Borrower by such Person subsequent to such acquisition that is not reflected in the calculation of EBITDA. "Dollars" and "$" shall mean United States of America dollars or such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts in the United States of America. "EBITDA" shall mean, for any period, (i) Net Income for such period (excluding, without duplication, the amortization of financing costs payable in connection with the transactions contemplated by this Agreement and the Receivables Facility Documents and the premiums paid in connection with the redemption of the Subordinated Borrower Notes and the effect of extraordinary items for such period), plus (ii) the amount of (A) all Interest Expense for ---- such period, plus (B) all interest expense under the Receivables Pooling ---- Agreement, whether incurred by Receivables Corporation or Receivables Trust, plus (iii) income Tax Expense for such period, plus (iv) depreciation and - - - ---- ---- amortization for the Consolidated Borrower Group for such period, plus ---- 14 (v) any other non-cash charges which have been subtracted in calculating Net Income for the Consolidated Borrower Group for such period, plus (vi) any LIFO ---- expense for such period, plus (vii) any cash dividends of net income of New ---- Subsidiaries actually received by Borrower for such period (to the extent such cash dividends are not also included in clause (i)), plus (viii) any non- ---- cash restructuring charges taken after the Restatement Closing Date (to the extent deducted in determining Net Income), minus (ix) any other non-cash ----- credits which have been added in calculating Net Income for the Consolidated Borrower Group for such period, minus (x) any LIFO income for such period, minus ----- ----- (xi) any cash payments or expenditures relating to restructuring charges taken after the Restatement Closing Date (to the extent not deducted in determining Net Income), all determined in accordance with GAAP. "Eligible Inventory" shall have the meaning assigned to it in SECTION 2.10. "Environmental Laws" shall mean all Federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree or judgment, relative to the applicable real estate, relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S)(S) 9601 et seq.); the Hazardous Material -- ---- Transportation Act (49 U.S.C. (S)(S) 1801 et seq.); the Federal Insecticide, -- ---- Fungicide and Rodenticide Act (7 U.S.C. (S)(S) 136 et seq.); the Resource -- ---- Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.); the Toxic -- ---- Substances Control Act (15 U.S.C. (S)(S) 2601 et seq.); the Clean Air Act (42 -- ---- U.S.C. (S)(S) 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. -- ---- (S)(S) 1251 et seq.); the Occupational Safety and Health Act (29 U.S. C. (S)(S) -- ---- 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. (S)(S) 300(f) et seq.); -- ---- -- ---- and any and all regulations promulgated thereunder, and all analogous state and local counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities and Costs" shall mean all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or Release or the presence of a Hazardous Material or threatened Release or presence of a Hazardous Material. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and all currently effective final or temporary regulations promulgated thereunder, and all generally applicable rulings entitled to precedential effect. "ERISA Affiliate" shall mean any entity required to be aggregated with Borrower or any Subsidiary under Sections 414(b), (c), (m) or (o) of the 15 IRC at the time as of which any provision of this Agreement is to be applied or at the time to which such provision specifically refers. "ERISA Event" shall mean, with respect to Borrower or any ERISA Affiliate, (i) a Reportable Event with respect to a Title IV Plan or a Multiemployer Plan, (ii) a withdrawal from a Title IV Plan subject to Section 4063 of ERISA during a plan year, (iii) a complete or partial withdrawal from any Multiemployer Plan, (iv) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA, (v) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC, (vi) the failure to make required contributions to a Qualified Plan, which failure is not corrected within 30 days, or (vii) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA. "Event of Default" shall have the meaning assigned to it in SECTION 9.1. "Excess Cash Flow" shall mean, measured for the period from January 1, 1995 through the date of measurement: (i) EBITDA for such period, minus (to the extent not already deducted in the calculation of EBITDA) (ii) - - - ----- the total of (a) the sum of (I) Interest Expense (excluding amortization of financing costs payable in connection with Indebtedness of Borrower) for such period plus (II) the interest expense under the Receivables Pooling ---- Agreement, whether incurred by Receivables Corporation or Receivables Trust, (b) cash taxes paid during such period, (c) the total amount of Capital Expenditures for such period, and (d) amortization payments during such period on any Indebtedness of Borrower, plus (iii) the net cash proceeds from the sale of ---- Unoccupied Property and other fixed assets of Borrower. "Exchange Act" shall mean the Securities Exchange Act of 1934. "Existing Advances" shall have the meaning assigned to it in SECTION 7.2. "Existing Lender" shall have the meaning assigned to it in SECTION 3.1(K). "Existing Subordinated Borrower Notes" shall mean those certain 14-1/2% Senior Subordinated Notes due September 15, 1999, issued by Borrower pursuant to that certain Indenture, dated as of September 25, 1989, among Borrower, as issuer, and Mellon Bank, N.A., as indenture trustee. "Existing Subsidiary" shall mean each of Health Services Plus, Inc., a Delaware corporation, and Health Services Capital Corporation, a Delaware corporation. "FDA" shall mean the Federal Food and Drug Administration. "FDIC" shall mean the Federal Deposit Insurance Corporation. "Federal Funds Rate" shall mean for any period, a fluctuating per annum interest rate equal, for each day during such period, to the weighted 16 average of the rates on overnight Federal Funds transactions with members of the Federal Reserve Board arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal Funds brokers of recognized standing selected by it. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System. "Fee Letter" shall mean (i) the letter of even date herewith between Managing Agents and Borrower providing for certain fees to be paid in connection with this Agreement, and (ii) any other letter with respect to fees to be paid in connection with this Agreement. "Fees" shall mean (i) the Unused Line Fee, the Letter of Credit Fee, and the Issuing Lender Fees, (ii) fees to be paid pursuant to the Fee Letter, and (iii) any other fees or charges due to Agent, Managing Agents, Issuing Lender, or any or all of Lenders pursuant to the Loan Documents. "FIFO" shall mean first-in, first-out. "Financial Covenants" shall mean the covenants set forth in SECTIONS 6.15 through 6.17 and SECTIONS 7.20 and 7.21. "Financials" shall mean the financial statements referred to in SECTION 4.6(A) and SECTION 4.6(B). "Fiscal Month" shall mean any of the monthly accounting periods of Borrower. "Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrower ending December 31, March 31, June 30 and September 30 of each Fiscal Year. "Fiscal Year" shall mean the 12-Fiscal Month period of Borrower ending September 30 of each year. Subsequent changes of the fiscal year of Borrower shall not change the term "Fiscal Year," unless Agent and Requisite Lenders shall consent in writing to such change. "Foreign Lender" shall mean a Lender organized under the laws of a jurisdiction outside the United States of America. "Funded Debt" shall mean, with respect to any Person, all Indebtedness which by the terms of the agreement governing or instrument evidencing such Indebtedness matures more than one year from, or is directly or indirectly renewable or extendible at the option of such Person under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from, the date of creation thereof, and shall include current maturities of long-term debt, revolving credit, and short-term debt extendible beyond one year at the option of such Person, but, with respect to Borrower, including the Obligations to the extent that they would otherwise be excluded from the definition of Funded Debt due to the Obligations' stated maturity. 17 "Funding Bank" shall have the meaning assigned to it in SECTION 2.19. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time; provided, that for -------- purposes of calculating any Financial Covenant, Interest Coverage Ratio, Total Debt to EBITDA Ratio or Excess Cash Flow, or any component to be used in the calculation of any Financial Covenant, Interest Coverage Ratio, Total Debt to EBITDA Ratio or Excess Cash Flow, "GAAP" shall mean generally accepted accounting principles in the United States of America as adopted by Borrower on September 30, 1994. "GE Capital" shall have the meaning assigned to it in the preamble to this Agreement. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the DEA and FDA, state boards of pharmacy and all other governmental agencies having jurisdiction over the purchase, storage, sale or other distribution by Borrower of controlled substances and other pharmaceutical and health care products. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person (i) to purchase or repurchase any such primary obligation, (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) to indemnify the owner of such primary obligation against loss in respect thereof. "Guarantor" shall mean each of Parent, the Existing Subsidiaries and each Person that hereafter executes a guaranty or a support, put or other similar agreement in favor of Agent, for the benefit of Lenders, in connection with the transactions contemplated by the Agreement. "Guaranty" shall mean the Amended and Restated Continuing Guaranty or other agreement to perform, on behalf of Borrower, the Obligations, made by any Guarantor (other than Parent) in favor of Agent, for the benefit of Lenders, in form and substance satisfactory to Agent. "Hazardous Material" shall mean any substance, material or waste, the generation, handling, storage, treatment or disposal of which is regulated by or form the basis of liability, now or hereafter, under any local or state Governmental Authority in any jurisdiction in which Borrower has owned, leased or operated real property or disposed of hazardous materials, or by any Federal Governmental Authority, including any material or substance which is (i) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste" or other similar term or phrase under any Environmental Laws, (ii) petroleum or any fraction or by-product thereof, asbestos, 18 polychlorinated biphenyls, (iii) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. (S) 1251 et seq. (33 U.S.C. -- ---- (S) 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. (S) 1317), (iv) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq. (42 U.S.C. -- ---- (S) 6903), or (v) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq. (42 U.S.C. (S) 9601). -- ---- "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business), (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all Capital Lease Obligations, (v) all Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (vii) to the extent not covered by clauses (i), (ii), (iii) (iv), (v) or (vi) above, with respect to Borrower, the Obligations and, with respect to Receivables Corporation, the obligations owed by Receivables Trust under the Receivables Facility. "Indemnified Person" shall have the meaning assigned to it in SECTION 2.16. "Independent Director" shall mean any Person who is not (i) a direct, indirect or beneficial holder of five percent (5%) or more of the outstanding Stock of Borrower or Parent, (ii) an Affiliate, designee or appointee of any Person described in clause (i) above, or (iii) an officer of Parent, Borrower or Borrower's Subsidiaries. "Intercreditor Agreement" shall mean the Intercreditor Agreement dated as of December 13, 1994, by and between Agent, for the benefit of Lenders, Borrower, Receivables Corporation, and Manufacturers and Traders Trust Company, a New York banking corporation, as trustee under the Receivables Pooling Agreement. "Interest Coverage Ratio" shall mean the ratio of (i) EBITDA minus Capital Expenditures of the Consolidated Borrower Group, to (ii) the - - - ----- sum of (x) Interest Expense (excluding, to the extent otherwise included in Interest Expense, (I) amortization of financing costs payable in connection with the transactions contemplated by this Agreement and the Receivables Facility Documents, (II) any accelerated amortization of deferred financing fees in connection with the Original Credit Agreement and Subordinated Borrower Notes, and (III) premiums paid in connection with the redemption of the Subordinated Borrower Notes), plus (y) the interest expense under the Receivables Pooling ---- Agreement, whether incurred by Receivables Corporation or Receivables Trust, in each case based on the financial statements required to be delivered pursuant to SECTION 5.1 over the relevant period. 19 "Interest Determination Date" shall have the meaning assigned to it in SECTION 2.8(E)(II). "Interest Election Date" shall have the meaning assigned to it in SECTION 2.8(E)(II). "Interest Expense" shall mean the interest expense of the Consolidated Borrower Group in respect of Indebtedness, determined in accordance with GAAP, including amortization of original issue discount on any Indebtedness and of all fees payable in connection with the incurrence of such Indebtedness (to the extent included in interest expense), the interest portion of any deferred payment obligation, the interest component of any Capital Lease Obligation, and the net costs under any Interest Rate Contracts. "Interest Period" shall mean, with respect to the portion of the Loans bearing interest at the Stated LIBOR Rate, the period commencing on the date selected by Borrower pursuant to SECTION 2.8(E) and ending on the last day of the period selected by Borrower. The duration of each such Interest Period shall be 30, 60, 90 or 180 days, in each case as Borrower may select in accordance with the provisions of SECTION 2.8(E). "Interest Rate Contracts" shall mean interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate insurance and other agreements or arrangements designed to provide protection against fluctuations in interest rates. "Inventory" shall mean all "inventory," as such term is defined in the Code, now or hereafter owned or acquired by any Person, wherever located, and, in any event, including all pharmaceutical, health care products and sundry items, inventory, merchandise, goods and other personal property which are held by or on behalf of such Person for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Person's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including such inventory as is on consignment to third parties, leased to customers of such Person, or otherwise temporarily out of the custody or possession of such Person, but does not include inventory, merchandise, goods and other personal property held by such Person pursuant to a true and enforceable consignment arrangement pursuant to which such consignor (i) has given written notice of the consignment to Agent, and (ii) has complied with the filing and any applicable notice provisions of Section 9-114 of the Code. "Inventory LIFO Reserve" shall mean the excess (or shortfall) of Inventory value determined by using the FIFO method compared to the Inventory value determined by using the LIFO method, all in accordance with GAAP. "IRC" shall mean the Internal Revenue Code of 1986. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Issuing Lender" shall mean BTCo or any other Lender that is acceptable to Agent that has agreed to issue a Letter of Credit for the account of Borrower under this Agreement. 20 "Issuing Lender Fees" shall have the meaning assigned to it in SECTION 2.3(J). "Landlord's Agreement" shall mean an agreement substantially in the form of EXHIBIT D. --------- "L/C Guaranty Agreement" shall have the meaning assigned to it in SCHEDULE D. ---------- "Leases" shall mean all of those leasehold estates in real property now owned or hereafter acquired by Borrower, as lessee. "Lender" and "Lenders" shall have the respective meanings set forth in the preamble to this Agreement. "Lending Office" shall mean, with respect to any Lender, the office of such Lender specified as its "Lending Office" on the signature pages hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office as such Lender may from time to time specify to Borrower and Agent pursuant to SECTION 12.10. "Letter of Credit Advance" shall mean an Advance, the proceeds of which are to be paid to Issuing Lender with respect to a drawing under a Letter of Credit. "Letter of Credit Fee" shall have the meaning assigned to it in SECTION 2.3(J). "Letter of Credit Obligations" means, at any time, the sum of (i) the aggregate undrawn amount of all Letters of Credit outstanding at such time, plus (ii) the aggregate amount of all drawings under Letters of Credit ---- for which the Issuing Lender has not at such time been reimbursed by Borrower, plus (iii) without duplication, the aggregate amount of all payments made by - - - ---- each Lender to the Issuing Lender with respect to such Lender's participation in Letters of Credit as provided in SECTION 2.3(C) for which Borrower has not at such time reimbursed Lenders, whether by way of an Advance or otherwise. "Letter of Credit Request" shall have the meaning assigned to it in SECTION 2.3(D). "Letters of Credit" shall mean all standby letters of credit issued by Issuing Lender pursuant to SECTION 2.3 at the request and for the account of Borrower, and all amendments, renewals, extensions or replacements thereof. "LIBOR Assessment Rate" shall mean, at the time any determination thereof is to be made, the per annum rate (rounded to the nearest one-sixteenth of one percent (0.0625%)), most recently determined by Agent (which determination shall be conclusive in the absence of manifest error) to be the then current net annual assessment rate payable by Lenders to the FDIC (or any successor) for its insurance of Dollar deposits in the London interbank market dealing with Dollar deposits. "LIBOR Rate" shall mean, for any Interest Determination Date, the per annum rate offered for Dollar deposits for the Interest Period selected, as quoted by Telerate News Service on page 3750 recorded as of 11:00 A.M. London setting time (or, if page 3750 of the Telerate News Service is 21 unavailable, the comparable reference on the Reuters Screen LIBOR Page) on such date; provided, that if two or more of such offered rates appear on -------- Telerate (or on the Reuters Screen LIBOR Page, as the case may be), the "LIBOR Rate" shall be the arithmetic average of such offered rates rounded upwards, if necessary, to the nearest one-sixteenth of one percent (0.0625%). "LIBOR Rate Loans" shall mean Advances made by Lenders bearing interest at rates determined by reference to the LIBOR Rate as provided in SECTION 2.8(C). "LIBOR Reserve Percentage" shall mean, at the time any determination thereof is to be made, the maximum percentage (rounded to the nearest one-sixteenth of one percent (0.0625%)), as determined by Agent (which determination shall be conclusive in the absence of manifest error), which is in effect on such date as prescribed by the Federal Reserve Board for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") of a member bank in the Federal Reserve System. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, collateral assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). "LIFO" shall mean last-in, first-out. "Liquidation Event" shall have the meaning assigned to it in section 9.01 of the Receivables Pooling Agreement. "Loan" shall mean the aggregate amount of Advances and Letter of Credit Obligations, whether or not then due and payable, outstanding at any time. "Loan Documents" shall mean this Agreement, the Notes, the Collateral Documents, the Guaranties, the Intercreditor Agreement, those other Ancillary Agreements as to which Agent or any Lender is a party or a beneficiary on the Restatement Closing Date, and all other agreements, instruments, documents and certificates identified in the Schedule of Documents in favor of any or all Lenders, all as amended and restated through the effective date of any reference thereto, and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of Borrower or any of its Affiliates, and delivered to any Lender in connection with this Agreement or the financing transactions contemplated hereby. "Lock Box Account" shall have the meaning assigned to it in SECTION 2.12(A). "Lock Box Bank" shall have the meaning assigned to it in SECTION 2.12(A). 22 "Management Incentive Programs" shall have the meaning assigned to it in SECTION 7.16. "Managing Agent" shall mean each of GE Capital and BTCo. "Material Adverse Effect" shall mean a material adverse effect on (i) the financial condition, operations, assets, or business or financial prospects of Borrower, (ii) Borrower's ability to pay the Obligations in accordance with the terms thereof, (iii) the value of the Collateral taken as a whole or Liens on the Collateral taken as a whole in favor of Agent, for the benefit of each Lender, or the priority of any such Lien, or (iv) the practical realization of the benefits of Lenders' rights and remedies under this Agreement and the other Loan Documents taken as a whole. "Maximum Lawful Rate" shall have the meaning assigned to it in SECTION 2.8(G). "Maximum Loan" shall mean, at any particular time, the lesser of (i) the Total Commitments and (ii) $380,000,000, in each case reduced, to the extent applicable, by the Subordinated Borrower Notes Payoff Amount or the Subordinated Parent Notes Redemption Amount. "Multiemployer Plan" shall mean a Plan that is a "multiemployer plan," as defined in Section 4001(a)(3) of ERISA. "Net Income" shall mean, for any period, the net income of the Consolidated Borrower Group reflected on the financial statements for such period. "Net Worth" shall mean, as of any date, (i) the total assets of Borrower, on a Consolidated basis, but excluding, if applicable, any of the assets of Receivables Corporation under the Receivables Pooling Agreement, minus (ii) the total liabilities of Borrower, on a Consolidated basis, but - - - ----- excluding, if applicable, any of the liabilities of Receivables Corporation under the Receivables Pooling Agreement, minus (iii) any increase after ----- September 30, 1994 in the net amount of loans or advances to Parent from Borrower and its Subsidiaries, in each instance determined in accordance with GAAP, excluding the effects after the Restatement Closing Date of (a) any compensation expense resulting from the grant or exercise of stock options or other stock-based forms of compensation under the Management Incentive Programs, and (b) any losses on sales of fixed assets, in an aggregate amount not exceeding $5,000,000. "New Subordinated Borrower Notes" shall mean those certain 14- 1/2% Senior Subordinated Notes due September 15, 1999, Series A, issued by Borrower pursuant to that certain Indenture, dated as of March 31, 1994, between Borrower, as issuer, and Bankers Trust Company, as indenture trustee. "New Subsidiary" shall mean any Subsidiary of Borrower, other than Existing Subsidiaries and Receivables Corporation, created in accordance with the provisions of SECTION 6.13 and SECTION 7.1. "Note" shall mean a promissory note of Borrower payable to the order of any Lender, in substantially the form of EXHIBIT E, evidencing the --------- aggregate indebtedness of Borrower to such Lender resulting from the Advances made and the Letter of Credit Obligations incurred by such Lender or acquired by such Lender from another Lender pursuant to SECTION 11.2. 23 "Notice of Advance" shall have the meaning assigned to it in SECTION 2.1(A). "Notice of LIBOR Advance" shall have the meaning assigned to it in SECTION 2.8(E)(II). "Obligations" shall mean all loans, advances, debts, liabilities, and obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or amounts are liquidated or determinable) owing by Borrower to Agent or Lenders, and all covenants and duties regarding such amounts, of any kind or nature, present or future, arising out of, under, or in connection with, this Agreement or any of the other Loan Documents. This term includes all principal, interest, Fees, charges, expenses, attorneys' fees, amounts owing with respect to Letter of Credit Obligations, and any other sum chargeable to Borrower under any of the Loan Documents (including all interest and other amounts that would accrue and become due but for the filing of a petition in bankruptcy or the operation of the automatic stay under Section 362(a) of the Bankruptcy Code). "Original Closing Date" shall mean March 30, 1993. "Original Credit Agreement" shall have the meaning assigned to it in Recital A. "Original Loan Documents" shall mean the "Loan Documents," as such term is defined in the Original Credit Agreement. "Other Taxes" shall have the meaning assigned to it in SECTION 2.18(B). "Parent" shall mean AmeriSource Distribution Corporation, a Delaware corporation, formerly known as Alco Health Distribution Corporation. "Parent Guaranty" shall mean the Amended and Restated Guaranty and Pledge Agreement of even date herewith executed by Parent in favor of Agent, for the benefit of Lenders. "Patent, Trademark and Copyright Assignment" shall mean the Amended and Restated Assignment for Security of Patents, Trademarks and Copyrights made on or about the Restatement Closing Date by Borrower in favor of Agent, for the benefit of Lenders. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" shall mean a Plan that is an "employee pension benefit plan," as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not an "individual account plan," as defined in Section 3(34) of ERISA. "Permitted Encumbrances" shall mean the following encumbrances: (i) Liens for taxes or assessments or other governmental Charges, either not yet due and payable or to the extent that nonpayment thereof is permitted by the terms of SECTION 6.2(B); (ii) pledges or deposits securing obligations under workmen's compensation, unemployment insurance, social security, old age 24 pension or public liability laws or similar legislation, or under unemployment or other insurance not to exceed an aggregate amount of $1,000,000 outstanding at any time; (iii) inchoate and unperfected workers', mechanics', suppliers' or similar Liens arising by operation of law in the ordinary course of business; (iv) Liens of warehousemen, mechanics, materialmen, workers, vendors, repairmen, fillers, packagers, processors, common carriers, landlords and other similar possessory Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or which are being diligently contested in good faith by Borrower by appropriate proceedings; provided, that in any such case an adequate Reserve is being maintained by - - - -------- Borrower; (v) Liens on property consisting of equipment or real property existing at the time such property is acquired by Borrower or any of its Subsidiaries, which Liens are not created in contemplation of or in connection with such acquisition and are limited to the property acquired and any proceeds thereof; (vi) deposits or pledges securing, or in lieu of, bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety, appeal or customs bonds in proceedings to which Borrower is a party, and other obligations of like nature made in the ordinary course of business not to exceed an aggregate of $5,000,000 outstanding at any one time; (vii) attachment or judgment Liens, individually or in the aggregate not in excess of $1,000,000 (exclusive of (a) any amounts that are duly bonded to the satisfaction of Agent in its commercially reasonable judgment, or (b) any amount adequately covered by insurance as to which the insurance company has assumed the defense without denying coverage); (viii) zoning restrictions, easements, licenses, or other restrictions on the use of real property or other minor irregularities in title (including leasehold title) thereto, so long as the same do not materially impair the use, value, or marketability of such real property, leases or leasehold estates; (ix) Cash Equivalents described in clause (iii) of the definition thereof; (x) leases and subleases of property to others entered into in the ordinary course of business or existing on property acquired in the ordinary course of business; (xi) Liens on property owned by Borrower or any Subsidiary constituting leasehold improvements to the extent such property is affixed to the real estate in such a manner as to be subjected to Liens on the real estate to which it is affixed; (xii) provisions subordinating the interest of Borrower or any Subsidiary, as a lessee, to an underlying lease or to a security interest in the leased property granted or to be granted by the lessor; (xiii) restrictions on the assignability of the lessee's interest in any lease where Borrower or any Subsidiary is a lessee; (xiv) pledges of or Liens on stock or securities of customers held as a Permitted Investment; (xv) Liens referred to in clauses (ii) and (iv) of the definition of Permitted Indebtedness subject to the respective limits set forth in such clauses; (xvi) Liens granted by Receivables Corporation on receivables generated by Borrower and related assets that are sold by Borrower to Receivables Corporation pursuant to the terms of the Receivables Facility Documents and subject to the terms of the Intercreditor Agreement; (xvii) the Liens set forth on SCHEDULE 7.9; and (xviii) ------------ extensions, renewals and replacements of the Liens referred to in clauses (i) through (xvii) of this definition; provided, that any such extension, renewal or -------- replacement Lien shall be limited to the property or assets covered by the Lien extended, renewed or replaced and that the obligations secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the then outstanding amount of the obligations secured by the Lien extended, renewed or replaced. "Permitted Indebtedness" shall mean: (i) trade payables, trade debt and expense accruals incurred in the ordinary course of Borrower's business, all consistent with past practices; (ii) Indebtedness secured by Purchase Money Liens not to exceed $1,000,000 in the aggregate outstanding at 25 any one time; (iii) Indebtedness arising under this Agreement and the other Loan Documents; (iv) Capitalized Lease Obligations not to exceed $7,500,000 in the aggregate; (v) Indebtedness described on SCHEDULE 7.3 and any refinancing of ------------ such Indebtedness; provided, that the aggregate principal amount of -------- such Indebtedness after such refinancing is not increased, and such refinancing is on terms and conditions no more restrictive than the terms and conditions of the Indebtedness being refinanced; (vi) Indebtedness of Borrower to Parent or any wholly-owned Subsidiary of Borrower and Indebtedness of any wholly-owned Subsidiary of Borrower to Borrower or to any of Borrower's other wholly-owned Subsidiaries that is subordinated in right of payment to the indefeasible payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement satisfactory to Agent; (vii) guarantees of loans made to customers, so long as the aggregate amount of such guarantees outstanding at any time is not in excess of $7,000,000; (viii) subject to the limitations set forth in SECTION 7.21, Indebtedness in respect of rental obligations incurred in the ordinary course of business; and (ix) additional Indebtedness of Borrower and its Subsidiaries in an aggregate principal amount not to exceed $2,500,000 outstanding at any time. "Permitted Investments" shall mean: (i) Cash Equivalents; (ii) interest-bearing demand or time deposits (including certificates of deposit) which are insured by the FDIC or a similar Federal insurance program; provided, -------- that Borrower may, in the ordinary course of its business, maintain, from time to time, amounts in excess of then applicable FDIC or other program insurance limits; (iii) advances for reimbursable expenses in the ordinary course of business to employees of Borrower and its Subsidiaries; (iv) Interest Rate Contracts permitted pursuant to SECTION 6.14; (v) loans (which shall not include amounts payable arising from Borrower's sale of Inventory or rendering of services in the ordinary course of its business) made in the ordinary course of business by Borrower and its Subsidiaries to customers, so long as the aggregate outstanding principal amount of such loans and the guarantees pursuant to clause (vii) of the definition of Permitted Indebtedness is not at any time in excess of $20,000,000; (vi) loans made in the ordinary course of business to employees of Borrower and its Subsidiaries with maturities not in excess of three (3) years and in an aggregate principal amount not in excess of $5,000,000 at any time; (vii) in the case of Borrower or any of its Subsidiaries, loans or advances to Parent equal to (a) the reasonable legal, accounting and operational expenses of Parent incurred in the ordinary course of business, so long as the aggregate amount of such loans or advances in any Fiscal Year, plus the ---- aggregate amount of any dividends that Borrower pays to Parent in such Fiscal Year (which dividends shall be subject to the provisions of SECTION 7.14), does not exceed $350,000, and (b) franchise taxes payable by Parent to the State of Delaware; (viii) notes receivable for Borrower's Inventory sold or services rendered in the ordinary course of business in an aggregate amount not in excess of $7,500,000 at any time; (ix) investments representing Indebtedness of any Person having a maturity not in excess of 60 months owing as a result of the sale by Borrower or a Subsidiary of Borrower of property that is no longer required and is no longer used or useful in Borrower's core business; provided, -------- that the aggregate amount of such Indebtedness shall not exceed $7,500,000 at any time; (x) stock or obligations issued to Borrower or a Subsidiary of Borrower by any Person (or the representative of such Person) in respect of the Indebtedness of such Person in connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person; (xi) contingent liabilities represented by endorsements of negotiable instruments for collection or deposit in the ordinary course of 26 business; (xii) other Investments in an outstanding amount not to exceed $2,500,000 in the aggregate at any time; (xiii) an account maintained by Borrower for the payment of sales Taxes in an aggregate amount not to exceed the lesser of (A) $4,000,000, or (B) the aggregate amount of sales Taxes payable by Borrower for 60 days of its operations; (xiv) investments permitted pursuant to SECTION 7.1 and SECTION 7.2; (xv) investments permitted pursuant to SECTION 7.14(E); and (xvi) such other investments as Agent may approve in writing. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether Federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" shall mean an employee benefit plan, as defined in Section 3(3) of ERISA, that any Person specified in any provision of this Agreement maintains, contributes to, or has an obligation to contribute to at any time specified in this Agreement (explicitly or implicitly), but only if either (i) such employee benefit plan is a defined benefit plan, as defined in Section 414(j) of the IRC or an "excess benefit plan" within the meaning of Section 3(36) of ERISA, or any unfunded plan of deferred compensation under Section 201(2) of ERISA, or (ii) Borrower's contributions in any calendar year to such employee benefit plan are reasonably expected to exceed $100,000, or in the case of any plan that is exempt from certain annual reporting requirements under 29 C.F.R. 2520.104-44, are reasonably expected to exceed $1,000,000. "Potential Withdrawal Liability" shall mean the aggregate amount of liability that would be incurred by Borrower and all ERISA Affiliates under Section 4201 of ERISA if Borrower and all ERISA Affiliates withdrew from all Multiemployer Plans. "Prime Rate" shall mean the rate which BTCo announces from time to time as its prime lending rate, as in effect from time to time. The prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BTCo may make commercial loans or other loans at rates of interest at, above or below the prime lending rate. "Prime Rate Loans" shall mean Advances made by Lenders bearing interest at rates determined by reference to the Prime Rate as provided in SECTION 2.8(C). "Projections" shall have the meaning assigned to it in SECTION 4.7. "Proportionate Share" shall mean, with respect to any Lender, the following: (i) for the purpose of repayment of principal, interest and Fees with respect to the Loan, a fraction (expressed as a percentage), the numerator of which shall be the aggregate principal amount of the Loans held by such Lender, and the denominator of which shall be the aggregate principal amount of the Loans held by all Lenders; and (ii) for all other purposes, the fraction (expressed as a percentage), the numerator of which shall be the Commitment of such Lender, and the denominator of which shall be the aggregate Commitments held by all Lenders. 27 "Purchase Money Liens" shall mean Liens on any item of real or personal property (except Inventory) of Borrower or its Subsidiaries acquired after the date of this Agreement, provided that: (i) each such Lien shall attach only to the property to be acquired; (ii) a description of the property so acquired is furnished to Agent; and (iii) the debt incurred in connection with such acquisitions shall not exceed the lesser of (a) the amount of the purchase price of such property then being financed and (b) $1,000,000 in the aggregate outstanding at any one time. "Qualified Borrower Equity Sale" shall mean either (i) a public offering of the Stock of Borrower, made in compliance with all applicable laws and regulations, other than a Qualified Borrower Public Offering, or (ii) the sale of Borrower's Stock in a private equity sale, made in compliance with all applicable laws and regulations, so long as, in either case, (a) the aggregate amount of all Stock sold through such private and public sales does not constitute, and shall not be convertible into, more than twenty percent (20%) of Borrower's Voting Stock, (b) such private or public sale is not, at the time of such sale, prohibited under the terms of the Subordinated Parent Note Indenture, and (c) any Voting Stock issued through such private and public sales is pledged to Agent, for the benefit of each Lender. "Qualified Borrower Public Offering" shall mean one or more public offering or offerings of the Stock of Borrower pursuant to an effective registration statement or statements filed in accordance with the Securities Act and in compliance with all applicable laws and regulations, which (i) is not, at the time of any such offering, prohibited under the terms of the Subordinated Parent Note Indenture, and (ii) is underwritten pursuant to a firm commitment underwriting by a nationally recognized underwriter or investment banking firm, pursuant to which the beneficial ownership of such Stock is initially distributed to 50 or more Persons (with respect to such requirement, Borrower may rely upon the representations of the underwriters handling such distribution), from which Borrower obtains aggregate net offering proceeds, after deduction of all fees, commissions, and other costs and expenses in connection therewith, of not less than $50,000,000. "Qualified Parent Equity Sale" shall mean either (i) a public offering of the Stock of Parent, made in compliance with all applicable laws and regulations, other than a Qualified Parent Public Offering, or (ii) a private sale of the Stock of Parent, made in compliance with all applicable laws and regulations. "Qualified Parent Public Offering" shall mean one or more public offering or offerings of the Stock of Parent pursuant to an effective registration statement or statements filed in accordance with the Securities Act and in compliance with all applicable laws and regulations, that is underwritten pursuant to a firm commitment underwriting by a nationally recognized underwriter or investment banking firm, pursuant to which the beneficial ownership of such Stock is initially distributed to 50 or more Persons (with respect to such requirement, Parent may rely upon the representations of the underwriters handling such distribution), from which Parent obtains aggregate net offering proceeds, after deduction of all fees, commissions, and other costs and expenses in connection therewith, of not less than $50,000,000. "Qualified Plan" shall mean a Plan that is an "employee pension benefit plan," as defined in Section 3(2) of ERISA, which is intended to be tax-qualified under Section 401(a) of the IRC. 28 "Quarterly Rate Adjustment Matrix" shall refer to the matrix set forth on SCHEDULE C. ---------- "Real Property Collateral" shall mean Borrower's real property identified as such in SCHEDULE 4.8. ------------ "Real Property Collateral Documents" shall mean the mortgages, deeds of trust or security deeds executed by Borrower on or about the Original Closing Date in favor of Agent, for the benefit of Lenders, as amended by modification agreements executed by Borrower on or about the Restatement Closing Date, and by which Borrower has granted and conveyed to Agent, for the benefit of Lenders, as security for the Obligations, Liens upon the Real Property Collateral. "Receivables Corporation" shall mean AmeriSource Receivables Corporation, a Delaware corporation. "Receivables Corporation Bank Account" shall have the meaning assigned to it in SECTION 6.20(A). "Receivables Facility" shall mean the receivables securitization facility established pursuant to the Receivables Facility Documents. "Receivables Facility Documents" shall mean the Receivables Pooling Agreement, the Receivables Purchase Agreement, any other "Transaction Documents" (as defined in Appendix A to the Receivables Pooling Agreement and the Receivables Purchase Agreement), and any other instruments, supplements, agreements and documents executed in connection with the Receivables Facility as existing on the Restatement Closing Date. "Receivables Pooling Agreement" shall mean that certain AmeriSource Receivables Master Trust Pooling and Servicing Agreement, dated as of December 13, 1994, by and among Receivables Corporation, Borrower and the trustee for the Receivables Trust, as existing on the Restatement Closing Date. "Receivables Purchase Agreement" shall mean that certain Receivables Purchase Agreement dated as of December 13, 1994, by and among Borrower, as seller, and Receivables Corporation, as purchaser, as existing on the Restatement Closing Date. "Receivables Trust" shall mean AmeriSource Receivables Master Trust. "Reduced Rate" shall have the meaning assigned to it in SECTION 2.18(F). "Release" shall mean, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment by such Person, including the movement of Hazardous Materials through or in the air, soil, surface water, ground water or property. "Reportable Event" shall mean any of the events described in Section 4043(b)(1), (2), (3), (5), (6), (8) or (9) of ERISA. 29 "Requisite Lenders" shall mean Lenders holding greater than fifty percent (50%) of the Total Commitments; provided, that, for purposes of -------- such calculation, the Commitment of any Defaulting Lender shall be deemed to be Zero Dollars ($0). "Reserves" shall mean reserves, including reserves for doubtful accounts, returns, allowances and the like, as may be established by Borrower or as may otherwise be required in accordance with GAAP. "Restatement Closing Date" shall mean December 13, 1994. "Restatement Closing Date Advance Balance" shall have the meaning assigned to it in SECTION 2.20(A). "Restricted Payment" shall mean (i) the declaration or payment of any dividend or the occurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of Borrower's Stock, (ii) any payment on account of the purchase, redemption or other retirement of Borrower's Stock or any other payment or distribution made in respect thereof, either directly or indirectly, or (iii) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder except (in the case of this clause (iii) only) for reasonably equivalent value or as permitted under SECTION 7.7. "Retiree Welfare Plan" shall refer to any Welfare Plan providing for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC or under Pub. L. No. 103-3. "Revolving Credit Commitment" shall have the meaning assigned to it in the Original Credit Agreement. "Revolving Credit Note" shall have the meaning assigned to it in the Original Credit Agreement. "Rolling Period" shall mean, as of the end of any Fiscal Quarter, the immediately preceding four (4) Fiscal Quarters, including the Fiscal Quarter then ending. "Schedule of Documents" shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with this Agreement and the Loan Documents and the financing transaction contemplated hereunder and thereunder, substantially in the form of SCHEDULE B. ---------- "Schedule of Inventory" shall mean the schedules of Inventory of Borrower to be delivered by Borrower to Agent and Lenders pursuant to SECTION 2.10 and SECTION 5.1(A). "Securities Act" shall mean the Securities Act of 1933. "Security Agreement" shall mean the Amended and Restated Security Agreement of even date herewith entered into among Agent (for the benefit of Lenders), Borrower, Parent, and each of Borrower's Subsidiaries (other than Receivables Corporation). 30 "Settlement Period" shall have the meaning assigned to it in SECTION 2.1(B)(I). "Solvent" shall mean, when used with respect to any Person, as of any date, that: (i) the present fair salable value of such Person's assets is in excess of the total amount of such Person's liabilities; (ii) such Person is able to pay its debts as they become due; and (iii) such Person does not have unreasonably small capital to carry on such Person's business as theretofore operated and all businesses in which such Person is about to engage. "Stated LIBOR Rate" shall have the meaning assigned to it in SECTION 2.8(C). "Stated Prime Rate" shall have the meaning assigned to it in SECTION 2.8(C). "Stock" shall mean all shares, options, warrants, membership interests in limited liability companies, general or limited partnership interests, participations or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act). "Stockholder" shall mean each holder of Stock of any Person. "Subject Property" shall have the meaning assigned to it in SECTION 2.16. "Subordinated Borrower Notes" shall mean each of the Existing Subordinated Borrower Notes and the New Subordinated Borrower Notes. "Subordinated Borrower Notes Payoff Amount" shall mean, so long as any of the Subordinated Borrower Notes are outstanding, the maximum amount required to be paid by Borrower to redeem all of the Subordinated Borrower Notes pursuant to their terms, including accrued and unpaid interest through the date of redemption and premiums thereon and penalties or other charges with respect thereto; provided, that immediately prior to advancing such -------- amount for the purpose of redeeming all of the Subordinated Borrower Notes and thereafter, the Subordinated Borrower Notes Payoff Amount shall be deemed to be Zero Dollars ($0). "Subordinated Parent Note Indenture" shall mean the Indenture dated as of July 15, 1993 between Parent, as issuer, and Security Trust Company, National Association, as trustee. "Subordinated Parent Notes Redemption Amount" shall mean the amount, which is identified in a written notice from Borrower to Agent, of proceeds received by Parent in a Qualified Parent Public Offering that Parent will contribute to Borrower, the proceeds of which will be used by Borrower to repay all or a portion of the Loan and will subsequently be distributed in the 31 form of advances or dividends from Borrower to Parent for the sole purpose of redeeming a portion of the Subordinated Parent Notes pursuant to their terms, including accrued and unpaid interest through the date of redemption and premiums thereon and penalties or other charges with respect thereto; provided, -------- that (i) prior to Borrower's receipt of proceeds from a Qualified Parent Public Offering, and (ii) after Borrower's receipt of proceeds from a Qualified Parent Public Offering, but immediately prior to advancing such amount for the purpose of redeeming such portion of the Subordinated Parent Notes and thereafter, the Subordinated Parent Notes Redemption Amount shall be deemed to be Zero Dollars ($0). "Subordinated Parent Notes" shall mean the 11 1/4% Senior Subordinated Debentures due July 15, 2005, issued by Parent, as the same may be modified, amended, extended, restated or supplemented, from time to time in accordance with this Agreement, and any successor Indebtedness arising from the refinancing thereof. "Subsidiary" shall mean, with respect to any Person, (i) any corporation of which an aggregate of fifty percent (50%) or more of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of fifty percent (50%) or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (ii) any partnership or limited liability company in which such Person or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of fifty percent (50%) or more or of which any such Person is a general partner or may exercise the powers of a general partner. "Tangible Net Worth" shall mean, as at any date of determination, the total of (i) Net Worth, plus (ii) the Inventory LIFO Reserve, ---- minus (iii) intangible assets of Borrower, on a Consolidated basis, including - - - ----- goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred charges, research and development expense and other like intangibles, in accordance with GAAP. "Tax Advisors" shall mean Borrower's tax advisors, other than the Auditors and Borrower's legal counsel. "Tax Expense" shall mean the Tax expense of Borrower determined, on a Consolidated basis, in accordance with GAAP. "Tax Transferee" shall have the meaning assigned to it in SECTION 2.18(A). "Taxes" shall have the meaning assigned to it in SECTION 2.18(A). "Term Loan Commitment" shall have the meaning assigned to it in the Original Credit Agreement. "Term Note" shall have the meaning assigned to it in the Original Credit Agreement. 32 "Termination Date" shall mean the date on which the Loan and all other Obligations hereunder have been completely discharged, the Commitment Termination Date shall have occurred and Borrower shall have no further right to borrow any monies hereunder. "Testing Period" shall mean, with respect to any calculation used in determining the Applicable Letter of Credit Fee Rate, the Applicable Margin, the Applicable Unused Line Fee Rate, the Average Total Debt, or the Dividend/Acquisition Basket, a Rolling Period; provided, that (i) the first -------- Testing Period shall end on June 30, 1995 and shall consist of the two consecutive Fiscal Quarter period ending on June 30, 1995, and (ii) the second Testing Period shall end on September 30, 1995 and shall consist of the three consecutive Fiscal Quarter period ending on September 30, 1995. "Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA. "Total Commitments" shall mean the aggregate of the Commitments of all of the Lenders then in effect. "Total Debt to EBITDA Ratio" shall mean, as of any date, the ratio of (i) the Average Total Debt on such date, to (ii) EBITDA for the most recent Rolling Period; provided, that, only for the purpose of the initial -------- adjustments to be made to the Applicable Margin, Applicable Letter of Credit Fee Rate and Applicable Unused Line Fee Rate after the receipt of at least $100,000,000 in gross cash proceeds (before customary fees and expenses) from the sales of common Stock of Borrower or Parent or capital contributions to Borrower's equity account in the form of cash, the calculation of Average Total Debt in clause (i) of this definition shall give pro forma effect to the application of such proceeds of such sales or contributions as if such sales or contributions occurred on the first day of the relevant Rolling Period. "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (i) the amount by which the present value of all accrued vested benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions in effect under such Title IV Plan, (ii) for a period of five (5) years following a transaction reasonably likely to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided as a result of such transaction and (iii) the amount of Potential Withdrawal Liability. "Unoccupied Property" shall mean Borrower's real property identified as such in SCHEDULE 4.8. ------------ "Unused Line Fee" shall have the meaning assigned to it in SECTION 2.11(A). "Voting Stock" shall mean, with respect to any Person, shares of its Stock having the right to vote for the election of directors of such Person under ordinary circumstances. "VPI" shall mean 399 Venture Partners Inc.; provided, that if -------- VPI transfers to Citicorp Venture Capital, Ltd. or its Affiliates all Stock of Parent held by VPI, then, upon and after the date of such transfer, the term "VPI" shall mean Citicorp Venture Capital, Ltd. or such Affiliates. 33 "Welfare Plan" shall mean any Plan that is an "employee welfare benefit plan" as defined in Section 3(1) of ERISA. 1.2 Rules of Construction. Except as otherwise expressly provided in --------------------- this Agreement, any accounting term used in this Agreement or the other Loan Documents shall have, unless otherwise specifically provided herein or therein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder or thereunder shall be computed, unless otherwise specifically provided herein or therein, in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. All other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter; (b) the term "or" is not exclusive; (c) the term "including" (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) except when used with respect to payment of interest, Fees and other amounts owed solely to Lenders, all references to "for the benefit of Lenders" shall be deemed to also include Issuing Lender, Managing Agents and Agent; and (f) all references to any of the Loan Documents shall include any and all modifications or amendments thereto (including any amendment and restatement) and any and all extensions or renewals thereof in accordance with the terms of such Loan Documents. 34 2.1 Advances. -------- 1. Upon and subject to the terms and conditions hereof, Lenders severally agree to make available, from time to time, until the Commitment Termination Date, for Borrower's use and upon the request of Borrower therefor, advances (each, an "Advance") against Eligible Inventory in an aggregate amount outstanding which, together with all Letter of Credit Obligations, shall not at any given time exceed their respective Proportionate Share of the lesser of (i) the Maximum Loan, and (ii) the Borrowing Base. Until all amounts outstanding in respect of the Loan shall become due and payable on the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this SECTION 2.1(A). Each Advance, other than Advances made pursuant to SECTION 2.1(D), shall be made on notice given by Borrower to Agent no later than 12:00 noon (New York time) on the Business Day of the proposed Advance. Each such notice (a "Notice of Advance") shall be by telephone, at 203/840-4500, to Agent's account executive responsible for Borrower, confirmed immediately in writing, or in writing (by facsimile to 203/840-4560), substantially in the form of EXHIBIT A, or to such other telephone or facsimile number as Agent may --------- designate, specifying therein the requested date, the amount of such Advance, and such other information as may be required by Agent. Other than as provided in SECTION 2.1(B), Agent shall deliver a copy of the Notice of Advance to the other Lenders at or before 1:00 P.M. (New York time) on the date of the proposed Advance, and each of the other Lenders shall wire transfer its Proportionate Share of such Advance to the Collection Account at or before 3:00 P.M. (New York time) on the same date. At or before 4:00 P.M. (New York time) on the date of the proposed Advance, upon Agent's satisfaction with Borrower's fulfillment of the applicable conditions set forth in SECTION 3, Agent shall wire transfer such Advance to a bank designated by Borrower and reasonably acceptable to Agent or, if Agent determines that Borrower has not fulfilled the applicable conditions and the Advance is not wire transferred to such bank, then Agent shall return the amounts so received to the respective Lenders by wire transfer. 2. In order to administer the Loan in an efficient manner and to minimize the transfer of funds between Agent and Lenders, so long as the conditions precedent set forth in SECTION 3.1 and SECTION 3.2, as the case may be, remain satisfied, Agent may, in its sole discretion, subject to the following clauses (i), (ii) and (iii), make available, on behalf of Lenders, the full amount of the Advances requested or deemed requested by Borrower pursuant to SECTION 2.1(A), SECTION 2.1(D) and SECTION 2.3(E), without notice to Lenders of the proposed Advance pursuant to SECTION 2.1(A). 35 a. If Agent shall have made one or more Advances on behalf of Lenders, as provided in this SECTION 2.1(B), the amount of each Lender's Proportionate Share of the outstanding Advances shall be computed weekly rather than daily and shall be adjusted upward or downward on the basis of the amount of the outstanding Advances as of 5:00 P.M. (New York time) on the Business Day immediately preceding the date of each computation; provided, that Agent retains the absolute right at any time -------- or from time to time to make the aforedescribed adjustments at intervals more frequent than weekly. Agent shall deliver to each of the Lenders after the end of each week, or such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Advances for such period (such week or lesser period or periods being hereafter referred to as a "Settlement Period"). If the summary statement is sent by Agent and received by a Lender prior to 12:00 Noon (New York time), then such Lender shall make the transfers described in the next succeeding sentence no later than 3:00 P.M. (New York time) on the day such summary statement was sent, and if such summary statement is sent by Agent and received by a Lender after 12:00 Noon (New York time), such Lender shall make such transfers no later than 3:00 P.M. (New York time) on the next succeeding Business Day. If, in any Settlement Period, the amount of a Lender's Proportionate Share of the outstanding Advances is more than such Lender's Proportionate Share of the outstanding Advances for the previous Settlement Period, then such Lender shall forthwith (but in no event later than the time set forth in the next preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of the increase; and, on the other hand, if the amount of a Lender's Proportionate Share of the outstanding Advances in any Settlement Period is less than the amount of such Lender's Proportionate Share of the outstanding Advances for the previous Settlement Period, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of the decrease. The obligation of each of the Lenders to transfer such funds shall be irrevocable and unconditional and without recourse to or warranty by Agent. Each of Agent and Lenders agrees to mark its books and records at the end of each Settlement Period to show at all times the Dollar amount of its Proportionate Shares of the outstanding Advances. b. To the extent that Agent has made any such amounts available and the settlement described above shall not yet have occurred, upon repayment of the Loan by Borrower, Agent may apply such amounts repaid directly to any amounts made available by Agent pursuant to SECTION 2.2(A). c. Because Agent, on behalf of Lenders, may be advancing or may be repaid Advances prior to the time when Lenders will actually advance or be repaid Advances, interest with respect to the outstanding Advances shall be allocated by Agent to each Lender (including Agent) in accordance with the amount of the outstanding Advances actually advanced by and repaid to each Lender (including Agent) during each Settlement Period and shall accrue from and including the date such Advances are advanced by Agent to but excluding the date such Advances are repaid by Borrower in accordance with SECTION 2.4 or actually settled by the applicable Lender as described in this SECTION 2.1. 3. The Loan made by Lenders shall be evidenced by the Notes to be executed and delivered by Borrower as of the Restatement Closing Date. The 36 previously outstanding promissory notes will be canceled in accordance with SECTION 2.20. The Notes shall represent the obligation of Borrower to pay the amount of the Maximum Loan or, if less, the aggregate unpaid principal amount of all Advances made by Lenders to Borrower with interest thereon as prescribed in SECTION 2.8. The date and amount of each Advance and each payment of principal with respect thereto shall be recorded on the books and records of Agent, which books and records shall constitute prima facie evidence of the accuracy of the ----- ----- information therein recorded. The entire unpaid balance of the Loan shall be due and payable on the Commitment Termination Date. 4. To the extent any amounts are due and owing from Borrower on account of the Obligations, Agent may make Advances for Borrower's account, pursuant to SECTION 2.14(A). 2.2 Making the Loans. ---------------- 1. If the amounts requested by Borrower in any proposed Advance are not in fact made available to Agent by a Lender in the time and manner required under this Agreement (such Lender being hereinafter referred to as a "Defaulting Lender") and Agent has made such amount available to Borrower, then Agent shall be entitled to recover such corresponding amount on demand from such Defaulting Lender. If such Defaulting Lender does not pay such corresponding amount forthwith upon Agent's demand therefor, Agent shall promptly notify Borrower and Borrower shall immediately (but in no event later than five (5) Business Days after such demand) pay such corresponding amount to Agent. Agent shall also be entitled to recover, from such Defaulting Lender and Borrower, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by Agent to Borrower to the date such corresponding amount is recovered by Agent, at a per annum rate equal to either (i) if paid by such Defaulting Lender, (A) the Federal Funds Rate for three (3) Business Days and thereafter at the Prime Rate, plus (B) an amount equal to any ---- costs (including reasonable legal expenses) and losses incurred as a result of the failure of such Defaulting Lender to provide such amount as provided in this Agreement, or (ii) if paid by Borrower, the then applicable rate of interest, calculated in accordance with SECTION 2.8. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which Borrower may have against any Lender as a result of any default by such Lender hereunder, including the right of Borrower to seek reimbursement from any Defaulting Lender for any amounts paid by Borrower on account of such Defaulting Lender's default. Notwithstanding the foregoing, Borrower shall not be liable pursuant to this clause (a) for any interest in excess of such interest that would have accrued absent such Defaulting Lender's default. 2. The failure of any Lender to make its Proportionate Share of any Advance to be made by it shall not relieve any other Lender of its obligation, if any, hereunder to make its respective Proportionate Share of such Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make its Proportionate Share of the Advance to be made by such other Lender on such date. 37 2.3 Letters of Credit. ----------------- 1. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower set forth herein, Issuing Lender shall issue Letters of Credit hereunder at the request of Borrower and for its account, as more specifically described below. Issuing Lender shall not be obligated to issue any Letter of Credit for the account of Borrower if at the time of such requested issuance: a. the face amount of such requested Letter of Credit when added to the Letter of Credit Obligations then outstanding, would cause the Letter of Credit Obligations (A) to exceed $25,000,000 or (B) when added to the aggregate amount of the Advances then outstanding, to exceed the lesser of (x) the Maximum Loan and (y) the Borrowing Base then in effect; b. any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain Issuing Lender from issuing such Letter of Credit or any requirement of law applicable to Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over Issuing Lender shall prohibit, or request Issuing Lender to refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon Issuing Lender with respect to such Letter of Credit any restriction or reserve or capital requirement (for which Issuing Lender is not otherwise compensated) not in effect as of the Restatement Closing Date, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to Issuing Lender as of the Restatement Closing Date and which Issuing Lender deems in good faith to be material to it and which decision Issuing Lender shall have made with respect to other similarly situated account parties; or c. a default of any Lender's obligations to fund under SECTION 2.3(F) exists, or any Lender is a Defaulting Lender under SECTION 2.2(A), unless Agent and Issuing Lender have entered into satisfactory arrangements with Borrower to eliminate Issuing Lender's risk with respect to such Lender, including cash collateralization of such Lender's Proportionate Share of the Letter of Credit Obligations. 2. The Letters of Credit shall be in a form customarily used by Issuing Lender or in such other form as has been approved by Issuing Lender. At the time of issuance, the amount and the terms and conditions of each Letter of Credit shall be subject to the approval of Agent and Borrower. In no event may the term of any Letter of Credit issued hereunder exceed 365 days (except that such Letters of Credit may provide for annual renewal) and all Letters of Credit issued hereunder shall expire no later than December 23, 1999. Any Letter of Credit containing an automatic renewal provision shall also contain a provision pursuant to which, notwithstanding any other provisions thereof, it shall expire no later than the date that is five (5) Business Days prior to the Commitment Termination Date. 3. Immediately upon issuance or amendment by Issuing Lender of any Letter of Credit in accordance with the procedures set forth in SECTION 2.3(A), each Lender shall be deemed and hereby agrees to have irrevocably and unconditionally purchased and received from Issuing Lender, without recourse or warranty, an undivided interest and participation (to the extent of such 38 Lender's Proportionate Share) in the liability with respect to such Letter of Credit (including all obligations of Borrower with respect thereto, other than amounts owing to Issuing Lender consisting of Issuing Lender Fees) and any security therefor or guaranty pertaining thereto. After a Letter of Credit is issued, Agent shall notify each Lender of such issuance, the amount of each Lender's respective participation therein (determined in accordance with this SECTION 2.3(C)), the expiration date thereof and whether the Letter of Credit may be automatically extended. 4. Whenever Borrower desires the issuance of a Letter of Credit, Borrower shall deliver to Agent and Issuing Lender written notice no later than 1:00 P.M. (New York time) at least five (5) Business Days (or such shorter period as may be agreed to by Issuing Lender) in advance of the proposed date of issuance of a letter of credit request in substantially the form of EXHIBIT I (a --------- "Letter of Credit Request"). The transmittal by Borrower of each Letter of Credit Request shall be deemed to be a representation and warranty by Borrower that the Letter of Credit may be issued in accordance with and will not violate any of the requirements of this SECTION 2.3. Prior to the date of the issuance of each Letter of Credit, Borrower shall provide to Issuing Lender a precise description of the documents and the verbatim text of any certificate to be presented by the beneficiary of such Letter of Credit which if presented by such beneficiary on or prior to the expiration date of the Letter of Credit would require Issuing Lender to make payment under the Letter of Credit. Issuing Lender, in its reasonable judgment, may require changes in any such documents and certificates. Each Letter of Credit shall require payment against a conforming draft to be made thereunder on the same Business Day on which such draft is presented. A Letter of Credit Request may be given in writing or electronically and, if requested by Agent or Issuing Lender, with prompt confirmation in writing. Any electronic Letter of Credit Request shall be deemed to have been prepared by, or under the supervision of, the chief financial officer of Borrower. 5. In the event of any request for drawing under any Letter of Credit by the beneficiary thereof, Issuing Lender shall notify Agent and Borrower of such request not later than 11:00 A.M. (New York Time) on the Business Day immediately prior to the date on which Issuing Lender intends to honor such drawing. Borrower shall give notice to be received by Agent and Issuing Lender not later than 11:00 A.M. (New York Time) on the Business Day immediately prior to the date on which Issuing Lender intends to honor such drawing if Borrower intends to reimburse Issuing Lender for the amount of such drawing, in whole or in part, with funds other than the proceeds of a Letter of Credit Advance. Such notice from Borrower shall be irrevocable and, if given, Borrower shall reimburse Issuing Lender not later than 2:00 P.M. (New York time) on the day on which such drawing is honored in an amount in same day funds equal to the amount of such drawing. If Agent shall not have timely received such notice (i) Borrower shall be deemed to have timely given a Notice of Advance to Agent to make a Letter of Credit Advance on the date on which such drawing is honored in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or waiver of the conditions specified in SECTION 3.1 or SECTION 3.2, as the case may be, and the other terms and conditions of Advances contained herein, Lenders shall, on the date of such drawing, make a Letter of Credit Advance in the amount of such drawing, the proceeds of which shall be applied directly by Agent to reimburse Issuing Lender for the amount of such drawing or payment. If for any reason, proceeds of a Letter of Credit Advance are not received by Issuing Lender on such date in an amount equal to the amount of such drawing, Borrower shall be obligated to and shall reimburse Issuing Lender, on the Business Day 39 immediately following the date of such drawing, in an amount in same day funds equal to the excess of the amount of such drawing over the amount of such Loans, if any, which are so received, plus accrued interest on such amount at the rate set forth in SECTION 2.8. 6. In the event that Borrower does not reimburse Issuing Lender for the amount of any drawing pursuant to SECTION 2.3(E), Agent shall promptly notify each Lender of the unreimbursed amount of such drawing and of such Lender's respective Proportionate Share. Each Lender shall make available to Issuing Lender an amount equal to its respective Proportionate Share in same day funds, at the office of Issuing Lender specified in such notice, not later than 3:00 P.M. (New York time) on the Business Day after the date notified by Agent. In the event that any Lender fails to make available to Issuing Lender the amount of such Lender's participation in such Letter of Credit as provided in this SECTION 2.3(F), Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest at the Federal Funds Rate for three (3) Business Days and thereafter at the Prime Rate. Agent shall distribute to each other Lender which has paid all amounts payable by it under this SECTION 2.3(F) with respect to any Letter of Credit issued by Issuing Lender such other Lender's Proportionate Share of all payments subsequently received by Agent from Borrower in reimbursement of drawings honored by Issuing Lender under such Letter of Credit when such payments are received. 7. In determining whether to pay under any Letter of Credit, Issuing Lender shall be responsible only to determine that the documents and certificates required to be delivered under that Letter of Credit have been delivered and that they appear on their face to be in accordance with the terms and conditions of that Letter of Credit. As between Borrower, Issuing Lender and each other Lender, Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, neither Issuing Lender nor any of the other Lenders shall be responsible (i) for the form, validity, sufficiency, accuracy, genuineness or legal effects of any documents submitted by any party in connection with the application for and issuance of or any drawing honored under such Letters of Credit even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (except for honoring a draw on a Letter of Credit that does not appear on its face to be in accordance with the terms and conditions of such Letter of Credit), (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit, or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (iii) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit (except for honoring a draw on a Letter of Credit that does not appear on its face to be in accordance with the terms and conditions of such Letter of Credit), (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, facsimile or otherwise, whether or not they are in cipher, (v) for errors in interpretation of technical terms, (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit, or of the proceeds thereof, (vii) for the misapplication by the beneficiary of any such Letter of Credit, of the proceeds of any drawing honored under such Letter of Credit, and (viii) for any consequences arising from causes beyond the control of Issuing Lender or the other Lenders. None of the above shall affect, 40 impair, or prevent the vesting of any of Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the immediately preceding sentence and notwithstanding any other provision of this Agreement, any action taken or omitted by Issuing Lender (except for honoring a draw on a Letter of Credit that does not appear on its face to be in accordance with the terms and conditions of such Letter of Credit) or any other Lender under or in connection with the Letters of Credit purchased or deemed purchased by it, or the related certificates, if taken or omitted without gross negligence or willful misconduct as finally judicially determined, shall not subject Issuing Lender or any Lender to any resulting liability to, or create any defense in favor of, Borrower. 8. The obligations of Borrower to reimburse Issuing Lender for drawings honored under the Letters of Credit issued by it and the obligations of Lenders under Section 2.3(f) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following circumstances: a. any lack of validity or enforceability of any Letter of Credit; b. the existence of any claim, set-off, defense or other right which Borrower or any Affiliate of Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), Issuing Lender, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction; c. any draft, demand, certificate or any other documents presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; d. the failure to perfect any Lien, or the release, surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; e. payment by Issuing Lender under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit (unless it does not appear on its face to be in accordance with the terms and conditions of such Letter of Credit); f. failure of any drawing under a Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of any drawing; g. the fact that a Default or Event of Default shall have occurred and be continuing; h. any other similar circumstance or happening whatsoever, that is similar to any of the foregoing; provided, that Borrower shall have no obligation to reimburse Issuing Lender, - - - -------- and Lenders shall have no obligation under SECTION 2.3(F) in the event that Issuing Lender honors a draw under a Letter of Credit when the documents 41 presented under the Letter of Credit do not appear on their face to be in accordance with the terms and conditions of such Letter of Credit. 9. In the event that any Letter of Credit Obligation, whether or not then due and payable, shall for any reason be outstanding on the Commitment Termination Date, Borrower will thereupon either (i) cause the underlying Letter of Credit to be returned and canceled and Lenders' Letter of Credit Obligation to be terminated, or (ii) pay cash, or deliver to Agent a letter of credit in favor of Lenders which is acceptable to Agent, in an amount equal to the maximum amount then available to be drawn under the Letter of Credit. Any such funds delivered to Agent shall be held by Agent in a cash collateral account (the "Cash Collateral Account"). The Cash Collateral Account shall be in the name of Agent, for the benefit of each Lender (as a cash collateral account), and shall be under the sole dominion and control of Agent and subject to the terms of this SECTION 2.3. Borrower agrees to execute and deliver to Agent such documentation with respect to the Cash Collateral Account as Agent may reasonably request and Borrower hereby pledges, and grants to Agent, for the benefit of each Lender, a security interest in, all such funds held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of all amounts due in respect of the Letter of Credit Obligations, whether or not then due. 10. In the event that Lenders shall incur any Letter of Credit Obligations pursuant hereto at the request or on behalf of Borrower hereunder, Borrower agrees to pay to Agent (i) all fees, charges, costs and expenses paid by Agent or any Lender on account of such Letter of Credit Obligations to Issuing Lender (the "Issuing Lender Fees"), and (ii) a fee (the "Letter of Credit Fee") in an amount equal to the quotient of (A) an amount equal to (I) the sum of the daily outstanding amount of all such Letter of Credit Obligations on each day during the previous calendar month, multiplied by (II) the ---------- -- Applicable Letter of Credit Fee Rate, divided by (B) 360. The Letter of Credit Fee shall be paid to Agent, for the benefit of each Lender, (x) monthly in arrears commencing on December 1, 1994, and on the first day of each subsequent calendar month, (y) on the Commitment Termination Date, and (z) if any Letter of Credit Fee remains payable after the Commitment Termination Date, or during the continuance of an Event of Default, upon demand by Agent or any Lender. The Letter of Credit Fee shall be allocated among Lenders in accordance with each Lender's respective Proportionate Share. So long as any Event of Default shall have occurred and be continuing, Agent may, subject to SECTION 10.5, increase the Applicable Letter of Credit Fee Rate set forth in clause (ii)(A)(II) of the first sentence of this SECTION 2.3(J) by two percent (2%) per annum above the rate otherwise applicable. 11. Borrower agrees to pay to Issuing Lender, for its sole benefit, with respect to the issuance, amendment or transfer of each Letter of Credit and each payment made thereunder, processing and administrative charges in accordance with Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment. 12. In the event that Issuing Lender elects not to issue a Letter of Credit requested by Borrower, Agent may elect to execute an L/C Guaranty Agreement in favor of a Person who is not a Lender, and in such event (i) the terms and provisions of SCHEDULE D shall apply, and (ii) the term "Letter of ---------- Credit" shall include such L/C Guaranty Agreement and Agent shall be deemed to be the Issuing Lender with respect to any such Letter of Credit. 42 13. As of the Restatement Closing Date, each issued and undrawn letter of credit under the Original Credit Agreement shall be replaced by a Letter of Credit issued under this Agreement by BTCo, as Issuing Lender. 2.4 Mandatory Prepayment. -------------------- 1. In the event that the outstanding balance of the Loan shall, at any time, exceed the lesser of (i) the Maximum Loan, and (ii) the Borrowing Base then in effect, Borrower shall immediately repay the Loan in the amount of such excess. 2. No prepayment fee shall be payable in respect of any mandatory prepayment under this SECTION 2.4. 2.5 Optional Reduction of Maximum Loan or Advance Rate. -------------------------------------------------- 1. Borrower shall have the right at any time, on not less than five (5) Business Days prior written notice to Agent, to voluntarily prepay the entire Loan and terminate this Agreement, without premium or penalty, and upon such prepayment and reduction Borrower's right to receive Advances or Letters of Credit shall simultaneously terminate. Each prepayment shall be accompanied by the payment of all accrued and unpaid interest and all Fees, the breakage fees and other costs described in SECTION 2.9(E), if any, and all other remaining Obligations. 2. Borrower shall have the right at any time, on not less than five (5) Business Days prior written notice to Agent, to permanently reduce the amount of the Maximum Loan in an amount of not less than $5,000,000 and integral multiples of $1,000,000 in excess of $5,000,000; provided, that any amount of -------- the Obligations in excess of the so reduced Maximum Loan is concurrently paid. The amount of each Lender's Commitment shall be reduced by such Lender's Proportionate Share of the reduction in the Maximum Loan and EXHIBIT A shall be --------- amended to reflect such reduction. 3. Borrower shall have the right at any time, on not less than five (5) Business Days prior written notice to Agent, to decrease the then applicable borrowing percentage for Eligible Inventory set forth in the definition of Borrowing Base for a period of not less than 60 days; provided, -------- that in no event shall the borrowing percentage for Eligible Inventory be reduced to less than fifty percent (50%). Any notice provided by Borrower pursuant to this SECTION 2.5(C) shall be irrevocable. 2.6 Use of Proceeds. Borrower shall utilize the proceeds of the Advances --------------- for (a) the general corporate purposes of Borrower, including the financing of Borrower's ordinary working capital needs, (b) to refinance all of the Subordinated Borrower Notes, including accrued and unpaid interest and premiums thereon, (c) to pay the costs and expenses incurred in connection with the closing of the financing transactions contemplated by this Agreement, (d) to make capital contributions to Receivables Corporation to be used to make payments of the "Purchase Price" (as defined in section 2.1(b) of the Receivables Purchase Agreement), as contemplated by section 1.2 of the Receivables Purchase Agreement, and (e) as otherwise permitted by this Agreement. 2.7 Single Loan. The Loan, all Advances, and all of the other ----------- Obligations of Borrower arising under this 43 Agreement and the other Loan Documents shall constitute one general obligation of Borrower secured, until the Termination Date, by all of the Collateral. 2.8 Interest on Loans. ----------------- 1. Borrower shall pay interest to Agent, for the benefit of each Lender: a. with respect to the Advances bearing interest at the Stated Prime Rate, (A) monthly in arrears commencing on December 1, 1994, and on the first Business Day of each subsequent calendar month, (B) on the Commitment Termination Date, and (C) if any interest accrues or remains payable after the Commitment Termination Date, or during the continuance of an Event of Default, upon demand by Agent or Requisite Lenders; and b. with respect to the Advances bearing interest at the Stated LIBOR Rate, (A) on the last day of the applicable Interest Period in the case of an Advance with an Interest Period of 30, 60 or 90 days, (B) on the 90th day and the last day of the applicable Interest Period in the case of an Advance with an Interest Period of 180 days, (C) on the Commitment Termination Date, and (D) if any interest accrues or remains payable after the Commitment Termination Date, or during the continuance of an Event of Default, upon demand by Agent or Requisite Lenders. 2. If any interest or other payment on the Loans becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 3. Borrower shall be obligated to pay interest to Agent, for the benefit of each Lender, on the Advances at a floating rate equal to the Prime Rate plus the Applicable Margin for Prime Rate Loans (the "Stated Prime Rate"); provided, that if Borrower so elects pursuant to SECTION 2.8(E), then the - - - -------- interest on any Advance shall be calculated at all times during the Interest Period selected by Borrower at a rate equal to the Adjusted LIBOR Rate on the Interest Determination Date plus the Applicable Margin for LIBOR Rate Loans (the "Stated LIBOR Rate"), subject to the provisions of SECTION 2.8(E). Any election by Borrower pursuant to SECTION 2.8(E) shall be irrevocable by Borrower during the Interest Period selected by Borrower, and all Advances subject to such election during such Interest Period shall bear interest during such Interest Period at the Stated LIBOR Rate. 4. All computations of interest shall be made by Agent on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest is payable. The Prime Rate shall be determined on a daily basis for use in calculating the interest that is payable for such day, and any change in the Prime Rate shall become effective on the day such change occurs. Each determination by Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error or bad faith. 5. (i) The Advances automatically will bear interest at the Stated Prime Rate, unless Borrower elects to convert the interest rate 44 to the Stated LIBOR Rate for the Interest Period selected by Borrower in accordance with the provisions of this SECTION 2.8(E). a. Borrower may on any Business Day, upon written notice given by Borrower to Agent, in the form of EXHIBIT G hereto (the "Notice --------- of LIBOR Advance"), not later than 12:00 Noon (New York time) on the third Business Day prior to the date of the proposed Conversion (the "Interest Election Date"), convert the interest rate on any or all of the Advances from the Stated Prime Rate to the Stated LIBOR Rate; provided, that (A) -------- Advances bearing interest based on the Stated LIBOR Rate shall be in minimum amounts of $5,000,000 and integral multiples of $1,000,000 in excess of $5,000,000, and (B) at any time, not more than six (6) tranches of the Loan shall bear interest based on the Stated LIBOR Rate. Agent shall deliver a copy of the Notice of LIBOR Advance to the other Lenders at or before 5:00 P.M. (New York time) on the Interest Election Date, and the Stated LIBOR Rate for the new Interest Period shall be determined as of the second Business Day prior to the date of the proposed Conversion (the "Interest Determination Date"). Unless a new Conversion to a Stated LIBOR Rate for a new Interest Period has been timely elected and selected by Borrower pursuant to this SECTION 2.8(E), the interest rate for any Advance will automatically, commencing on the day after the last day of the then existing Interest Period therefor, convert to the Stated Prime Rate. b. No Interest Period shall end on a date which is later than January 3, 2000. 6. So long as any Event of Default shall have occurred and be continuing, Agent may, subject to SECTION 10.5, increase the interest rates applicable to the Loans by two percent (2%) per annum above the rates otherwise applicable (the "Default Rate"). 7. Notwithstanding anything to the contrary set forth in this SECTION 2.8, if, at any time until payment in full of all of the Obligations, the rate of interest payable hereunder exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto (the "Maximum Lawful Rate"), then in such event and so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, that if at any time thereafter the rate of interest payable hereunder - - - -------- is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Lenders from the making of advances hereunder is equal to the total interest which Lenders would have received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Original Closing Date. Thereafter, the interest rate payable hereunder shall be the rate of interest charged by Lenders, unless and until the rate of interest again exceeds the Maximum Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by Lenders pursuant to the terms hereof exceed the amount which Lenders could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is calculated pursuant to this SECTION 2.8(G), such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction, notwithstanding the provisions of this SECTION 2.8(G), shall make a final determination that 45 Lenders have received interest hereunder or under any of the Loan Documents in excess of the Maximum Lawful Rate, Lenders shall, to the extent permitted by applicable law, promptly apply such excess first to any interest due and not yet paid under the Loans, then to the outstanding principal of the Loan (without premium or penalty), then to Fees and any other unpaid Obligations, and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order. 2.9 Special Provisions Governing LIBOR Rate Loans. Notwithstanding any --------------------------------------------- other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBOR Rate Loans as to the matters covered: 1. As soon as practicable after 10:00 A.M. (New York time) on any Interest Determination Date, Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate which shall apply to the LIBOR Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower and to each Lender. 2. In the event that on any Interest Determination Date any Lender (including Agent) shall have determined (which determination shall be final, conclusive and binding upon all parties but, with respect to the following clauses (i) and (ii)(b), shall be made only after consultation with Borrower and Agent) that: a. by reason of any changes arising after the date of this Agreement affecting the LIBOR market, or affecting the position of that Lender in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the LIBOR Rate with respect to the LIBOR Rate Loans as to which an interest rate determination is then being made; or b. by reason of (a) any change (including any change proposed prior to the date hereof) after the date hereof in any applicable law or any governmental rule, regulation or order (or any interpretation or administration thereof and including the introduction of any new law or government rule, regulation or order (including any thereof proposed prior to the date hereof)) or (b) other circumstances affecting that Lender or the LIBOR market, or the position of that Lender in such market, the LIBOR Rate shall not represent the effective pricing to that Lender for Dollar deposits of comparable amounts for the relevant period; then, and in any such event, such Lender shall be an Affected Lender and it shall promptly (and in any event as soon as possible after being notified of an Advance) give notice (by telephone confirmed in writing) to Borrower and Agent (which notice Agent shall promptly transmit to each other Lender) of such determination. Thereafter, Borrower shall pay to the Affected Lender with respect to Borrower's LIBOR Rate Loans, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Affected Lender in its sole discretion shall in good faith determine) as shall be required to cause the Affected Lender to receive interest with respect to such Affected Lender's LIBOR Rate Loans for the Interest Period following that Interest Determination Date (such Interest Period being an "Affected Interest Period") at a per annum rate equal to the Applicable Margin with respect to the LIBOR Rate Loans plus ---- 46 the effective pricing to the Affected Lender for Dollar deposits to make or maintain its LIBOR Rate Loans. A certificate as to additional amounts owed the Affected Lender, showing in reasonable detail the basis for the calculation thereof, submitted in good faith to Borrower and Agent by the Affected Lender shall, absent manifest error, be final and conclusive and binding upon all of the parties hereto. Notwithstanding the foregoing, in no circumstances under this SECTION 2.9 shall Agent or any Lender treat Borrower any differently than Agent or such Lender generally treats its other similarly situated borrowers. 3. In the event that on any date any Lender shall have reasonably determined (which determination shall be final, conclusive and binding upon all parties) that the making or continuation of any of its LIBOR Rate Loans (i) has become unlawful or would be inconsistent with compliance by that Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), or (ii) has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the LIBOR market, then, and in any such event, that Lender shall be an Affected Lender and it shall promptly give notice (by telephone confirmed in writing) to Borrower and Agent (which notice Agent shall promptly transmit to each Lender) of that determination. The obligation of the Affected Lender to make such LIBOR Rate Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and, subject to the prior withdrawal of a Notice of Advance or Notice of LIBOR Advance, as the case may be, as contemplated by SECTION 2.9(D), Borrower shall, no later than the termination of the Interest Period in effect at the time any such determination pursuant to this SECTION 2.9(C) is made (unless otherwise required by law), repay such LIBOR Rate Loans of the Affected Lender, together with all interest accrued thereon. Notwithstanding the foregoing, in no circumstances under this SECTION 2.9 shall Agent or any Lender treat Borrower any differently than Agent or such Lender generally treats its other similarly situated borrowers. 4. In lieu of paying an Affected Lender such additional amounts as are required by SECTION 2.9(B) or the prepayment of an Affected Lender required by SECTION 2.9(C), Borrower may exercise any one of the following options: (i) if the determination by an Affected Lender relates to LIBOR Rate Loans then being requested pursuant to a Notice of LIBOR Advance, Borrower may by giving notice (by telephone confirmed in writing) to Agent (who shall promptly give similar notice to each Lender) no later than the date immediately prior to the date on which such LIBOR Rate Loans are to be made, withdraw as to the Affected Lender such Notice of LIBOR Advance; or (ii) upon written notice to the Affected Lender and Agent (who will in turn promptly notify each other Lender), Borrower may terminate the obligations of the Affected Lender to make Loans as LIBOR Rate Loans and to convert Prime Rate Loans to LIBOR Rate Loans and in such event, Borrower shall, prior to the time any payment pursuant to SECTION 2.9(C) is required to be made, convert all of the LIBOR Rate Loans of the Affected Lender into Prime Rate Loans. 5. Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth in reasonable detail the basis 47 for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Rate Loans and any loss sustained by such Lender in connection with the reemployment of such funds) which such Lender may sustain with respect to Borrower's LIBOR Rate Loans: (i) if for any reason (other than a default or error by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a date specified therefor in a Notice of LIBOR Advance or a telephonic request for borrowing in accordance with this Agreement; (ii) if any prepayment or conversion of any of such Lender's LIBOR Rate Loans occurs on a date which is not the last day of the Interest Period applicable to that LIBOR Rate Loan; (iii) if any prepayment of any such Lender's LIBOR Rate Loans is not made on any date specified in a notice of prepayment given by Borrower; or (iv) as a consequence of any other default by Borrower to repay such Lender's LIBOR Rate Loans when required by the terms of this Agreement; provided, that, with -------- respect to this SECTION 2.9(E), Agent and Lenders shall treat Borrower as Agent and Lenders generally treat all of their other similarly situated borrowers. Any Lender's calculation of losses, expenses and liabilities hereunder shall be calculated on a basis similar to that afforded to such Lender's other similarly situated borrowers. 6. Each Lender agrees that, as promptly as practicable after it becomes aware of the occurrence of an event or the existence of a condition that would cause it to be an Affected Lender under SECTION 2.9(B) or SECTION 2.9(C), it will, to the extent not inconsistent with such Lender's internal policies, use its best efforts to make, fund or maintain the affected Loans of such Lender through another lending office of such Lender if as a result thereof the additional amounts which would otherwise be required to be paid in respect of such Loans pursuant to SECTION 2.9(B) would be materially reduced or the illegality or other adverse circumstances that would otherwise require prepayment of such Loans pursuant to SECTION 2.9(C) would cease to exist and if such Lender determines, in its sole discretion, the making, funding or maintaining of such Loans through such other lending office would not otherwise materially adversely affect such Loans or such Lender. 7. Except as provided in SECTION 2.9(B) with respect to certain determinations on Interest Determination Dates, if, by reason of (I) after the date hereof, the introduction of or any change (including any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation, or (II) the compliance with any guideline or request from any central bank or other Governmental Authority or quasi-governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law): (A) any Lender (or its applicable lending office) shall be subject to any tax, duty or other charge with respect to its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans or shall change the basis of taxation of payments to any Lender of the principal of or interest on its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans (except for changes in the rate of tax on the overall net income of such Lender or its applicable lending office imposed by the jurisdiction in which such Lender is incorporated or organized or in which such Lender's principal executive office or applicable lending office is located); or (B) any reserve (including any imposed by the Federal Reserve Board), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any 48 Lender's applicable lending office shall be imposed or deemed applicable or any other condition affecting its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans shall be imposed on any Lender or its applicable lending office or the London interbank market; and as a result thereof there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining LIBOR Rate Loans (except to the extent already included in the determination of the applicable LIBOR Rate) or there shall be a reduction in the amount received or receivable by such Lender or its applicable lending office, then Borrower shall from time to time, upon written notice from and demand by such Lender (which shall be promptly furnished to Borrower upon such Lender being made subject thereto, with notice to Agent setting forth the amount and period for which such amount is being billed), pay to Agent for the account of such Lender within ten (10) Business Days after the date specified in such notice and demand, additional amounts sufficient to indemnify such Lender against such increased cost. A certificate in reasonable detail as to such increased cost, submitted to Borrower and Agent by such Lender, shall, except for manifest error, be final, conclusive and binding upon all parties for all purposes. 8. Unless the Requisite Lenders shall otherwise agree, after the occurrence of and during the continuance of (i) a Default resulting from the failure to timely make any payments due hereunder, or (ii) an Event of Default, Borrower may not elect to have a LIBOR Rate Loan made or have any LIBOR Rate Loan continued or have any Prime Rate Loan converted into a LIBOR Rate Loan in accordance with SECTION 2.8(E)(II). 2.10 Eligible Inventory. Eligible Inventory shall mean the gross amount ------------------ of Borrower's Inventory, as reflected on the most recent Schedule of Inventory delivered by Borrower to Agent and Lenders and on other information available to Agent, that conform to the warranties listed herein and conform to the criteria listed below, less the aggregate amount of all reserves, limits and deductions ---- provided in the definition of "Borrowing Base" in SECTION 1.1. No Inventory of Borrower shall be deemed to be Eligible Inventory unless: 1. Such Inventory is owned by Borrower; 2. Such Inventory consists of legal pharmaceutical, health care products or sundry items; 3. Such Inventory is merchantable, meets all standards imposed by any Person having regulatory authority over such goods, their use or sale, is not obsolete, and is currently saleable in the normal course of Borrower's business ; 4. Borrower has made the representations and warranties set forth in SECTION 4.28, which representations and warranties have been reaffirmed with respect thereto at the time the most recent Schedule of Inventory was provided to Agent and Lenders; 5. Such Inventory is located on the premises listed on Schedule III of the Security Agreement; 6. Such Inventory has not been consigned to any Person; 49 7. If such Inventory has been returned from customers or account debtors, then such Inventory shall have been returned to regular stock at one of the locations listed on Schedule III of the Security Agreement; 8. Such Inventory (including all of Borrower's Accounts and other Proceeds derived from such Inventory except to the extent actually sold to Receivables Corporation pursuant to the Receivables Purchase Agreement and in compliance with the terms and provisions of the Intercreditor Agreement) is subject to Agent's duly perfected, first priority Lien and no other Lien other than the Permitted Encumbrances; 9. Such Inventory does not constitute "morgue," "slow-moving," "discontinued," or "close out" Inventory; and 10. Such Inventory is determined by Agent, in its reasonable business judgment, after using diligent efforts to attempt to consult with the Managing Agents (but without any liability whatsoever for a failure or inability to do so), to constitute adequate collateral to support the Advance requested by Borrower. 2.11 Fees. ---- 1. As compensation for Lenders' costs and risks in making the Loan available to Borrower, Borrower agrees to pay to Agent, for the benefit of each Lender, a fee for Borrower's non-use of the full amount of the Maximum Loan (the "Unused Line Fee") in an amount equal to (i) the Applicable Unused Line Fee Rate, multiplied by (ii) the difference between the respective daily averages of ---------- -- (A) the Maximum Loan, and (B) the Loan during the period for which the Unused Line Fee is due, calculated on the basis of a 360-day year. The Unused Line Fee shall be paid (I) monthly in arrears commencing on December 1, 1994, and on the first day of each subsequent calendar month, (II) on the Commitment Termination Date, and (III) if any Unused Line Fee remains payable after the Commitment Termination Date, upon demand by Agent or any Lender. The Unused Line Fee shall be allocated among Lenders in accordance with each Lender's respective Proportionate Share. 2. Borrower shall pay a Letter of Credit Fee to Agent, for the benefit of each Lender, in accordance with the terms of SECTION 2.3(J). In addition, Borrower shall pay, as and when incurred by Agent or any Lender, the Issuing Lender Fees in accordance with the terms of SECTION 2.3(J). 50 2.12 Cash Management System. ---------------------- 1. Commencing on the Restatement Closing Date and for so long as any Obligations are outstanding, Borrower shall deposit on the date of receipt or, if requested by Agent, cause to be deposited directly all remittances received by Borrower on account of any Collateral (including chargebacks received by Borrower in the form of cash), excluding any remittances on account of Borrower's Accounts and related assets theretofore sold to Receivables Corporation pursuant to the Receivables Facility Documents, but including (i) the proceeds of any sale of Borrower's Accounts and related assets sold by Borrower to Receivables Corporation pursuant to the Receivables Facility Documents and all other amounts payable by Receivables Corporation to Borrower, and (ii) amounts payable to Borrower pursuant to the Intercreditor Agreement, into one or more lock box accounts in Borrower's name, including, subject to SECTION 2.12(C), any additional or replacement account (the "Lock Box Account"), which is maintained at the bank indicated on SCHEDULE 4.27 (the "Lock Box ------------- Bank"). 2. On or before the Restatement Closing Date, the Lock Box Bank shall have entered into a tri-party blocked account agreement with Agent and Borrower, in form and substance acceptable to Agent, which shall immediately become operative at the Lock Box Bank. Such blocked account agreement shall provide, among other things, that the Lock Box Bank has no rights of setoff or recoupment or any other claim against the Lock Box Account, other than for payment of its service fees and other charges directly related to the administration of such account, and the Lock Box Bank agrees to forward immediately all amounts in the Lock Box Account to the Collection Account through sweeps from the Lock Box Account into the Collection Account on each Business Day. If and for so long as there are no outstanding Advances or unreimbursed draws under outstanding Letters of Credit and no Event of Default has occurred and is continuing, Agent may, in its discretion, instruct the Lock Box Bank to forward all amounts in the Lock Box Account to the Disbursement Account through daily sweeps until otherwise notified by Agent. 3. So long as no Default has occurred, Borrower may amend SCHEDULE 4.27 to replace the Lock Box Account or add a Lock Box Account; - - - ------------- provided, that (i) Agent shall have consented to the opening of such account - - - -------- with the relevant bank, and (ii) at the time of the opening of such account, Borrower and such bank shall have executed and delivered to Agent a tri-party blocked account agreement, in form and substance satisfactory to Agent. The Lock Box Account shall be a cash collateral account, with all cash, checks and other similar items of payment in such accounts securing payment of the Obligations, and in which Borrower shall have granted a Lien to Agent, for the benefit of Lenders. 4. All amounts deposited in the Collection Account shall be deemed received by Agent in accordance with SECTION 2.13 and shall be applied (and allocated) by Agent in accordance with SECTION 2.14. In no event shall any amount be so applied by Agent unless and until such amount shall have been credited in immediately available funds to the Collection Account. If and for so long as there are no outstanding Advances or unreimbursed draws under outstanding Letters of Credit and no Event of Default has occurred and is continuing, Agent may, in its discretion, give instructions that allow any funds deposited in the Collection Account in excess of the Obligations then outstanding to be transferred from the Collection Account to the Disbursement Account. 51 5. Borrower may maintain, in its name, an account (the "Disbursement Account") at a bank acceptable to Agent into which Agent shall, from time to time, deposit proceeds of Advances made available to Agent pursuant to SECTION 2.1 and other amounts deposited pursuant to SECTION 2.12(D) for use solely in accordance with the provisions of SECTION 2.6. The Disbursement Account shall be a cash collateral account, with all cash, checks and other similar items of payment in such account securing payment of the Obligations, and in which Borrower shall have granted a Lien to Agent, for the benefit of Lenders. 2.13 Receipt of Payments. Borrower shall make each payment under this ------------------- Agreement not later than 2:00 P.M. (New York time) on the day when due in lawful money of the United States of America in immediately available funds to the Collection Account. For purposes of computing interest and fees and determining the amount of funds available for borrowing by Borrower pursuant to SECTION 2.1(A), (a) all payments (including cash sweeps) consisting of cash, wire, or electronic transfers in immediately available funds shall be deemed received by Agent upon deposit in the Collection Account, and (b) all payments consisting of checks, drafts, or similar non-cash items shall be deemed received by Agent upon the deposit, in immediately available funds, of such payment in the Collection Account. 2.14 Application and Allocation of Payments. -------------------------------------- 1. In the absence of an Event of Default, any payment at any time or times hereafter received by Agent, whether through deposit in the Collection Account or otherwise, from or on behalf of Borrower, shall be applied in the following order: (i) to settle any outstanding amounts pursuant to SECTION 2.1(B)(II); (ii) then due and payable Fees (other than the Unused Line Fee and the Letter of Credit Fee) and reimbursable expenses; (iii) then due and payable interest payments on the Loans together with the Unused Line Fee and Letter of Credit Fee; (iv) Obligations other than Fees, expenses and interest and principal payments; and (v) then due and payable principal payments on the Loan. Agent, for the benefit of each Lender, is authorized to, and at its option may, make advances on behalf of Borrower for payment of all Fees, expenses, charges, costs, principal, interest, or other Obligations owing by Borrower under this Agreement or any of the Loan Documents if and to the extent Borrower fails to promptly pay any such amounts as and when due. At Agent's option and to the extent permitted by law, any advances so made may be deemed Advances constituting part of the Loan hereunder. 52 2. If (i) an Event of Default has occurred and is continuing, and (ii) either (A) the Obligations have been accelerated, as provided under SECTION 9.2(B), or (B) Agent has given notice to the other Lenders of the termination of the obligation of Lenders to make further Advances, as provided under SECTION 9.2(B)(II), then all proceeds of Collateral received by Lenders shall be applied first to fund the Cash Collateral Account in an amount equal to all outstanding Letter of Credit Obligations and, if the Cash Collateral Account has been fully funded, then such proceeds shall be applied in the following order: (v) any outstanding amounts under SECTION 2.1(B)(II); (w) then due and payable Fees (other than the Unused Line Fee and the Letter of Credit Fee) and reimbursable expenses; (x) then due and payable interest payments on the Loans, together with the Unused Line Fee and the Letter of Credit Fee; (y) Obligations other than Fees, expenses and interest and principal payments; and (z) then due and payable principal payments on the Loans. 3. Agent shall allocate among Lenders payments received pursuant to SECTION 2.14(A) or SECTION 2.14(B), as applicable, in the following manner: a. payments of Fees, expenses, and Obligations (other than Fees, expenses and interest and principal payments) shall be allocated to the respective Lender or Lenders to whom such amounts are due and owing; provided, that if such payments are insufficient to cover the full amount -------- of such Obligations, then the payments shall be allocated among Lenders in accordance with their Proportionate Shares; b. payments of interest on account of the Loan shall be allocated among Lenders in accordance with each Lender's respective Proportionate Share; and c. payments of principal on account of the Loan shall be allocated among Lenders in accordance with each Lender's respective Proportionate Share; provided, that if any Lender's unpaid balance of the -------- aggregate outstanding principal amount under the Loan is greater than such Lender's Proportionate Share, then principal payments shall be allocated to such Lender until its unpaid balance of the Loan is equal to such Lender's Proportionate Share of the Loan. 2.15 Accounting. After the end of each Fiscal Month, Agent will ---------- provide a monthly accounting of transactions under the Loan to Borrower. Each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein, unless Borrower, within 30 days after the date any such accounting is rendered, shall notify Agent in writing of any objection which Borrower may have to any such accounting, describing the basis for such objection with specificity. In that event, only those items expressly objected to in such notice shall be deemed to be disputed by Borrower. 53 2.16 Indemnity. --------- 1. Borrower shall indemnify and hold Agent, Managing Agents, Issuing Lender, Co-Agents and Lenders and all of their respective Affiliates, officers, directors, employees, attorneys and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and reasonable expenses (including attorneys' fees and disbursements (including allocated costs of internal counsel) and other reasonable costs of investigations or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by such Indemnified Person as the result of credit having been extended under this Agreement and the other Loan Documents or in connection with or arising out of the financing transactions contemplated hereunder and thereunder, including any claim, action, suit, proceeding, loss, cost, damage, liability, deficiency, fine, penalty, punitive damage or reasonable expense (including attorneys' and consultants' fees, investigation and laboratory fees, court costs and litigation expenses), that directly or indirectly results from, arises out of, or is based upon (i) the presence, Release, threatened Release, use, manufacture, installation, generation, discharge, storage or disposal, at any time, of any Hazardous Materials on, under, in or about, or the transportation of any such materials to or from, any real property owned, leased or operated by Borrower or any Affiliate of Borrower (the "Subject Property"), (ii) the violation or alleged violation by Borrower or any Affiliate of Borrower of any law, statute, ordinance, order, rule, regulation, permit, judgment or license relating to the use, generation, manufacture, installation, Release, threatened Release, discharge, storage or disposal of Hazardous Materials to or from the Subject Property; which indemnity shall include (A) any damage, liability, fine, penalty, punitive damage, reasonable cost or expense arising from or out of any claim, action, suit or proceeding for personal injury (including sickness, disease, death, pain or suffering), tangible or intangible property damage, compensation for lost wages, business income, profits or other economic loss, damage to the natural resources or the environment, nuisance, pollution, contamination, Release, threatened Release, or other adverse effect on the environment, and (B) the cost of any required or necessary repair, cleanup, investigation, treatment, remediation or detoxification of the Subject Property and the preparation and implementation of any closure, disposal, remedial or other required actions in connection with the Subject Property, and (iii) any other Environmental Liability and Costs with respect to any other matter affecting the Subject Property within the jurisdiction of any federal, state, or municipal official administering the Environmental Laws; provided, that, as to -------- clauses (i), (ii), and (iii) of this Section, Borrower shall not be liable for any indemnification to such Indemnified Person to the extent that any such claim, damage, loss, liability or expense is determined by a court of competent jurisdiction in a final decision to have resulted from such Indemnified Person's gross negligence or willful misconduct. Notwithstanding any contrary provision of this Agreement, the obligation of Borrower under this SECTION 2.16(A) shall survive the payment in full of the Obligations and the termination of this Agreement. NEITHER AGENT, ANY MANAGING AGENT, ISSUING LENDER, CO-AGENTS, ANY LENDER, NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS. 54 2. Borrower hereby acknowledges and agrees that neither Agent, any Managing Agent, Issuing Lender, Co-Agents, nor any Lender, either acting individually or collectively with any other Lenders, (i) is now, or has ever been, in control of the Subject Property or Borrower's affairs, or (ii) has the capacity through the provisions of the Loan Documents to influence Borrower's conduct with respect to the ownership, operation or management of the Subject Property. 2.17 Access. Borrower shall provide access to Agent and any of its ------ officers, employees and agents, or cause to be provided access to Agent and any of its officers, employees or agents, exercisable as frequently as Agent determines to be appropriate, upon reasonable advance notice (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Agent shall have access at any and all times), during normal business hours (or at such other times as may reasonably be requested by Agent), to inspect the properties and facilities of Borrower and to inspect, audit and make extracts from all of Borrower's records, files and books of account. Borrower shall make available to Agent and its counsel, as quickly as practicable under the circumstances, originals or copies of all books, records, board minutes, contracts, insurance policies, environmental audits, business plans, files, financial statements (actual and pro forma), filings with Federal, state and local regulatory agencies, and other instruments and documents which Agent may request. Borrower shall deliver any document or instrument reasonably necessary for Agent, as it may from time to time request, to obtain records from any service bureau maintaining records for Borrower, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by Borrower. Borrower shall instruct its banking and other financial institutions to make available to Agent such information and records as Agent may reasonably request. 2.18 Taxes. ----- 1. Any and all payments by Borrower hereunder or under the Notes shall be made, in accordance with this SECTION 2.18, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto ("Taxes"), excluding (i) Taxes imposed on or measured by the net income of any Lender or franchise taxes imposed on any Lender by the jurisdiction under the laws of which such Lender is organized or any political subdivision thereof, or by the jurisdiction of such Lender's applicable lending office or any political subdivision thereof, (ii) any other Taxes, including United States of America withholding taxes or payments to a Lender that is a foreign Person, that are in effect and to the extent that they would apply to a payment to a Lender as of the Restatement Closing Date, and (iii) if any Person acquires any interest in this Agreement or any Note, or a Foreign Lender changes the office in which its Advances are made, accounted for or booked (any such Person or such Foreign Lender, in that event, being referred to as a "Tax Transferee"), any Taxes to the extent that they are in effect and would apply to a payment to such Tax Transferee as of the date of the acquisition of such interest or change in office, as the case may be (all such non-excluded taxes, levies, imposts, deductions, Charges, withholdings and liabilities being hereinafter referred to as "Covered Taxes"). If Borrower shall be required by law to deduct any Covered Taxes from or in respect of any sum payable to any Lender under this Agreement or any Note, after any Lender for which a deduction is required notifies Agent and Borrower in writing of the amount of the required deductions, then (x) the sum payable 55 shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this SECTION 2.18) such Lender receives an amount equal to the sum it would have received had no such deductions been made, (y) Borrower shall make such deductions, and (z) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. 2. In addition, Borrower agrees to pay any present or future stamp or documentary taxes or any other excise, mortgage recording or property taxes, Charges or similar levies that arise from any payment made under this Agreement or the Notes, or from the execution, delivery or registration of this Agreement, the Notes, the Loan Documents or any other agreements and instruments contemplated hereby or thereby (hereinafter referred to as "Other Taxes"). 3. Borrower shall indemnify each Lender for the full amount of Covered Taxes or Other Taxes (including any Covered Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this SECTION 2.18) paid by such Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto attributable to Borrower's failure to pay such Taxes in a timely manner. This indemnification shall be paid within 30 days from the date such Lender makes written demand therefor. 4. Within 30 days after having received a receipt of Covered Taxes or Other Taxes, Borrower shall furnish to Agent and the applicable Lender, at its address referred to in SECTION 12.10, the original or a certified copy of a receipt evidencing payment thereof. 5. If a Lender is able to apply for or otherwise take advantage of any tax credit, tax deduction or similar benefit by reason of any deduction for or withholding of a Covered Tax in respect of a payment made to Lender, then such Lender will use reasonable efforts to obtain such credit, deduction or benefit and upon receipt thereof will pay to Borrower such amount (if any) not exceeding the increased amount paid by Borrower as equals the net after-tax value to such Lender of such part of such credit, deduction or benefit as Lender considers is allocable to such withholding or deduction having regard to all its dealings giving rise to similar credits, deductions and benefits in relation to the same tax period and to the cost of obtaining the same. Notwithstanding anything to the contrary in this SECTION 2.18(E), each Lender shall have the sole right to determine whether or not to pursue any such credits, deductions or benefits and if any are received, the portion allocable to the Loans shall be determined solely by such Lender. 6. On or before the Restatement Closing Date, each Foreign Lender shall deliver to Agent and Borrower (i) two valid, duly completed copies of IRS Form 1001 or 4224 or successor applicable form, as the case may be, and any other required form, certifying in each case that such Foreign Lender is entitled to receive payments under this Agreement or the Notes payable to it without deduction or withholding of any United States of America federal income taxes or with such withholding imposed at a reduced rate (the "Reduced Rate"), and (ii) a valid, duly completed IRS Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States of America backup withholding tax. Each such Foreign Lender shall also deliver to Agent and Borrower two further copies of said Form 1001 or 4224 and W-8 or W-9, or successor applicable forms, or other manner of required certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be 56 resubmitted as a condition to obtaining an exemption from a required withholding of United States of America federal income tax or entitlement to having such withholding imposed at the Reduced Rate or after the occurrence of any event requiring a change in the most recent form previously delivered by it to Borrower and Agent, and such extensions or renewals thereof as may reasonably be requested by Borrower and Agent, certifying (x) in the case of a Form 1001 or 4224 that such Foreign Lender is entitled to receive payments under this Agreement or the Notes payable to it without deduction or withholding of any United States of America federal income taxes, unless in any such case any change in a tax treaty to which the United States of America is a party, or any change in law or regulation of the United States of America or official interpretation thereof has occurred after the Restatement Closing Date and prior to the date on which any such delivery would otherwise be required that renders all such forms inapplicable or that would prevent such Foreign Lender from duly completing and delivering any such form with respect to it, and such Foreign Lender advises Borrower and Agent that it is not capable of receiving payments without any deduction or withholding at the Reduced Rate, or (y) in the case of a Form W-8 or W-9, establishing an exemption from United States of America backup withholding tax. 7. If a Tax Transferee that is organized under the laws of a jurisdiction outside of the United States of America acquires an interest in this Agreement or any Note, or a Foreign Lender changes the office through which its Advances are made, accounted for or booked, the transferor, or the applicable Foreign Lender, in the case of a change of office, shall cause such Tax Transferee to agree that, on or prior to the effective date of such acquisition or change, as the case may be, it will deliver to Borrower and Agent (i) two valid, duly completed copies of IRS Form 1001 or 4224 or successor applicable form, as the case may be, and any other required form, certifying in each case that such Tax Transferee is entitled to receive payments under this Agreement and the Notes payable to it without deduction or withholding of United States of America federal income tax or with such withholding imposed at a Reduced Rate; and (iii) a valid, duly completed IRS Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States of America backup withholding tax. Each Tax Transferee that delivers to Borrower and Agent a Form 1001 or 4224, and Form W-8 or W-9 and any other required form, pursuant to the next preceding sentence, further undertakes to deliver two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of required certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from a required withholding of United States of America federal income tax or entitlement to having such withholding imposed at the Reduced Rate or after the occurrence of any event requiring a change in the most recent form previously delivered by it to Borrower and Agent, and such extensions or renewals thereof as may reasonably be requested by Borrower and Agent, certifying (i) in the case of a Form 1001 or 4224 that such Tax Transferee is entitled to receive payments under this Agreement without deduction or withholding of any United States of America federal income taxes or with such withholding imposed at the Reduced Rate, unless any change in treaty, law or regulation or official interpretation thereof has occurred after the effective date of such acquisition or change and prior to the date on which any such delivery would otherwise be required that renders all such forms inapplicable or that would prevent such Tax Transferee from duly completing and delivering any such form with respect to it, and such Tax Transferee advises Borrower and Agent that it is not capable of receiving payments (a) without any deduction or withholding of United States of America federal income tax or (b) with such withholding at 57 the Reduced Rate, as the case may be, or (ii) in the case of a Form W-8 or W-9, establishing an exemption from United States of America backup withholding tax. 8. If any Taxes for which Borrower would be required to make payment under this SECTION 2.18 are imposed, the Lender involved or Agent shall use its best efforts to avoid or reduce such Taxes by taking any appropriate action (including assigning its rights hereunder to a related entity or a different office) which would not in the sole opinion of such Lender or Agent be otherwise disadvantageous to such Lender or Agent, as the case may be. 9. Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this SECTION 2.18 shall survive the Termination Date and payment in full of principal and interest under this Agreement and the Notes; provided, that all agreements -------- and obligations shall cease as of the date four years following payment in full of the Obligations with respect to amounts for which Borrower has not received notice as of that date. 10. A copy of all notices and demands to be delivered to Borrower under this SECTION 2.18 shall be delivered to the attention of Borrower's Tax Manager at the address specified in SECTION 12.10. 11. Notwithstanding anything to the contrary in this SECTION 2.18, if the IRS determines that a Lender is a conduit entity participating in a Conduit Financing Arrangement then (i) any additional Taxes that Borrower is required to withhold from payments to such Lender by virtue of such Conduit Financing Arrangement shall be excluded from the definition of "Covered Taxes," and (ii) such Lender shall indemnify Borrower in full for any and all additional Taxes for which Borrower is held directly liable under Section 1461 of the IRC by virtue of such Conduit Financing Arrangement. In addition to other rights and remedies that Borrower may have, Borrower may, to the fullest extent permitted by law, set off and apply any and all amounts that a Lender is required to indemnify Borrower under this SECTION 2.18(K) against amounts otherwise payable to such Lender under the Loans. Each Lender represents and warrants that it is not participating in a Conduit Financing Arrangement. 2.19 Indemnification in Certain Events. If, after the Restatement --------------------------------- Closing Date, either (a) any change in or in the interpretation of any law or regulation (other than changes in the rate of tax on the overall income of any Lender or its applicable Lending Office) is introduced, including with respect to reserve requirements applicable to any banking or financial institution from whom any Lender borrows funds or obtains credit (a "Funding Bank") or any Lender, (b) a Funding Bank or any Lender (which, for purposes of this SECTION 2.19, shall include Issuing Lender) complies with any future guideline or request from any central bank or other governmental authority whose guidelines or requests are customarily honored by such Funding Bank or Lender, or (c) a Funding Bank or any Lender determines that the adoption of any applicable law, treaty, rule, guideline, regulation or order regarding capital adequacy or capital maintenance, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof has or would have the effect described below, or a Funding Bank or any Lender complies with any request or directive regarding capital adequacy or capital maintenance (whether or not having the force of 58 law) of any such authority, central bank or comparable agency, and in the case of any event set forth in this clause (c), such adoption, change or compliance has or would have the direct or indirect effect of increasing the amount of capital required to be maintained by such Lender or reducing the rate of return on any Lender's capital as a consequence of its obligations hereunder to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Funding Bank's or Lender's policies with respect to capital adequacy and capital maintenance) by an amount deemed by such Lender to be material, and the effect of any of the foregoing events described in clauses (a), (b) or (c) is or results in an increase in the cost to Agent, Issuing Lender, or any Lender of (i) funding or maintaining the Loans, (ii) issuing, making or maintaining any Letter of Credit or of purchasing or maintaining any participation therein, or is or results in a reduction of the amount receivable in respect thereof by Agent or any Lender, then Borrower shall from time to time upon demand by Agent, pay to Agent, for the account of each applicable Lender, additional amounts sufficient to indemnify such Lender against such increased cost or reduced receipt; provided, that with respect to -------- this SECTION 2.19, Agent and Lenders shall be required to treat Borrower as they treat all of their other similarly situated borrowers. A certificate as to the amount of such increased cost and setting forth in reasonable detail the calculation thereof shall be submitted to Borrower by Agent, or the applicable Lender, and shall be conclusive absent manifest error. 2.20 Replacement of Commitments. On the Restatement Closing Date, each -------------------------- Existing Lender's Revolving Credit Commitment and Term Loan Commitment shall automatically be canceled and replaced by the Commitments as set forth on SCHEDULE A, and Agent shall cancel each Revolving Credit Note or Term Note - - - ---------- issued to such Existing Lender with respect to such Existing Lender's Revolving Credit Commitment or Term Loan Commitment, as the case may be, upon Agent's receipt or delivery, as the case may be, of each of the following amounts: (a) Receipt by Agent from each Lender who is not an Existing Lender of payment, in immediately available funds received no later than 2:00 P.M. on the Restatement Closing Date, in the amount equal to such Lender's Proportionate Share of the Advances outstanding on the Restatement Closing Date after giving effect to any Advances made or to be made on the Restatement Closing Date to pay any amounts required to be paid by Borrower pursuant to SECTION 3.1(J) (the total amount of the Advances outstanding as of the Restatement Closing Date, after giving effect to such payments to be made on the Restatement Closing Date, is referred to herein as the "Restatement Closing Date Advance Balance"); (b) Receipt by Agent from each Lender who is an Existing Lender of payment, in immediately available funds received no later than 2:00 P.M. on the Restatement Closing Date, in the amount, if any, by which (i) such Lender's Proportionate Share of the Restatement Closing Date Advance Balance, exceeds (ii) its actual outstanding Advances under the Original Credit Agreement as of the Restatement Closing Date; (c) Delivery by Agent to each Lender who is an Existing Lender of payment, in immediately available funds received no later than 3:00 P.M. on the Restatement Closing Date, in the amount, if any, by which (i) such Lender's actual outstanding Advances under the Original Credit Agreement as of the Restatement Closing Date, exceeds (ii) its Proportionate Share of the Restatement Closing Date Advance Balance; 59 (d) Delivery by Agent to each Existing Lender who is not a Lender of payment, in immediately available funds received no later than 3:00 P.M. on the Restatement Closing Date, of the amount of such Existing Lender's actual outstanding Advances under the Original Credit Agreement as of the Restatement Closing Date; and (e) Delivery by Agent to each Existing Lender of payment, in immediately available funds received no later than 3:00 P.M. on the Restatement Closing Date, of such Existing Lender's respective portion of the amounts payable on the Restatement Closing Date pursuant to SECTION 3.1(J)(II) and SECTION 3.1(J)(III). 3. CONDITIONS PRECEDENT -------------------- 3.1 Conditions to Effectiveness of this Agreement. Notwithstanding any --------------------------------------------- other provision of this Agreement and without affecting in any manner the rights of Lenders hereunder, Borrower shall have no rights under this Agreement (but shall have all applicable obligations hereunder), and this Agreement and the other Loan Documents shall not become effective, until the following conditions have been satisfied or otherwise provided for in a manner acceptable to each Lender and Agent: 1. This Agreement or counterparts thereof shall have been duly executed by, and delivered to, Borrower, Agent, Issuing Lender and each Lender; 2. Lenders shall have given their Total Commitments in an aggregate amount of $380,000,000; 3. Agent shall have received such documents, instruments and agreements as any Lender shall request in connection with the financing transaction contemplated by this Agreement, including all documents, instruments, agreements, and schedules listed in the Schedule of Documents, each in form and substance satisfactory to Agent; 4. Evidence satisfactory to Agent that Borrower has obtained consents, acknowledgments, registrations, licenses and approvals of all Persons from whom consents, acknowledgments, registrations, licenses and approvals may be required, including all requisite Governmental Authorities to the terms and execution of this Agreement, the Loan Documents and the consummation of the financing transaction contemplated hereby and thereby; 5. Evidence that the insurance policies provided for in SECTION 4.26 are in full force and effect, certified by the insurer thereof, together with appropriate evidence showing a loss payable clause in favor of Agent, for the benefit of each Lender; 6. Agent shall have received a fully executed lock box account agreement, in form and substance satisfactory to Agent, from the Lock Box Bank; 60 7. The Liens on the Collateral in favor of Agent, for the benefit of Lenders, shall continue to be duly perfected and shall constitute first priority Liens, subject only to the Permitted Encumbrances; 8. The absence of any pending or, to the best knowledge of Borrower, threatened litigation, proceeding, inquiry or other action seeking an injunction or other restraining order, damages or other relief with respect to the transactions contemplated by this Agreement (including the making of any Advance and the issuance of any Letter of Credit) and the Receivables Facility Documents; 9. Consummation of the Receivables Facility and receipt by Borrower from the initial funding thereunder of not less than $185,000,000 in cash pursuant to the terms of the Receivables Facility Documents and on other terms and conditions acceptable to Managing Agents and Lenders; 10. Payment by Borrower of (i) the Fees that are due and payable on the Closing Date, (ii) all interest, letter of credit fees and unused line fees under the Original Credit Agreement accrued through, but not including, the Restatement Closing Date, plus any and all reimbursable expenses or other charges payable by Borrower under the Original Credit Agreement accrued through the Restatement Closing Date, whether or not then due and payable, (iii) any LIBOR breakage fees or related costs incurred by any of the Existing Lenders, and (iv) all fees and expenses that are reimbursable pursuant to SECTION 12.2, including those of (A) GE Capital's outside counsel, Murphy, Weir & Butler, (B) BTCo's outside counsel, Dorsey & Whitney, and (C) all special loan counsel retained by Managing Agents in connection with any of the Loan Documents and the financing transaction contemplated thereby; 11. Each Person who holds either a Revolving Credit Commitment or a Term Loan Commitment immediately prior to the Restatement Closing Date (individually, an "Existing Lender" and collectively, "Existing Lenders") shall have (i) delivered to Agent each Revolving Credit Note or Term Note issued to such Existing Lender with respect to such Existing Lender's Revolving Credit Commitment or Term Loan Commitment, as the case may be, and (ii) either (A) executed this Agreement to become a Lender hereunder, or (B) executed and delivered to Agent an agreement, in form and substance satisfactory to Agent, under which such Existing Lender agrees that its Revolving Credit Commitment or Term Loan Commitment, as the case may be, shall automatically be canceled upon receipt by such Existing Lender of the applicable amounts specified in SECTION 2.20(D) and SECTION 2.20(E); and 12. Evidence that Borrower has irrevocably instructed the applicable trustee to mail irrevocable notice to the holders of the Subordinated Borrower Notes in accordance with the terms thereof that it will be redeeming all of the Subordinated Borrower Notes on and as of January 12, 1995 in accordance with the terms thereof. 13. Each issued and undrawn letter of credit under the Original Credit Agreement shall have been delivered to Agent and replaced by a Letter of Credit issued under this Agreement by BTCo, as Issuing Lender. 14. Each of the conditions set forth in SECTION 3.2(A) through SECTION 3.2(C) shall have been satisfied by Borrower as of such date. The execution of this Agreement by each Lender shall be an acknowledgement by such Lender that the conditions set forth in this SECTION 61 3.1 have been satisfied or provided for in a manner satisfactory to such Lender. 3.2 Further Conditions. It shall be a further condition to the making of ------------------ each Advance funded on or after the Restatement Closing Date and the issuance of any Letter of Credit on or after the Restatement Closing Date that the following statements shall be true on the date of each such funding of any Advance or the issuance of any Letter of Credit: 1. All of Borrower's representations and warranties contained herein or in any of the Loan Documents shall be true and correct on and as of the Restatement Closing Date and the date of each such Advance or the date of the incurrence of such Letter of Credit Obligation as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and for changes therein permitted or contemplated by this Agreement. 2. No event shall have occurred and be continuing, or would result from the funding of such Advance or incurrence of such Letter of Credit Obligation, which constitutes or would constitute a Default or Event of Default, unless the Requisite Lenders shall vote to continue making Advances or incurring Letter of Credit Obligations, as the case may be. 3. After giving effect to such Advance or such Letter of Credit Obligation, the aggregate principal amount of the Loan shall not exceed the lesser of (i) the Maximum Loan and (ii) the Borrowing Base. 4. Each of the conditions set forth in SECTION 3.1(A) through SECTION 3.1(H) shall continue to be satisfied by Borrower as of such date. The acceptance by Borrower of any Letter of Credit or the proceeds of any Advance shall be deemed to constitute, as of the date of such acceptance, (i) a representation and warranty by Borrower that the conditions in this SECTION 3.2 have been satisfied, and (ii) a confirmation by Borrower of the granting and continuance of the Liens granted to Agent, for the benefit of each Lender, pursuant to the Collateral Documents. 4. REPRESENTATIONS AND WARRANTIES ------------------------------ To induce Lenders to amend and restate the Original Credit Agreement and continue to make the Loans, as herein provided for, Borrower makes the following representations and warranties to Lenders, each and all of which shall be true and correct as of the date of execution and delivery of this Agreement, and shall survive the execution and delivery of this Agreement: 4.1 Corporate Existence; Compliance with Law. Borrower (i) is a ---------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the state of Delaware; (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iii) has 62 the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has or, by the Restatement Closing Date and at all times thereafter, will have all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its certificate of incorporation and by-laws; (vi) is in compliance with all applicable provisions of Federal, state and local laws and regulations, including those relating to environmental, licensing, FDA, DEA, ERISA and labor matters, except where the failure to comply would not have a Material Adverse Effect; and (vii) since the Original Closing Date, except as disclosed to Agent in writing, has not been assessed any fines or other penalties for controlled substances-related violations, has not received any letters of admonition or entered into any memorandum of understanding with the DEA, and has not been contacted by the United States Attorney's Office or any other Governmental Authority on any matter related to Borrower's compliance with the Controlled Substances Act (21 U.S.C. (S) (S) 801 et seq.). -- ---- 4.2 Executive Offices. The current location of Borrower's executive ----------------- offices and principal place of business is set forth in SCHEDULE 4.2. ------------ 4.3 Subsidiaries. SCHEDULE 4.3 sets forth all Subsidiaries of Borrower, ------------ ------------ together with their respective jurisdictions of organization, the authorized and outstanding capital Stock of each such Subsidiary, by class and number and percentage of each class legally owned by Borrower or a Subsidiary of Borrower or any other Person, or to be so owned by the Restatement Closing Date. There are no options, warrants, rights to purchase or similar rights covering capital Stock for any such Subsidiary. 4.4 Corporate Power; Authorization; Enforceable Obligations. The ------------------------------------------------------- execution, delivery and performance by Borrower of the Loan Documents, Ancillary Agreements and all instruments and documents to be delivered by Borrower, to the extent that it is a party thereto, hereunder and thereunder and the creation of all Liens provided for herein and therein: (i) are within Borrower's corporate power; (ii) have been duly authorized by all necessary or proper corporate action; (iii) are not in contravention of any provision of Borrower's certificate of incorporation or by-laws; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality, the violation of which would result in a Material Adverse Effect; (v) will not contravene or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower is a party or by which Borrower or any of its property is bound, the contravention or result of which would result in a Material Adverse Effect; (vi) will not result in the creation or imposition of any Lien upon any of the property of Borrower other than (A) Liens in favor of Agent, for the benefit of Lenders, all pursuant to the Loan Documents, and (B) Liens granted pursuant to the Receivables Facility Documents; and (vii) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in SECTION 3.1(D), all of which will have been duly obtained, made or complied with prior to the Restatement Closing Date. At or prior to the Restatement Closing Date, each of the Loan Documents 63 shall have been duly executed and delivered for the benefit of or on behalf of Borrower and each shall then constitute a legal, valid and binding obligation of Borrower, to the extent it is a party thereto (assuming due authorization, execution and delivery by all other parties thereto), enforceable against it in accordance with its terms. 4.5 Solvency. Borrower is Solvent as of the Restatement Closing Date and -------- will be Solvent as of the date of and after giving effect to the redemption of the Subordinated Borrower Notes and the payment of all estimated legal, accounting and other fees related hereto and thereto. As of the date of any acquisition permitted under SECTION 7.1, each of Borrower and its Subsidiaries (including any newly created or acquired Subsidiary) will be Solvent. 4.6 Financial Statements. -------------------- 1. The pro forma balance sheet of Borrower as of the Restatement Closing Date, a copy of which has been furnished to Lenders prior to the date of this Agreement, has been prepared in accordance with GAAP and based on the unaudited balance sheet of Borrower as of September 30, 1994, adjusted as if the redemption of the Subordinated Borrower Notes and the financing and servicing transactions contemplated by this Agreement and the Receivables Facility Documents had occurred as of the date of such balance sheet and presents fairly in all material respects on a pro forma basis the financial position of Borrower at such date assuming the financing and servicing transactions had actually occurred on such date. 2. All of the following balance sheets and statements of income, retained earnings and cash flows of Borrower, copies of which have been furnished to Lenders prior to the date of this Agreement, have been, except as noted therein, prepared in conformity with GAAP consistently applied throughout the periods involved and present fairly in all material respects the financial position of Borrower as at the date thereof, and the results of operations and cash flows for the periods then ended (as to the unaudited interim financial statements, subject to inclusion of footnotes and normal year-end audit adjustments): a. the unaudited balance sheet of Borrower as at September 30, 1994, and the related statements of income and cash flows for the portion of the Fiscal Year then elapsed, certified by Borrower's chief financial officer as having been prepared in conformity with GAAP consistently applied throughout the periods involved and present fairly in all material respects the financial position of Borrower as at the date thereof; and b. the audited balance sheet of Borrower as of September 30, 1993, and the related statements of income, retained earnings and cash flows for the year then ended, with the opinion thereon of the Auditors. 3. As of the Restatement Closing Date, since September 30, 1993: (i) Borrower has not incurred any obligations, contingent liabilities, or liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the pro forma balance sheet of Borrower and which would, alone or in the aggregate, have a Material Adverse Effect; provided, that (x) adverse changes in the value of Collateral, and (y) adverse - - - -------- changes in the financial condition of Borrower that affect or will affect the calculations made under the Financial Covenants, but do not create and would 64 not reasonably be expected to create a breach or default under any of the Financial Covenants, shall not be deemed to have had a Material Adverse Effect; (ii) there has been no change in the business, assets, operations, prospects or financial or other condition of Borrower taken as a whole which would have a Material Adverse Effect; and (iii) no dividends, advances or other such distributions have been declared, paid or made upon any shares of capital Stock of Borrower, and no shares of capital Stock of Borrower have been redeemed, retired, purchased or otherwise acquired for value by Borrower; except as set forth on SCHEDULE 4.6. ------------ 4.7 Projections. The projections of Borrower's annual operating budgets, ----------- balance sheets and cash flow statements, which include projected tax payments and reconciliations of tax payments for the preceding calendar year, (a) for the Fiscal Year ending September 30, 1995 on a monthly basis and (b) for the Fiscal Years ending September 30, 1996, September 30, 1997, September 30, 1998, September 30, 1999 and September 30, 2000 on an annual basis (the "Projections"), copies of which have been delivered to Lenders, disclose all material assumptions, other than general economic conditions. As of the Restatement Closing Date, no material facts exist which would result in any material adverse change in any of such Projections, other than general economic conditions. The Projections are based upon reasonable estimates and assumptions, all of which are fair in light of conditions as of the Restatement Closing Date, have been prepared on the basis of the assumptions stated therein, and reflect the reasonable estimate of Borrower of the results of operations and other information projected therein. 4.8 Ownership of Property; Liens. ---------------------------- 1. Borrower owns good and marketable fee simple title to all of its real estate, valid and marketable leasehold interests in all of its Leases, and good and marketable title to, or valid leasehold interests in, all of its other properties and assets, and none of the properties and assets of Borrower are subject to any Liens, except (i) Permitted Encumbrances and (ii) the Liens in favor of Agent, for the benefit of Lenders, pursuant to the Collateral Documents; and Borrower has received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and duly effected all recordings, filings and other actions necessary to establish, protect and perfect Borrower's right, title and interest in and to all such property except where the failure to have received such documents or effected such actions will not, in the aggregate, have a Material Adverse Effect. 2. All real property owned or leased by Borrower is set forth on SCHEDULE 4.8. Borrower does not own any other real property, and Borrower is - - - ------------ not the lessee or lessor under any Leases, other than as set forth on SCHEDULE -------- 4.8. Neither Borrower nor any other party to any such Lease (i) is in default - - - --- of its obligations thereunder or (ii) has delivered or received any notice of default under any such Lease, and no event has occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such Lease, except, in each case, for any default which would not have a Material Adverse Effect. 3. As of the Restatement Closing Date, Borrower does not own or hold, and is not obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or 65 dispose of any real property owned or leased by Borrower except as set forth in SCHEDULE 4.8. - - - ------------ 4. All material permits required to have been issued or appropriate to enable the real property owned or leased by Borrower, other than the Unoccupied Property, to be lawfully occupied and used for all of the purposes for which they are currently occupied and used, have been lawfully issued and are, as of the Restatement Closing Date, in full force and effect. 5. Except as disclosed in writing to Agent, Borrower has not received any notice, and does not have any knowledge, of any pending, threatened or contemplated condemnation proceeding affecting any real property owned or leased by Borrower or any part thereof, other than the Unoccupied Property, or of any sale or other disposition of any real property owned or leased by Borrower or any part thereof, other than the Unoccupied Property, in lieu of condemnation. 6. No portion of any real property owned or leased by Borrower, other than the Unoccupied Property, has suffered any material damage by fire or other casualty loss which has not heretofore been completely repaired and restored to its original condition or is being remedied, except as set forth in SCHEDULE -------- 4.8. No portion of any real property owned or leased by Borrower is located in - - - --- a special flood hazard area as designated by any Federal or other Governmental Authority. 4.9 No Default. To Borrower's knowledge, Parent is not in default (not ---------- otherwise cured or waived) under the Subordinated Parent Notes. To Borrower's knowledge, no Liquidation Event has occurred under the Receivables Facility Documents. Borrower is not in default in any material respect, and to Borrower's knowledge no third party is in default in any material respect, under or with respect to any material contract, agreement, lease, or other instrument to which Borrower is a party. No Event of Default has occurred and is continuing. 4.10 Burdensome Restrictions. No contract, lease, agreement or other ----------------------- instrument to which Borrower is a party or is bound and no provision of applicable law or governmental regulation has a Material Adverse Effect, or insofar as Borrower can reasonably foresee may have a Material Adverse Effect. 4.11 Labor Matters. There are no strikes or other labor disputes against ------------- Borrower that are pending or, to Borrower's knowledge, threatened, which would have a Material Adverse Effect. Hours worked by and payment made to employees of Borrower have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which would have a Material Adverse Effect. All payments due from Borrower on account of employee health and welfare insurance which would have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of Borrower. As of the Restatement Closing Date, there is no organizing activity involving Borrower pending or threatened by any labor union or group of employees. As of the Restatement Closing Date, there are no representation proceedings pending or threatened with the National Labor Relations Board, and no labor organization or group of employees of Borrower has made a pending demand for recognition. As of the Restatement Closing Date, there are no complaints or charges against Borrower pending or, to Borrower's knowledge, threatened to be filed with any Federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of 66 employment by Borrower of any individual, which would have a Material Adverse Effect. Borrower is in compliance in all material respects with all applicable affirmative action laws and similar requirements. 4.12 Other Ventures. Except as disclosed on SCHEDULE 4.12, Borrower is not -------------- ------------- engaged in any joint venture (other than joint ventures permitted by SECTION 7.1 that are disclosed to Agent and Lenders in writing) or partnership with any other Person. 4.13 Investment Company Act. Borrower is not an "investment company" or an ---------------------- "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. The making of the Loans by Lenders, the application of the proceeds and repayment thereof by Borrower and the consummation of the financing and servicing transactions contemplated by this Agreement, the other Loan Documents and the Ancillary Agreements will not violate any provision of such Act or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. 4.14 Margin Regulations. Borrower does not own any "margin security", as ------------------ that term is defined in Regulations G and U of the Federal Reserve Board, and the proceeds of the Loans will be used only for the purposes contemplated hereunder. The Loans will not be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security, or for any other purpose which might cause any Loan to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Federal Reserve Board. Borrower will not take or permit any agent acting on its behalf to take any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. 4.15 Taxes. All Federal, state, local and foreign tax returns, reports and ----- statements required to be filed by Borrower, its Subsidiaries and Parent have been filed with the appropriate Governmental Authority and all Charges and other impositions shown thereon to be due and payable have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. Each of Borrower, its Subsidiaries and Parent has paid when due and payable all Charges required to be paid by it, except for amounts that are being contested in good faith and for which an adequate Reserve has been established. Proper and accurate amounts have been withheld by Borrower, its Subsidiaries and Parent from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable Federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies, except for such amounts as would not have a Material Adverse Effect. SCHEDULE 4.15 sets forth ------------- those taxable years for which Borrower's or Parent's tax returns are currently being audited by the IRS or any other applicable Governmental Authority. Except as disclosed on SCHEDULE 4.15, Borrower has not executed or filed with the IR ------------- or any other Governmental Authority any agreement or other document that has a continuing effect on Borrower, extending, or having the effect of extending, the period for assessment or collection of any Charges or any taxes owed by Borrower with respect to its corporate income. Borrower has not filed a 67 consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None of the property owned by Borrower is property which Borrower is required to treat as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). Except as disclosed on SCHEDULE 4.15, Borrower has not agreed or been requested to make ------------- any adjustment under IRC Section 481(a) that has a continuing effect on Borrower, by reason of a change in accounting method or otherwise. Borrower does not have any obligation under any tax sharing agreement. 4.16 ERISA. ----- 1. SCHEDULE 4.16 lists all Plans of Borrower and all Title IV Plans, ------------- Qualified Plans, and Multiemployer Plans of Borrower's ERISA Affiliates, and separately identifies the Title IV Plans, Qualified Plans, Multiemployer Plans, any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension Plans, Welfare Plans, and Retiree Welfare Plans. 2. With respect to each Qualified Plan of Borrower that was adopted before January 1, 1988, either (i) the IRS has issued a favorable determination letter indicating the IRS's opinion that such Qualified Plan qualifies under Section 401(a) of the IRC, or (b) a determination letter application has been properly and timely submitted to the IRS and such submission is being processed by the IRS, and Borrower has no reason to believe that an adverse determination may be made by the IRS in connection with such submission. In the case of any Qualified Plan adopted by Borrower on or after January 1, 1988, either (i) a favorable determination letter has been received from the IRS with respect to the qualification of such Qualified Plan under Section 401(a) of the IRC, or (ii) such a determination letter has been properly and timely applied for and Borrower has no reason to believe that an adverse determination will be issued by the IRS in connection with such submission, or (iii) the deadline for timely submitting such Qualified Plan to the IRS for a favorable determination letter on its initial qualification has not yet passed and Borrower has no reason to believe that such Qualified Plan will not be timely submitted for such a determination. 3. Each Plan of Borrower is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the filing of reports required under the IRC or ERISA which are true and correct in all material respects as of the date filed, and with respect to each Plan of Borrower, other than a Qualified Plan of Borrower, all required contributions and benefits have been paid in material compliance with the provisions of each such Plan of Borrower. 4. Neither Borrower nor any ERISA Affiliate, with respect to any Qualified Plan, has failed to make any contribution or pay any amount due as required by Section 412 of the IRC or Section 302 of ERISA or the terms of any such plan, which failure was not corrected within 30 days. 5. As of the Restatement Closing Date, the Potential Withdrawal Liability of Borrower and its ERISA Affiliates, in the aggregate, would not have a Material Adverse Effect if incurred on such date. 68 6. Borrower's annual contribution obligation associated with each Retiree Welfare Plan does not have, and would not reasonably be expected to have during the term of this Agreement, a Material Adverse Effect. 7. Except as set forth on SCHEDULE 4.16, no ERISA Event or event ------------- described in Section 4062(e) of ERISA with respect to any Title IV Plan of Borrower or any ERISA Affiliate has occurred that could reasonably be expected to have a Material Adverse Effect. 8. There are no pending or, to the knowledge of Borrower, threatened claims, actions or lawsuits (other than claims for benefits in the normal course), asserted or instituted against (i) any Plan of Borrower or any ERISA Affiliate or its assets, (ii) any fiduciary with respect to any Plan of Borrower or any ERISA Affiliate, or (iii) Borrower or any ERISA Affiliate with respect to any Plan of Borrower or any ERISA Affiliate, which, in any such case, if decided adversely to Borrower or any ERISA Affiliate, would have a Material Adverse Effect. 9. Except as set forth on SCHEDULE 4.16, neither Borrower nor any ------------- ERISA Affiliate has incurred or reasonably expects to incur any withdrawal liability in an amount that would have a Material Adverse Effect (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 of ERISA as a result of a complete or partial withdrawal from a Multiemployer Plan. 10. Except as set forth in SCHEDULE 4.16, within the last five years ------------- neither Borrower nor any ERISA Affiliate has engaged in a transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities being transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any such entity, except where the amount of such Unfunded Pension Liabilities would not result in a Material Adverse Effect if Borrower or any ERISA Affiliate were required to fund such liabilities. 11. Except as set forth on SCHEDULE 4.16, no Retiree Welfare Plan of ------------- Borrower or any ERISA Affiliate provides for continuing benefits or coverage for any participant or any beneficiary of a participant after such participant's termination of employment which would result in a liability in an amount which would have a Material Adverse Effect. Borrower has complied with the notice and continuation coverage requirements of Section 4980B of the IRC and the regulations thereunder except where the failure to comply would not result in any Material Adverse Effect. 12. Borrower has not engaged in a prohibited transaction, as defined in Section 4975 of the IRC or Section 406 of ERISA, in connection with any of its Plans, which would subject Borrower (after giving effect to any exemption) to a tax on prohibited transactions imposed by Section 4975 of the IRC or any other liability that would have a Material Adverse Effect. 13. The aggregate amount of all existing liabilities under all pension plans within the meaning of Section 3(2) of ERISA that are or were intended to be qualified under Section 401(a) of the IRC that are currently or were formerly sponsored by Borrower or any ERISA Affiliate and that are funded or were satisfied with general account obligations of insurance companies whose general account obligations are rated lower than AA by Standard & Poor's Corporation does not exceed $30,000,000, and of that amount, the portion rated lower than BBB by Standard & Poor's Corporation does not exceed $10,000,000. 69 4.17 No Litigation. Except as set forth on SCHEDULE 4.17, no action, claim ------------- ------------- or proceeding is now pending or, to the knowledge of Borrower, threatened against Borrower, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any Federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, which is likely to have a Material Adverse Effect if adversely determined. None of the matters set forth in SCHEDULE 4.17 questions the validity of any of the Loan ------------- Documents or other Ancillary Agreements or any action taken or to be taken pursuant thereto, or would have either individually or in the aggregate a Material Adverse Effect. 4.18 Brokers. No broker or finder acting on behalf of Borrower brought ------- about the obtaining, making or closing of the loans made pursuant to this Agreement or the financing transaction contemplated by the Loan Documents and the Ancillary Agreements and Borrower has no obligation to any Person in respect of any finder's or brokerage fees in connection therewith. 4.19 Ancillary Agreements. A true and complete copy of each of the -------------------- Ancillary Agreements (including all exhibits, schedules and amendments thereto) will be delivered to Agent on the Restatement Closing Date. Borrower is not in default under the Ancillary Agreements or under any instrument or document to be delivered in connection therewith. The representations and warranties made in the Ancillary Agreements by Borrower or its Affiliates which are parties thereto will be true and correct in all material respects (except for changes expressly provided for therein or herein) on and as of the Restatement Closing Date as though made on and as of such date. 4.20 Outstanding Stock; Options; Warrants, Etc. The Stock of Borrower ------------------------------------------ owned by Parent at the Restatement Closing Date constitutes all of the issued and outstanding Stock of Borrower. As of the Restatement Closing Date, the Stockholders of Parent named in SCHEDULE 4.20 own all of the issued and ------------- outstanding Stock of Parent. Except as set forth in SCHEDULE 4.20 and except as ------------- permitted under this Agreement, there are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which Borrower or Parent may be required to issue or sell any such Stock or other equity security. 4.21 Employment and Labor Agreements. As of the Restatement Closing Date, ------------------------------- except as set forth on SCHEDULE 4.21, there are no (i) employment, consulting or ------------- management agreements covering management of Borrower, (ii) management agreements between Borrower and VPI, and (iii) collective bargaining agreements or other labor agreements covering any employees of Borrower. A true and complete copy of each agreement listed on SCHEDULE 4.21 has been furnished to ------------- Agent. 4.22 Patents, Trademarks, Copyrights and Licenses. Borrower owns all -------------------------------------------- material licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, and trade names necessary to continue to conduct its business as heretofore conducted by it, now conducted by it and proposed to be conducted by it, each of which is listed, together with Patent 70 and Trademark Office application or registration numbers, where applicable, on SCHEDULE 4.22. Borrower conducts its business without infringement or claim of - - - ------------- infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others, except where such infringement or claim of infringement would not have a Material Adverse Effect. There is no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of Borrower, except where such infringement or claim of infringement would not have a Material Adverse Effect. 4.23 Full Disclosure. No information contained in this Agreement and the --------------- other Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which made. The written statements delivered by Borrower to Agent and Managing Agents in connection with Agent's and Managing Agents' due diligence and audit investigations do not contain any untrue statement of material fact. 4.24 Liens. The Liens granted to Agent, for the benefit of Lenders, ----- pursuant to the Collateral Documents will, at the Restatement Closing Date, be fully perfected first priority Liens in and to the Collateral described therein, except for Permitted Encumbrances and as provided in the Collateral Documents. 4.25 Hazardous Materials. Except as set forth on SCHEDULE 4.25, to ------------------- ------------- Borrower's knowledge without independent investigation, all Subject Property is free of contamination from any Hazardous Material which has in the past caused or constituted, or reasonably could be expected at any time in the future to cause or constitute, a health, safety, or environmental hazard to any Person or property or which could subject Borrower to any Environmental Liabilities and Costs in excess of $2,000,000 in any one instance or $6,000,000 in the aggregate. In addition, SCHEDULE 4.25 discloses potential environmental ------------- liabilities of Borrower of which Borrower has knowledge (i) not related to noncompliance with the Environmental Laws or (ii) associated with properties not owned, leased, subleased or operated by Borrower, which liabilities would have a Material Adverse Effect. Except as disclosed on SCHEDULE 4.25, Borrower has not ------------- caused or, to Borrower's knowledge, suffered to occur any Release or threatened Release of Hazardous Materials in violation of, or which could form the basis of liabilities under, the Environmental Laws at, under, or within any Subject Property, where such violation or liabilities would have a Material Adverse Effect. Except as disclosed on SCHEDULE 4.25, Borrower has remedied those items ------------- of noncompliance with the Environmental Laws identified in the Preliminary Site Evaluation reports prepared by Haley & Aldrich Inc. for Borrower and dated December 1992. Borrower is not involved in operations which could lead to the imposition of any liability or Lien on it, or any owner of any premises which it occupies, under the Environmental Laws, which liability or Lien would have a Material Adverse Effect, and Borrower has not permitted any tenant or occupant of such premises to engage in any such activity. As of the Restatement Closing Date, except as disclosed on SCHEDULE 4.25, and after the Restatement Closing ------------- Date, except as disclosed in writing to Agent, Borrower has not received any written notice, complaint or order from any Governmental Authority or any written complaint from any third party relating to Hazardous Materials or environmental problems, impairments or 71 liabilities with respect to the operation or management of the Subject Property. 4.26 Insurance Policies. SCHEDULE 4.26 lists all insurance of any nature ------------------ ------------- maintained for current occurrences by Borrower, as well as a summary of the terms of such insurance. The insurance policies maintained by Borrower provide for, among other things, the following insurance coverage: 1. "All Risk" physical damage insurance on Borrower's tangible real and personal property and assets, including Borrower's Inventory, fixtures and equipment, wherever located, covering fire and extended coverage, flood, earthquake, environmental, theft, burglary, explosion, collapse, and all other hazards and risks ordinarily insured against by companies engaged in the pharmaceutical distribution business. Each policy of insurance on such real and personal property contains an endorsement, in form and substance acceptable to Agent, showing loss payable to Agent, for the benefit of Lenders (Form 438 BFU), and extra expense and business interruption endorsements. Such endorsement, or an independent instrument furnished to Agent, provides that the insurance companies will give Agent at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered, canceled or not renewed and that no act or default of Borrower or any other Person shall affect the right of Lenders to recover under such policy or policies of insurance in case of loss or damage; 2. comprehensive general liability insurance on an "occurrence basis" against claims for personal injury, bodily injury and property damage with a minimum limit of $1,000,000 per occurrence and $2,000,000 in the aggregate. Such coverage includes premises/operations, broad form contractual liability, underground, explosion and collapse hazard, independent contractors, broad form property coverage, products and completed operations liability; 3. statutory limits of worker's compensation insurance which includes employee's occupational disease and employer's liability in the amount of $500,000 for each accident or occurrence; 4. automobile liability insurance for all owned, non-owned or hired automobiles against claims for personal injury, bodily injury and property damage with a minimum combined single limit of $1,000,000 per occurrence; and 5. umbrella insurance of $20,000,000 per occurrence and $20,000,000 in the aggregate. All of such policies are in full force and effect and with insurers that satisfy the provisions of SECTION 6.6. Each insurance policy contains a clause which provides that the interest of Agent, for the benefit of Lenders, under such policy shall not be invalidated by any act or omission to act of, or any breach of warranty by, the insured, or by any change in the title, ownership or possession of the insured property, or by the use of the property for purposes more hazardous than is permitted in such policy. Each policy of liability insurance described above contains an endorsement, in form and substance acceptable to Agent, naming Agent as additional insured with respect to the properties and operations of Borrower. Borrower has delivered to Agent a certificate of insurance that evidences the existence of each policy of insurance, along with evidence of payment of all premiums therefor. 72 4.27 Bank Accounts. SCHEDULE 4.27 lists all banks and other financial ------------- ------------- institutions at which Borrower, any of its Subsidiaries (including Receivables Corporation) or Receivables Trust maintains deposits or other accounts, including the Lock Box Account, and such Schedule correctly identifies the name, address and telephone number of the bank or other financial institution at which each such account is held, the name in which the account is held, a description of the purpose of the account, and the complete account number. 4.28 Inventory. Except as specifically disclosed on any Schedule of --------- Inventory provided to Agent and Lenders by Borrower under this Agreement or otherwise disclosed to and acknowledged by Agent and Lenders in writing with respect to Inventory of Borrower: 1. Agent and Lenders may rely upon all statements, warranties, or representations made in any Schedule of Inventory in determining which items of Inventory listed on such Schedule of Inventory are to be deemed Eligible Inventory; 2. All Inventory is located on the premises listed on Schedule III of the Security Agreement; 3. No Inventory is subject to any lien or security interest whatsoever, except for Liens in favor of Agent, for the benefit of each Lender, granted under the Collateral Documents, and Permitted Encumbrances; 4. Except as specified on Schedule III of the Security Agreement or as notified in writing to Agent, no Inventory is stored with a bailee, warehouseman, or similar party; and 5. No Inventory has been consigned to any Person. 4.29 Indebtedness. Borrower has no Indebtedness, except for Permitted ------------ Indebtedness and as permitted by SECTION 7.3. To the extent that Borrower acquires or forms any New Subsidiary in accordance with the provisions of this Agreement, Borrower shall make, from and after the date of such acquisition or formation, each of the representations and warranties set forth in this SECTION 4 with respect to such New Subsidiary. 5. FINANCIAL STATEMENTS AND INFORMATION ------------------------------------ 5.1 Reports and Notices. Borrower covenants and agrees that from and ------------------- after the Restatement Closing Date and until the Commitment Termination Date, it shall deliver to each Lender and Agent: 1. Within 30 days after the end of each Fiscal Month, a Borrowing Base Certificate together with a copy of a Schedule of Inventory as of the end of such Fiscal Month; provided, that if at any time the amount by which the -------- Borrowing Base exceeds the sum of the outstanding Advances and Letter of Credit Obligations is less than $40,000,000, Agent may require that 73 Borrower provide a current Borrowing Base Certificate as frequently as Agent may request. 2. Within 30 days after the end of each Fiscal Month (i) a copy of the unaudited balance sheets of Borrower, on a Consolidated and consolidating basis, and the Consolidated Borrower Group as of the end of such Fiscal Month and the related unaudited statements of income and cash flow for that portion of the Fiscal Year ending as of the end of such Fiscal Month, and (ii) a copy of the unaudited statements of income and cash flow of Borrower, on a Consolidated and consolidating basis, and the Consolidated Borrower Group for such Fiscal Month, each prepared in accordance with Borrower's past practices for internal reporting and consistent with the form used for the Projections, setting forth in comparative form in each case (A) the previously projected figures for such period and (B) the figures from the same period for the immediately prior Fiscal Year, and accompanied by the certification of the chief executive officer, chief accounting officer, or chief financial officer of Borrower that all such financial statements are, to his or her knowledge, after due inquiry, complete and correct and present fairly in accordance with Borrower's past practices for internal reporting and consistent with the form used for the Projections, the financial position and the results of operations of Borrower, on a Consolidated and consolidating basis, and the Consolidated Borrower Group as at the end of such Fiscal Month and for the period then ended. 74 3. Within 45 days after the end of each Fiscal Quarter (other than, at any time after there has been a public offering of Borrower's Stock, for any Fiscal Quarter ending September 30), (i) a copy of the unaudited balance sheets of Borrower, on a Consolidated and consolidating basis, the Consolidated Borrower Group, and Parent and its Subsidiaries, on a consolidated basis, as of the end of such Fiscal Quarter and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the end of such Fiscal Quarter, (ii) a copy of the unaudited statements of income and cash flow of Borrower, on a Consolidated and consolidating basis, the Consolidated Borrower Group, and Parent and its Subsidiaries, on a consolidated basis, for such Fiscal Quarter, and a management letter, each prepared in accordance with GAAP (subject to normal year end adjustments and the inclusion of footnotes), setting forth in comparative form in each case (A) the previously projected figures for such period and (B) the figures from the same period for the immediately prior Fiscal Year, accompanied by (I) a statement in reasonable detail showing (x) the calculations used in determining Borrower's compliance with the Financial Covenants and calculations of the Interest Coverage Ratio and Total Debt to EBITDA Ratio, and (y) the calculations used in determining the amounts added to the Dividend/Acquisition Basket, together with a summary of each transaction (including the Acquisition Purchase Price for such transaction), in which amounts from the Dividend/Acquisition Basket were utilized, and (II) the certification of the chief executive officer, chief accounting officer, or chief financial officer of Borrower that all such financial statements are, to his or her knowledge, after due inquiry, complete and correct and present fairly in accordance with GAAP (subject to normal year end adjustments and the inclusion of footnotes), the financial position and the results of operations of Borrower, on a Consolidated and consolidating basis, and the Consolidated Borrower Group as at the end of such Fiscal Quarter and for the period then ended, and specifying whether, to his or her knowledge, after due inquiry, there was any Default or Event of Default in existence as of such time, (iii) if the generally accepted accounting principles in the United States of America as adopted by Borrower at any time differ from the generally accepted accounting principles in the United States of America as adopted by Borrower on September 30, 1994, then a written statement from the chief executive officer, chief accounting officer, or chief financial officer of Borrower setting forth the changes, if any, that would have resulted to the calculations described in clause (ii)(B)(I) of this SECTION 5.1(C) if the financial statements described in this SECTION 5.1(C) had been prepared without giving effect to such accounting change, and (iv) a statement reconciling Borrower's internally-prepared monthly financial statements with the quarterly reports filed by Borrower with the Securities and Exchange Commission. (d) Within 90 days after the close of each Fiscal Year, a copy of the annual audited financial statements of each of Borrower, on a Consolidated and consolidating basis, the Consolidated Borrower Group, and Parent and its Subsidiaries, on a consolidated basis, respectively, consisting of balance sheet and statements of income, retained earnings and cash flow, setting forth in comparative form in each case the figures for the previous Fiscal Year, which financial statements shall be prepared in accordance with GAAP, certified without qualification by the Auditors and accompanied by (i) a statement in reasonable detail showing the calculations used in determining Borrower's compliance with the Financial Covenants and calculations of the Interest Coverage Ratio and Total Debt to EBITDA Ratio, (ii) a report from the Auditors to the effect that in connection with their audit examination, nothing has come to their attention to cause them to believe that a Default or Event of Default had occurred, (iii) a certification of the chief executive 75 officer, chief accounting officer, or chief financial officer of Borrower that, to his or her knowledge, after due inquiry, all such financial statements are complete and correct and present fairly in accordance with GAAP the financial position, the results of operations and the changes in financial position of Borrower, on a Consolidated and consolidating basis, and the Consolidated Borrower Group as at the end of such Fiscal Year and for the period then ended and specifying whether, to his or her knowledge, after due inquiry, there was any Default or Event of Default in existence as of such time, and (iv) if the generally accepted accounting principles in the United States of America as adopted by Borrower at any time differ from the generally accepted accounting principles in the United States of America as adopted by Borrower on September 30, 1994, then a written statement from the chief executive officer, chief accounting officer, or chief financial officer of Borrower setting forth the changes, if any, that would have resulted to the calculations described in clause (i) of this SECTION 5.1(D) if the financial statements described in this SECTION 5.1(D) had been prepared without giving effect to such accounting change. 5. Within 45 days after the end of any Fiscal Quarter ending September 30 (at any time after there has been a public offering of Borrower's Stock), a statement in reasonable detail showing the calculations used in determining the amounts added to the Dividend/Acquisition Basket, together with a summary of each transaction (including the Acquisition Purchase Price for such transaction), in which amounts from the Dividend Acquisition were utilized and, if the generally accepted accounting principles in the United States of America as adopted by Borrower at any time differ from the generally accepted accounting principles in the United States of America as adopted by Borrower on September 30, 1994, a written statement from the chief executive officer, chief accounting officer, or chief financial officer of Borrower setting forth the changes, if any, that would have resulted to the calculations described in this SECTION 5.1(E) if the financial statement described in this SECTION 5.1(E) had been prepared without giving effect to such accounting change. 6. Not later than 45 days after the beginning of each Fiscal Year, an operating plan for Borrower for such Fiscal Year, reviewed by Borrower's board of directors which includes the following: (a) projected balance sheet of Borrower for such Fiscal Year, on a monthly basis; (b) projected cash flow statements of Borrower, including summary details of cash disbursements, including for Capital Expenditures for such Fiscal Year, on a monthly basis; and (c) projected income statements of Borrower for such Fiscal Year, on a monthly basis; together with a description of major assumptions used in generating such balance sheet, cash flow and income statements, and operating plan, and other appropriate supporting details as requested by Agent. 7. As soon as practicable, but in any event within five (5) Business Days after Borrower becomes aware of (i) the existence of any Default or Event of Default, or (ii) any development or other information which is likely to have a Material Adverse Effect, written notice specifying 76 the nature of such Default, Event of Default, development, or information and describing the anticipated effect thereof. 8. Promptly after the filing thereof, copies of any regular, periodic and special material reports and any initial and final registration statements which are filed by Borrower or Parent with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or any national securities exchange. 9. Such other information respecting the Collateral and Borrower's business, financial condition or prospects as Agent may, from time to time, reasonably request. 5.2 Additional Reports and Notices. In addition to the reports and ------------------------------ notices described in SECTION 5.1(A) to be sent to each Lender and Agent, Borrower covenants and agrees that from and after the Restatement Closing Date and until the Commitment Termination Date: 1. If Agent so requests, Borrower shall make available for review or inspection by an agent, designee or other representative of Agent, at Borrower's expense, copies of any Federal, state, local or foreign tax return or report in respect of income or other taxes on or measured by income (excluding sales, use or like taxes) filed by Borrower; 2. Upon becoming aware of any material adverse change, in the aggregate, in the payment or credit terms provided to Borrower by any of the 15 largest suppliers of Inventory to Borrower (measured by the Dollar amount of Borrower's purchases during the immediately preceding Fiscal Quarter), Borrower shall deliver to Agent notice of such change; and 3. Borrower shall deliver to Agent such other information respecting the Collateral, and Borrower's business, financial condition, or prospects as Agent may, from time to time, reasonably request. 5.3 Communication with Accountants. Borrower authorizes Agent to ------------------------------ communicate directly with its Auditors and Tax Advisors and authorizes the Auditors and Tax Advisors to disclose to Agent any and all financial statements and other supporting financial documents and schedules, including copies of any management letter with respect to the business, financial condition and other affairs of Borrower. At or before the Restatement Closing Date, Borrower and Parent shall deliver a letter addressed to the Auditors and Tax Advisors in the form of EXHIBIT H, which letter shall provide that (a) the Auditors are --------- authorized and directed to disclose to Agent, Lenders and their respective representatives any and all financial statements and other supporting documents and schedules, and (b) Agent and Lenders will be relying on the financial statements of Borrower and Parent certified by the Auditors for the Fiscal Year ending September 30, 1995. On or before the end of each Fiscal Year after the Fiscal Year ending September 30, 1995, Borrower shall deliver a letter addressed to the Auditors in the form of EXHIBIT H, which letter shall provide, among --------- other items, that the Auditors authorize Agent and Lenders to rely on the financial statements of Borrower and Parent certified by the Auditors for such Fiscal Year, and promptly upon the engagement of new Auditors, Borrower shall deliver a letter addressed to such new Auditors satisfying the requirements of clauses (a) and (b) above. Borrower shall (x) at or before the time of its engagement of the Auditors for 77 its Fiscal Year ending September 30, 1995, and at or before the time of its engagement of the Auditors for each subsequent Fiscal Year, obtain and deliver to Agent a letter from such Auditors authorizing Agent and Lenders to rely on the financial statements of Borrower and Parent certified by such Auditors for such Fiscal Year, and (y) cooperate with Agent and comply with Agent's requests to cause such Auditors to meet with Agent to discuss such financial statements and matters relating thereto. 6. AFFIRMATIVE COVENANTS --------------------- Borrower covenants and agrees that, unless the Requisite Lenders shall otherwise consent in writing, from and after the date hereof and until the Termination Date: 6.1 Maintenance of Existence and Conduct of Business. Borrower shall, and ------------------------------------------------ shall cause each of its Subsidiaries and Parent to: (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its trademarks and trade names, and preserve all the remainder of its property, to the extent useful in the conduct of its business, and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear), and from time to time make, or cause to be made, all needful and proper repairs, renewals and replacements, betterments and improvements thereto consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; and (d) with respect to Borrower, transact business only in such names set forth on SCHEDULE 6.1, or such other ------------ names as Borrower shall specify to Agent in writing not less than 30 days prior to the first date such name is used by Borrower. 6.2 Payment of Obligations. ---------------------- 1. Borrower shall: (i) pay and discharge or cause to be paid and discharged all its Indebtedness in accordance with the terms thereof, including all the Obligations; and (ii) subject to SECTION 6.2(B), pay and discharge or cause to be paid and discharged promptly all (A) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed), and (B) lawful claims for labor, materials, supplies and services or otherwise before any thereof shall become in default. 2. Borrower may in good faith contest, by proper legal actions or proceedings, the validity or amount of any Charges or claims arising under SECTION 6.2(A)(II); provided, that at the time of commencement of any such -------- action or proceeding, and during the pendency thereof (i) no Default or Event of Default shall have occurred and be continuing, (ii) adequate Reserves with respect thereto are maintained on the books of Borrower, in accordance with GAAP, (iii) such contest operates to suspend collection of the contested Charges or claims and is maintained and prosecuted continuously with diligence, (iv) Borrower shall promptly pay or discharge such contested Charges and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely 78 to Borrower, and (v) if such action or proceeding involves an amount in excess of $1,000,000, Borrower has provided notice to Agent of such action or proceeding, and Agent has not advised Borrower in writing that Agent reasonably believes that nonpayment or nondischarge thereof would have a Material Adverse Effect. 3. Notwithstanding anything to the contrary contained in SECTION 6.2(B) above, Borrower shall have the right to pay the Charges or claims arising under SECTION 6.2(A)(II) and in good faith contest, by proper legal actions or proceedings, the validity or amount of such Charges or claims. 6.3 Agent's and Lenders' Fees. Other than as provided for in SECTION ------------------------- 3.1(H), Borrower shall pay to Agent, Managing Agents, Issuing Lender or any Lender, as the case may be, within 10 Business Days after receipt of an invoice therefor, which shall be conclusive absent manifest error, any and all fees, costs or expenses reimbursable to Agent, Managing Agents, Issuing Lender or such Lender under this Agreement or the other Loan Documents. 6.4 Books and Records. Borrower shall keep, and shall cause each of its ----------------- Subsidiaries and Parent to keep, adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of its financial transactions, are made in accordance with GAAP and on a basis consistent with the Financials referred to in SECTION 4.6(B), except as may be required by changes in GAAP after the date of such Financials. 6.5 Litigation. Borrower shall notify Agent in writing, promptly upon ---------- learning thereof, of any litigation commenced or threatened against Borrower, its Subsidiaries or Parent, and of the institution against it of any suit or administrative proceeding that (a) involves an amount claimed in excess of $1,000,000, or (b) is likely to have a Material Adverse Effect if adversely determined. 6.6 Insurance. --------- 1. Borrower shall, at its sole cost and expense, maintain the policies of insurance described in SECTION 4.26 with insurers with an A.M. Best rating of "A-" or better, and all such policies shall be in such amounts and in form as may be reasonably satisfactory to Agent. In addition, Borrower shall notify Agent promptly of any occurrence causing a material loss or decline in value of any real or personal property and the estimated (or actual, if available) amount of such loss or decline. Borrower hereby directs all present and future insurers under its "All Risk" policies of insurance, upon the occurrence and during the continuance of an Event of Default, to pay all proceeds payable thereunder directly to Agent, subject to the rights, if any, of any holders of Permitted Encumbrances with respect to such proceeds. Borrower irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent) as Borrower's true and lawful agent and attorney- in-fact for the purpose, upon the occurrence and during the continuance of an Event of Default, of making, settling and adjusting claims under the "All Risk" policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such "All Risk" policies of insurance, and for making all determinations and decisions with respect to such "All Risk" policies of insurance. In the event Borrower at any time or times hereafter shall fail to obtain or maintain any 79 of the policies of insurance required above or to pay any premium in whole or in part relating thereto, Agent, without waiving or releasing any Obligations or Default or Event of Default hereunder, may upon prior written notice to Borrower, at any time or times thereafter (but shall not be obligated to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Agent deems advisable. All sums so disbursed by Agent, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be payable, on demand, by Borrower to Agent and shall be additional Obligations hereunder secured by the Collateral. 2. Borrower shall, if so requested by Agent, deliver to Agent, as often as Agent may request, (i) a standard report of a reputable insurance broker, satisfactory to Agent with respect to Borrower's insurance policies, and (ii) copies of Borrower's then-current insurance policies. 6.7 Compliance with Laws. Borrower shall comply, and shall cause each of -------------------- its Subsidiaries and Parent to comply, with all Federal, state and local laws and regulations applicable to it, including those relating to the registration, licensing and regulation of the pharmaceutical and health care supply industry, those relating to the collection, payment and deposit of sales, employees' income, unemployment and Social Security taxes, and those relating to environmental, consumer credit, truth-in-lending, ERISA and labor matters, except where such noncompliance would not have a Material Adverse Effect. 6.8 Agreements. Borrower shall perform, and shall cause each of its ---------- Subsidiaries to perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under each agreement to which it is a party, including (i) the Subordinated Borrower Notes, until such time as they are redeemed in accordance with their terms, and (ii) any leases and customer contracts to which it is a party where the failure to so perform and enforce would have a Material Adverse Effect. Borrower shall not terminate or modify any provision of any agreement to which it is a party which termination or modification could have a Material Adverse Effect. 6.9 Supplemental Disclosure. From time to time as may be necessary (in ----------------------- the event that such information is not otherwise delivered by Borrower to any Lender pursuant to this Agreement), so long as there are Obligations outstanding hereunder, Borrower will supplement each schedule or representation herein with respect to any matter hereafter arising which, if existing or occurring as of the Restatement Closing Date, would have been required to be set forth or described in such schedule or as an exception to such representation or which is necessary to correct any information in such schedule or representation which has been rendered inaccurate thereby; provided, that such supplement to such -------- schedule or representation shall not be deemed an amendment thereto unless Agent has consented thereto or (a) with respect to amendments to SCHEDULE 4.2, ------------ Borrower has provided Agent with not less than 30 days prior written notice and Borrower has executed and delivered to Agent all documents requested by Agent to maintain the perfection and priority of Agent's Liens on the Collateral, (b) with respect to amendments to SCHEDULE 4.26 or SCHEDULE 4.27, Borrower has ------------- ------------- provided Agent with not less than 30 days prior written notice (except that with respect to additions, deletions or other modifications to the "Trust Accounts" designated on SCHEDULE 4.27, such modifications to SCHEDULE 4.27 shall be made ------------- ------------- within five (5) Business Days of 80 Borrower's receipt of notice of any such additions, deletions or modifications by the Trustee under the Receivables Pooling Agreement), and (c) with respect to amendments to SCHEDULE 4.3 or SCHEDULE 4.12, consistent with actions by Borrower ------------ ------------- permitted under SECTION 6.13 or SECTION 7.1. 6.10 Employee Plans. -------------- 1. Borrower shall notify Agent of any and all claims (other than claims for benefits in the normal course), actions, or lawsuits instituted, and of any known threatened litigation or claims, against Borrower, or any ERISA Affiliate, in connection with any Plan of such entities or against any such Plan itself, or against any fiduciary of or service provider to any such Plan which, if adversely determined, would have a Material Adverse Effect. 2. Borrower shall notify Agent of the occurrence of any Reportable Event with respect to any Pension Plan of Borrower or any ERISA Affiliate that could reasonably be expected to have a Material Adverse Effect. 6.11 Environmental Matters. Borrower shall, and shall cause each of its --------------------- Subsidiaries and Parent to (i) comply in all material respects with the Environmental Laws applicable to it, (ii) notify Agent promptly after knowledge in the event of any Release or threatened Release, which Borrower, its Subsidiaries or Parent is required to report under any applicable Environmental Laws, (iii) promptly forward to Agent a copy of any order, notice, permit, application, or any other written communication or report received by Borrower from any Governmental Authority or any other Person or sent by or for Borrower to any Governmental Authority in connection with any such Release or threatened Release or any other matter relating to the Environmental Laws that may affect such premises; provided, that after the initial report of any such matter, -------- Borrower will forward only such communications that reflect substantive developments or changes in such matter, (iv) on or before March 1, 1995, initiate a response to those items of noncompliance identified in SCHEDULE 6.11, ------------- (v) on or before September 1, 1995, remedy those items of noncompliance identified in SCHEDULE 6.11, other than those items of noncompliance which are ------------- not remedied as a result of the failure of Governmental Authorities to respond to or approve of Borrower's proposed course of action, and (vi) provide Agent, upon Agent's request and at Borrower's expense, such environmental assessment reports, certificates, engineering studies or other written material or data as Agent may require so as to satisfy Agent that Subject Property is free from any material Environmental Liabilities and Costs; provided, that so long as no Event -------- of Default has occurred, Borrower shall only be required to provide to Agent such written material or data (a) once during the term of this Agreement for each parcel of Subject Property that is owned, leased or operated by Borrower or any Affiliate of Borrower as of the Restatement Closing Date, and (b) twice during the term of this Agreement for each parcel of Subject Property that is acquired (through purchase or lease) by Borrower or any Affiliate of Borrower subsequent to the Restatement Closing Date. The provisions of this SECTION 6.11 shall apply whether or not the Environmental Protection Agency, any other Federal agency or any state or local environmental agency has taken or threatened any action in connection with the presence of any Releases or threatened Releases of Hazardous Materials. 6.12 Landlord's Agreements. Borrower shall, unless Agent shall have --------------------- otherwise consented in writing, 81 obtain a Landlord's Agreement from the lessor of each leased premises currently being used by Borrower and the lessor of any new leased premises. 6.13 Subsidiary. Except as permitted by SECTION 7.1, prior to forming any ---------- Subsidiary, Borrower shall (a) provide not less than 30 days prior written notice to Agent, and (b) receive the prior written consent of Agent and Requisite Lenders. 6.14 Interest Rate Contracts. Unless certificates with fixed interest ----------------------- rates in the amount of $150,000,000 or more are issued by the Receivables Trust, within 60 days after the Restatement Closing Date, Borrower shall enter into Interest Rate Contracts in form and substance satisfactory to Agent, for an aggregate amount of not less than $150,000,000 of variable rate Indebtedness, and such Interest Rate Contracts shall (a) be for a term of not less than one year, and (b) remain in effect until a date not earlier than the second anniversary of the Restatement Closing Date; provided, that such $150,000,000 -------- amount shall be reduced by the amount of the net cash proceeds received by Borrower from one or more public offerings of the Stock of Borrower or Parent. 6.15 Minimum Tangible Net Worth. The Consolidated Borrower Group shall -------------------------- maintain, as of the end of each Fiscal Quarter, Tangible Net Worth of not less than <$210,000,000> as of the Restatement Closing Date, increased by (a) seventy-five percent (75%) of the cumulative increases in retained earnings for the Fiscal Quarters subsequent to September 30, 1994, and (b) seventy-five percent (75%) of the net proceeds of any capital or equity infusion received by Borrower in the form of (i) an equity infusion from Parent to Borrower, (ii) a Qualified Borrower Public Offering, or (iii) a Qualified Borrower Equity Sale. 6.16 Interest Coverage Ratio. The Consolidated Borrower Group shall ----------------------- maintain, for each Rolling Period, an Interest Coverage Ratio of not less than the following, as of the end of the Rolling Period corresponding thereto:
Minimum Interest Rolling Period Ended At Coverage Ratio ----------------------- ------------------ 9/30/94 1.65 to 1.00 12/31/94 1.65 to 1.00 3/31/95 1.75 to 1.00 6/30/95 1.85 to 1.00 9/30/95 2.05 to 1.00 12/31/95 2.05 to 1.00 3/31/96 2.05 to 1.00 6/30/96 2.05 to 1.00 9/30/96 2.30 to 1.00 Each Fiscal Quarter 2.30 to 1.00 ending thereafter
6.17 Current Ratio. The Consolidated Borrower Group shall maintain (a) as ------------- of the end of each Fiscal Quarter ending from September 30, 1994 through June 30, 1996, a ratio of Current Assets to Current Liabilities of not less than 0.70 to 1.00, and (b) as of the end of the Fiscal Quarter ending September 30, 1996 and for each 82 Fiscal Quarter ending thereafter, a ratio of Current Assets to Current Liabilities of not less than 0.65 to 1.00. 6.18 Stock Changes. If, after the Restatement Closing Date, Borrower ------------- becomes aware that (a) any Person or "group" (as defined under Section 13d-3 and Regulation 13D of the Exchange Act) has become the beneficial owner, directly or indirectly, of five percent (5%) or more of the shares of any class of Stock of Parent or Borrower, or (b) any Person or "group" (as defined under Section 13d-3 and Regulation 13D of the Exchange Act) that is the beneficial owner, directly or indirectly, of five percent (5%) or more of the shares of any class of Stock of Parent or Borrower has acquired or disposed of its beneficial ownership of Stock in an amount equal to one percent (1%) or more of such class of Stock, then Borrower shall immediately notify Agent of such occurrence. 6.19 Private Label Programs. If the aggregate amount of existing Inventory ---------------------- of Borrower packaged under third party private labels for the benefit of Borrower's customers exceeds $3,000,000 at any time, then Borrower shall promptly notify Agent of such occurrence. 6.20 Receivables Securitization Facility. ----------------------------------- 1. So long as there are any outstanding Obligations, Borrower, as the sole shareholder of Receivables Corporation, shall cause Receivables Corporation, subject to customary corporate procedures, to instruct the trustee under the Receivables Pooling Agreement to pay all amounts payable to Receivables Corporation under the Receivables Facility Documents directly into a bank account in Receivables Corporation's name (the "Receivables Corporation Bank Account") at a bank acceptable to Agent, and all amounts received in such account shall be disbursed only directly to the Lock Box Account to the extent such amounts are payable to Borrower by Receivables Corporation in respect of the purchase price for "Receivables" (as defined in Appendix A to the Receivables Purchase Agreement and Receivables Pooling Agreement), as payments under the "ARC Note" (as defined in section 3.2 of the Receivables Purchase Agreement), or as dividends or advances from Receivables Corporation to Borrower. The instructions from Receivables Corporation to the trustee under the Receivables Pooling Agreement referenced in the preceding sentence shall not be modified without the prior written consent of Agent. 2. So long as there are any outstanding Obligations, Borrower, as the sole shareholder of Receivables Corporation, shall cause Receivables Corporation, subject to customary corporate procedures, (i) to pay (including through the purchase of receivables) or distribute to Borrower on each Business Day, by payment directly from the Receivables Corporation Bank Account to the Lock Box Account, all amounts on deposit therein, and (ii) to the maximum extent permitted by the Receivables Facility Documents, to distribute its net income to Borrower in the form of dividends not less than once during each Fiscal Quarter. 3. Borrower shall deliver to Agent, or shall cause any other Person who is acting as the "Servicer," under and as defined in the Receivables Facility Documents, to deliver to Agent each of the following reports or notices required to be delivered under the Receivables Facility Documents: 83 a. on the date that it is required to be delivered under the Receivables Purchase Agreement, the notice referenced in section 6.2(c) of the Receivables Purchase Agreement; b. on the date that each is required to be delivered under the Intercreditor Agreement, originals or copies, as the case may be, of each report or notice required or permitted to be delivered by Borrower or the 84 "Servicer" (as defined in Appendix A to the Receivables Pooling Agreement and the Receivables Purchase Agreement) to the Seller Agent under the Receivables Facility Documents and the Intercreditor Agreement; and (iii) within three (3) Business Days after the date that such notice is required to be delivered under the Receivables Facility Documents, a copy of each "Daily Report," as defined in the Receivables Pooling Agreement, and each notice referenced under sections 3.05(d), 3.05(e) and 3.06 of the Receivables Pooling Agreement and each notice referenced under section 6.2(d) of the Receivables Purchase Agreement. 4. Borrower shall deliver to Agent copies of any amendments, supplements or other modifications to any of the provisions of the Receivables Facility Documents promptly after execution thereof. 7. NEGATIVE COVENANTS ------------------ Borrower covenants and agrees that, without the prior written consent of the Requisite Lenders (except as otherwise provided in this SECTION 7), from and after the date hereof and until the Termination Date: 7.1 Mergers and Acquisitions. ------------------------ 1. Borrower shall not, and shall cause each of its Subsidiaries and Parent not to, directly or indirectly, by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets or capital Stock of, or otherwise combine with, any Person or form any New Subsidiary; provided, that subject to subparagraph (b) hereof, Borrower shall be -------- permitted to make acquisitions of the assets or Stock of any Person or Persons, so long as, after giving effect to any such acquisition, the aggregate Acquisition Purchase Price for all acquisitions made during the term of this Agreement pursuant to this SECTION 7.1(A) does not exceed the sum of (i) $20,000,000 and (ii) the available amount under the Dividend/Acquisition Basket. 2. Borrower shall not make any such acquisition unless: (i) immediately before and after giving effect thereto, (A) any New Subsidiaries acquired or created in connection with such acquisition shall be in compliance with all warranties and representations and affirmative and negative covenants under this Agreement, and (B) there shall exist no Default or Event of Default and no Default or Event of Default would be created; (ii) in the event of an asset acquisition, any acquired asset, that is of the type that would be required to be pledged as "Collateral" if it were owned by Borrower on the Closing Date, is pledged to Agent, for the benefit of Lenders; (iii) in the event of a stock acquisition, (A) Borrower shall pledge to Agent, for the benefit of Lenders, the Stock of any newly created or acquired Subsidiary or any equity interest acquired by Borrower in an entity that is not a Subsidiary, and (B) the newly created or acquired Subsidiary and each of its Subsidiaries, if any, 85 shall each execute a Guaranty that will be secured by all of its respective assets; (iv) any such acquisition shall be in health care-related entities, businesses or assets; (v) in the case of any acquisition for which the Acquisition Purchase Price is in excess of $10,000,000, (A) Borrower shall have given to Managing Agents 30 days advance written notice of such acquisition, including a brief description of the property being acquired, the Acquisition Purchase Price (or range) thereof, and the Person from whom such property is being acquired, and (B) on the date of such acquisition, a certification, in a form acceptable to Agent, from the chief executive officer, chief accounting officer or treasurer of Borrower stating that Borrower has complied with clause (b)(i) of this SECTION 7.1; and (vi) any such acquisition shall not be in the form of a partnership or other similar structure in which Borrower or any of its Subsidiaries, including the newly created or acquired Subsidiary is a general partner or has liability similar to that of a general partner; provided, that any liabilities that are assumed by any newly created or acquired - - - -------- Subsidiary (including accounts payable) shall not be assumed by Borrower unless any such liability is in a quantifiable amount (or, if not in a quantifiable amount, a maximum amount that can be definitely ascertained by Borrower) and the liability assumed is not greater than the unused amount of the Dividend/Acquisition Basket. 7.2 Investments; Loans and Advances. Except as otherwise permitted by ------------------------------- SECTION 7.1 or SECTION 7.4, Borrower shall not make any investment in, or make or accrue loans or advances of money to any Person, through the direct or indirect holding of securities or otherwise; provided, that Borrower may make -------- and own investments in the following: (a) Permitted Investments; (b) advances or loans, other than loans and advances made to employees of Borrower and its Subsidiaries, made by Borrower in the ordinary course of its business not to exceed $2,500,000 outstanding at any one time to any one Person and $2,500,000 in the aggregate outstanding at any one time; (c) the loans, investments, and advances between Borrower and its Subsidiaries in existence as of the date hereof and described on SCHEDULE 7.2 (the "Existing Advances"); (d) loans, ------------ investments, and advances from Borrower to any of its Subsidiaries (other than Receivables Corporation), in an aggregate amount of not more than $50,000, for the purpose of liquidating or winding up such Subsidiaries; and (e) loans, advances and investments from Borrower to Receivables Corporation that are contemplated under the Receivables Facility Documents. Upon the occurrence and continuance of a Default or Event of Default, Borrower shall liquidate that portion of the Permitted Investments described in clause (a) hereof that constitutes Cash Equivalents within two Business Days after the written request of Agent, and the proceeds of such liquidated investments shall be immediately remitted to Agent, for the benefit of each Lender, to reduce the Obligations. 86 7.3 Indebtedness. ------------ 1. Except as otherwise expressly permitted by this SECTION 7.3 or by any other section of this Agreement (including SECTION 6.14 to the extent that Interest Rate Contracts constitute Indebtedness), Borrower shall not create, incur, assume or permit to exist any Indebtedness, except (i) Indebtedness secured by Liens permitted under SECTION 7.9, (ii) the Loans, and (iii) Permitted Indebtedness. 2. Borrower shall not enter into any arrangement, directly or indirectly, with any Person whereby Borrower, Parent or any Subsidiary of Borrower shall sell or transfer, either with or without recourse, any real or personal property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which Borrower, Parent or such Subsidiary of Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred without the prior written consent of Agent. 7.4 Employee Loans. Except to the extent otherwise permitted in this -------------- Agreement (including SECTION 7.1, SECTION 7.2 and SECTION 7.7), Borrower shall not enter into, and shall cause its Subsidiaries and Parent not to enter into, any commercial or borrowing transaction with any of its employees, directors, Subsidiaries, Affiliates or related parties, including upstreaming and downstreaming of cash and intercompany advances, without the prior written consent of Agent. 7.5 Capital Structure. ----------------- 1. Except as otherwise permitted in this Agreement with respect to dividends of Stock, Borrower shall not, and shall cause its Subsidiaries not to, issue or agree to issue any of its respective authorized but not outstanding shares of Stock (including treasury shares); provided, that Borrower may issue -------- shares of Stock in connection with a Qualified Borrower Public Offering or a Qualified Borrower Equity Sale, so long as a Change of Control Date does not occur as a result of such issuance. 2. Except as specifically permitted in SECTION 7.1, SECTION 7.14 and SECTION 7.15, Borrower shall not, and shall cause its Subsidiaries not to, make any material changes in its capital structure (including the issuance of any shares of Stock, warrants, or other securities convertible into Stock or any revision of the terms of its outstanding Stock), amend its certificate of incorporation or by-laws, or make any changes in any of its business objectives, purposes, or operations; provided, that (i) Borrower may issue shares of Stock -------- in connection with a Qualified Borrower Public Offering or a Qualified Borrower Equity Sale, so long as a Change of Control Date does not occur as a result of such issuance, (ii) Borrower may amend its certificate of incorporation in connection with the transaction described in clause (i) to change the number of authorized shares of Borrower's Stock to permit a stock split, reverse stock split or stock dividend or, with the consent of Agent, for any other purpose, which consent shall not be withheld unless Agent has determined that the change would be adverse to the interests of Lenders, and (iii) Borrower may amend its certificate of incorporation to provide for indemnification of directors in accordance with state law. 3. Except as specifically permitted in SECTION 7.15(A), Borrower shall cause Parent not to make any material changes in its capital structure (including the issuance of any shares of Stock, warrants, or other 87 securities convertible into Stock or any revision of the terms of its outstanding Stock), amend its certificate of incorporation or by-laws, or make any changes in any of its business objectives, purposes, or operations; provided, that (i) Parent may issue shares of Stock in connection with a - - - -------- Qualified Parent Public Offering or a Qualified Parent Equity Sale, so long as a Change of Control Date does not occur as a result of such issuance, (ii) Parent may issue shares of Stock in connection with (A) the Management Incentive Programs, and (B) debt refinancing, (iii) Parent may amend its certificate of incorporation in connection with the transaction described in clause (i) to change the number of authorized shares of Borrower's Stock to permit a stock split, reverse stock split or stock dividend, or with the consent of Agent, for any other purpose, which consent shall not be withheld unless Agent has determined that the change would be adverse to the interests of Lenders, and (iv) Parent may amend its certificate of incorporation to provide for indemnification of directors in accordance with state law. 7.6 Maintenance of Business. Borrower shall not engage, and shall cause ----------------------- its Subsidiaries (except Receivables Corporation) and Parent not to engage, in any business other than health care-related businesses. Receivables Corporation shall not engage in any business other than the business contemplated by the Receivables Facility Documents. 7.7 Transactions with Affiliates. ---------------------------- 1. Except for the financing and servicing transactions contemplated by the Receivables Facility Documents and the transactions permitted under SECTION 7.2(A) through SECTION 7.2(E) or SECTION 7.14 or listed on SCHEDULE 7.7, ------------ Borrower shall not enter into or be a party to any transaction with any Affiliate of Borrower unless such transaction is conducted in the ordinary course of and pursuant to the reasonable requirements of Borrower's business, and upon fair and reasonable terms that are fully disclosed to Agent as soon as Borrower becomes aware of the Affiliate relationship and are no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of Borrower; provided, that Borrower shall not, in any -------- transaction subject to this SECTION 7.7(A), acquire any New Subsidiary for which the Acquisition Purchase Price exceeds $5,000,000 in each case and $10,000,000 in the aggregate, without having given to Agent 30 days advance written notice of the proposed acquisition, including a brief description thereof. 2. Except for (i) employee bonus and compensation programs entered into in the ordinary course of Borrower's business and (ii) any management agreement hereafter entered into between VPI and Borrower (so long as the only compensation thereunder is customary indemnification and such indemnification is subordinated to the Obligations), and except to the extent permitted under SECTION 7.7(A), Borrower shall not enter into any agreement or transaction (x) to pay to any Person any management, consulting, advisory or similar fee based on or related to Borrower's operating performance or income or any percentage thereof, or (y) to pay to any Affiliate any management, consulting, advisory, or similar fee. 7.8 Guaranteed Indebtedness. Borrower shall not incur any Guaranteed ----------------------- Indebtedness, except (a) by endorsement of instruments or items of payment for deposit to the general account of Borrower, (b) for Guaranteed Indebtedness incurred for the 88 benefit of Borrower if the primary obligation is permitted by this Agreement to be a direct obligation of Borrower, and (c) indemnification obligations undertaken in connection with sales of assets of Borrower, to the extent that Borrower has primary liability for the obligation for which such indemnification is provided. 7.9 Liens. Borrower shall not create or permit any Lien on any of its ----- properties or assets, or the properties or assets of its Subsidiaries, except: 1. presently existing or hereafter created Liens in favor of Agent, for the benefit of Lenders; 2. Liens created pursuant to the Receivables Facility Documents; and 3. Permitted Encumbrances, including the Liens set forth on SCHEDULE -------- 7.9. - - - --- 7.10 Sales of Assets. Borrower shall not, and shall cause its Subsidiaries --------------- and Parent not to, sell, transfer, convey, assign or otherwise dispose of any of its assets or properties; provided, that the foregoing shall not prohibit the -------- following: 1. the sale or other disposition of Borrower's Inventory in the ordinary course of business; 2. so long as no Event of Default has occurred and is continuing, (i) the sale, lease or transfer by any Existing Subsidiary of any of its assets or properties (other than Stock of a Subsidiary of Borrower) to Borrower or any other Existing Subsidiary, (ii) the sale, lease or transfer by any New Subsidiary of its receivables to Receivables Corporation in accordance with the terms and provisions of the Receivables Facility Documents, (iii) the sale, lease or transfer by Borrower or any Existing Subsidiary of any of its assets or properties (other than Stock of a Subsidiary of Borrower or a Subsidiary of an Existing Subsidiary) to any New Subsidiary so long as such sale, lease or transfer actually complies with the provisions of SECTION 7.1, SECTION 7.2 and SECTION 7.7, or (iv) the sale, lease or transfer by any New Subsidiary of any of its assets or properties to Borrower so long as such sale, lease or transfer actually complies with the provisions of SECTION 7.1 and SECTION 7.7; 3. the sale of any Unoccupied Property and the improvements and fixtures located thereon; 4. the sale of any of the assets listed on SCHEDULE 7.10; ------------- 5. so long as no Event of Default has occurred and is continuing, sales, leases, assignments or transfers of obsolete equipment, the proceeds received or receivable by Borrower or any Subsidiary of Borrower in respect of which do not in the aggregate exceed $2,000,000 in any Fiscal Year; 6. if at the time of such transaction and immediately after giving effect thereto no Default or Event of Default has occurred and is continuing, (i) any Existing Subsidiary may merge into Borrower in a transaction in which the surviving corporation is Borrower, (ii) any Existing Subsidiary may merge into any other Existing Subsidiary in a transaction in 89 which the surviving entity is an Existing Subsidiary and no Person other than Borrower or an Existing Subsidiary receives any consideration, and (iii) any New Subsidiary may merge into any other New Subsidiary in a transaction in which the surviving entity is a New Subsidiary and no person other than Borrower or a wholly owned Subsidiary of Borrower receives any consideration; 7. transfers resulting from any casualty or condemnation of assets or properties; and 8. sales of Borrower's Accounts and related assets pursuant to, and in accordance with the terms of, the Receivables Facility Documents. 7.11 Cancellation of Indebtedness. Borrower shall not cancel, and shall ---------------------------- cause its Subsidiaries and Parent not to cancel, any claim or debt owing to it, except for reasonable consideration and in the ordinary course of business. 7.12 Events of Default. Borrower shall not omit to take any action, and ----------------- shall cause its Subsidiaries and Parent not to omit to take any action, which act or omission would constitute: (a) a default or an event of default pursuant to, or noncompliance with any of, the terms of any of the Loan Documents; or (b) a default or an event of default pursuant to, or noncompliance with, any other contract, lease, mortgage, deed of trust or instrument to which it is a party or by which it or any of its property is bound, or any document creating a Lien, the occurrence or existence of which would constitute a Material Adverse Effect. 7.13 Speculative Transactions. Except as permitted by SECTION 6.14 and ------------------------ SECTION 7.2, Borrower shall not engage in any speculative commodities purchase or any speculative monetary transaction. 7.14 Restricted Payments; Dividends. Borrower shall not make any ------------------------------ Restricted Payment, other than, if no Default or Event of Default has occurred and is continuing and no Default or Event of Default would occur as a result of such payments, the following: (a) to pay dividends or make advances to Parent (i) to enable Parent to pay current cash interest to the holders of the Subordinated Parent Notes, (ii) to allow Parent to redeem Subordinated Parent Notes or repurchase Subordinated Parent Notes on the open market, and (iii) to enable Parent to make distributions to its Stockholders; provided, that (x) for -------- any Testing Period the Interest Coverage Ratio (adjusted to include payment of the proposed dividend as if that dividend were an interest expense), exceeds 2.5 to 1.0, and (y) the amount of such dividends that is permitted shall be limited to the then available Dividend/Acquisition Basket; and provided further, that --- -------- ------- notwithstanding the foregoing, (I) Borrower shall not, in any event, permit Parent to use such dividends to make distributions to Parent's Stockholders unless a Qualified Borrower Public Offering or Qualified Parent Public Offering has been completed, and (II) the aggregate amount of the dividends to Parent's Stockholders shall not, in any event, exceed 20% of the available amount under the Dividend/Acquisition Basket; (b) to pay dividends or make advances to Parent on or after January 14, 1999 in an amount equal to the regularly scheduled interest payments on the Subordinated Parent Notes; (c) to pay dividends or make advances to Parent of the Subordinated Parent Notes Redemption Amount solely for the purpose of Parent's redemption of the Subordinated Parent Notes; (d) to pay dividends or make advances from any of Borrower's Subsidiaries to Borrower; (e) to pay dividends on Borrower's common 90 Stock or make advances equal to amounts required to be paid by Parent to repurchase or redeem Stock pursuant to the Management Incentive Programs with respect to current or former officers or employees of Borrower or any of its Subsidiaries, to the extent actually paid, so long as (1) the aggregate amount of all such dividends paid and advances made after the Restatement Closing Date to any current employee, director or officer of Borrower shall not exceed $500,000, and (2) the aggregate amount of all such dividends paid and advances made after the Restatement Closing Date to current or former officers or employees of Borrower shall not exceed the sum of $5,000,000, plus the proceeds of any resale of Stock by Parent to other or new employees, directors or officers of Borrower or any of its Subsidiaries made prior to or within 180 days after such repurchases or redemptions; (f) to pay reasonable legal, accounting and operational expenses of Parent incurred in the ordinary course; provided, -------- that, during any Fiscal Year, the sum of the payments described in this clause (e) and any net increase in the amount of the loans and advances described in clause (vii) of the definition of "Permitted Investments" shall not exceed $350,000 in any Fiscal Year (excluding payments related to franchise taxes payable by Parent to the State of Delaware); (g) dividends payable solely in additional shares of Borrower's common Stock and stock splits with respect to Borrower's common Stock; and (h) to repay short-term cash advances made after the Restatement Closing Date by Parent to Borrower. 7.15 Payment or Modification of Obligations. Borrower shall cause Parent -------------------------------------- not to amend, supplement or otherwise modify any of the provisions of the Subordinated Parent Notes except on terms no less favorable in the aggregate to Parent and no less favorable in the aggregate to Parent, Borrower and Borrower's Subsidiaries; provided, that Parent would be permitted to amend the Subordinated -------- Parent Notes to (i) repurchase the Subordinated Parent Notes, or (ii) refinance the Subordinated Parent Notes, so long as (A) the terms of such refinancing are (I) no less favorable in the aggregate to Parent and (II) no less favorable in the aggregate to Parent, Borrower and Borrower's Subsidiaries than those in effect prior to the refinancing, (B) the aggregate interest payments under all of the Subordinated Parent Notes, after giving effect to the refinancing, in any Fiscal Year does not exceed the interest payments required to be paid in such Fiscal Year under the Subordinated Parent Notes, as in effect on the Restatement Closing Date, (C) the Indebtedness after such refinancing is subordinated to the Indebtedness under the Parent Guaranty to at least the same extent as the Subordinated Parent Notes being refinanced, and (D) the aggregate cash payments under all of the Subordinated Parent Notes, after giving effect to the refinancing, in any Fiscal Year does not exceed the cash payments required to be paid in such Fiscal Year under the Subordinated Parent Notes, as in effect on the Restatement Closing Date. 7.16 Compensation. Without prior written notice to Agent, Borrower shall ------------ not materially amend, supplement or modify the terms of Borrower's Management Incentive Programs (the "Management Incentive Programs"), a description of each of which is set forth in SCHEDULE 7.16. ------------- 7.17 Real Property Leases. Borrower shall not, and shall cause its -------------------- Subsidiaries and Parent not to, enter into or renew any lease of real property or similar agreements (and all amendments thereto) if the aggregate amount of rentals payable during any Fiscal Year under all real property leases and agreements would be in excess of $15,000,000. 91 7.18 ERISA. Neither Borrower nor any ERISA Affiliate shall, without ----- Agent's prior written consent, acquire any new ERISA Affiliate that maintains or has an obligation to contribute to a Pension Plan that has either an "accumulated funding deficiency," as defined in Section 302 of ERISA, or any "unfunded vested benefits," as defined in Section 4006(a)(3)(E)(iii) of ERISA in the case of any plan other than a Multiemployer Plan and in Section 4211 of ERISA in the case of a Multiemployer Plan, if such "accumulated funding deficiency" or "unfunded vested benefits," or any contribution obligations associated therewith, would, in the aggregate, have a Material Adverse Effect. Additionally, neither Borrower nor any ERISA Affiliate shall, without Agent's prior written consent: 1. terminate any Pension Plan that is subject to Title IV of ERISA where such termination could reasonably be anticipated to result in any liability that would have a Material Adverse Effect; 2. permit any accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to be incurred with respect to any Pension Plan which would result in a Material Adverse Effect; 3. fail to make any contributions or fail to pay any amounts due and owing as required by the terms of any Plan before such contributions or amounts become delinquent if the consequence of such delinquencies could, in the aggregate, reasonably be expected to have a Material Adverse Effect; 4. make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan that could reasonably be anticipated to result in the imposition of any withdrawal liability under Section 4201 of ERISA that would have a Material Adverse Effect; 5. at any time fail to provide Agent with copies of any documents or governmental reports or filings relating to any Plan within 30 days of a reasonable request therefor by Agent; 6. amend any Title IV Plan, establish any new Title IV Plan, or enter into any labor agreement the effect of which is to increase Unfunded Pension Liability in an amount that would, in the aggregate, have, or that would give rise to contribution obligations that would have, a Material Adverse Effect; or 7. enter into any agreement under which it assumes any liability under Section 4204 of ERISA that would have a Material Adverse Effect. 7.19 Hazardous Materials. Except as set forth in SCHEDULE 4.25 (which ------------------- ------------- matters shall be dealt with in accordance with the provisions of SECTION 6.11), Borrower shall not, and shall not permit any other Person within the control of Borrower to, cause or permit the presence, use, generation, manufacture, installation, Release, discharge, storage or disposal of any Hazardous Materials on, under, in or about any of the Subject Property or the transportation of any Hazardous Materials to or from any Subject Property where such presence, use, generation, manufacture, installation, Release, discharge, storage or disposal would violate or form the basis of liability under any Environmental Laws, which violation or liability would have a Material Adverse Effect. Borrower shall not, and shall not permit any other Person within the control of Borrower to, use the Subject Property as a treatment, storage or disposal facility requiring a permit under 92 the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the -- ---- regulations thereunder or any similar state statute or regulation. 7.20 Capital Expenditures. The Consolidated Borrower Group shall not make -------------------- aggregate Capital Expenditures in excess of the amounts set forth below for the Fiscal Year corresponding thereto:
Fiscal Year Amount ----------- ------ 1995 $11,500,000 1996 $13,000,000 1997 $14,000,000 1998 $16,000,000 1999 $18,000,000
provided, as a carry-forward, Capital Expenditures for any Fiscal Year may be - - - -------- increased by the lesser of (a) one-half of the amount listed above for the immediately preceding Fiscal Year, and (b) the amount not expended for such preceding Fiscal Year and without giving effect to any increase to the amount permitted during such preceding Fiscal Year pursuant to this Section; and --- provided further, that for purposes of this proviso, Capital Expenditures shall - - - -------- ------- not include the cost of repair or replacement of any fixed assets or improvements as a result of a casualty loss, to the extent paid or reimbursed from insurance or from any other Person. The parties to this Agreement acknowledge that, during the Fiscal Year ending September 30, 1995, Borrower is entitled to a carry-forward of $3,300,000 relating to the Fiscal Year ending September 30, 1994 and that such amount is otherwise subject to the terms of this SECTION 7.20. 7.21 Operating Leases. Borrower shall not, and shall not permit its ---------------- Subsidiaries or Parent to, become a lessee under any operating lease (other than a lease under which such Person is lessor) of personal property if the aggregate amount of rentals payable during any Fiscal Year would be in excess of $15,000,000. 7.22 Fiscal Year. Borrower shall not, and shall cause its Subsidiaries and ----------- Parent not to, change its Fiscal Quarters or Fiscal Year, and Borrower shall not permit any of its Subsidiaries to have a fiscal year calendar different from that of Borrower. 7.23 Tax Sharing. Borrower shall not advance amounts to Parent, or make ----------- amounts available to Parent with respect to the tax liability of Parent on a Consolidated basis, in excess of the amount actually paid by Parent with respect to that liability. 7.24 Amendments to Other Documents. (a) Unless the Agent shall otherwise ----------------------------- agree in writing: (i) The scheduled maturities of Investor Certificates and Purchased Interests issued pursuant to the Take Out Facility shall not be sooner than the Commitment Termination Date (without giving effect to any extension of the Scheduled Termination Date in respect thereof); provided, that if the Maximum Take Out Funding exceeds the -------- Maximum Bridge Funding, then Investor Certificates and Purchased Interests (in an aggregate principal amount or Stated 93 Amount, as applicable, of up to such excess) may have shorter maturities. (ii) Sections 1.2, 2.1, 2.2, 5.1(o) and 8.2 of the Receivables Purchase Agreement shall not be amended, waived or otherwise modified. (iii) Sections 4.03(f), 4.03(g), 4.03(h), 5.02(a) and 5.02(b) of the Receivables Pooling Agreement and the definition of ARC Revolving Amount shall not be waived, amended or otherwise modified in a way that changes the priority, amount or timing of payments made in respect of the ARC Revolving Amount. Section 4.03(e) of the Pooling Agreement shall not be amended or modified in a way that increases the percentage of Charged-Off Amounts, or reduces the percentage of Net Recoveries, allocable to the ARC Revolving Amount. (iv) Sections 4.03(d), 4.03(c)(ii) and 6.11(b) of the Receivables Pooling Agreement, and the defined terms used in the Receivables Pooling Agreement, shall not be amended or modified at any time in a way that causes a reduction (as calculated as a ratio (expressed as a percentage) where the numerator is the amount of such reduction and the denominator is the Base Amount, each as determined on the date on which the amendment or modification causing such reduction shall have become effective) in the then outstanding ARC Revolving Amount or the portion of Collections then allocable to the ARC Revolving Certificate, in each case without a corresponding cash payment to ARC in the amount of such reduction unless, at the time such amendment or modification becomes effective, (A) the Seller Outstandings are less than the Borrowing Base and (B) such reduction when added to all other reductions occurring during (x) the two year period immediately preceding such reduction, does not exceed five percent (5%) in the aggregate or (y) the period since the Restatement Closing Date, does not exceed ten percent (10%) in the aggregate. (v) Exhibits O-I, O-II and Exhibit G to the Receivables Pooling Agreement shall not be waived, amended, or otherwise modified. (vi) The definitions in Appendix A to the Receivables Purchase Agreement and Receivables Pooling Agreement that are listed in Schedule E hereto (the "Restricted Terms") shall not be waived, -------- - amended or otherwise modified; provided, that if any other term -------- defined in such Appendix A to the Receivables Pooling Agreement is used in the definition of a Restricted Term, this SECTION 7.24 will not prohibit (or require consent of Agent for) any waiver, amendment or modification to such other term; and provided further, that if any --- -------- ------- Restricted Term is defined by reference to a Section of a Receivables Facility Document, such Section may not be waived, amended or modified to the extent that such waiver, amendment or modification would change the substance of such Restricted Term. (b) Except as otherwise set forth herein, any other provisions of the Receivables Facility Documents may be waived, amended or otherwise modified without the consent of the Agent or any Lender. 94 (c) Except as otherwise defined in this Agreement, capitalized terms used in this Section shall have the meanings set forth in Annex I to the Intercreditor Agreement. 8. TERM ---- 8.1 Termination. Subject to the provisions of SECTION 2, the financing ----------- arrangement contemplated hereby in respect of the Loans shall be in effect until the Commitment Termination Date. 8.2 Survival of Obligations Upon Termination of Financing Arrangement. ----------------------------------------------------------------- Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the powers, obligations, duties, rights and liabilities (including any indemnification obligations) of Borrower or the rights of any Lender relating to any contingent or unliquidated Obligation, any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is not required until after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations contained in the Loan Documents shall survive such termination or cancellation and shall continue in full force and effect until such time as all of the Obligations have been paid in full in accordance with the terms of the agreements creating such Obligations, at which time the same shall terminate. 8.3 Events Prior to Restatement Closing Date. Borrower hereby covenants ---------------------------------------- and agrees with Lenders that Borrower will: (a) use its best efforts to satisfy, and to cause to be satisfied, fully and promptly each of the conditions set forth in SECTION 3.1 and SECTION 3.2 and to consummate the financing transactions contemplated by this Agreement; and (b) refrain from taking, or permitting to be taken, any action, of any nature whatsoever, which shall impede, preclude or otherwise interfere with the satisfaction of any such condition. 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES -------------------------------------- 9.1 Events of Default. The occurrence of any one or more of the following ----------------- events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: 1. Borrower shall fail to make any payment of (i) principal of or interest on the Loans, or (ii) the Letter of Credit Fee or the Unused Line Fee, when due and payable or declared due and payable. 2. Borrower shall fail to make any payment of any of the Obligations, other than payments referred to in clause (a) above, payable to Agent, Managing Agents, Issuing Lender or Lenders under any Loan Document, and 95 such failure shall have remained unremedied for a period of five (5) days after Borrower has received notice of such failure from Agent. 3. Borrower, its Subsidiaries or Parent shall fail or neglect to perform, keep or observe any of the provisions of the Financial Covenants or SECTION 2.6, SECTION 2.12(A), SECTION 6.20, SECTION 7.14 or SECTION 7.24 of this Agreement. 4. Borrower, its Subsidiaries or Parent shall fail or neglect to perform, keep or observe any other provision of this Agreement or of any of the other Loan Documents, and the same shall remain unremedied for a period ending on the first to occur of 30 days after Borrower shall receive written notice of any such failure from Agent or 30 days after Borrower shall become aware thereof. 5. A Liquidation Event shall occur or a default shall occur under any other agreement, document or instrument to which Borrower, its Subsidiaries or Parent is a party or by which Borrower, its Subsidiaries or Parent or the property of Borrower, its Subsidiaries or Parent is bound, including the Subordinated Parent Notes (so long as a default under the Subordinated Parent Notes, if any, has not been cured or waived), and such default causes, or permits any holder of such Indebtedness or a trustee to cause, such Indebtedness, or a portion thereof in an aggregate amount exceeding $5,000,000, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment. 6. Any representation or warranty set forth in SECTIONS 4.1, 4.4, 4.5, 4.6, 4.14, and 4.28(A), (C), (D), OR (E) shall be untrue or incorrect, as of the date when made or deemed made (including those made or deemed made pursuant to SECTION 3.2). 7. Any representation or warranty herein or in any Loan Document or in any written statement pursuant thereto or hereto, report, financial statement or certificate made or delivered to any Lender by Borrower, its Subsidiaries or Parent shall be untrue or incorrect, as of the date when made or deemed made (including those made or deemed made pursuant to SECTION 3.2) and, other than the representations and warranties set forth in SECTIONS 4.1, 4.4, 4.5, 4.6, 4.14, and 4.28(A), (C), (D), or (e), the same shall remain untrue or incorrect for a period ending on the first to occur of 30 days after Borrower shall receive notice of any such fact from Agent or 30 days after Borrower shall become aware thereof. 8. Any of the assets of Borrower, its Subsidiaries or Parent shall be attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of such Person and shall remain unstayed or undismissed for 30 consecutive days; or any Person other than Borrower, its Subsidiaries or Parent shall apply for the appointment of a receiver, trustee or custodian for any of the assets of Borrower, its Subsidiaries or Parent and such proceeding is not timely controverted or dismissed within 30 days; or Borrower, its Subsidiaries or Parent shall have concealed, removed or permitted to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them or made or suffered a transfer of any of its property or the incurring of an obligation which would be considered fraudulent under any bankruptcy, fraudulent conveyance or other similar law. 96 9. A case or proceeding shall have been commenced against Borrower, its Subsidiaries or Parent in a court having competent jurisdiction seeking a decree or order (i) under the Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower, its Subsidiaries or Parent or of any substantial part of its properties, or (iii) ordering the winding-up or liquidation of the affairs of Borrower, its Subsidiaries or Parent, and such case or proceeding shall remain undismissed or unstayed for 30 consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding; provided, that any Lender may require that -------- Borrower obtain an order of the court having jurisdiction over the proceeding (in form and substance satisfactory to such Lender) prior to making any further Advances within such 30 day period. 10. Borrower, its Subsidiaries or Parent shall (i) file a petition seeking relief under the Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal, state or foreign bankruptcy or other similar law, (ii) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower, its Subsidiaries or Parent or of any substantial part of its properties, or (iii) fail generally to pay its debts as such debts become due. 11. Final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against Borrower and the same shall not be (i) fully covered by insurance (subject to applicable deductibles) in accordance with SECTION 6.6, or (ii) vacated, stayed, bonded, paid or discharged for a period of 30 consecutive days. 12. Any other event shall have occurred which would have a Material Adverse Effect; provided, that (i) adverse changes in the value of Collateral -------- and (ii) adverse changes in the financial condition of Borrower that affect or will affect the calculations made under the Financial Covenants, but do not create or would not reasonably be expected to create a breach or default under any of the Financial Covenants, shall not be deemed to have had a Material Adverse Effect. 13. Parent shall grant or cause or allow to exist any Lien against any shares of the Stock of Borrower, other than the Lien in favor of Agent, for the benefit of Lenders. 14. (i) With respect to any Plan of Borrower, a prohibited transaction within the meaning of Section 4975 of the IRC or Section 406 of ERISA occurs which in the reasonable determination of Agent could result in direct or indirect liability to Borrower, (ii) with respect to any Title IV Plan of Borrower or any ERISA Affiliate, a notice to voluntarily terminate any such Plan in a distress termination is filed, (iii) with respect to any Multiemployer Plan, Borrower or any ERISA Affiliate shall incur any withdrawal liability under Section 4201 of ERISA, (iv) with respect to any Qualified Plan, Borrower or any ERISA Affiliate shall incur an accumulated funding deficiency or request a funding waiver from the IRS, or (v) with respect to any Title IV Plan of Borrower or any ERISA Affiliate or Multiemployer Plan of Borrower or any ERISA Affiliate which has an ERISA Event not described in clauses (ii) through (iv) hereof, in the reasonable determination of Agent 97 there is a reasonable likelihood for termination of any such Plan by the PBGC; provided, that the events listed in clauses (i) through (v) hereof shall - - - -------- constitute Events of Default only if the liability, deficiency or waiver request of Borrower or any ERISA Affiliate, whether or not assessed, would have a Material Adverse Effect. 15. Any provision of any Collateral Document, after delivery thereof pursuant to SECTION 3.1, shall for any reason cease to be valid, binding and enforceable in accordance with its terms, and as a result the remedies available to Agent and Lenders are inadequate for the practical realization of the benefits of Agent's and Lenders' rights and remedies under this Agreement and the Collateral Documents, or any security interest created under any Collateral Document shall cease to be a valid and perfected first priority security interest or Lien (except as otherwise stated herein or therein) in any of the Collateral purported to be covered thereby. 16. Any miscalculation by Borrower or the "Servicer" (as defined in the Receivables Facility Documents) with respect to the calculation of the "Shortfall" or the "End-of-the-Day Seller Excess Borrowing Base" (each as defined in the Intercreditor Agreement), which miscalculation is materially adverse to the interests of Agent, Lenders, Managing Agents or Issuing Lender; or any representation or warranty made or deemed made by Borrower or the Servicer under the Intercreditor Agreement or any report or notice delivered pursuant thereto shall be untrue or incorrect in any material respect as of the date made or deemed made; or the Servicer shall record any sale, contribution, transfer, conveyance or assignment of any "Transferred Assets" (as defined in the Receivables Purchase Agreement) to Receivables Corporation after the Restatement Closing Date either (i) at any time prior to the effectiveness thereof under section 1.2 of the Receivables Purchase Agreement, or (ii) in any other material respect, other than in accordance with section 1.2 of the Receivables Purchase Agreement. 17. A Change of Control Date shall have occurred. 9.2 Remedies. -------- 1. If any Default or Event of Default shall have occurred and be continuing, Agent may, subject to SECTION 10.5, without notice take any one or more of the following actions: (i) take and require Borrower to take such actions as Agent may deem necessary or advisable to perfect or protect its Liens in any Collateral consisting of certificated vehicles or Unoccupied Property, including, at Agent's request, the delivery to Agent of original certificates of title and the execution by Borrower of documentation to cause Agent's Lien to be noted thereon, and the execution by Borrower of documentation to grant Agent's Lien in the Unoccupied Property; or (ii) exercise the following rights and remedies: (y) the right to demand a current Borrowing Base Certificate as frequently as Agent may request; and (z) the right to refuse to incur new Letter of Credit Obligations. 2. If any Event of Default shall have occurred and be continuing, Agent may, subject to SECTION 10.5, without notice (except as otherwise provided by clause (v) of this SECTION 9.2(B)) take any one or more of the following actions: (i) increase the rate of interest applicable to the Loans to the Default Rate, as provided in SECTION 2.8(F), or increase the rate applicable to the Letter of Credit Obligations, as provided in SECTION 2.3(J); (ii) terminate this facility with respect to further Advances, whereupon no Advances may be made hereunder; (iii) contact any of the Governmental 98 Authorities with any jurisdiction over Borrower or any of its Subsidiaries, including the DEA or any state board of pharmacy, with respect to the possibility that Lenders may take over the business of Borrower or any of its Subsidiaries, or the possibility that Lenders may take possession of or liquidate any or all of the Collateral; (iv) exercise any of the rights and remedies provided under the Loan Documents; or (v) subject to the terms of the Intercreditor Agreement, cause Borrower, upon written notice from Agent, to terminate transfers of receivables under the Receivables Facility Documents (and Agent's lien on such receivables shall not be released) during any period that such Event of Default is continuing. If any Event of Default shall have occurred and be continuing, Agent may, without notice, declare all Obligations to be forthwith due and payable, whereupon all Obligations shall become and be due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Borrower; provided, that upon the occurrence -------- of an Event of Default specified in SECTIONS 9.1(H), (I) or (J), the Obligations shall become due and payable without declaration, notice or demand by Agent. 9.3 Waivers by Borrower. Except as otherwise provided for in this ------------------- Agreement and applicable law, Borrower waives (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent or any Lender on which Borrower may in any way be liable and hereby ratifies and confirms whatever Agent or any Lender may do in this regard, (ii) all rights to notice and a hearing prior to Agent's or any Lender's taking possession or control of, or to Agent's or any Lender's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent or such Lender to exercise any of its remedies, and (iii) the benefit of all valuation, appraisal and exemption laws. Borrower acknowledges that it has been advised by its counsel with respect to this Agreement, the other Loan Documents and the transactions evidenced by this Agreement and the other Loan Documents. 9.4 Right of Setoff. Upon the occurrence and during the continuance of --------------- any Event of Default, other than an Event of Default described in SECTIONS 9.1(H), (I) or (J), any Lender may, to the fullest extent permitted by law, set off and apply any and all deposits (general or special) or indebtedness at any time owing by such Lender to or for the credit or the account of Borrower against any and all of the Obligations, regardless of whether such Lender shall have made any demand under this Agreement or its Note and whether such Obligations may be unmatured. The rights of each Lender under this SECTION 9.4 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have and are subject to the provisions of SECTION 10.11. 99 10. AGENCY ------ 10.1 Appointment. ----------- 1. Each Lender, each Managing Agent and Issuing Lender hereby (i) irrevocably appoints GE Capital as the administrative agent of such Lender under this Agreement and the other Loan Documents, and (ii) irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding anything to the contrary herein, Agent shall have no duties, responsibilities or fiduciary relationships with any Lender, except those expressly set forth in this Agreement and the other Loan Documents, and no implied covenants, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against Agent. 2. Each Lender, each Managing Agent and Issuing Lender hereby irrevocably authorizes Agent, and hereby irrevocably appoints Agent as its attorney-in-fact, (i) to execute the Intercreditor Agreement on its behalf, and (ii) to take such action on its behalf under the provisions of the Intercreditor Agreement and to exercise such rights, powers and remedies and perform such duties as are expressly delegated to Agent by the terms of the Intercreditor Agreement, together with such other powers as are reasonably incidental thereto. Each Lender, each Managing Agent and Issuing Lender hereby acknowledges and agrees that it is bound by the terms of the Intercreditor Agreement and Agent's actions with respect thereto (including the giving of any "Confirmation Notice" or "Stop Date Notice," each as defined in Appendix A to the Receivables Pooling Agreement, as provided in the Intercreditor Agreement), as if it were a party to the Intercreditor Agreement; provided, that (i) Agent shall not enter into any -------- material amendment to the Intercreditor Agreement without the written consent of Requisite Lenders, and (ii) Agent shall act in accordance with the last sentence of SECTION 10.5. Notwithstanding anything to the contrary herein, (x) the provisions of this SECTION 10.1(B) shall not be amended or modified without the consent of the trustee for Receivables Trust, and (y) each Lender acknowledges and agrees that each of Receivables Corporation, the "Investors" and the "Purchasers," each as defined in Appendix A to the Receivables Pooling Agreement, and the trustee for Receivables Trust, is relying on this SECTION 10.1(B) and is a third party beneficiary of this SECTION 10.1(B). 10.2 Delegation of Duties. Agent may exercise any of its powers and -------------------- discretion, including imposition of the Default Rate, or execute any of its duties under this Agreement and the other Loan Documents by or through one or more agents or attorneys-in-fact, and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to such rights and duties. Agent may utilize the services of such agents and attorneys-in-fact (including a paying agent responsible for disbursements of Advances, and a paying agent or agents responsible for disbursing payments to particular Lenders reasonably requesting the appointment of such agent or agents) as Agent in its sole discretion reasonably determines, and all reasonable fees and expenses of such agents and attorneys-in-fact shall be paid by Borrower on demand. Agent shall not be responsible for the negligence or misconduct of any agents or attorneys- in-fact selected by Agent with reasonable care. 100 10.3 Limitation of Liability. Neither Agent nor its officers, directors, ----------------------- employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any waiver, consent or approval given or any action taken or omitted to be given or taken by them or by such Person under or in connection with this Agreement or the other Loan Documents, or (b) responsible for the consequences of any oversight or error in judgment by them or such Person whatsoever, except, in the case of either clause (a) or (b) above, for their or such Person's own gross negligence or willful misconduct. Agent shall not be responsible for (v) the execution, validity, enforceability, effectiveness or genuineness of this Agreement or the other Loan Documents, (w) the collectibility of any amounts owing under this Agreement or the other Loan Documents, (x) the value, sufficiency, enforceability or collectibility of any collateral security therefor, (y) the failure by Borrower to perform its obligations hereunder, or (z) the truth, accuracy and completeness of the recitals, statements, representations or warranties made by Borrower or any officer or agent thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent in connection with, this Agreement or the other Loan Documents. 10.4 Reliance by Agent. Agent shall not have any obligation (a) to ----------------- ascertain or to inquire as to the observance or performance of any of the conditions, covenants or agreements in this Agreement or the other Loan Documents or in any document, instrument or agreement at any time constituting, or intended to constitute, collateral security therefor, (b) to ascertain or inquire as to whether any notice, consent, waiver or request delivered to them shall have been duly authorized or is genuine, accurate or complete, or (c) to inspect the properties, books or records of Borrower; provided, if any Lender -------- reasonably requests that Agent ascertain any fact or make any inquiry or inspection, Agent shall take such action with respect to such request as Agent reasonably deems to be appropriate under the circumstances, but Agent shall have no ongoing obligation to take any action with respect to such request. Agent shall be entitled to rely, and shall be fully protected in relying, (x) upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex or teletype message, statement, order or other document, instrument or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, or (y) upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Agent. Agent may deem and treat Lenders party hereto or to any Assignment and Acceptance as a Lender for all purposes unless a written notice of the assignment, negotiation or transfer of any such Lender's Proportionate Share of the Loans and its Commitment, in accordance with the provisions of this Agreement, shall have been delivered to Agent identifying the name of any successor or assignee Lender. Agent shall be entitled to fail or refuse, and shall be fully protected in failing or refusing, to take any action under this Agreement or the other Loan Documents unless (a) it first shall receive such advice or concurrence of Lenders as it deems appropriate, or (b) it first shall be indemnified to its satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. In all cases Agent shall be fully protected in acting, or in refraining from acting, under this Agreement or the other Loan Documents in accordance with a request of all Lenders, or the Requisite Lenders, as appropriate, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders and all future Lenders . 101 10.5 Notice of Default. Agent shall not be deemed to have knowledge or ----------------- notice of the occurrence of any Default or Event of Default unless Agent has received notice from another Lender or Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "Notice of Default." If Agent receives such a notice or if the officers of Agent administering the Loans have actual knowledge of the occurrence of a Default or an Event of Default, Agent promptly shall give notice thereof to Lenders. Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Requisite Lenders; provided, that unless and -------- until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as Agent, in its discretion, deems advisable in the best interests of Lenders. 10.6 Non-Reliance on Agent and the Other Lenders. Each Lender expressly ------------------------------------------- acknowledges that neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it. Agent shall have no obligation or liability to any of the Lenders regarding the credit worthiness or financial condition of Borrower. No act by Agent hereinafter taken, including any review of Borrower, shall be deemed to constitute any representation or warranty by Agent to any Lender. Each Lender represents to Agent and each other Lender that, independently and without reliance upon Agent or any other Lender and based on such documents and information as it has deemed appropriate, it has made its own appraisal of and investigation into the business, operations, property, financial and other condition and credit worthiness of Borrower and has made its own decision to make its Loans hereunder and to enter into this Agreement. Each Lender also represents that, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it deems appropriate at the time, it shall continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and credit worthiness of Borrower. Except for notices, reports and other documents expressly required to be furnished to Lenders by Agent hereunder, Agent shall have no obligation or liability to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or credit worthiness of Borrower which may come into the possession of either of Agent or any of its officers, directors, employees, agents, attorneys- in-fact or affiliates; provided, that, if requested by any Lender, Agent shall -------- provide such Lender with copies of its most recent periodic field audit reports. 102 10.7 Indemnification. Each of the Lenders shall indemnify, defend and hold --------------- harmless Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), ratably according to their respective Proportionate Shares, from and against any and all claims, demands, lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages, actions, recoveries, judgments, suits, costs, expenses or disbursements of any kind whatsoever, including interest, penalties and reasonable attorneys' fees and costs, whether direct, indirect, consequential or incidental, which at any time (including at any time following the payment of the Obligations) may be imposed on, incurred by or asserted against Agent in any way relating to, resulting from or arising out of this Agreement or the other Loan Documents, the financing transaction contemplated hereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided, that no Lender -------- shall be liable for the payment of any portion of such claims, demands, lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages, actions, remedies, judgments, suits, costs, expenses or disbursements to the extent such result from Agent's gross negligence or willful misconduct. The agreements in this SECTION 10.7 shall survive the payment of the Obligations and shall be in addition to and not in lieu of any other indemnification agreements set forth in the Loan Documents. 10.8 Payments. If, in the opinion of Agent, the distribution of any amount -------- received by Agent in such capacity under this Agreement or the other Loan Documents might result in liability for Agent, Agent may refrain from making the distribution thereof until Agent's right to make such distribution shall have been adjudicated by a court of competent jurisdiction. If Agent so refrains from making any distribution, the amount thereof shall be held in an interest bearing account for the benefit of the Person or Persons ultimately determined to be entitled to such distribution. If a court of competent jurisdiction shall adjudge that any amount received from and distributed by Agent in such capacity as Agent is to be repaid, each Person to whom any such distribution shall have been made either (a) shall repay to Agent its proportionate share of the amount so adjudged to be repaid, or (b) shall repay the same in such manner and to such Persons as shall be determined by such court. 10.9 Agent in Its Individual Capacity. Agent in its individual capacity, -------------------------------- and its Affiliates, may make loans and other financial accommodations to, accept deposits from and generally engage in any kind of business with Borrower as though Agent was not Agent hereunder. With respect to the portion of the Loans made by it and its Note, Agent, in its individual capacity, shall have the same benefits, rights, powers and privileges under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not Agent, and the terms "Lender" and "Lenders" shall include Agent, in its individual capacity. 10.10 Successor Agent. Agent may resign as such upon 15 Business Days --------------- prior written notice to Lenders. If Agent shall resign as such under this Agreement, then the Requisite Lenders shall appoint from among Lenders a successor agent for Lenders. Upon acceptance of its appointment as successor agent, (a) such successor agent shall succeed to the rights, powers, privileges and duties of Agent, (b) the retiring Agent shall be discharged of all its obligations and liabilities in such capacity under this Agreement and the other Loan Documents, (c) the term "Agent" shall mean such successor agent effective upon its appointment, and (d) the retiring Agent's rights, powers and duties as Agent shall be terminated, without any 103 other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this SECTION 10 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 10.11 Adjustment. If any Lender (a "benefitted Lender") shall obtain any ---------- payment, whether voluntarily or involuntarily, by setoff or otherwise, on account of the Loans made by it, or receive any collateral therefor, in an amount that exceeds that portion of all payments or collateral obtained by all Lenders on account of the Loans to which such Lender would be entitled if all such payments and collateral were allocated among Lenders in accordance with the provisions of this Agreement, then such benefitted Lender shall purchase for cash from the other Lenders such portion of the Loans made by them, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders in accordance with the Proportionate Shares; provided, that if -------- all or any portion of such excess payment or benefits thereafter is recovered from such benefitted Lender, such purchase shall be rescinded and the purchase price and benefit returned to the extent of such recovery, but without interest. Each Lender so purchasing a portion of another Lender's Loans may exercise all rights of payment (including rights of setoff) with respect to such portion as fully as if such Lender were the direct holder of such portion. 10.12 Applicability of Section to Borrower. Notwithstanding any other ------------------------------------ provision contained in this SECTION 10, the rights and obligations of Borrower under this Agreement shall not be affected by any provision otherwise included in this SECTION 10. Borrower shall be permitted to rely on communications from Agent which it reasonably believes are made on behalf of Agent and, if specified therein, Lenders or the Requisite Lenders, and except as otherwise set forth specifically herein, all notices and payments to be made by Borrower hereunder shall be made to Agent. Further, if any Lender shall be in default hereunder, such default shall not affect the right and obligations of Borrower hereunder. 11. ASSIGNMENTS AND PARTICIPATIONS ------------------------------ 11.1 Successors and Assigns. This Agreement and the other Loan Documents ---------------------- shall be binding on and shall inure to the benefit of Borrower, Agent, Managing Agents, Issuing Lender, Lenders and their respective successors and assigns, except as otherwise provided herein or therein. Borrower may not assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or thereunder without the prior express written consent of all Lenders. Any purported assignment, transfer, hypothecation or other conveyance by Borrower without the prior express written consent of all Lenders shall be void. Neither Agent, Managing Agents, Issuing Lender nor any of the Lenders may sell, assign, transfer, grant a participation in, or otherwise dispose of all or any portion of its interest in this Agreement, any Note in favor of it, or the other Loan Documents, except as expressly provided herein. 11.2 Assignments. ----------- 104 (a) Each Lender may assign all or a portion of its Proportionate Share of the Loans and its Commitment and its right, title and interest under this Agreement and the other Loan Documents (including all or a portion of the Loans at the time owing to it) to one or more banks or other financial institutions, provided that each of the following conditions is satisfied: (i) the assignee shall be a bank or trust company organized under the laws of the United States of America or any state thereof having a combined capital and surplus of not less than $100,000,000 or other financial institution reasonably acceptable to Agent and Borrower; (ii) the assignee has executed and delivered to Agent an Assignment and Acceptance, together with any Notes subject to such assignment and a processing and recordation fee of $2,500; (iii) the proposed assignment is for a Commitment in an integral multiple of $1,000,000, unless such Lender is transferring its remaining Commitment amount and the remaining amount of such Lender's Commitment is not in an integral multiple of $1,000,000; (iv) if the proposed assignee is not already a Lender hereunder, then Agent and Borrower have given their prior approval of such assignment, which approval shall not be unreasonably withheld; and (v) after giving effect to such assignment, the assignee will hold a Commitment of not less than $10,000,000 and the assignor Lender, if it continues to be a Lender hereunder, will continue to hold a Commitment of not less than $10,000,000. Each Assignment and Acceptance shall include the proposed assignee's agreement, for the benefit of the trustee of Receivables Trust, Receivables Corporation, the "Investors" and the "Purchasers," each as defined in Appendix A to the Receivables Pooling Agreement, to be bound by the terms of the Intercreditor Agreement as if the proposed assignee were a party thereto. (b) Upon the sale, assignment, transfer or other disposition (other than the sale of a participation) of any of a Lender's right, title and interest under this Agreement and the other Loan Documents to any assignee in accordance with this SECTION 11.2, then upon the execution, delivery and acceptance of the Assignment and Acceptance, from and after the effective date specified therein, (i) the transferor Lender no longer shall be a party to this Agreement and the other Loan Documents, or have the rights, benefits and obligations under this Agreement or the other Loan Documents to the extent of the interest transferred (except for such rights, benefits and obligations that such Lender would retain under this Agreement or the other Loan Documents upon payment in full of the Obligations), and (ii) the assignee shall become a Lender, shall succeed to the rights and benefits and assume the obligations of such transferor Lender hereunder and thereunder to the extent of the interest transferred. (c) Borrower shall (i) execute and deliver, at the request of Agent, any amendment to any Loan Document to effectuate the provisions of SECTION 11.2(B), and (ii) use its best efforts to assist and cooperate with each Lender in any manner reasonably requested by such Lender to effect the sale of participations in or assignments of any of the Loan Documents or of any portion thereof or interest therein, including assistance in the preparation of appropriate disclosure documents or placement memoranda and provision of complete and correct information describing Borrower and its affairs to potential participants and assignees; provided, that Borrower shall have no -------- liability or responsibility for the accuracy or completeness of such documents, memoranda or information except to the extent the information contained therein is either (y) contained in this Agreement or any Exhibit or Schedule hereto, or (z) otherwise required to be provided pursuant to this Agreement or any of the Loan Documents. 105 (d) Upon the request of Agent, Borrower will make its senior management available to participate in meetings with Agent and Lenders from time to time at a location and at such time as may be agreed to by Borrower and Agent. 11.3 Participations. Any Lender may grant one or more participations in -------------- its interests in the Loan; provided, that (a) such Lender shall remain a -------- "Lender" for all purposes under this Agreement and such participant, to the extent of such participation, shall not be a "Lender" for any purpose under this Agreement, (b) if the proposed participant is not already a Lender hereunder, then such participant shall be a bank or trust company organized under the laws of the United States of America or any state thereof having a combined capital and surplus of not less than $100,000,000 or other financial institution reasonably acceptable to Agent and Borrower, (c) any such grant of a participation shall be made in compliance with all applicable state or Federal laws, rules, and regulations, (d) any such participation shall be divided pro rata between such Lender's share of the Advances and Letter of Credit Obligations, (e) if the proposed assignee is not already a Lender hereunder, then the proposed participation shall be for a Commitment of not less than $10,000,000, and (f) no Lender shall grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or the Loan Documents, except to the extent such amendment or waiver would: (i) extend the final maturity date for payment of the Loans in which such participant is participating; (ii) reduce the interest rate or the amount of principal or fees applicable to the Loans in which such participant is participating; (iii) release any Guarantor or terminate any Guaranty or the Parent Guaranty except as expressly provided herein or in any Guaranty or the Parent Guaranty; or (iv) release all or substantially all of the Collateral, except as expressly provided herein. In those cases in which a Lender grants rights to its participants to approve any amendment to or waiver of this Agreement or the other Loan Documents respecting the matters described in clauses (i) through (iv) of this SECTION 11.3, the relevant participation agreements shall provide for a voting mechanism whereby a majority of the amount of such Lender's portion of the Loans (irrespective of whether held by such Lender or participated) shall control the vote for all of such Lender's portion of the Loans. In the case of any participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents entered into in connection herewith (the participant's right against such Lender in respect of such participation to be those set forth in the participation or other agreement executed by such Lender and the participant relating thereto) and all amounts payable to any Lender hereunder shall be determined as if such Lender had not sold such participation. In no event shall any participant grant a participation in its participation interest in the Loans without the prior written consent of Borrower and Agent, which approval shall not be unreasonably withheld. 11.4 Disclosure. In connection with any assignments, participations or ---------- offers therefor pursuant to this SECTION 11, each Lender shall be entitled to provide to any assignee or participant or prospective assignee or participant such information pertaining to Borrower as such Lender may deem appropriate or such assignee or participant or prospective assignee or participant may request; provided, that each such assignee or participant or prospective assignee or - - - -------- participant shall execute a confidentiality agreement, substantially in the form of EXHIBIT F. --------- 106 11.5 Assignments and Participations as Units. Notwithstanding anything to --------------------------------------- the contrary contained in this Agreement or the other Loan Documents, no Lender or participant shall assign or sell any participation in its Proportionate Share of the Loans, except in the form of units consisting of a pro rata interest in the Advances and Letter of Credit Obligations. 12. MISCELLANEOUS ------------- 12.1 Complete Agreement; Modification of Agreement. ---------------------------------------------- (a) This Agreement and the other Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and may not be modified, altered or amended except by an agreement in writing signed by Borrower and the Requisite Lenders, except as provided below. (b) Except to the extent otherwise provided below, this Agreement amends, restates, and supersedes the Original Credit Agreement but does not constitute an accord and satisfaction or a novation of the obligations of Borrower under the Original Credit Agreement. Without limiting the generality of the foregoing, upon the satisfaction or written waiver by Agent and each Lender of each of the conditions set forth in SECTION 3.1, all rights and obligations of Borrower and Lenders under the Original Credit Agreement shall be automatically replaced with the rights and obligations set forth herein. If for any reason, each of the conditions set forth in SECTION 3.1 are not either satisfied or waived on or before December 31, 1994, then (i) this Agreement shall terminate and be of no force and effect, (ii) all of the rights and obligations of Borrower, Agent and Existing Lenders shall be as provided under the Original Credit Agreement and the Original Loan Documents, and (iii) Lenders that were not Existing Lenders shall have no further obligations. (c) Except as specifically set forth in this Agreement, no amendment or waiver of any provision of this Agreement, the Notes, or any other Loan Document, nor consent to any departure by Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Requisite Lenders; provided, that (i) to the extent such amendment or waiver would: (A) -------- extend the maturity date or required payment date for any payment of the Loan; (B) reduce the interest rate or the amount of principal or fees applicable to the Loan; (C) except in connection with a Qualified Borrower Public Offering, release any Guarantor or terminate any Guaranty or the Parent Guaranty, except as expressly provided herein or in any Guaranty or the Parent Guaranty; (D) change the definition of the Maximum Loan; (E) increase the borrowing percentage for Eligible Inventory set forth in the definition of Borrowing Base; (F) release all or substantially all of the Collateral; or (G) modify any provision of this SECTION 12.1 or any other provision which expressly requires the consent of all Lenders, it shall not be effective unless signed by all Lenders, (ii) the consent of Agent, the respective Managing Agent, or Issuing Lender, as the case may be, shall be required to modify any of their respective rights or duties, and (iii) no amendment that would increase or decrease the Commitment or Proportionate Share of any Lender shall be effective against such Lender without its consent, except (x) for any amendment that decreases the Commitments or 107 Proportionate Shares on a pro rata basis, or (y) as contemplated by SECTION 2.5(B). 12.2 Fees and Expenses. Borrower shall reimburse (x) Agent and each ----------------- Managing Agent for all reasonable out-of-pocket expenses incurred by such Person in connection with the preparation of the Loan Documents (including the reasonable fees and expenses of all of its counsel and advisors retained in connection with this Agreement and the other Loan Documents and the financing transaction contemplated hereby and thereby and advice in connection herewith and therewith), and (y) Agent for all reasonable out-of-pocket expenses incurred by Agent in connection with any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents. If, at any time or times, regardless of the existence of a Default or Event of Default, Agent shall employ counsel or other professional advisors, including environmental and management consultants, for advice or other representation or shall incur reasonable legal, appraisal, accounting, consulting or other costs and expenses in connection with: (a) any notice, amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or advice in connection with the administration of the loans made pursuant hereto or its rights hereunder or thereunder; or (b) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Managing Agent, Issuing Lender, any Lender, Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreements to be executed or delivered in connection therewith or herewith, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrower or any other Person that may be obligated to Agent, any Managing Agent, Issuing Lender or any Lender by virtue of the Loan Documents, including any litigation, contest, dispute, suit, case, proceeding or action (and any appeal or review) in connection with a case under the Bankruptcy Code, as now constituted or hereafter amended, or any other applicable Federal, state or foreign bankruptcy or other similar insolvency law; provided, that -------- Borrower shall not be liable under this SECTION 12.2(B) for any costs or expenses which are determined by a court of competent jurisdiction in a final non-appealable decision to have resulted from such Person's own gross negligence or willful misconduct; or (c) any attempt to enforce any rights of Agent, any Managing Agent, Issuing Lender or any Lender against Borrower or any other Person that may be obligated to Agent, any Managing Agent, Issuing Lender or any Lender by virtue of any of the Loan Documents; or (d) any attempt to (i) monitor the Loan, (ii) evaluate, observe, assess Borrower or its affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the Collateral; then, in such event, the reasonable attorneys' and other professional and service providers' fees arising from such services, including those of any appellate proceedings, and all reasonable expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this SECTION 12.2, shall be payable, in accordance with SECTION 6.3, by Borrower to the respective Person or Persons entitled to reimbursement hereunder, and 108 shall be additional Obligations secured under this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: paralegal fees, costs and expenses; accountants', environmental advisors', appraisers' and investment bankers' fees, costs and expenses; management and other consultants' fees, costs and expenses; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services. 12.3 No Waiver. The failure of Agent, Managing Agents, Issuing Lender, or --------- Requisite Lenders, at any time or times, to require strict performance by Borrower of any provision of this Agreement and any of the other Loan Documents shall not waive, affect or diminish any right of Agent, Managing Agents, Issuing Lender, or Lenders thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Requisite Lenders of an Event of Default by Borrower under the Loan Documents shall not suspend, waive or affect any other Event of Default by Borrower under this Agreement and any of the other Loan Documents whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by Borrower under this Agreement and no defaults by Borrower under any of the other Loan Documents shall be deemed to have been suspended or waived by Lenders, unless such suspension or waiver is by an instrument in writing signed by an officer of Agent, at the direction of Requisite Lenders, or, if required by SECTION 12.1(C)(I), at the direction of all Lenders, and directed to Borrower specifying such suspension or waiver. 12.4 Remedies. The rights and remedies of Agent or Lenders under this -------- Agreement shall be cumulative and nonexclusive of any other rights and remedies which Agent or any Lender may have under any other agreement, including the Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required. 12.5 Severability. Wherever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.6 Parties. This Agreement and the other Loan Documents shall be ------- binding upon, and inure to the benefit of, the successors of Borrower, Agent, Managing Agents, Issuing Lender, each Lender and the assigns, transferees and endorsees of Agent, Managing Agents, Issuing Lender and each Lender. 12.7 Conflict of Terms. Except as otherwise provided in this Agreement or ----------------- any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 109 12.8 Authorized Signature. Unless Agent has previously been notified in -------------------- writing by Borrower to the contrary, the signature of an officer of Borrower listed in SCHEDULE 12.8 upon any document or instrument delivered pursuant to ------------- this Agreement or the other Loan Documents shall bind Borrower and be deemed to be the act of Borrower affixed pursuant to and in accordance with resolutions duly adopted by Borrower's Board of Directors. 12.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS ------------- AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE COURTS OF THE STATE OF NEW YORK, SITUATED IN THE COUNTY OF NEW YORK, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE NON- EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDERS PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY ----- --- ---------- CONSENTS TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 12.10 OF THIS AGREEMENT, TOGETHER WITH A FACSIMILE TRANSMISSION OF SUCH SUMMONS, COMPLAINT OR OTHER PROCESS TO THE FACSIMILE NUMBERS FOR BORROWER AND ITS COUNSEL SET FORTH IN SECTION 12.10, SENT AT THE TIME SUCH SERVICE IS COMMENCED, AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT, MANAGING AGENTS, ISSUING LENDER, ANY LENDER OR BORROWER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION. 12.10 Notices. Except as otherwise provided herein, whenever it is ------- provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, or sent by facsimile transmission, with receipt confirmed, addressed as follows: 110 (a) If to GE Capital, in its capacity as Agent or Managing Agent, at: General Electric Capital Corporation 501 Merritt Seven, Third Floor Norwalk, Connecticut 06851 Attention: Mr. Charles D. Chiodo Facsimile No.: (203) 840-4560 With copies to: General Electric Capital Corporation 501 Merritt Seven, Third Floor Norwalk, Connecticut 06851 Attention: Legal Counsel Facsimile No.: (203) 840-4520 and Murphy, Weir & Butler 101 California Street, 39th Floor San Francisco, California 94111 Attention: Dick M. Okada, Esq. Facsimile No.: (415) 421-7879 (b) If to BTCo, in its capacity as Managing Agent or Issuing Lender, at: Bankers Trust Company 14 Wall Street New York, New York 10005 Attention: Mr. Jeffcott Ogden Facsimile No.: (212) 618-2630 With copies to: Dorsey & Whitney 350 Park Avenue New York, New York 10022 Attention: Joel M. Simon, Esq. Facsimile No.: (212) 888-8814 (c) If to Borrower, at: AmeriSource Corporation 300 Chesterfield Parkway Malvern, Pennsylvania 19355 Attention: Mr. Kurt J. Hilzinger Vice President and Treasurer Facsimile No.: (215) 647-0141 111 With copies to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103-2793 Attention: Craig L. Godshall, Esq. Facsimile No.: (215) 994-2222 (d) If to any Lender, at the Lending Office of such Lender, or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered (with receipt acknowledged), sent by facsimile transmission (with receipt confirmed), or three (3) Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 12.11 Survival. The representations and warranties of Borrower in this -------- Agreement shall survive the execution, delivery and acceptance hereof by the parties hereto and the closing of the financing transaction described herein or related hereto. 12.12 Section Titles. The Section titles and Table of Contents contained -------------- in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 12.13 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which shall, collectively constitute one agreement. 12.14 BTCo. Each of Agent, Lenders and Borrower acknowledge that BTCo will ---- be acting both as a Lender under this Agreement and as a lender under the first supplement to the Receivables Pooling Agreement. Borrower may request from time to time that Lenders (a) consent to certain actions, (b) waive or amend certain provisions of the Loan Documents, or (c) take or refrain from taking other similar actions to permit or facilitate certain events in connection with the Receivables Facility Documents, all of the foregoing being subject to the requisite approval of the Lenders or Requisite Lenders, as the case may be. In connection with any vote of Lenders in respect of matters addressed by the previous sentence, for so long as BTCo is a lender under the first supplement to the Receivables Pooling Agreement, (x) BTCo shall refrain from voting, and (y) the Commitment and Loans of BTCo shall be excluded from the Total Commitments and the amount of Obligations outstanding. BTCo shall not be liable to Agent, any Lender or Borrower as a result of the operation of this SECTION 12.14. 12.15 Designation of Senior Debt. The Loans are senior to the obligations -------------------------- of Borrower under or in 112 respect of the Subordinated Borrower Notes and constitute, and are entitled to the benefits of, "Senior Indebtedness," as such term is defined in the Subordinated Borrower Notes and instruments creating, evidencing or governing the Subordinated Borrower Notes. 12.16 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION --------------------------- WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. 113 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. AMERISOURCE CORPORATION, a Delaware corporation By ___________________________ Name _________________________ Title ________________________ LENDERS: ------- GENERAL ELECTRIC CAPITAL CORPORATION, as Agent, a Managing Agent and a Lender By ___________________________ Charles D. Chiodo Duly Authorized Signatory Lending Office: 501 Merritt Seven, Third Floor Norwalk, Connecticut 06851 Attention: Mr. Charles D. Chiodo Facsimile No.: (203) 840-4560 BANKERS TRUST COMPANY, as a Managing Agent, an Issuing Lender and a Lender By ___________________________ Fritz Thomas Vice President Lending Office: 14 Wall Street, Third Floor New York, New York 10005 Attention: Mr. Fritz Thomas Facsimile No.: (212) 618-2640 BANKAMERICA BUSINESS CREDIT, INC., formerly known as Security Pacific Business Credit Inc., as a Co-Agent and a Lender By ___________________________ George C. Markowsky Vice President Lending Office: 40 East 52nd Street, 2nd Floor New York, New York 10022 Attention: Robert Beninati, Account Administrator Telecopy No.: (212) 836-5172 HELLER FINANCIAL, INC., as a Co-Agent and as a Lender By ___________________________ Frank X. Cahill Assistant Vice President Lending Office: 101 Park Avenue, 12th Floor New York, New York 10178 Attention: Angelina Mendoza Telecopy No.: (312) 441-7341 BANK OF MONTREAL, as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: 115 South LaSalle Street, 12W Chicago, Illinois 60603 Attention: Irene M. Geller Facsimile No.: (312) 750-4314 BANK OF NEW YORK COMMERCIAL CORPORATION, as a Lender By ___________________________ Anthony Viola Vice President Lending Office: 530 Fifth Avenue, 3rd Floor New York, New York 10036 Attention: Doo Jack Louie, Assistant Vice President Telecopy No.: (212) 852-4517 BOT FINANCIAL CORPORATION, as a Lender By ___________________________ William R. York, Jr. Vice President Lending Office: 125 Summer Street, 4th Floor Boston, Massachusetts 02110 Attention: Paul Anagnostos, Operations Manager Telecopy No.: (617) 345-5250 with a copy to: 3141 Fairview Park Drive, Suite 600 Falls Church, Virginia 22042 Attention: Kenneth A. Slavitt Telecopy No.: (703) 204-0648 THE CIT GROUP/BUSINESS CREDIT, INC., as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: 1211 Avenue of Americas, 22nd Floor New York, New York 10036 Attention: Marvin Daniels, Assistant Secretary Joseph Primm, Assistant Secretary Telecopy No.: (212) 536-1329 CORESTATES BANK, N.A., as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: Broad and Chestnut Streets Philadelphia, Pennsylvania 19104 Attention: James D. Nelsen Telecopy No.: (215) 973-7814 THE FIRST NATIONAL BANK OF BOSTON, as a Lender By ___________________________ William C. Purinton Vice President Lending Office: 400 Perimeter Center Terrace, Suite 745 Atlanta, Georgia 30346 Attention: Pamela Petrick Telecopy No.: (404) 393-4166 GIROCREDIT BANK AKTIENGESELLSCHAFT DER SPARKASSEN, GRAND CAYMAN ISLAND BRANCH, as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: 65 East 55th Street, Park Avenue Tower New York, New York 10021 Attention: Orlando Diaz Facsimile No.: (212) 223-0283 HOUSEHOLD COMMERCIAL FINANCIAL SERVICES, INC., as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: 2700 Sanders Road Prospect Heights, Illinois 60070 Attention: Maria C. Pacios Facsimile No.: (708) 564-6238 LASALLE BANK, as a Lender By ___________________________ Christopher G. Clifford First Vice President Lending Office: 120 South LaSalle Street, Suite 509 Chicago, Illinois 60603 Attention: Lourdes Reyes Telecopy No.: (312) 750-6450 MERIDIAN BANK, as a Lender By ___________________________ Philip Newmuis, Jr. Assistant Vice President Lending Office: One Liberty Place, Suite 3600 Philadelphia, Pennsylvania 19103 Attention: Marie Giannone Telecopy No.: (215) 854-3774 NATIONSBANK OF GEORGIA, N.A., as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: 600 Peachtree Street, 13th Floor Atlanta, Georgia 30308 Attention: Betty Mills Facsimile No.: (404) 607-6439 SANWA BUSINESS CREDIT CORPORATION, as a Lender By ___________________________ Peter Skavla Region Credit Manager Lending Office: 500 Glen Pointe Centre West Teaneck, New Jersey 07666-6802 Attention: Bob Nadler Telecopy No.: (201) 836-4744 SHAWMUT BANK, N.A., as a Lender By ___________________________ Name _________________________ Title ________________________ Lending Office: One Federal Street, OF-3203 Boston, Massachusetts 02211 Attention: Salvatore Salzillo Facsimile No.: (617) 292-4358 EX-4.11 5 RECEIVED PURCHASE AGREEMENT Exhibit 4.11 ================================================================================ RECEIVABLES PURCHASE AGREEMENT dated as of December 13, 1994 between AMERISOURCE CORPORATION, as Seller and AMERISOURCE RECEIVABLES CORPORATION, as Purchaser ================================================================================ TABLE OF CONTENTS ARTICLE I AGREEMENT TO PURCHASE AND SELL SECTION 1.1 Agreement to Purchase and Sell ........................ 1 SECTION 1.2 Timing of Purchases and Contributions ................. 2 SECTION 1.3 Consideration for Purchases ........................... 5 SECTION 1.4 No Recourse ........................................... 5 SECTION 1.5 No Assumption of Obligations Relating to Receivables, Related Assets or Contracts ........... 5 SECTION 1.6 True Sales ............................................ 5 SECTION 1.7 Addition of Sellers ................................... 6 SECTION 1.8 Termination of Status as a Seller ..................... 6 ARTICLE II CALCULATION OF PURCHASE PRICE SECTION 2.1 Calculation of Purchase Price ......................... 7 SECTION 2.2 Definitions and Calculations Related to Purchase Price Percentage .......................... 8 ARTICLE III PAYMENT OF PURCHASE PRICE; SERVICING, ETC. SECTION 3.1 Purchase Price Payments ............................... 9 SECTION 3.2 The ARC Note .......................................... 11 SECTION 3.3 Application of Collections and Other Funds ............ 11 SECTION 3.4 Servicing of Receivables and Related Assets ........... 12 SECTION 3.5 Adjustments for Noncomplying Receivables, Dilution and Cash Discounts ........................... 12 SECTION 3.6 Payments and Computations, Etc ........................ 12 ARTICLE IV CONDITIONS TO PURCHASES SECTION 4.1 Conditions Precedent to Initial Purchase .............. 13 SECTION 4.2 Certification as to Representations and Warranties .... 14
SECTION 4.3 Effect of Payment of Purchase Price ................... 14 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1 Representations and Warranties of the Seller .......... 15 SECTION 5.2 Representations and Warranties of ARC ................. 20 ARTICLE VI GENERAL COVENANTS OF THE SELLER SECTION 6.1 Affirmative Covenants ................................. 21 SECTION 6.2 Reporting Requirements ................................ 24 SECTION 6.3 Negative Covenants .................................... 25 ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE TRANSFERRED ASSETS SECTION 7.1 Rights of ARC ......................................... 28 SECTION 7.2 Responsibilities of the Seller ........................ 28 SECTION 7.3 Further Action Evidencing Purchases ................... 29 SECTION 7.4 Collection of Receivables; Rights of ARC and Its Assignees .............................. 30 ARTICLE VIII TERMINATION SECTION 8.1 Termination by the Seller ............................. 31 SECTION 8.2 Automatic Termination ................................. 31 ARTICLE IX INDEMNIFICATION SECTION 9.1 Indemnities by the Seller ............................. 32
ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments; Waivers, Etc ............................. 34 SECTION 10.2 Notices, Etc ......................................... 34 SECTION 10.3 Cumulative Remedies .................................. 35 SECTION 10.4 Binding Effect; Assignability; Survival of Provisions ............................... 35 SECTION 10.5 Governing Law ........................................ 35 SECTION 10.6 Costs, Expenses and Taxes ............................ 35 SECTION 10.7 Submission to Jurisdiction ........................... 36 SECTION 10.8 Waiver of Jury Trial ................................. 36 SECTION 10.9 Integration .......................................... 37 SECTION 10.10 Counterparts ......................................... 37 SECTION 10.11 Acknowledgment and Consent ........................... 37 SECTION 10.12 No Partnership or Joint Venture ...................... 38 SECTION 10.13 No Proceedings ....................................... 38 SECTION 10.14 Severability of Provisions ........................... 38 SECTION 10.15 Recourse to ARC ...................................... 38
EXHIBITS EXHIBIT A Form of ARC Note EXHIBIT B Form of AmeriSource Certificate EXHIBIT C Form of Seller Assignment Certificate SCHEDULES SCHEDULE 1 Litigation and Other Proceedings SCHEDULE 2 Offices of the Seller where Records are Maintained SCHEDULE 3 Legal Names, Trade Names and Names Under Which the Companies Do Business SCHEDULE 4 Changes in Financial Condition APPENDIX APPENDIX A Definitions This RECEIVABLES PURCHASE AGREEMENT, dated as of December 13, 1994 (this "Agreement"), is made between AMERISOURCE CORPORATION, a Delaware corporation (the "Seller"), and AMERISOURCE RECEIVABLES CORPORATION, a Delaware corporation ("ARC"). Except as otherwise defined herein, capitalized terms have the meanings that Appendix A assigns to them, and this Agreement shall be ---------- interpreted in accordance with the conventions set forth in Parts B, C and D of ------- - - Appendix A. - - - ---------- WHEREAS, pursuant to the Pooling Agreement, ARC intends to transfer its interests in the Receivables sold pursuant hereto, together with Receivables contributed to ARC by the Seller from time to time, to the Trust in order to, among other things, finance its purchases hereunder; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I AGREEMENT TO PURCHASE AND SELL SECTION 1.1 Agreement to Purchase and Sell . On the terms and subject to ------------------------------- the conditions set forth in this Agreement (including the conditions to purchases set forth in Article IV), the Seller agrees to sell, transfer, assign, ---------- set over and otherwise convey to ARC and ARC agrees to purchase from the Seller, at the times set forth in Section 1.2, all of the Seller's right, title and ----------- interest in, to and under: (a) each Receivable of the Seller (other than Contributed Receivables) and any Notes Receivable that existed and were owing to the Seller as at the closing of the Seller's business on the Initial Cut-Off Date, (b) each Receivable created by the Seller (other than Contributed Receivables) and any Notes Receivable that arise during the period from and including the closing of the Seller's business on the Initial Cut-Off Date to but excluding the Purchase Termination Date, (c) all Related Security with respect to all Receivables (other than Contributed Receivables) of the Seller, (d) all proceeds of the foregoing, including all funds received by any Person in payment of any amounts owed (including invoice prices, finance charges, interest and all other charges, if any) in respect of any Receivable described above (other than a Contributed Receivable) or Related Security with respect to any such Receivable, or otherwise applied to repay or discharge any such Receivable (including insurance payments that the Seller or the Servicer applies in the ordinary course of its business to amounts owed in respect of any such Receivable (it being understood that property insurance covering inventory is not so applied and is not included in this grant) and net proceeds of any sale or other disposition of repossessed goods that were the subject of any such Receivable) or other collateral or property of any Obligor or any other party directly or indirectly liable for payment of such Receivables (other than Returned Goods), and (e) all Records relating to any of the foregoing. As used herein, (i) "Purchased Receivables" means the items listed above in clauses (a) and (b), (ii) "Related Purchased Assets" means the items listed - - - ----------- --- above in clauses (c), (d) and (e), (iii) "Related Assets" means the Related ----------- --- --- Purchased Assets and the Related Contributed Assets, (iv) "Purchased Assets" means the Purchased Receivables and the Related Purchased Assets, and (v) "Transferred Assets" means the Purchased Receivables, the Contributed Receivables and the Related Assets. SECTION 1.2 Timing of Purchases and Contributions . -------------------------------------- (a) Closing Date Purchases. All of the Purchased Assets of the ---------------------- Seller that existed at the closing of the Seller's business on the Initial Cut- Off Date will be sold or (in accordance with the Subscription Agreement) contributed automatically to ARC on the Closing Date. (b) Regular Purchases and Contributions. Except as otherwise provided in ----------------------------------- Section 8.2, until the end of Phase I (or, if earlier, the Purchase Termination - - - ----------- Date), each Receivable and the Related Assets with respect thereto shall be sold by the Seller to ARC unless the Receivable and Related Assets with respect thereto have been contributed by the Seller to ARC in accordance with the Subscription Agreement. The time at which each such sale and contribution becomes effective shall be determined in accordance with the remaining provisions of this Section 1.2. During Phase II, until the Purchase Termination ----------- Date and except as otherwise provided in Section 8.2, each Receivable shall be ----------- deemed to have been sold by the Seller to ARC immediately (and without further action by any Person) upon the opening of business on the Determination Date for such Receivable, unless the Receivable and Related Assets have been contributed to ARC in accordance with the Subscription Agreement at such time. (c) Determination Date Calculations. No later than 11:00 a. m., New York ------------------------------- City time, on each Determination Date during Phase I, the Servicer will determine (which determination will be set forth in the Daily Report for such Determination Date): page 2 (i) the aggregate Unpaid Balance of Receivables (the "Available Receivables") originated on each Origination Date occurring on or after the previous Business Day but prior to such Determination Date, (ii) the Minimum Return for the Available Receivables, (iii) the amount of the Cash Transfer (if any) that would be made on such day if the Available Receivables were sold by the Seller to ARC, and transferred by ARC to the Trust, on such day, (iv) the net increase (if any) that would be made in the ARC Revolving Amount on such day if the Available Receivables were sold by the Seller to ARC, and transferred by ARC to the Trust, on such day, (v) the "Transfer Value" for the Available Receivables, which shall be the sum of the amounts determined pursuant to clauses (iii) ------------- and (iv) above, and ---- (vi) the excess (which may be a positive or negative number) of the Transfer Value of the Available Receivables over the Minimum Return for the Available Receivables; any such negative excess being the "Shortfall" for such Determination Date. (d) Sale Timing if No Shortfall Exists. If there is no Shortfall on such ---------------------------------- Determination Date (and no Look Back Period is then in effect), the Available Receivables will be sold by the Seller to ARC on that day, effective as of the time the Trustee initiates a wire transfer of that day's Cash Transfer to ARC; provided, that on any such Determination Date for which there is no Cash Transfer, such sale by the Seller shall be effective upon the Trustee's receipt of the Daily Report for such day. (e) Sale Timing if a Shortfall Exists. If a Shortfall shall exist --------------------------------- on such Determination Date: (i) the Servicer shall, no later than 11:00 a.m., New York time, on the Determination Date, notify the Trustee and the Seller Agent by telephone (to be promptly confirmed by telecopy), (ii) the Seller shall deliver to the Seller Agent, no later than 11:15 a.m., New York time, on the Determination Date, a certificate in the form attached as Exhibit B (the "AmeriSource Certificate") signed by a senior officer of AmeriSource identified pursuant to the Original Seller Credit Agreement as being acceptable to the Seller Agent for such purpose that (A) specifies whether an Event of Default or an Unmatured Event of Default then exists (and, if such an event exists, describing such event in detail), and (B) sets forth the End-of-the-Day Seller Excess Borrowing Base page 3 for such day, as well as the calculation thereof. The AmeriSource Certificate may provide that the End-of-the-Day Seller Excess Borrowing Base has been calculated on the basis of the most recently required Borrowing Base Certificate under the Original Seller Credit Agreement, but in that event the AmeriSource Certificate shall also include a representation and warranty by AmeriSource to Seller Agent and each Seller Party that AmeriSource has no reason to believe that the End-of-the-Day Seller Excess Borrowing Base set forth therein would be any lower than $40,000,000 if calculated on the basis of a new Borrowing Base Certificate delivered under the Original Seller Credit Agreement as of the Determination Date. (iii) a period (the "Look Back Period") will commence; it being understood that the Look Back Period will end on the date the Trustee receives or is deemed to receive a Stop Date Notice or a Confirmation Notice, and (iv) the Affected Receivables will not be sold by the Seller to ARC, or transferred by ARC to the Trust, unless and until the Trustee receives or is deemed to receive a Confirmation Notice. (f) Deemed Confirmation Notice. If on the basis of the AmeriSource -------------------------- Certificate the End-of-the-Day Seller Excess Borrowing Base equals or exceeds $40,000,000, the Seller shall notify the Trustee and the Servicer as soon as practical in writing. Such notice shall be deemed to constitute a Confirmation Notice from the Seller Agent to the Trustee and the Servicer. (g) Additional Look Back Period Calculations. On each Business Day ---------------------------------------- (other than the first Determination Date) falling in a Look Back Period, the mechanics described in clauses 1.2(c) through 1.2(f) will be repeated, with the -------------- ------ modifications that (i) all calculations (including calculations of the permitted Cash Transfer, the Transfer Value, the Shortfall and the End-of-the-Day Excess Borrowing Base) shall be made on a cumulative basis, as if all of the days in the Look Back Period were a single day, (ii) references to "Available Receivables" shall be deemed to be references to all Affected Receivables arising during the Look Back Period, (iii) references to the Determination Date will be deemed to be references to the day on which such mechanics are performed, (iv) Segregated Cash shall be recomputed on the basis of such day's Daily Reports, and (v) no additional Look Back Period will commence, and instead the existing Look Back Period will continue. If, on any such day, there is no Shortfall on such a cumulative basis or, on the basis of the AmeriSource Certificate, the End-of-the-Day Seller Excess Borrowing Base equals or exceeds $40,000,000, then the Seller shall notify the Trustee and the Servicer in writing, and the Servicer shall cause Segregated Cash in an amount not less than the amount assumed to be received by the Seller Agent for purposes of the calculation of the End-of-the-Day Seller Excess Borrowing Base to be transferred by the Trust to ARC on such day. Such notice from the Seller to the Trustee and the Servicer shall be deemed to constitute a Confirmation Notice from the Seller Agent to the Trustee and the Servicer. page 4 (h) Effect of Confirmation Notice. If the Trustee receives a ----------------------------- Confirmation Notice by 2:00 p. m., New York City time, on any Business Day (including the Determination Date) during the Look Back Period, the Affected Receivables shall be sold by the Seller to ARC on such day. If the Trustee receives a Confirmation Notice on a day which is not a Business Day, or after 2:00 P.M., New York City time, on a Business Day, the Affected Receivables shall be sold by the Seller to ARC on the next Business Day. Any such sales shall be effective as of the time the Trustee initiates a wire transfer of an amount equal to the Segregated Cash (including that day's Cash Transfer) to ARC; provided, that if the amount of such Segregated Cash is zero, such sale by the Seller shall be effective upon the Trustee's receipt of the Confirmation Notice. (i) Deemed Stop Date Notice. If the Seller Agent has not delivered ----------------------- (or been deemed to deliver) either a Stop Date Notice or a Confirmation Notice to the Trustee by 11:15 a.m., New York time, on the 5th Business Day after the Determination Date in any Look Back Period, the Seller Agent shall be deemed to have given a Stop Date Notice on such day. (j) Trustee Reliance. The Trustee shall be entitled to rely ---------------- exclusively on the Servicer's determination of whether a Shortfall exists or the conditions specified in Section 1.2(f) or 1.2(g) exist, and such determination -------------- ------ shall be binding on all parties to the Transaction Documents. SECTION 1.3 Consideration for Purchases . On the terms and subject to the ---------------------------- conditions set forth in this Agreement, ARC agrees to make Purchase Price payments to the Seller in accordance with Article III. ----------- SECTION 1.4 No Recourse . Except as specifically provided in this ------------ Agreement, the sale and purchase of Purchased Assets under this Agreement shall be without recourse to the Seller; it being understood that the Seller shall be liable to ARC for all representations, warranties, covenants and indemnities made by the Seller pursuant to the terms of this Agreement, all of which obligations are limited so as not to constitute recourse to the Seller for the credit risk of the Obligors. SECTION 1.5 No Assumption of Obligations Relating to Receivables, Related ------------------------------------------------------------- Assets or Contracts . Neither ARC, the Servicer nor the Trustee shall have any - - - ------------------- obligation or liability to any Obligor or other customer or client of the Seller (including any obligation to perform any of the obligations of the Seller under any Receivable, related Contracts or any other related purchase orders or other agreements). No such obligation or liability is intended to be assumed by ARC, the Servicer or the Trustee hereunder, and any assumption is expressly disclaimed. SECTION 1.6 True Sales . The Seller and ARC intend the transfers of ---------- Receivables hereunder to be true sales by the Seller to ARC that are absolute and irrevocable and that provide ARC with the full benefits of ownership of the Receivables, and neither the Seller page 5 nor ARC intends the transactions contemplated hereunder to be, or for any purpose to be characterized as, loans from ARC to the Seller. SECTION 1.7 Addition of Sellers . Any Subsidiary or Affiliate of the -------------------- Seller may become a Seller hereunder and sell its accounts receivable and property of the types that constitute Related Assets hereunder to ARC if the Rating Agency Condition is satisfied with respect to such addition. The Seller and its Subsidiary or Affiliate that is proposed to be added as a Seller shall give to ARC and the Applicable Rating Agencies not less than 30 days' prior written notice of the effective date of the addition of the Subsidiary or Affiliate as a Seller. Once the notice has been given, any addition of a Subsidiary or Affiliate of the Seller as a Seller pursuant to this section shall become effective on the first Business Day following the expiration of the 30- day period (or such later date as may be specified in the notice) on which (i) the Rating Agency Condition has been satisfied, (ii) the Seller has given the notice described in Section 3.05(e) of the Pooling Agreement to ARC, (iii) the Servicer shall have delivered to the Trustee a supplement to the Settlement Statement then in effect as described in Section 3.05(e) of the Pooling Agreement and (iv) the Subsidiary or Affiliate and the parties hereto shall have executed and delivered the agreements, instruments and other documents and the amendments or other modifications to the Transaction Documents, in form and substance reasonably satisfactory to ARC and the Trustee, that ARC or the Trustee reasonably determines are necessary or appropriate to effect the addition. SECTION 1.8 Termination of Status as a Seller . (a) At any time when ---------------------------------- more than one Person is a Seller, a Seller may terminate its obligation to sell its Receivables and Related Assets to ARC if: (i) the Seller (a "Terminating Seller") shall have given ARC not less than 30 days' prior written notice of its intention to terminate the obligations, which notice shall be given by ARC to the Trustee and the Applicable Rating Agencies, (ii) an Authorized Officer of the Terminating Seller shall have certified that the termination by the Terminating Seller of its status as a Seller will not have a Material Adverse Effect, and (iii) both immediately before and after giving effect to the termination by the Terminating Seller, no Liquidation Event or Unmatured Liquidation Event or Pay-Out Event shall have occurred and be continuing or shall reasonably be expected to occur. Any termination by a Seller shall become effective on the first Business Day that follows the day on which the requirements of clauses (a)(i) through -------------- (iii) shall have been satisfied (or such later date specified in the notice or - - - ----- certificate referred to in the clauses). Any termination by a Seller shall terminate its right and obligation to sell Receivables and Related Assets hereunder to ARC and ARC's agreement, with respect to the Terminating Seller, to purchase the Receivables and Related Assets; provided, however, that the page 6 termination shall not relieve the Terminating Seller of any of its other Obligations, to the extent the Obligations relate to Receivables (and Related Assets with respect thereto) originated by the Terminating Seller prior to the effective date of the termination. (b) A Seller's right and obligation to sell its Receivables and Related Assets to ARC shall terminate immediately if the Seller ceases to be a Subsidiary of the Seller; provided, however, that the termination shall not relieve the Seller of any of its other Obligations, to the extent the Obligations relate to Receivables (and Related Assets with respect thereto) originated by the Seller prior to the effective date of the termination. ARTICLE II CALCULATION OF PURCHASE PRICE SECTION 2.1 Calculation of Purchase Price. (a) On each Business Day ----------------------------- (including the Closing Date), the Servicer shall deliver to ARC, the Trustee and the Seller a Daily Report with respect to ARC's purchases of Receivables from the Seller: (i) that are to be made on the Closing Date (in the case of the Daily Report to be delivered on the Closing Date) or (ii) that were made on the immediately preceding Business Day (in the case of each subsequent Daily Report). (b) On each day when Receivables or Notes Receivable are purchased by ARC from the Seller pursuant to Article I, the "Purchase Price" to be paid to the --------- Seller on such day for the Purchased Receivables and Related Purchased Assets that are to be sold by the Seller on such day shall be determined in accordance with the following formula: PP = AUB x PPP where: PP = the aggregate Purchase Price for the Purchased Receivables and Related Purchased Assets to be purchased from the Seller on such day AUB the "Aggregate Unpaid Balance" of the Purchased Receivables that are to be purchased from the Seller on such day. For purposes of this calculation, "Aggregate Unpaid Balance" shall mean (i) for purposes of calculating the Purchase Price to be paid to the Seller on the Closing Date, the sum of the Unpaid Balance of each Receivable generated by the Seller, as measured as at the closing of the Seller's business on the page 7 Initial Cut-Off Date, and (ii) for purposes of calculating the Purchase Price on each Business Day thereafter, the sum of the Unpaid Balance of each Receivable to be purchased from the Seller on such day, calculated at the time of the Receivable's sale to ARC PPP = the Purchase Price Percentage applicable to the Receivables to be purchased from the Seller on such day, as determined pursuant to Section 2.2. ----------- SECTION 2.2 Definitions and Calculations Related to Purchase Price ------------------------------------------------------ Percentage . ----------- (a) "Purchase Price Percentage" for the Receivables to be sold by the Seller on any day shall mean the percentage determined in accordance with the following formula: PPP = 100% - (LD + PDRR + RGP) where: PPP = the Purchase Price Percentage in effect on such day for the Seller, LD = the Loss Discount (expressed as a percentage) in effect on such day for the Seller, as determined pursuant to subsection (b) -------------- below, PDRR = the Purchase Discount Reserve Ratio (expressed as a percentage) in effect on such day for the Seller, as determined on such day pursuant to subsection (c) below, and -------------- RGP = the Returned Goods Percentage. The Purchase Price Percentage, the Loss Discount and the Purchase Discount Reserve Ratio shall be recomputed by the Servicer on each Report Date, in each case as of the then most recent Cut-Off Date, and shall become effective on the next Settlement Date. (b) "Loss Discount" in effect for any day for the Seller means a percentage equal to the Loss to Liquidation Ratio (expressed as a percentage) as in effect on such day (it being understood that the allocation of certain miscellaneous items will be required to be estimated for this purpose). (c) "Purchase Discount Reserve Ratio" for the Receivables to be sold by the Seller on any day shall mean a percentage determined in accordance with the following formula: PDRR = (TD x DR) + PD -- 360 page 8 where: PDRR = the Purchase Discount Reserve Ratio in effect on such day for the Seller, TD = the Turnover Days for the Receivables originated by the Seller during the immediately preceding Calculation Period, DR = the Discount Rate (expressed as a percentage) in effect on such day as determined pursuant to subsection (d) below, and PD = a profit discount equal to 0.25%. (d) "Discount Rate" for the Receivables to be sold by the Seller on any day shall mean a fraction (expressed as a percentage) having (i) a numerator equal to 12, multiplied by an amount equal to the accrued Carrying Costs for the immediately preceding Calculation Period, and (ii) a denominator equal to the aggregate Unpaid Balance of the Receivables as of the last day of the immediately preceding Calculation Period. ARTICLE III PAYMENT OF PURCHASE PRICE; SERVICING, ETC. SECTION 3.1 Purchase Price Payments. (a) On the Closing Date and on the ----------------------- Business Day following each day on which any Receivables are purchased (or deemed purchased) from the Seller by ARC pursuant to Article I, on the terms and --------- subject to the conditions of this Agreement, ARC shall pay to the Seller the Purchase Price for the Receivables and Related Assets purchased on such day by ARC from the Seller by (i) making a cash payment (on the basis of the Purchase Price owing to the Seller) to the Seller to the extent that ARC has cash available to make the payment pursuant to Section 3.3 and (ii) if the Purchase ----------- Price to be paid to the Seller for the Receivables and Related Assets exceeds the amount of any cash payment on such day to the Seller pursuant to clause (i), ---------- by automatically increasing the principal amount outstanding under the ARC Note by the amount of the excess. In addition, on any Business Day ARC may prepay the Purchase Price to be paid to the Seller for Receivables and Related Assets generated on a subsequent Business Day. For purposes of the remaining provisions of this section, the Purchase Price otherwise payable on any day by ARC to the Seller shall be deemed to be reduced by cumulative unused amount of such prepayments. (b) On each Business Day, the "Noncomplying Receivables and Dilution Adjustment" shall be equal to the difference (whether the difference is positive or negative) between (i) the sum of (A) the Seller Dilution Adjustment, if any, for the immediately preceding page 9 Business Day, as shown in the Daily Report for such day, plus (B) the Seller Noncomplying Receivables Adjustment, if any, for the immediately preceding Business Day, as shown in the Daily Report for such day, in the case of each of clauses (A) and (B), as the amounts are determined pursuant to Section 3.5, - - - ----------- --- ----------- minus (ii) the amount of any payments (if any) that ARC shall have received on the immediately preceding Business Day on account of a Seller Noncomplying Receivable that has been the subject of an earlier Seller Noncomplying Receivables Adjustment. If the Noncomplying Receivables and Dilution Adjustment is positive on any day, ARC shall reduce the Purchase Price payable to the Seller on such day by the absolute value of the Noncomplying Receivables and Dilution Adjustment. If instead the Noncomplying Receivables and Dilution Adjustment for the Seller is negative on any day, ARC shall increase the Purchase Price payable to the Seller on suc h day by the absolute value of the Noncomplying Receivables and Dilution Adjustment. (c) If a positive Noncomplying Receivables and Dilution Adjustment for the Seller on any day exceeds the Purchase Price payable by ARC to the Seller on such day, or if such day falls on or after the Purchase Termination Date, then, if the Seller continues to hold the ARC Note, the principal amount of that ARC Note shall be reduced automatically by the amount of the excess. (d) If, on any day prior to the Purchase Termination Date, the principal amount of the ARC Note is zero, then the amount of the excess of a positive Noncomplying Receivables and Dilution Adjustment for the Seller on such day over the Purchase Price payable by ARC to the Seller on such day (the "Purchase Price Credit") shall be credited against the Purchase Price payable by ARC to the Seller for subsequent Purchases of Receivables and Related Assets by ARC. If any Purchase Price Credit for the Seller has not been fully applied on or prior to the tenth Business Day (or mutually agreed upon earlier day) after the creation of the Purchase Price Credit, then, on the Business Day that follows the end of the ten Business Day (or shorter) period, the Seller shall pay to ARC in cash the remaining unapplied amount of the Purchase Price Credit. (e) If, on any day on or after the Purchase Termination Date, the principal amount of the ARC Note has been reduced to zero and there is a positive Noncomplying Receivables and Dilution Adjustment for the Seller for such day, then the Seller shall pay to ARC in cash the amount of the Noncomplying Receivables and Dilution Adjustment on the next succeeding Business Day. (f) If, on any day on or after the Purchase Termination Date, there is a negative Noncomplying Receivables and Dilution Adjustment for the Seller for such day, then ARC shall pay to the Seller in cash the amount of the Noncomplying Receivables and Dilution Adjustment no later than the Final Maturity Date, and the amount, until paid, shall bear interest at the rate of interest publicly announced from time to time by the Trustee as its reference rate, which interest shall also be paid no later than the Final Maturity Date. page 10 SECTION 3.2 The ARC Note . (a) On the Closing Date, ARC will deliver to ------------- the Seller a promissory note, substantially in the form of Exhibit A, payable --------- to the order of the Seller (the promissory note, as the same may be amended, supplemented, endorsed or otherwise modified from time to time, together with any promissory note issued from time to time in substitution therefor or renewal thereof in accordance with the Transaction Documents, being herein called the "ARC Note"), that is subordinated to all Senior Interests now or hereafter arising under or in connection with the Pooling Agreement. The ARC Note is payable in full on the date that is twelve months after the date on which all Investor Certificates and Purchased Interests have been repaid in full and the Revolving Periods for all Investor Revolving Certificates and Purchased Interests have terminated. The ARC Note bears interest at a rate per annum equal to the rate publicly announced by the Trustee from time to time as its "reference" rate, determined as of each Cut-Off Date. ARC may prepay all or part of the outstanding balance of the ARC Note from time to time without any premium or penalty, unless the prepayment would result in a default in ARC's payment of any other amount required to be paid by it under any Transaction Document; provided, however, that no Liquidation Event or Unmatured Liquidation Event has occurred. (b) The Seller (or its designee) shall hold the ARC Note for the benefit of the Seller and shall make all appropriate recordkeeping entries with respect to the ARC Note or otherwise to reflect the payments on and adjustments of the ARC Note. The Servicer's books and records shall constitute rebuttable presumptive evidence of the principal amount of and accrued interest on the ARC Note at any time. The Seller hereby irrevocably authorizes the Servicer to mark the ARC Note "CANCELLED" and return it to ARC upon the final payment thereof. SECTION 3.3 Application of Collections and Other Funds. If, on any day, ------------------------------------------ ARC receives proceeds of transfers pursuant to the Pooling Agreement, ARC shall apply the funds as follows: (a) first, to pay its existing expenses and to set aside funds for the payment of expenses that are then accrued (in each case to the extent such expenses are permitted to exist under Section 7.02(m) of the Pooling --------------- Agreement). (b) second, to pay the Purchase Price pursuant to Section 3.1 for ----------- Receivables and Related Assets purchased by ARC from the Seller on such day (in the case of the Closing Date) or the next preceding Business Day, and (c) third, in such order as ARC may elect, (A) to repay amounts owed by ARC to the Seller under the ARC Note, provided, however, that no Liquidation Event or Unmatured Liquidation Event has occurred,(B) to pay amounts owed pursuant to Section 3.1(f), or (C) to declare and pay -------------- dividends to the Seller to the extent permitted by law, so long as ARC shall be in compliance with Section 7.02(o) of the Pooling Agreement after giving effect to the dividends. page 11 SECTION 3.4 Servicing of Receivables and Related Assets . Consistent with -------------------------------------------- ARC's ownership of the Receivables and the Related Assets, as between the parties to this Agreement, ARC shall have the sole right to service, administer and collect the Receivables, to assign the right and to delegate the right to others. Without limiting the generality of Section 10.11, the Seller hereby ------------- acknowledges and agrees that ARC shall assign to the Trustee for the benefit of the Certificateholders the rights and interests granted by the Seller to ARC hereunder and agrees to cooperate fully with the Servicer and the Trustee in the exercise of the rights. As more fully described in Section 7.4(b) and in the -------------- Pooling Agreement, the Trustee may exercise the rights in the place of ARC (as assignee or otherwise) only after the designation of a Servicer other than the Seller pursuant to Section 10.02 of the Pooling Agreement. SECTION 3.5 Adjustments for Noncomplying Receivables, Dilution and Cash ----------------------------------------------------------- Discounts . (a) If at any time any of ARC, the Servicer, the Trustee or the - - - ---------- Seller shall determine that any Receivable identified by the Servicer as an Eligible Receivable on the date of Purchase thereof by ARC or the contribution thereof to ARC was in fact a Seller Noncomplying Receivable on such date, or that any of the representations and warranties made by the Seller in Section ------- 5.1(k) with respect to the Receivable was not true on such date, the Seller - - - ------ shall be deemed to have received on the date of such determination a Collection of the Receivable in an amount equal to the Unpaid Balance of the Receivable (the sum of all such amounts for the Seller on any day being called the "Seller Noncomplying Receivables Adjustment" for the Seller for such day), and the Seller shall pay the amount of the Seller Noncomplying Receivables Adjustment to ARC in the manner provided for in Section 3.1. ----------- (b) If on any day the aggregate Unpaid Balance of the Receivables sold or contributed to ARC on or before such date by the Seller is reduced in any manner described in the definition of "Dilution" or on account of any Cash Discounts (the total of the reductions being called the "Seller Dilution Adjustment" for the Seller for such day), then the Seller shall be deemed to have received on such day a Collection of Receivables in the amount of the Seller Dilution Adjustment and the Seller shall pay the amount to ARC in the manner provided in Section 3.1. - - - ----------- SECTION 3.6 Payments and Computations, Etc . (a) All amounts to be paid ------------------------------- by the Seller to ARC hereunder shall be paid in accordance with the terms hereof no later than 2:00 p. m., New York City time, on the day when due in Dollars in immediately available funds to an account that ARC shall from time to time specify in writing. Payments received by ARC after such time shall be deemed to have been received on the next Business Day. In the event that any payment becomes due on a day that is not a Business Day, then the payment shall be made on the next Business Day. The Seller shall, to the extent permitted by law, pay to ARC, on demand, interest on all amounts not paid when due hereunder at 2% per annum above the interest rate on the ARC Note in effect on the date the payment was due; provided, however, that the interest rate shall not at any time exceed the maximum rate page 12 permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. (b) All amounts to be paid by ARC to the Seller hereunder shall be paid no later than 2:00 p. m., New York City time, on the day when due in Dollars in immediately available funds to an account that the Seller shall from time to time specify in writing. Payments received by the Seller after such time shall be deemed to have been received on the next Business Day. In the event that any payment becomes due on a day that is not a Business Day, then such payment shall be made on the next Business Day. ARTICLE IV CONDITIONS TO PURCHASES SECTION 4.1 Conditions Precedent to Initial Purchase. The initial ---------------------------------------- purchase hereunder is subject to the conditions precedent that (i) each of the conditions precedent to the execution, delivery and effectiveness of each other Transaction Document (other than a condition precedent in any other Transaction Document relating to the effectiveness of this Agreement) shall have been fulfilled to the satisfaction of ARC, and (ii) ARC shall have received (or in the case of subsection (g) below, shall have delivered) each of the following, -------------- on or before the Closing Date, each (unless otherwise indicated) dated the date hereof or the Closing Date and each in form and substance satisfactory to ARC: (a) Seller Assignment Certificates. A Seller Assignment ------------------------------ Certificate in the form of Exhibit C from the Seller, duly completed, --------- executed and delivered by the Seller, (b) Resolutions. A copy of the resolutions of the Board of ----------- Directors of the Seller approving this Agreement and the other Transaction Documents to be delivered by it hereunder and the transactions contemplated hereby and thereby and addressing such other matters as may be required by ARC, certified by its Secretary or Assistant Secretary, each as of a recent date acceptable to ARC, (c) Good Standing Certificate of the Seller; Certificates as to ----------------------------------------------------------- Foreign Qualification of the Seller. A good standing certificate for the ----------------------------------- Seller, issued by the Secretary of State of the jurisdiction of its incorporation and of each state in which the Seller transacts business, is required to be in good standing and where the failure to be in good standing could materially and adversely affect the condition (financial or otherwise), properties, business or results of operations of the Seller, each dated as of a recent date, page 13 (d) Incumbency Certificate. A certificate of the Secretary or ---------------------- Assistant Secretary of the Seller certifying, as of a recent date reasonably acceptable to ARC, the names and true signatures of the officers authorized on the Seller's behalf to sign the Transaction Documents to be delivered by the Seller (on which certificate ARC, the Trustee and the Servicer may conclusively rely until such time as ARC shall receive from the Seller (with a copy to the Trustee and the Servicer), a revised certificate meeting the requirements of this subsection), (e) Other Transaction Documents. Original copies, executed by each --------------------------- of the parties thereto in such reasonable number as shall be specified by ARC, of each of the other Transaction Documents to be executed and delivered in connection herewith, (f) Opinions of Counsel. The opinion of Dechert Price & Rhoads, ------------------- special counsel to the Seller, in form and substance satisfactory to ARC, as to general corporate, Federal, Pennsylvania and New York tax and UCC matters and true sale and non-consolidation, (g) ARC Note. The ARC Note, executed by ARC, and -------- (h) License Agreements. Duly executed and counterparts of (i) a ------------------ software license agreement between Seller and ARC, and (ii) an amendment to any license agreement between Seller and any third party vendor adding ARC as a licensee. SECTION 4.2 Certification as to Representations and Warranties. The -------------------------------------------------- Seller, by accepting the Purchase Price paid for each Purchase, shall be deemed to have certified, with respect to the Receivables and Related Assets to be sold by it on such day, that its representations and warranties contained in Article ------- V (excluding, with respect to any day after the Closing Date, Section 5.1(i)) - - - - -------------- are true and correct on and as of such day, with the same effect as though made on and as of such day. SECTION 4.3 Effect of Payment of Purchase Price . Upon the payment of the ------------------------------------ Purchase Price (whether in cash or by an increase in the ARC Note pursuant to Section 3.1) for any Purchase, title to the Receivables and the Related Assets - - - ----------- included in the Purchase shall rest in ARC, whether or not the conditions precedent to the Purchase were in fact satisfied; provided, however, that ARC shall not be deemed to have waived any claim it may have under this Agreement for the failure by the Seller in fact to satisfy any such condition precedent. page 14 ARTICLE V REPRESENTATIONS AND WARRANTIES SECTION 5.1 Representations and Warranties of the Seller . In order to --------------------------------------------- induce ARC to enter into this Agreement and to make purchases hereunder, the Seller hereby makes the representations and warranties set forth in this section at the times and to the extent set forth in Section 4.2. ----------- (a) Organization and Good Standing. The Seller is a corporation duly ------------------------------ organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full power and authority to own its properties and to conduct its business as the properties presently are owned and the business presently is conducted. The Seller had at all relevant times, and now has, all necessary power, authority, and legal right to own and sell the Receivables and the Related Assets. (b) Due Qualification. The Seller is duly qualified to do business ----------------- and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires qualification, licenses or approvals and where the failure so to qualify, to obtain the licenses and approvals or to preserve and maintain the qualification, licenses or approvals would have a substantial likelihood of having a Material Adverse Effect. (c) Power and Authority; Due Authorization. The Seller has (i) all -------------------------------------- necessary power and authority to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (B) perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and (C) sell and assign the Receivables and the Related Assets on the terms and subject to the conditions herein and therein provided and (ii) duly authorized by all necessary action the sale and assignment and the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions provided for in this Agreement and the other Transaction Documents to which it is a party. (d) Valid Sale; Binding Obligations. Each sale made by the Seller ------------------------------- pursuant to this Agreement, and each contribution made to ARC pursuant to the Subscription Agreement, shall constitute a valid sale (except in the case of Contributed Receivables), transfer, and assignment of all of the Seller's right, title and interest in, to and under the Receivables and the Related Assets of the Seller to ARC that is perfected and of first priority under the UCC and otherwise, enforceable against creditors of, and purchasers from, the Seller and free and clear of any Adverse Claim (other than any Permitted Adverse Claim or any Adverse Claim arising solely as a page 15 result of any action taken by ARC hereunder or by the Trustee under the Pooling Agreement); and this Agreement constitutes, and each other Transaction Document to which the Seller is a party when duly executed and delivered will constitute, a legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law. (e) No Conflict or Violation. The execution, delivery and ------------------------ performance of, and the consummation of the transactions contemplated by, this Agreement and the other Transaction Documents to be signed by the Seller and the fulfillment of the terms hereof and thereof will not (i) conflict with, violate, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, (A) its Certificate of Incorporation or Bylaws or (B) any indenture, loan agreement, mortgage, deed of trust or other material agreement or instrument to which the Seller is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Adverse Claim upon any of the Receivables or Related Assets other than pursuant to this Agreement and the other Transaction Documents, or (iii) conflict with or violate any federal, state, local or foreign law or any decision, decree, order, rule or regulation applicable to it or any of its properties of any court or of any federal, state, local or foreign regulatory body, administrative agency or other governmental instrumentality having jurisdiction over it or any of its properties, which conflict, violation, breach, default or Adverse Claim, individually or in the aggregate, would have a substantial likelihood of having a Material Adverse Effect. (f) Litigation and Other Proceedings. Except as described in -------------------------------- Schedule 1, (i) there is no action, suit, proceeding or investigation ---------- pending or, to the best knowledge of the Seller, threatened against it before any court, regulatory body, arbitrator, administrative agency or other tribunal or governmental instrumentality and (ii) it is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any court or other government authority that, in the case of each of clauses (i) and (ii), (A) asserts the invalidity of this Agreement or ----------- ---- any other Transaction Document, (B) seeks to prevent the sale of any Receivables or Related Assets by the Seller to ARC, the issuance of the applicable Seller Assignment Certificate or the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document, (C) seeks any determination or ruling that would materially and adversely affect the performance by the Seller of its obligations under this Agreement or any other Transaction Document or the validity or enforceability of this Agreement or any other Transaction Document, (D) seeks to affect adversely the income tax attributes of the purchases hereunder or the applicable Seller Assignment Certificate, in the case of each of the foregoing Whether under the United States page 16 Federal income tax system or any state income tax system, or (E) individually or in the aggregate for all such actions, suits, proceedings and investigations would have a substantial likelihood of having a Material Adverse Effect. (g) Government Approvals. All authorizations, consents, orders and -------------------- approvals of, or other action by, any Governmental Authority that are required to be obtained by the Seller, and all notices to and filings (except, in respect of enforceability against a Federal Obligor, any filings under the Assignment of Claims Act and any consents required by states with respect to any Receivables arising from State and Local Obligors so long as such Receivables are not reported as Eligible Receivables), with any Governmental Authority that are required to be made by it, in the case of each of the foregoing in connection with the conveyance of Receivables and Related Assets or the due execution, delivery and performance by the Seller of this Agreement, the Seller's Seller Assignment Certificate or any other Transaction Document to which it is a party and the consummation of the transactions contemplated by this Agreement, have been obtained or made and are in full force and effect, except where the failure to obtain or make any such authorization, consent, order, approval, notice or filing, individually or in the aggregate for all such failures, would not reasonably be expected to have a Material Adverse Effect. (h) Bulk Sales Act. No transaction contemplated by this Agreement -------------- or any other Transaction Document requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. (i) Financial Condition. The Seller hereby represents that its ------------------- consolidated balance sheets as at September 30, 1993, and the related statements of income and shareholders' equity of the Seller and its Consolidated Subsidiaries for the fiscal year then ended certified by Ernst & Young, copies of which have been furnished to ARC and the Trustee, fairly present in all material respects the consolidated financial position and business of the Seller and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of the Seller and its Consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied throughout the periods reflected therein, and, except as set forth in Schedule 4, since September 30, 1993 through the date hereof there has been no material adverse change in the condition (financial or otherwise), business or operations of the Seller. (j) Margin Regulations. No use of any funds obtained by the Seller ------------------ under this Agreement will conflict with or contravene any of Regulations G, T, U and X promulgated by the Federal Reserve Board from time to time. page 17 (k) Quality of Title. ---------------- (i) Immediately before each purchase to be made by ARC hereunder and each contribution to be made under the Subscription Agreement to ARC, each Receivable and Related Asset of the Seller that is then to be transferred to ARC thereunder, and the related Contracts, shall be owned by the Seller free and clear of any Adverse Claim (other than any Permitted Adverse Claim or any Adverse Claim arising solely as the result of any action taken by ARC hereunder or by the Trustee under the Pooling Agreement); and the Seller shall have made all filings and shall have taken all other action under applicable law in each relevant jurisdiction in order to protect and perfect the ownership interest of ARC and its successors in the Receivables and Related Assets against all creditors of, and purchasers from, the Seller. (ii) Whenever ARC makes a purchase hereunder or accepts a contribution under the Subscription Agreement, it shall have acquired a valid and perfected first priority ownership interest in each Transferred Asset, free and clear of any Adverse Claim (other than any Permitted Adverse Claim or any Adverse Claim arising solely as the result of any action taken by ARC hereunder or by the Trustee under the Pooling Agreement). (iii) No effective financing statement or other instrument similar in effect that covers all or part of any Receivable, any interest therein or any Related Asset with respect thereto is on file in any recording office except financing statements as to termination statements or releases that are filed on the Closing Date or the day after the Closing Date and (x) such as may be filed (A) in favor of the Seller in accordance with the Contracts, (B) in favor of ARC pursuant to this Agreement or the Subscription Agreement and (C) in favor of the Trustee, for the benefit of the Certificateholders, in accordance with the Pooling Agreement and (y) such as may have been identified to ARC prior to the Closing Date and termination statements relating to which have been placed with LEXIS Document Services for filing on the First Issuance Date or the first Business Day thereafter. No effective financing statement or instrument similar in effect relating to perfection that covers any inventory of the Seller that might give rise to Receivables is on file in any recording office except for (so long as the Intercreditor Agreement is in effect) financing statements or instruments in favor of the Seller Agent. (iv) No Purchase by ARC constitutes a fraudulent transfer or fraudulent conveyance under the United States Bankruptcy Code or applicable state bankruptcy or insolvency laws or is otherwise void or voidable or subject to subordination under similar laws or principles or for any other reason. page 18 (v) The Purchase by ARC constitutes a true and valid sale of the Receivables and Related Assets under applicable state law and true and valid assignments and transfers for consideration (and not merely a pledge of the Receivables and Related Assets for security purposes), enforceable against the creditors of the Seller, and no Receivables or Related Assets transferred to ARC hereunder or under the Subscription Agreement shall constitute property of the Seller. (l) Eligible Receivables. (i) On the date of each purchase of -------------------- Receivables hereunder,each such Receivable,unless otherwise identified to ARC and the Trustee by the Servicer in the Daily Report for such date, is an eligable Receivable,and (ii) on the date of each Daily Report or Settlement statement that identifies a Receivable as an Eligible Receivable, such Receivable is an Eligable Receivable (m) Accuracy of Information. All written information furnished on ----------------------- and after the Closing Date by the Seller or any other AmeriSource Person to ARC, the Servicer or the Trustee pursuant to or in connection with any Transaction Document or any transaction contemplated herein or therein shall not contain any untrue statement of a material fact or omit to state material facts necessary to make the statements made not misleading, in each case on the date the statement was made and in light of the circumstances under which the statements were made or the information was furnished. (n) Offices. The principal place of business and chief executive ------- office of the Seller is located at the address set forth under the Seller's signature hereto, and the offices where the Seller keeps all Records and all Contracts, purchase orders and agreements related to the Receivables and the Related Assets (and all original documents relating thereto) are located at the addresses specified in Schedule 2 (or at such other ---------- locations, notified to the Servicerand the Trustee in accordance with Section 6.1(f), in jurisdictions where all action required pursuant to -------------- Section 7.3 has been taken and completed). ----------- (o) Account Banks and Payment Instructions.The names and addresses of -------------------------------------- all the banks, together with the account numbers of the accounts at the banks, into which Collections are paid as of the Closing Date have been accurately identified to ARC in a letter from the Seller to ARC dated the Closing Date or have been specified in the notices as shall have been delivered thereafter pursuant to Section 6.3(c). Each Account Bank has executed and delivered an -------------- Account Agreement to ARC and the Trustee. Up to 5% of payments may, as a convenience, be picked up by employees or agents of the Seller authorized to accept payment for deliveries. Notwithstanding the foregoing, the Seller has instructed all Obligors to submit all payments on the Receivables and Related Assets directly to one of the Lockbox Accounts. Any page 19 payments not made directly to the Account Banks will be forwarded to the Account Banks within two Business Days. (p) Subscription Agreement. Each of the representations and ---------------------- warranties made by the Seller in the Subscription Agreement will be true and correct as of the date or dates made. (q) Compliance with Applicable Laws. The Seller is in compliance ------------------------------- with the requirements of all applicable laws, rules, regulations and orders of all Governmental Authorities (federal, state, local or foreign, and including environmental laws), a violation of any of which, individually or in the aggregate for all such violations, would have a substantial likelihood of having a Material Adverse Effect. (r) Legal Names. Except as set forth in Schedule 3, since October ----------- ---------- 31, 1989 the Seller has not been known by any legal name other than its corporate name as of the date hereof, except to the extent permitted otherwise pursuant to Section 6.3(e), nor has the Seller been the subject -------------- of any merger or other corporate reorganization since October 31, 1989 that resulted in a change of name, identity or corporate structure. The Seller uses no trade names other than its actual corporate name and the trade names set forth in Schedule 3. (s) Investment Company Act. The Seller is not, and is not ---------------------- controlled by, an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended. (t) Taxes. The Seller has filed or caused to be filed all tax ----- returns and reports required by law to have been filed by it and has paid all taxes, assessments and governmental charges thereby shown to be owing, except any such taxes, assessments or charges (i) that are being diligently contested in good faith by appropriate proceedings, (ii) for which adequate reserves in accordance with GAAP shall have been set aside on its books and (iii) with respect to which no Adverse Claim, except Permitted Adverse Claims, has been imposed upon any Receivables or Related Assets. SECTION 5.2 Representations and Warranties of ARC . From the date hereof -------------------------------------- until the Purchase Termination Date, ARC hereby represents and warrants that (a)(i) this Agreement has been duly executed and delivered by ARC and (ii) constitutes the legal, valid and binding obligation of ARC, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law, and (b) the execution, delivery and performance of this Agreement does not violate any applicable law or any agreement to which ARC is a party or by which its properties are bound. page 20 ARTICLE VI GENERAL COVENANTS OF THE SELLER SECTION 6.1 Affirmative Covenants . From the Closing Date until the first ---------------------- day following the Purchase Termination Date on which all Obligations of the Seller shall have been finally and fully paid and performed and the Investor Invested Amount shall have been reduced to zero, unless ARC shall otherwise give its prior written consent, the Seller hereby agrees that it will perform the covenants and agreements set forth in this section. (a) Compliance with Laws, Etc. The Seller will comply in all -------------------------- material respects with all applicable laws, rules, regulations, judgments, decrees and orders (including those relating to the Receivables, the Related Assets, the related Contracts of the Seller and any other agreements related thereto), in each case to the extent the failure to comply, individually or in the aggregate for all such failures, would have a substantial likelihood of having a Material Adverse Effect. (b) Preservation of Corporate Existence. The Seller will preserve ----------------------------------- and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualifications would have a substantial likelihood of having a Material Adverse Effect. (c) Receivables Reviews. The Seller shall, during regular business ------------------- hours upon not less than five Business Days' prior notice, permit ARC and its agents or representatives, at the expense of the Seller, (i) to examine and make copies of and abstracts from, and to conduct accounting reviews of, all Records in the possession or under the control of the Seller relating to the Receivables or Related Assets generated by the Seller, and (ii) to visit the offices and properties of the Seller for the purpose of examining the materials described in clause (i) above, and to discuss ---------- matters relating to any Receivables or any Related Assets of the Seller or the Seller's performance hereunder with any of the Authorized Officers of the Seller or, with the prior consent of an Authorized Officer of the Seller, with employees of the Seller having knowledge of such matters (the examinations set forth in the foregoing clauses (i) and (ii) being herein ----------- ---- called a "Seller Receivables Review"). ARC and its agents or representatives shall be entitled to conduct Seller Receivables Reviews whenever ARC, in its reasonable judgment, deems it appropriate; provided, that prior to the occurrence and continuance of a Liquidation Event, ARC (or its agent or representative) shall give the Seller at least five Business Days' prior notice of any Seller Receivables Review, and ARC shall have the right to request a Seller Receivables Review not more than twice in any calendar year. page 21 (d) Keeping of Records and Books of Account. The Seller shall --------------------------------------- maintain and implement administrative and operating procedures (including, an ability to recreate records evidencing its Receivables and Related Assets in the event of the destruction of the originals thereof), and shall keep and maintain all documents, books, records and other information that, in the reasonable determination of ARC and the Trustee, are necessary or advisable in accordance with prudent industry practice and custom for transactions of this type for the collection of all Receivables and the Related Assets. Upon the reasonable request of ARC made at any time after the occurrence and continuance of a Servicer Default, the Seller will deliver copies of all books and records maintained pursuant to this subsection to the Trustee. The Seller shall maintain at all times accurate and complete books, records and accounts relating to the Receivables, Related Assets and Contracts and all Collections thereon in which timely entries shall be made. Such books and records shall be marked to indicate the sales of all Receivables and Related Assets hereunder and shall include (i) all payments received and all credits and extensions granted with respect to the Receivables and (ii) the return, rejection, repossession, or stoppage in transit of any merchandise, the sale of which has given rise to a Receivable that has been purchased by ARC. (e) Performance and Compliance with Receivables and Contracts. The --------------------------------------------------------- Seller will, at its expense, timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts of the Seller related to the Receivables and Related Assets, the breach of which provisions, covenants or promises would have a substantial likelihood of having a Material Adverse Effect. (f) Location of Records and Offices. The Seller will keep its ------------------------------- principal place of business and chief executive office, and the offices where it keeps all Records related to the Receivables and the Related Assets (and all original documents relating thereto), at the addresses referred to in Schedule 2 or, upon not less than 30 days' prior written ---------- notice given by the Seller to ARC, the Trustee and the Applicable Rating Agencies, at such other locations in jurisdictions where all action required by Section 7.3 shall have been taken and completed. ----------- (g) Credit and Collection Policies. The Seller will comply in all ------------------------------ material respects with its Credit and Collection Policy in regard to each Receivable of the Seller and the Related Assets and the Contracts related to each such Receivable, where the failure so to comply, individually or in the aggregate for all such failures, would have a substantial likelihood of having a Material Adverse Effect. (h) Separate Corporate Existence of ARC. The Seller hereby ----------------------------------- acknowledges that the Trustee, on behalf of the Trust, is entering into the transactions contemplated by the Transaction Documents in reliance upon ARC's identity as a legal entity page 22 separate from the Seller and the other AmeriSource Persons. Therefore, from and after the date hereof until the first day following the Purchase Termination Date on which all Obligations of the Seller shall have been fully paid and performed and the Investor Invested Amount shall have been reduced to zero, the Seller will, and will cause each other AmeriSource Person to, take all reasonable steps to continue their respective identities as separate legal entities and to make it apparent to third Persons that each is an entity with assets and liabilities distinct from those of ARC and that ARC is not a division of the Servicer, the Seller or any other Person. (i) Payment Instructions to Obligors. The Seller will instruct all -------------------------------- Obligors to submit all payments either (i) to one of the lockboxes maintained at the Lockbox Banks for deposit in a Lockbox Account or to a Concentration Account or (ii) directly to one of the Lockbox Accounts; except to the extent otherwise permitted under Section 5.1(o). -------------- (j) Segregation of Collections. The Seller shall use reasonable -------------------------- efforts to minimize the deposit of any funds other than Collections into any of the Lockbox Accounts and, to the extent that any such funds nevertheless are deposited into any of the Lockbox Accounts, shall promptly identify any such funds, or shall cause the funds to be so identified, to ARC, the Servicer and the Trustee (following which notice, ARC shall cause the Servicer to return all the funds to the Seller). (k) Identification of Eligible Receivables. The Seller will (i) -------------------------------------- establish and maintain such procedures as are necessary for determining no less frequently than each Business Day whether each Receivable qualifies as an Eligible Receivable, and for identifying, on any Business Day, all Receivables to be sold on that date that are not Eligible Receivables, and (ii) except as permitted in Section 3.05(c) of the Pooling Agreement, notify ARC prior to the occurrence of a Purchase if a Receivable to be sold hereunder will, to the Seller's knowledge, not be an Eligible Receivable as of the date of Purchase. (l) Accuracy of Information. All written information furnished on ----------------------- and after the Closing Date by the Seller or any other AmeriSource Person to ARC, the Servicer or the Trustee pursuant to or in connection with any Transaction Document or any transaction contemplated herein or therein shall not contain any untrue statement of a material fact or omit to state material facts necessary to make the statements made not misleading, in each case on the date the statement was made and in light of the circumstances under which the statements were made or the information was furnished. (m) Taxes. File or cause to be filed, and cause each Person with ----- whom it shares consolidated tax liability to file, all Federal, state and local tax returns that are required to be filed by it, except where the failure to file such returns could not page 23 reasonably be expected to have an adverse effect, and pay or cause to be paid all taxes shown to be due and payable on taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Seller shall have set aside adequate reserves on its books in accordance with GAAP and which proceedings could not reasonably be expected to have a Material Adverse Effect. SECTION 6.2 Reporting Requirements . From the Closing Date until the ----------------------- first day following the Purchase Termination Date on which all Obligations of the Seller shall have been finally and fully paid and performed and the Investor Invested Amount shall have been reduced to zero, the Seller agrees that it will, unless ARC and the Trustee shall otherwise give prior written consent, and (with respect to the notices described below in subsections (c) and (d)) unless the --------------- --- Rating Agency Condition has beensatisfied, furnish to ARC and the Trustee and, in the case of the notices described below in subsections (c), (d) and (f), to the Applicable Rating --------------- --- --- Agencies: (a) Quarterly Financial Statements. Within 50 days after the end of ------------------------------ each of the first three fiscal quarters of each fiscal year of the Seller, copies of the unaudited consolidated balance sheets of the Seller and its Consolidated Subsidiaries as at the end of the fiscal quarter and the related unaudited statements of earnings and cash flows, in each case for the fiscal quarter and for the period from the beginning of the fiscal year through the end of such fiscal quarter, prepared in accordance with GAAP consistently applied throughout the periods reflected therein and certified (subject to year end adjustments and the omission of footnotes) by the chief financial officer or chief accounting officer of the Seller, (b) Annual Financial Statements. As soon as possible and in any --------------------------- event within 120 days after the end of each fiscal year of the Seller, a copy of the consolidated balance sheet of the Seller and its Consolidated Subsidiaries as at the end of the fiscal year and the related statements of earnings, stockholders' equity and cash flows of the Seller and its Consolidated Subsidiaries for the fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year and prepared in accordance with GAAP consistently applied throughout the periods reflected therein, certified, without Impermissible Qualification, by Ernst & Young (or such other independent certified public accountants of a nationally recognized standing in the United States of America as shall be selected by the Seller), (c) Liquidation Events. As soon as possible, and in any event ------------------ within five Business Days after an Authorized Officer of the Seller has obtained knowledge of the occurrence of any Liquidation Event or any Unmatured Liquidation Event, a written statement of an Authorized Officer of the Seller describing the event and the action that the Seller proposes to take with respect thereto, in each case in reasonable detail, page 24 (d) Material Adverse Effect. As soon as possible and in any event ----------------------- within five Business Days after an Authorized Officer of the Seller has knowledge thereof, written notice that describes in reasonable detail any event or occurrence that, individually or in the aggregate for all such events or occurrences, has had, or that would have a substantial likelihood of having, a Material Adverse Effect, (e) Proceedings. As soon as possible and in any event within five ----------- Business Days after an Authorized Officer of the Seller has knowledge thereof, written notice of (i) any litigation, investigation or proceeding of the type described in Section 5.1(f) not previously disclosed to ARC and -------------- (ii) any judgment,settlement or other final disposition with respect to any such previously disclosed litigation, investigation or proceeding, and (f) Other. Promptly, from time to time, (i) such other information, ----- documents, records or reports respecting the Receivables or the Related Assets or (ii) such other publicly available information respecting the condition or operations, financial or otherwise, of the Seller, in each case as ARC may from time to time reasonably request in order to protect the interests of ARC, the Trustee or the Certificateholders under or as contemplated by this Agreement. SECTION 6.3 Negative Covenants . From the Closing Date until the first ------------------- day following the Purchase Termination Date on which all Obligations of the Seller shall have been finally and fully paid and performed and the Investor Invested Amount shall have been reduced to zero, unless ARC shall otherwise give its prior written consent, the Seller hereby agrees that it will perform the covenants and agreements set forth in this section. (a) Sales, Liens, Etc. Except as otherwise provided herein or in the ------------------ Pooling Agreement, the Seller will not (i)(A) sell, assign (by operation of law or otherwise) or otherwise transfer to any Person, (B) pledge any interest in, (C) grant, create, incur, assume or permit to exist any Adverse Claim (other than Permitted Adverse Claims) to or in favor of any Person upon or with respect to, or (D) cause to be filed any financing statement or equivalent document relating to perfection with respect to any Transferred Asset or any Contract related to any Receivable, or upon or with respect to any lockbox or account to which any Collections of any such Receivable or any Related Assets are sent or any interest therein, or (ii) except with respect to the security interest in Purchase Price granted to the Seller's senior lender, assign to any Person any right to receive income from or in respect of any of the foregoing. In the event that the Seller fails to keep any Transferred Assets free and clear of any Adverse Claim (other than a Permitted Adverse Claim, any Adverse Claims arising hereunder, and other Adverse Claims permitted by any other Transaction Document), ARC may (without limiting its other rights with respect to the Seller's breach of its obligations hereunder) make reasonable expenditures necessary to release page 25 page 25 the Adverse Claim. ARC shall be entitled to indemnification for any such expenditures pursuant to the indemnification provisions of Article IX. ---------- Alternatively, ARC may deduct such expenditures as an offset to the Purchase Price owed to the Seller hereunder. The Seller will not pledge or grant any security interest in its inventory, the ARC Note or the capital stock of ARC unless prior to any pledge or grant the Seller, ARC, the Trustee and the person for whose benefits the pledge or grant is being made have entered into an Intercreditor Agreement. (b) Extension or Amendment of Receivables; Change in Credit and ----------------------------------------------------------- Collection Policy or Contracts. The Seller will not, (i) without the ------------------------------ prior written consent of ARC and the Trustee, which consent will not be unreasonably withheld, extend, amend or otherwise modify the terms of any Receivable or Contract in a manner that would have a Material Adverse Effect on the Investor Certificateholders or the Purchasers or (ii) change the terms and provisions of the Credit and Collection Policy in any material respect unless (x) with respect to collection policies, the change is made with the prior written approval of the Trustee, ARC and each Purchaser Agent and the Rating Agency Condition is satisfied with respect thereto, (y) with respect to collection procedures, the change is made with prior written notice to the Trustee, ARC and each Purchaser Agent and no Material Adverse Effect on any Series or Purchased Interest would result and (z) with respect to accounting policies relating to Receivables that have become Charged-Off Receivables, the change is made in accordance with GAAP. (c) Change in Payment Instructions to Obligors. The Seller will ------------------------------------------ not (i) add or terminate any bank as an Account Bank from those listed in the letter referred to in Section 5.1(o) unless, prior to any such addition -------------- or termination, ARC, the Trustee and the Applicable Rating Agencies shall have received not less than five Business Days' prior written notice of the addition or termination and, not less than five Business Days prior to the effective date of any such proposed addition or termination, ARC and the Trustee shall have received (A) counterparts of the applicable type of Account Agreement with each new Account Bank, duly executed by such new Account Bank and all other parties thereto and (B) copies of all other agreements and documents signed by the Account Bank and such other parties with respect to any new Bank Account, all of which agreements and documents shall be reasonably satisfactory in form and substance to ARC and the Trustee, or (ii) make any change in its instructions to Obligors, given in accordance with Section 5.1(o), regarding payments to be made to the Seller -------------- or payments to be made to any Account Bank, other than changes in the instructions that direct Obligors to make payments to another Bank Account at such Account Bank or another Account Bank or to the Master Collection Account. page 26 (d) Mergers, Acquisitions, Sales, etc. Except for (i) mergers or ---------------------------------- consolidations in which the Seller is the surviving Person, (ii) mergers or consolidations of a Subsidiary of the Seller into the Seller or (iii) mergers or consolidations in which the surviving Person expressly assumes the performance of this Agreement and the Rating Agency Condition shall have been satisfied with respect to the consolidation or merger, the Seller will not be a constituent corporation to any merger or consolidation. The Seller will give the Applicable Rating Agencies and the Trustee notice of any such permitted merger or consolidation promptly following completion thereof. The Seller will not, directly or indirectly, transfer, assign, convey or lease, whether in one transaction or in a series of transactions, all or substantially all of its assets or sell or assign, with or without recourse, any Receivables or Related Assets, in each case other than pursuant to this Agreement, the Subscription Agreement or the Inventory Credit Agreement. (e) Change in Name. The Seller will not (i) change its corporate -------------- name or (ii) change the name under or by which it does business in any manner that would or may make any financing statement filed by the Seller in accordance herewith seriously misleading within the meaning of Section9- 402(7) of an applicable enactment of the UCC, in each case unless the Seller shall have given ARC, the Servicer, the Trustee and the Applicable Rating Agencies 30 days' prior written notice thereof and unless, prior to any change in name, the Seller shall have taken and completed all action required by Section 7.3. ----------- (f) Certificate of Incorporation. The Seller will not cause ARC to ---------------------------- amend Article 3,6,7,8 or 9 of its Certificate of Incorporation without the Trustee's prior written consent, which consent will not be unreasonably withheld or delayed. (g) Amendments to Transaction Documents. The Seller will not amend ----------------------------------- or otherwise modify or supplement any Transaction Document to which it is a party unless (i) ARC shall have given its prior written consent to each amendment, modification or supplement, which consent shall not be unreasonably withheld or delayed, and (ii) the Rating Agency Condition shall have been satisfied. (h) Accounting for Purchases. The Seller shall prepare its financial ------------------------ statements in accordance with GAAP. The Seller shall not prepare any financial statements that account for the transactions contemplated in this Agreement in any manner other than as a sale of the Purchased Assets by the Seller to ARC, or in any other respect account for or treat the transactions contemplated in this Agreement (including but not limited to accounting and, where taxes are not consolidated, for tax reporting purposes) in any manner other than as a sale of the Purchased Assets by the Seller to ARC. page 27 ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE TRANSFERRED ASSETS SECTION 7.1 Rights of ARC. (a) Subject to Section 7.4(b), the Seller ------------- -------------- hereby authorizes ARC, the Servicer and/or their respective designees to take any and all steps in the Seller's name and on behalf of the Seller that ARC, the Servicer and/or their respective designees determine are reasonably necessary or appropriate to collect all amounts due under any and all Transferred Assets, including endorsing the name of the Seller on checks and other instruments representing Collections and enforcing the Seller's rights under such Transferred Assets. (b) Except as set forth in Section 3.5 with respect to Seller Noncomplying ----------- Receivables, ARC shall have no obligation to account for, to replace, to substitute or to return any Purchased Asset to the Seller. ARC shall have no obligation to account for, or to return Collections, or any interest or other finance charge collected pursuant thereto, to the Seller, irrespective of whether such Collections and charges are in excess of the Purchase Price for the Purchased Assets. (c) ARC shall have the unrestricted right to further assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the Transferred Assets, and all of ARC's right, title and interest in, to and under this Agreement and the Subscription Agreement, on whatever terms ARC shall determine, pursuant to the Pooling Agreement or otherwise. (d) ARC shall have the sole right to retain any gains or profits created by buying, selling or holding the Transferred Assets and shall have the sole risk of and responsibility for losses or damages created by such buying, selling or holding. SECTION 7.2 Responsibilities of the Seller . Anything herein to the ------------------------------- contrary notwithstanding: (a) The Seller agrees to deliver directly to the Servicer (for ARC's account), within three Business Days after receipt thereof, any Collections that it receives, in the form so received, and agrees that all such Collections shall be deemed to be received in trust for ARC and shall be maintained and segregated separate and apart from all other funds and moneys of the Seller until delivery of such Collections to the Servicer. (b) The Seller shall perform all of its obligations hereunder and under the Contracts related to the Receivables and Related Assets to the same extent as if the Receivables had not been sold hereunder, and the exercise by ARC or its designee or assignee of ARC's rights hereunder or in connection herewith shall not relieve the page 28 Seller from any of its obligations under the Contracts or Related Assets related to the Receivables. (c) The Seller hereby grants to ARC an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by the Seller or transmitted or received by ARC (whether or not from the Seller) in connection with any Transferred Asset. (d) To the extent that the Seller does not own the computer software that the Seller uses to account for Receivables, the Seller shall use reasonable efforts to provide ARC and the Trustee with such licenses, sublicenses and/or assignments of contracts as ARC or the Trustee shall require with regard to all services and computer hardware or software used by the Seller that relate to the servicing of the Transferred Assets. SECTION 7.3 Further Action Evidencing Purchases . The Seller agrees that ----------------------------------- from time to time, at its expense, it will promptly, upon reasonable request, execute and deliver all further instruments and documents, and take all further action, in order to perfect, protect or more fully evidence the purchase by ARC or contribution to ARC of the Receivables and the Related Assets under this Agreement or the Subscription Agreement (as applicable), or to enable ARC to exercise or enforce any of its rights under any Transaction Document. The Seller further agrees that from time to time, at its expense, it will promptly, upon request, take all action that ARC, the Servicer or the Trustee may reasonably request in order to perfect, protect or more fully evidence the purchase or contribution of the Receivables and the Related Assets or to enable ARC or the Trustee (as the assignee of ARC) to exercise or enforce any of its rights hereunder or under any other Transaction Document. Without limiting the generality of the foregoing, upon the request of ARC, the Seller will: (a) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as ARC or the Trustee may reasonably determine to be necessary or appropriate, and (b) mark the master data processing records evidencing the Receivables with the following legend: "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO AMERISOURCE RECEIVABLES CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF DECEMBER 13, 1994, BETWEEN AMERISOURCE CORPORATION, AS SELLER, AND AMERISOURCE RECEIVABLES CORPORATION, AS PURCHASER; AND SUCH page 29 RECEIVABLES HAVE BEEN TRANSFERRED TO THE AMERISOURCE RECEIVABLES MASTER TRUST PURSUANT TO A POOLING AND SERVICING AGREEMENT, DATED AS OF DECEMBER 13, 1994, AMONG AMERISOURCE RECEIVABLES CORPORATION, AS TRANSFEROR, AMERISOURCE CORPORATION, AS THE INITIAL SERVICER, AND MANUFACTURERS AND TRADERS TRUST COMPANY, AS TRUSTEE." The Seller hereby authorizes ARC or its designee to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and Related Assets of the Seller, in each case whether now existing or hereafter generated by the Seller. Except for material performance obligations of the Seller to any Obligor hereunder or under any of the Contracts, if (i) the Seller fails to perform any of its agreements or obligations under this Agreement and does not remedy the failure within the applicable cure period, if any, and (ii) ARC in good faith reasonably believes that the performance of such agreements and obligations is necessary or appropriate to protect its interests under this Agreement, then ARC or its designee may (but shall not be required to) perform, or cause performance of, such agreement or obligation and the reasonable expenses of ARC or its designee or assignee incurred in connection with such performance shall be payable by the Seller as provided in Section 9.1. ----------- SECTION 7.4 Collection of Receivables; Rights of ARC and Its Assignees . ---------------------------------------------------------- (a) The Seller hereby transfers to the Trustee (as transferee of ARC's interest in the Transferred Assets) the ownership of, and the exclusive dominion and control over, each of the Bank Accounts and all related lockboxes owned by the Seller, and the Seller hereby agrees to take any further action that ARC or the Trustee may reasonably request in order to effect or complete the transfer. The Seller further agrees to use reasonable efforts to prevent funds other than proceeds of the Transferred Assets from being deposited in any Bank Account. (b) ARC may, at any time after a Liquidation Event or Servicer Default, direct the Obligors of Receivables, or any of them, to pay all amounts payable under any Transferred Asset directly to the Trustee or its designees. Furthermore, the Seller shall, at the request of ARC and at the Seller's expense, promptly give notice of the Trust's interest in the Receivables of the Obligor and the Related Assets to each such Obligor and direct that payments be made directly to the Trustee or its designee, which notice shall be acceptable in form and substance to ARC. In addition, the Seller hereby authorizes ARC to take any and all steps in the Seller's name and on its behalf that are necessary or desirable, in the reasonable determination of ARC, to collect all amounts due under any and all Transferred Assets, including endorsing the Seller's name on checks and other instruments representing Collections and enforcing the Transferred Assets and the Contracts related to the Receivables. The Trustee may exercise any of the foregoing rights in the place of ARC (as page 30 assignee or otherwise) at any time following the designation of a Servicer other than the Seller pursuant to Section 10.02 of the Pooling Agreement. (c) At any time when (i) a Liquidation Event shall have occurred and remain continuing or (ii) a Servicer other than the Seller has been designated pursuant to Section 10.02 of the Pooling Agreement, the Seller shall, at ARC's request, assemble all of the Records that evidence the Receivables and Related Assets originated by the Seller and the Contracts related to the Receivables, or that are otherwise necessary or desirable to collect the Receivables or Related Assets, and make the same available to ARC or the Trustee at a place selected by the Trustee or its designee. ARTICLE VIII TERMINATION SECTION 8.1 Termination by the Seller. Prior to the Liquidation ------------------------- Commencement Date, the Seller may terminate its agreement to sell Receivables hereunder to ARC by giving ARC and the Trustee not less than five Business Days' prior written notice of its election not to continue to sell Receivables to ARC. The Trustee shall notify the Certificateholders of all Series within five Business Days of receiving any notice. Upon receipt of a termination notice from the Seller, ARC shall notify the holders of each Series of Fixed Principal Certificates that it is electing to cause that Series to be prepaid in full and shall cause each Series of Investor Revolving Certificates and Purchased Interests to be repaid as early as is practicable. The sale of Receivables under this Agreement will not cease until all prepayments and repayments have been completed. SECTION 8.2 Automatic Termination. The agreement of the Seller to sell --------------------- Receivables hereunder, and the agreement of ARC to purchase Receivables from the Seller hereunder, shall terminate automatically upon the Liquidation Commencement Date (including without limitation a Liquidation Commencement Date resulting from the Trustee's receipt of a Stop Date Notice); provided, however, that if, at any time prior to the Liquidation Commencement Date, an Event of Bankruptcy occurs as a result of a bankruptcy proceeding being filed against the Seller, then on and after the date on which such bankruptcy proceeding is filed until the dismissal of the proceeding ARC shall not purchase Receivables and Related Purchased Assets from the Seller. page 31 ARTICLE IX INDEMNIFICATION SECTION 9.1 Indemnities by the Seller. Without limiting any other rights ------------------------- that any RPA Indemnified Party (as defined below) may have hereunder or under applicable law, the Seller agrees to indemnify ARC, each of its successors, permitted transferees and assigns, and all officers, directors, shareholders, controlling Persons, employees and agents of any of the foregoing (each of the foregoing Persons being individually called a "RPA Indemnified Party"), forthwith on demand, from and against any and all damages, losses, claims (whether on account of settlements or otherwise), judgments, liabilities and related reasonable costs and expenses (including reasonable attorneys' fees and disbursements) awarded against or incurred by any of them arising out of or as a result of any of the following (all of the foregoing being collectively called "RPA Indemnified Losses"): (a) any representation or warranty made in writing by the Seller (or any of its Authorized Officers) under any of the Transaction Documents, any Settlement Statement, any Daily Report or any other information or report delivered by the Seller or the Servicer with respect to the Seller or the Receivables or Related Assets originated by the Seller, that contained any untrue statement of a material fact or omitted to state material facts necessary to make the statements not misleading when made, (b) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Receivable or any Related Asset or to comply with any Contract related thereto, or the nonconformity of any Receivable, the related Contract or any Related Assets with any such applicable law, rule or regulation , (c) the failure to vest and maintain vested in ARC a first priority perfected ownership interest in the Receivables, the Related Assets, the related Collections and the proceeds of each of the foregoing, free and clear of any Adverse Claim (other than an Adverse Claim created in favor of ARC pursuant to this Agreement or in favor of the Trustee pursuant to the Pooling Agreement), whether existing at the time of the sale of such Receivable or at any time thereafter and without regard to whether such Adverse Claim was a Permitted Adverse Claim, (d) any failure of the Seller to perform its duties or obligations in accordance with the provisions of the Transaction Documents, (e) any products liability claim, personal injury or property damage suit, environmental liability claim or any other claim or action by a party other than ARC of whatever sort, whether sounding in tort, contract or any other legal theory, arising page 32 out of or in connection with the goods or services that are the subject of any Transferred Assets with respect thereto or Collections thereof, (f) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Transferred Assets or Collections, whether at the time of any sale or at any subsequent time, (g) any dispute, claim, offset or defense (other than the discharge in bankruptcy) of an Obligor to the payment of any Receivable or Related Asset, or purported Receivable or Related Asset, including a defense based on the Receivable's or the related Contract's not being a legal, valid and binding obligation of the Obligor enforceable against it in accordance with its terms, and (h) any tax or governmental fee or charge (other than franchise taxes and taxes on or measured by the net income of ARC or any of its assignees), all interest and penalties thereon or with respect thereto, and all reasonable out-of-pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, that may arise by reason of the purchase or ownership of the Receivables or any Related Asset connected with any such Receivable s. Notwithstanding the foregoing (and with respect to clause (ii) below, without ----------- prejudice to the rights that ARC may have pursuant to the other provisions of this Agreement or the provisions of any of the other Transaction Documents), in no event shall any RPA Indemnified Party be indemnified for any RPA Indemnified Losses (i) resulting from gross negligence or willful misconduct on the part of the RPA Indemnified Party, (ii) to the extent the same includes losses in respect of Receivables and reimbursement therefor that would constitute credit recourse to the Seller for the amount of any Receivable or Related Asset not paid by the related Obligor, (iii) resulting from the action or omission of the Servicer (unless the Servicer is an AmeriSource Person), (iv) to the extent the same are or result from lost profits, (v) to the extent the same are or result from taxes on or measured by the net income of the RPA Indemnified Party and (vi) to the extent the same constitute consequential, special or punitive damages. If for any reason the indemnification provided above in this section is unavailable to a RPA Indemnified Party or is insufficient to hold a RPA Indemnified Party harmless, then the Seller shall contribute to the maximum amount payable or paid to the RPA Indemnified Party as a result of the loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the RPA Indemnified Party on the one hand and the Seller on the other hand, but also the relative fault of the RPA Indemnified Party (if any) and the Seller and any other relevant equitable considerations. page 33 ARTICLE X MISCELLANEOUS SECTION 10.1 Amendments; Waivers, Etc. (a) The provisions of this ------------------------ Agreement may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and signed by ARC and the Seller (with respect to an amendment) or by ARC (with respect to a waiver or consent by it) and, in the case of any amendment, modification or waiver, to the extent provided in Section 7.02(k) of the Pooling Agreement, by the Trustee, and then the waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Agreement shall not be amended unless (i) ARC shall have delivered the proposed amendment to the Applicable Rating Agencies at least ten Business Days (or such shorter period as shall be acceptable to each of them) prior to the execution and delivery thereof and the Rating Agency Condition has been satisfied with respect to such amendment, and (ii) if the terms of the Intercreditor Agreement prohibit such amendment, modification or waiver without the written consent of the Seller Agent, ARC and the Trustee shall have received copies of such consent. (b) No failure or delay on the part of ARC, any RPA Indemnified Party, or the Trustee or any other third party beneficiary referred to in Section 10.11(a) in exercising any power or right hereunder shall operate as a - - - ---------------- waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Seller in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by ARC or the Trustee under this Agreement shall, except as may otherwise be stated in the waiver or approval, be applicable to subsequent transactions. No waiver or approval under this Agreement shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2 Notices, Etc. All notices and other communications provided ------------ for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by certified mail, postage prepaid, by facsimile or by overnight courier, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by the party in a written notice to the other parties hereto given in accordance with this section. Copies of all notices and other communications provided for hereunder shall be delivered to the Trustee and the Applicable Rating Agencies at their respective addresses for notices set forth in the Pooling Agreement. All notices and communications provided for hereunder shall be effective, (a) if personally delivered, when received, (b) if sent by certified mail, four Business Days after having been deposited in the mail, postage prepaid and properly addressed, (c) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means and (d) if sent by overnight courier, two page 34 Business Days after having been given to the courier unless sooner received by the addressee. SECTION 10.3 Cumulative Remedies. The remedies herein provided are ------------------- cumulative and not exclusive of any remedies provided by law. Without limiting the foregoing, the Seller hereby authorizes ARC, at any time and from time to time, to the fullest extent permitted by law, to set-off, against any Obligations of the Seller to ARC that are then due and payable or that are not then due and payable from the Seller to ARC but have then accrued, any and all indebtedness or other obligations at any time owing to the Seller by ARC to or for the credit or the account of the Seller or that are not then due and payable from ARC to the Seller but have then accrued. SECTION 10.4 Binding Effect; Assignability; Survival of Provisions. This ----------------------------------------------------- Agreement shall be binding upon and inure to the benefit of ARC and the Seller and their respective successors and permitted assigns. The Seller may not assign any of its rights hereunder or any interest herein without the prior written consent of ARC, the Trustee and the Applicable Rating Agencies. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until the first date following the Purchase Termination Date, but not later than the date on which the Trust is terminated pursuant to Section 12.01 of the Pooling Agreement, on which all Obligations of the Seller shall have been finally and fully paid and performed or such other time as the parties hereto shall agree and as to which the Trustee (at the direction of the Majority Investors) shall have given its prior written consent, which consent shall not be unreasonably withheld or delayed. The rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to Article V and the indemnification and payment provisions of Article IX and - - - --------- ---------- Section 10.6 shall be continuing and shall survive any termination of this - - - ------------ Agreement. SECTION 10.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF ARC IN THE RECEIVABLES AND THE RELATED ASSETS ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. SECTION 10.6 Costs, Expenses and Taxes. In addition to the obligations of ------------------------- the Seller under Article IX, the Seller agrees to pay on demand: ---------- (a) all reasonable out-of-pocket and other costs and expenses in connection with the enforcement of this Agreement, the applicable Seller Assignment Certificate or the other Transaction Documents by ARC or any successor in interest to ARC, and page 35 (b) all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery, and the filing and recording, of this Agreement or the other Transaction Documents, and agrees to indemnify each RPA Indemnified Party against any liabilities with respect to or resulting from any delay in paying or omission to pay the taxes and fees. SECTION 10.7 Submission to Jurisdiction. EACH PARTY HERETO HEREBY -------------------------- IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE TRANSACTION DOCUMENTS, AND HEREBY (A) IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN THE STATE OR FEDERAL COURT, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF THE ACTION OR PROCEEDING, AND (C) IN THE CASE OF ARC, IRREVOCABLY APPOINTS PRENTICE-HALL CORPORATION SYSTEM, INC. (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023, UNITED STATES OF AMERICA, AS ITS AGENT TO RECEIVE ON BEHALF OF IT AND ITS PROPERTY SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS THAT MAY BE SERVED IN ANY ACTION OR PROCEEDING. THE SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF THE PROCESS TO ARC IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND ARC HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT THE SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, EACH OF ARC AND THE SELLER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES OF THE PROCESS TO ARC OR THE SELLER (AS APPLICABLE) AT ITS ADDRESS SPECIFIED HEREIN. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST THE OTHER PARTY OR ANY OF ITS PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 10.8 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY RIGHT -------------------- TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THE TRANSACTION DOCUMENTS OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN page36 CONNECTION THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF EITHER OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THE TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 10.9 Integration. This Agreement and the other Transaction ----------- Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and thereof and shall together constitute the entire agreement between the parties hereto with respect to the subject matter hereof and thereof, superseding all prior oral or written understandings. SECTION 10.10 Counterparts. This Agreement may be executed in any ------------ number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which together shall constitute one and the same agreement. SECTION 10.11 Acknowledgment and Consent. (a) The Seller acknowledges -------------------------- that, contemporaneously herewith, ARC is selling, transferring, assigning, setting over and otherwise conveying to the Trust all of ARC's right, title and interest in, to and under the Transferred Assets, this Agreement and all of the other Transaction Documents pursuant to Sections 2.01 and 2.04 of the Pooling Agreement. The Seller hereby consents to the sale, transfer, assignment, set over and conveyance to the Trust by ARC of all right, title and interest of ARC in, to and under the Transferred Assets, this Agreement and the other Transaction Documents, and all of ARC's rights, remedies, powers and privileges, and all claims of ARC against the Seller, under or with respect to this Agreement and the other Transaction Documents (whether arising pursuant to the terms of this Agreement or otherwise available at law or in equity), including (i) the right of ARC, at any time, to enforce this Agreement against the Seller and the obligations of the Seller hereunder, (ii) the right to appoint a successor to the Servicer at the times and upon the conditions set forth in the Pooling Agreement, and (iii) the right, at any time, to give or withhold any and all consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to this Agreement, any other Transaction Document or the obligations in respect of the Seller thereunder to the same extent as ARC may do. Each of the parties hereto acknowledges and agrees that the Trustee and the Trust are third party beneficiaries of the rights of ARC arising hereunder and under the other Transaction Documents to which the Seller is a party. The Seller hereby acknowledges and agrees that it has no claim to or interest in any of the Bank Accounts or the Trust Accounts. (b) The Seller hereby agrees to execute all agreements, instruments and documents, and to take all other action, that ARC or the Trustee reasonably determines is necessary or appropriate to evidence its consent described in subsection (a) above. To the extent that - - - -------------- page 37 ARC, individually or through the Servicer, has granted or grants powers of attorney to the Trustee under the Pooling Agreement, the Seller hereby grants a corresponding power of attorney on the same terms to ARC. The Seller hereby acknowledges and agrees that ARC, in all of its capacities, shall assign to the Trustee for the benefit of the Certificateholders the powers of attorney and other rights and interests granted by the Seller to ARC hereunder and agrees to cooperate fully with the Trustee in the exercise of the rights. SECTION 10.12 No Partnership or Joint Venture. Nothing contained in this ------------------------------- Agreement shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of partnership or of joint venture. SECTION 10.13 No Proceedings. The Seller hereby agrees that it will not -------------- institute against ARC or the Trust, or join any other Person in instituting against ARC or the Trust, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of Event of Bankruptcy) so long as any Investor Certificates issued by the Trust shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Investor Certificates shall have been outstanding. The foregoing shall not limit the right of the Seller to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted against ARC or the Trust by any Person other than a Seller, the Seller or any other AmeriSource Person. SECTION 10.14 Severability of Provisions. If any one or more of the -------------------------- covenants, agreements, provisions or terms of this Agreement or any of the other Transaction Documents shall for any reason whatsoever be held invalid, then the unenforceable covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement or the other Transaction Documents (as applicable) and shall in no way affect the validity or enforceability of the other provisions of this Agreement or any of the other Transaction Documents. SECTION 10.15 Recourse to ARC. Except to the extent expressly provided --------------- otherwise in the Transaction Documents, the obligations of ARC under the Transaction Documents to which it is a party are solely the obligations of ARC, and no recourse shall be had for payment of any fee payable by or other obligation of or claim against ARC that arises out of any Transaction Document to which ARC is a party against any director, officer or employee of ARC. The provisions of this section shall survive the termination of this Agreement. [Remainder of page intentionally left blank.] page 38 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. AMERISOURCE CORPORATION, as the Seller By:______________________________ Title:__________________________ Address: 300 Chester Field Parkway Malvern, Pennsylvania 19355 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 AMERISOURCE RECEIVABLES CORPORATION, as the purchaser By:_______________________________ Title:___________________________ Address: P.O. Box 1735 Southeastern, Pennsylvania 19399-1735 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 STATE OF NEW YORK ) ) SS. COUNTY OF NEW YORK ) On the __th day of December, 1994 before me personally came ____________________ to me known, who, being by me duly sworn, did depose and say that he resides at ___________________; that he is a _____________________ of AmeriSource Corporation, a Delaware corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this __th day of December, 1994. ________________________________ Notary Public Type or Print Name:_____________________ My commission expires: - - - -------------------------- STATE OF NEW YORK ) ) SS. COUNTY OF NEW YORK ) On the __th day of December, 1994 before me personally came ______________ to me known, who, being by me duly sworn, did depose and say that he resides at _________________________; that he is the ______________ of AmeriSource Receivables Corporation, a __________ corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this __th day of December, 1994. ________________________________ Notary Public Type or Print Name:_____________________ My commission expires: - - - ------------------------- EXHIBIT A FORM OF ARC NOTE ---------------- New York, New York December 13, 1994 FOR VALUE RECEIVED, the undersigned, AMERISOURCE RECEIVABLES CORPORATION, a Delaware corporation ("ARC"), promises to pay to AMERISOURCE CORPORATION, a Delaware corporation (the "Seller" and together with its successors and assigns, the "Holder"), on the terms and subject to the conditions set forth in this promissory note (this "Note") and in the Receivables Purchase Agreement of even date herewith (the "Agreement") between ARC and the Seller, an amount equal to the aggregate unpaid principal amount of all borrowings deemed to be made by ARC from the Seller pursuant to Article III of the Agreement. Such amount, as shown in the records of the Servicer, will be rebuttable presumptive evidence of the principal amount and interest owing under this Note. 1. Purchase Agreement. This Note is the ARC Note described in, and is ------------------ subject to the terms and conditions set forth in, the Agreement. Reference is hereby made to the Agreement for a statement of certain other rights and obligations of ARC and the Seller. 2. Rules of Construction; Definitions. Certain rules of construction ---------------------------------- governing the interpretation of this Note are set forth in Appendix A to the Agreement and, except as otherwise specifically provided herein, capitalized terms used but not defined herein have the meanings ascribed to them in Appendix A to the Agreement. In addition, as used herein, the following terms have the following meanings: "Bankruptcy Proceedings" means any dissolution, winding up, liquidation, readjustment, reorganization or other similar event relating to ARC, whether voluntary or involuntary, partial or complete, and whether in bankruptcy, insolvency, receivership or other similar proceedings, or upon an assignment for the benefit of creditors, or any other marshalling of the assets and liabilities of ARC or any sale of all or substantially all of the assets of ARC; provided, however, that none of the commencement of the Liquidation Period, the allocation and distribution of Collections and other amounts during the Liquidation Period in accordance with the terms of the Pooling Agreement and the liquidation, dissolution and winding up of ARC during the Liquidation Period in accordance with the Pooling Agreement after the termination of the Pooling Agreement in accordance with Section 12.01 thereof shall constitute a "Bankruptcy Proceeding," so long as no bankruptcy, insolvency, receivership or other similar proceedings shall have been commenced by or against ARC and be continuing. page 1 "Final Maturity Date" means the date occurring one year and one day after the Final Scheduled Payment Date of the latest maturing Series or Purchased Interest from time to time outstanding. "Highest Lawful Rate" has the meaning set forth in paragraph 9. ----------- "Junior Liabilities" means all obligations of ARC to the Holder under this Note. "Reference Rate" means, with respect to any day occurring in a Calculation Period, the rate of interest publicly announced from time to time by Bankers Trust Company as its "prime rate" and in effect on the first day of such Calculation Period, as determined by the Servicer. "Senior Interests" means all obligations of ARC to the Certificateholders under or in connection with the Transaction Documents, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, including without limitation interest or other amounts due or to become due after an Event of Bankruptcy. "Subordination Provisions" means, collectively, the provisions of paragraph 7. ----------- 3. Interest. Subject to the Subordination Provisions, ARC promises to pay -------- interest on the aggregate unpaid principal amount of this Note outstanding on each day at an adjustable rate per annum equal to the Reference Rate in effect on such day. 4. Interest Payment Dates. (a) Subject to the Subordination Provisions, ---------------------- ARC shall pay accrued interest on this Note on each Settlement Date and on the Final Maturity Date. ARC also shall pay accrued interest on the principal amount of each prepayment hereof on the last day of each calendar month. (b) Notwithstanding the provisions of paragraph 4(a), in the event that on -------------- the date an interest payment is due hereunder the amount of funds available therefor pursuant to clause Eighth of Section 4.03(g) of the Pooling Agreement is insufficient to pay any amount due pursuant to paragraph 4(a), then interest -------------- shall be payable only to the extent that funds are available therefor in accordance with Section 4.03(g) of the Pooling Agreement. All interest on this Note that is not paid when due pursuant to this paragraph shall be payable on the next date on which an interest payment on this Note is due and on which funds are available therefor pursuant to clause Eighth of Section 4.03(g) of the Pooling Agreement, and all such unpaid interest shall accrue interest at the Reference Rate until paid in full. 5. Basis of Computation. Interest accrued hereunder shall be computed for -------------------- the actual number of days elapsed on the basis of a 360-day year. page 2 6. Principal Payment Dates. Subject to the Subordination Provisions, any ----------------------- unpaid principal of this Note shall only become due and payable on the Final Maturity Date. Subject to the Subordination Provisions, the principal amount of and accrued interest on this Note may be prepaid on any Business Day without premium or penalty; provided, that no prepayment shall be made by ARC to the extent that such prepayment would result in a default in the payment of any other amount required to be paid by ARC under any Transaction Document. 7. Subordination Provisions. ARC covenants and agrees, and the Holder, by ------------------------ its acceptance of this Note, likewise covenants and agrees, that the payment of all Junior Liabilities is hereby expressly subordinated in right of payment to the payment and performance of the Senior Interests to the extent and in the manner set forth in this paragraph: (a) In the event of any Bankruptcy Proceeding, the Senior Interests shall first be paid and performed in full and in cash before the Holder shall be entitled to receive and to retain any payment or distribution in respect of the Junior Liabilities. In order to implement the foregoing: (i) all payments and distributions of any kind or character in respect of the Junior Liabilities to which the Holder would be entitled except for this clause (a) shall be made directly to the Certificateholders, and (ii) ---------- if a Bankruptcy Proceeding has been commenced, the Holder shall promptly file a claim or claims, in the form required in any Bankruptcy Proceedings, for the full outstanding amount the Junior Liabilities, and shall use commercially reasonable efforts to cause said claim or claims to be approved and all payments and other distributions in respect thereof to be made directly to the Certificateholders until the Senior Interests shall have been paid and performed in full and in cash. (b) In the event that the Holder receives any payment or other distribution of any kind or character from ARC or from any other source whatsoever, in payment of the Junior Liabilities, after the commencement of any Bankruptcy Proceeding, such payment or other distribution shall be received in trust for the Certificateholders and shall be turned over by the Holder to the Certificateholders forthwith. (c) Upon the final indefeasible payment in full and in cash of all Senior Interests, the Holder shall be subrogated to the rights of the Certificateholders to receive payments or distributions from ARC that are applicable to the Senior Interests until the Junior Liabilities are paid in ull. (d) These Subordination Provisions are intended solely for the purpose of defining the relative rights of the Holder, on the one hand, and the Certificateholders on the other hand. Nothing contained in these Subordination Provisions or elsewhere in this Note is intended to or shall impair, as between ARC, its creditors (other than the Certificateholders) and the Holder, ARC's obligation, which is unconditional and page 3 absolute, to pay the Junior Liabilities as and when the same shall become due and payable in accordance with the terms hereof and of the Agreement or to affect the relative rights of the Holder and creditors of ARC (other than the Certificateholders). (e) The Holder shall not, until the Senior Interests have been finally paid and performed in full and in cash, (i) cancel, waive, forgive, transfer or assign, or commence legal proceedings to enforce or collect, or subordinate to any obligation of ARC (other than to the Senior Interests), howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, the Junior Liabilities or any rights in respect hereof or (ii) convert the Junior Liabilities into an equity interest in ARC, unless, in the case of each of clauses (i) and (ii), the Holdershall have received the prior ----------- ---- written consent of the Certificateholders in each case. (f) The Holder shall not, without the advance written consent of the Certificateholders, commence, or join with any other Person in commencing, any Bankruptcy Proceedings with respect to ARC until at least one year and one day shall have passed after the Senior Interests shall have been finally paid and performed in full and in cash; provided, however, that the Holder shall at all times have the right to file any claim in or otherwise take any action with respect to any insolvency proceeding instituted against ARC by any Person other than the Holder, ARC or any other AmeriSource Person (provided that no such action may be taken by the Holder until such proceeding has continued undismissed, unstayed and in effect for a period of 10 days). (g) If, at any time, any payment (in whole or in part) made with respect to any Senior Interest is rescinded or must be restored or returned by a Certificateholder (whether in connection with any Bankruptcy Proceedings or otherwise), these Subordination Provisions shall continue to be effective or shall be reinstated, as the case may be, as though such payment had not been made. (h) Each of the Certificateholders may, from time to time, in its sole discretion, without notice to the Holder, and without waiving any of its rights under these Subordination Provisions, take any or all of the following actions: (i) retain or obtain an interest in any property to secure any of the Interests, (ii) retain or obtain the primary or secondary obligations of any other obligor or obligors with respect to any of the Senior Interests, (iii) extend or renew for one or more periods (whether or not longer than the original period), alter, increase or exchange any of the Senior Interests, or release or compromise any obligation of any nature with respect to any of the Senior Interests, (iv) amend, supplement, amend and restate, or otherwise modify any Transaction Document to which it is a party, and (v) release its security interest in, or surrender, release or permit any substitution or exchange for all or any part of any rights or property securing any of the Senior Interests, or page 4 extend or renew for one or more periods (whether or not longer than the original period), or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such rights or property. (i) The Holder hereby waives: (i) notice of acceptance of these Subordination Provisions by any of the Certificateholders, (ii) notice of the existence, creation, non-payment or non-performance of all or any of the Senior Interests, and (iii) all diligence in enforcement, collection or protection of, or realization upon, the Senior Interests, or any thereof, or any security therefor. (j) These Subordination Provisions constitute a continuing offer from ARC to all Persons who become the holders of, or who continue to hold, Senior Interests, and these Subordination Provisions are made for the benefit of the Certificateholders, and the Trustee may proceed to enforce such provisions on behalf of each of such Persons. 8. General. No failure or delay on the part of the Holder in ------- exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No amendment, modification or waiver of, or consent with respect to, any provision of this Note shall in any event be effective unless (a) the same shall be in writing and signed and delivered by ARC and the Seller, and (b) all consents required for such actions under the Transaction Documents shall have been received by the appropriate Persons. 9. Limitation on Interest. Notwithstanding anything in this Note to the ---------------------- contrary, ARC shall never be required to pay unearned interest on any amount outstanding hereunder, and shall never be required to pay interest on the principal amount outstanding hereunder, at a rate in excess of the maximum nonusurious interest rate that may be contracted for, charged or received under applicable federal or state law (such maximum rate being herein called the "Highest Lawful Rate"). If the effective rate of interest that would otherwise be payable under this Note would exceed the Highest Lawful Rate, or the Holder shall receive any unearned interest or shall receive monies that are deemed to constitute interest that would increase the effective rate of interest payable by ARC under this Note to a rate in excess of the Highest Lawful Rate, then (a) the amount of interest that would otherwise be payable by ARC under this Note shall be reduced to the amount allowed by applicable law, and (b) any unearned interest paid by ARC or any interest paid by ARC in excess of the Highest Lawful Rate shall be refunded to ARC. Without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or page 5 received by the Holder under this Note that are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate shall be made, to the extent permitted by applicable usury laws (now or hereafter enacted), by amortizing, prorating and spreading in equal parts during the actual period during which any amount has been outstanding hereunder all interest at any time contracted for, charged or received by the Seller in connection herewith. If at any time and from time to time (i) the amount of interest payable to the Holder on any date shall be computed at the Highest Lawful Rate pursuant to the provisions of the foregoing sentence, and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to the Holder would be less than the amount of interest payable to the Holder computed at the Highest Lawful Rate, then the amount of interest payable to the Holder in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate until the total amount of interest payable to the Holder shall equal the total amount of interest that would have been payable to the Holder if the total amount of interest had been computed without giving effect to the provisions of the foregoing sentence. 10 No Negotiation. This Note is not negotiable. -------------- 11 Governing Law. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER ------------- AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. 12 Security Interest. The Seller may grant a security interest in or ----------------- otherwise pledge this Note as security, and any Person to whom such security interest is granted or to whom this Note is pledged shall be bound by, and for all purposes takes this Note subject to, the restrictions and other provisions (including the Subordination Provisions) set forth herein. 13 Captions. Paragraph captions used in this Note are provided solely for -------- convenience of reference and shall not affect the meaning or interpretation of any provision of this Note. AMERISOURCE RECEIVABLES CORPORATION By:_________________________________ Title:____________________________ page 6 EXHIBIT B FORM OF AMERISOURCE CERTIFICATE ----------------------- page 7 EXHIBIT C FORM OF SELLER ASSIGNMENT CERTIFICATE ----------------------------- Reference is made to the Receivables Purchase Agreement of even date herewith (as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, the "Agreement") between AMERISOURCE CORPORATION (the "Seller") and AMERISOURCE RECEIVABLES CORPORATION ("ARC"). Unless otherwise defined herein, capitalized terms used herein have the meanings provided in Appendix A to the Agreement. The Seller hereby sells, transfers, assigns, sets over and conveys unto ARC and its successors and assigns all right, title and interest of the Seller in, to and under: (a) each Receivable of the Seller (other than Contributed Receivables) that existed and was owing to the Seller as at the closing of the Seller's business on the Initial Cut-Off Date, (b) each Receivable created by the Seller (other than Contributed Receivables) that arises during the period from and including the closing of the Seller's business on the Initial Cut-Off Date to but excluding the Purchase Termination Date, (c) all Related Security with respect to all Receivables (other than Contributed Receivables) of the Seller, (d) all proceeds of the foregoing, including all funds received by any Person in payment of any amounts owed (including invoice prices, finance charges, interest and all other charges, if any) in respect of any Receivable described above (other than a Contributed Receivable) or Related Security with respect to any such Receivable, or otherwise applied to repay or discharge any such Receivable (including insurance payments that the Seller or the Servicer applies in the ordinary course of its business to amounts owed in respect of any such Receivable (it being understood that property insurance covering inventory is not so applied and is not included in this grant) and net proceeds of any sale or other disposition of repossessed goods that were the subject of any such Receivable) or other collateral or property of any Obligor or any other party directly or indirectly liable for payment of such Receivables), and (e) all Records relating to any of the foregoing. This Seller Assignment Certificate is made without recourse but on the terms and subject to the conditions set forth in the Transaction Documents to which the Seller is a page 1 party. The Seller acknowledges and agrees that ARC is accepting this Seller Assignment Certificate in reliance on the representations, warranties and covenants of the Seller contained in the Transaction Documents to which the Seller is a party. THIS SELLER ASSIGNMENT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE AGREEMENT AND THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. IN WITNESS WHEREOF, the undersigned has caused this Seller Assignment Certificate to be duly executed and delivered by its duly Authorized Officer this 13th day of December, 1994. AMERISOURCE CORPORATION By:_________________________________ Title:____________________________ page 2 SCHEDULE 1 to Purchase Agreement LITIGATION AND OTHER PROCEEDINGS -------------------------------- A. Seller is named as a defendant in the following L-Tryptophan lawsuit. Seller believes it is entitled to full indemnification by its suppliers and the manufacturer of L-Tryptophan with respect to this lawsuit: 1. Margaret M. O'Neill, et al. v. Showa Denko, K.K., et al., Court of ------------------------------------------------------- Common Pleas, Cuyahoga County, Ohio, No. 91-218888-CV. B. Seller is named as a defendant, along with six other wholesale distributors and twenty-four pharmaceutical manufacturers, in 14 civil actions filed in the United States District Court for the Southern District of New York. For pretrial matters, these cases, along with thirty-four others (to which the Company is not a party) have been transferred to the United States District Court for the Northern District of Illinois. In general, these lawsuits all claim that the manufacturer and wholesaler defendants have combined, contracted and conspired to fix the prices charged to plaintiffs and class members for prescription brand name pharmaceuticals. Specifically, plaintiffs claim that m the defendants use "chargeback agreements" to give some institutional pharmacies discounts that are not made available to retail drug stores. Seller believes it has meritorious defenses to the claims asserted in these lawsuits. C. In connection with its examination of the consolidated Federal income tax returns of Seller and its subsidiaries for the taxable years ended September 30, 1987 through December 29, 1988 and of AmeriSource Distribution Corporation and its subsidiaries (including Seller) for the taxable years ended September 30, 1989 through September 30, 1991, the Internal Revenue Service (the "IRS") has delivered to Seller certain Notices of Proposed Adjustment reflecting proposed increases to the taxable income of the consolidated groups for those periods. The IRS has not yet delivered a Revenue Agent's Report and accompanying"30- day letter" upon the conclusion of the examination pursuant to which the taxpayers are permitted to file an administrative protest of any proposed adjustments with the IRS Appeals Office. Seller expects to contest substantially all of the proposed adjustments. D. Seller has removed two underground storage tanks (the "USTs") at its Charleston, South Carolina facility and is awaiting finalization by the South Carolina Department of Health and Environmental Control on its closure report. The USTs in South Carolina are registered under the state's SUPERB program. Seller retained General Engineering Laboratories ("GEL") to study its Charleston, South Carolina property and to determine the extent of the environmental problem existing at that site. GEL completed its Subsurface Soil Investigation and issued a report dated October 22, 1993, which identified elevated concentrations of lead in the soil at the Charleston, South Carolina facility. Seller then retained RMT, Inc. ("RMT") to perform a groundwater investigation at the facility. RMT completed its Groundwater Investigation and issued a report dated July 1994, which found lead in unfiltered groundwater samples taken at the facility. Seller submitted RMT's report to the South Carolina Department of Health and Environmental Control ("SC DHEC"). As described in Seller's Form 10-Q for the Fiscal Quarter Ended June 30, 1994, Seller reserved $4.1 million during the third quarter of fiscal 1994 to cover future consulting, legal and remediation and ongoing monitoring costs for the Charleston, South Carolina facility. In September 1994, SC DHEC directed Seller to conduct additional groundwater and soil investigations at the facility. In October 1994, RMT submitted a proposed workplan to SC DHEC describing the additional investigation activities that will be undertaken at the facility. SCHEDULE 2 to Purchase Agreement OFFICES OF THE SELLER WHERE RECORDS ARE MAINTAINED ------------------------------- AmeriSource Corporation AmeriSource-Louisville 300 Chester Field Parkway 244 E. Woodlawn Malvern, PA 19355 Louisville, ky 40214 AmeriSource-Chattanooga AmeriSource-Lynchburg 300 Tallan Building 9221 Timberlake Road Two Union Square Lynchburg, VA 24502 Chattanooga, TN 37402 AmeriSource-Paducah 322 North 3rd Street Paducah, KY 42001 AmeriSource-Minneapolis 6810 Shady Oak Road Eden Prairie, MN 55344 AmeriSource-Thorofare 400 Grove Road Thorofare, NJ 08086 Rita-Ann Distributors 901 Curtain Avenue Baltimore, MD 21218 AmeriSource-Columbus 1200 E. 5th Avenue Columbus, OH 43219 AmeriSource- Toledo 3145 Nebraska Toledo, OH 43607 SCHEDULE 3 to Purchase Agreement LEGAL NAMES ----------- AmeriSource Corporation Alco Health Services Corporation TRADE NAMES ----------- 1. AmeriSource Corporation Malvern, PA 2. The Drug House Harrisburg, PA 3. The Drug House Thorofare, NJ 4. Family Independent Pharmacy Columbus, OH 5. Family Pharmacy Columbus, OH 6. The Kauffman-Lattimer Company Louisville, KY 7. The Kauffman-Lattimer Company Columbus, OH 8. Home Health Care Sioux Falls, SD 9. Meyers & Company Tiffin, OH 10. R A Distributors Baltimore, MD 11. Rita-Ann Distributors Baltimore, MD 12. Strother Drug Company Lynchburg, VA 13. Alco Health Services Northeast Thorofare, NJ Harrisburg, PA 14. Alco Health Services Southeast Chattanooga, TN Johnson City, TN Valdosta, GA 15. Alco Health Services West Central Sioux Falls, SD Council Bluffs, IA Joplin, MO Minneapolis, MN 16. Alco Health Services Mid Central Columbus, OH Louisville, KY 17. Alco Health Services North Central Mishawaka, IN Toledo, OH Tiffin, OH 18. Alco Health Services South Central Paducah, KY 19. Alco Health Services Atlantic Coast Lynchburg, VA 20. Duff Brothers Chattanooga, TN 21. Smith-Higgins Company Johnson City, TN 22. Brown Drug Company Sioux City, SD Council Bluffs, IA 23. AmeriSource (Minnesota) Corporation 24. AmeriSource (New York) 25. AmeriSource (Indiana) Corporation 26. AmeriSource (Iowa) Corporation 27. AmeriSource (Services) Corporation SCHEDULE 4 to Purchase Agreement CHANGES IN FINANCIAL CONDITION ------------------------------ A. Write-off of Seller's remaining balance of goodwill of $179.8 million in the third quarter of fiscal 1994, as described in Seller's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994. B. Redemption of Existing Subordinated Notes, as described in Seller's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994. C. Exchange of $40,329,000 principal amount of New Subordinated Notes and $101,000 cash for $40,329,000 principal amount of Existing Subordinated Notes, as described in Seller's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994. In addition, Seller paid certain holders of Existing Subordinated Notes cash consideration of $520,000 in exchange for such holders' agreement not to tender any of the Existing Subordinated Notes or to exercise any other rights they might have with respect to a consolidated net worth provision in the indenture for the Existing Subordinated Notes, as described in Seller's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994. D. See Schedule 1 - Litigation and Other Proceedings. ---------- E. Effective October 1, 1993, Seller adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement 106) and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (Statement 109). See Seller's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994 for a discussion. F. As of the date hereof, Seller has commenced the redemption of all outstanding Subordinated Notes which will be redeemed at the applicable premium set forth in the Subordinated Notes. G. Commencement of the transaction contemplated by the Original Seller Credit Agreements. APPENDIX A [Same as Appendix A to Pooling Agreement] APPENDIX A DEFINITIONS This is Appendix A to (a) the Purchase Agreement (as hereinafter defined) ---------- and (b) the Pooling Agreement (as hereinafter defined). A. Defined Terms. As used in the Purchase Agreement, the Pooling ------------- Agreement or any Supplement, as the case may be (unless the context requires a different meaning), the following terms have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acceptable Guarantee Instrument" means (a) an irrevocable letter of credit issued by a commercial bank having a short-term debt or certificate of deposit rating of at least "A-1+" from S&P, which letter of credit shall be a "direct pay" letter of credit, reasonably satisfactory in form and substance to the Trustee, or (b) a surety bond issued by an insurance company having a claims paying ability rating of at least "A-1+" from S&P; provided, that no letter of credit or surety bond shall constitute an Acceptable Guarantee Instrument until the Rating Agency Condition has been met with respect to the terms and conditions of the letter of credit or surety bond, as the case may be. "Account Agreements" means the Concentration Account Agreements and the Lockbox Agreements, as they may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with the Pooling Agreement. "Account Banks" means the Concentration Account Banks and the Lockbox Banks. "Accrual Reserve" means, on any day, the product of (a) the aggregate amount of the accounting reserves or "contra" entries established by the Sellers on their books and records as of such day in respect of the Sellers' expected liability for Cash Discounts and (b) a factor which shall equal (i) prior to the date referred to in the following sentence, 1.75 and (ii) on and after that date, 0. The date for the change in the factor described in clause (b) above ---------- will be the date, falling not later than 60 days after the Closing Date, upon which AmeriSource has (x) recalculated its Dilution statistics for each of the twelve most recent Calculation Periods ending prior to such date to give effect to the actual Cash Discounts taken during each such Calculation Period, (y) recalculated the Dilution Ratios for each such Calculation Period accordingly and (z) recalculated the then-current Dilution Reserve Ratio accordingly (and given effect to such recalculation in a Daily Report). "Accrued Carrying Costs" is defined in Section 4.03(a) of the Pooling Agreement. "Accumulation Account" is defined in Section 4.02(g) of the Pooling Agreement. "Accumulation Account Termination Date" is defined in Section 4.02(g) of the Pooling Agreement. "Accumulation Period" means, with respect to a Series of Investor Certificates or Purchased Interests, the period commencing on the Scheduled Accumulation Commencement Date that applies to that Series of Investor Certificates and ending on the earlier of (a) the Liquidation Commencement Date, (b) the Pay-Out Period Commencement Date and (c) the Expected Final Payment Date for that Series. "Accumulation Period Commencement Date" means, with respect to a Series of Investor Certificates, the Scheduled Accumulation Commencement Date for the Series of Investor Certificates. "Adjusted Eligible Receivables" means, at any time, the excess of (a) the then aggregate Unpaid Balance of all Eligible Receivables in the Trust over (b) the Unapplied Cash held by the Trust. "Advances" has the meaning assigned to that term in the Original Seller Credit Agreement. "Adverse Claim" means any claim of ownership interest or any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other) or other security agreement of any kind or nature whatsoever, including any conditional sale or other title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing. "Affected Receivables" means, with respect to a Look Back Period, Available Receivables for each day during such Look Back Period. "Affiliate" when used with respect to a Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. As used in this definition, the term "control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of a Person, whether through the ownership of such Person's voting securities, by contract or otherwise, and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the term "control." "Aged Receivables Ratio" means, as calculated in each Settlement Statement as of the Cut-Off Date for the related Calculation Period, a fraction (expressed as a percentage) having (a) a numerator that is the sum of (i) the aggregate Unpaid Balance of Receivables that were past due 121 to 150 days, as determined as of the Cut-Off Date for the most recently ended Calculation Period, plus (ii) the aggregate Unpaid Balance of Receivables that were written off as uncollectible during the most recently ended Calculation Period and that were not more than 150 days past due as of that Cut-Off Date and (b) a denominator that is the aggregate page A-2 amount payable pursuant to invoices giving rise to Receivables that were generated by the Seller during the Calculation Period that occurred five Calculation Periods prior to the most recently ended Calculation Period, as determined as of the Cut-Off Date for such prior Calculation Period. "Agent" means, with respect to a Series of Revolving Certificates, the bank or similar Person designated as the agent for the Revolving Purchasers in the Series' Revolving Certificate Purchase Agreement. "Aggregate Unpaid Balance" is defined in Section 2.1(b) of the Purchase Agreement. "Allocable Charged-Off Amount" is defined in Section 4.03(e) of the Pooling Agreement. "Allocable Daily Collections" means, with respect to any Series or Purchased Interest on any day, an amount equal to the product of: (a) a fraction, (i) the numerator of which is the Ratable Principal Amount of the Series or Purchased Interest and (ii) the denominator of which is the sum of the Ratable Principal Amounts of all then-outstanding Investor Certificates, all then outstanding Purchased Interests and the ARC Revolving Certificate, multiplied by (b) the amount of collected funds on deposit in the Master Collection Account on that day. "Alternate Base Rate" shall be as stated in the Supplement pursuant to which a Series of Certificates is offered. "AmeriSource" means AmeriSource Corporation, a Delaware corporation, or its successor in interest. "AmeriSource Certificate" is defined in Section 1.2(e) of the Purchase -------------- Agreement. "AmeriSource Person" means AmeriSource and each of its Subsidiaries and Affiliates other than ARC. "Applicable Rating Agencies" means each of the nationally recognized statistical rating agencies that, at the request of the Seller or ARC, has rated any then-issued and outstanding Series or Class of Investor Certificates. "Applicable Reserve Ratio" means, at any time, the greater of (a) the Minimum Required Reserve Ratio and (b) the sum of the Required Reserve Ratios then in effect. page A-3 "Applicant" is defined in Section 6.07 of the Pooling Agreement. "ARC" means AmeriSource Receivables Corporation, a Delaware corporation, or its successor in interest. "ARC Allocation Percentage" means, on any Settlement Date after the Liquidation Commencement Date, a fraction with (a) a numerator that equals the ARC Revolving Amount (after giving effect to any adjustments pursuant to the Pooling Agreement on the Settlement Date), and (b) a denominator that equals the Invested Amount, in each case calculated as of the Settlement Date. "ARC Note" means the note defined in Section 3.2 of the Purchase Agreement, substantially in the form of Exhibit A to the Purchase Agreement. "ARC Revolving Amount" means, at any time, (a)(i) the ARC Revolving Initial Amount, plus (ii) all additions made to the ARC Revolving Amount pursuant to Section 4.03 of the Pooling Agreement, minus (iii) all reductions in the ARC Revolving Amount made pursuant to Section 4.03 of the Pooling Agreement, minus (b) the amount of all other principal payments made to ARC prior to such time in respect of the ARC Revolving Certificate and any Allocable Charged-Off Amounts (net of Net Recoveries) allocated to the ARC Revolving Certificate. "ARC Revolving Certificate" means the Revolving Certificate, substantially in the form of Exhibit G to the Pooling Agreement, that represents a right to receive a variable principal amount, was issued to ARC on the First Issuance Date (and any Revolving Certificate issued to ARC in replacement thereof or in exchange or substitution therefor), does not bear interest and was executed by ARC and authenticated by or on behalf of the Trustee. "ARC Revolving Initial Amount" means $ , being the initial ------------ principal amount of the ARC Revolving Certificate on the Closing Date. "Assignment of Claims Act" is defined in Section 2.03(E)(iii) of the Pooling Agreement. "Authorized Newspaper" means a newspaper of general circulation in the Borough of Manhattan, The City of New York printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays and holidays. "Authorized Officer" means, (a) with respect to ARC: Kurt J. Hilzinger, Vice President, John A. Kurcik, Vice President, Teresa Ciccotelli, Secretary, R. David Yost, Treasurer, Julie Frantz, Assistant Treasurer, (b) with respect to the Seller: Kurt J. Hilzinger, Vice President Finance and Treasurer, John A. Kurcik, Vice President, Controller page A-4 and Assistant Treasurer, Teresa Ciccotelli, Vice President and Secretary, M. Curtis Young, Corporate Asset Manager, Julie Frantz, Treasury Operations Manager and (c) with respect to the Servicer: Kurt J. Hilzinger, Vice President Finance and Treasurer, John A. Kurcik, Vice President, Controller and Assistant Treasurer, Teresa Ciccotelli, Vice President and Secretary, M. Curtis Young, Corporate Asset Manager, Julie Frantz, Treasury Operations Manager. "Available Final Distribution Amount" means, with respect to any Series, the amount that would be available in the Master Collection Account on the Series Sale Date for the Series for distribution to the Certificateholders of such Series. "Available Receivables" has the meaning assigned to such term in Section 1.2(c) of the Purchase Agreement. "Available Subordinated Amount" is defined in Section 4.03(e) of the Pooling Agreement. "Bank Accounts" means the Lockbox Accounts and the Concentration Accounts. "Base Amount" is defined in Section 4.03(b) of the Pooling Agreement. "Benchmark Percentage" shall be as stated in the definition of "Excess Concentration Balances". "Book-Entry Certificates" means certificates evidencing a beneficial interest in the Investor Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 6.12 of the Pooling Agreement; provided, however, that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Certificates are to be issued to the Certificate Owners, such certificates shall no longer be "Book-Entry Certificates". "Borrowing Base" has the meaning assigned to such term in the Original Seller Credit Agreement. "Bridge Facility" means the transactions contemplated by the Supplement for the Series 1994-1 Certificates, as in effect on the Closing Date. "Business Day" means a day (other than a Saturday or Sunday) on which commercial banks in New York, New York are not authorized or required to be closed for business. "Calculation Period" means each period commencing on the first day of a Fiscal Month and ending on the last day of such Fiscal Month. page A-5 "Carrying Cost Account" is defined in Section 4.02(b) of the Pooling Agreement. "Carrying Cost Reserve" is defined in Section 4.03(a) of the Pooling Agreement. "Carrying Costs" means, for any period, (a) Fixed Principal Yield, Investor Revolving Yield and PI Yield for the period, (b) interest payable by ARC on the ARC Note for the period (provided that this interest shall be included as "Carrying Costs" only for purposes of determining the Purchase Price Percentage pursuant to Section 2.2 of the Purchase Agreement), (c) the Servicing Fee for the period in the applicable amount provided for in Section 3.04 of the Pooling Agreement, (d) the operating expenses described in Section 7.02(m) of the Pooling Agreement for the period, and (e) other fees, costs and expenses incurred by ARC for the period and paid to third Persons who are not either AmeriSource or any of its Affiliates and by the Trustee for the period in connection with its duties under the Transaction Documents (in the case of the Trustee, to the extent not included in the Servicing Fee). "Cash Discounts" means the discount provided to certain of Seller's customers for payment within the terms of the invoice expressed as a percentage of the gross amount of the invoice. "Cash Transfer" means, with respect to any day, the aggregate amount of cash transferred by ARC to the Seller or its designee, whether in the form of Purchase Price payments or prepayments, payments on the ARC Note, payments of Servicing Fees, dividends, loans or otherwise. "Certificate" means any one of the Fixed Principal Certificates, the Revolving Certificates or the Residual Certificate. "Certificate Calculation Amount" means the result of (a) the Fixed Principal Calculation Amount plus (b) the Revolving Certificate Calculation Amount minus (c) the amount of funds on deposit in the Set-Aside Account. "Certificateholder" means the Person in whose name a Certificate is registered in the Certificate Register. "Certificate Invested Amount" means the sum of the Fixed Principal Invested Amount, plus the Investor Revolving Invested Amount. "Certificate Owner" means, with respect to a Book-Entry Certificate, the Person who is the owner of such Book-Entry Certificate, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). page A-6 "Certificate Rate" means, with respect to any Certificate at any time, the fixed or variable rate of interest per annum applicable to the Series of which that Certificate is a part at such time, as the interest rate is calculated in accordance with the Supplement pursuant to which the Series is issued. "Certificate Register" means the register maintained pursuant to Section 6.03(a) of the Pooling Agreement, providing for the registration of the Certificates and transfers and exchanges thereof. "Charged-Off Amount" means, with respect to any Calculation Period, an amount equal to (a) the amount of Receivables that became Charged-Off Receivables during such Calculation Period, minus (b) the amount of Recoveries received by the Servicer during such Calculation Period. "Charged-Off Receivable" means any Receivable that, consistent with the Credit and Collection Policy, has been or should have been charged-off as uncollectible. "Class" means, with respect to any Series, any class of Investor Certificates of that Series. "Class Allocation Percentage" means, with respect to any Class or Purchased Interest on any Settlement Date after the Liquidation Commencement Date, a fraction with (a) a numerator that equals the Class Invested Amount of that Class or PI Invested Amount of that Purchased Interest, and (b) a denominator that equals the sum of the Class Invested Amount or PI Invested Amount of each Subordinated Class and Subordinated Purchased Interest (if the Class Allocation Percentage is being calculated for a Subordinated Class or a Subordinated Purchased Interest) or of each Senior Class and Senior Purchased Interest (if the Class Allocation Percentage is being calculated for a Senior Class or a Senior Purchased Interest). "Class Invested Amount" means, with respect to any Class, the amount calculated as the invested amount of that Class pursuant to the applicable Supplement. "Clearing Agency" means, with respect to any Book-Entry Certificate, any Person designated as such by ARC, which person must be registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "Clearing Agency Participant" is defined in Section 6.12(d) of the Pooling Agreement. "Closing Date" means December 13, 1994. page A-7 "Collections" means all funds that are received by the Seller, ARC, the Servicer or the Trustee from or on behalf of any Obligor in payment of any amounts owed (including invoice prices, finance charges, interest and all other charges, if any) in respect of any Receivable or Related Asset, or otherwise applied to repay or discharge any Receivable (including insurance payments that the Seller, ARC or the Servicer applies in the ordinary course of its business to amounts owed in respect of such Receivable and net proceeds of sale or other disposition of repossessed goods that were the subject of such Receivable). "Concentration Account" means any bank account that is created in accordance with, and to perform the functions contemplated for Concentration Accounts in, Section 3.03 of the Pooling Agreement. "Concentration Account Agreement" means a letter agreement, substantially in the form of Exhibit B to the Pooling Agreement (or such other form as is reasonably acceptable to the Trustee), among ARC, the Seller, a Concentration Account Bank and the Trustee that relates to one or more Concentration Accounts, as it may be amended, supplemented, amended and restated or otherwise modified from time to time. "Concentration Account Banks" means any of the banks at which one or more Concentration Accounts are maintained from time to time. "Concentration Factor" means, as of any Cut-Off Date, the greatest of (a) the "Benchmark Percentage" then in effect for purposes of clause (c) of the ---------- definition of Excess Concentration Balances, (b) two multiplied by the "Benchmark Percentage" then in effect for purposes of clause (d) of that ---------- definition, and (c) four multiplied by the "Benchmark Percentage" then in effect for purposes of clause (e) of that definition. ---------- "Confidential Information" is defined in Section 13.21 of the Pooling Agreement. "Confirmation Notice" means a written notice given by the Seller Agent to the Trustee and the Servicer on a Business Day to the effect that the Seller Parties waive any rights to Affected Receivables arising during the then current Look Back Period, the receipt of which notice shall terminate such Look Back Period; provided, that if the Trustee shall receive such notice on any day other than a Business Day or later than 2:00 p. m., New York City time, on any Business Day, such notice will be deemed to have been received on the next Business Day. "Consolidated Subsidiary" means any Subsidiary or any other Person, some or all of the stock of which, or other equity interests in which, is owned (directly or indirectly) by AmeriSource and the accounts of which would be consolidated with those of AmeriSource in its consolidated financial statements as of such time in accordance with GAAP. For the purposes of this definition, the term "Consolidated Subsidiary" shall include ARC, unless otherwise specified in a Transaction Document. page A-8 "Contract" means a contract or other written agreement between the Seller and any Person pursuant to or under which such Person shall be obligated to make payments in respect of any Receivable or Related Asset to the Seller from time to time. "Contributed Receivables" means all right, title and interest of AmeriSource in the Receivables (and Related Security in connection therewith) contributed by AmeriSource to ARC. "Controlled Accumulation Amount" means, with respect to a Series to which it applies, for any Settlement Date during an Accumulation Period with respect to such Series, the amount specified as the Controlled Accumulation Amount in the related Supplement. "Controlled Deposit Amount" means, with respect to any Series, for any Settlement Date during an Accumulation Period, an amount equal to the sum of the Controlled Accumulation Amount for such Settlement Date and the Deficit Controlled Accumulation Amount, if any, for the immediately preceding Settlement Date. "Corporate Trust Office" means the principal office of the Trustee in Buffalo, New York, at which at any particular time its corporate trust business shall be principally administered. "Credit and Collection Policy" means, with respect to the Seller, its credit and collection policies and practices relating to the Contracts and Receivables of the Seller that the Seller has provided to ARC and the Trustee prior to the Closing Date, as such credit and collection policies may be modified without violating Section 6.3(b) of the Purchase Agreement or Section 7.02(g) of the Pooling Agreement. Notwithstanding the foregoing, as applied to any Successor Servicer, "Credit and Collection Policy" means the collection policies and practices of the Successor Servicer with respect to receivables like the Receivables. "Credit Exposure", with respect to any Series of Investor Revolving Certificates, is defined in the applicable Revolving Certificate Purchase Agreement. "Cut-Off Date" means the last day of any Calculation Period. "Daily Report" is defined in Section 3.05(c) of the Pooling Agreement. "Defeasance Account" is defined in Section 4.02(e) of the Pooling Agreement. "Defeasance Allocation Percentage" means, on any Business Day with respect to any Series of Investor Certificates or Purchased Interest that is in an Accumulation Period, a Pay-Out Period or a Prepayment Accumulation Period: page A-9 (a) if no other Series of Investor Certificates or Purchased Interest is in an Accumulation Period, a Pay-Out Period or a Prepayment Accumulation Period on that Business Day, the Investor Allocation Percentage on that Business Day, and (b) if at least one other Series of Investor Certificates or Purchased Interest is in an Accumulation Period, a Pay-Out Period or a Prepayment Accumulation Period on that Business Day, the product of (i) the Investor Allocation Percentage on that Business Day multiplied by (ii) a fraction (A) the numerator of which is the Ratable Principal Amount of the Series or Purchased Interest for which the Defeasance Allocation Percentage is being calculated as of the Accumulation Period Commencement Date, Pay- Out Period Commencement Date or Prepayment Accumulation Commencement Date for that Series or Purchased Interest and (B) the denominator of which is the sum of the Ratable Principal Amounts of each Series and each Purchased Interest that is in an Accumulation Period, a Pay-Out Period or Prepayment Accumulation Period, as of the Accumulation Period Commencement Date, Pay- Out Period Commencement Date or Prepayment Accumulation Commencement Date for each. "Deficit Controlled Accumulation Amount" means, with respect to any Series, (a) on the first Settlement Date with respect to an Accumulation Period, the excess, if any, of the Controlled Accumulation Amount for such Settlement Date over the amount distributed from the Defeasance Account as the Principal Distribution Amount for such Settlement Date and (b) on each subsequent Settlement Date with respect to an Accumulation Period, the excess, if any, of the Controlled Deposit Amount for such subsequent Settlement Date over the amount distributed from the Defeasance Account as the Principal Distribution Amount for such subsequent Settlement Date. "Definitive Certificates" means any Certificate other than a Book-Entry Certificate. "Depositary Regulation S Certification" is defined in Section 6.03(i) of the Pooling Agreement. "Determination Date" means, with respect to any Receivable, the Business Day following its Origination Date. "Dilution" means, with respect to any Receivable, the aggregate reduction in the paid balance or Unpaid Balance of the Receivable on account of discounts, incorrect billings, credits, rebates, allowances, chargebacks, returned or repossessed goods, allowances for early payments and any other such reductions granted in the ordinary course of business that are unrelated to the inability of the Obligor to pay such Receivables, but excluding (prior to the date referred to in the final sentence of the definition of "Accrual Reserve") any amount representing Cash Discounts; provided, that for purposes of calculating the Dilution Ratio for any Calculation Period, the aggregate amount of checks written by the Seller to any Obligor page A-10 on account of rebates during such Calculation Period shall also be included as "Dilution"; provided, further that until the Report Date related to the December 1994 Cut-off Date, the aggregate amount of Dilution of the type referred to in the preceding proviso with respect to each relevant Cut-off Date shall be deemed to be $370,000. "Dilution Horizon Variable" means, at any time, a fraction having (a) a numerator equal to the sum of the aggregate amounts payable pursuant to invoices generated by the Seller during the one Calculation Period ending on the most recent Cut-Off Date (as calculated on that Cut-Off Date) and (b) a denominator equal to the aggregate Unpaid Balance of all Eligible Receivables, as calculated on the most recent Cut-Off Date. "Dilution Ratio" means, as calculated in each Settlement Statement as of the most recent Cut-Off Date, a fraction (expressed as a percentage) having (a) a numerator equal to the aggregate amount of Dilution on the Receivables during the Calculation Period ending on the most recent Cut-Off Date, and (b) a denominator equal to the aggregate amounts payable pursuant to invoices giving rise to Receivables that were generated by the Seller during the preceding Calculation Period (so that, for example, if the Calculation Period specified in clause (a) corresponded to the March Fiscal Month, the Calculation Period in - - - ---------- this clause (b) would be the one corresponding to the February Fiscal Month). ---------- "Dilution Reserve Ratio" means, as calculated in each Settlement Statement, the result (expressed as a percentage), calculated as of the most recent Cut-Off Date, equal to: (a)(i) 1.75 multiplied by (ii) the average of the Dilution Ratios during the period of 12 consecutive Calculation Periods ending on the most recent Cut-Off Date, plus (b)(i) the highest Dilution Ratio during the period of 12 consecutive Calculation Periods ending on the most recent Cut-Off Date minus (ii) the amount described in clause (a)(ii), multiplied by (iii) a fraction having a -------------- numerator equal to the amount described in clause (b)(i) and a denominator ------------- equal to the amount described in clause (a)(ii), -------------- multiplied by: (c) the Dilution Horizon Variable; provided that the Dilution Reserve Ratio shall be recalculated on the 60th day following the Closing Date (or earlier if the necessary recalculations are completed prior to that date) to reflect the recalculations referred to in the final sentence of the definition of "Accrual Reserve." "Discount Rate" is defined in Section 2.2(d) of the Purchase Agreement. page A-11 "Discount Rate Reserve" means, at any time, the positive excess (if any) of: (a) the accrued and unpaid Carrying Costs for the current Calculation Period plus any additional Carrying Costs expected to accrue through the end of the current Calculation Period, plus estimated Carrying Costs for the longer of (i) the immediately following Calculation Period or (ii) a period equal to 1.75 times the number of Turnover Days), over (b) the balance in the Carrying Cost Account as of such time. "Disposition" is defined in Section 9.03(a)(i) of the Pooling Agreement. "Dollars" means dollars in lawful money of the United States of America. "Eligible Institution" means, with respect to any Series, the Eligible Institution specified in the related Supplement. "Eligible Inventory" has the meaning assigned to that term in the Original Seller Credit Agreement. "Eligible Investments" means any of the following: (a) deposit accounts that are established and maintained at a financial institution, the short-term debt securities or certificates of deposit of which have at the time of investment the highest short-term debt or certificate of deposit rating (as the case may be) available from the Applicable Rating Agencies, and that are held in the name of the Trustee in trust for the benefit of the Certificateholders, subject to the exclusive custody and control of the Trustee and for which the Trustee has sole signature authority; provided, however, that this clause shall not apply to the Lockbox Accounts or to the Trust Accounts, (b) marketable obligations of the United States of America, the full and timely payment of principal and interest on which is backed by the full faith and credit of the United States of America, that have a maturity date not later than the next succeeding Settlement Date, (c) marketable obligations directly and fully guaranteed by the United States of America, the full and timely payment of principal and interest on which is backed by the full faith and credit of the United States of America, that have a maturity date not later than the next succeeding Settlement Date, page A-12 (d) banker's acceptances, certificates of deposit and other interest- bearing obligations denominated in Dollars (subject to the proviso at the end of this definition), (e) repurchase agreements (i) that are entered into with any financial institution having the ratings referred to in clause (a) and (ii) ---------- that are secured by a perfected first priority security interest in an obligation of the type described in clause (b) or (c); provided, however, ---------- --- that such obligation may mature later than the next succeeding Settlement Date if such bank is required to repurchase such obligation not later than the next succeeding Settlement Date; and provided further, that (i) the market value of the obligation with respect to which such bank has a repurchase obligation, determined as of the date on which such obligation is originally purchased, shall equal or exceed 102% of the repurchase price to be paid by such bank and (ii) the Trustee or a custodian acting on its behalf shall have possession of the instruments or documents evidencing such obligations, (f) guaranteed investment contracts entered into with any financial institution, the short-term debt securities of which have the highest short-term debt rating available from the Applicable Rating Agencies that, in each case, have a maturity date not later than the next succeeding Settlement Date, (g) commercial paper (except for commercial paper issued by the Seller or any Affiliate of the Seller) rated at the time of investment not less than "A-1+" or the equivalent thereof by the Applicable Rating Agencies and having a maturity date not later than the next succeeding Settlement Date, and (h) freely redeemable shares in open-end money market mutual funds (including such mutual funds that are offered by the Person who is acting as the Trustee or by any agent of such Person) that (i) maintain a constant net-asset value and (ii) at the time of such investment have been rated not less than "AAA\\m\\" or the equivalent thereof by S&P, provided, however, that (A) the Trustee shall only acquire banker's acceptances and certificates of deposit of, and enter into repurchase agreements with, institutions whose short-term obligations have been rated not less than "A-1+" or the equivalent thereof by the Applicable Rating Agencies and whose long-term obligations have been rated not less than "AA-" by S&P and (B) the securities, banker's acceptances, certificates of deposit, other obligations and repurchase agreements described above shall only constitute "Eligible Investments" if and to the extent that the Servicer is satisfied that the Trustee will have a perfected security interest therein for the benefit of the Certificateholders. "Eligible Obligor" means, at any time, an Obligor that satisfies the following criteria: page A-13 (a) it has a place of business located in the United States of America or Puerto Rico or is otherwise subject to the jurisdiction of one or more courts in the United States of America or Puerto Rico, (b) it is not a direct or indirect Subsidiary of AmeriSource or any other entity with respect to which AmeriSource or any of its Subsidiaries owns, directly or indirectly, more than 50% of the entity's equity interests, (c) with respect to which no Event of Bankruptcy had occurred and was continuing as of the end of the most recent Calculation Period and is continuing; provided, however, that this clause shall not apply if a bankruptcy court has approved the Obligor's payment of its obligations on the Receivables, (d) as of the end of the most recent Calculation Period, no more than 50% of all Receivables of the Obligor were (for reasons other than disputes) aged more than 90 days past their respective due dates, (e) as of the end of the most recent Calculation Period, none of the past due Receivables of the Obligor included in the Receivables Pool were evidenced by promissory notes, (f) it is not an Obligor with whom the Seller has a "cash in advance" or "cash on account" arrangement, it being understood that a "same-day payment" arrangement will not constitute a "cash in advance" or "cash on account" arrangement, (g) if it is a State Obligor in the state of North Carolina, Arizona, Connecticut, Georgia, Idaho, Nebraska or Virginia, then it shall only be an Eligible Obligor to the extent that its consent to the assignment of the accounts receivable that it then or thereafter owes to the Seller shall have been received with respect to the transfers contemplated by the Transaction Documents or, at the election of ARC, a favorable opinion of counsel in that state to the effect that no consent is required shall have been provided to the Trustee, and for which the Rating Agency Condition has been satisfied, and (h) if it is a State Obligor in the state of Maryland, Montana or Utah, then it shall only be an Eligible Obligor to the extent that (i) the Rating Agency Condition has been satisfied and (ii) the notice shall have been given to the State Obligor with respect to the transfers contemplated by the Transaction Documents. "Eligible Receivable" means, at any time, a Receivable: page A-14 (a) that arises from the sale of merchandise or services by the Seller in the ordinary course of (i) AmeriSource or (ii) any additional Seller that becomes a party to the Purchase Agreement pursuant to Section 1.7 thereof, (b) that represents a bona fide obligation resulting from a sale of goods that have been shipped or services that have been performed and is due and payable not more than 120 days after the date on which the invoice for services or merchandise, the sale of which gave rise to such Receivable, is provided or delivered, (c) that, as of the end of the previous Calculation Period, was not aged more than 60 days past its original due date, (d) that (i) if the perfection of ARC's and the Trust's interests therein is governed by the laws of a jurisdiction where the UCC is in force, constitutes an account or a general intangible for the payment of money and not an instrument or chattel paper, as such terms are defined in the UCC and (ii) if the perfection of ARC's and the Trust's interests therein is governed by the law of any jurisdiction where the UCC is not in force, the Seller of the Receivable has furnished to the Trustee an Opinion of Counsel to the effect that the ownership interest of the Trust in the Trust Assets and other rights with respect thereto are not significantly less protected and favorable than such rights would be if secured by a perfected security interest under the UCC, (e) the Obligor of which is an Eligible Obligor, (f) with regard to which both the representation and warranty of ARC in Section 2.03(a)(ii) of the Pooling Agreement and the representation and warranty of the relevant Seller in Section 5.1(k) of the Purchase Agreement are true and correct, (g) the transfer of which (including the sale of which by the applicable Seller to ARC and the transfer of which by ARC to the Trust) does not contravene or conflict with any law, rule or regulation or any contractual or other restriction, limitation or encumbrance that applies to the Seller, ARC or the Trust, and the sale, assignment or transfer of which, and the granting of a security interest in which, does not require the consent of the Obligor thereof or any other Person, other than any such consent that has been obtained previously, (h) that is denominated and payable only in Dollars in the United States of America and is non-interest bearing; provided, however, that a Receivable shall not be deemed to be interest-bearing solely as a result of the Seller's imposition of an interest or other charge on any such Receivable that remains unpaid after its scheduled due date; and provided further, that, except for certain amounts included on page A-15 the Closing Date, such interest charge or other charge shall not be included in the Unpaid Balance of a Receivable for purposes of calculating the Base Amount, (i) that arises under a Contract that has been duly authorized and that, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law, (j) that is not subject to any asserted reduction (including any reduction on account of any offsetting account payable of ARC or the Seller to an Obligor or funds of an Obligor held by ARC or the Seller), cancellation, or refund or any dispute, offset, counterclaim, lien or defense whatsoever (except, with respect to State Obligors, Local Obligors or Federal Obligors, to the extent of the applicable Individual Group Reserve or Federal Set Off Reserve); provided, however, that a Receivable that is subject only in part to any of the foregoing shall be an Eligible Receivable to the extent not subject to reduction, cancellation, refund, dispute, offset, counterclaim, lien or other defense, (k) that, together with the Contract related thereto, was created in accordance with, and conforms in all material respects with, all applicable laws, rules, regulations, orders, judgments, decrees and determinations of all courts and other governmental authorities (whether Federal, state, local or foreign and including usury laws), (l) that satisfies all applicable requirements of the Credit and Collection Policy of the Seller, (m) that has not been compromised, adjusted, satisfied, subordinated, rescinded or modified (including by extension of time or payment or the granting of any discounts, allowances or credits), except as permitted by Section 7.02(g) of the Pooling Agreement, (n) if owed by a Restricted Federal Obligor or a State Obligor, for which ARC shall have made the certification required by Section 3.06 of the Pooling Agreement with respect to such Restricted Federal Obligor or State Obligor as of the end of the most recent fiscal quarter of AmeriSource, and page A-16 (o) if owed by a State Obligor or a Local Obligor in a Set Off Group, the Rating Agency Condition shall have been satisfied with respect to the State/Local Tax Period and Individual Group Reserves for such Set Off Group. "Eligible Servicer" means (a) AmeriSource, (b) the Trustee or (c) an entity that, at the time of its appointment as Servicer, (i) is servicing a portfolio of trade receivables, (ii) is legally qualified and has the capacity to service the Receivables, (iii) has demonstrated the ability to service professionally and competently a portfolio of trade receivables similar to the Receivables in accordance with high standards of skill and care, (iv) is qualified to use the software that is then being used to service the Receivables or obtains the right to use or has its own software that is adequate to perform its duties under the Pooling Agreement, and (v) is acceptable to the Applicable Rating Agencies as evidenced by satisfaction of the Rating Agency Condition. "End-of-the Day Seller Excess Borrowing Base" means, as of any day, the amount (which may be a positive or negative number) by which: (a) the Borrowing Base as set forth in the borrowing base certificate then most recently required to be delivered to the Seller Agent pursuant to the Original Seller Credit Agreement, exceeds (b) the pro forma Seller Outstandings at the end of such day, assuming that (i) the Seller Agent receives on such day any Segregated Cash that would, if the Look Back Period ended on such day, be payable by the Trust to ARC (and in turn by ARC to AmeriSource) and (ii) any Advance or Letter of Credit requested by AmeriSource on such day has been funded or issued (respectively), provided, however, that if an Event of Default or Unmatured Event of Default exists, the End-of-the-Day Seller Excess Borrowing Base shall be deemed to be zero. "Enhancement" means, with respect to any Series or Purchased Interest, any surety bond, letter of credit, guaranteed rate agreement, maturity guaranty facility, cash collateral account or guaranty, tax protection agreement, interest rate swap or other contract or agreement for the benefit of Certificateholders of the Series or Purchaser of the Purchased Interest. The drawing on or payment of any Enhancement for the benefit of a Series or Class of Investor Certificates shall not be available to the Investor Certificateholders of any other Series or Class. "Enhancement Provider" shall mean the Person providing any Enhancement, other than any Certificateholders (including any Holder of the Residual Certificate) the Certificates of which are subordinated to any Series or Class. "Equalization Account" is defined in Section 4.02(c) of the Pooling Agreement. page A-17 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time, and any successor statute of similar import, together with any regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Estimated Base Amount" is defined in Section 3.05(c) of the Pooling Agreement. "Event of Bankruptcy" shall be deemed to have occurred with respect to a Person if either: (a) a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or any substantial part of its assets, or any similar action with respect to such Person under any law (foreign or domestic) relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of (i) in the case of any Person other than ARC, 60 days, and (ii) in the case of ARC, ten days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws (foreign or domestic) now or hereafter in effect, or (b) such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or the like, for such Person or any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail to, or admit in writing its inability to, pay its debts generally as they become due. "Event of Default" (a) when used in connection with the Original Seller Credit Agreement, has the meaning assigned to that term in the Original Seller Credit Agreement, and (b) otherwise, has the meaning assigned to that term in the Replacement Credit Agreement. "Excess Concentration Balances" means for any Obligor, the aggregate outstanding balances of Eligible Receivables it owes that, expressed as a percentage of the Adjusted Eligible Receivables, exceeds the following percentages for the following Obligors: (a) 100% for any Tier-1 Obligor, page A-18 (b) 100% for (i) any Tier-2 Obligor or (ii) all Receivables owing from any foreign Obligor, payment of which is fully supported by a direct pay letter of credit that is (A) issued by a domestic banking institution rated at least "A" by the Applicable Rating Agencies and (B) assigned to the Trustee, (c) 10% for any Tier-3 Obligor, (d) 5% for any Tier-4 Obligor, and (e) 2% for any Tier-5 Obligor; provided, however, with respect to the two Obligors (other than State Obligors and Local Obligors) that represent the two highest percentages of Adjusted Eligible Receivables in this category, the percentage will be 3%, (each of the percentages above being herein called a "Benchmark Percentage"); provided, that ARC may, by notice in any Settlement Statement (and after satisfying the Rating Agency Condition) increase or decrease the Benchmark Percentage. Any change to a Benchmark Percentage shall result in a corresponding change to the Concentration Factor and hence in the Minimum Required Reserve Ratio, as set forth in the definitions thereof. "Excess Specified Obligor Balance" means, on any day, (a) the aggregate amount of otherwise Eligible Receivables due from Specified Obligors minus (b) 3% of the Adjusted Eligible Receivables. "Exchange Date" is defined in Section 6.12(c) of the Pooling Agreement. "Expected Final Payment Date" means, with respect to any Series, the date specified as the Expected Final Payment Date in the related Supplement. "Federal Funds Rate" shall be as stated in the Supplement pursuant to which a Series of Certificates is issued. "Federal Obligor" means the United States of America or any department, agency or instrumentality thereof; provided, that any such department, agency or instrumentality may be recharacterized as other than a Federal Obligor if AmeriSource shall have presented the Applicable Rating Agencies with evidence that such Person is not entitled to set off for obligations owed to other Federal Obligors and the Rating Agency Condition shall have been satisfied with respect to such recharacterization. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any successor thereto or to the functions thereof. "Federal Set Off Reserve" means: page A-19 (a) on any day prior to the Settlement Date relating to the April, 1995 Cut-Off Date, it shall be $5,868,679; provided that if the Seller shall not have made the Federal income tax payment owed by it on January 15, 1995 or March 15, 1995, the aggregate amount of the Seller's tax liability accrued prior to that date will be added to the Federal Set Off Reserve for purposes of this clause (a), and ---------- (b) on any day occurring thereafter, (i) the aggregate amount of Federal income taxes and withholding taxes accrued by the Seller during the calendar quarter ending prior to the most recent Settlement Date (the "Benchmark Quarter's Federal Taxes") plus (ii) one-ninetieth of the Benchmark Quarter's Federal Taxes for each day that has elapsed since the last payment of Federal income taxes by the Seller plus (iii) the aggregate amount of any Federal income taxes and withholding taxes accrued by the Seller prior to the current calendar quarter that have not been paid; provided, however, that in no event shall the Federal Set Off Reserve exceed the aggregate Unpaid Balance of Eligible Receivables owed by Restricted Federal Obligors. "Final Maturity Date" is defined in the ARC Note. "Final Scheduled Payment Date" is defined in Section 12.01(a) of the Pooling Agreement. "Financial Advisors" means the financial advisors denominated as such in a Revolving Certificate Purchase Agreement. "First Issuance Date" means the Closing Date. "Fiscal Month" means a fiscal month of AmeriSource. "Fixed Principal Calculation Amount" means, as of the opening of business on any day, the Fixed Principal Invested Amount for all outstanding Series of Fixed Principal Certificates. "Fixed Principal Certificate" means any Certificate of any Series that is not a Revolving Certificate or the Residual Certificate. "Fixed Principal Initial Invested Amount" means (a) with respect to any Series of Fixed Principal Certificates, its aggregate principal amount on the Closing Date or the Subsequent Issuance Date (as applicable) for the Series, as is stated in the Supplement pursuant to which it is issued and (b) with respect to all Fixed Principal Certificates, the aggregate initial principal amount of all then-issued and outstanding Fixed Principal Certificates. page A-20 "Fixed Principal Interest" is defined in Section 4.01 of the Pooling Agreement. "Fixed Principal Invested Amount" means, at any time, (a) with respect to any Series of Fixed Principal Certificates, an amount equal to (i) the Fixed Principal Initial Invested Amount with respect to such Series minus (ii) the aggregate amount of (x) principal payments made to the Holders of such Series of Fixed Principal Certificates prior to such time in respect of such Series of Fixed Principal Certificates, (y) all funds on deposit in the Principal Funding Account and the Defeasance Account with respect thereto, and (z) any Investor Allocable Charged-Off Amount (net of Investor Net Recoveries) with respect thereto, and (b) with respect to all Series of Fixed Principal Certificates, the sum of the amounts calculated pursuant to clause (a) with respect to each such ---------- Series. "Fixed Principal Yield" means the scheduled interest payable in respect of Fixed Principal Certificates as computed by reference to the applicable Certificate Rate(s). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, as in effect from time to time. "Governmental Authority" means the United States of America, any state or other political subdivision thereof and any entity in the United States of America or any applicable foreign jurisdiction that exercises executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty" means any agreement, undertaking or arrangement by which any Person guarantees, endorses, agrees to purchase or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. "Highest Bid" means the highest cash purchase offer for a Series received by the Servicer pursuant to Section 12.01 of the Pooling Agreement. "Holder" means the Person in whose name a Certificate is registered in the Certificate Register or a Person who holds a Purchased Interest. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of AmeriSource, any qualification or exception to such opinion or certification that is of a "going concern" or similar nature. page A-21 "Indebtedness" of any Person means, without duplication: (a) all of its obligations for borrowed money and all of such Person's obligations evidenced by bonds, debentures, notes or other similar instruments, (b) all of its obligations as lessee under leases that have been or should be, in accordance with GAAP, recorded as capitalized leases, and (c) whether or not so included as liabilities in accordance with GAAP, all of its obligations to pay the deferred purchase price of property or services, and indebtedness (excluding prepaid interest thereon) secured by an Adverse Claim on property owned or being purchased by it (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by it or is limited in recourse. For purposes of the Transaction Documents, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which it is a general partner or a joint venturer. "Indemnified Losses" is defined in Section 7.03(a) of the Pooling Agreement. "Indemnified Party" is defined in Section 7.03(a) of the Pooling Agreement. "Independent Director" is defined in Section 7.02(n) of the Pooling Agreement. "Individual Group Reserve" means with respect to any Set Off Group on any day, (a) 90 multiplied by the State/Local Tax Per Diem plus (b) an amount equal to the State/Local Tax Per Diem for each day that has elapsed since the end of the most recent State/Local Tax Period plus (iii) the aggregate amount of any state/local income tax obligations accrued prior to the current State/Local Tax Period that have not been paid; provided that if Servicer shall have elected to exclude Receivables owed by all Obligors in a Set Off Group from the Eligible Receivables on any day, the Individual Group Reserve for that Set Off Group on such day shall be zero; and provided further, that the Individual Group Reserve for any Set Off Group shall not exceed the aggregate Unpaid Balance of Eligible Receivables owed by Obligors in such Set Off Group. "Initial Cut-Off Date" means the Business Day immediately preceding the Closing Date. "Initial Invested Amount" means (a) with respect to any Fixed Principal Certificate, the related Fixed Principal Initial Invested Amount, (b) with respect to any Investor Revolving Principal Certificate, the related Investor Revolving Initial Invested Amount and (c) with respect to any Purchased Interest, the related PI Initial Invested Amount. page A-22 "Intercreditor Agreement" means (a) during Phase I, an intercreditor agreement substantially in the form of Exhibit O-1 to the Pooling Agreement between the Seller Agent and the Trustee, and (b) during Phase II, an intercreditor agreement substantially in the form of Exhibit O-2 of the Pooling Agreement between the Seller Agent and the Trustee. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time. "Inventory Advance Rate" means at any time the advance rate percentage then applied to Eligible Inventory for purposes of calculating the Borrowing Base. "Inventory Credit Agreement" means the Amended and Restated Credit Agreement, and all exhibits thereto, dated as of December 13, 1994, among AmeriSource, General Electric Capital Corporation, as Agent and Managing Agent, Bankers Trust Company, as Issuing Lender and Managing Agent, certain Co-Agents and certain Lenders, as it may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with its terms. "Invested Amount" means, at any time, (a) the Fixed Principal Invested Amount at such time plus (b) the Revolving Certificate Invested Amount at such time plus (c) the PI Invested Amount at such time. "Investor Allocable Charged-Off Amount" is defined in Section 4.03(e) of the Pooling Agreement. "Investor Allocation Percentage" means, on any Business Day, a fraction (expressed as a percentage) (a) the numerator of which is the sum of the Ratable Principal Amounts of all outstanding Series of Investor Certificates and Purchased Interests as of (i) in the case of a Series of Investor Certificates or Purchased Interests that is in an Accumulation Period, Pay-Out Period or Prepayment Accumulation Period, the applicable Accumulation Period Commencement Date, Pay-Out Period Commencement Date or Prepayment Accumulation Commencement Date and (ii) in the case of a Series of Investor Certificates or Purchased Interest that is in a Revolving Period and is not in a Prepayment Accumulation Period, that Business Day and (b) the denominator of which is the sum of the numerator plus the Ratable Principal Amount of the ARC Revolving Certificate as of that day. "Investor Certificateholder" means the Person in whose name an Investor Certificate is registered in the Certificate Register. "Investor Certificates" means the Fixed Principal Certificates and the Investor Revolving Certificates. "Investor Exchange" is defined in Section 6.10(a) of the Pooling Agreement. page A-23 "Investor Initial Invested Amount" means the sum of the Fixed Principal Initial Invested Amount, the Investor Revolving Initial Invested Amount and the PI Initial Invested Amount. "Investor Invested Amount" means (a) the Fixed Principal Invested Amount plus (b) the Investor Revolving Invested Amount plus (c) the PI Invested Amount. "Investor Net Recoveries" is defined in Section 4.03(e) of the Pooling Agreement. "Investor Repayment Amount" means, at any time, the sum of (i) the Certificate Calculation Amount, (ii) the PI Calculation Amount, plus (iii) the aggregate amount of all other Obligations. "Investor Revolving Certificate" means any Certificate of any Series that is designated as a Series of Investor Revolving Certificates in the Supplement pursuant to which the Series is issued. "Investor Revolving Certificateholder" means the Person in whose name an Investor Revolving Certificate is registered in the Certificate Register. "Investor Revolving Certificate Rate" means, with respect to any Investor Revolving Certificate, the rate of interest per annum applicable to the Investor Revolving Certificate at such time, as the interest rate is calculated in accordance with the Supplement pursuant to which the Series is issued. "Investor Revolving Initial Invested Amount" means (a) with respect to any Series of Investor Revolving Certificates, its aggregate principal amount on the Closing Date or any Subsequent Issuance Date (as applicable) for such Series, as is stated in the Supplement pursuant to which it is issued and (b) with respect to all then-issued and outstanding Investor Revolving Certificates, the aggregate initial principal amount of all Investor Revolving Certificates. "Investor Revolving Invested Amount" means, at any time: (a) with respect to any Series of Investor Revolving Certificates, (i)(A) the Investor Revolving Initial Invested Amount with respect to such Series plus (B) all additions made to the Investor Revolving Invested Amount with respect to such Series pursuant to Section 4.03 of the Pooling Agreement plus (C) all additions to the principal amount of Investor Revolving Certificates of such Series made pursuant to Section 6.11 of the Pooling Agreement, minus (ii)(A) all reductions in the Investor Revolving Invested Amount with respect to Investor Revolving Certificates of such Series made pursuant to Section 4.03 of the Pooling Agreement plus (B) the aggregate amount of all other principal payments made to the Holders of such Series prior to page A-24 such time in respect of such Series plus (C) the aggregate amount of all funds on deposit in the Principal Funding Account and the Defeasance Account with respect thereto plus (D) any Investor Allocable Charged-Off Amounts (net of Investor Net Recoveries) allocated to such Series, and (b) with respect to all Series of Investor Revolving Certificates, the sum of the amounts calculated pursuant to clause (a) with respect to ---------- each such Series. "Investor Revolving Yield" means scheduled interest payable in respect of the Investor Revolving Certificates at the applicable Investor Revolving Certificate Rate(s). "Involuntary Adverse Claim" means a lien in favor of the Internal Revenue Service or the PBGC on any Trust Assets. "Lead Placement Agent" means the Person designated as such by ARC in connection with the issuance of any Certificates. "Letter of Credit" has the meaning assigned to that term in the Original Seller Credit Agreement. "Letter of Credit Obligations" has the meaning assigned to that term in the Original Seller Credit Agreement. "Letter of Representations" means the agreement among ARC, the Trustee and the applicable Clearing Agency, with respect to any Book-Entry Certificates, as the same may be amended, supplemented, restated or otherwise modified from time to time. "Liquidation Commencement Date" means the earlier to occur of (a) the Scheduled Liquidation Commencement Date and (b) the date on or following a Liquidation Event that is the Liquidation Commencement Date by operation of Section 9.01 of the Pooling Agreement. "Liquidation Event" is defined in Section 9.01 of the Pooling Agreement. "Liquidation Period" means the period commencing on the Liquidation Commencement Date. "Local Obligor" means any county, municipal or other local government or any department, agency or instrumentality thereof. "Lockbox Accounts" means the bank accounts, maintained at those certain locations described in Schedule 2 to the Pooling Agreement, into which Collections from Receivables are deposited, and any bank account that is hereafter created in accordance with, and to page A-25 perform the functions contemplated for "Lockbox Accounts" in, Section 3.03 of the Pooling Agreement. "Lockbox Agreement" means any of the letter agreements delivered in connection with the Pooling Agreement and any other letter agreement, substantially in the form of Exhibit A to the Pooling Agreement (or such other form as is reasonably acceptable to the Trustee), among a Lockbox Bank, the Seller, the Servicer and the Trustee that relates to one or more Lockbox Accounts, as they may be amended, supplemented, amended and restated or otherwise modified from time to time. "Lockbox Bank" means any of the banks at which one or more Lockbox Accounts are maintained from time to time. "Look Back Period" has the meaning assigned to such term in Section 1.2(e) of the Purchase Agreement. "Loss Discount" is defined in Section 2.2(b) of the Purchase Agreement. "Loss Reserve Ratio" means, as calculated in each Settlement Statement, the result (expressed as a percentage) equal to (a) two multiplied by (b) the highest average of the Aged Receivables Ratio for any three consecutive Calculation Periods that occurred during the preceding 12 consecutive Calculation Periods ending on the most recent Cut-Off Date multiplied by (c) a fraction having (i) a numerator equal to the sum of the aggregate amounts payable pursuant to invoices giving rise to Receivables generated by the Seller during the three Calculation Periods preceding or ending on the most recent Cut- Off Date, and (ii) a denominator equal to the Adjusted Eligible Receivables, as determined on the most recent Cut-Off Date, multiplied by (d) the Payment Term Variable as of the most recent Cut-Off Date. "Loss to Liquidation Ratio" means, as calculated in each Settlement Statement, a fraction (a) the numerator of which is the aggregate Unpaid Balance of Receivables (net of recoveries) that were written off as uncollectible or (without duplication) converted into promissory notes during the three preceding Calculation Periods in accordance with the Credit and Collection Policy of the Seller, and (b) the denominator of which is the aggregate amount of Collections on the Receivables received during the three Calculation Periods. "Majority Investors" means Holders of Investor Certificates and Purchasers holding Purchased Interests that collectively evidence more than 50% of the Investor Invested Amount. "Mark-Up Percentage" means 2.5%. page A-26 "Master Collection Account" is defined in the Section 4.02(b) of the Pooling Agreement. "Material Adverse Effect" means, with respect to any AmeriSource Person and to any event or circumstance and at any time, a material adverse effect on (a) the ability of that Person to perform its obligations under any Transaction Document or (b) the validity, enforceability or collectibility of any Receivables, Related Assets or Contracts that, individually or in the aggregate, represent or evidence a right to payment in excess of 5% of the aggregate Unpaid Balance of the Receivables at such time. "Maximum Bridge Funding" means the aggregate Stated Amounts of Investor Revolving Certificates issued pursuant to the Bridge Facility. "Maximum Take Out Funding" means (a) the aggregate principal amounts of Fixed Principal Certificates issued pursuant to the Take Out Facility plus (b) the aggregate Stated Amounts of Investor Revolving Certificates or Purchased Interests issued pursuant to the Take Out Facility. "Member Organization" is defined in Section 6.12(c) of the Pooling Agreement. "Minimum Required Reserve Ratio" means the sum, as of any Cut-Off Date, of: (a) the Concentration Factor for the Cut-Off Date, plus (b) the average of the Dilution Ratios for the twelve preceding Collection Periods ending on the Cut-Off Date, multiplied by the Dilution Horizon Variable for the Cut-Off Date, provided, that in no event shall the Minimum Required Reserve Ratio be less than 14%. "Minimum Return" means, with respect to the Receivables sold or contributed on any day by the Seller to ARC, (a) the Inventory Advance Rate multiplied by (b) one minus the sum of the Mark-Up Percentage and the Returned Goods Percentage multiplied by (c) the aggregate Unpaid Balance of such Receivables; provided, that the Minimum Return shall in no event exceed 70% of the aggregate Unpaid Balance of such Receivables. "Net Eligible Receivables" means, at any time, (a) the Adjusted Eligible Receivables minus (b) the then aggregate amount of all Excess Concentration Balances with respect to all Obligors minus (c) the then Accrual Reserve, minus (d) the Federal Set Off Reserve, minus (e) the State/Local Set Off Reserve, minus (f) the Excess Specified Obligor Balance. page A-27 "Net Recoveries" means, with respect to any Calculation Period, an amount equal to (a) the amount of Recoveries received in such Calculation Period minus (b) the amount of Receivables that became Charged-Off Receivables in such Calculation Period. "New Issuance" is defined in Section 6.10(a) of the Pooling Agreement. "Noncomplying Receivables and Dilution Adjustment" is defined in Section 3.1(b) of the Purchase Agreement. "Notes Receivable" means any right to payment of Seller recorded by it in its books and records as a receivable that is not a Receivable. "Obligations" means (a) all obligations of ARC, the Seller and a Servicer to the Trustee, the Trust, any other Indemnified Party, the Investor Certificateholders and their respective successors, permitted transferees and assigns, arising under or in connection with the Transaction Documents, and (b) all obligations of a Seller to ARC, any other RPA Indemnified Party and their respective successors, transferees and assigns, arising under or in connection with the Transaction Documents, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due. "Obligor" means a Person obligated to make payments on a Receivable. "Officer's Certificate" means, unless otherwise specified in the Pooling Agreement or in any Supplement, a certificate signed by an Authorized Officer of ARC or the initial Servicer, as the case may be, or, in the case of a Successor Servicer, a certificate signed by the President, any Vice President or the financial controller (or an officer holding an office with equivalent or more senior responsibilities) of such Successor Servicer, that, in the case of any of the foregoing, is delivered to the Trustee. "144A Book-Entry Certificate" is defined in Section 6.12(b) of the Pooling Agreement. "Opinion of Counsel" means a written opinion of counsel, who shall be reasonably acceptable to the Trustee. "Original Intercreditor Mechanics" shall mean Sections 1.2 and 8.2 of the Purchase Agreement and Exhibits O-I and O-II to the Pooling Agreement. ------------ ---- "Original Obligations" means all obligations of the Seller under the Original Seller Credit Agreement, other than contingent obligations which have not been identified in a notice to the Seller on the date on which all commitments of the Seller Parties thereunder have terminated and all Advances and Letter of Credit Obligations have been paid. page A-28 "Original Seller Credit Agreement" means: (a) the Inventory Credit Agreement, or (b) any agreement entered into by AmeriSource to refinance any other Original Seller Credit Agreement; provided, that (i) parties to such agreement shall have executed and delivered to the Trustee, for the benefit of the Trustee, the Investor Certificateholders and the Purchasers, an intercreditor agreement substantially in the form of Exhibit O-1 of the Pooling Agreement and such other consents, releases and other documents as the parties to the Original Seller Credit Agreement shall have executed for the benefit of the Trustee, and (ii) the Seller shall have elected, by written notice to the Trustee, to classify such agreement as the Original Seller Credit Agreement, as the same may be amended, modified or restated from time to time. "Original Stop Date Conditions" shall exist when (a) there is a Shortfall and the End-of-the-Day Excess Borrowing Base does not equal or exceed zero, or (b) any other Event of Default shall have occurred and be continuing. "Origination Date" means, with respect to a Receivable, the date on which such Receivable is originated. "Owner Regulation S Certification" is defined in Section 6.03(i) of the Pooling Agreement. "Paired Series" means, collectively, each Series that has been paired with a prefunded Series and such prefunded Series. "Paying Agent" means any paying agent appointed pursuant to Section 6.06 of the Pooling Agreement and shall initially be the Trustee. "Payment Term Variable" means, as calculated in each Settlement Statement as of the most recently ended Cut-Off Date, (a) 1.0, if the weighted average of the number of days after the original invoice date on which Receivables will become due and payable (the "Payment Days") is not more than 39 days, (b) 1.167, if the weighted average of the Payment Days is 40 to 49 days, (c) 1.333, if the weighted average of the Payment Days is 50 to 59 days or (d) 1.500 if the weighted average of the Payment Days is 60 to 69 days; provided, however, that, if the weighted average of the Payment Days exceeds 69 days, the Payment Term Variable shall be determined by calculating the sum of (x) 1.500, and (y) 0.125 for each ten-day increment by which the weighted average Payment Days exceeds 69 days, it being understood that the same number shall apply for all weighted average Payment Days that fall within a ten-day range. For purposes of the foregoing, the weighted average of the Payment Days, if not a whole number, will be rounded to the nearest whole number (with 0.5 being rounded up). page A-29 "Pay-Out Event" means, with respect to any Series of Investor Certificates, any event defined as such in the Supplement pursuant to which the Series was issued. "Pay-Out Period" means, with respect to any Series of Investor Certificates, the period commencing on the Pay-Out Period Commencement Date that applies to the Series of Investor Certificates and ending on the date on which all such Series of Investor Certificates shall have been paid in full. "Pay-Out Period Commencement Date" means, with respect to any Series of Investor Certificates, the date on which a Pay-Out Event for the Series occurs. "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Adverse Claims" means, at any time, one or more involuntary Adverse Claims; provided, that (a) the aggregate amount secured by all such Adverse Claims does not exceed $2,000,000, (b) AmeriSource, the Sellers and/or ARC (as applicable) shall be maintaining reserves against such amount in accordance with GAAP, and (c) AmeriSource, the Sellers and/or ARC (as applicable) shall be contesting such Adverse Claims in good faith and by appropriate proceedings. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, government or any agency or political subdivision thereof or any other entity. "Phase I" means the period from the Closing Date until all Original Obligations have been paid in full and all commitments of the Seller Parties to lend or issue letters of credit thereunder have been terminated. "Phase II" means the period following the end of Phase I. "PI Agreement" means, with respect to any Purchased Interest, an agreement or agreements executed and delivered in connection with the sale of the Purchased Interest, all amendments thereof and supplements thereto, and the Parallel Purchase Commitment (as defined in the PI Agreement), if any, entered into in connection therewith. "PI Calculation Amount" means, as of the opening of business on any day, the PI Invested Amount in the aggregate for all Purchased Interests as of the opening of business on such day. "PI Initial Invested Amount" means (a) with respect to any Purchased Interest, its aggregate principal amount on the date of the first purchase made pursuant to the related PI Agreement and (b) with respect to all then-outstanding Purchased Interests, the sum of the amounts calculated pursuant to clause (a) with respect to each. - - - ---------- page A-30 "PI Invested Amount" means, at any time: (a) with respect to any Purchased Interest, an amount equal to the difference between (i) the sum of (A) the PI Initial Invested Amount with respect to such Purchased Interest plus (B) all additions made to the PI Invested Amount with respect to such Purchased Interest pursuant to Section 4.03 of the Pooling Agreement minus (ii) the sum of (A) all reductions in the PI Invested Amount with respect to such Purchased Interest made pursuant to Section 4.03 of the Pooling Agreement, (B) the aggregate amount of all other principal payments made to the Purchaser of such Purchased Interest prior to such time in respect of such Purchased Interest, (C) the aggregate amount of all funds on deposit in the Principal Funding Account, the Defeasance Account and the Purchaser Account with respect thereto, and (D) the amount of any Investor Allocable Charged-Off Amounts (net of Investor Net Recoveries) allocated to such Purchased Interest, and (b) with respect to all Purchased Interests, an amount equal to the sum of the amounts calculated pursuant to clause (a) with respect to each ---------- Purchased Interest. "PI Rate" means, with respect to any Purchased Interest at any time, the fixed or variable rate of interest per annum applicable to that Purchased Interest at such time, as such interest rate is calculated in accordance with the applicable PI Agreement. "PI Yield" means scheduled yield payable in respect of the Purchased Interests at the applicable PI Rates. "Pooling Agreement" means the Pooling and Servicing Agreement, dated as of December 13, 1994, among ARC, as transferor, AmeriSource, as initial Servicer, and the Trustee, as it may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with its terms. "Prepayment Accumulation Commencement Date" means, with respect to any Series, the date specified in any notice of optional prepayment given by ARC to the Trustee pursuant to the Supplement relating to the Series. "Prepayment Accumulation Period" means the period commencing on the Prepayment Accumulation Commencement Date and ending on the earlier to occur of (a) the Liquidation Commencement Date, (b) the Pay-Out Period Commencement Date, and (c) the date on which the full amount to be prepaid, plus the applicable Prepayment Premium, shall have been accumulated in the Defeasance Account. "Prepayment Premium" means, with respect to each Series, the amount specified in its Supplement. page A-31 "Principal Accumulation Amount" means, with respect to any Series or Purchased Interest, for any Settlement Date occurring during the Accumulation Period, the sum of the amounts set aside in the Defeasance Account with respect to that Series or Purchased Interest during the preceding Calculation Period, and the amount so set aside on each Business Day during the Accumulation Period (until the portion of the Invested Amount allocable to such Series or Purchased Interest has been provided for in full) will equal the product of (a) the Defeasance Allocation Percentage for that Series or Purchased Interest and (b) the balance of Collections available in the Master Collection Account, after making any required transfers to the Carrying Cost Account. "Principal Distribution Amount" means (a) for any Settlement Date occurring after the Calculation Period in which the Liquidation Period commences, with respect to any Class of Investor Certificates or Purchased Interest, the product of (i) the balance of Collections in the Master Collection Account that were deposited therein prior to the end of the preceding Calculation Period remaining after application thereof as provided in clause First of Section 4.03(h) of the Pooling Agreement (and, in the case of any Subordinated Class or Subordinated Purchased Interest, after application thereof to the repayment in full of all Senior Classes and Senior Purchased Interests) and (ii) the Class Allocation Percentage of such Class or Purchased Interest, and (b) for any Settlement Date occurring after the Calculation Period in which a Pay-Out Period commences, with respect to any Series of Investor Certificates or Purchased Interest, an amount equal to the amount calculated in the same manner as the Principal Accumulation Amount with respect to a Settlement Date in the Accumulation Period. "Principal Funding Account" is defined in Section 4.02(e) of the Pooling Agreement. "Process Agent" is defined in Section 10.7 of the Purchase Agreement. "Program" means the transactions contemplated in the Transaction Documents. "Publication Date" is defined in Section 9.03(a) of the Pooling Agreement. "Purchase" means each purchase of Receivables and Related Assets by ARC from the Seller under the Purchase Agreement. "Purchase Agreement" means the Receivables Purchase Agreement, dated as of December 13, 1994, between the Seller and ARC, as it may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with its terms and with the Pooling Agreement. "Purchased Assets" is defined in Section 1.1 of the Purchase Agreement. page A-32 "Purchased Interest" means a fluctuating undivided ownership interest in the Trust Assets, purchased pursuant to the PI Agreement related thereto, that shall include the right to receive, to the extent necessary to make required payments to Purchasers at the time and in the amounts specified in the related PI Agreement, the portion of Collections allocable to such Purchased Interest pursuant to the Pooling Agreement and the PI Agreement, funds on deposit in the Master Collection Account allocable to the Purchased Interest pursuant to the Pooling Agreement and the PI Agreement, funds on deposit in any related Purchaser Account and funds available pursuant to any related Enhancement. "Purchase Discount Reserve Ratio" is defined in Section 2.2(c) of the Purchase Agreement. "Purchased Receivables" is defined in Section 1.1 of the Purchase Agreement. "Purchase Price" is defined in Section 2.1(b) of the Purchase Agreement. "Purchase Price Credit" is defined in Section 3.1(d) of the Purchase Agreement. "Purchase Price Percentage" is defined in Section 2.2(a) of the Purchase Agreement. "Purchase Termination Date" means the earlier to occur of (a) the date specified by the Seller pursuant to Section 8.1 of the Purchase Agreement and (b) any event referred to in Section 8.2 of the Purchase Agreement. "Purchaser" means a purchaser, or any owner by permitted assignment, of a Purchased Interest. "Purchaser Account" means any deposit, trust, escrow or similar account maintained exclusively for the benefit of any Purchaser and not for the benefit of ARC or any Investor Certificateholder, as specified in any PI Agreement, which account shall not be a Trust Asset. "Purchaser Agent" means, with respect to each Purchased Interest, the agent who shall act on behalf of all the related Purchasers and who shall be specified as such in the related PI Agreement. "Ratable Principal Amount" means, as to any Series or Class of Investor Certificates, any Purchased Interest or the ARC Revolving Certificate, the outstanding principal amount thereof, except that: (a) if so provided in the Supplement pursuant to which a Series or Class of Investor Certificates is issued, the Ratable Principal Amount of that Series or Class may be greater or less than its outstanding principal amount, page A-33 (b) if so provided in the PI Agreement relating to a Purchased Interest, the Ratable Principal Amount of that Purchased Interest may be greater or lesser than its outstanding principal amount, and (c) if so provided in any Supplement or PI Agreement, the Ratable Principal Amount of the ARC Revolving Certificate may be greater or less than its outstanding principal amount. "Rating Agency Condition" means, with respect to any action, that the Applicable Rating Agency has notified the Servicer and the Trustee in writing that such action will not result in a reduction or withdrawal of the rating of any outstanding Series or Class with respect to which it is an Applicable Rating Agency. "Receivable" means any right of the Seller to payment from or on behalf of an Obligor (other than any of the Seller's Subsidiaries or Affiliates) satisfying the requirement set out in clause (a) of the definition of "Eligible ---------- Obligor," whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the sale of goods or services by the Seller and includes the right to payment of any interest or finance charges and other obligations of the Obligor with respect thereto; provided, however, that until such time (and only until such time) as the Seller notifies ARC of the discontinuation of sales of Receivables described in Section 1.8 of the Purchase Agreement, receivables of the Seller shall, whether or not described above, be "Receivables" (but not "Eligible Receivables"). "Receivables Pool" means at any time all then outstanding Receivables. "Records" means all Contracts, purchase orders, invoices and other agreements, documents, books, records and other media for the storage of information (including tapes, disks, punch cards, computer programs and databases and related property) maintained by ARC, the Seller or the Servicer with respect to the Purchased Assets, the Trust Assets and/or the related Obligors. "Recoveries" means all Collections received by the Trust in respect of any Charged-Off Receivable held by the Trust. "Regulation S Book-Entry Certificate" is defined in Section 6.12(c) of the Pooling Agreement. "Regulation S Temporary Book-Entry Certificate" is defined in Section 6.12(c) of the Pooling Agreement. "Related Assets" is defined in Section 1.1 of the Purchase Agreement. page A-34 "Related Contributed Assets" is defined in Section 2(c) of the Subscription Agreement. "Related Purchased Assets" is defined in Section 1.1 of the Purchase Agreement. "Related Security" means, with respect to any Receivable, (a) all of the Seller's right, title and interest in and to the goods, if any, relating to the sale that gave rise to the Receivable, excluding any Returned Goods, (b) all other security interests or liens and property subject thereto from time to time purporting to secure payment of the Receivable, whether pursuant to the Contract related to the Receivable or otherwise, and (c) all letters of credit, guarantees and other agreements or arrangements of whatever character from time to time supporting or securing payment of the Receivable whether pursuant to the Contract related to the Receivable or otherwise. "Related Transferred Assets" is defined in Section 2.01(a) of the Pooling Agreement. "Replacement Seller Credit Agreement" means any agreement (other than an agreement referred to in clause (b) of the definition of Original Seller Credit ---------- Agreement) entered into by AmeriSource to refinance the Original Seller Credit Agreement; provided, that (i) the parties to such agreement shall have executed and delivered to the Trustee, for the benefit of the Trustee, the Investor Certificateholders and the Purchasers, an intercreditor agreement substantially in the form of Exhibit O-2 to the Pooling Agreement and such other consents, releases and other documents as the parties to the Original Seller Credit Agreement shall have executed for the benefit of the Trustee, and (ii) the Seller shall have elected, by written notice to the Trustee, to classify such Agreement as the Replacement Seller Credit Agreement, as the same may be amended, modified or restated from time to time. "Replacement Stop Date Conditions" shall exist when (a) any Event of Default shall have occurred and be continuing, and (b) any Unmatured Event of Default shall have occurred and be continuing; provided, that such Unmatured Event of Default relates to (i) failure of the Seller to make a payment of principal or interest when due, or (ii) the value or enforceability of the collateral for the Replacement Seller Credit Agreement. "Report Date" means the Business Day that is three Business Days prior to a Settlement Date. "Required Investors" means Holders of Investor Certificates that evidence at least 66-2/3% of the Investor Invested Amount. "Required Reserve Ratios" means, as calculated in each Settlement Statement, (a) the Loss Reserve Ratio and (b) the Dilution Reserve Ratio. page A-35 "Required Reserves" means, at any time, (a) the Net Eligible Receivables multiplied by (b) the Applicable Reserve Ratio. "Required Series Holders" means, at any time, (a) with respect to any action to be taken by Holders of any Series of Fixed Principal Certificates, Holders of the Series of Fixed Principal Certificates that evidence at least 66- 2/3% of the Fixed Principal Invested Amount with respect to such Series of Fixed Principal Certificates, and (b) with respect to any action to be taken by Holders of any Series of Investor Revolving Certificates, Holders of the Series of Investor Revolving Certificates that evidence at least 66-2/3% of the aggregate Stated Amount of the Series of Investor Revolving Certificates. "Requisite Lenders" has the meaning assigned to that term in the Original Seller Credit Agreement. "Residual Certificate" means the Certificate, executed by ARC and authenticated by or on behalf of the Trustee, that is substantially in the form of Exhibit H to the Pooling Agreement. "Residual Interest" is defined in Section 4.01 of the Pooling Agreement. "Responsible Officer" means, when used with respect to the Trustee, (a) any officer within the Corporate Trust Office (or any successor group of the Trustee), including any vice president, assistant vice president or any officer or assistant trust officer of the Trustee customarily performing functions similar to those performed by the persons who hold the office of vice president, assistant vice president, or assistant secretary and (b) any other officer within the Corporate Trust Office with direct responsibility for the administration of the Pooling Agreement or to whom any corporate trust matter is referred at the Trustee's Corporate Trust Office because of his knowledge of and familiarity with the particular subject. "Restricted Federal Obligor" means any Federal Obligor other than an Unrestricted Federal Obligor. "Returned Goods" means all right, title and interest of the Seller or its assigns in and to goods and/or merchandise, the sale of which gave rise to Receivables that have been returned to, repossessed by or foreclosed on by AmeriSource (as Seller or Servicer). "Returned Goods Percentage" means 1%. "Revolving Certificate Calculation Amount" means, as of the opening of business on any day, the Revolving Certificate Invested Amount. "Revolving Certificate Interest" is defined in Section 4.01 of the Pooling Agreement. page A-36 "Revolving Certificate Invested Amount" means, at any time, an amount equal to the sum of (a) the ARC Revolving Amount at such time, plus (b) the Investor Revolving Invested Amount at such time. "Revolving Certificate Purchase Agreement" means, for a Series of Investor Revolving Certificates, the agreement in which, with the Series' Supplement, the terms and provisions applicable to the Series are set out. "Revolving Certificates" means the Investor Revolving Certificates and the ARC Revolving Certificate. "Revolving Period" means, with respect to each Series, the period before the commencement of the earliest of the Liquidation Period or any applicable Accumulation Period, Pay-Out Period or Prepayment Accumulation Period. "RPA Indemnified Losses" is defined in Section 9.1 of the Purchase Agreement. "RPA Indemnified Party" is defined in Section 9.1 of the Purchase Agreement. "Sale Date" means, with respect to any Series and unless otherwise specified in the applicable Supplement, the first anniversary of the day on which the Revolving Period for the Series ends. "S&P" means Standard & Poor's Ratings Group and its successors. "Scheduled Accumulation Commencement Date" means, with respect to a Series to which it applies, the date specified as such in the Supplement pursuant to which the Series is issued. "Scheduled Liquidation Commencement Date" means the date that is 18 months after the Pay-Out Period Commencement Date for the latest maturing Series of Investor Certificates. "Scheduled Pay-Out Commencement Date" means, with respect to any Series of Revolving Certificates, the date specified as such in the Supplement pursuant to which the Series of Revolving Certificates is issued. "Securities Act" means the Securities Act of 1933, as it may be amended from time to time. "Segregated Cash" means, as of any day in a Look Back Period, the excess (if any) of (a) the aggregate amount of funds then on deposit in the Equalization Account, over (b) the aggregate amount of funds that would be required to be on deposit in the Equalization page A-37 Account on such day to cause the sum of (i) the Certificate Calculation Amount plus (ii) the PI Calculation Amount minus (iii) funds then on deposit in the Equalization Account to equal the Base Amount. "Seller" means AmeriSource; provided, however, that such term also shall include any Subsidiary of AmeriSource that becomes a party to the Purchase Agreement pursuant to Section 1.7 thereof and shall exclude any Person that is terminated as a Seller pursuant to Section 1.8 thereof. "Seller Adjustment" is defined in Section 4.03(d) of the Pooling Agreement. "Seller Agent" means (a) General Electric Capital Corporation, as Administrative Agent and Managing Agent under the Original Seller Credit Agreement, and any successor thereto in such capacity, and (b) any agent under a Replacement Seller Credit Agreement. "Seller Assignment Certificate" means an assignment by the Seller, substantially in the form of Exhibit B to the Purchase Agreement, evidencing ARC's ownership of the Receivables (excluding the Contributed Receivables) and Related Assets generated by the Seller, as it may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with the Purchase Agreement. "Seller Change Event" is defined in Section 3.05(e) of the Pooling Agreement. "Seller Credit Agreement" shall mean the Original Seller Credit Agreement or the Replacement Seller Credit Agreement, whichever is in effect. "Seller Dilution Adjustment" is defined in Section 3.5(b) of the Purchase Agreement. "Seller Noncomplying Receivable" means a Receivable that does not meet the criteria set forth in the definition of Eligible Receivables (after excluding (a) the criteria contained in clause (c) of such definition and (b) the criteria ---------- contained in clause (d) or (e) of the definition of Eligible Obligor). ---------- --- "Seller Noncomplying Receivables Adjustment" is defined in Section 3.5(a) of the Purchase Agreement. "Seller Outstandings" means the sum of the outstanding principal amount of the Advances plus the outstanding face amount of the Letter of Credit Obligations. "Seller Parties" shall mean the parties to the Seller Credit Agreement (other than AmeriSource). "Seller Receivables Review" is defined in Section 6.1(c) of the Purchase Agreement. page A-38 "Seller Transaction Documents" means the Purchase Agreement, the Seller Assignment Certificates, the Subscription Agreement and the Account Agreements. "Senior Class" means any Class of Investor Certificates that is identified as a "Senior Class" in the applicable Supplement. "Senior Interest" is defined in the ARC Note. "Senior Purchased Interest" means any Purchased Interest that is identified as a "Senior Purchased Interest" in the applicable PI Agreement. "Series" means any Series of Investor Certificates issued pursuant to Section 6.10 of the Pooling Agreement. "Series Sale Date" means, with respect to any Series, the date specified as the Sale Date for the Series in the related Supplement. "Servicer" means at any time the Person then authorized pursuant to Article III of the Pooling Agreement to service, administer and collect Receivables and Related Transferred Assets. "Servicer Default" is defined in Section 10.01 of the Pooling Agreement. "Service Transfer" is defined in Section 10.02(b) of the Pooling Agreement. "Servicing Fee" is defined in Section 3.04 of the Pooling Agreement. "Set-Aside Account" is defined in Section 4.02(f) of the Pooling Agreement. "Set Off Group" means, initially, with respect to each state, all State and Local Obligors arising for such state; provided, however, that, with respect to any state, if the Rating Agency Condition has been satisfied after AmeriSource shall have provided the Applicable Rating Agencies with information to the effect that: (a) the State Obligors in that state could not set off taxes owed by AmeriSource to such State Obligors against Receivables owed by Local Obligors in that state to AmeriSource, and (b) the Local Obligors in that state could not set off taxes owed by AmeriSource to such Local Obligors against Receivables owed by State Obligors in that state to AmeriSource, then AmeriSource could elect to create several separate Set Off Groups for that state, one of which would contain all of such State Obligors and each other of which would contain a Local Obligor; and, provided further, that an Unrestricted State/Local Obligor need not be included in any Set Off Group. "Settlement Date" means, with respect to any Calculation Period, the 24th Business Day following the Cut-Off Date for such Calculation Period. page A-39 "Settlement Statement" is defined in Section 3.05(d) of the Pooling Agreement. "Specified Obligor" means State Obligors in Kentucky, Louisiana, Nevada and Vermont, and State and Local Obligors in Alabama. "Shortfall" is defined in Section 1.2(c) of the Purchase Agreement. "State/Local Set Off Reserve means, on any day, the aggregate amount of the Individual Group Reserves for all Set Off Groups. "State/Local Tax Per Diem" means, for any Set Off Group, (a) the amount of state and local tax obligations of the Seller to Obligors in such Set Off Group accrued during the calendar quarter ending prior to the most recent Settlement Date, whether remitted to the applicable State and Local Obligor quarterly, monthly or otherwise, divided by (b) 90. "State/Local Tax Period" means, for any Set Off Group, the period selected by AmeriSource, subject to satisfaction of the Rating Agency Condition. "State Obligor" means any state or any department, agency or instrumentality thereof. "Stated Amount" means, as to any Investor Revolving Certificate or Purchased Interest, the maximum principal amount that may be required to be funded by the Holder of such Investor Revolving Certificate or Purchaser, as applicable, as determined pursuant to the applicable Supplement or PI Agreement. "Stop Date Conditions" mean (a) during the term of the Original Seller Credit Agreement (and until all Original Obligations are paid in full), the Original Stop Date Conditions, and (b) thereafter, the Replacement Stop Date Conditions. "Stop Date Notice" means a written notice given by the Seller Agent to the Trustee and the Servicer on a Business Day, to the effect that (a) the Stop Date Conditions have occurred and are continuing, and (b) under the Seller Credit Agreement, the Seller Agent has instructed the Seller to stop selling Receivables to ARC under the Purchase Agreement; provided, that if the Trustee shall receive such notice later than 11:15 a. m., New York City time, on any day, such notice shall be deemed to have been received on the next Business Day. "Subordinated Class" means any Class of Investor Certificates that is identified as a "Subordinated Class" in the applicable Supplement. "Subordinated Purchased Interest" means any Purchased Interest that is identified as a "Subordinated Purchased Interest" in the applicable PI Agreement. page A-40 "Subscription Agreement" means the Subscription and Stockholder Agreement, dated as of December 13, 1994, between the Seller and ARC, as it may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with the Purchase Agreement and the Pooling Agreement. "Subsequent Issuance" is defined in Section 6.10(a) of the Pooling Agreement. "Subsequent Issuance Date" is defined in Section 6.10(b) of the Pooling Agreement. "Subsequent Issuance Investor Certificates" is defined in Section 6.02(b) of the Pooling Agreement. "Subsequent Issuance Notice" is defined in Section 6.10(b) of the Pooling Agreement. "Sub-Servicer" is defined in Section 3.01(b) of the Pooling Agreement. "Subsidiary" means, with respect to any Person, any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person. "Successor Servicer" is defined in Section 10.02(a) of the Pooling Agreement. "Supplement" means each Supplement (including any related documents, such as a Revolving Certificate Purchase Agreement) executed by ARC, the Servicer and the Trustee on each Subsequent Issuance Date, into each of which agreements the terms and provisions of the Pooling Agreement shall be incorporated by reference and in each of which the terms and provisions applicable to the Series of Certificates to be issued thereby shall be set out, as it may be amended, supplemented, amended and restated or otherwise modified from time to time in accordance with its terms and with the Pooling Agreement. "Syndication Documents" means the documents prepared in connection with the syndication of the Bridge Facility, as identified in one or more letter agreements between ARC and the initial purchaser of Investor Certificates issued under the Bridge Facility. "Take Out Facility" means the transactions contemplated by the Program Documents, as amended, modified or supplemented (including any amendments, modifications or supplements implemented by means of Supplements and PI Agreements) in order to refinance or (as contemplated by Section 10.12 of the Revolving Certificate Purchase Agreement included in the Bridge Facility) restructure the Bridge Facility. page A-41 "Tax Opinion" means, with respect to any action, an Opinion of Counsel to the effect that, for Federal and Pennsylvania and New York state income and franchise tax purposes, (a) such action will not adversely affect the characterization of the Investor Certificates of any outstanding Series or Class as debt, (b) following such action the Trust will not be treated as an association (or publicly traded partnership) taxable as a corporation and (c) in the case of the original issuance of any Series or Class of Investor Certificates, the Investor Certificates of the new Series will properly be characterized as debt or partnership interests. "Terminating Seller" is defined in Section 1.8(a) of the Purchase Agreement. "Termination Notice" is defined in Section 10.01 of the Pooling Agreement. "Tier-1 Obligor" means any Obligor that has (a) a commercial paper rating from the Applicable Rating Agencies of at least "A-1+" (or its equivalent) or (b) a senior actual or implied debt rating from the Applicable Rating Agencies of at least "AAA" (or its equivalent). "Tier-2 Obligor" means any Obligor (other than a Tier-1 Obligor) that has (a) a commercial paper rating from the Applicable Rating Agencies of at least "A-1" (or its equivalent) or (b) a senior actual or implied debt rating from the Applicable Rating Agencies of at least "A+" (or its equivalent). "Tier-3 Obligor" means any Obligor (other than a Tier-1 Obligor or a Tier-2 Obligor) that has (a) a commercial paper rating from the Applicable Rating Agencies of at least "A-2" (or its equivalent) or (b) a senior actual or implied debt rating from the Applicable Rating Agencies of at least "BBB+" (or its equivalent). "Tier-4 Obligor" means any Obligor (other than a Tier-1 Obligor, a Tier-2 Obligor or a Tier-3 Obligor) that has (a) a commercial paper rating from the Applicable Rating Agencies of at least "A-3" (or its equivalent) or (b) a senior actual or implied debt rating from the Applicable Rating Agencies of at least "BBB-" (or its equivalent). "Tier-5 Obligor" means any Obligor other than a Tier-1 Obligor, a Tier-2 Obligor, a Tier-3 Obligor or a Tier-4 Obligor. "Transaction Documents" means the Purchase Agreement, the Pooling Agreement, each Supplement and each PI Agreement. "Transfer Agent and Registrar" means any transfer agent and registrar appointed pursuant to Section 6.03(a) of the Pooling Agreement and shall initially be the Trustee. "Transfer Value" is defined in Section 1.2(c) of the Purchase Agreement. page A-42 "Transferee Regulation S Certification" is defined in Section 6.03(i) of the Pooling Agreement. "Transferred Assets" is defined in Section 1.1 of the Purchase Agreement. "Trust" means the AmeriSource Receivables Master Trust created by the Pooling Agreement. "Trust Accounts" means the accounts described in Sections 4.02(b), (c), (e), (f) and (g) of the Pooling Agreement and any accounts required to be established pursuant to any Supplement that are designated as Trust Accounts in that Supplement. "Trust Assets" is defined in Section 2.01(a) of the Pooling Agreement. "Trustee" means Manufacturers and Traders Trust Company, in its capacity as trustee on behalf of the Trust, or its successor-in-interest, or any successor trustee appointed as provided in the Pooling Agreement. "Turnover Days" means, at any time, the product of (a) the sum of the beginning and ending Unpaid Balances of Receivables during the immediately preceding Calculation Period divided by two, multiplied by (b) 30, divided by the aggregate amount payable pursuant to invoices giving rise to Receivables that were generated during the Calculation Period. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction or jurisdictions. "Unapplied Cash" means, at any time, cash received by the Trustee but not then identified by the Servicer as Collections on a particular Receivable. "Unfunded Certificate" is defined in Section 6.10(a) of the Pooling Agreement. "Unmatured Event of Default" means an event or condition that, with the giving of notice or lapse of time or both, would constitute an Event of Default. "Unmatured Liquidation Event" means any event that, with the giving of notice or lapse of time, or both, would become a Liquidation Event. "Unpaid Balance" of any Receivable means at any time the unpaid amount thereof as shown in the books of the Servicer at such time. "Unrestricted Book-Entry Certificate" is defined in Section 6.12(c) of the Pooling Agreement. page A-43 "Unrestricted Federal Obligor" means a Federal Obligor that has waived in writing its right to set off (a) amounts owed by the Seller to it against (b) Receivables owed by it to the Seller; provided, however, that if such waiver shall only apply to certain Receivables, such Federal Obligor shall be an Unrestricted Federal Obligor only to the extent of such Receivables. "Unrestricted State/Local Obligor" means a State Obligor or Local Obligor that has waived, or is otherwise not entitled to exercise, any right to withhold payments on Receivables owed by it on account of setoff; provided that evidence of such waiver or lack of entitlement shall have been presented to the Applicable Rating Agencies and the Rating Agency Condition shall have been satisfied with respect to classification of such Obligor as an Unrestricted State/Local Obligor. "Variable Amount" is defined in Section 4.03(c) of the Pooling Agreement. B. Other Terms. All accounting terms not specifically defined herein ----------- shall be construed in accordance with United States generally accepted accounting principles. To the extent that the definitions of accounting terms in any Transaction Document are inconsistent with the meanings of such terms under generally accepted accounting principles or regulatory accounting principles, the definitions contained in such Transaction Document shall control. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. As used in the Transaction Documents, the term "including" means "including without limitation," and other forms of the verb "to include" have correlative meanings. All references to any Person shall include such Person's permitted successors. C. Computation of Time Periods. Unless otherwise stated in the Purchase --------------------------- Agreement or the Pooling Agreement, as the case may be, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". D. Reference; Captions. The words "hereof", "herein" and "hereunder" and ------------------- words of similar import when used in any Transaction Document shall refer to such Transaction Document as a whole and not to any particular provision of such Transaction Document; and references to "Section", "subsection", "Schedule" and "Exhibit" in any Transaction Document are references to Sections, subsections, Schedules and Exhibits in or to such Transaction Document unless otherwise specified in such Transaction Document. The various captions (including the tables of contents) in each Transaction Document are provided solely for convenience of reference and shall not affect the meaning or interpretation of any Transaction Document. page A-44 EX-4.12 6 POOLING SERVICES AGREEMENT Exhibit 4.12 ================================================================================ AMERISOURCE RECEIVABLES MASTER TRUST POOLING AND SERVICING AGREEMENT dated as of December 13, 1994 among AMERISOURCE RECEIVABLES CORPORATION, as transferor, AMERISOURCE CORPORATION, as the initial Servicer, and MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee ================================================================================ TABLE OF CONTENTS
ARTICLE I DEFINITIONS SECTION 1.01 Definitions.................................................. 1 ARTICLE II CONVEYANCE OF CERTAIN ASSETS; ISSUANCE OF CERTIFICATES SECTION 2.01 Creation of the Trust; Conveyance of Certain Assets.......... 1 SECTION 2.02 Acceptance by Trustee........................................ 3 SECTION 2.03 Representations and Warranties of ARC Relating to the Trust Assets....................................................... 3 SECTION 2.04 No Assumption of Obligations Relating to Receivables, Related Transferred Assets or Contracts.............................. 5 SECTION 2.05 Conveyance of Receivables by the Trust....................... 5 ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES SECTION 3.01 Acceptance of Appointment and Other Matters Relating to the Servicer..................................................... 6 SECTION 3.02 Duties of the Servicer and ARC............................... 7 SECTION 3.03 Lockbox Accounts; Concentration Accounts..................... 10 SECTION 3.04 Servicing Compensation....................................... 12 SECTION 3.05 Records of the Servicer and Reports to be Prepared by the Servicer..................................................... 13 SECTION 3.06 Monthly Servicer's Certificate............................... 15 SECTION 3.07 Annual Servicing Report of Independent Public Accountants; Forms 10-Q and 10-K.......................................... 15 SECTION 3.08 Rights of the Trustee........................................ 16 SECTION 3.09 Ongoing Responsibilities of AmeriSource...................... 18 SECTION 3.10 Further Action Evidencing Transfers.......................... 19 ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS SECTION 4.01 Rights of Certificateholders................................. 20 SECTION 4.02 Establishment of Trust Accounts.............................. 20 SECTION 4.03 Daily Calculations and Funds Allocations..................... 23 SECTION 4.04 Investment of Funds in Trust Accounts........................ 34 SECTION 4.05 Attachment of Trust Accounts................................. 35
ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS SECTION 5.01 Distributions to Holders of Investor Certificates and Purchasers................................................... 35 SECTION 5.02 Distributions on the ARC Revolving Certificate and the Residual Certificate......................................... 39 SECTION 5.03 Information to Certificateholders............................ 39 SECTION 5.04 Notice of Early Liquidation at Seller Election............... 40 ARTICLE VI THE CERTIFICATES SECTION 6.01 The Certificates............................................. 40 SECTION 6.02 Authentication of Certificates............................... 41 SECTION 6.03 Registration of Transfer and Exchange of Certificates........ 42 SECTION 6.04 Mutilated, Destroyed, Lost or Stolen Certificates............ 47 SECTION 6.05 Persons Deemed Owners........................................ 47 SECTION 6.06 Appointment of Paying Agent.................................. 47 SECTION 6.07 Access to List of Certificateholders' Names and Addresses.... 48 SECTION 6.08 Authenticating Agent......................................... 49 SECTION 6.09 Tax Treatment................................................ 50 SECTION 6.10 Issuance of Additional Series of Certificates and Sales of Purchased Interests....................................... 50 SECTION 6.11 Changes in Amount of Investor Revolving Certificates......... 55 SECTION 6.12 Book-Entry Certificates...................................... 56 SECTION 6.13 Notices to Clearing Agency................................... 58 SECTION 6.14 Definitive Certificates...................................... 58 SECTION 6.15 Letter of Representations.................................... 58 ARTICLE VII ARC SECTION 7.01 Representations and Warranties of ARC Relating to ARC and the Transaction Documents.................................... 59 SECTION 7.02 Covenants of ARC............................................. 62 SECTION 7.03 Indemnification by ARC....................................... 69 ARTICLE VIII THE SERVICER SECTION 8.01 Representations and Warranties of the Servicer............... 71 SECTION 8.02 Covenants of the Servicer.................................... 73
-ii- SECTION 8.03 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer................................. 74 SECTION 8.04 Indemnification by the Servicer.............................. 74 SECTION 8.05 Servicer Liability........................................... 75 SECTION 8.06 Limitation on Liability of the Servicer and Others........... 75
ARTICLE IX LIQUIDATION EVENTS SECTION 9.01 Liquidation Events........................................... 76 SECTION 9.02 Remedies..................................................... 79 SECTION 9.03 Additional Rights Upon the Occurrence of Certain Events...... 79 ARTICLE X SERVICER DEFAULTS SECTION 10.01 Servicer Defaults........................................... 80 SECTION 10.02 Trustee to Act; Appointment of Successor.................... 82 SECTION 10.03 Notification of Servicer Default; Notification of Appointment of Successor Servicer........................ 84 ARTICLE XI THE TRUSTEE SECTION 11.01 Duties of Trustee........................................... 84 SECTION 11.02 Certain Matters Affecting the Trustee....................... 87 SECTION 11.03 Limitation on Liability of Trustee.......................... 89 SECTION 11.04 Trustee May Deal with Other Parties......................... 90 SECTION 11.05 Servicer To Pay Trustee's Fees and Expenses................. 90 SECTION 11.06 Eligibility Requirements for Trustee........................ 91 SECTION 11.07 Resignation or Removal of Trustee........................... 91 SECTION 11.08 Successor Trustee........................................... 92 SECTION 11.09 Merger or Consolidation of Trustee.......................... 92 SECTION 11.10 Appointment of Co-Trustee or Separate Trustee............... 93 SECTION 11.11 Tax Returns................................................. 94 SECTION 11.12 Trustee May Enforce Claims Without Possession of Certificates................................................ 94 SECTION 11.13 Suits for Enforcement....................................... 94 SECTION 11.14 Rights of Investor Certificateholders To Direct Trustee..... 95 SECTION 11.15 Representations and Warranties of Trustee................... 95 SECTION 11.16 Maintenance of Office or Agency............................. 96
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ARTICLE XII TERMINATION SECTION 12.01 Termination of Trust........................................ 96 SECTION 12.02 Final Distribution.......................................... 97 SECTION 12.03 Rights Upon Termination of the Trust........................ 98 ARTICLE XIII MISCELLANEOUS PROVISIONS SECTION 13.01 Amendment, Waiver, Etc...................................... 99 SECTION 13.02 Actions by Certificateholders.............................. 101 SECTION 13.03 Limitation on Rights of Certificateholders................. 102 SECTION 13.04 Limitation on Rights of Purchasers......................... 103 SECTION 13.05 Governing Law.............................................. 103 SECTION 13.06 Notices.................................................... 104 SECTION 13.07 Severability of Provisions................................. 104 SECTION 13.08 Certificates Nonassessable and Fully Paid.................. 104 SECTION 13.09 Further Assurances......................................... 105 SECTION 13.10 Nonpetition Covenant....................................... 105 SECTION 13.11 No Waiver; Cumulative Remedies............................. 105 SECTION 13.12 Counterparts............................................... 105 SECTION 13.13 Third-Party Beneficiaries.................................. 105 SECTION 13.14 Integration................................................ 106 SECTION 13.15 Binding Effect; Assignability; Survival of Provisions...... 106 SECTION 13.16 Recourse to ARC............................................ 106 SECTION 13.17 Recourse to Trust Assets................................... 106 SECTION 13.18 Submission to Jurisdiction................................. 106 SECTION 13.19 Waiver of Jury Trial....................................... 107 SECTION 13.20 Certain Partial Releases................................... 107 SECTION 13.21 Confidentiality............................................ 108 EXHIBITS EXHIBIT A Form of Lockbox Account Letter Agreement EXHIBIT B Form of Concentration Account Letter Agreement EXHIBIT C-1 Form of Daily Report (Pre-Liquidation EXHIBIT C-2 Form of Daily Report (Liquidation) EXHIBIT D-1 Form of Settlement Statement (Pre-Liquidation) EXHIBIT D-2 Form of Settlement Statement (Liquidation) EXHIBIT E Form of Monthly Servicer's Certificate EXHIBIT F Form of Monthly Report to Certificateholders
-iv- EXHIBIT G Form of ARC Revolving Certificate EXHIBIT H Form of Residual Certificate EXHIBIT I Form of Owner Regulation S Certification EXHIBIT J Form of Transferee Regulation S Certification EXHIBIT K Form of Depositary Regulation S Certification EXHIBIT L Form of Transfer to Regulation S Certification EXHIBIT M Form of Placement Agent Exchange Instructions EXHIBIT N Form of Restrictive Legends EXHIBIT O-1 Form of Phase I Intercreditor Agreement EXHIBIT O-2 Form of Phase II Intercreditor Agreement
SCHEDULES SCHEDULE 1 Offices of the Transferor, the Servicer and the Seller Where Records are Maintained SCHEDULE 2 Account Banks APPENDIX APPENDIX A Definitions
-v- This POOLING AND SERVICING AGREEMENT, dated as of December 13, 1994 (this "Agreement"), is made among AMERISOURCE RECEIVABLES CORPORATION, a Delaware corporation ("ARC"), as transferor, AMERISOURCE CORPORATION, a Delaware corporation ("AmeriSource"), as initial Servicer, and Manufacturers and Traders Trust Company, a New York banking corporation, as Trustee. In consideration of the mutual agreements herein, each party agrees as follows for the benefit of the other parties and the Certificateholders to the extent provided herein: ARTICLE I DEFINITIONS SECTION 1.01 Definitions. Whenever used in this Agreement, capitalized ----------- terms, unless otherwise defined herein, have the meanings that Appendix A ---------- assigns to them, and this Agreement shall be interpreted in accordance with the conventions set forth in Parts B, C and D of Appendix A. ------- - - ---------- ARTICLE II CONVEYANCE OF CERTAIN ASSETS; ISSUANCE OF CERTIFICATES SECTION 2.01 Creation of the Trust; Conveyance of Certain Assets. (a) By --------------------------------------------------- execution and delivery of this Agreement, ARC does hereby transfer, assign, set over and otherwise convey to the Trust, for the benefit of the Certificateholders, all its right, title and interest in, to and under, without recourse except as expressly provided otherwise herein, (i) each Receivable and any Notes Receivable that is or have been transferred by the Seller to ARC, pursuant to the Purchase Agreement or the Subscription Agreement, from and including the date on which the first Purchases occur under the Purchase Agreement to but excluding the Purchase Termination Date, (ii) all Related Assets, (iii) the Seller Transaction Documents (excluding the Subscription Agreement) (all of ARC's right, title and interest in, to and under such Seller Transaction Documents and the Related Assets being called the "Related Transferred Assets"), (iv) all funds from time to time on deposit in each of the Trust Accounts and all funds from time to time on deposit in each of the Bank Accounts representing Collections on, or other proceeds of, the foregoing and, in each case, all certificates and instruments, if any, from time to time evidencing such funds, all investments made with such funds, all claims thereunder or in connection therewith and all interest, dividends, monies, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing, (v) funds in an amount, if positive, equal to, as of the First Issuance Date, (A) the Investor Initial Invested Amount minus (B) the Base Amount (which funds the Trustee is directed to deposit into the Equalization Account on the date hereof), and (vi) all moneys due or to become due and all amounts received or receivable with respect to any of the foregoing and all proceeds of the foregoing. Such property shall constitute the assets of the Trust (collectively, the "Trust Assets"). The foregoing transfer, assignment, setover and conveyance to the Trust shall be made to the Trustee, on behalf of the Trust, and each reference in this Agreement to such transfer, assignment, setover and conveyance shall be construed accordingly. (b) In connection with the transfer described in subsection (a), ARC and -------------- the Servicer have recorded and filed or caused to be recorded and filed, in connection with the First Issuance Date, as an expense of the Servicer paid out of the Servicing Fee, financing statements (and continuation statements with respect to such financing statements when applicable) with respect to the Trust Assets (whether now existing or hereafter created) meeting the requirements of applicable state law in such manner and in such jurisdictions as the Servicer reasonably determined were necessary or desirable to perfect, and maintain perfection of, the transfer and assignment of the Trust Assets to the Trust. The Trustee shall be under no obligation whatsoever to file such financing statements, or continuation statements to such financing statements, or to make any other filing under the UCC in connection with such transfer. In connection with the transfer described in subsection (a), ARC and the Servicer further -------------- agree to deliver to the Trustee each Trust Asset (including any original documents or instruments included in the Trust Assets as are necessary to effect such transfer) in which the transfer of an interest is perfected under the UCC or otherwise by possession. ARC or the Servicer shall deliver each such Trust Asset to the Trustee, as an expense of the Servicer paid out of the Servicing Fee, immediately upon the transfer of any such Trust Asset to the Trustee pursuant to subsection (a). -------------- (c) In connection with the transfer described above in subsection (a), the -------------- Servicer shall, on behalf of ARC, as an expense of the Servicer paid out of the Servicing Fee, on or prior to the Closing Date, mark the master data processing records evidencing the Receivables with the following legend: "THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO AMERISOURCE RECEIVABLES CORPORATION PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS OF DECEMBER 13, 1994, AMONG AMERISOURCE CORPORATION, AS SELLER, AND AMERISOURCE RECEIVABLES CORPORATION, AS PURCHASER; AND SUCH RECEIVABLES HAVE BEEN TRANSFERRED TO THE AMERISOURCE RECEIVABLES MASTER TRUST PURSUANT TO A POOLING AND SERVICING AGREEMENT, DATED AS OF DECEMBER 13, 1994, AMONG AMERISOURCE RECEIVABLES CORPORATION, AS TRANSFEROR, AMERISOURCE CORPORATION, AS THE Page 2 INITIAL SERVICER, AND MANUFACTURERS AND TRADERS TRUST COMPANY, AS TRUSTEE." (d) Upon the request of ARC, the Trustee will cause Certificates in authorized denominations evidencing the entire interest in the Trust to be duly authenticated and delivered to or upon the order of ARC pursuant to Section ------- 6.02. - - - ---- SECTION 2.02 Acceptance by Trustee. The Trustee hereby acknowledges its --------------------- acceptance on behalf of the Trust of all right, title and interest to the property, now existing and hereafter created, conveyed to the Trust pursuant to Section 2.01(a) and declares that it shall maintain such right, title and - - - --------------- interest, upon the trust herein set forth, for the benefit of all Certificateholders, on the terms and subject to the conditions hereinafter set forth. SECTION 2.03 Representations and Warranties of ARC Relating to the Trust ----------------------------------------------------------- Assets. - - - ------ (a) Representations and Warranties. At the time that any Receivable or ------------------------------ Related Asset is sold or transferred by ARC to the Trust, ARC hereby represents and warrants that: (i) Valid Transfer. Each transfer made by ARC pursuant to this -------------- Agreement constitutes a valid transfer and assignment of all of its right, title and interest in, to and under the Receivables and the Related Transferred Assets to the Trust that is perfected and of first priority under the UCC and otherwise, enforceable against creditors of, and purchasers from, ARC and the Seller and free and clear of any Adverse Claim (other than any Permitted Adverse Claim and any Adverse Claim arising solely as a result of any action taken by the Trustee under this Agreement). (ii) Quality of Title. (A) Immediately before each transfer to be ---------------- made by ARC hereunder, each Receivable and Related Transferred Asset that was then to be transferred to the Trust hereunder was owned by ARC free and clear of any Adverse Claim (other than any Permitted Adverse Claim and any Adverse Claim arising solely as a result of any action taken by the Trustee under this Agreement); and, in connection with the First Issuance Date, ARC and the Servicer made, or caused to be made, all filings and took all other action under applicable law in each relevant jurisdiction in order to protect and perfect the Trust's interest in such Receivables, such Related Transferred Assets and the funds in the Trust Accounts against all creditors of, and purchasers from, ARC and the Seller. (B) Each transfer of Receivables and Related Transferred Assets by ARC to the Trust pursuant to this Agreement constitutes a valid transfer and assignment to the Trust of all right, title and interest of ARC in the Receivables and the Related Transferred Assets, free and clear of any Adverse Claim (other than any Permitted Adverse Claim and any Adverse Claim arising solely as the result of any action taken by the Trustee under this Agreement), and constitutes either an absolute transfer of Page 3 such property to the Trust or a grant of a first priority perfected security interest in such property to the Trust. Whenever the Trust accepts a transfer of a Receivable or a Related Transferred Asset hereunder, it shall have acquired a valid and perfected first priority interest in such Receivable or Related Transferred Asset free and clear of any Adverse Claim (other than any Permitted Adverse Claim and any Adverse Claim arising solely as a result of any action taken by the Trustee under this Agreement). (C) No effective financing statement or other instrument similar in effect that covers all or part of any Receivable, any Related Transferred Asset, any other Trust Asset or any interest in any thereof is on file in any recording office except financing statements as to which termination statements or releases are filed on the Closing Date or the day after the Closing Date and except such as may be filed (1) in favor of the Seller in accordance with the Contracts, (2) in favor of ARC pursuant to the Purchase Agreement or the Subscription Agreement, and (3) in favor of the Trustee, for the benefit of the Certificateholders, in accordance with this Agreement or otherwise filed by or at the direction of the Trustee. No effective financing statement or instrument similar in effect relating to perfection that covers any inventory of the Seller that might give rise to Receivables is on file in any recording office except for (so long as the Intercreditor Agreement is in effect) financing statements or instruments in favor of the Seller Agent. (D) No acquisition of any Receivable or Related Transferred Asset by ARC or the Trust constitutes a fraudulent transfer or fraudulent conveyance under the United States Bankruptcy Code or applicable state bankruptcy or insolvency laws or is otherwise void or voidable or subject to subordination under similar laws or principles or for any other reason. (E) The transfer of the Receivables and Related Transferred Assets by the Seller to ARC constitutes a true and valid assignment and transfer for consideration of such Receivables and Related Transferred Assets under applicable state law (and not merely a pledge of such Receivables and Related Transferred Assets for security purposes), enforceable against the creditors of the Seller, and any Receivables and Related Transferred Assets so transferred do not constitute property of the Seller. (iii) Governmental Approvals. With respect to each Receivable and ---------------------- Related Transferred Asset, all consents, licenses, approvals or authorizations of, or notices to or registrations, declarations or filings with, any Governmental Authority required to be obtained, effected or made by the Seller, the Servicer or ARC in connection with the conveyance of the Receivable and Related Transferred Asset by the Seller to ARC, or by ARC to the Trust, have been duly obtained, effected or given and are in full force and effect, except, in respect of enforceability against a Federal Obligor, for any consents or filings referred to in 31 U.S.C. (S)(S) 3727(b) and (c) (the "Assignment of Claims Act") and any consents required by states with respect to any Page 4 Receivables arising from State and Local Obligors so long as such Receivables are not reported as Eligible Receivables. (iv) Eligible Receivables. (A) On the date on which the Seller -------------------- transfers a Receivable to ARC, and ARC transfers such Receivable to the Trust, unless otherwise identified by the Servicer in the Daily Report for such date, such Receivable is an Eligible Receivable, and (B) on the date of each Daily Report or Settlement Statement that identifies a Receivable as an Eligible Receivable, such Receivable is an Eligible Receivable. (b) Notice of Breach. The representations and warranties set forth in ---------------- subsection (a) shall survive the transfer and assignment of the Receivables and --- the Related Transferred Assets to the Trust. Upon discovery by ARC, the Servicer or the Trustee of a breach of any of the representations and warranties set forth in this subsection (a), the party discovering the breach shall give -------------- written notice to the other parties to this Agreement within four Business Days following the discovery. The Trustee's obligations in respect of discovering any breach are limited as provided in Section 11.02(g). ---------------- SECTION 2.04 No Assumption of Obligations Relating to Receivables, Related ------------------------------------------------------------- Transferred Assets or Contracts. The transfer, assignment, setover and - - - ------------------------------- conveyance described in Section 2.01 does not constitute and is not intended to ------------ result in a creation or an assumption by the Trust, the Trustee or any Investor Certificateholder of any obligation of the Servicer, ARC, the Seller or any other Person in connection with the Receivables or the Related Transferred Assets or under the related Contracts or any other agreement or instrument relating thereto, including any obligation to any Obligors. None of the Trustee, the Trust or any Investor Certificateholder shall have any obligation or liability to any Obligor or other customer or client of the Seller (including any obligation to perform any of the obligations of the Seller to any Obligor under any such Receivables, related Contracts or any other related purchase orders or other agreements or otherwise). No such obligation or liability is intended to be assumed by the Trustee, the Trust or any Investor Certificateholder hereunder, and any such assumption is hereby expressly disclaimed. SECTION 2.05 Conveyance of Receivables by the Trust. Pursuant to the -------------------------------------- terms of a PI Agreement, the Trustee, on behalf of the Trust, from time to time may sell, transfer, assign, set over and otherwise convey Purchased Interests to a Purchaser or the Purchaser Agent for the account of a Purchaser; and the Trustee, on behalf of the Trust, is authorized and directed (subject to the applicable terms of Section 6.10), upon the written request of the Seller, to ------------ enter into one or more PI Agreements in the form annexed to each such written request. Pursuant to a PI Agreement, Collections allocated to Purchased Interests may be reinvested and such Purchased Interests may be recomputed, each from time to time as provided therein. Each Purchased Interest shall be equally and ratably entitled as provided herein to the benefits of this Agreement without preference, priority or distinction, all in Page 5 accordance with the terms and provisions of this Agreement except as otherwise expressly provided herein. ARTICLE III ADMINISTRATION AND SERVICING OF RECEIVABLES SECTION 3.01 Acceptance of Appointment and Other Matters Relating to the ----------------------------------------------------------- Servicer. - - - -------- (a) Designation of Servicer. The servicing, administering and collection ----------------------- of the Receivables and the Related Transferred Assets shall be conducted by the Person designated as Servicer hereunder from time to time in accordance with this section. Until the Trustee gives a Termination Notice to AmeriSource pursuant to Section 10.01, AmeriSource is hereby designated as, and AmeriSource ------------- hereby agrees to act as, the Servicer under this Agreement and the other Transaction Documents with respect to the Receivables and the Related Transferred Assets, and the Certificateholders and the Purchasers by their acceptance of the Certificates and Purchased Interests consent to AmeriSource acting as the Servicer. (b) Delegation of Certain Servicing Activities. In the ordinary course of ------------------------------------------ business, the Servicer may at any time delegate its duties hereunder with respect to the Receivables and the Related Transferred Assets to any Person. Each Person to whom any such duties are delegated in accordance with this subsection is herein called a "Sub-Servicer". Notwithstanding any such delegation by the Servicer (including any such delegation by the Servicer to a Seller), the Servicer shall remain liable for the performance of all duties and obligations of the Servicer pursuant to the terms of this Agreement and the other Transaction Documents and such delegation shall not relieve the Servicer of its liability and responsibility with respect to its duties. The fees and expenses of any Sub-Servicers shall be as agreed between the Servicer and the Sub-Servicers from time to time and none of the Trust, the Trustee or the Certificateholders shall have any responsibility therefor. Upon any termination of a Servicer pursuant to Section 10.01, all Sub-Servicers designated pursuant ------------- to this subsection by such Servicer shall automatically also be terminated. (c) Termination. The designation of the Servicer (and each Sub-Servicer) ----------- under this Agreement (and, in the case of any Sub-Servicer, under the agreement or other document in which the Servicer makes a delegation of servicing duties to the Sub-Servicer) shall automatically cease and terminate upon termination of the Trust pursuant to Section 12.01. ------------- (d) Resignation of the Servicer. The Servicer shall not resign from the --------------------------- obligations and duties hereby imposed on it except upon its determination that (i) the performance of its duties is no longer permissible under applicable law and (ii) there is no reasonable action that Page 6 it could take to make the performance of its duties permissible under applicable law. If the Servicer makes a determination that it must resign for the reasons stated above, it shall, prior to the tendering of its resignation, deliver to the Trustee an Opinion of Counsel for the Servicer, in form and substance reasonably satisfactory to the Trustee, confirming the satisfaction of the conditions set forth in clause (i) of the preceding sentence. No resignation by ---------- the Servicer shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 10.02. If the Servicer has tendered its resignation and ------------- no Successor Servicer has been appointed, the Trustee may appoint, or may petition a court of competent jurisdiction to appoint, a Successor Servicer hereunder. The Trustee shall give prompt notice to the Applicable Rating Agencies of the appointment of any Successor Servicer. SECTION 3.02 Duties of the Servicer and ARC. ------------------------------ (a) Duties of the Servicer in General. The Servicer shall service and --------------------------------- administer the Receivables and the Related Transferred Assets and, subject to the terms and provisions of this Agreement, shall have full power and authority, acting alone or through any of its Sub-Servicers, to do any and all things in connection with such servicing and administration that it may deem necessary or appropriate. The Trustee shall execute and deliver to the Servicer any powers of attorney or other instruments or documents that are prepared by the Servicer and stated in an Officer's Certificate to be, and shall furnish the Servicer with any documents in its possession, necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties. The Servicer shall exercise the same care and apply the same policies with respect to the collection, administration and servicing of the Receivables and the Related Transferred Assets that it would exercise and apply if it owned such Receivables and the Related Transferred Assets, all in substantial compliance with applicable law and in accordance with the Credit and Collection Policy. The Servicer shall take or cause to be taken all such actions as it deems necessary or appropriate to collect each Receivable and Related Transferred Asset (and shall cause each of its Sub-Servicers (if any) to take or cause to be taken all such actions as the Servicer deems necessary or appropriate to collect each Receivable and Related Transferred Asset for which a Sub-Servicer is responsible in its capacity as Sub-Servicer) from time to time, all in accordance with applicable law and the Credit and Collection Policy. Without limiting the generality of the foregoing and subject to the next preceding paragraph and Section 10.01, the Servicer or its designee is hereby ------------- authorized and empowered, unless such power and authority is revoked by the Trustee on account of the occurrence of a Servicer Default, (i) to instruct the Trustee to make withdrawals and payments from the Trust Accounts as set forth in this Agreement, (ii) to execute and deliver, on behalf of the Trust for the benefit of the Certificateholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and the Related Transferred Assets, Page 7 (iii) to make any filings, reports, notices, applications and registrations with, and to seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or appropriate to comply with any federal or state securities laws or reporting requirements or other laws or regulations, and (iv) after the delinquency of any Receivable or any default in connection with a Related Transferred Asset and to the extent permitted under and in compliance with the Credit and Collection Policy and with all applicable laws, rules, regulations, judgments, orders and decrees of courts and other governmental authorities (whether federal, state, local or foreign) and all other tribunals, to commence or settle collection proceedings with respect to such Receivable and otherwise to enforce the rights and interests of the Trust and the Certificateholders in, to and under such Receivable or Related Transferred Asset (as applicable). The Trustee shall promptly comply with the instructions of the Servicer to withdraw funds and make payments from the Trust Accounts pursuant to the terms of this Agreement. (b) Identification and Transfer of Collections. The Servicer shall cause ------------------------------------------ Collections and all other Trust Assets that consist of cash or cash equivalents to be deposited into the Bank Accounts and the Trust Accounts pursuant to the terms and provisions of Section 3.03 and Article IV. Following notification ------------ ---------- from the Seller to the Servicer or discovery by the Servicer that collections of any receivable or other asset that is not a Collection of a Receivable or a Related Transferred Asset have been deposited into a Bank Account or the Master Collection Account, the Servicer shall cause all such collections to be segregated, apart and in different accounts, from the Bank Accounts and the Trust Accounts. The Servicer and, to the extent applicable, the Trustee shall hold all such funds in trust, separate and apart from such Person's other funds. On each Business Day, after such misapplied collections have been reasonably identified by the Servicer to the Trustee, the Servicer shall instruct the Trustee to, and the Trustee shall, turn over to the appropriate Lockbox Bank, Seller or other applicable AmeriSource Person (or their designees) all such misapplied collections less all reasonable and appropriate out-of-pocket costs and expenses, if any, incurred by the Servicer in collecting such receivables. All payments made by an Obligor that is obligated to make payments with respect to both Transferred Receivables and other Receivables shall be applied against the specified Receivables, if any, that are designated by such Obligor by reference to the applicable invoice as the Receivables with respect to which such payments should be applied. In the absence of such designation, such payments shall be applied against the oldest outstanding Receivables owed by such Obligor. Following notification from a Lockbox Bank that any item has been returned or is uncollected and that such Lockbox Bank has not been otherwise reimbursed pursuant to the terms of the applicable Lockbox Agreement for any amounts it credited to the relevant Lockbox Account (and then transferred to the Master Collection Account), the Servicer shall Page 8 instruct the Trustee to, and the Trustee shall, turn over to such Lockbox Bank Collections in such amount from Collections on deposit in the Master Collection Account. (c) Modification of Receivables, Etc. So long as no Servicer Default --------------------------------- shall have occurred and be continuing, the Servicer may adjust, and may permit each Sub-Servicer appointed by it to adjust, in accordance with Section 3.02(a) --------------- and the Credit and Collection Policy, the outstanding unpaid balance of any Receivable, or otherwise modify the terms of any Receivable or amend, modify or waive any term or condition of any Contract related thereto, all as it may determine to be appropriate to maximize collection thereof. The Servicer shall, or shall cause the applicable Sub-Servicer to, write off Receivables from time to time in accordance with the terms of this Agreement (including Section ------- 7.02(g)) and the Credit and Collection Policy. - - - ------- (d) Documents and Records. At any time when AmeriSource shall not be the --------------------- Servicer, ARC, to the extent that it is entitled to do so under the Purchase Agreement, shall, upon the request of the then-acting Servicer, cause the Seller to deliver to the Servicer, and the Servicer shall hold in trust for ARC and the Trustee in accordance with their respective interests, all Records that evidence or relate to the Receivables and Related Transferred Assets of the Seller. (e) Certain Duties to the Seller. The Servicer, if other than ---------------------------- AmeriSource, shall, as soon as practicable after a demand by the Seller, deliver to the Seller all documents, instruments and records in its possession that evidence or relate to accounts receivable of the Seller or other AmeriSource Persons that are not Receivables or Related Transferred Assets, and copies of all documents, instruments and records in its possession that evidence or relate to Receivables and Related Transferred Assets. (f) Identification of Eligible Receivables. The initial Servicer will (i) -------------------------------------- establish and maintain such procedures as are necessary for determining no less frequently than each Business Day whether each Receivable qualifies as an Eligible Receivable, and for identifying, on any Business Day, all Receivables that are not Eligible Receivables, and (ii) include in each Daily Report information that shows whether, and to what extent, the Receivables described in such Daily Report are Eligible Receivables. (g) Authorization to Act as ARC's Agent. Without limiting the generality ----------------------------------- of subsection (a), ARC hereby appoints the Servicer as its agent for the -------------- following purposes: (i) specifying accounts to which payments are to be made to ARC, (ii) making transfers among, and deposits to and withdrawals from, all deposit accounts of ARC for the purposes described in the Transaction Documents, and (iii) arranging payment by ARC of all fees, expenses and other amounts payable by ARC pursuant to the Transaction Documents. ARC irrevocably agrees that (A) it shall be bound by all actions taken by the Servicer pursuant to the preceding sentence, and (B) the Trustee and the banks holding all deposit accounts of Page 9 ARC are entitled to accept submissions, determinations, selections, specifications, transfers, deposits and withdrawal requests, and payments from the Servicer on behalf of ARC. (h) Grant of Power of Attorney. ARC and the Trustee hereby each grant to -------------------------- the Servicer a power of attorney, with full power of substitution, to take in the name of ARC and the Trustee all steps that are necessary or appropriate to endorse, negotiate, deposit or otherwise realize on any writing of any kind held or transmitted by ARC or transmitted or received by the Trustee (whether or not from ARC) in connection with any Receivable or Related Transferred Asset. The power of attorney that ARC and the Trustee have granted to the Servicer may be revoked by the Trustee, and shall be revoked by ARC, on the date on which the Trustee shall be entitled to exercise the powers granted to the Trustee pursuant to Section 3.08(b). In exercising its power granted hereby, the Servicer shall --------------- take directions from the Trustee, if any, arising out of the exercise of the rights granted under Section 11.14. ------------- (i) Turnover of Collections. If the Servicer, ARC or any of their ----------------------- respective agents or representatives shall at any time receive any cash, checks or other instruments constituting Collections (including any payments received by ARC on account of any Seller Noncomplying Receivables Adjustment or Seller Dilution Adjustment), such recipient shall segregate such payments and hold such payments in trust for, and in a manner acceptable to, the Trustee and shall, promptly upon receipt (and in any event within two Business Days following receipt), remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to a Bank Account or the Master Collection Account; provided, however, that post-dated checks received by the Servicer in the ordinary course of business and not aggregating at any one time in the possession of the Servicer more than $50,000 may be held by the Servicer for deposit on the date appearing on each such check. In the event that the aggregate principal amount of post-dated checks held by the Servicer in this manner at any one time exceeds $50,000, the Servicer shall promptly make arrangements for such checks to be transferred to and held by the Trustee or a co-trustee or separate trustee appointed pursuant to Section 11.10. ------------- SECTION 3.03 Lockbox Accounts; Concentration Accounts. (a) Each Lockbox ---------------------------------------- Account shall be subject to a Lockbox Agreement substantially in the form of Exhibit A. Unless instructed otherwise by the Servicer (or, after the - - - --------- occurrence and continuance of a Liquidation Event, the Trustee), each Lockbox Bank shall be instructed by the Servicer to remit, on a daily basis (but subject to the Lockbox Bank's customary funds availability schedule), all amounts deposited in the Lockbox Accounts maintained with it to a Concentration Account or the Master Collection Account. Any Concentration Account shall be maintained in the name of the Trustee on behalf of the Trust pursuant to a Concentration Account Agreement substantially in the form of Exhibit B. Except as expressly --------- provided in this Agreement and the applicable Account Agreements, none of the Seller, ARC, the Servicer, or any Person claiming by, through or under the Seller, ARC or the Servicer shall have any control over the use of, or any right to withdraw any item or amount from, any Page 10 Lockbox Account or Concentration Account. The Servicer and the Trustee are each hereby irrevocably authorized and empowered, as ARC's attorney-in-fact, to endorse any item deposited in a lockbox or presented for deposit in any Lockbox Account or Concentration Account requiring the endorsement of ARC, which authorization is coupled with an interest and is irrevocable. Each Lockbox Account shall be maintained with a Lockbox Bank that has a short-term debt rating of at least A-1 or its equivalent by the Applicable Rating Agency or shall be a segregated trust account at a national bank with a long-term debt rating of at least BBB by S&P or otherwise approved by the Applicable Rating Agency. (b) The Servicer shall instruct (or shall cause the Seller to instruct) all Obligors to make all payments due to ARC or the Seller relating to or constituting Collections (or any proceeds thereof) (i) to lockboxes maintained at the Lockbox Banks for deposit in a Lockbox Account or a Concentration Account or (ii) directly to a Lockbox Account. If ARC or the Seller receives any Collections or any other payment of proceeds of any other Related Transferred Asset, the Servicer shall cause such recipient to (x) segregate such payment and hold it in trust for the benefit of the Trustee and the Certificateholders, and (y) as soon as practicable, but no later than the second Business Day following receipt of such item by such Person, deposit such payment in a Bank Account or the Master Collection Account. The Servicer shall, and shall cause ARC and the Seller to, use reasonable efforts to prevent the deposit of any amounts other than Collections in any Lockbox Account or Concentration Account. In the event that the Servicer is notified by the Seller that any amount other than Collections has been deposited in any Lockbox Account or Concentration Account, the Servicer shall promptly instruct the appropriate Account Bank and the Trustee to segregate such amount, and shall direct such Account Bank or the Trustee (as appropriate) to turn over such amounts to the Seller or other AmeriSource Person (or their designees) to whom such amounts are owed. (c)(i) The Servicer may, from time to time after the Closing Date, designate a new account as a Lockbox Account or a Concentration Account, and such account shall become a Lockbox Account or Concentration Account (and the bank at which such account is maintained shall become a Lockbox Bank or a Concentration Account Bank for purposes of this Agreement); provided, however, that the Trustee shall have received not less than 15 Business Days' prior written notice of the account and/or the bank that are proposed to be added as a Bank Account or an Account Bank (as applicable) and, not less than ten Business Days prior to the effective date of any such proposed addition, the Trustee shall have received (x) counterparts of a Lockbox Agreement or a Concentration Account Agreement, as applicable, with each new Account Bank, duly executed by such new Account Bank and all other parties thereto and (y) copies of all other agreements and documents signed by the new Account Bank or such other parties with respect to any new Lockbox Account or Concentration Account, as applicable. (ii) The Servicer may, from time to time after the Closing Date, terminate an account as a Lockbox Account or a Concentration Account or a bank as an Account Bank; provided, Page 11 however, that (x) no such termination shall occur unless the Trustee shall have received not less than ten Business Days' prior written notice of the account and/or the bank that are proposed to be terminated as a Bank Account or an Account Bank (as applicable) and, not less than ten Business Days prior to the effective date of any such proposed termination, the Trustee shall have received counterparts of an agreement, duly executed by the applicable Account Bank and reasonably satisfactory in form and substance to the Trustee, pursuant to which such Account Bank agrees that, if it receives any funds or items that constitute Collections on or after the effective date of the termination of the applicable Bank Account or the effective date of its termination as an Account Bank (as the case may be), such Account Bank or former Account Bank (as applicable) shall cause such funds and items to be delivered in the form received to another lockbox or transferred to another Lockbox Account, Concentration Account or the Master Collection Account promptly after such Account Bank or former Account Bank (as applicable) discovers that it has received any such funds or items, and (y) notwithstanding clause (x), ARC and the Servicer may at any time establish ---------- alternative collection procedures that do not require the use of Lockbox Accounts with the consent of each Purchaser Agent and any Enhancement Provider and upon satisfaction of the Rating Agency Condition. (d) The Servicer shall instruct each Concentration Account Bank (if any), to transfer on a daily basis in same day funds to the Master Collection Account all collected funds on deposit in the Concentration Account maintained with such Concentration Account Bank. All such transfers shall be made in accordance with the relevant Concentration Account Agreement. SECTION 3.04 Servicing Compensation. ARC hereby agrees to pay to the ---------------------- Servicer, as full compensation for servicing activities performed under the Transaction Documents, a servicing fee (the "Servicing Fee") in respect of each Calculation Period (or portion thereof) prior to the termination of the Trust pursuant to Section 12.01, payable in arrears on each Settlement Date. The ------------- Servicing Fee shall be paid out of funds in the Master Collection Account as more fully described in Article IV, and shall be payable to the Servicer solely ---------- to the extent amounts are available for payment pursuant to Article IV. In no ---------- event shall the Trust, the Trustee or the Certificateholders be liable for payment of the Servicing Fee. At any time when AmeriSource or any of its Affiliates is the Servicer, the Servicing Fee for any Calculation Period shall be equal to one-twelfth of the product of (a) 2%, multiplied by (b) the aggregate Unpaid Balance of the Receivables as measured on the first Business Day of the most recently ended Calculation Period. If AmeriSource ceases to be the Servicer, the Servicing Fee for a Successor Servicer that is not an Affiliate of AmeriSource shall be an amount equal to the greater of (i) the amount calculated pursuant to the preceding sentence and (ii) an alternative amount specified by such Servicer not exceeding the sum of (x) 110% of the aggregate reasonable costs and expenses incurred by such Servicer during such Calculation Period in connection with the performance of its obligations under this Agreement and the other Transaction Documents, and (y) the other Page 12 costs and expenses that are to be paid out of the Servicing Fee, as described in the next sentence; provided, however, that the amount provided for in clause (x) ---------- shall not exceed one-twelfth of 2.5% of the aggregate Unpaid Balance of the Receivables as measured on the last Business Day of the most recently ended Calculation Period. The fees, costs and expenses of the Trustee, the Paying Agent, any authenticating agent, the Lockbox Banks, the Concentration Account Banks and the Transfer Agent and Registrar, and certain other costs and expenses payable from the Servicing Fee pursuant to other provisions of this Agreement, and all other fees and expenses that are not expressly stated in this Agreement, any Series Supplement or any PI Agreement to be payable by the Trust or ARC, other than Federal, ]state, local and foreign income and franchise taxes, if any, or any interest or penalties with respect thereto, of the Trust, shall be paid out of the Servicing Fee and shall be paid by the Servicer from the funds that constitute the Servicing Fee. The Servicing Fee shall be paid to the Servicer solely to the extent that funds are available to make such payment pursuant to Sections 4.03(g) or (h) (as the case may be), and there shall be no ---------------- --- recourse to ARC for all or any part of the Servicing Fee that is payable from time to time if such funds are at any time insufficient to pay the Servicing Fee. SECTION 3.05 Records of the Servicer and Reports to be Prepared by the --------------------------------------------------------- Servicer. - - - -------- (a) Keeping of Records and Books of Account. The Servicer shall maintain --------------------------------------- at all times accurate and complete books, records and accounts relating to the Receivables, Related Transferred Assets and Contracts of each Seller and all Collections thereon in which timely entries shall be made. The Servicer shall maintain and implement administrative and operating procedures (including an ability to generate duplicates of Records evidencing Receivables and the Related Transferred Assets in the event of the destruction of the originals thereof), and shall keep and maintain all documents, books, records and other information that the Servicer deems reasonably necessary, consistent with Section 3.02(a), for the collection of all Receivables and --------------- Related Transferred Assets. Without limiting the generality of the foregoing, the Servicer shall back up the receivables data every night and store the back- up off site. The Servicer shall further (i) implement a "hot site" disaster recovery program with a third party vendor for all of its processing locations within 150 days of the Closing Date, and (ii) maintain all such "hot site" disaster programs at all times thereafter. (b) Receivables Reviews. The Servicer shall provide the Trustee access to ------------------- the documentation regarding the Receivables when the Trustee is required, in connection with the enforcement of the rights of Certificateholders or the Purchasers or by applicable statutes or regulations, to review such documentation, such access being afforded without charge but only (i) upon reasonable request, (ii) during normal business hours, (iii) subject to the Servicer's normal security and confidentiality procedures, (iv) at reasonably accessible offices in the continental United States of America designated by the Servicer and (v) upon five Business Days' prior notice; provided, however, that no notice shall be required if a Page 13 Liquidation Event shall have occurred and be continuing. The Servicer, the Seller and the Trustee shall provide each Purchaser Agent with such information, access, audit and inspection rights as shall be specified in each Receivables Purchase Agreement. (c) Daily Reports. Prior to 11:00 a. m., New York City time, on each ------------- Business Day, the Servicer shall prepare and deliver to the Trustee and any Agent a report substantially in the form of Exhibit C (as the same may be --------- supplemented in accordance with any Supplement or PI Agreement) or in such other form as is reasonably acceptable to the Trustee and the Servicer (each such report being a "Daily Report"); provided, that if, on any Business Day, the Servicer is unable to prepare and deliver a Daily Report to the Trustee because of acts of God or the public enemy, riots, acts of war, acts of terrorism, epidemics, fire, failure of communication lines, equipment or power failure, computer systems failure, flood, embargoes, weather, earthquakes or other unanticipated disruptions of the Servicer's ability to monitor the origination and/or preparation of Receivables, then the Base Amount used in preparation of the Daily Report shall be the lowest Base Amount shown in the Daily Reports delivered during the immediately preceding month (such amount, an "Estimated Base Amount"). The Servicer may use an Estimated Base Amount to prepare the Daily Report until the earlier to occur of (i) the disruption no longer prevents the Servicer from preparing the Daily Report using the actual data required by the Daily Report and delivering it to the Trustee, and (ii) the sixth Business Day following the commencement of such disruption. No later than 11:15 a. m. on the 2nd Business Day of the Look Back Period, the Servicer shall deliver to the Trustee a modified Daily Report for the Determination Date, reflecting the exclusion of the Affected Receivables from the Base Amount. With respect to each other Business Day falling in the Look Back Period (including such 2nd Business Day), two Daily Reports shall be prepared and delivered to the Trustee pursuant to Section 3.05(c) (and clearly --------------- marked to distinguish between them); (1) one reflecting exclusion of Affected Receivables in the Base Amount; and (2) another including the Affected Receivables in the Base Amount (to the extent permitted by other terms of the Transaction Documents). (d) Settlement Statement. On each Report Date, the Servicer shall prepare -------------------- and deliver to the Trustee and the Applicable Rating Agencies a report substantially in the form of Exhibit D (as the same may be supplemented in --------- accordance with any Supplement or PI Agreement) or in such other form as is reasonably acceptable to the Trustee and the Servicer (each such report being a "Settlement Statement"). (e) Notice of Seller Change Events; Supplements to Settlement Statements. -------------------------------------------------------------------- Sections 1.7 and 1.8 of the Purchase Agreement describe circumstances under which (i) Subsidiaries of AmeriSource may be added to the Program as a Seller and (ii) the Seller may terminate its status as Seller under the Program (each event being herein called a "Seller Change Event"). Those Sections of the Purchase Agreement require AmeriSource to give written notice to ARC of the occurrence of a Seller Change Event not less than 30 days prior to the occurrence thereof, and ARC hereby agrees to give prompt written notice of its receipt Page 14 of any such notice to the Trustee and the Applicable Rating Agencies. If the notice is given to the Trustee, within five Business Days after the receipt of the notice by the Trustee (or such later date, as specified in the notice, on which the applicable Seller Change Event shall become effective), the Servicer shall deliver to the Trustee and the Applicable Rating Agencies a supplement to the Settlement Statement then in effect, which supplement shall show (A) the calculation or recalculation of the Required Reserves and the Discount Rate Reserve (if necessary) to reflect the addition of accounts receivable originated by any such Subsidiary that is being added to the Program as a Seller, and the exclusion of any Receivables originated by any such Subsidiary that is terminating its status as a Seller (as applicable), and (B) the Loss Discount and the Purchase Discount Reserve Ratio for any such Subsidiary that is being added to the Program as a Seller. For purposes of all calculations hereunder and under the Purchase Agreement, the Required Reserves and (if applicable) the Loss Discount and the Purchase Discount Reserve Ratio for the relevant Subsidiary of AmeriSource shown in such supplement shall supersede and/or supplement the calculation of such items in the then outstanding Settlement Statement, effective as of the fifth Business Day following the Trustee's receipt of such notice (or such later date, as specified in such notice, on which the applicable Seller Change Event shall become effective). SECTION 3.06 Monthly Servicer's Certificate. On each Report Date, the ------------------------------ Servicer shall deliver to the Trustee, the Paying Agent, ARC and the Applicable Rating Agencies a certificate of an Authorized Officer of the Servicer substantially in the form of Exhibit E, with such additions as may be required --------- by any Supplement. ARC will join in each certificate delivered with respect to a Cut-Off Date that is the end of a calendar quarter for purposes of confirming that ARC, AmeriSource and the Seller shall not have any obligations to any Restricted Federal Obligor or State Obligor that (a) are due and payable, (b) could be set off against the Unpaid Balance of the Receivable owed by such Obligor, except for obligations that are being contested in good faith and by appropriate proceedings and against which ARC, AmeriSource and/or the Seller (as applicable) maintain reserves in accordance with GAAP and (c) the method for calculating tax reserves reflected in the books and records of AmeriSource and ARC complies with GAAP and fairly presents estimated tax liabilities to the best of AmeriSource's and ARC's knowledge. SECTION 3.07 Annual Servicing Report of Independent Public Accountants; ---------------------------------------------------------- Forms 10-Q and 10-K. (a)(i) On or before 120 days after the end of each fiscal - - - ------------------- year of ARC, beginning with the fiscal year ending September 30, 1994, the Servicer shall, as an expense of the Servicer paid out of the Servicing Fee, cause Ernst & Young or another firm of nationally recognized independent public accountants (which may also render other services to the Servicer, the Seller or ARC) to furnish a report to the Trustee, the Servicer, the Applicable Rating Agencies and ARC (which report shall be addressed to the Trustee and shall relate to ARC's most recently ended fiscal year). The accountants' report shall set forth the results of their performance of certain procedures that will have been agreed upon prior to the First Issuance Date by the Servicer and ARC with respect to the Settlement Page 15 Statements and Daily Reports delivered to the Trustee pursuant to Section 3.05 ------------ during the prior fiscal year. (ii) Each accountants' report shall state that the accountants have compared the amounts contained in the Settlement Statements and a sample randomly selected from all Daily Reports delivered to the Trustee during the period covered by the report with the records (including computer records) from which the amounts were derived and that, on the basis of such comparison, the amounts are in agreement with the documents and records, except for such exceptions as they believe to be immaterial and such other exceptions as shall be set forth in the report. Except as provided otherwise in a Supplement, a copy of the report may be obtained by any Investor Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. (b) Promptly after the filing of such reports with the Securities and Exchange Commission, the Servicer shall provide each of the Applicable Rating Agencies with copies of each Quarterly Report on Form 10-Q and each Annual Report on Form 10-K of the Servicer. SECTION 3.08 Rights of the Trustee. --------------------- (a) The Trustee has (for the benefit of the Certificateholders) the exclusive dominion and control over the Bank Accounts, and ARC shall take any action that the Trustee may reasonably request to effect or evidence such dominion and control. At any time following the occurrence of a Servicer Default, the Trustee is hereby authorized to give notice to the Account Banks, as provided in the Account Agreements, of the revocation of the Servicer's authority to give instructions or take any other actions with respect to the Bank Accounts that the Servicer would otherwise be authorized to give or to take pursuant to Sections 3.02 and 3.03. ------------- ---- (b) At any time following the designation of a Servicer other than AmeriSource until a Successor Servicer (if other than the Trustee) has been appointed: (i) The Trustee may direct any Obligors of Receivables to pay all amounts payable under any Receivable or any Related Transferred Assets directly to the Trustee or its designee; provided, however, that the Trustee shall provide the Seller with a copy of such notice at least one Business Day prior to sending it to any Obligor and consult in good faith with the Seller as to the text of the notice. (ii) The Trustee may direct the Seller to make payment of all amounts payable to ARC under any Transaction Document to which the Seller is a party directly to the Trustee or its designee. Page 16 (iii) ARC and the Servicer shall, at the Trustee's request and as an expense of the Servicer paid out of the Servicing Fee, give notice of the Trust's ownership of the Receivables and the Related Transferred Assets to each Obligor and direct that payments be made directly to the Trustee or its designee. (iv) ARC shall, and shall cause the Seller to, at the Trustee's request, (A) assemble all of the Records that are necessary or appropriate to collect the Receivables and Related Transferred Assets, and shall make the same available to the Trustee at one or more places selected by the Trustee or its designee, (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Trustee and shall, promptly upon receipt (and, subject to Section 3.02(i), in no event later than the first Business Day --------------- following receipt), remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Trustee or its designee and (C) permit, upon not less than two Business Days' prior written notice, any Successor Servicer and its agents, employees and assignees access to their respective facilities and their respective Records. (c) Each of ARC and the Servicer hereby authorizes the Trustee, from time to time after the designation of a Servicer other than AmeriSource, to take any and all steps in ARC's name and on behalf of ARC and the Servicer that are necessary or appropriate, in the reasonable determination of the Trustee, to collect all amounts due under any and all Receivables or Related Transferred Assets, including endorsing the name of ARC or the Seller on checks and other instruments representing Collections and enforcing such Receivables and the Related Transferred Assets. (d) ARC hereby irrevocably appoints the Trustee to act as ARC's attorney- in-fact, with full authority in the place and stead of ARC and in the name of ARC or otherwise, from time to time after the designation of a Servicer other than AmeriSource, to take (subject to Section 11.14 hereof) any action and to ------------- execute any instrument or document that the Trustee, in its reasonable determination, may deem necessary to accomplish the purposes of this Agreement, including: (i) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Receivable or any Related Transferred Asset, (ii) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (i), ---------- (iii) to file any claims or take any action or institute any proceedings that the Trustee in its reasonable determination may deem necessary or appropriate for the collection of any of the Receivables or any Related Transferred Asset or otherwise to Page 17 enforce the rights of the Trustee and the Certificateholders with respect to any of the Receivables or any Related Transferred Asset, and (iv) to perform the affirmative obligations of ARC under any Transaction Document. ARC hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this subsection is irrevocable and coupled with an interest. SECTION 3.09 Ongoing Responsibilities of AmeriSource. Anything herein to --------------------------------------- the contrary notwithstanding: (a) If at any time AmeriSource shall not be the Servicer, it shall deliver all Collections received or deemed received by it or its Subsidiaries to the Trustee no later than two Business Days after receipt or deemed receipt thereof and the Trustee shall distribute such Collections to the same extent as if such Collections had actually been received from the related Obligor on the applicable dates. So long as AmeriSource or any of its Subsidiaries shall hold any Collections or deemed Collections required to be paid to the Trustee, each of them shall hold such amounts in trust (and separate and apart from its own funds) and shall clearly mark its records to reflect such trust. AmeriSource hereby grants to the Trustee an irrevocable power of attorney, with full power of substitution, coupled with an interest, upon the occurrence of a Servicer Default, to take in the name of AmeriSource all steps necessary or appropriate to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by AmeriSource or transmitted and received by the Trustee (whether or not from AmeriSource) in connection with any Receivable or Related Transferred Asset. (b) AmeriSource hereby irrevocably agrees that, if at any time it shall cease to be the Servicer, it shall act (if the then current Servicer so requests) as the data processing agent of the Servicer and, in such capacity, AmeriSource shall conduct (and shall cause any other necessary Persons to conduct) the data processing functions of the administration of the Receivables, the Related Transferred Assets and the Collections thereon in substantially the same way that AmeriSource (or its Sub-Servicers) conducted such data processing functions while AmeriSource acted as the Servicer. AmeriSource and each such other Person shall be entitled to reasonable compensation for such service to be paid from the Servicing Fee. (c) Notwithstanding any termination of AmeriSource as Servicer hereunder, AmeriSource shall continue to indemnify the Trustee on the terms set out in Section 11.05 with respect to circumstances existing, or actions ------------- taken or omitted, prior to such termination. Page 18 SECTION 3.10 Further Action Evidencing Transfers. (a) Each of ARC and ----------------------------------- the Servicer agrees that from time to time, as an expense of the Servicer paid out of the Servicing Fee, it will promptly execute and deliver (or cause the relevant Sub-Servicer to execute and deliver) all further instruments and documents, and will promptly take all further action (or cause the relevant Sub- Servicer to take all further action) that the Trustee may reasonably request, in order to perfect, protect or more fully evidence the conveyances hereunder, or to enable the Investor Certificateholders or the Trustee to exercise or enforce any of their respective rights under any Transaction Documents. Without limiting the generality of the foregoing, upon the Trustee's request, ARC (or, in the case of clause (ii) below, the Servicer) will, or will cause the Servicer to: ----------- (i) execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be required from time to time pursuant to Section 7.02(c) --------------- or as the Trustee reasonably determines necessary or desirable, and (ii) mark its master data processing records that evidence or list Receivables or Related Transferred Assets as described in Section 2.01(d). --------------- The Servicer shall cause all financing statements and continuation statements and any other necessary documents relating to the right, title and interest of the Trustee (for the benefit of the Certificateholders) in and to the Trust Assets to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve, maintain and protect the right, title and interest of the Trustee hereunder (for the benefit of the Certificateholders) in and to all property comprising the Trust Assets. The Servicer shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. ARC shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents that are reasonably required to fulfill the intent of this section. (b) If (i) ARC or the Servicer fails to perform any of its agreements or obligations under any Transaction Document and does not remedy such failure within the applicable cure period, if any, and (ii) the Trustee in good faith reasonably believes that the performance of such agreements and obligations is necessary or appropriate to protect the interests of the Certificateholders under this Agreement, then the Trustee or its designee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the reasonable expenses of the Trustee or its designee incurred in connection therewith shall be payable by the Servicer as provided in Section ------- 11.05 and (if applicable) by ARC as provided in Section 7.03. If, at any time, - - - ----- ------------ ARC or the Servicer fails to file any financing statement or continuation statement, or amendment thereto or assignment thereof, that is required to be filed pursuant to this Agreement or any of the other Transaction Documents, the Trustee may (but shall not be required to), and ARC and the Servicer hereby authorize Page 19 the Trustee to, file such financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables or the Related Transferred Assets now existing or hereafter arising in the name of ARC or the Servicer as an expense of the Servicer paid out of the Servicing Fee. ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS SECTION 4.01 Rights of Certificateholders. Each Fixed Principal ---------------------------- Certificate shall represent a fractional undivided interest in the Trust, consisting of the right to receive Collections, funds on deposit in the Trust Accounts and other Trust Assets, to the extent and at the times provided herein and in the relevant Supplement, in payment of the principal amount of such Fixed Principal Certificate, interest accrued on such principal amount from time to time at the applicable Certificate Rate, and other Obligations owed to the Holder of such Fixed Principal Certificate (all such undivided interests being collectively called the "Fixed Principal Interest"). Each Revolving Certificate shall represent a fractional undivided interest in the Trust, consisting of a right to receive Collections, funds on deposit in the Trust Accounts and other Trust Assets, to the extent and at the times provided herein, in payment of the principal amount of such Revolving Certificate (which principal amount shall vary from time to time in accordance with the terms of this Agreement) and interest accrued on the principal amount of any Investor Revolving Certificate from time to time at the applicable Certificate Rate, and other Obligations owed to the Holder of an Investor Revolving Certificate (all such undivided interests being collectively called the "Revolving Certificate Interest"). The Residual Certificate shall represent the ownership interest in the remainder of the Trust Assets not allocated pursuant to this Agreement to the Fixed Principal Interest or the Revolving Certificate Interest, including the right to receive payments at the times and in the amounts specified in this Article IV to be paid to ARC in respect of the Residual Certificate (the - - - ---------- "Residual Interest"). The Residual Certificate will not bear interest. SECTION 4.02 Establishment of Trust Accounts. (a) The Trustee shall ------------------------------- establish and maintain in the name of the Trustee, on behalf of the Trust and for the benefit of the Certificateholders, the segregated trust accounts referred to in subsections (b) through (g) below (and such additional accounts --------------- --- as may be required by any Supplement). Each of the Trust Accounts shall be established and maintained in the corporate trust department of the Trustee and shall bear a designation clearly indicating that funds deposited therein are held for the benefit of the Certificateholders and the Purchasers. Page 20 (b) All Collections and all other Trust Assets consisting of cash or cash equivalents shall be transferred from the Bank Accounts and deposited in a segregated trust account maintained with the Trustee (the "Master Collection Account"). In addition, on the first day of the Liquidation Period, any funds in the Equalization Account will be transferred to the Master Collection Account. Funds on deposit in the Master Collection Account will be allocated as provided in Section 4.03. As described in Section 4.03(g), certain funds in the Master ------------ --------------- Collection Account shall be allocated from time to time prior to commencement of the Liquidation Period to an administrative sub-account of the Master Collection Account or to a separate trust account created by the Trustee at the direction of ARC (such sub-account or separate account being referred to herein as the "Carrying Cost Account"). Funds shall be withdrawn from the Carrying Cost Account to pay interest on the Fixed Principal Certificates and the Revolving Certificates, yield on Purchased Interests and other Carrying Costs when due. If on any day funds allocated to the Carrying Cost Account are not sufficient to pay all amounts of such Carrying Costs then due, then in the event that there are any funds on deposit in the Equalization Account or the Defeasance Account, such funds shall be withdrawn (in an amount equal to the lesser of the amount of the deficiency and the amount of such funds) and transferred to the Carrying Cost Account. On the first day of the Liquidation Period, the Carrying Cost Account shall be closed and thereafter funds that had been allocated thereto shall be distributed in the same manner as other funds in the Master Collection Account, as provided in Section 4.03(h). --------------- (c) From time to time prior to the commencement of the Liquidation Period, funds will be deposited into a segregated trust account maintained by the Trustee (the "Equalization Account") from the Master Collection Account, and withdrawn from the Equalization Account for deposit into the Master Collection Account, to compensate for fluctuations in the Base Amount or to segregate funds that would otherwise be remitted by the Trustee to ARC during a Look Back Period, as provided in Sections 4.03(c), (f) and (g). On the first day of the ---------------- --- --- Liquidation Period, all funds in the Equalization Account shall be transferred to the Master Collection Account for disposition in the same manner as other funds in the Master Collection Account, as provided in Section 4.03(h). --------------- (d) Any Trust Accounts established pursuant to any Supplement shall be held by the Trustee for the benefit of only such Series of Certificates as are indicated in that Supplement. The Master Collection Account, Carrying Cost Account and Equalization Account shall be held by the Trustee for the benefit of all Certificateholders and Purchasers, except to the extent indicated in any Supplement with respect to the Series issued pursuant to that Supplement. Each Trust Account shall be a segregated account maintained in the corporate trust department of the Trustee, the corporate trust department of a bank that has a long-term debt rating of at least "BBB" by S&P or with an Eligible Institution. (e) At the times specified in Section 4.03(g), the Servicer shall allocate --------------- funds pursuant to clauses Second, Fifth and Sixth of Section 4.03(g) to an -------------- ----- ----- --------------- administrative sub-account of the Master Collection Account or to a separate trust account created by the Page 21 Trustee at the direction of ARC (such sub-account or separate account being the "Defeasance Account"). If the Defeasance Account is a separate trust account, it shall be established and maintained in the name of the Trustee in the corporate trust department of the Trustee and shall bear a designation clearly indicating that funds deposited therein are held for the benefit of the Investor Certificateholders and the Purchasers. Funds shall be withdrawn from the Defeasance Account to make the payments described in Section 4.03(g) to Holders --------------- of the relevant Series of Investor Certificates or Purchased Interests. If the Liquidation Commencement Date occurs, at any time when funds are being allocated to the Defeasance Account, the Servicer shall in the Daily Report reallocate all funds that are on deposit or would otherwise be allocated to the Defeasance Account to the Master Collection Account, within one Business Day after the occurrence of the Liquidation Commencement Date, for allocation pursuant to Section 4.03(h). Notwithstanding anything to the contrary provided herein, ARC - - - --------------- may in no event deposit its own funds into the Defeasance Account. On each Settlement Date after the commencement of the Accumulation Period for a particular Series, the Trustee shall withdraw from the Defeasance Account and deposit into a segregated trust account maintained by the Trustee (the "Principal Funding Account") an amount equal to the lesser of (i) the applicable Principal Accumulation Amount for such Settlement Date and (ii) the applicable Controlled Deposit Amount for such Settlement Date to be applied to the repayment of the Invested Amount of such Series on the Expected Final Payment Date for such Series as provided in Section 4.03(g). The Principal Funding --------------- Account shall be established and maintained in the name of the Trustee in the corporate trust department of the Trustee and shall bear a designation clearly indicating that funds deposited therein are held for the benefit of the Investor Certificateholders and the Purchasers. Upon the occurrence and continuance of an Unmatured Liquidation Event, no further payments shall be made from the Principal Funding Account. If the Liquidation Commencement Date occurs at any time when funds are being allocated to the Principal Funding Account, the Servicer shall in the Daily Report reallocate all funds that are on deposit or would otherwise be allocated to the Principal Funding Account to the Master Collection Account, within one Business Day after the occurrence of the Liquidation Commencement Date, for allocation pursuant to Section 4.03(h). --------------- (f) From time to time prior to the commencement of the Liquidation Period, funds will be allocated to an administrative sub-account of the Master Collection Account or to a separate trust account created by the Trustee at the direction of ARC (such sub-account or separate account being the "Set-Aside Account") for the purposes described in Section 4.03(c)(iii). If the Set-Aside -------------------- Account is a separate trust account, it shall be established and maintained in the name of the Trustee in the corporate trust department of the Trustee and shall bear a designation clearly indicating that funds deposited therein are held for the benefit of the Investor Certificateholders and the Purchasers. (g) From time to time after the commencement of the Liquidation Period, funds that would otherwise be remitted by the Trustee to ARC in respect of the ARC Revolving Amount will be deposited to a segregated trust account maintained by the Trustee (the Page 22 "Accumulation Account"). Until the earlier to occur of (i) the date that falls twelve months after the Liquidation Commencement Date, (ii) the day on which Investor Certificates, Purchased Interests and other Obligations shall have been paid in full and (iii) the first Business Day on or after the Liquidation Commencement Date on which (A) the amount of funds then held in the Trust Accounts that are allocated to pay the Investor Repayment Amount equals or exceeds (B) the Investor Repayment Amount (the earliest of such dates being the "Accumulation Account Termination Date"), all amounts payable to ARC in respect of the ARC Revolving Amount pursuant to clause Second of Section 4.03(h) shall ------ ------ --------------- be deposited in the Accumulation Account instead of being paid to ARC. If at any time prior to the Accumulation Account Termination Date, the amount of funds in the Accumulations Account exceeds the difference of (1) the Investor Repayment Amount minus (2) the amount of funds then held in the Trust Accounts that are ----- allocated to pay the Investor Repayment Amount, then the amount of such excess funds shall be released from the Accumulation Account and shall be paid to ARC. No funds shall be allocated to the Accumulation Account from and after the Accumulation Account Termination Date. On such date, the Servicer (or, after the occurrence and during the continuance of a Servicer Default, the Trustee) shall calculate, or shall cause to be calculated, an amount equal to (x) the aggregate amount of funds held in the Accumulation Account in respect of the ARC Revolving Amount, minus (y) the Seller Adjustments accrued during the Liquidation Period ----- which have not yet been paid. The amount of such difference, if positive, will be paid to ARC. The funds remaining in the Accumulation Account after the payment of such amount to ARC shall be transferred to the Master Collection Account and applied to the items listed in Section 4.03(h), in the order of --------------- priority specified therein. (h) The Trustee shall possess (for its benefit and for the benefit of the Certificateholders) all right, title and interest in and to all funds on deposit from time to time in each of the Trust Accounts and in all proceeds thereof. The Trust Accounts shall be under the sole dominion and control of the Trustee for the benefit of the applicable Certificateholders. The Servicer agrees that it shall have no right of setoff against, and no right otherwise to deduct from, any funds held in any of the Trust Accounts or the Bank Accounts for any amount owed to it by the Trustee, the Trust or any Certificateholder. Pursuant to the authority granted to the Servicer in Section 3.02, the Servicer shall have the ------------ power, revocable after the occurrence and during the continuance of a Servicer Default by the Trustee or by the Trustee at the direction of the Majority Investors, to make withdrawals and payments from the Bank Accounts and to instruct the Trustee to make withdrawals and payments from the Trust Accounts for the purposes of carrying out the Servicer's or the Trustee's duties hereunder. SECTION 4.03 Daily Calculations and Funds Allocations. ---------------------------------------- (a) Calculation of Carrying Cost Reserve. On each Business Day prior to ------------------------------------ the Liquidation Commencement Date, the Servicer will calculate an amount equal to the Carrying Cost Reserve for such Business Day. "Carrying Cost Reserve" means an amount Page 23 equal to (i) the Accrued Carrying Costs (as defined below), plus (ii) an amount equal to (A) the aggregate outstanding principal amount of all Investor Certificates and Purchased Interests multiplied by (B) the weighted average of the interest rates per annum on the then-issued Series of Investor Certificates and Purchased Interests as of the most recent Cut-Off Date; provided, however, that if any Investor Certificate or Purchased Interest bears interest at a variable rate calculated by reference to an interest index rate (such as LIBO or prime), and ARC may elect to change the index from time to time, then the index resulting in the highest interest rate payable on such Investor Certificates or Purchased Interest shall be deemed to have applied on the Cut-Off Date and such highest interest rate shall be multiplied by 1.52, multiplied by (C) the greater of (i) 1/4 and (ii) a fraction the numerator of which is the product of 1.75 and the number of Turnover Days and the denominator of which is 360. "Accrued Carrying Costs" means, at any time, the sum of the then accrued and unpaid Carrying Costs, plus the amount of Carrying Costs that will, or are estimated to, have accrued by the next Settlement Date. (b) Calculation of the Base Amount. On each Business Day prior to the ------------------------------ Liquidation Commencement Date, the Servicer will calculate the Base Amount for such day. On any Business Day, the "Base Amount" will equal the result of (i) the Net Eligible Receivables as reported in the Daily Report for that Business Day, minus (ii) the Required Reserves for that Business Day, minus (iii) the Discount Rate Reserve as of the opening of business on that Business Day, minus (iv) any other amount required to be subtracted by any Supplement or PI Agreement on that Business Day. (c) Variable Amount. --------------- (i) Calculation of Variable Amount. On each Business Day prior to ------------------------------ the Liquidation Commencement Date, the Servicer shall calculate an amount (whether positive or negative, the "Variable Amount") equal to (A) the Base Amount at the opening of business on such day, minus (B) the Certificate Calculation Amount, minus (C) the PI Calculation Amount, plus (D) the balance on deposit in the Equalization Account; provided, that for purposes of this calculation (but without double counting), the Certificate Calculation Amount shall be reduced by the aggregate amount of reductions to the ARC Revolving Certificate made pursuant to subsection (d), and such -------------- reductions shall be given effect for purposes of all calculations required by this subsection or by subsection (f). The Variable Amount will be -------------- allocated in the manner described hereinafter and will be reported by the Servicer in the Daily Report for such day. (ii) Allocation of Positive Variable Amount. On any Business Day -------------------------------------- when the Variable Amount is zero or a positive number, the Servicer shall, if so directed by ARC, take one or more of the following actions: Page 24 (A) If there are funds on deposit in the Set-Aside Account, then the Servicer shall, before taking any of the other actions referred to below, transfer all such funds to the Master Collection Account for application along with other funds on deposit in the Master Collection Account on that day in such manner that there would not be a negative Variable Amount after giving effect to such transfer and such application(s). (B) If the positive Variable Amount exceeds the amount on deposit in the Set-Aside Account (or there are no funds on deposit in the Set- Aside Account), ARC may direct the Servicer to (1) transfer funds (if any) on deposit in the Equalization Account into the Master Collection Account for application along with other funds on deposit in the Master Collection Account on that day and/or (2) increase the principal amount of one or more Revolving Certificates or Purchased Interests specified by ARC such that the sum of the amount of any such transfer and the amount(s) of any such increase(s) equals not more than the remaining (or total) positive Variable Amount; provided, however, that (x) any such allocation to any Investor Revolving Certificate shall be subject to Section 6.11(b), and any such --------------- allocation to any Purchased Interest shall be subject to the applicable PI Agreement, (y) no such allocation to any Investor Revolving Certificate or Purchased Interest shall be made during a Look Back Period, and (z) no funds shall be released from the Equalization Account during a Look Back Period. (iii) Allocation of Negative Variable Amount. On any Business Day -------------------------------------- when the Variable Amount is a negative number, the Servicer, at the direction of ARC, shall take one or more of the following actions with Collections available in the Master Collection Account for applications on such day: (A) allocate the Collections to one or more Revolving Certificates or Purchased Interests in reduction of the principal amounts of the Revolving Certificates or Purchased Interests or to the Defeasance Account in accordance with clause Second of subsection (g), ------------- -------------- and/or (B) transfer a portion of the Collections to the Equalization Account, pursuant to clause Fourth of subsection (g), ------------- -------------- such that the aggregate amount of the transfer, the reduction(s) and the allocations to the Defeasance Account equals the absolute value of the Variable Amount; provided, that if the amount of Collections available for such purposes on such day, after any required deposits to the Carrying Cost Account, is less than the absolute value of the Variable Amount, then (x) any such allocation to any Revolving Certificate or Purchased Interest or to the Defeasance Account shall not exceed an amount equal to the applicable Revolving Certificateholder's, Purchaser's or Series' Allocable Daily Page 25 Collections on such day (less any amount of such Allocable Daily Collections transferred to the Carrying Cost Account in accordance with subsection (g)) and (y) if any allocation is made to any Revolving -------------- Certificate or Purchased Interest, or to the Defeasance Account, then the remainder of such available Collections shall be transferred to the Set- Aside Account for the benefit of any holder who may be entitled to receive such Collections pursuant to Section 5.01(i). --------------- In addition, on any Business Day when the Variable Amount is a negative number and the amount of Collections available for application on such day (after making deposits to the Carrying Cost Account) equals or exceeds the absolute value of such negative number, ARC may direct the Servicer to remove all or part of the funds then on deposit in the Set- Aside Account and allocate the funds to one or more Revolving Certificates or Purchased Interests in reduction of the outstanding principal amount of such Revolving Certificates or Purchased Interests or to allocate the funds to the Equalization Account. If, at any time when funds are being allocated to or are on deposit in the Set-Aside Account, the Liquidation Commencement Date occurs, all funds then allocated to or on deposit in the Set-Aside Account shall be paid to the holders of the then-issued and outstanding Certificates and Purchased Interests on the next Settlement Date in the manner described in Section ------- 5.01(i). ------- (iv) Reallocation of ARC Revolving Amount. On any Business Day prior ------------------------------------ to the Liquidation Commencement Date, ARC may direct the Servicer to reallocate all or a portion of the principal amount of the ARC Revolving Certificate to an Investor Revolving Certificate (subject to the requirements of Section 6.11(b)) or a Purchased Interest (subject to the ---------------- requirements of the related PI Agreement). In addition, ARC may (subject to the terms of any Supplement or PI Agreement) direct the Servicer to direct the Trustee, pursuant to clause ------ Eighth in subsection (g), to pay to a holder of an Investor Revolving ------ -------------- Certificate or a Purchaser, in reduction of the principal amount of such Investor Revolving Certificate or the applicable Purchased Interest, Collections that would otherwise be payable to ARC. (d) Calculation of Seller Adjustments; Related Adjustments to ARC ------------------------------------------------------------- Revolving Amount. On each Business Day, the Servicer shall calculate and report - - - ---------------- the aggregate amount of Noncomplying Receivables and Dilution Adjustments for the day and shall report the aggregate amount of payments actually made by the Seller to ARC on the day in respect of Noncomplying Receivables and Dilution Adjustments. The ARC Revolving Amount shall be reduced by an amount equal to the lesser of (x) the Noncomplying Receivables and Dilution Adjustments for such Business Day, less the aggregate amount of cash payments in respect of Noncomplying Receivables and Dilution Adjustments made by the Seller to ARC and by ARC to the Trustee on such day (such difference being a "Seller Adjustment"), (y) the Page 26 ARC Revolving Amount, and (z) on any Business Day prior to the Liquidation Commencement Date, the amount by which (1) the sum of the Base Amount plus the balance on deposit in the Equalization Account is less than (2) the sum of the Certificate Calculation Amount plus the PI Calculation Amount. The foregoing reduction in the ARC Revolving Amount shall occur without any payment in respect thereof being made to ARC, and shall be made (on each Business Day prior to the Liquidation Commencement Date) before giving effect to the adjustments to the ARC Revolving Amount made pursuant to subsection (c). -------------- (e) Certain Calculations in the Liquidation Period. ---------------------------------------------- (i) On the Liquidation Commencement Date and on each Settlement Date thereafter, the Servicer shall calculate an amount (the "Available Subordinated Amount"), which shall equal: (A) on the Liquidation Commencement Date, the result of (w) the Unpaid Balance of Receivables held by the Trust at the opening of Business on the next preceding Business Day, minus (x) the sum of the Certificate Calculation Amount and the PI Calculation Amount, as of the next preceding Business Day (but after giving effect to all allocations and other adjustments made pursuant to this section on such next preceding Business Day), plus (y) the balance on deposit in the Equalization Account at the end of the next preceding Business Day, minus (z) the Discount Rate Reserve as of the next preceding Business Day, and (B) on each Settlement Date thereafter, the result (but not less than zero nor greater than the initial Available Subordinated Amount) of (x) the Available Subordinated Amount as calculated on the next preceding Settlement Date (or on the Liquidation Commencement Date, in the case of the first Settlement Date falling after the Liquidation Commencement Date) minus (y) the Charged-Off Amount (if positive) with respect to the most recently ended Calculation Period plus (z) (so long as the Available Subordinated Amount has not been reduced to zero) the amount of the Net Recoveries (if positive) with respect to the most recently ended Calculation Period. (ii) On each Settlement Date after the Liquidation Commencement Date, the Servicer shall calculate an amount (the "Allocable Charged-Off Amount"), which shall equal: (A) zero, so long as the Available Subordinated Amount is greater than zero, (B) on the first Settlement Date on which the Available Subordinated Amount is reduced to zero, the excess (if any) of (x) the Charged-Off Amount Page 27 for the most recently ended Calculation Period, over (y) the Available Subordinated Amount as of the next preceding Settlement Date (or as of the Liquidation Commencement Date, if this occurs on the first Settlement Date falling after the Liquidation Commencement Date), and (C) on each subsequent Settlement Date, the Charged-Off Amount (if positive) for the most recently ended Calculation Period. (iii) If the Allocable Charged-Off Amount calculated on any Settlement Date is greater than zero, the Allocable Charged-Off Amount shall be allocated on the Settlement Date among the various outstanding Classes of Investor Certificates, outstanding Purchased Interests and the ARC Revolving Certificate as follows: (A) a portion of the Allocable Charged-Off Amount equal to the product of the Allocable Charged-Off Amount multiplied by the ARC Allocation Percentage shall be allocated to the ARC Revolving Certificate, (B) the remainder of the Allocable Charged-Off Amount shall be allocated to the various outstanding Classes of Investor Certificates and Purchased Interests in the following priority: First, to the various Subordinated Classes and Subordinated Purchased Interests, in accordance with their respective Class Allocation Percentages, until their respective Class Invested Amounts and PI Invested Amounts have been reduced to zero, and Second, any remaining Allocable Charged-Off Amount to the Senior Classes and Senior Purchased Interests, in accordance with their respective Class Allocation Percentages, until their respective Class Invested Amounts and PI Invested Amounts have been reduced to zero. (iv) Any Net Recoveries (if positive) with respect to any Calculation Period ending after the Available Subordinated Amount has been reduced to zero shall be allocated among the various outstanding Classes of Investor Certificates, outstanding Purchased Interests and the ARC Revolving Certificate as follows: (A) a portion of such Net Recoveries equal to the product of such Net Recoveries multiplied by the ARC Allocation Percentage shall be allocated to the ARC Revolving Certificate, (B) the remainder of such Net Recoveries shall be allocated to the various outstanding Classes of Investor Certificates and Purchased Interests in the following priority: Page 28 First, to the various Senior Classes and Senior Purchased Interests, in accordance with their respective Class Allocation Percentages, until all previous reductions to their respective Class Invested Amounts and PI Invested Amounts on account of Allocable Charged-Off Amounts have been reinstated, and Second, any remaining Net Recoveries to the Subordinated Classes and Subordinated Purchased Interests, in accordance with their respective Class Allocation Percentages, until all previous reductions to their respective Class Invested Amounts and PI Invested Amounts on account of Allocable Charged-Off Amounts have been reinstated. (v) No Class or Purchased Interest will be deemed to be "outstanding" for purposes of clause (iii) or (iv) after its Class Invested Amount or PI ------------ ---- Invested Amount has been reduced to zero. The portion of the Allocable Charged-Off Amount allocated to any Class or Purchased Interest (as to such Class or Purchased Interest, its "Investor Allocable Charged-Off Amount") or to the ARC Revolving Certificate will reduce the invested amount and the outstanding principal amount of such Class or Purchased Interest or the ARC Revolving Amount for all purposes. The portion of the Net Recoveries allocated to any Class or Purchased Interest (as to such Class or Purchased Interest, its "Investor Net Recoveries") or to the ARC Revolving Certificate will increase the invested amount and the outstanding principal amount of such Class or Purchased Interest or the ARC Revolving Amount for all purposes. (f) Withdrawals from Equalization Account and Set-Aside Account. Subject ----------------------------------------------------------- to the last paragraph of this Section 4.03(f), on any Business Day prior to the --------------- Liquidation Commencement Date, the Servicer may instruct the Trustee in writing to withdraw funds from the Set-Aside Account and/or the Equalization Account and allocate such funds to (i) the reduction of the principal amount of the ARC Revolving Certificate and/or one or more Investor Revolving Certificates (subject to the requirements of Section 6.11(b)) or Purchased Interests (subject --------------- to the requirements of the related PI Agreement), and/or (ii) the Defeasance Account, so long as (x) there would not be a negative Variable Amount after giving effect to such transfer and such application(s) and (y) in the case of any such withdrawal from the Equalization Account, no funds are on deposit in the Set-Aside Account (including as a result of transfers made on that day). In addition, on any Business Day when there is a negative Variable Amount and funds are on deposit in the Equalization Account, subject to the last paragraph of this Section 4.03(f), the Servicer may instruct the Trustee in --------------- writing to withdraw funds from the Equalization Account and apply them as described in clause (i) above; provided, that (x) any such allocation to any ---------- Revolving Certificate or Purchased Interest shall not exceed an amount equal to the applicable Revolving Certificateholder's or Purchaser's pro rata share of --- ---- such funds (prorating on the basis of such Revolving Certificateholder's or Purchaser's Ratable Page 29 Principal Amount as a percentage of the sum of the Ratable Principal Amounts of the ARC Revolving Certificate and of all then-outstanding Investor Certificates and Purchased Interests) and (y) if any such allocation is made to any Revolving Certificate or Purchased Interest, then the remainder of such funds in the Equalization Account shall be transferred to the Set-Aside Account. No funds shall under any circumstances be withdrawn from the Equalization Account during a Look Back Period. If on any Business Day the Trustee has received (or is deemed to have received) a Confirmation Notice, the Servicer may instruct the Trustee in writing to withdraw the Segregated Cash (calculated prior to giving effect to the purchase of Receivables at the end of the related Look Back Period) from the Equalization Account and remit such funds to ARC on such Business Day. (g) Daily Allocation of Funds in the Master Collection Account Prior to ------------------------------------------------------------------- the Liquidation Commencement Date. On each Business Day prior to the - - - --------------------------------- Liquidation Commencement Date, the Servicer shall allocate all collected funds (including Collections attributable to all Receivables, whether or not such Receivables are Eligible Receivables or constitute Excess Concentration Balances) then on deposit in the Master Collection Account (other than funds that are required to be returned to AmeriSource Persons (or their designees) pursuant to Section 3.02(b)) to the following items, in the following order of --------------- priority, each of which (except as expressly provided otherwise below) shall be paid on the next Settlement Date: First, to the Carrying Cost Account until the amount allocated to the Carrying Cost Account equals the Carrying Cost Reserve calculated pursuant to subsection (a); provided, that the amount allocated pursuant to this -------------- clause First to ordinary course expenses as described in Section 7.02(m) ------------ --------------- shall not exceed $50,000 in any Calculation Period, Second, to the Defeasance Account in respect of any Series of Investor Certificates or Purchased Interest as to which an Accumulation Period, Pay- Out Period or Prepayment Accumulation Period has commenced until the amount on deposit therein in respect of such Series or Purchased Interest equals: (x) in the case of a Series or Purchased Interest in an Accumulation Period, the Controlled Deposit Amount for such Series or Purchased Interest, (y) in the case of a Series or Purchased Interest in a Pay-Out Period, the outstanding principal amount of such Series or Purchased Interest, and (z) in the case of a Series in a Prepayment Accumulation Period, the amount of principal to be prepaid with respect to such Series or Purchased Interest, Page 30 in an amount on each Business Day equal to the product of (i) the balance of collected funds on deposit in the Master Collection Account after allocation to clause First above and (ii) the applicable Defeasance ------------ Allocation Percentage, Third, to make payments on such Business Day (i) to the Revolving Certificateholders or Purchasers in respect of one or more of the Revolving Certificates or Purchased Interests to reduce the outstanding principal amount of such Revolving Certificates or Purchased Interests, to the extent such reduction is required or permitted by subsection (c) or (f) and (ii) -------------- --- under the circumstances described in subsections (c) and (f), to the Set- --------------- --- Aside Account; provided that if a Look Back Period exists, funds that would otherwise be remitted to ARC pursuant to this clause shall be deposited to the Equalization Account, Fourth, to fund the Equalization Account, to the extent such funding is required or permitted by subsection (c), -------------- Fifth, to the Defeasance Account in respect of any repayment or prepayment of any Series of Investor Certificates that is to occur during an Accumulation Period, a Pay-Out Period or a Prepayment Accumulation Period in an amount equal to any amounts (other than in respect of Carrying Costs and principal and amounts assigned to the following clause Sixth by ------------ the related Supplements) owed to the Holders of Investor Certificates of such Series in connection with the Program, Sixth, to the Defeasance Account in respect of any other amounts that are required to be paid as a result of repayments or prepayments of any Series of Investor Certificates or Purchased Interests during an Accumulation Period, a Pay-Out Period or a Prepayment Accumulation Period in accordance with the related Supplements, Seventh, to pay on the next Settlement Date (i) other accrued and unpaid expenses of the Program (including indemnification payments to be made pursuant to Section 7.03 and ordinary course expenses not covered by ------------ clause First above but excluding, during a Look Back Period, amounts owed ------------ to the Seller or AmeriSource, as Servicer), and (ii) all other amounts payable to Investor Certificateholders or Holders of a Purchased Interest pursuant to the related Supplements, and Eighth, to make payments to ARC on such Business Day in respect of the Residual Certificate; provided, however, that ARC may, from time to time, direct the Trustee to set aside all or any part of the funds to be paid pursuant to this clause Eighth in order to (i) pay all or part of the funds ------------- to the Holders of one or more Investor Revolving Certificates or Purchasers in order to effect the allocations described in subsection (c), or (ii) -------------- hold the funds in the Master Collection Account until the Trustee receives instructions from ARC concerning the application of the funds; and provided, further, that if a Look Back Period exists, funds that would Page 31 otherwise would be remitted to ARC pursuant to this clause shall be deposited in the Equalization Account. If, on any day, the amount of Collections that is then allocated to the Carrying Cost Account exceeds the amount of Collections that are then required to be allocated to the Carrying Cost Account, the Servicer shall reallocate such Collections on such day to one or more of the obligations described above in clauses Second through Eighth in that order of priority. - - - -------------- ------ Collections in the Master Collection Account that are allocated to the priority described in clause Seventh shall be paid on the next Settlement Date; -------------- provided, however, that, if the Collections available on such Settlement Date to pay the amount required to be paid pursuant to clause Seventh are insufficient -------------- to pay the full amount thereof, the portion of such amount that is not paid on such Settlement Date shall be paid on each Business Day following such Settlement Date on which Collections are available to pay such remaining amount until it is paid in full. Payments to be made during a Pay-Out Period will commence on the Settlement Date that occurs in the month following the month in which the first day of the Pay-Out Period occurs, and will be made on each Settlement Date that occurs thereafter until the Investor Certificates that are being paid during such Pay- Out Period have been paid in full. During a Pay-Out Period, the Holders of the Series of Investor Certificates that are being paid out during such Pay-Out Period shall receive the amounts allocated to the Defeasance Account pursuant to clause Second in payment of the outstanding principal amount of such Series, - - - ------------- pursuant to clause Fifth in payment of certain other amounts that are payable ------------ with respect to such Series, and pursuant to clause Sixth in payment of any ------------ other amounts that are payable with respect to such Series. On the Expected Final Payment Date with respect to any Series, all funds that have been deposited in the Principal Funding Account pursuant to Section ------- 4.02(e) with respect to such Series prior to the end of the most recently ended - - - ------- Calculation Period shall be applied to the repayment of the principal amount of the Certificates of such Series. If, on any day prior to the Liquidation Commencement Date, funds on deposit in the Master Collection Account and available for allocation under any of clauses First through Seventh above are less than the amount of the obligations - - - ------------- ------- described in such clause, then the available Collections shall be allocated by the Servicer to the holders of such obligations pro rata according to the --- ---- respective amounts of such obligations held by them (in the case of Investor Certificate holders and Purchasers, as weighted in accordance with any adjustment factors used in determining their respective Ratable Principal Amounts). All other obligations in lower priority categories shall remain unsatisfied until the obligations in the preceding category have been satisfied. Page 32 (h) Allocation of Funds in the Master Collection Account During ----------------------------------------------------------- Liquidation. On the Liquidation Commencement Date, the outstanding principal - - - ----------- amount of each of the then-issued and outstanding Revolving Certificates shall cease to fluctuate, and the outstanding principal amount of each Revolving Certificate and Purchased Interest shall be fixed as of such day (except as reduced by the application of Collections hereunder). On each Business Day on and after the Liquidation Commencement Date, the Servicer shall allocate all collected funds (including Collections attributable to all Receivables whether or not such Receivables are Eligible Receivables or constitute Excess Concentration Balances) then on deposit in the Master Collection Account (other than funds that are required to be returned to AmeriSource Persons (or their designees) or Lockbox Banks pursuant to Section ------- 3.02(b)) as follows; provided, however, that funds so allocated shall be held in - - - ------- trust by the Trustee and, based upon and in accordance with the related Settlement Statement, paid to the relevant Certificateholders or other specified payees on the next Settlement Date (commencing with the first Settlement Date falling after the Calculation Period during which the Liquidation Period commences, except that distributions will be made pursuant to clause First below ------------ on each Settlement Date in the Liquidation Period): First, to pay accrued Carrying Costs; provided, however, that if AmeriSource is the Servicer, then the allocation to be made pursuant to this clause First to pay the Servicing Fee shall equal only the portion of ------------ the Servicing Fee that is to be paid to Persons other than an AmeriSource Person, Second, to make payments of the Principal Distribution Amounts with respect to (x) each outstanding Senior Class and Senior Purchased Interest (ratably in accordance with their respective Class Allocation Percentages) until (and only until) the outstanding principal amounts thereof have been repaid in full, (y) to each outstanding Subordinated Class and Subordinated Purchased Interest (ratably in accordance with their respective Class Allocation Percentages) until the outstanding principal amounts thereof have been repaid in full, and (z) the ARC Revolving Certificate until the outstanding principal amount thereof has been paid in full; provided that prior to the Accumulation Account Termination Date, amounts payable to ARC pursuant to this clause Second shall be deposited in the Accumulation ------------- Account, Third, to pay other Obligations owed to the Investor Certificateholders (as set forth in the related Supplement) or Purchasers (as set forth in the related PI Agreement), Fourth, to pay the accrued and unpaid Servicing Fee that has not been paid pursuant to clause First, and ------------ Page 33 Fifth, to pay (x) other accrued and unpaid expenses of the Program (including indemnification payments to be made pursuant to Section 7.03, ------------ but excluding any such expenses that have been paid pursuant to clause ------ Third) and (y) all other amounts payable to the Investor Certificateholders ----- pursuant to the related Supplements (including, without limitation, any non-usage fees). If, on any day during the Liquidation Period, funds on deposit in the Master Collection Account and available for allocation under any of clauses ------- First through Fifth above are less than the amount of the obligations described - - - ----- ----- in such clause, then the available Collections shall be allocated by the Servicer to the holders of such obligations pro rata according to the respective --- ---- amounts of such obligations held by them (in the case of Investor Certificateholders and Purchasers, as weighted in accordance with any adjustment factors used in determining their respective Ratable Principal Amounts and subject to the following paragraph of this Section). All other obligations in lower priority categories shall remain unsatisfied until the obligations in the preceding category have been satisfied. If, on any day during the Liquidation Period, the amount of funds on deposit in the Master Collection Account and available for allocation to Investor Certificateholders and Purchasers under any of clauses First through ------------- Third is less than the amount of the obligations to such Persons described in - - - ----- such clause, then the available Collections shall be allocated by the Servicer (1) to the Holders of such obligations relating to any Senior Class or Senior Purchased Interest until the same have been paid in full and (2) thereafter to the holders of such obligations relating to any Subordinated Class or Subordinated Purchased Interest. The allocation among holders within each of clauses (1) and (2) shall be made pro rata according to the respective amounts - - - ----------- --- of such obligations held by them (as weighted in accordance with any adjustment factors used in determining their respective Ratable Principal Amounts). After the payment in full of all amounts described in priority clauses ------- First through Fifth, ARC shall surrender the Residual Certificate to the Trustee - - - ----- ----- for cancellation and the Trustee shall make the payments and other transfers required by Section 12.03 to ARC in respect of the ARC Revolving Certificate and ------------- the Residual Certificate. The Trust shall terminate pursuant to Section 12.01 ------------- after such payments and other transfers have been made to ARC in respect of the Residual Certificate. SECTION 4.04 Investment of Funds in Trust Accounts. On any day when funds ------------------------------------- on deposit in any Trust Account shall exceed $10,000 (after giving effect to the allocations of such funds required by this Article IV), and at such other times ---------- as investment is practicable, the Trustee, at the direction of the Servicer, shall invest and reinvest monies on deposit in such Trust Account (in the name of the Trustee) in such Eligible Investments as are specified in a notice from the Servicer, subject to the restrictions set forth hereinafter. The Trustee shall, at the direction of the Servicer, invest the funds in the Equalization Account, the Carrying Cost Account and all other Trust Accounts in Eligible Investments. All Eligible Investments made from funds in any Trust Account, and the interest, dividends and income Page 34 received thereon and therefrom and the net proceeds realized on the sale thereof, shall be deposited in such Trust Account. The Trustee may liquidate an Eligible Investment prior to maturity if such liquidation would not result in a loss of all or part of the principal portion of such Eligible Investment or if, prior to the maturity of such Eligible Investment, a default occurs in the payment of principal, interest or any other amount with respect to such Eligible Investment. In the absence of negligence of the Trustee or willful misconduct by the Trustee, the Trustee shall have no liability in connection with investment losses incurred on Eligible Investments. It is intended for income tax purposes that the income earned through investment of funds in the Trust Accounts shall be treated as income of ARC. SECTION 4.05 Attachment of Trust Accounts. If the Trustee receives ---------------------------- written notice that any account designated as a Trust Account has or will become subject to any writ, judgment, warrant of attachment, execution or similar process, the Trustee shall (notwithstanding any other provision of the Transaction Documents) promptly notify ARC, the Servicer and the Certificateholders thereof, and shall not deposit or transfer funds into such Trust Account but shall cause funds otherwise required to be deposited into such Trust Account to be held in another account pending distribution of such funds in the manner required by the Transaction Documents. ARTICLE V DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS Payments on the Certificates and Purchased Interests shall be made as provided in Sections 5.01 and 5.02, except as otherwise provided in the ------------- ---- applicable Supplement or PI Agreement. All payments made by the Trustee or the Paying Agent pursuant to Sections 5.01 and 5.02 shall be made based upon the ------------- ---- information set forth in and pursuant to the applicable Daily Report or Settlement Statement delivered to the Trustee. SECTION 5.01 Distributions to Holders of Investor Certificates and ----------------------------------------------------- Purchasers. (a) On each Settlement Date, the Paying Agent shall distribute, in - - - ---------- respect of the period from the preceding Settlement Date to (but excluding) the then-current Settlement Date, to each Fixed Principal Certificateholder of record on the Report Date immediately prior to the then-current Settlement Date (other than as provided in Section 12.02 respecting a final distribution) its ------------- pro rata share (based on the aggregate amount of accrued and unpaid interest on - - - --- ---- the Fixed Principal Certificates held by such Certificateholder) of the amounts that (i) prior to the Liquidation Commencement Date, are allocated to the Carrying Cost Account with respect to Fixed Principal Yield pursuant to clause ------ First of Section 4.03(g), and (ii) on and after the Liquidation Commencement - - - ----- --------------- Date, are on deposit in the Master Collection Account and allocated to Fixed Principal Yield pursuant to clause First of Section 4.03(h). ------------ --------------- Page 35 (b)(i) On each Settlement Date that occurs during a Pay-Out Period in which one or more Series of Fixed Principal Certificates is/are being repaid or during the Liquidation Period (commencing with the first Settlement Date falling after the Calculation Period during which the Pay-Out Period or Liquidation Period commences), the Paying Agent shall distribute to each Holder of record of Fixed Principal Certificates of such Series as of the Report Date immediately prior to the then-current Settlement Date (other than as provided in Section 12.02 ------------- respecting a final distribution) its pro rata share (based on the aggregate --- ---- outstanding principal amount of Fixed Principal Certificates held by such Certificateholder) of (A) in the case of Settlement Dates that occur during a Pay-Out Period, the amounts on deposit in the Defeasance Account that are allocated to the Principal Distribution Amount of the related Series pursuant to clause Second of Section 4.03(g) during the most recently ended Calculation - - - ------------- --------------- Period, (B) in the case of Settlement Dates that occur during the Liquidation Period, the amounts on deposit in the Master Collection Account that are allocated to the Principal Distribution Amount of the related Series pursuant to clause Second of Section 4.03(h), and (C) in the case of the first Settlement - - - ------------- --------------- Date on which such distributions are made in any Pay-Out Period, and provided that no Liquidation Event or Unmatured Liquidation Event has occurred and is continuing, in addition to the amount described in clause (A) or (B) above, as ---------- --- applicable, the amounts on deposit in the Principal Funding Account that are allocated to the Fixed Principal Invested Amount of the related Series. (ii) On the Expected Final Payment Date with respect to any Series of Fixed Principal Certificates, unless the Liquidation Period shall have commenced the Paying Agent shall distribute, to each Holder of record of Fixed Principal Certificates of such Series as of the Report Date immediately prior to the then-current Settlement Date such Fixed Principal Certificateholder's pro rata share (based on the aggregate outstanding --- ---- principal amount of Fixed Principal Certificates held by such Certificateholder) of the amounts on deposit in the Principal Funding Account that are allocated to the Fixed Principal Invested Amount of the related Series. (iii) On each Settlement Date during the Revolving Period for any Series of Fixed Principal Certificates on which any full or partial prepayment of the principal amount of the Investor Certificates of that Series is to be made in accordance with the related Supplement, the Paying Agent shall distribute, to each Holder of record of Fixed Principal Certificates of such Series as of the Report Date immediately prior to the then-current Settlement Date such Fixed Principal Certificateholder's pro --- rata share (based on the aggregate outstanding principal amount of Fixed ---- Principal Certificates held by such Certificateholder) of the amounts on deposit in the Defeasance Account that are allocated to the Fixed Principal Invested amount of, and any other amounts (including any Prepayment Premium) payable to, the related Series. Page 36 (c) On each Settlement Date, the Paying Agent shall distribute to each Investor Revolving Certificateholder of record on the Report Date immediately prior to the then-current Settlement Date (other than as provided in Section ------- 12.02 respecting a final distribution) its pro rata share of the sum of the - - - ----- --- ---- amounts, if any, that (i) prior to the Liquidation Commencement Date, are allocated to the Carrying Cost Account with respect to Investor Revolving Yield payable on such Settlement Date, pursuant to clause First of Section 4.03(g), ------------ --------------- and (ii) on and after the Liquidation Commencement Date, are on deposit in the Master Collection Account and are allocated to Investor Revolving Yield payable on such Settlement Date pursuant to clause First of Section 4.03(h). Also, on ------------ --------------- each Business Day prior to the Liquidation Commencement Date, the Paying Agent shall distribute to each such Investor Revolving Certificateholder the amounts, if any, that are allocated to reduce the portion of the Investor Revolving Invested Amount represented by the related Investor Revolving Certificate pursuant to Section 4.03(c) or (f) and clause Third of Section 4.03(g) or are --------------- --- ------------ --------------- due as interest on the Investor Revolving Certificate in accordance with the applicable Supplement. (d) On each Settlement Date that occurs during a Pay-Out Period in which one or more Series of Investor Revolving Certificates is/are being repaid or during the Liquidation Period (commencing with the first Settlement Date falling after the Calculation Period during which the Pay-Out Period or Liquidation Period commences), the Paying Agent shall distribute to each Holder of record of Investor Revolving Certificates of such Series as of the Report Date immediately prior to the then-current Settlement Date (other than as provided in Section ------- 12.02 respecting a final distribution) its pro rata share (based on the - - - ----- --- ---- aggregate outstanding principal amount of Investor Revolving Certificates held by the Certificateholder) of (i) in the case of Settlement Dates that occur during a Pay-Out Period, the amounts on deposit in the Defeasance Account that are allocated to the Investor Revolving Invested Amount of the related Series pursuant to clause Second or Third of Section 4.03(g) during the most recently ------------- ----- --------------- ended Calculation Period and (ii) in the case of Settlement Dates that occur during the Liquidation Period, the amounts on deposit in the Master Collection Account that are allocated to the Investor Revolving Invested Amount of the related Series pursuant to clause Second of Section 4.03(h). In addition, on ------------- --------------- each Business Day during such a Pay-Out Period, the Paying Agent shall distribute to each such Holder of Investor Revolving Certificates such amounts as shall be directed by the Servicer in the applicable Daily Report from amounts allocated to such Series as described in the preceding sentence. On each Business Day during such a Pay-Out Period or during the Liquidation Period, the Paying Agent shall distribute to each such holder such amounts as shall be directed by the Servicer in the Daily Report as being due on an Investor Revolving Certificate as interest pursuant to the related Supplement. (e) On each Settlement Date that occurs during a Pay-Out Period with respect to one or more Series of Investor Certificates, the Paying Agent shall distribute, in respect of the period from the preceding Settlement Date to (but excluding) the then-current Settlement Date, to each Holder of record of Investor Certificates of such Series as of the Report Date Page 37 immediately prior to the then-current Settlement Date (other than as provided in Section 12.02 respecting a final distribution) its pro rata share (based on the - - - ------------- --- ---- aggregate outstanding amount of Obligations owed to the Investor Certificateholder, other than Obligations constituting the outstanding principal amount of or interest on the Investor Certificates, but giving effect to the priorities set forth in clauses Fifth and Sixth of Section 4.03(g)) of the ------------- ----- --------------- amounts on deposit in the Defeasance Account allocable to the Obligations owed to such Investor Certificateholders (other than obligations in respect of principal of or interest on the Investor Certificates) pursuant to clauses Fifth ------------- and Sixth of Section 4.03(g). ----- --------------- (f) On each Settlement Date that occurs during the Liquidation Period, the Paying Agent shall distribute, in respect of the period from the preceding Settlement Date to (but excluding) the then-current Settlement Date, to each Investor Certificateholder of record on the Report Date immediately prior to the then-current Settlement Date (other than as provided in Section 12.02 respecting ------------- a final distribution) its pro rata share (based on the aggregate outstanding --- ---- amount of Obligations owed to such Investor Certificateholder pursuant to clauses Third and Fifth of Section 4.03(h)) of the amounts on deposit in the - - - ------------- ----- --------------- Master Collection Account allocable to the Obligations owed to Investor Certificateholders pursuant to clauses Third and Fifth of Section 4.03(h). ------------- ----- --------------- (g) On each Settlement Date, the Paying Agent shall distribute to each Purchaser the amounts required pursuant to the applicable PI Agreement. (h) Each distribution to Investor Certificateholders shall be made by the Paying Agent (i) by wire transfer of immediately available funds on the date on which such distribution is required to be made, to an account at a bank or other entity having appropriate facilities therefor that the Person entitled thereto specifies in a written notice given to the Trustee on or prior to the Report Date immediately preceding the Settlement Date on which such payment is to be made, if such Person is the Holder of Investor Certificates in an aggregate Stated Amount or principal amount equal to or in excess of $1,000,000, and (ii) in all other cases, by check mailed to each such other Certificateholder at its address appearing in the Certificate Register, in either case without presentation or surrender of any Investor Certificate held by the Certificateholder or the making of any notation thereon; provided, however, that, except as expressly provided otherwise in Section 6.04, the final ------------ principal payment to be made on any Certificate in connection with the retirement of a Series of Certificates will be made to each Holder of a Certificate of such Series only upon presentation and surrender by such Holder of each of its Certificates of such Series at the office or offices specified in a notice of such final principal payment that the Trustee delivers or causes to be delivered to each Holder not less than 15 Business Days prior to such final principal payment date. (i) On the first Settlement Date that occurs after the Calculation Period during which the Liquidation Commencement Date occurs, the Paying Agent shall distribute to each Certificateholder and Purchaser of record on the Record Date immediately prior to such Page 38 Settlement Date, its pro rata share (based on the Ratable Principal Amount of --- ---- such Certificateholder or Purchaser) of amounts on deposit in the Set-Aside Account as of the Liquidation Commencement Date in repayment of the principal amount owed to such Certificateholder; provided, however, that (i) such pro rata --- ---- shares shall be calculated by including in the aggregate amount to be distributed amounts that were distributed to any Holder of an Investor Revolving Certificate or Purchaser in connection with the deposit of such amounts into the Set-Aside Account and (ii) the amounts previously so distributed to such Holders or Purchasers shall be deducted from the amounts distributable to them pursuant to this paragraph (i). ------------- SECTION 5.02 Distributions on the ARC Revolving Certificate and the ------------------------------------------------------ Residual Certificate. (a) On each Business Day prior to the Liquidation - - - -------------------- Commencement Date, the Paying Agent shall distribute to ARC in respect of the ARC Revolving Certificate the amount to be paid, if any, to reduce the ARC Revolving Amount pursuant to clause Third of Section 4.03(g); provided, that if ------------ --------------- a Look Back Period exists, amounts otherwise payable to ARC pursuant to this Section shall be deposited in the Equalization Account. (b) On each Business Day prior to the Liquidation Commencement Date, the Paying Agent shall distribute to ARC in respect of the Residual Certificate the amount payable to ARC in respect of the Residual Certificate pursuant to clause ------ Eighth of Section 4.03(g) to the extent that funds are available to make such - - - ------ --------------- payments; provided, that if a Look Back Period exists, amounts otherwise payable to ARC pursuant to this Section shall be deposited in the Equalization Account. (c) Distributions to ARC in respect of the ARC Revolving Certificate and the Residual Certificate hereunder shall be made by the Paying Agent on the date on which the distribution is required to be made by wire transfer of immediately available funds, no later than 2:00 p. m., New York City time (or later, to the extent delayed by any circumstance outside of the Paying Agent's reasonable control), on the date on which the distribution is required to be made, to an account at a bank or other entity having appropriate facilities therefor that ARC specifies in a written notice given to the Trustee on or prior to the Report Date immediately preceding the Settlement Date on which the payment is to be made. SECTION 5.03 Information to Certificateholders. --------------------------------- (a) Monthly Report. Within seven days after each Settlement Date, the -------------- Paying Agent, on behalf of the Trustee, shall send to each Investor Certificateholder a copy of a monthly report prepared by the Servicer in the form of Exhibit F, and shall send to the Applicable Rating Agencies without any --------- request therefor by any of them, each Settlement Statement by first-class mail, postage prepaid, to the address of such Investor Certificateholder that is indicated in the Certificate Register. Page 39 (b) Annual Tax Information. On or before February 15, of each calendar ---------------------- year, beginning with calendar year 1995, the Servicer, on behalf of the Trustee, shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was an Investor Certificateholder the information for the preceding calendar year, or the applicable portion thereof during which the Person was a Holder of record of an Investor Certificate, as is required to be provided by an issuer of indebtedness under the Internal Revenue Code to the Holders of the issuer's indebtedness and such other customary information as is necessary to enable the Investor Certificateholders to prepare their federal income tax returns. Such obligation of the Servicer shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Paying Agent to the Investor Certificateholder pursuant to this Agreement or any requirements of the Internal Revenue Code as from time to time in effect. Notwithstanding anything to the contrary contained in this Agreement, the Trustee shall, to the extent required by applicable law, from time to time furnish to the appropriate Persons a Form 1099-INT within the period required by applicable law. SECTION 5.04 Notice of Early Liquidation at Seller Election. If ARC shall ---------------------------------------------- receive a notice from a Seller, pursuant to Section 8.1 of the Purchase Agreement, to the effect that the Seller desires to terminate its agreement to sell Receivables to ARC, ARC shall deliver a copy of the notice to the Trustee, and the Trustee shall deliver a copy to each Investor Certificateholder and to the Applicable Rating Agencies, as soon as practicable, which notice shall become effective at the time, and subject to the conditions, specified in the notice and in Section 8.1 of the Purchase Agreement. ARTICLE VI THE CERTIFICATES SECTION 6.01 The Certificates. The Investor Certificates in each Series ---------------- shall be substantially in the forms contemplated by the Supplements pursuant to which the Investor Certificates are issued, and the ARC Revolving Certificate and the Residual Certificate shall be substantially in the forms of Exhibit G --------- and Exhibit H, respectively. Upon issuance, all Certificates shall be executed --------- and delivered by ARC to the Trustee for authentication and redelivery as provided in Section 6.02. Except to the extent provided otherwise in an ------------ applicable Supplement, Investor Certificates shall be issued in minimum denominations of $1,000,000 and in integral multiples of $1,000,000. Each Series of Fixed Principal Certificates initially shall be issued as one or more Series of Fixed Principal Certificates in an aggregate original principal amount equal to the Fixed Principal Initial Invested Amount for the Series. Each Series of Investor Revolving Certificates initially shall be issued as one or more Series of Investor Revolving Certificates in an aggregate original principal amount equal to the Investor Revolving Initial Invested Amount for the Series and with an initial aggregate Stated Amount in the amount set out in the related Supplement. The ARC Page 40 Revolving Certificate and the Residual Certificate each shall be a single certificate. The Investor Revolving Certificates and the ARC Revolving Certificate together shall represent the Revolving Certificate Interest. The Residual Certificate shall represent the Residual Interest. Each Certificate issued as a Definitive Certificate shall be executed by manual or facsimile signature on behalf of ARC by its President or any Vice President or by any attorney-in-fact duly authorized to execute the Definitive Certificate on behalf of any such officer. The Definitive Certificates shall be authenticated on behalf of the Trust by manual signature of a duly authorized signatory of the Trustee. Definitive Certificates bearing the manual or facsimile signature of the individual who was, at the time when the signature was affixed, authorized to sign on behalf of ARC or the Trust (as applicable) shall be valid and binding obligations of the Trust, notwithstanding that the individuals or any of them ceased to be so authorized prior to the authentication and delivery of the Definitive Certificates or does not hold such office on the date of issuance of such Definitive Certificates. No Definitive Certificates shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on the Definitive Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and the certificate of authentication upon any Definitive Certificate shall be conclusive evidence, and the only evidence, that the Definitive Certificate has been duly authenticated and delivered hereunder and is entitled to the benefits of this Agreement. Except as otherwise provided in the applicable Supplement, all Definitive Certificates shall be dated the date of their authentication. As provided in any Supplement, Investor Certificates of any Series may be issued and sold pursuant to an exemption from the Securities Act. Any Series sold pursuant to Rule 144A, Regulation S or another exemption under the Securities Act, including Rule 144 (as enacted under the Securities Act), may be delivered in book-entry form as provided in Sections 6.12 and 6.13. ------------- ---- SECTION 6.02 Authentication of Certificates. (a) Contemporaneously with ------------------------------ the assignment and transfer of the Receivables and the other Trust Assets to the Trust, the Trustee shall authenticate and deliver the ARC Revolving Certificate and the Residual Certificate to ARC. (b) On each Subsequent Issuance Date, upon the order of ARC, the Trustee shall authenticate and deliver to ARC the Series of Certificates that are to be issued originally on such Subsequent Issuance Date (the "Subsequent Issuance Investor Certificates") pursuant to the applicable Supplement. Upon the issuance of the Subsequent Issuance Investor Certificates on each Subsequent Issuance Date, the ARC Revolving Amount automatically shall be reduced by an amount equal to the portion of the ARC Revolving Amount allocated to the new Series pursuant to the related Supplement. The Subsequent Issuance Investor Certificates shall be duly authenticated by or on behalf of the Trustee, in authorized Page 41 denominations equal, in the aggregate, to (i) the portion of the Fixed Principal Invested Amount that is attributable to the Series, in the case of a Series of Fixed Principal Certificates or (ii) the aggregate Stated Amounts of the Certificates, in the case of a Series of Investor Revolving Certificates. SECTION 6.03 Registration of Transfer and Exchange of Certificates. (a) ----------------------------------------------------- The Trustee, as agent for ARC, shall keep, or shall cause to be kept, at the office or agency to be maintained in accordance with the provisions of Section ------- 11.16, a register in written form or capable of being converted into written - - - ----- form within a reasonable time (the "Certificate Register") in which, subject to such reasonable regulations as it may prescribe, a transfer agent and registrar (which may be the Trustee) (the "Transfer Agent and Registrar") shall provide for the registration of the Certificates and of transfers and exchanges of the Certificates as herein provided. ARC hereby appoints the Trustee as the initial Transfer Agent and Registrar. ARC, or the Trustee as agent for ARC, may revoke the appointment as Transfer Agent and Registrar and remove the then-acting Transfer Agent and Registrar if the Trustee or ARC (as applicable) determines in its sole discretion that the then-acting Transfer Agent and Registrar has failed to perform its obligations under this Agreement in any material respect. The then- acting Transfer Agent and Registrar shall be permitted to resign as Transfer Agent and Registrar upon 30 days' prior written notice to the Trustee, ARC and the Servicer; provided, however, that such resignation shall not be effective and the then-acting Transfer Agent and Registrar shall continue to perform its duties as Transfer Agent and Registrar until the Trustee has appointed a successor Transfer Agent and Registrar reasonably acceptable to ARC and the Person so appointed has given the Trustee written notice that it accepts the appointment. The provisions of Sections 11.01 through 11.05 shall apply to the -------------- ----- Transfer Agent and Registrar as if all references to "the Trustee" in the applicable provisions of Sections 11.01 through 11.05 were references to the -------------- ----- Transfer Agent and Registrar. It is intended that the registration of Certificates that is described in this subsection comply with the registration requirements contained in Section 163 of the Internal Revenue Code. (b) In connection with each issuance of a Series of Certificates, ARC will determine whether such Certificates may be purchased by employee benefit plans (as defined in ERISA) and shall cause the Certificates evidencing the Series to bear a legend describing any restrictions on the purchases. (c) No transfer of all or any part of the ARC Revolving Certificate shall be made unless (i) ARC shall have given the Applicable Rating Agencies and the Trustee prior written notice of the proposed transfer, (ii) the Rating Agency Condition shall have been satisfied in connection with the proposed transfer and (iii) ARC shall have delivered to the Trustee a Tax Opinion with respect to such transfer. Page 42 (d) ARC shall not transfer, assign, exchange or otherwise convey or pledge, hypothecate or otherwise grant a security interest in the Residual Certificate or any interest represented thereby, and any attempt to transfer, assign, exchange, convey, pledge, hypothecate or grant a security interest in the Residual Certificate or any interest represented thereby shall be void and of no effect. (e) Subject to the requirements of subsection (b) and, if applicable, -------------- subsection (c) having been fulfilled, upon surrender for registration of - - - -------------- transfer of any Certificate, and, in the case of Investor Certificates, at any office or agency of the Transfer Agent and Registrar maintained for such purpose, ARC shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of the appropriate Class and Series that (i) in the case of the Fixed Principal Certificates, are in authorized denominations of like aggregate fractional interest in the Fixed Principal Interest and (ii) in the case of the Investor Revolving Certificates, are in authorized denominations of like aggregate fractional interest in the Revolving Certificate Interest, and, in the case of each Investor Certificate, that bear numbers that are not contemporaneously outstanding. At the option of an Investor Certificateholder, its Investor Certificates may be exchanged for other Investor Certificates of the same Class and Series (and bearing the same interest rate as the Investor Certificate surrendered for registration of exchange) of authorized denominations of like aggregate fractional interests in the Fixed Principal Interest or the Revolving Certificate Interest (as applicable) and bearing numbers that are not contemporaneously outstanding, upon surrender of the Investor Certificates to be exchanged at any such office or agency. Whenever any Investor Certificates are so surrendered for exchange, ARC shall execute, and the Trustee shall authenticate and deliver, the appropriate number of Investor Certificates of the Class and Series that the Investor Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee or the Transfer Agent and Registrar duly executed by the Certificateholder thereof or his attorney-in-fact duly authorized in a writing delivered to the Transfer Agent and Registrar. No service charge shall be made for any registration of transfer or exchange of Certificates, but the Transfer Agent and Registrar or any co- transfer agent and co-registrar may require the Certificateholder to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Investor Certificates. All Certificates surrendered for registration of transfer and exchange shall be cancelled and disposed of in a manner satisfactory to the Trustee. (f) Certificates may be surrendered for registration of transfer or exchange at the office of the Transfer Agent and Registrar designated in Section ------- 13.06. - - - ----- Page 43 (g) Transfers of Book-Entry Certificates, in whole or in part, issued in accordance with Section 6.12 and the Series Supplements shall be made in ------------ accordance with this subsection. Subject to clauses (i) through (iv) below, ----------- ---- transfers of a Book-Entry Certificate shall be limited to transfers of the Book- Entry Certificate in whole, but not in part, to nominees of the Clearing Agency or to a successor of the Clearing Agency or such successor's nominee. (i) For transfers within a Regulation S Temporary Book-Entry Certificate, if the Certificateholder of a Regulation S Temporary Book- Entry Certificate wishes at any time to transfer their interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Regulation S Temporary Book-Entry Certificate, the transfer may be effected in accordance with this clause. Upon delivery (A) by a Certificateholder of an interest in a Regulation S Temporary Book-Entry Certificate to Euroclear or Cedel, as the case may be, of a certification in the form set forth in Exhibit I (the "Owner Regulation S --------- Certification"), (B) by the transferee of the beneficial interest in the Regulation S Temporary Book-Entry Certificate to Euroclear or Cedel, as the case may be, of a written certification in the form set forth in Exhibit J --------- (the "Transferee Regulation S Certification"), and (C) by Euroclear or Cedel, as the case may be, to the Transfer Agent and Registrar of a certification in the form set forth in Exhibit K (the "Depositary --------- Regulation S Certification"), the Transfer Agent and Registrar may direct either Euroclear or Cedel, as the case may be, to reflect on its records the transfer of a beneficial interest in the Regulation S Temporary Book- Entry Certificate from the Certificateholder providing the Owner Regulation S Certification to the Person providing the Transferee Regulation S Certification. (ii) For transfer of an interest in an Unrestricted Book-Entry Certificate for an interest in the 144A Book-Entry Certificate, if the Certificateholder of a beneficial interest in Unrestricted Book-Entry Certificate deposited with the Clearing Agency wishes at any time to exchange its interest in the Unrestricted Book-Entry Certificate, or to transfer its interest in the Unrestricted Book-Entry Certificate to a Person who wishes to take delivery thereof in the form of an interest in the 144A Book-Entry Certificate, the Certificateholder may, subject to the rules and procedures of Euroclear or Cedel and the Clearing Agency, as the case may be, give directions for the Transfer Agent and Registrar to exchange or cause the exchange or transfer or cause the transfer of the interest for an equivalent beneficial interest in the 144A Book-Entry Certificate. Upon receipt by the Transfer Agent and Registrar of instructions from Euroclear or Cedel (based on instructions from a Member Organization) or from a Clearing Agency Participant, as applicable, or the Clearing Agency, as the case may be, directing the Transfer Agent and Registrar to credit or cause to be credited a beneficial interest in the 144A Book-Entry Certificate equal to the beneficial interest in the Unrestricted Book-Entry Certificate to be exchanged or transferred (such instructions to contain information regarding the Clearing Agency Page 44 Participant account to be credited with the increase, and, with respect to an exchange or transfer of an interest in the Unrestricted Book-Entry Certificate, information regarding the Clearing Agency Participant account to be debited with the decrease), the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the Unrestricted Book-Entry Certificate by the aggregate principal amount of the beneficial interest in the Unrestricted Book-Entry Certificate to be exchanged or transferred, and the Transfer Agent shall instruct the Clearing Agency, concurrently with the reduction, to increase the principal amount of the 144A Book-Entry Certificate by the aggregate principal amount of the beneficial interest in the Unrestricted Book-Entry Certificate to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in the instructions a beneficial interest in the 144A Book-Entry Certificate equal to the reduction in the principal amount of the Unrestricted Book-Entry Certificate. (iii) For transfers of an interest in the 144A Book-Entry Certificate for an interest in the Regulation S Book-Entry Certificate, if the Certificateholder of a beneficial interest in the 144A Book-Entry Certificate wishes at any time to exchange its interest in the 144A Book- Entry Certificate for an interest in a Regulation S Book-Entry Certificate, or to transfer its interest in the 144A Book-Entry Certificate to a Person who wishes to take delivery thereof in the form of an interest in the Regulation S Book-Entry Certificate, the Certificateholder may, subject to the rules and procedures of the Clearing Agency, give directions for the Transfer Agent and Registrar to exchange or cause the exchange or transfer or cause the transfer of the interest for an equivalent beneficial interest in the Regulation S Book-Entry Certificate. Upon receipt by the Transfer Agent and Registrar of (A) instructions given in accordance with the Clearing Agency's procedures from a Clearing Agency Participant directing the Transfer Agent and Registrar to credit or cause to be credited a beneficial interest in the Regulation S Book-Entry Certificate in an amount equal to the beneficial interest in the 144A Book-Entry Certificate to be exchanged or transferred, (B) a written order given in accordance with the Clearing Agency's procedures containing information regarding the account of the depositaries for Euroclear or Cedel or another Clearing Agency Participant, as the case may be, to be credited with the increase and the name of the account and (C) a certificate in the form of Exhibit L attached --------- hereto given by the Certificateholder of the beneficial interest, the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the 144A Book-Entry Certificate by the aggregate principal amount of the beneficial interest in the 144A Book-Entry Certificate to be so exchanged or transferred and the Transfer Agent and Registrar shall instruct the Clearing Agency, concurrently with the reduction, to increase the principal amount of the Regulation S Book-Entry Certificate by the aggregate principal amount of the beneficial interest in the 144A Book-Entry Certificate to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in the instructions a beneficial interest Page 45 in the Regulation S Book-Entry Certificate equal to the reduction in the principal amount of the 144A Book-Entry Certificate. (iv) Notwithstanding any other provisions of this section, a placement agent for the Investor Certificates may exchange beneficial interests in the Regulation S Temporary Book-Entry Certificate held by it for interests in the 144A Book-Entry Certificate only after delivery by the placement agent of instructions for the exchange substantially in the form of Exhibit ------- M. Upon receipt of the instructions provided in the preceding sentence, -- the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the principal amount of the Regulation S Temporary Book-Entry Certificate to be so transferred and shall instruct the Clearing Agency to increase the principal amount of the 144A Book-Entry Certificate and credit or cause to be credited to the account of the placement agent a beneficial interest in the 144A Book-Entry Certificate having a principal amount equal to the amount by which the principal amount of the Regulation S Temporary Book-Entry Certificate was reduced upon the transfer pursuant to the instructions provided in the first sentence of this subclause. (v) In the event that a Book-Entry Certificate is exchanged for a Definitive Certificate, the Certificates may be exchanged or transferred for one another only in accordance with such procedures as are substantially consistent with the provisions of clauses (i) through (iii) ----------- ----- above (including the certification requirements intended to ensure that the exchanges or transfers comply with Rule 144 or Regulation S under the Securities Act, as the case may be) and as may be from time to time adopted by the Trustee. (h) Certificateholders holding Definitive Certificates shall not sell, transfer or otherwise dispose of the Certificates unless the sale is to a transferee to whom the sale, transfer or disposition is being made pursuant to an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws and, prior to the proposed sale, transfer or disposition, the Certificateholder and the proposed transferee each provide the Trustee and ARC with representations and, if requested by the Trustee or ARC, an opinion of counsel (which may be in-house counsel), in each case satisfactory in form and substance to the Trustee, concerning the proposed sale, transfer or disposition and the availability of the exemption. (i) Certificateholders shall not use any means of general solicitation or distribution in connection with the marketing, sale, transfer or other disposition of any Certificates. None of the Certificates may be issued, sold, transferred or otherwise disposed of in a transaction registered under the Securities Act. The Certificates shall bear restrictive legends substantially as set forth in Exhibit N. --------- Page 46 SECTION 6.04 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) ------------------------------------------------- any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them and ARC to hold each of them, the Trust and ARC harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, ARC shall execute and, upon the request of ---- ---- ARC, the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like Class, Series, tenor, terms and principal amount and bearing a number that is not contemporaneously outstanding. In connection with the issuance of any new Certificate under this section, the Trustee or the Transfer Agent and Registrar may require the payment by the Certificateholder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Trustee and Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this section shall constitute conclusive and indefeasible evidence of ownership of an interest in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all Certificates of the same Class and Series that are duly issued hereunder. SECTION 6.05 Persons Deemed Owners. Prior to due presentation of a --------------------- Certificate for registration of transfer, ARC, the Trustee, the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Sections 5.01 ------------- and 5.02 and for all other purposes whatsoever, and none of ARC, the Trustee, ---- the Paying Agent, the Transfer Agent and Registrar or any agent of any of them shall be affected by any notice to the contrary; provided, however, that, in determining whether the Holders of the requisite principal amount or Stated Amount (as applicable) of Certificates or Purchased Interests have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Certificates and Purchased Interests owned by ARC, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates and Purchased Interests that the Trustee knows to be so owned shall be so disregarded. Certificates and Purchased Interests so owned that have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates or Purchased Interests and that the pledgee is not ARC, the Servicer or an Affiliate thereof. SECTION 6.06 Appointment of Paying Agent. The Paying Agent initially --------------------------- shall be the Trustee. ARC hereby appoints the Paying Agent as its agent to make distributions to Certificateholders and Purchasers from the Master Collection Account pursuant to Sections -------- Page 47 5.01 and 5.02 and to report the amounts of the distributions to the Trustee. - - - ---- ---- Any Paying Agent shall have the revocable power to withdraw funds from the Master Collection Account for the purpose of making the distributions. The Trustee or, at any time when the Trustee is also the Paying Agent, ARC may revoke such power of the Paying Agent and remove the Paying Agent if the Trustee or ARC (as applicable) determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' prior written notice to the Trustee, ARC, the Servicer and the Applicable Rating Agencies. Any resignation or removal of the Paying Agent, and appointment of a successor Paying Agent, shall not become effective until the appointment has been accepted by the successor Paying Agent. If no successor Paying Agent shall have been appointed and shall have accepted appointment within 30 days after the giving of the notice of resignation, the resigning Paying Agent may petition any court of competent jurisdiction to appoint a successor Paying Agent. In the event that the Trustee shall no longer be the Paying Agent, the Trustee shall appoint a successor Paying Agent (which shall be a bank or trust company) reasonably acceptable to ARC, which appointment shall be effective on the date on which the Person so appointed gives the Trustee written notice that it accepts the appointment. The Trustee shall cause the successor Paying Agent or any additional Paying Agent appointed by the Trustee to execute and deliver to the Trustee an instrument in which it shall agree with the Trustee that, as Paying Agent, it will hold all sums, if any, held for payment to the Certificateholders and Purchasers in trust for the benefit of the Certificateholders and Purchasers entitled thereto until the sums shall be paid to the Certificateholders and Purchasers. The Paying Agent shall return all unclaimed funds to the Trustee, and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Trustee. The provisions of Sections 11.01 through 11.05 shall apply to the Paying Agent as if -------------- ----- all references in the applicable provisions thereof to "the Trustee" were references to the Paying Agent. SECTION 6.07 Access to List of Certificateholders' Names and Addresses. --------------------------------------------------------- The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to ARC, the Servicer, the Seller or the Paying Agent, within two Business Days after receipt by the Trustee of a written request therefor from the Servicer or the Paying Agent, a list in the form the Servicer or the Paying Agent may reasonably require of the names and addresses of the Certificateholders as of the most recent Settlement Date. If any Holder or group of Holders of Investor Certificates in any Series evidencing not less than 10% of the aggregate unpaid principal amount of the Series (the "Applicant") applies in writing to the Trustee, and the application states that the Applicant desires to communicate with other Certificateholders with respect to their rights under this Agreement, any Supplement or the Certificates and is accompanied by a copy of the communication that the Applicant proposes to transmit, then the Trustee, after having been adequately indemnified by the Applicant for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford the Applicant access during normal business hours to the most recent list of Certificateholders held by the Trustee, within five Business Days after the receipt of the application and indemnification. Page 48 The list shall be as of a date no more than 45 days prior to the date of receipt of the Applicant's request. Every Certificateholder, by receiving and holding a Certificate, agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, ARC, the Servicer, the Seller nor any of their respective agents shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Certificateholders hereunder, regardless of the sources from which the information was derived. SECTION 6.08 Authenticating Agent. (a) The Trustee may appoint one or -------------------- more authenticating agents with respect to the Certificates that shall be authorized to act on behalf of the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Either the Trustee or the authenticating agent, if any, then appointed and acting on behalf of the Trustee shall authenticate the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to ARC. (b) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any document or any further act on the part of the Trustee, the authenticating agent or any other Person. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee and ARC. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to the authenticating agent and ARC. Upon receiving a notice of resignation or upon a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or ARC, the Trustee may promptly appoint a successor authenticating agent. Any successor authenticating agent, upon acceptance of its appointment, shall become vested with all the rights, powers and duties of its predecessor, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless acceptable to the Trustee and ARC. (d) The Servicer agrees to pay to each authenticating agent (if any), as an expense of the Servicer paid out of the Servicing Fee, reasonable compensation from time to time for services performed under this section. (e) The provisions of Sections 11.01, 11.02 and 11.03 shall be applicable -------------- ----- ----- to any authenticating agent as if the references in the applicable provisions thereof to "the Trustee" were references to the authenticating agent. Page 49 (f) Pursuant to an appointment made under this section, the Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: "This is one of the Certificates described in the Supplement dated as of __________ ___, 199_. Manufacturers and Traders Trust Company, as Trustee By:___________________________ as Authenticating Agent for the Trustee, By:___________________________ Authorized Officer." SECTION 6.09 Tax Treatment. It is the intent of ARC and the Investor ------------- Certificateholders that, for purposes of Federal, state and local income and franchise taxes and for other taxes measured by or imposed on income, the Investor Certificates will be treated as evidence of indebtedness secured by the Trust Assets and the Trust will not be characterized as an association taxable as a corporation. ARC, by entering into this Agreement, and each Investor Certificateholder, by its acceptance of its Investor Certificate, agree to treat the Investor Certificates for purposes of Federal, state and local income and franchise taxes and for any other taxes measured by or imposed on income as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further these intentions of the parties. In accordance with the foregoing, ARC agrees that it will report its income for purposes of Federal, state and local income or franchise taxes, or for purposes of any other taxes measured by or imposed on income, on the basis that it is the owner of the Receivables. Except to the extent otherwise required by applicable law or any Governmental Authority, or to the extent the Trustee is otherwise advised by counsel, the Trustee hereby agrees to treat the Trust as a security device only, and shall not file tax returns or obtain an employer identification number on behalf of the Trust. SECTION 6.10 Issuance of Additional Series of Certificates and Sales of ---------------------------------------------------------- Purchased Interests. (a) ARC may from time to time direct the Trustee to issue - - - ------------------- to it one or more Classes of any newly issued Series of Investor Certificates and either (i) allocate to the Series a portion of the ARC Revolving Amount or (ii) deposit an amount of funds equal to the initial Invested Amount of the Certificates to the Defeasance Account (an "Unfunded Certificate") or (iii) take a combination of the actions specified in clauses (i) and (ii); provided, that ----------- ---- the sum of the portion of the ARC Revolving Amount that is transferred under clause (i) and the amount to be paid to the Defeasance Account under clause (ii) - - - ---------- ----------- equals the Page 50 Initial Invested Amount of the Investor Certificates delivered to ARC (any such event under clauses (i), (ii) or (iii), a "New Issuance"). In addition, to the ----------- ---- ----- extent permitted for any Series of Investor Certificates as specified in the related Supplement, the Investor Certificateholders of the Series may tender their Investor Certificates to the Trustee, and ARC may allocate a portion of the ARC Revolving Amount pursuant to the terms and conditions set forth in the Supplement, in exchange for one or more newly issued Series of Investor Certificates (an "Investor Exchange"). New Issuances and Investor Exchanges collectively are referred to as "Subsequent Issuances". (b) ARC may direct the Trustee to effect a Subsequent Issuance by notifying the Trustee, in writing, at least five Business Days (or such shorter period as shall be acceptable to the Trustee) in advance (a "Subsequent Issuance Notice") of the date upon which the Subsequent Issuance is to occur (a "Subsequent Issuance Date"). Any Subsequent Issuance Notice shall state the designation of any Series to be issued on the Subsequent Issuance Date and, with respect to each Class or Series: (i) its Initial Invested Amount (or the method for calculating the Initial Invested Amount), (ii) its Certificate Rate (or the method for allocating interest payments or other cash flows to the Series), if any, and (iii) the Enhancement Provider, if any, with respect to the Series. (c) On the Subsequent Issuance Date, ARC shall deliver to the Trustee for authentication under Section 6.02, and the Trustee shall authenticate and ------------ deliver any such Class or Classes of Series of Investor Certificates only upon delivery to it of the following: (i) a Supplement satisfying the criteria set forth in subsection (d) -------------- and in form reasonably satisfactory to the Trustee executed by ARC and the Servicer and specifying the Principal Terms of the Series, (ii) the applicable Enhancement, if any, (iii) the agreement, if any, pursuant to which the Enhancement Provider agrees to provide the Enhancement, if any, (iv) a Tax Opinion with respect to such Subsequent Issuance, (v) evidence that the Rating Agency Condition has been satisfied with respect to such Subsequent Issuance, (vi) an Officer's Certificate of ARC that on the Subsequent Issuance Date, after giving effect to the Subsequent Issuance (and the repayment, on the date of the Subsequent Issuance Date, of any existing Investor Certificates with funds (including proceeds of sale of the new Series) on deposit in the Defeasance Account), any requirements set out in the Supplement with respect to any then-outstanding Series Page 51 with respect to the amount of Certificates that may not, by their terms, be transferred has been satisfied, (vii) an Officer's Certificate of the Servicer stating that no Liquidation Event, Unmatured Liquidation Event or Pay-Out Event has occurred and is continuing and that the Subsequent Issuance is not reasonably expected to result in a Liquidation Event or Pay-Out Event at any time in the future, (viii) in the case of an Investor Exchange, any Investor Certificates that are being exchanged in connection therewith, (ix) any other documents, certificates and Opinions of Counsel as may be required by the applicable Supplement, and (x) an Officer's Certificate of the Servicer to the effect that all conditions specified in clauses (i) through (ix) have been satisfied. ----------- ---- Upon satisfaction of the conditions, the Trustee shall cancel any applicable Investor Certificates and issue, as provided above, the new Series of Investor Certificates dated the Subsequent Issuance Date. Any such Series of Investor Certificates shall be substantially in the form specified in the related Supplement and shall bear, upon its face, the designation for the Series to which it belongs, as selected by ARC. There is no limit to the number of Subsequent Issuances that may be performed under this Agreement. (d) In conjunction with a Subsequent Issuance, the parties hereto shall execute a Supplement, which shall specify the relevant terms with respect to any newly issued Series of Investor Certificates, which may include: (i) its name or designation, (ii) the Initial Invested Amount or the method of calculating the Initial Invested Amount, (iii) the Certificate Rate (or formula for the determination thereof), (iv) the Subsequent Issuance Date, (v) the rating agency or agencies rating the Series, (vi) the name of the Clearing Agency, if any, (vii) the portion of the ARC Revolving Amount that has been transferred to the Holders of the Series pursuant to the Subsequent Issuance, (viii) the interest payment date or dates and the date or dates from which interest shall accrue, (ix) the method of allocating Collections with respect to Receivables for the Series and, if applicable, with respect to any Paired Series and the method by which the principal amount of Investor Certificates of the Series shall amortize or accrete and the method for allocating charge-offs, (x) the names of any accounts to be used by the Series and the terms governing the operation of any such account, (xi) the Ratable Principal Amount of the Series and related terms, (xii) the Expected Final Payment Date, (xiii) the terms of any Enhancement with respect to the Series, (xiv) the Enhancement Provider, if applicable, (xv) the base rate applicable to the Series, (xvi) the terms on which the Certificates of the Series may be repurchased or remarketed to other investors, (xvii) any deposit into any account provided for the Series, (xviii) the number of Classes of the Series, and if more than one Class, the rights and priorities of each Class, (xix) whether any fees, Page 52 breakage payments or early termination payments will be included in the funds available to be paid for the Series, (xx) the subordination of the Series to any other Series, (xxi) whether the Series will be a part of a group or subject to being paired with any other Series, (xxii) whether the Series will be prefunded and (xxiii) any other relevant terms of the Series (including whether or not the Series will be pledged as collateral for an issuance of any other securities, including commercial paper). The terms of the Supplement may modify or amend the terms of this Agreement solely as applied to the new Series. (e) Except as specified in any Supplement for a related Series, all Investor Certificates of any Series shall rank pari passu and be equally and ratably entitled as provided herein to the benefits hereof (except that the Enhancement provided for any Series shall not be available for any other Series) without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Agreement and the related Supplement. (f) ARC may from time to time direct the Trustee, on behalf of the Trust, to sell one or more Purchased Interests pursuant to a PI Agreement. No Purchased Interest shall represent any interest in any Enhancement for the benefit of any Series, any Class of Investor Certificates or any other Purchased Interest, any Trust Account established pursuant to any Supplement or any Purchaser Account established in respect of any other Purchased Interest except to the extent set forth in the PI Agreement with respect to such other Purchased Interest. Each PI Agreement may provide that no Investor Certificateholder, Purchaser under any other PI Agreement or Enhancement Provider shall be a third-party beneficiary thereof or have any benefit or any legal or equitable right, remedy or claim under the PI Agreement. (g) On or before the date of the initial sale of a Purchased Interest pursuant to a particular PI Agreement, the parties hereto and the related Purchaser will execute and deliver a PI Agreement that will specify the terms of the Purchased Interest. The terms of the PI Agreement may modify or amend the terms of this Agreement solely as applied to the Purchased Interest. The obligation of the Trustee to execute and deliver the related PI Agreement is subject to the satisfaction of the following conditions: (i) on or before the tenth Business Day (or a shorter period as shall be acceptable to the parties) immediately preceding the related closing date, ARC shall have given the Trustee, the Servicer, each Applicable Rating Agency (if any rated Investor Certificates are outstanding), each Purchaser and each Enhancement Provider (if any) written notice of the sale of the Purchased Interest and the closing date, (ii) ARC shall have delivered to the Trustee the related PI Agreement, in form satisfactory to the Trustee, each executed by each party thereto other than the Trustee, Page 53 (iii) the Rating Agency Condition shall have been satisfied with respect to the sale (if any rated Investor Certificates are outstanding), (iv) the sale will not (A) contravene any provision of this Agreement, any Supplement, any agreement pursuant to which any Enhancement is provided or any PI Agreement (or any agreement related thereto) or (B) constitute, or result in (or reasonably be expected to result, at any time in the future, in) the occurrence of, a Liquidation Event, an Unmatured Liquidation Event or a Pay-Out Event, (v) ARC shall have delivered to the Trustee, each Applicable Rating Agency (if any rated Investor Certificates are outstanding), each Purchaser and any Enhancement Provider, a Tax Opinion, dated the closing date, with respect to the sale, and (vi) ARC shall have delivered to the Trustee an Officer's Certificate, dated the Closing Date for such Purchased Interest, to the effect that each of the conditions set forth in this subsection for the sale of the Purchased Interest and the execution and delivery of the related PI Agreement has been satisfied. Upon satisfaction of the above conditions, the Trustee shall execute and, at the written direction of ARC, deliver the related PI Agreement and any related documents that ARC shall reasonably request. (h) ARC may from time to time direct the Trustee, on behalf of the Trust, to extend any PI Agreement. The obligation of the Trustee to execute and deliver all agreements, certificates, documents and filings required in connection therewith, is subject to the satisfaction of the following conditions: (i) on or before the tenth Business Day (or a shorter period as shall be acceptable to the parties) immediately preceding the date of the extension, ARC shall have given the Trustee, the Servicer, the Rating Agency (if any rated Investor Certificates are outstanding) and any Enhancement Provider written notice of the extension and the date on which the extension shall occur, (ii) ARC shall have delivered to the Trustee the required agreements, certificates, documents and filings, in form satisfactory to the Trustee, executed by each party thereto other than the Trustee, (iii) the extension will not (A) contravene any provision of this Agreement, any Supplement, any agreement pursuant to which any Enhancement is provided or any PI Agreement (or any agreement related thereto) or (B) constitute, or result in the occurrence of, a Liquidation Event, an Unmatured Liquidation Event or a Pay-Out Event, Page 54 (iv) ARC shall have delivered to the Trust, the Rating Agency (if any rated Investor Certificates are outstanding) and any Enhancement Provider a Tax Opinion, dated the date of the extension, with respect to the extension, (v) ARC shall have delivered to the Trustee an Officer's Certificate, dated the date of the extension, to the effect that each of the conditions set forth in this subsection for the extension of such PI Agreement and the execution and delivery of the related documents has been satisfied, and (vi) the Rating Agency Condition shall have been satisfied. (i) Prior to the execution by the Trustee of any Supplement or PI Agreement that allocates to any Certificate or Purchased Interest a Ratable Principal Amount in excess of its outstanding principal amount, the Trustee shall receive from the Servicer an Officer's Certificate to the effect that the allocation will not dilute the benefit of the required dilution and loss reserves to which any pre-existing Series or Purchased Interest is entitled prior to the effectiveness of the Supplement or PI Agreement. SECTION 6.11 Changes in Amount of Investor Revolving Certificates. (a) ---------------------------------------------------- The outstanding principal amount of an Investor Revolving Certificate shall at no time exceed the Stated Amount then applicable to such Investor Revolving Certificate. The Stated Amount of an Investor Revolving Certificate may be increased or decreased from time to time by ARC, with the prior written consent of the Holder of the Investor Revolving Certificate, if the following conditions each shall have been satisfied on or prior to the effective date of the proposed increase or decrease (as the case may be): (i) ARC shall have delivered to the Trustee a Tax Opinion with respect to the proposed increase, and (ii) the Rating Agency Condition shall have been satisfied with respect to the increase. (b) ARC may, pursuant to the Supplement that applies to a particular Investor Revolving Certificate, request the Holder of the Investor Revolving Certificate to provide funds to the Trustee in respect of the Holder's Investor Revolving Certificate in order to increase the then-outstanding principal amount of the Investor Revolving Certificate, which requested increase shall be subject to the further provisions of this subsection and to the provisions of the Supplement. Except as otherwise provided in the related Supplement, all the increases to be made on any day shall be in an aggregate amount not to exceed the sum, if positive, of (i) the Variable Amount on the day on which the increase takes effect and (ii) the ARC Revolving Amount as of the opening of business on the day (after giving effect to any reduction in the amount of the ARC Revolving Certificate as a result of any Seller Adjustments on the day). No such increase may be requested or (even if previously Page 55 requested) implemented during a Look Back Period, the Liquidation Period or the Pay-Out Period for the Investor Revolving Certificate. ARC may make such a request at any time prior to the earlier of (x) the Liquidation Commencement Date and (y) the Pay-Out Period Commencement Date for the Investor Revolving Certificate, and shall make any such request in a writing that is substantially in the form required by the applicable Supplement, appropriately completed, and that is delivered to the Holder of the Investor Revolving Certificate at the time required by the applicable Supplement. The outstanding principal amount of the Holder's Investor Revolving Certificate shall be increased on the Business Day on which the Holder provides to ARC immediately available funds in the amount of the requested increase by an amount equal to the amount of the funds. SECTION 6.12 Book-Entry Certificates. (a) If provided in any Supplement, ----------------------- the Investor Certificates of any Series, upon original issuance, will be issued in the form of one or more Book-Entry Certificates, to be delivered to the applicable Clearing Agency, by, or on behalf of, ARC. The Investor Certificates of the Series initially shall be registered on the Certificate Register in the name of the nominee of the Clearing Agency, and no Certificate Owner will receive a Definitive Certificate representing such Certificate Owner's interest in the Investor Certificates, except as provided in Section 6.14. Unless and ------------ until Definitive Certificates have been issued to Certificate Owners pursuant to Section 6.14: - - - ------------ (i) the provisions of this section shall be in full force and effect, (ii) ARC, the Servicer, the Paying Agent, the Transfer Agent and Registrar and the Trustee may deal with the Clearing Agency and the Clearing Agency Participants for all purposes (including the making of distributions on the Investor Certificates) as the authorized representatives of the Certificate Owners, (iii) to the extent that the provisions of this section conflict with any other provisions of this Agreement, the provisions of this section shall control, and (iv) the rights of Certificate Owners shall be exercised only through the Clearing Agency and the Clearing Agency Participants and shall be limited to those established by law and agreements between the Certificate Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Certificates are issued pursuant to Section ------- 6.14, the initial Clearing Agency will make book-entry transfers among the ---- Clearing Agency Participants and receive and transmit distributions of principal and interest on the Investor Certificates to the Clearing Agency Participants. (b) Certificates sold to Qualified Institutional Buyers in reliance on Rule 144A under the Securities Act shall be represented by one or more Book-Entry Certificates (the "144A Book-Entry Certificates"), in registered form, without coupons, which will be deposited upon Page 56 the order of ARC on the Closing Date with the Trustee as custodian for and registered in the name of Cede & Co., as nominee of the Clearing Agency. (c) Certificates sold in offshore transactions in reliance on Regulation S shall be represented initially by temporary Book-Entry Certificates (the "Regulation S Temporary Book-Entry Certificates"). The Regulation S Temporary Book-Entry Certificates shall be exchanged on the later of (i) 40 days after the later of (A) the Closing Date and (B) the completion of the distribution of the Certificates, as certified by the Lead Placement Agent and (ii) the date on which the requisite certifications are due to and provided to the Trustee (the later of clauses (i) and (ii) is referred to as the "Exchange Date") for ----------- ---- permanent Book-Entry Certificates (the "Unrestricted Book-Entry Certificates," and together with the Regulation S Temporary Book-Entry Certificates, the "Regulation S Book-Entry Certificates"). The Regulation S Book-Entry Certificates shall be issued in registered form, without coupons, and deposited upon the order of ARC with the Trustee as custodian for and registered in the name of a nominee of the Clearing Agency for credit to the account of the depositaries for Euroclear and Cedel, which depositaries shall, on behalf of Euroclear and Cedel, hold the interests on behalf of account holders (each a "Member Organization"), which have rights in respect of the Certificates credited to their securities accounts with Euroclear or Cedel from time to time. (d) A Certificateholder of the Regulation S Temporary Book-Entry Certificate may receive payments in respect of the Certificates on the Regulation S Temporary Book-Entry Certificate only after delivery to Euroclear or Cedel, as the case may be, of a written certification substantially in the form of the Owner Regulation S Certification, and upon delivery by Euroclear or Cedel, as the case may be, to the Transfer Agent and Registrar of a certification or certifications substantially in the form of the Depositary Regulation S Certification. The delivery by the Certificateholder of the Regulation S Temporary Book-Entry Certificate of the certification shall constitute irrevocable instructions by the Certificateholder to Euroclear or Cedel, as the case may be, to arrange for the exchange of the Certificateholder's interest in the Regulation S Temporary Book-Entry Certificate for a beneficial interest in the Unrestricted Book-Entry Certificate after the Exchange Date in accordance with the paragraph below. After (i) the Exchange Date and (ii) receipt by the Transfer Agent and Registrar of written instructions from Euroclear or Cedel, as the case may be, directing the Transfer Agent and Registrar to credit or cause to be credited to either Euroclear's or Cedel's, as the case may be, depositary's account a beneficial interest in the Unrestricted Book-Entry Certificate in a principal amount equal to that of the beneficial interest in the Regulation S Temporary Book-Entry Certificate, the Transfer Agent and Registrar shall instruct the Clearing Agency to reduce the principal amount of the Regulation S Book-Entry Certificate and increase the principal amount of the Unrestricted Book-Entry Certificate, by the principal amount of the beneficial interest in the Regulation S Temporary Book-Entry Certificate to be so transferred, and to credit or cause to be credited to the account of Euroclear, Cedel or a Page 57 Person who has an account with the Clearing Agency (a "Clearing Agency Participant"), as the case may be, a beneficial interest in the Unrestricted Book-Entry Certificate having a principal amount of the Regulation S Temporary Book-Entry Certificate that was reduced upon the transfer. Upon return of the entire principal amount of the Regulation S Temporary Book-Entry Certificate to the Trustee in exchange for beneficial interests in the Unrestricted Book-Entry Certificate, the Trustee shall cancel the Regulation S Temporary Book-Entry Certificate by perforation and shall forthwith destroy it. SECTION 6.13 Notices to Clearing Agency. Whenever notice or other -------------------------- communication to the Investor Certificateholders of any Series represented by Global Certificates is required under this Agreement, unless and until Definitive Certificates shall have been issued to Certificate Owners pursuant to Section 6.14, the Trustee, the Servicer and the Paying Agent shall give all such - - - ------------ notices and communications specified herein to be given to the Investor Certificateholders of the Series to the Clearing Agency. SECTION 6.14 Definitive Certificates. If (a)(i) ARC advises the Trustee ----------------------- in writing that the Clearing Agency is no longer willing or able to discharge its responsibilities under any Letter of Representations properly, and (ii) ARC is unable to locate a qualified successor, (b) ARC, at its option, advises the Trustee in writing that, with respect to any Series, it elects to terminate the Book-Entry system through the Clearing Agency or (c) after the occurrence of a Servicer Default, Certificate Owners representing beneficial interests aggregating not less than 50% of the Invested Amount of the Series advise the Trustee and the Clearing Agency through the Clearing Agency Participants in writing that the continuation of a Book-Entry system through the Clearing Agency is no longer in the best interests of the Certificate Owners of the Series, the Trustee shall notify the Clearing Agency of the occurrence of any such event and of the availability of Definitive Certificates of the Series to Certificate Owners of the Series requesting the same. Upon surrender to the Trustee of the Investor Certificates of the Series by the Clearing Agency accompanied by registration instructions from the Clearing Agency for registration, the Trustee shall authenticate and deliver Definitive Certificates of the Series. Neither ARC, the Transfer Agent and Registrar nor the Trustee shall be liable for any delay in delivery of the instructions and may conclusively rely on, and shall be protected in relying on, the instructions. Upon the issuance of Definitive Certificates of any Series, all references herein to obligations with respect to the Series imposed upon or to be performed by the Clearing Agency shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to the Definitive Certificates and the Trustee shall recognize the Holders of the Definitive Certificates as Certificateholders hereunder. SECTION 6.15 Letter of Representations. Notwithstanding anything to the ------------------------- contrary in this Agreement or any Supplement, the parties hereto shall comply with the terms of each Letter of Representations. Page 58 ARTICLE VII ARC SECTION 7.01 Representations and Warranties of ARC Relating to ARC and the ------------------------------------------------------------- Transaction Documents. On the date hereof and on each Subsequent Issuance Date, - - - --------------------- ARC hereby represents and warrants that: (a) Organization and Good Standing. ARC is a corporation duly ------------------------------ organized and validly existing and in good standing under the laws of its jurisdiction of incorporation and has full power and authority to own its properties and to conduct its business as the properties presently are owned and the business presently is conducted. ARC had at all relevant times, and now has, all necessary power, authority and legal right to acquire, own and transfer the Receivables and the Related Transferred Assets. (b) Due Qualification. ARC is duly qualified to do business and is ----------------- in good standing as a foreign corporation (or is exempt from such requirements), and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires qualification, licenses or approvals and where the failure so to qualify, to obtain the licenses and approvals or to preserve and maintain the qualification, licenses or approvals would have a substantial likelihood of having a Material Adverse Effect. (c) Power and Authority; Due Authorization. ARC has (i) all -------------------------------------- necessary power and authority to (A) execute and deliver this Agreement and the other Transaction Documents to which it is a party, (B) perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and (C) transfer, assign, set-over and convey its right, title and interest in, to and under the Receivables, the Related Transferred Assets and the funds in the Trust Accounts on the terms and subject to the conditions herein and therein provided and (ii) duly authorized by all necessary action the transfer, assignment, set-over and conveyance and the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions provided for in this Agreement and the other Transaction Documents to which it is a party. (d) Binding Obligations. This Agreement constitutes, and each other ------------------- Transaction Document to which ARC is a party when executed and delivered will constitute, a legal, valid and binding obligation of ARC, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of Page 59 creditors' rights generally and by general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law. (e) No Conflict or Violation. The execution, delivery and ------------------------ performance of, and the consummation of the transactions contemplated by, this Agreement and the other Transaction Documents to be signed by ARC and the fulfillment of the terms hereof and thereof will not (i) conflict with, violate, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, (A) its Certificate of Incorporation or Bylaws or (B) any indenture, loan agreement, mortgage, deed of trust or other material agreement or instrument to which ARC is a party or by which it or any of its properties is bound, (ii) result in the creation or imposition of any Adverse Claim upon any of its properties pursuant to the terms of any such contract, indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement and the other Transaction Documents, or (iii) conflict with or violate any federal, state, local or foreign law or any decision, decree, order, rule or regulation applicable to it or any of its properties of any court or of any federal, state, local or foreign regulatory body, administrative agency or other governmental instrumentality having jurisdiction over it or any of its properties, which conflict, violation, breach, Page 60 EX-4.13 7 CERTIFICATE PURCHASE Exhibit 4.13 ================================================================================ REVOLVING CERTIFICATE PURCHASE AGREEMENT (SERIES 1994-1) dated as of December 13, 1994 among AMERISOURCE RECEIVABLES CORPORATION, AMERISOURCE CORPORATION, THE REVOLVING PURCHASERS DESCRIBED HEREIN, and BANKERS TRUST COMPANY, as Agent and Revolving Purchaser ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.01 Definitions.................................................... 2 ARTICLE II PURCHASE AND SALE OF THE CERTIFICATES SECTION 2.01 The Commitments................................................ 2 SECTION 2.02 Purchase Mechanics............................................. 3 SECTION 2.03 Reduction of Stated Amounts.................................... 4 SECTION 2.04 Certificates................................................... 4 ARTICLE III REDUCTIONS IN INVESTOR REVOLVING INVESTED AMOUNT SECTION 3.01 Negative Variable Amounts...................................... 5 SECTION 3.02 Other Reductions............................................... 5 SECTION 3.03 Notice to Revolving Purchasers................................. 6 ARTICLE IV INVESTOR REVOLVING YIELD AND FEES SECTION 4.01 Investor Revolving Yield....................................... 6 SECTION 4.02 Non-Usage Fees................................................. 7 SECTION 4.03 Yield Protection............................................... 7 SECTION 4.04 Illegality; Unavailability..................................... 10 SECTION 4.05 Indemnity...................................................... 10 SECTION 4.06 Taxes.......................................................... 11 ARTICLE V OTHER PAYMENT TERMS SECTION 5.01 Time and Method of Payment..................................... 12 SECTION 5.02 Pro Rata Treatment............................................. 13
i ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01 ARC........................................................... 13 SECTION 6.02 AmeriSource................................................... 14 ARTICLE VII CONDITIONS SECTION 7.01 Conditions to Initial Purchase................................ 15 SECTION 7.02 Conditions to Each Purchase................................... 18 ARTICLE VIII AFFIRMATIVE COVENANTS SECTION 8.01 Affirmative Covenants......................................... 18 ARTICLE IX THE AGENT SECTION 9.01 Appointment................................................... 20 SECTION 9.02 Nature of Duties.............................................. 20 SECTION 9.03 Lack of Reliance on the Agent and BT Securities Corporation... 21 SECTION 9.04 Certain Rights of the Agent................................... 21 SECTION 9.05 Reliance...................................................... 21 SECTION 9.06 Indemnification............................................... 22 SECTION 9.07 The Agent in Its Individual Capacity.......................... 22 SECTION 9.08 Resignation by the Agent...................................... 22 SECTION 9.09 Reference Bank................................................ 23 ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.01 Amendments................................................... 23 SECTION 10.02 No Waiver; Remedies.......................................... 24 SECTION 10.03 Successors and Assigns; Assignments.......................... 24 SECTION 10.04 Survival of Agreement........................................ 26 SECTION 10.05 Expenses; Indemnification.................................... 27 SECTION 10.06 Characterization as Transaction Document..................... 28 SECTION 10.07 Notices...................................................... 28 SECTION 10.08 Binding on Successors and Assigns............................ 28 SECTION 10.09 Severability of Provisions................................... 28 SECTION 10.10 Counterparts................................................. 28
ii SECTION 10.11 Governing Law................................................ 29 SECTION 10.12 Failure to Refinance......................................... 29 SECTION 10.13 Tax Characterization......................................... 30 SECTION 10.14 No Proceedings............................................... 30 SECTION 10.15 Confidentiality.............................................. 30 ARTICLE I DEFINITIONS; INCORPORATION OF TERMS OF POOLING AGREEMENT SECTION 1.01 Definitions................................................... 1 SECTION 1.02 Incorporation of Terms and Provisions of the Pooling Agreement................................................... 5 ARTICLE II DESIGNATION SECTION 2.01 Designation................................................... 5 ARTICLE III PAYMENTS SECTION 3.01 Payments...................................................... 5 SECTION 3.02 Interest...................................................... 5 SECTION 3.03 Principal Payments............................................ 6 SECTION 3.04 Commitment Fees; Additional Amounts; Breakage Payments........ 7 ARTICLE IV PAY-OUT EVENTS SECTION 4.01 Pay-Out Events................................................ 7 ARTICLE V MISCELLANEOUS SECTION 5.01 Governing Law................................................. 8 SECTION 5.02 Counterparts.................................................. 8 SECTION 5.03 Severability of Provisions.................................... 8 SECTION 5.04 Amendment, Waiver, Etc........................................ 8 SECTION 5.05 The Trustee................................................... 8 SECTION 5.06 Instructions in Writing....................................... 8
iii EXHIBITS EXHIBIT A Form of Pooling and Servicing Agreement EXHIBIT B Form of Receivables Purchase Agreement EXHIBIT C Form of Series 1994-1 Supplement EXHIBIT D Form of Assignment Agreement
APPENDIX APPENDIX X Index of Additional Defined Terms iv This REVOLVING CERTIFICATE PURCHASE AGREEMENT, dated as of December 13, 1994 (this "Agreement"), is made among AMERISOURCE RECEIVABLES CORPORATION, a Delaware corporation ("ARC"), AMERISOURCE CORPORATION, a Delaware corporation (the "Servicer" or "AmeriSource"), the revolving purchasers (together with their respective permitted assigns, the "Revolving Purchasers"), and BANKERS TRUST COMPANY, as agent for the Revolving Purchasers (in that capacity, together with any successors in that capacity, the "Agent"). BACKGROUND 1. ARC will enter into (a) a Pooling Agreement substantially in the form of Exhibit A (the "Pooling Agreement") with AmeriSource, as initial Servicer, - - - --------- and Manufacturers and Traders Trust Company, a New York banking corporation, as trustee (in that capacity, together with any successors in that capacity, the "Trustee"), (b) a Receivables Purchase Agreement substantially in the form of Exhibit B, (c) a Series 1994-1 Supplement to the Pooling Agreement substantially - - - --------- in the form of Exhibit C (the "Supplement"), and (d) certain related documents --------- referred to in the forms of those documents. Pursuant to the Pooling Agreement, ARC will obtain the Series 1994-1 Investor Revolving Certificates (the "Certificates"), which will represent fractional undivided beneficial interests in the assets of the AmeriSource Receivables Master Trust (the "Trust"), a trust to be organized pursuant to the Pooling Agreement. This Agreement is a Revolving Certificate Purchase Agreement as such is defined in the Pooling Agreement. 2. ARC wishes to sell the Certificates to the Revolving Purchasers and obtain their commitment to purchase fractional undivided beneficial interests in the assets of the Trust (each a "Trust Interest") that will be evidenced by the Certificates. Subject to the terms and conditions of this Agreement, each Revolving Purchaser is willing (a) to purchase a Certificate with an initial Stated Amount in the amount set forth below its name on the signature pages to this Agreement and (b) to agree to make purchases of Trust Interests. AmeriSource has joined in this Agreement to confirm certain representations, warranties and covenants for the benefit of the Revolving Purchasers and the Agent. 3. The Certificates and the Trust Interests represented thereby will serve as a bridge financing, and it is intended that they will be repaid in full and cancelled as soon as practicable from the proceeds of a refinancing, as more fully described herein. page 1 ARTICLE I DEFINITIONS SECTION 1.01 Definitions. Except for terms otherwise defined herein ----------- (including without limitation the term "Certificate"), capitalized terms have the meanings assigned to them in the Supplement or in Appendix A to the Pooling Agreement, and this Agreement shall be interpreted in accordance with the conventions set forth in Parts B, C and D of Appendix A to the Pooling Agreement. An index of terms defined directly in this Agreement is attached as Appendix X. - - - ---------- ARTICLE II PURCHASE AND SALE OF THE CERTIFICATES SECTION 2.01 The Commitments. Subject to the terms and conditions of this --------------- Agreement, each Revolving Purchaser agrees, severally and for itself alone, upon ARC's request, to make purchases (each, a "Purchase") of Trust Interests from time to time during the period from (and including) the date hereof to (but excluding) the earlier to occur of the Pay-Out Period Commencement Date for the Certificates and the Liquidation Commencement Date; provided, that no Revolving Purchaser will be required or permitted to make a Purchase on any date if the funded principal amount of its Certificate, after giving effect to the Purchase, would exceed the lesser of (a) the Stated Amount of its Certificate and (b) its Percentage multiplied by the Investor Revolving Invested Amount. In addition, no Revolving Purchaser will be required or permitted to make a Purchase if, after giving effect thereto (and any corresponding reduction to the ARC Revolving Amount pursuant to Section 4.03(c) of the Pooling Agreement), the (x) Investor Revolving Invested Amount would exceed (y) the excess, on that date, of the Base Amount over the ARC Revolving Amount. The Purchases by the Revolving Purchasers shall be made ratably in accordance with their respective Percentages; provided, that the failure of any Revolving Purchaser to make any Purchase shall not relieve any other Revolving Purchaser of its obligation to make Purchases hereunder. No Revolving Purchaser shall, however, be responsible for the failure of any other Revolving Purchaser to make any Purchase. Subject to the terms of this Agreement, the aggregate principal amount of a Revolving Purchaser's investment represented by its Certificate may be increased or decreased from time to time. For purposes of this Agreement, "Percentage" means, with respect to each Revolving Purchaser, the percentage equivalent (carried out to twelve decimal places) of a fraction the numerator of which is the Stated Amount of the Revolving Purchaser's Certificate and the denominator of which is the sum of the Stated Amounts of all of the Revolving Purchasers' Certificates. The initial Percentages of the initial Revolving Purchasers, and the Stated Amounts of their Certificates, are set out below their names on the signature pages to this Agreement. page 2 SECTION 2.02 Purchase Mechanics. (a) Whenever ARC wishes the Revolving ------------------ Purchasers to make Purchases, it shall cause the Servicer to notify the Agent if the Trust Interests to be purchased initially will form a part of (i) the ABR Tranche, not later than noon, New York City time, one Business Day prior to the date of the proposed Purchase and (ii) a Eurodollar Tranche, not later than 2:00 p. m., New York City time, three Business Days prior to the date of the proposed Purchase. Each notice shall be irrevocable and shall in each case refer to this Agreement and specify (x) the aggregate purchase price for the requested Purchases (which shall be in a minimum amount of $1,000,000 or a greater integral multiple of $500,000 (or in the total unutilized amount of the various Revolving Purchasers' Stated Amounts)), (y) whether the Trust Interests to be purchased will form a part of the ABR Tranche or a Eurodollar Tranche and (z) the date of the Purchase (which shall be a Business Day) and the amount thereof. If no election required by clause (y) is made in any notice, then the Trust ---------- Interests obtained in the Purchase shall form a part of the ABR Tranche. The Agent shall promptly advise the Revolving Purchasers of any notice given pursuant to this section and of the amount of each Revolving Purchaser's Purchase. (b) After receiving notice from the Agent of any notice given pursuant to subsection (a), each Revolving Purchaser shall make a Purchase in the amount of - - - -------------- its pro rata portion of aggregate Purchases requested to be made, ratably according to its Percentage, on the proposed date thereof by wire transfer in Dollars of immediately available funds to the Agent at the office designated from time to time by the Agent, not later than 11:00 a. m., New York City time, and the Agent shall (unless notified in writing that any condition precedent has not been satisfied), by 2:00 p. m., New York City time, on the same day, make available to ARC by wire transfer of Dollars in immediately available funds the aggregate amount of the funds received. Unless the Agent shall have received written notice from a Revolving Purchaser prior to the date of any Purchase that the Revolving Purchaser will not make available to the Agent its purchase price, the Agent may (but shall not be required to) assume that the Revolving Purchaser has made that portion available to the Agent on the date of the Purchase in accordance with this subsection, and the Agent may, in reliance upon that assumption, make available to ARC on that date a corresponding amount. (c) If and to the extent that any Revolving Purchaser shall not have made its purchase price available to the Agent and the Agent has made available a corresponding amount to ARC, the Revolving Purchaser agrees to repay to the Agent forthwith on demand a corresponding amount, together with interest thereon, for each day from the date the amount is made available to ARC until the date the amount is repaid to the Agent (i) for the first three days following the date the amount is made available, at a rate per annum equal to the Federal Funds Rate and (ii) thereafter, at a rate per annum equal to the Federal Funds Rate plus 1%. If the Revolving Purchaser shall repay to the Agent a corresponding amount, the amount shall constitute its Purchase for purposes of this Agreement, and if ARC shall have already made the repayment (as provided below), the Revolving Purchaser shall make a corresponding amount immediately available to ARC. At any time after the Agent learns that a Revolving Purchaser has failed to make the purchase price for a Purchase available as described above, the Agent may give notice to ARC and the Servicer of that failure, and page 3 upon notice ARC will be required to refund to the Agent an amount equal to that purchase price, together with interest on the amount at the rate applicable to the Purchase of which the defaulting Revolving Purchaser's Purchase was to form a part. In the event that ARC fails to make the payment, the amount of the purchase price shall, if elected by the Agent, be allocated to the outstanding principal investment under the Certificate held by the Agent (in its capacity as a Revolving Purchaser), and any funds subsequently transferred to the Agent pursuant to Section 3.01 or 3.02 shall be applied first to reduce the ------------ ---- outstanding principal investment under its Certificate until the Agent has been repaid an aggregate amount equal to the amount of the increase referred to above before being applied for any other purpose. Nothing contained in this subsection shall, or shall be construed to, relieve any Revolving Purchaser from its obligations hereunder to make available to the Agent its purchase price for each Purchase. SECTION 2.03 Reduction of Stated Amounts. Upon at least three Business --------------------------- Days' prior irrevocable notice to the Revolving Purchasers in writing, ARC may reduce the Stated Amounts of the Certificates; provided, that (a) each partial reduction of the Stated Amounts shall be, in the aggregate for all Certificates, in an integral multiple of $1,000,000 and in a minimum principal amount of $5,000,000 and (b) no partial reduction shall be made that would reduce the aggregate Stated Amounts to an amount less than the Investor Revolving Invested Amount at the time of the reduction. Each reduction in the Stated Amounts shall be made ratably among the Revolving Purchasers in accordance with their respective Stated Amounts. The Agent shall promptly advise the Revolving Purchasers of any notice given pursuant to this section. Each reference in this Agreement to the "Stated Amount" of a Certificate means the Stated Amount of the Certificate after giving effect to any reductions made pursuant to this section. Promptly after the Stated Amount of any Revolving Purchaser's Certificate has been reduced to zero (and all Obligations owed to the Revolving Purchaser have been repaid in full), the Revolving Purchaser will mark its Certificate "CANCELED" and return it to ARC. SECTION 2.04 Certificates. The outstanding amounts of the Purchases made ------------ by each Revolving Purchaser shall be evidenced by its Certificate, to be issued on the Closing Date substantially in the form of Exhibit A to the Supplement. Each Revolving Purchaser shall and is hereby authorized to record on the grid attached to its Certificate (or at its option, in its internal books and records) the date and amount of each Purchase made by it, the amount of each repayment of the principal amount represented by its Certificate, the portions of its Purchases that are from time to time allocated to the ABR Tranche and any Eurodollar Tranche, and any reductions to the Stated Amount of its Certificate made pursuant to Section 2.03; provided, that failure to make any recordation on ------------ the grid or records or any error in the grid or records shall not adversely affect the Revolving Purchaser's rights with respect to its interest in the assets of the Trust and its right to receive Investor Revolving Yield in respect of the outstanding principal amount of all Purchases made by the Revolving Purchaser. page 4 ARTICLE III REDUCTIONS IN INVESTOR REVOLVING INVESTED AMOUNT SECTION 3.01 Negative Variable Amounts. On any Business Day prior to the ------------------------- Liquidation Commencement Date on which the Variable Amount, as determined pursuant to Section 4.03(c) of the Pooling Agreement, is a negative number, ARC shall allocate, in accordance with that section, that negative amount (less any amounts deposited into the Equalization Account on that day in respect of that negative amount) to reduce the outstanding principal amount evidenced by (x) the ARC Revolving Certificate, (y) the Investor Certificates or (z) both the ARC Revolving Certificate and the Investor Certificates; provided, that: (a) if any reduction is made to the outstanding principal amount represented by the Investor Certificates (and thus to the Investor Revolving Invested Amount), the Servicer shall notify the Agent of the reduction not less than one Business Day prior to the date of the reduction (which shall be a Business Day) and direct the Trustee to transfer funds from the Master Collection Account to the Agent, for the account of the Revolving Purchasers, in an amount equal to the reduction for application to the reduction of the principal investment (and the reduction in the outstanding principal amount represented by the Certificates shall not exceed the amount of funds so transferred to the Agent), (b) any reduction to the aggregate outstanding principal amount represented by the Investor Certificates must be in a minimum amount of $1,000,000 (or the entire outstanding principal amount, if less) or a greater integral multiple of $500,000, and (c) any amounts transferred to the Agent pursuant to clause (a) shall ---------- be applied first, to any then outstanding ABR Tranche or to Eurodollar Tranches with Yield Periods ending on the date of the transfer (as selected by ARC and notified to the Agent in the notice of reduction delivered pursuant to clause (a)) and second, only after the ABR Tranche and all such ---------- Eurodollar Tranches have been reduced to zero, to other outstanding Eurodollar Tranches. SECTION 3.02 Other Reductions. In addition to the foregoing, ARC may, on ---------------- at least two Business Days' prior notice by ARC or the Servicer to the Agent, reduce the Investor Revolving Invested Amount by causing an amount of funds equal to the desired amount of the reduction that are available for this purpose in accordance with the terms of the Pooling Agreement to be transferred to the Agent, for the account of the Revolving Purchasers (and application to the reduction of the outstanding principal balance of the Certificates). Any reduction shall be subject to the requirements specified in clauses (b) and (c) ----------- --- of Section 3.01. ------------ page 5 SECTION 3.03 Notice to Revolving Purchasers. The Agent shall promptly ------------------------------ advise the Revolving Purchasers of any notice given pursuant to Section 3.01 or ------------ 3.02. - - - ---- ARTICLE IV INVESTOR REVOLVING YIELD AND FEES SECTION 4.01 Investor Revolving Yield. (a) Each time ARC requests the ------------------------ Revolving Purchasers to make Purchases hereunder, ARC will notify the Agent in writing as to whether the Trust Interests included in the Purchase shall, in whole or in part, be deemed part of the ABR Tranche or (subject to subsections ----------- (b)(iii) and (b)(iv) below) a Eurodollar Tranche. - - - -------- ------- (b) Subject to the terms and conditions set forth in this section and Section 4.04, ARC shall have the option: (x) on any Business Day, to convert all - - - ------------ or part of the ABR Tranche to a Eurodollar Tranche and (y) on the last day of any Yield Period of a Eurodollar Tranche, to convert all or any part of that Eurodollar Tranche to form a part of the ABR Tranche and/or to continue all or any part of that Eurodollar Tranche as a new Eurodollar Tranche the Yield Period for which shall commence on the last day of the prior Yield Period; provided, that: (i) each conversion or continuation shall be made ratably among the Revolving Purchasers in accordance with their respective amounts of the Purchases comprising the converted or continued Tranche, (ii) if less than all of the outstanding amount of any Tranche shall be converted or continued, the aggregate amount of the Tranche converted or continued shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $2,000,000, (iii) no outstanding Eurodollar Tranche may be continued as a Eurodollar Tranche, and no portion of the ABR Tranche may be converted into a Eurodollar Tranche, at any time that a Liquidation Event or an Unmatured Liquidation Event has occurred and is continuing; and any Yield Period for a Eurodollar Tranche that commences after the Liquidation Commencement Date must begin on a Settlement Date and end on the next Settlement Date, and (iv) there shall not be more than four separate Eurodollar Tranches outstanding at any one time. (c) If ARC wishes to convert and/or continue a Tranche under this section, ARC shall notify the Agent in writing (i) in the case of a conversion to or continuation of a Eurodollar Tranche, not later than 11:00 a. m., New York City time, three Business Days page 6 prior to the date of the proposed conversion or continuation date and (ii) otherwise, not later than 11:00 a. m., New York City time, one Business Day prior to the date of the proposed conversion or continuation. Each notice shall be irrevocable and shall refer to this Agreement and specify (x) the identity and amount of the Tranche that ARC wishes to convert or continue, (y) whether all or part of the Tranche is to be converted into or continued as a Eurodollar Tranche and (z) the date of the proposed conversion or continuation (which shall be a Business Day). If ARC shall not have delivered a timely notice in accordance with this section with respect to any Tranche, the Tranche shall, at the end of the Yield Period applicable to it (unless repaid pursuant to the terms hereof), automatically be converted into or continued as the ABR Tranche. The Agent shall promptly advise the Revolving Purchasers of any notice given pursuant to this section and of each Revolving Purchaser's portion of any converted or continued Tranche. (d) In accordance with Section 3.02(d) of the Supplement, each Revolving Purchaser and the Agent will be entitled to receive additional interest (at the rate specified therein) on amounts that are not paid when due under this Agreement or under its Certificate. SECTION 4.02 Non-Usage Fees. As the holder of its Certificate, each -------------- Revolving Purchaser shall be entitled to receive from Collections a fee (a "Non- Usage Fee") for the period from and including the date hereof, until the earlier to occur of the Liquidation Commencement Date and the Pay-Out Commencement Date for the Certificates, equal to the Specified Basis Points accrued on the daily average of (a) the Stated Amount of its Certificate minus (b) the amount represented by the Revolving Purchaser's Percentage of the Investor Revolving Invested Amount. The Non-Usage Fee shall be payable in arrears on each Settlement Date for the period ending on the preceding Report Date. "Specified Basis Points" means, with respect to any period set forth below, the number of basis points set forth opposite the period, accrued at a rate per annum:
Period Basis Points ------ ------------ Closing to the date six months after the Closing Date 25 then to the date nine months after the Closing Date 31.25 then to the date one year after the Closing Date 37.5 thereafter 75
provided, however, that the Non-Usage Fee shall be calculated on the basis of actual days over a year of 365 or 366 days, as applicable. SECTION 4.03 Yield Protection. (a) Notwithstanding any other provision ---------------- herein, if, after the date hereof, either: (i) the adoption of any law, rule or regulation (including any imposition or increase of reserve requirements) or any change after the date hereof in the page 7 interpretation or administration of any law, rule or regulation by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or (ii) the compliance by a Revolving Purchaser with any guideline or request from any central bank or other Governmental Authority or quasi- governmental authority exercising control over banks or financial institutions generally (whether or not having the force of law), shall subject a Revolving Purchaser to the imposition or modification of any reserve (including any imposed by the Federal Reserve Board), special deposit or similar requirement (including a reserve, special deposit or similar requirement that takes the form of a tax) against assets of, deposits with or for the account of, or credit extended by, the Revolving Purchaser or the office from time to time that it designates to the Agent as the office through which it makes and maintains Purchases comprising part of a Eurodollar Tranche (as to each Revolving Purchaser, its "LIBOR Office") or impose any other condition on a Revolving Purchaser affecting its Eurodollar Tranches or its obligations hereunder, and as a result of either of the foregoing there shall be any increase in the cost to the Revolving Purchaser of agreeing to make or making, funding or maintaining Purchases as Eurodollar Tranches (except to the extent already included in the determination of LIBOR), or there shall be a reduction in the amount received or receivable by the Revolving Purchaser or its LIBOR Office, then, upon written notice from the Revolving Purchaser to ARC and the Servicer (with a copy to the Agent), signed by an officer of the Revolving Purchaser with knowledge of and responsibility for such matters, and setting forth in reasonable detail the calculation used to arrive at the amounts, additional amounts sufficient to indemnify that Revolving Purchaser against the increased cost or reduction in amounts received or receivable shall constitute "Obligations" for purposes of the Pooling Agreement, and the Revolving Purchaser shall be entitled to receive these additional amounts, solely from amounts allocated thereto and paid pursuant to the Pooling Agreement. (b) If a Revolving Purchaser shall reasonably determine that the adoption after the date hereof of any law, rule or regulation regarding capital adequacy or capital maintenance, or any change after the date hereof in any of the foregoing or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Revolving Purchaser, any of its lending offices or its holding company with any request or directive regarding capital adequacy or capital maintenance (whether or not having the force of law) or any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Revolving Purchaser's capital or the capital of its holding company as a consequence of this Agreement, the commitment of the Revolving Purchaser to make Purchases or the Purchases made by the Revolving Purchaser pursuant hereto to a level below that the Revolving Purchaser or its holding company could have achieved but for the adoption, change or compliance (taking into consideration the Revolving Purchaser's policies, and the policies of its holding company, with respect to capital page 8 adequacy), then, upon written notice from the Revolving Purchaser to ARC and the Servicer (with a copy to the Agent), signed by an officer of the Revolving Purchaser with knowledge of and responsibility for such matters, and setting forth in reasonable detail the calculation used to arrive at the amounts, any additional amounts as will compensate the Revolving Purchaser or its holding company for the reduction shall constitute "Obligations" for purposes of the Pooling Agreement, and the Revolving Purchaser shall be entitled to receive these additional amounts, solely from amounts allocated thereto and paid pursuant to the Pooling Agreement. (c) A Revolving Purchaser shall promptly notify ARC, the Servicer and the Agent in writing of any event of which it has knowledge occurring after the date hereof that will entitle it to compensation pursuant to this section. A certificate of the Revolving Purchaser, signed by an officer of the Revolving Purchaser with knowledge of and responsibility for such matters, and setting forth in reasonable detail the calculation used to arrive at the amounts necessary to compensate the Revolving Purchaser or its holding company as specified in subsection (a) or (b), as the case may be shall be delivered to ARC -------------- --- and the Servicer and shall be conclusive absent demonstrable error. After receiving a notice from any Revolving Purchaser pursuant to subsection (a), ARC -------------- may convert that Revolving Purchaser's interests in each Eurodollar Tranche into a portion of the ABR Tranche; provided, that if more than one Revolving Purchaser is so affected at any time, then all affected Revolving Purchasers must be treated in the same manner pursuant to this sentence. (d) Failure on the part of a Revolving Purchaser to demand compensation for any amounts as specified in subsection (a) or (b) with respect to any period -------------- --- shall not constitute a waiver of its right to demand compensation with respect to that period or any other period. The protection of this section shall be available to the Revolving Purchasers regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition that shall have occurred or been imposed. (e) Promptly after giving any notice to ARC pursuant to this section, a Revolving Purchaser will use its best efforts to designate one of its offices located at an address other than that previously designated pursuant to this Agreement as the office from which its Purchases will be made after the designation if it will avoid the need for, or materially reduce the amount of, any payment to which the Revolving Purchaser would otherwise be entitled pursuant to this section and will not, in the sole discretion of the Revolving Purchaser, be otherwise disadvantageous to the Revolving Purchaser. (f) If circumstances subsequently change so that any affected Revolving Purchaser shall determine that it is no longer affected by any of the items described in this section or in Section 4.04, the Revolving Purchaser shall ------------ promptly notify ARC and the Agent, and upon receipt of the notice, the obligations of the Revolving Purchaser to make or continue Purchases as parts of Eurodollar Tranches, and to permit Purchases comprising part of the ABR Tranche to be converted into a part of a Eurodollar Tranche, shall be reinstated. page 9 SECTION 4.04 Illegality; Unavailability. (a) In the event that on any -------------------------- date any Revolving Purchaser shall have determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its Purchases as Eurodollar Tranches has become unlawful by compliance by the Revolving Purchaser in good faith with any law, governmental rule, regulation or order or has become impossible as a result of a contingency occurring after the date hereof that materially and adversely affects its interbank eurodollar market, then, and in any such event, that Revolving Purchaser shall promptly give notice (by telephone confirmed in writing) to ARC, the Servicer and the Agent (which notice the Agent shall promptly transmit to each Revolving Purchaser) of that determination. The obligation of the affected Revolving Purchaser to make or maintain its Purchases as Eurodollar Tranches during any such period shall be terminated at the earlier of the termination of the Yield Period then in effect for each Eurodollar Tranche or when required by law, and ARC shall, no later than the time specified for the termination, convert any Purchases of the affected Revolving Purchaser that constitute part of any Eurodollar Tranche into a part of the ABR Tranche. (b) If, prior to the beginning of any Yield Period, the Agent shall have determined (which determination shall be final and conclusive and binding upon all parties) that: (i) Dollar deposits in the relevant amount and for the Yield Period are not available in the relevant interbank eurodollar market or (ii) by reason of circumstances affecting the interbank eurodollar market, that adequate and fair means do not exist for ascertaining the LIBOR applicable to a Eurodollar Tranche, then the Agent shall promptly give notice of this determination to ARC and to each Revolving Purchaser. Thereafter, and continuing until the Agent shall notify ARC that the circumstances giving rise to this determination no longer exist, (x) each Eurodollar Tranche will, on the last day of the applicable Yield Period, convert into a part of the ABR Tranche, (y) the right of ARC to request Eurodollar Tranches shall be suspended and (z) any Purchases requested to be made as Eurodollar Tranches prior to such time but not yet made shall be made as ABR Tranches. SECTION 4.05 Indemnity. If a Revolving Purchaser shall incur any losses, --------- expenses or liabilities (including any interest paid to lenders of funds borrowed by it to fund any Purchase as a Eurodollar Tranche and any loss sustained in connection with the re-deployment of such funds) as a result of (a) the failure of a Purchase to be made on a date specified therefor in a notice delivered pursuant to Section 2.02 (other than any such failure resulting from ------------ the Revolving Purchaser's default in the performance of its obligations hereunder) or (b) any payment, including under Section 3.01, of the Revolving ------------ Purchaser's Purchases on a date that is not the last day of the Yield Period applicable to the Purchase or on any date specified in a notice of payment given by the Servicer, then, upon written notice (which notice shall be signed by an officer of the Revolving Purchaser with knowledge of and responsibility for such matters and shall set forth in reasonable detail the basis for requesting the amounts) from the Revolving Purchaser to ARC and the Servicer, additional amounts sufficient to indemnify the Revolving Purchaser against the losses, expenses and liabilities, but not for any lost profits associated therewith, shall constitute "Obligations" for purposes of the Pooling Agreement, and the Revolving Purchaser shall be entitled to receive page 10 these additional amounts, solely from amounts allocated thereto and paid pursuant to the Pooling Agreement. SECTION 4.06 Taxes. (a) Any and all payments made to each Revolving ----- Purchaser under this Agreement and its Certificate shall be made free and clear of and without deduction for any and all current or future taxes, stamp or other taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on, or measured by reference to, the net income of, franchise taxes imposed on, and taxes (other than withholding taxes) imposed on the gross receipts or gross income of, the Revolving Purchasers by the United States of America or by any jurisdiction under whose laws the Revolving Purchasers are organized or any political subdivision of any such jurisdiction (all the nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Trustee shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Certificate to the Revolving Purchasers, then the sum payable shall be increased by the amount necessary to yield to each Revolving Purchaser (after payment of all Taxes) an amount equal to the sum it would have received had no deductions been made, and the additional amount shall constitute "Obligations" for purposes of the Pooling Agreement. (b) Whenever any Taxes are paid by the Trustee pursuant to subsection (a), -------------- as promptly as possible thereafter the Servicer shall send to the relevant Revolving Purchaser the original or a certified copy of an original official receipt showing payment thereof (if any) or any other evidence of the payment as may be available to the Servicer through the exercise of its reasonable efforts. If the Trustee fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Revolving Purchaser the required receipts or other required documentary evidence, the Revolving Purchaser shall be entitled to receive, solely from amounts allocated with respect thereto and paid pursuant to the Pooling Agreement, additional amounts necessary to indemnify it for any incremental taxes, interest or penalties that may become payable by the Revolving Purchaser as a result of any such failure, and the amounts shall constitute "Obligations" for purposes of the Pooling Agreement. (c) On or before the date it becomes a party to this Agreement (and, so long as it may properly do so, periodically thereafter, as requested by the Servicer, to keep forms up to date), each Revolving Purchaser that is organized under the laws of a jurisdiction outside the United States of America shall deliver to the Trustee any certificates, documents or other evidence that shall be required by the Internal Revenue Code or Treasury Regulations issued pursuant thereto to establish its exemption from existing United States Federal withholding requirements, including (i) two original copies of Internal Revenue Service Form 1001 or Form 4224 or successor applicable form, properly completed and duly executed by the Revolving Purchaser certifying that it is entitled to receive payments under this Agreement without deduction or withholding of any United States Federal income taxes, and (ii) an original copy of Internal Revenue Service Form W-8 or W-9 or applicable successor form, properly completed and duly executed; provided, that if any Revolving Purchaser does not page 11 comply with this Section 4.06(c), amounts payable to such Revolving Purchaser --------------- under this Section 4.06 shall be limited to amounts that would have been payable ------------ under this section if such Revolving Purchaser had so complied. (d) No Revolving Purchaser shall be entitled to receive any additional amounts under this section in respect of United States Federal withholding tax to the extent that the obligation to pay additional amounts would not have arisen but for its failure to comply with the provisions of subsection (c). -------------- (e) The Revolving Purchasers shall be entitled to receive amounts described in this section solely from amounts allocated to the payment thereof pursuant to the Pooling Agreement. (f) Notwithstanding anything to the contrary in this section, if the Internal Revenue Service determines that a Revolving Purchaser is a conduit entity participating in a conduit financing arrangement within the meaning of Section 7701(l) of the Code and Proposed Regulations (S)1.881-3 (or successor provisions thereto) then (i) any additional Taxes that the Trustee or ARC is required to withhold from payments to the Revolving Purchaser by virtue of the conduit financing arrangement shall be excluded from the definition of Covered Taxes and (ii) the Revolving Purchaser shall indemnify the Trustee and ARC in full for any and all additional Taxes for which the Trustee or ARC is held directly liable under Section 1461 of the Code by virtue of the conduit financing arrangement. In addition to other rights and remedies that the Trustee or ARC may have, the Trustee may, to the fullest extent permitted by law, set off and apply any and all amounts that a Revolving Purchaser is required to indemnify the Trustee or ARC hereunder against amounts otherwise payable to the Revolving Purchaser under the Certificates. ARTICLE V OTHER PAYMENT TERMS SECTION 5.01 Time and Method of Payment. (a) All amounts payable to any -------------------------- Revolving Purchaser hereunder or with respect to its Certificate shall be made to the Agent for the account of the Revolving Purchaser by wire transfer of immediately available funds in Dollars not later than 2:00 p. m., New York City time, on the date due. Any funds received after that time will be deemed to have been received on the next Business Day. The Agent shall distribute all payments to the Revolving Purchasers, in accordance with their respective interests, prior to the close of business on the Business Day on which any payment is deemed received. (b) On any date on which a payment to one or more Revolving Purchasers hereunder or under the Certificates is due and payable, the Agent may (but in no event shall be required to) assume that the payment has been made available to the Agent on the date of the page 12 payment in accordance with this section, and the Agent may (but in no event shall be required to), in reliance upon this assumption, make payment of a corresponding amount to the Revolving Purchasers. If and to the extent any amounts shall not have so been made available to the Agent, each Revolving Purchaser irrevocably and unconditionally agrees to repay to the Agent forthwith on demand the amount of payment it received together with interest thereon, for each day from the date payment is made by the Agent until the date the amount is repaid to the Agent, (i) for the first three days following the date the payment is made, at a rate per annum equal to the Federal Funds Rate (determined as provided in the definition of Alternate Base Rate) and (ii) thereafter, at a rate per annum equal to the Federal Funds Rate plus 1%. SECTION 5.02 Pro Rata Treatment. Each repayment of Purchases (except as ------------------ otherwise required by Section 2.02(c)), each payment of Investor Revolving --------------- Yield, each payment of the Non-Usage Fee, each reduction of the Stated Amounts and each conversion or continuation of any Tranche (except as otherwise required by Sections 4.03(c) and 4.04(b) with respect to conversions) shall be allocated ---------------- ------- pro rata among the Revolving Purchasers on the date of payment or reduction, in accordance with their respective Percentages (or, if different, in the case of Investor Revolving Yield, on the basis of their respective shares in the Tranches on which the Investor Revolving Yield is paid). Each Revolving Purchaser agrees that in computing its portion of any Purchases to be made hereunder, the Agent may, in its discretion, round each Revolving Purchaser's pro rata share of the Purchases to the next higher or lower whole dollar amount. ARTICLE VI REPRESENTATIONS AND WARRANTIES SECTION 6.01 ARC. As of the First Issuance Date, ARC represents and --- warrants to the Revolving Purchasers that each of its representations and warranties in the Pooling Agreement and Purchase Agreement is true and correct, as if made on the First Issuance Date with the same effect as though made on that date (unless specifically stated to relate to an earlier date), and further represents and warrants that: (a) no Liquidation Event or Unmatured Liquidation Event has occurred and is continuing, (b) assuming the Revolving Purchasers are not purchasing with a view toward further distribution and there has been no general solicitation or general advertising within the meaning of the Securities Act, the offer and sale of the Certificates in the manner contemplated by this Agreement is a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Pooling Agreement is not required to be qualified under the Trust Indenture Act of 1939, as amended, page 13 (c) except for BT Securities Corporation, in its capacity as structuring agent for the Purchase, Bankers Trust International PLC and Donaldson, Lufkin & Jenrette Securities Corporation (the "Financial Advisors"), ARC has not dealt with any financial advisor, or other Person who may be entitled to any commission or compensation in connection with the sale of the Certificates, and the fees of the Financial Advisors shall be an obligation of AmeriSource, and (d) no information supplied by or on behalf of ARC or AmeriSource to the Agent or the Revolving Purchasers in connection with the Transaction Documents (including without limitation the information contained in the Syndication Documents) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. SECTION 6.02 AmeriSource. As of the First Issuance Date, AmeriSource ----------- represents and warrants to the Revolving Purchasers that: (a) each of its representations and warranties in the Pooling Agreement (in its capacity as Servicer) and the Purchase Agreement (in its capacity as a Seller) is true and correct, as if made on the First Issuance Date with the same effect as if made on that date (unless specifically stated to related to an earlier date), (b) the audited financial statements and schedules of AmeriSource and its Subsidiaries for the period ended September 30, 1993, as prepared by Ernst & Young and filed with the Securities Exchange Commission on Form 10- K (the "Financial Statements"), present fairly in all material respects the financial position, results of operations and cash flows of AmeriSource at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein, (c) except as disclosed in the financial statements and schedules of AmeriSource and its Subsidiaries filed with the Securities and Exchange Commission on Form 10-Q, since the date of the Financial Statements (i) there has been no material adverse change in the condition, financial or otherwise, or the earnings, business affairs or business prospects of ARC or AmeriSource, whether or not arising in the ordinary course of business, and (ii) there have been no transactions entered into by ARC or AmeriSource that are material with respect to the condition, financial or otherwise, or the earnings, business affairs or business prospects of ARC or AmeriSource, (d) when filed with the Securities and Exchange Commission on Form 10- K, the audited financial statements and schedules of AmeriSource and its Subsidiaries for page 14 the period ended September 30, 1994, as prepared by Ernst & Young, will fairly present in all material respect the financial position, results of operations and cash flows of AmeriSource as the dates and for the periods to which they relate and will have been prepared in accordance with general accepted accounting principles applied on a consistent basis, except as otherwise stated therein, and (e) no information supplied by or on behalf of ARC or AmeriSource to the Agent or the Revolving Purchasers in connection with the Transaction Documents (including without limitation the information contained in the Syndication Documents) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. ARTICLE VII CONDITIONS SECTION 7.01 Conditions to Initial Purchase. The obligation of each ------------------------------ Revolving Purchaser to make its initial Purchase shall be subject to the satisfaction of the conditions precedent that it shall have received (x) a duly executed and authenticated Certificate registered in its name and in a Stated Amount equal to the amount set out opposite its name on the signature page of this Agreement, (y) reimbursement of any expenses referred to in Section 10.05 ------------- for which invoices have been presented and (z) an original (except as indicated below) counterpart of the following (each of which, if not in a form attached to this Agreement, shall be in form and substance satisfactory to the Revolving Purchaser): (a) each of the Pooling Agreement, the Purchase Agreement and the Subscription Agreement (each of which shall have been finalized in a manner satisfactory to the Agent and ARC), which shall be in full force and effect, and all actions required to be taken under those documents in connection with the issuance of the Certificates shall have been taken, (b) photocopies of each Account Agreement, of each closing document delivered pursuant to the Purchase Agreement and of a demand subscription agreement dated not later than the First Issuance Date between ARC and AmeriSource, (c) a certificate of the Secretary of AmeriSource to the effect that the conditions precedent to the effectiveness of the Inventory Credit Agreement and any necessary amendments to other debt documents shall have been satisfied or waived; and the Intercreditor Agreement shall have been executed by all parties thereto and delivered to the Trustee, page 15 (d) a certificate of the Secretary, or an Assistant Secretary, of each of ARC and the Servicer with respect to: (i) attached copies of resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of the Transaction Documents, (ii) the incumbency and signatures of those of its officers authorized to act with respect to the Transaction Documents, and (iii) attached copies of its certificate of incorporation and by- laws, (e) a certificate of an Authorized Officer of each of ARC and the Servicer as to the satisfaction of the conditions precedent set forth in Section 7.02, ------------ (f) a certificate of an appropriate officer of the Trustee stating that the Pooling Agreement has been duly authorized, executed and delivered by the Trustee and the Certificates have been duly authenticated by the Trustee in accordance with the Pooling Agreement and an opinion of counsel to the Trustee as to related matters, (g) confirmation satisfactory to the Agent that the following have been placed with Lexis Document Services or another filing service selected by the Agent for filing, the filing to occur on the First Issuance Date or the first Business Day thereafter: (i) UCC financing statements naming the Seller, as seller/debtor, ARC, as secured party/purchaser, and the Trustee, as assignee of the secured party, in each office where the filing is necessary for the perfection of the sales of Receivables and Transferred Assets by each Seller to ARC, and (ii) UCC financing statements naming ARC, as seller/debtor, and the Trustee, as secured party, in each office where the filing is necessary for the perfection of the transfers of Receivables and Trust Assets by ARC to the Trust, (h) results of recent searches of the UCC filing records in each office in which a filing referred to in subsection (g) has been made for -------------- filings against the Seller (including any predecessors in interest to Seller going back five years) and ARC, showing no filings of record that cover any of the Receivables or the Transferred Assets other than (i) the financing statements referred to in subsection (g) (if shown in the -------------- searches) and (ii) any other filings as to which the Agent has received signed UCC-3 termination statements or pay-off letters in form and substance satisfactory to it, page 16 (i) opinions addressed to the Agent and the Revolving Purchasers of Dechert Price & Rhoads, special counsel to ARC and the Servicer, as to the matters, and in such form and substance, as shall be satisfactory to the Agent, (j) evidence, reasonably satisfactory to the Agent and the Revolving Purchasers, of the payment of all taxes, fees and other governmental charges, if any, incidental to the issuance of the Certificates and to the consummation of the transactions contemplated hereunder and under the Pooling Agreement, (k) solvency certificates, in form and substance satisfactory to the Agent, with respect to each of ARC and AmeriSource, signed by their chief financial officers, (l) a rating letter of S&P pursuant to which it shall have rated the Certificates "A" or better, (m) a signed fee letter between AmeriSource and the Agent and payment of the upfront fees referred to in that letter and all other reasonable fees and expenses of the Agent (including the reasonable fees and expenses of counsel) in connection with the preparation, negotiation and execution of this Agreement, the Supplement and the other Transaction Documents, (n) an agreed-upon procedures letter, in form and substance satisfactory to the Agent, from Ernst & Young, with respect to certain historical information provided by AmeriSource with respect to the Receivables and included in the Syndication Documents, (o) a signed letter from AmeriSource and ARC, in form and substance satisfactory to the Agent, identifying and approving the Syndication Documents, and (p) any other information, certificates, opinions and documents as the Agent may have reasonably requested. In addition, the initial Purchase hereunder shall be subject to the conditions precedent that (x) ARC and AmeriSource shall have disclosed to the Agent and the initial Revolving Purchasers their plans for the refinancing of the Certificates, including reasonable detail as to the timing of the refinancing and any potential restrictions thereon or impediments thereto, and (y) the Agent and the initial Revolving Purchasers shall be satisfied with the form and substance of the plans. If, (x) the conditions specified above have not been fulfilled on or prior to December 16, 1994 or (y) on the First Issuance Date, any condition specified in this Agreement shall not have been fulfilled when and as required in this Agreement or waived by the Revolving Purchasers, in each case a Revolving Purchaser's obligations to purchase the Certificates pursuant to this Agreement may be terminated by notice to ARC. In addition, if, under the page 17 circumstances, it shall not be feasible for the Revolving Purchasers to invest on the date the funds that are held available by the Revolving Purchasers for the Purchase, ARC shall pay the Revolving Purchasers interest on the funds at the Alternate Base Rate from the date of the notice until the next succeeding Business Day on which it is feasible for the Revolving Purchasers to invest the funds. Nothing in this paragraph shall operate to relieve ARC from any of its obligations hereunder or otherwise waive any of the Revolving Purchasers' rights against ARC. SECTION 7.02 Conditions to Each Purchase. The obligation of each --------------------------- Revolving Purchaser to make any Purchase on any day (including those comprising the initial Purchase) shall be subject to the Agent's receipt of the Daily Report for that day and to the conditions precedent that on the date of the Purchase, before and after giving effect thereto and to the application of any proceeds therefrom, the following statements shall be true: (a) the representations and warranties of ARC and AmeriSource set out in this Agreement, with the exception of Sections 6.02(b) and 6.02(c) ---------------- ------- (which shall have been true and accurate on the date hereof), are true and accurate as of that date with the same effect as though made on that date (unless specifically stated to relate to an earlier date), and (b) neither the Liquidation Commencement Date nor the Pay-Out Commencement Date has occurred, and no Liquidation Event or Unmatured Liquidation Event has occurred and is continuing. The giving of any notice pursuant to Section 2.02 shall constitute a ------------ representation and warranty by ARC and AmeriSource that the foregoing statements (limited, in the case of subsection (a) to the representations and warranties of -------------- the Person deemed to make the representation and warranty referred to in this sentence) are true. ARTICLE VIII AFFIRMATIVE COVENANTS SECTION 8.01 Affirmative Covenants. ARC and AmeriSource each severally --------------------- covenants and agrees that, until the Certificates have been paid in full and the obligations of the Revolving Purchasers to make Purchases have terminated, it will: (a) duly and timely perform all of its covenants and obligations under each Transaction Document to which it is a party, (b) not, except as contemplated by Section 13.01 of the Pooling Agreement, amend or otherwise modify any Transaction Document to which it is a party or grant page 18 any waiver or consent thereunder, without the prior written consent of Revolving Purchasers having percentages that aggregate at least 66 2/3% (the "Required Revolving Purchasers"); provided, however, that no amendment shall (i) reduce in any manner the amount of, or delay the timing of, allocations, payments or distributions in respect of any Certificate without the consent of the related Revolving Purchaser, (ii) amend, modify or waive any provision of this Agreement that requires the approval or consent of a specified percentage of Revolving Purchasers without the consent of that percentage of Revolving Purchasers and (iii) amend, modify or waive the provisions of this section with respect to the rights of any Revolving Purchaser without the consent of that Revolving Purchaser, (c) promptly deliver to each Revolving Purchaser (in addition to the materials required to be delivered pursuant to the Pooling Agreement) the information, documents, records or reports respecting the Trust or the condition or operations, financial or otherwise, of ARC, AmeriSource and the Seller as the Revolving Purchaser may from time to time reasonably request, (d) at the same time any report (including any Daily Report, Settlement Statement or annual auditors' report), notice or other document is provided to the Trustee, or caused to be provided, by ARC or the Servicer under the Pooling Agreement, provide the Agent with a copy of the report, and (e)(i) use reasonable efforts to cause the Trustee to issue one or more additional Series or Purchased Interests in order to repay in full the Investor Revolving Amount and all other Obligations owed in respect of the Certificates as soon as practicable, and (ii) not cause the Trustee to issue any other Series or Purchased Interest except for the purposes described in clause (i); provided, that any such issuance must yield ---------- sufficient proceeds to repay in full the Investor Revolving Amount and all other Obligations owed in respect of the Certificates. In addition, it is understood and agreed that so long as the Certificates remain outstanding, the Servicer and ARC shall, subject to the proviso to the next sentence, during regular business hours upon not less than five Business Days' prior notice, permit the Trustee or the Agent (or such other Person as the Trustee or the Agent may designate from time to time), or their respective agents or representatives (including certified public accountants or other auditors), as an expense of the Servicer paid out of the Servicing Fee, (i) to examine and make copies of and abstracts from, and to conduct accounting reviews of, all Records in the possession or under the control of the Servicer or ARC, including the related Contracts and purchase orders, invoices and other agreements related thereto, and (ii) to visit the offices and properties of the Servicer and ARC for the purpose of examining such materials described in clause ------ (i), and to discuss matters relating to the Receivables or the Related - - - --- Transferred Assets or the performance by the Servicer or ARC of their respective obligations under any Transaction Document with any officer, employee or representative of page 19 the Servicer or ARC. The Trustee or the Agent may (but shall not be obligated to) conduct, or cause its agents or representatives to conduct, reviews of the types described in this paragraph (each such review, a "Receivables Review") whenever the Trustee or the Agent, in its reasonable judgment, deems any such review appropriate, and the Trustee or the Agent shall conduct, or cause its agents or representatives to conduct, such a review if requested by either the Agent or the Majority Investors; provided, that, prior to February 28, 1995 or the occurrence and continuance of a Liquidation Event or an Unmatured Liquidation Event, the Trustee or the Agent shall have the right to request a Receivables Review not more than twice in any calendar year; and provided further, that, after February 28, 1995 or after the occurrence and during the continuance of a Liquidation Event or an Unmatured Liquidation Event, there shall be no limitation on the number of Receivables Reviews that are conducted by or on behalf of the Trustee or the Agent. Notwithstanding the five-day notice provision above, no such notice shall be required if a Liquidation Event shall have occurred and be continuing. In connection with clause (e) above, ARC and AmeriSource will assist the ---------- Financial Advisors in the marketing of any additional Series and Purchase Interests to be issued and (promptly upon request) provide all the information necessary to any Financial Advisor to market such facilities; provided, however, that any information distributed in connection with such marketing shall be subject to the confidentiality standards set forth in the agreements among the Financial Advisors and AmeriSource. In addition, ARC and AmeriSource will use their reasonable best efforts to make appropriate officers and representatives of AmeriSource and ARC available to participate in the information meetings for potential investors at such times and places as may reasonably be requested. ARTICLE IX THE AGENT SECTION 9.01 Appointment. The Revolving Purchasers hereby designate ----------- Bankers Trust Company as Agent. Each Revolving Purchaser hereby irrevocably authorizes the Agent to take action on its behalf under the provisions of the Transaction Documents and any other instruments and agreements referred to therein and to exercise the powers and perform the duties hereunder and thereunder that are specifically delegated to or required of the Agent by the terms hereof and thereof, and any other powers as are reasonably incidental thereto. The Agent may perform any of its duties by or through its respective officers, directors, agents or employees. SECTION 9.02 Nature of Duties. The Agent shall not have any duties or ---------------- responsibilities except those expressly set forth in this Agreement. Neither the Agent nor any of its officers, directors, agents or employees shall be liable for any action taken or omitted by it or them under any Transaction Document or in connection herewith or page 20 therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Agent shall be mechanical and administrative in nature, the Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Revolving Purchaser, and nothing in any Transaction Document, expressed or implied, is intended to or shall be construed as to impose upon the Agent any obligations in respect of any Transaction Document except as expressly set forth herein. SECTION 9.03 Lack of Reliance on the Agent and BT Securities Corporation. ----------------------------------------------------------- Independently and without reliance upon the Agent or BT Securities Corporation, each Revolving Purchaser, to the extent it deems appropriate, has made and shall continue to make (a) its own independent investigation of the financial condition and affairs of ARC, the Seller, the Servicer and the Trust in connection with the making and the continuation of each Purchase and the taking or not taking of any action in connection herewith and (b) its own appraisal of the creditworthiness of ARC, the Seller and the Servicer and the merits and risks of an investment in the Certificates, and, except as expressly provided in this Agreement, the Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Revolving Purchaser with any credit or other information with respect thereto, whether coming into its possession before the making of a Purchase or at any time or times thereafter. The Agent shall not be responsible to any Revolving Purchaser for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Transaction Documents or the financial condition of ARC, the Seller, the Servicer or the Trust or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of any Transaction Document, or the financial condition of ARC, the Seller, the Servicer or the Trust or the existence or possible existence of any Liquidation Event or Unmatured Liquidation Event. SECTION 9.04 Certain Rights of the Agent. If the Agent shall request --------------------------- instructions from the Required Revolving Purchasers with respect to any act or action (including failure to act) in connection with any Transaction Document, the Agent shall be entitled to refrain from acting or taking the action unless and until the Agent shall have received instructions from the Required Revolving Purchasers, and the Agent shall not incur liability to any person by reason of so refraining. Without limiting the foregoing, no Revolving Purchaser shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under any Transaction Document in accordance with the instructions of the Required Revolving Purchasers as for refraining to act in the absence of instruction. SECTION 9.05 Reliance. The Agent shall be entitled to rely, and shall be -------- fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any person that the Agent believed to be the proper person. The Agent may consult with legal counsel (including counsel for any AmeriSource Person), page 21 independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in accordance with the advice of such counsel, accountants or experts. SECTION 9.06 Indemnification. To the extent the Agent is not reimbursed --------------- and indemnified by ARC or the Servicer, the Revolving Purchasers will reimburse and indemnify the Agent ratably in accordance with their respective Percentages from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of whatsoever kind or nature that may be imposed on, asserted against or incurred or suffered by the Agent (including fees and expenses of legal counsel, accountants and experts) in performing its duties or as a result of any action taken or omitted to be taken by the Agent under any Transaction Document or in any way relating to or arising out of any Transaction Document; provided, that no Revolving Purchaser shall be liable for any portion of these liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable order). SECTION 9.07 The Agent in Its Individual Capacity. With respect to its ------------------------------------ obligation to purchase Trust Interests under this Agreement, the Agent shall have the rights and powers specified herein for a Revolving Purchaser and may exercise the same rights and powers as though it were not performing the duties of the "Agent" specified herein, and the term "Revolving Purchasers," "Required Revolving Purchasers" and "Holders" or "payees" of any Certificates or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with ARC or the Servicer or any AmeriSource Person as if the Agent were not performing the duties specified herein, and may accept fees and other consideration from ARC or the Servicer for services in connection with this Agreement and otherwise without having to account for the same to the Revolving Purchasers. Each of the parties hereto acknowledges that the Agent will be acting both as a lender under the Inventory Credit Agreement and as a Revolving Purchaser and the Agent under this Agreement. SECTION 9.08 Resignation by the Agent. (a) The Agent may resign at any ------------------------ time by giving notice to ARC and the Revolving Purchasers. The resignation shall take effect upon the appointment of a successor Agent pursuant to subsections ----------- (b) and (c) below or as otherwise provided below. - - - --- --- (b) Upon any notice of resignation, the Required Revolving Purchasers shall appoint a successor Agent hereunder who shall be a commercial bank or trust company reasonably acceptable to ARC (it being understood and agreed that any Revolving Purchaser is deemed to be acceptable to ARC). page 22 (c) If a successor Agent is not appointed within 30 days after the delivery of the notice referred to in subsection (a), the Agent, with the consent of -------------- ARC, shall then appoint a successor Agent who shall serve as Agent hereunder until the time, if any, that the Required Revolving Purchasers appoint a successor Agent as provided above. (d) If no successor Agent has been appointed pursuant to subsection (b) or -------------- (c) above by the 60th day after the date notice of resignation was given by the - - - --- Agent, the Agent's resignation shall become effective and the Revolving Purchasers shall thereafter perform all the duties of the Agent under the Transaction Documents until the time, if any, that the Revolving Purchasers appoint a successor Agent as provided above. SECTION 9.09 Reference Bank. By its execution of this Agreement, the -------------- Agent agrees to act as the Reference Bank for purposes of calculations relating to the Certificates, including as contemplated by the definition of "Alternate Base Rate." ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.01 Amendments. No amendment to or waiver of any provision of ---------- any Transaction Document, nor consent to any departure by ARC therefrom, shall in any event be effective unless the same shall be in writing and signed by ARC, the Agent and the Required Revolving Purchasers; provided, however, that no amendment shall (a) decrease the outstanding amount of, or extend the repayment of or any scheduled payment date for the payment of, any Investor Revolving Yield in respect of the Certificate or any fees owed to a Revolving Purchaser without its prior written consent, (b) forgive or waive or otherwise excuse any repayment of the Investor Revolving Invested Amount without the prior written consent of each Revolving Purchaser affected thereby, (c) increase the Stated Amount of any Revolving Purchaser without its prior written consent, (d) waive any Liquidation Event arising from an Event of Bankruptcy with respect to ARC or the Seller without the consent of each Revolving Purchaser and prior notice to the Applicable Rating Agencies, (e) amend or modify the Percentage of any Revolving Purchaser without its prior written consent, (f) waive any of the requirements hereunder that the interests of the Trustee in the Receivables and the other Trust Assets be perfected by appropriate UCC filings without the prior written consent of each Revolving Purchaser or (g) amend, modify or otherwise affect the rights or duties of the Agent hereunder without the prior written consent of the Agent; provided, however, that this Agreement may not be amended unless ARC shall have delivered the proposed amendment to the Applicable Rating Agency at least ten Business Days (or a shorter period that shall be acceptable to it) prior to the execution and delivery thereof and the Rating Agency Condition has been satisfied with respect to the amendment. Each Revolving Purchaser shall be bound by any modification, waiver or consent authorized by page 23 this section, whether or not its Certificate shall have been marked to indicate the modification, waiver or consent. SECTION 10.02 No Waiver; Remedies. Any waiver, consent or approval given ------------------- by any party hereto shall be effective only in the specific instance and for the specific purpose for which given, and no waiver by a party of any breach or default under this Agreement shall be deemed a waiver of any other breach or default. No failure on the part of any party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder, or any abandonment or discontinuation of steps to enforce the right, power or privilege, preclude any other or further exercise thereof or the exercise of any other right. No notice to or demand on any party hereto in any case shall entitle such party to any other or further notice or demand in the same, similar or other circumstances. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 10.03 Successors and Assigns; Assignments. (a) This Agreement ----------------------------------- shall be binding upon, and inure to the benefit of, ARC, the Servicer, the Agent, the Revolving Purchasers and their respective successors and assigns; provided, however, that neither ARC nor the Servicer may assign its rights or obligations hereunder or in connection herewith or any interest herein (voluntarily, by operation of law or otherwise) without the prior written consent of all the Revolving Purchasers; and provided further, that no Revolving Purchaser may transfer, pledge, assign, sell participations in or otherwise encumber its rights or obligations hereunder or in connection herewith or any interest herein except as permitted under this section. (b) Each Revolving Purchaser may at any time sell to one or more banks or other entities ("Participants") participating interests in all or any portion of its Certificate and its obligations hereunder (its "Credit Exposure"). In the event of any sale by a Revolving Purchaser of participating interests to a Participant, the Revolving Purchaser shall notify ARC of the identity of the Participant upon a request by ARC, the Revolving Purchaser's obligations under this Agreement shall remain unchanged, the Revolving Purchaser shall remain solely responsible for the performance thereof, and the Revolving Purchaser shall remain the holder of its rights under its Certificate and this Agreement for all purposes under this Agreement, and the other parties to the Transaction Documents shall continue to deal solely and directly with the Revolving Purchaser in connection with such rights and obligations under this Agreement. ARC agrees that each Participant shall be entitled to the benefits of Sections -------- 4.03, 4.04, 4.05 and 4.06 with respect to its participation in the Certificate. - - - ---- ---- ---- ---- The Revolving Purchasers agree that any agreement between them and any Participant in respect of a participating interest shall not restrict the Revolving Purchasers' right to agree to any amendment, supplement or modification of the Transaction Documents except to (i) extend the final maturity of any Obligation, (ii) reduce the rate or extend the time of payment of interest thereon or any fees owed to the Revolving Purchasers under the Transaction Documents, (iii) reduce the principal amount of any Obligation, (iv) release or page 24 direct the release of all or substantially all of the Trust Assets or the Trustee's claim to the Trust Assets, (v) reduce substantially the amount of any reserve included in the calculation of the Base Amount, (vi) increase the amount of the participation from the amount thereof then in effect (it being understood that any waiver of any Liquidation Event or Unmatured Liquidation event will not constitute a change in the terms of such participation, and that any increase in a commitment or Stated Amount of a Certificate shall be permitted without the consent of the Participant if the Participant's participation is not increased as a result thereof), or (vii) permit assignment or transfer by ARC or AmeriSource of its rights or obligations under the Transaction Documents. (c) Subject to Article VI of the Pooling Agreement and the next sentence hereof, any Revolving Purchaser may at any time assign to one or more banks or other financial institutions ("Assignees") all or any part of its Credit Exposure; provided, that (i) unless assigned to an Affiliate of the Revolving Purchaser, it assigns all of its Credit Exposure or a portion of its Credit Exposure in an amount not less than $5,000,000, (ii) after the assignment, the Revolving Purchaser and its Affiliates continue to hold at least $5,000,000 of Credit Exposure or have reduced their Credit Exposure to $0, (iii) any Assignee, other than an Affiliate of the Revolving Purchaser, must be reasonably acceptable to the Agent, which acceptance shall not be delayed or withheld unreasonably, (iv) if such Assignee is organized under the laws of a jurisdiction outside the United States of America, such Assignee shall satisfy the requirements of Section 4.06(c), or amounts payable to it under Section 4.06 --------------- ------------ shall be limited to amounts that would be payable if such Assignee had complied with Section 4.06(c), and (v) unless the Assignee is a bank with paid-in capital --------------- and surplus of at least $100,000,000 or a financial institution that is a party to the Seller Credit Agreement, any such assignment shall be subject to the prior written consent of ARC, which consent shall not be unreasonably delayed or withheld. The requirements of clauses (i), (ii), (iii) and (v) of the preceding ----------- ---- ----- --- sentence and the requirement that an Assignee be a bank or other financial institution shall not apply to any Assignee of a fixed principal certificate issued in connection with the restructuring of the Program as contemplated by Section 10.12, so long as such Assignee is a qualified institutional buyer - - - ------------- (within the meaning of Rule 144A under the Securities Act). In the event of any assignment, the Revolving Purchaser shall comply with Article VI of the Pooling Agreement and also shall give notice to ARC and the Agent and shall deliver to the Agent, for acceptance and recording in its records, an assignment agreement substantially in the form of Exhibit C together with a processing and --------- recordation fee of $3,000. Within five Business Days of receipt thereof, the Agent shall, if the assignment agreement has been fully executed by the Assignee, the assignor Revolving Purchaser and ARC, is completed and is in substantially the form of Exhibit C, execute the assignment agreement and record --------- the information contained therein in its records. Upon the earlier of the expiration of the five Business Day period or the date of the recording, the assignment will become effective. ARC, the Agent and the Revolving Purchasers agree to extend the rights and benefits with respect to ARC under this Agreement to the Assignee to the extent the Assignee would have had if it were a Revolving Purchaser that was an original signatory to this Agreement; provided, that ARC shall be entitled to continue to deal solely page 25 and directly with the assignor Revolving Purchaser in connection with the interests so assigned to the Assignee until the assignment agreement and any required fee, as described above, shall have been delivered to ARC and the Agent by the Revolving Purchaser and the Assignee and the assignment shall have become effective. Upon the effective assignment of its Credit Exposure, the Revolving Purchaser shall be relieved of its obligations hereunder to the extent of the assignment. (d) The sale or assignment of any Credit Exposure to any Assignee or Participant (each, a "Transferee") shall not be effective until it has agreed to be bound by the provisions of Sections 10.14 and 10.15. ARC and AmeriSource -------------- ----- each authorize the Revolving Purchasers to disclose to any Transferee and any prospective Transferee any and all information in their possession concerning ARC and AmeriSource that has been delivered to them by ARC, AmeriSource or the Trustee in connection with their credit evaluation of the Trust prior to entering into this Agreement. Further, each of ARC and AmeriSource agrees, upon the request of a Revolving Purchaser, to cause Ernst & Young to deliver to any potential Transferee a reliance letter (for the benefit of such potential Transferee) with respect to the agreed upon procedures letter described in Section 7.01(n). - - - --------------- (e) Notwithstanding any other provisions set forth in this Agreement, the Revolving Purchasers may at any time create a security interest in all or any portion of their rights under this Agreement and the Certificates in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (f) ARC and AmeriSource agree to assist the Agent in any marketing of the Certificates or of any Investor Certificates or Purchased Interests issued or sold in a restructuring of the Program (as contemplated by the final paragraph of Section 10.12) and (promptly upon request) to provide all information deemed ------------- necessary by the Agent in such marketing; provided, however, that any information distributed in connection with such marketing shall be subject to the confidentiality standards set forth in Section 10.15. In addition, ARC and ------------- AmeriSource will use their reasonable best efforts to make appropriate officers and representatives of AmeriSource and ARC available to participate in the information meetings for potential investors at such times and places as the Agent may reasonably request. SECTION 10.04 Survival of Agreement. All covenants, agreements, --------------------- representations and warranties made herein and in the Certificates delivered pursuant hereto shall survive the making and the repayment of the Purchases and the execution and delivery of this Agreement and the Certificates and shall continue in full force and effect until all Obligations have been paid in full and all commitments of the Revolving Purchasers hereunder have been terminated. In addition, the obligations of ARC under Sections 4.03, 4.04, 4.06 and 10.05 ------------- ---- ---- ----- and the obligations of the Revolving Purchasers under Section 9.06 shall survive ------------ the termination of this Agreement. page 26 SECTION 10.05 Expenses; Indemnification. ARC and AmeriSource jointly and ------------------------- severally shall pay on demand (a) all reasonable out-of-pocket fees and expenses (including reasonable attorneys fees and expenses) of the Agent incurred in connection with the preparation, execution, delivery, administration, amendment, modification and waiver of the Transaction Documents and the making and repayment of the Purchases, including any Servicer or collection agent fees paid to any third party for services rendered to the Revolving Purchasers and the Agent in collecting the Receivables and (b) all reasonable out-of-pocket fees and expenses of the Revolving Purchasers and the Agent (including reasonable attorneys fees and expenses of their counsel) incurred in connection with the enforcement of the Transaction Documents against ARC, the Servicer and the Seller and in connection with any workout or restructuring of the Transaction Documents. In addition, ARC will pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, recording or enforcement of this Agreement or any payment made under the Transaction Documents, and hereby indemnifies and saves the Agent and the Revolving Purchasers harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay the taxes and fees. ARC and AmeriSource jointly and severally agree to reimburse and indemnify the Agent and each Revolving Purchaser and their respective officers, directors, shareholders, controlling Persons, employees and agents (collectively, the "Indemnitees") from and against any and all actions, judgments, costs, expenses or disbursements of whatsoever kind or nature that may be imposed on, asserted against or incurred or suffered by the Agent or the Revolving Purchasers (including fees and expenses of legal counsel, accountants and experts) in any way relating to or arising out of any Transaction Document. Notwithstanding the foregoing (and with respect to clause (w) below, ---------- without prejudice to the rights that an Indemnitee may have pursuant to the other provisions of the Transaction Documents), in no event shall any Indemnitee be indemnified against any amounts (v) resulting from gross negligence or willful misconduct on the part of any of its officers, directors, employees or agents, (w) to the extent they include amounts in respect of Receivables and reimbursement therefore that would constitute credit recourse to the Servicer for the amount of any Receivable or Related Transferred Asset not paid by the related Obligor, (x) to the extent they are or result from lost profits, (y) to the extent they are or result from taxes (including interest and penalties thereon) asserted with respect to (1) distributions on the Certificates, (2) franchise or withholding taxes imposed on any Indemnitee other than the Trust or the Trustee in its capacity as Trustee or (3) Federal or other income taxes on or measured by the net income of the Indemnitee and costs and expenses in defending against the same, or (z) to the extent that they constitute consequential, special or punitive damages. If for any reason the indemnification provided in this section is unavailable to an Indemnitee or is insufficient to hold it harmless, then ARC and AmeriSource jointly and severally shall contribute to the amount paid by the Indemnitee as a result of any loss, claim, damage or liability in a proportion that is appropriate to reflect not only the relative benefits page 27 received by the Indemnitee on the one hand and ARC and AmeriSource on the other hand, but also the relative fault of the Indemnitee (if any), ARC and AmeriSource and any other relevant equitable considerations; provided, however, that ARC's obligations under this section shall be paid by ARC only to the extent that funds are available to make the payments after all amounts to be paid to Investor Certificateholders and Holders of Purchased Interests pursuant to Section 4.03(f) or 4.03(a) (as applicable) shall have been paid, and there --------------- ------- shall be no recourse to ARC for all or any part of any amounts payable pursuant to this section if the funds are at any time insufficient to make all or part of any such payments. SECTION 10.06 Characterization as Transaction Document; Entire Agreement. ---------------------------------------------------------- This Agreement shall be deemed to be a Transaction Document for all purposes of the Pooling Agreement and the other Transaction Documents. This Agreement, together with the documents delivered pursuant to Section 7.01 and the other ------------ Transaction Documents, including the exhibits and schedules thereto, contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all previous oral statements and other writings with respect thereto. SECTION 10.07 Notices. All communications hereunder shall be in writing ------- (except that notices pursuant to Sections 3.01 and 3.03 may be given by ------------- ---- telephone promptly confirmed in writing or by facsimile transmission) and shall be deemed to have been duly given if personally delivered, sent by overnight courier or mailed by registered mail, postage prepaid and return receipt requested, or transmitted by telex or facsimile transmission and confirmed by a similar mailed writing to any party at the address for that party set forth (a) on the signature page to this Agreement or (b) to another address as that party may designate in writing to the Agent and ARC. SECTION 10.08 Binding on Successors and Assigns. This Agreement shall --------------------------------- inure to the benefit of and be binding upon ARC, the Revolving Purchasers and their respective permitted successors and assigns. Nothing expressed herein is intended or shall be construed to give any Person other than the Persons referred to in the preceding sentence any legal or equitable right, remedy or claim under or in respect of this Agreement. SECTION 10.09 Severability of Provisions. Any covenant, provision, -------------------------- agreement or term of this Agreement that is prohibited or is held to be void or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions of this Agreement. SECTION 10.10 Counterparts. This Agreement may be executed in any number ------------ of counterparts (which may include facsimile) and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which together shall constitute one and the same instrument. page 28 SECTION 10.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. SECTION 10.12 Failure to Refinance. If the Revolving Purchasers shall not -------------------- have been repaid in full and their Stated Amount reduced to zero on or prior to the 180th day falling after the date of the initial Purchase, then: (a) ARC and AmeriSource will cooperate in good faith with the Agent to restructure the Program and to design securities to be issued by the Trust in order to facilitate the refinancing in full of the Certificates and/or the complete assignment by the initial Revolving Purchasers of their Credit Exposure, which restructuring and design may include, but not be limited to, (i) the creation of senior and subordinated classes of securities, (ii) the creation of fixed principal and variable principal securities with varying maturities and interest rates, it being understood that no specified proportion of securities with fixed versus variable principal or fixed versus variable interest rates need be maintained, and that the proportion with respect with either type of principal may be 0% (provided, that the aggregate principal amount of fixed principal certificates shall not, without ARC's and AmeriSource's consent, exceed the greater of (x) $175,000,000 and (y) the average, for the preceding six Calculation Periods (or, if less, the number of complete Calculation Periods elapsed since the date of this Agreement), of the lowest Base Amount properly reported in any Daily Report during each such Calculation Period), (iii) changes to the number and type of investors required to take (or omit to take a particular action (such as a waiver, amendment or instruction to the Trustee)), (iv) the imposition of make-whole payments or other prepayment premiums if the securities are repaid prior to their scheduled maturity voluntarily, as the result of the Trustee's receipt of a Stop Date Notice or for any other reason agreed to by AmeriSource, (v) any changes or modification necessary to enable an investor to qualify for the portfolio interest exemption, thus permitting the securities to be marketed to investors who do not have a place of business in the United States, and (vi) any changes or modifications necessary to satisfy then current requirements of S&P (or any other Applicable Rating Agency) for trade receivables securitizations rated "AAA" (in the case of senior securities) or "A" (in the case of subordinate securities), and (b) if requested to do so by any Revolving Purchaser, the Trustee or the Agent shall exercise its rights under the final paragraph of Section ------- 8.01 to conduct a Receivables Review. ---- ARC and AmeriSource shall enter into the amendments to the Transaction Documents as may be requested by the Agent as necessary or desirable to restructure the Program and design securities as contemplated in subsection (a); -------------- provided, that, notwithstanding the foregoing, neither ARC nor AmeriSource shall be required to consent to any amendment to page 29 any Transaction Document that it determines in its sole and reasonable discretion to be materially adverse to its own interests. SECTION 10.13 Tax Characterization. Each party to this Agreement (a) -------------------- acknowledges that it is the intent of the parties to this Agreement that, for Federal, state and local income and franchise tax purposes only, the Certificates will be treated as evidence of indebtedness secured by the Trust Assets and the Trust not be characterized as an association taxable as a corporation, (b) agrees to treat the Certificates for Federal, state and local income and franchise tax purposes as indebtedness and (c) agrees that the provisions of the Transaction Documents shall be construed to further these intentions. SECTION 10.14 No Proceedings. Each of AmeriSource, the Agent (solely in -------------- its capacity as such) and each of the Revolving Purchasers (solely in its capacity as such) hereby agrees that it will not institute against ARC or the Trust, or join any other Person in instituting against ARC or the Trust, any insolvency proceeding (namely, any proceeding of the type referred to in the definition of "Event of Bankruptcy") so long as any Investor Certificates issued by the Trust shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any Investor Certificates shall have been outstanding. The foregoing shall not limit the right of AmeriSource or any Revolving Purchaser to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted against ARC or the Trust by any other Person. In addition, each of the foregoing parties agree that all amounts owed to them by the Trust or ARC shall be payable solely from amounts that become available for payment pursuant to the Pooling Agreement and the Supplement, and no amounts shall constitute a claim against the Trust or ARC to the extent that they are in excess of the amounts available for their payment. SECTION 10.15 Confidentiality. The Agent and each Revolving Purchaser --------------- acknowledge that all information concerning the Seller, ARC, any AmeriSource Person, the Receivables and the Related Transferred Assets (collectively the "Confidential Information") that has been, is being and will be delivered or made available by the Seller and ARC to the Agent and the Revolving Purchasers is highly confidential; provided, that the term "Confidential Information" shall not include (x) any of the foregoing information that is or becomes generally available to the public or is or becomes available to the Agent or a Revolving Purchaser (as applicable) on a nonconfidential basis or was or becomes known to the Agent or a Revolving Purchaser (as applicable) on a nonconfidential basis without violation of this section, (y) the Transaction Documents or any Daily Report or Settlement Statement delivered thereunder or (z) the information included in the Syndication Documents. Each of the Trustee and the Revolving Purchasers hereby agrees to use its best efforts to hold in confidence all Confidential Information; provided, that nothing herein shall prevent the Trustee or any Revolving Purchaser from delivering Confidential Information to: page 30 (a) the respective affiliates, directors, officers, employees, agents and professional consultants (each of which being a "Representative") of the Agent or a Revolving Purchaser who, in the case of each Representative, shall be subject to confidentiality arrangements at least substantially comparable hereto, (b) any Federal or state regulatory authority having jurisdiction over the Agent or the Revolving Purchasers, (c) any Transferee or potential Transferee, who shall be subject to a written confidentiality agreement at least substantially comparable hereto, (d) any Person engaged by AmeriSource or ARC to assist in structuring, marketing or otherwise facilitating arrangements necessary to refinance the Certificates (including, without limitation, the Financial Advisors), (e) any Person pursuant to subpoena or other court process or otherwise in connection with applicable litigation, or (f) any Person to the extent required by applicable law. The Agent and each Revolving Purchaser recognize the competitive value and confidential nature of the Confidential Information and the irreparable damage that could result to the Seller, ARC or the other AmeriSource Persons if it is disclosed to any third party in violation of the requirements of this section. The Agent and each Revolving Purchaser recognize that money damages would not be a sufficient remedy for any breach of the requirements of this section, and each of the foregoing severally agrees that the Seller, ARC and any other AmeriSource Person shall be entitled to equitable relief, including injunctive relief and specific performance, in the event of any breach or potential breach of the requirements of this section, in addition to all other remedies available to the Seller, ARC and the other AmeriSource Persons at law or in equity. None of the requirements of this section may be waived or amended except by prior written consent of the Seller, ARC or the other AmeriSource Person, as applicable, who provided the information to the Person who wishes to disclose it, which written consent shall expressly refer to the requirements of this section. page 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers and delivered as of the day and year first above written. AMERISOURCE RECEIVABLES CORPORATION By: ____________________________________ Title: ________________________________ Address: P.O. Box 1735 Southeastern, Pennsylvania 19399-1735 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 AMERISOURCE CORPORATION By: ____________________________________ Title: ________________________________ Address: 300 Chester Field Parkway Malvern, Pennsylvania 19355 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 BANKERS TRUST COMPANY, as Agent and, individually, as a Revolving Purchaser By: _____________________________________ Title: _________________________________ Address: ________________________________ ________________________________ Attention: ______________________________ Telephone: ______________________________ Facsimile: ______________________________ STATED AMOUNT: __________________ PERCENTAGE: 100% EXHIBIT A to Revolving Certificate Purchase Agreement Series 1994-1 FORM OF POOLING AND SERVICING AGREEMENT --------------------------------------- EXHIBIT B to Revolving Certificate Purchase Agreement Series 1994-1 FORM OF RECEIVABLES PURCHASE AGREEMENT -------------------------------------- EXHIBIT C to Revolving Certificate Purchase Agreement Series 1994-1 FORM OF SERIES 1994-1 SUPPLEMENT -------------------------------- ================================================================================ SERIES 1994-1 SUPPLEMENT TO POOLING AND SERVICING AGREEMENT dated as of December 13, 1994 among AMERISOURCE RECEIVABLES CORPORATION, as transferor, AMERISOURCE CORPORATION, as initial Servicer, and MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS ............................................................................. 2 SECTION 1.01 Definitions.................................................... 2 ----------- ARTICLE II PURCHASE AND SALE OF THE CERTIFICATES ............................................................................. 2 SECTION 2.01 The Commitments........................................... 2 --------------- SECTION 2.02 Purchase Mechanics........................................ 3 ------------------ SECTION 2.03 Reduction of Stated Amounts............................... 4 --------------------------- SECTION 2.04 Certificates.............................................. 4 ------------ ARTICLE III REDUCTIONS IN INVESTOR REVOLVING INVESTED AMOUNT ............................................................................. 5 SECTION 3.01 Negative Variable Amounts................................. 5 ------------------------- SECTION 3.02 Other Reductions.......................................... 5 ---------------- SECTION 3.03 Notice to Revolving Purchasers............................ 6 ------------------------------ ARTICLE IV INVESTOR REVOLVING YIELD AND FEES ............................................................................. 6 SECTION 4.01 Investor Revolving Yield.................................. 6 ------------------------ SECTION 4.02 Non-Usage Fees............................................ 7 -------------- SECTION 4.03 Yield Protection.......................................... 7 ---------------- SECTION 4.04 Illegality; Unavailability................................ 10 -------------------------- SECTION 4.05 Indemnity................................................. 10 --------- SECTION 4.06 Taxes..................................................... 11 ----- ARTICLE V OTHER PAYMENT TERMS ............................................................................. 12 SECTION 5.01 Time and Method of Payment................................ 12 -------------------------- SECTION 5.02 Pro Rata Treatment........................................ 13 ------------------ ARTICLE VI REPRESENTATIONS AND WARRANTIES ............................................................................. 13
SECTION 6.01 ARC....................................................... 13 --- SECTION 6.02 AmeriSource............................................... 14 ----------- ARTICLE VII CONDITIONS ............................................................................. 15 SECTION 7.01 Conditions to Initial Purchase............................ 15 ------------------------------ SECTION 7.02 Conditions to Each Purchase............................... 18 --------------------------- ARTICLE VIII AFFIRMATIVE COVENANTS ............................................................................. 18 SECTION 8.01 Affirmative Covenants..................................... 18 --------------------- ARTICLE IX THE AGENT ............................................................................. 20 SECTION 9.01 Appointment............................................... 20 ----------- SECTION 9.02 Nature of Duties.......................................... 20 ---------------- SECTION 9.03 Lack of Reliance on the Agent and BT Securities ----------------------------------------------- Corporation............................................. 21 ----------- SECTION 9.04 Certain Rights of the Agent............................... 21 --------------------------- SECTION 9.05 Reliance.................................................. 21 -------- SECTION 9.06 Indemnification........................................... 22 --------------- SECTION 9.07 The Agent in Its Individual Capacity...................... 22 ------------------------------------ SECTION 9.08 Resignation by the Agent.................................. 22 ------------------------ SECTION 9.09 Reference Bank............................................ 23 -------------- ARTICLE X MISCELLANEOUS PROVISIONS ............................................................................. 23 SECTION 10.01 Amendments............................................... 23 ---------- SECTION 10.02 No Waiver; Remedies...................................... 24 ------------------- SECTION 10.03 Successors and Assigns; Assignments...................... 24 ----------------------------------- SECTION 10.04 Survival of Agreement.................................... 26 --------------------- SECTION 10.05 Expenses; Indemnification................................ 27 ------------------------- SECTION 10.06 Characterization as Transaction Document................. 28 ---------------------------------------- SECTION 10.07 Notices.................................................. 28 ------- SECTION 10.08 Binding on Successors and Assigns........................ 28 --------------------------------- SECTION 10.09 Severability of Provisions............................... 28 -------------------------- SECTION 10.10 Counterparts............................................. 28 ------------ SECTION 10.11 Governing Law............................................ 29 ------------- SECTION 10.12 Failure to Refinance..................................... 29 -------------------- SECTION 10.13 Tax Characterization..................................... 30 --------------------
SECTION 10.14 No Proceedings................................................ 30 -------------- SECTION 10.15 Confidentiality............................................... 30 --------------- ARTICLE I DEFINITIONS; INCORPORATION OF TERMS OF POOLING AGREEMENT ............................................................................. 1 SECTION 1.01 Definitions............................................... 1 ----------- SECTION 1.02 Incorporation of Terms and Provisions of the Pooling ---------------------------------------------------- Agreement................................................. 5 --------- ARTICLE II DESIGNATION ............................................................................. 5 SECTION 2.01 Designation............................................... 5 ----------- ARTICLE III PAYMENTS ............................................................................. 5 SECTION 3.01 Payments.................................................. 5 -------- SECTION 3.02 Interest.................................................. 5 -------- SECTION 3.03 Principal Payments........................................ 6 ------------------ SECTION 3.04 Commitment Fees; Additional Amounts; Breakage Payments.... 7 ------------------------------------------------------ ARTICLE IV PAY-OUT EVENTS ............................................................................. 7 SECTION 4.01 Pay-Out Events............................................ 7 -------------- ARTICLE V MISCELLANEOUS ............................................................................. 8 SECTION 5.01 Governing Law............................................. 8 ------------- SECTION 5.02 Counterparts.............................................. 8 ------------ SECTION 5.03 Severability of Provisions................................ 8 -------------------------- SECTION 5.04 Amendment, Waiver, Etc.................................... 8 ---------------------- SECTION 5.05 The Trustee............................................... 8 ----------- SECTION 5.06 Instructions in Writing................................... 8 -----------------------
EXHIBIT EXHIBIT A Form of Series 1994-1 Investor Revolving Certificate This Series 1994-1 SUPPLEMENT, dated as of December 13, 1994 (this "Supplement"), is made among AMERISOURCE RECEIVABLES CORPORATION, a Delaware corporation, as transferor ("ARC"), AMERISOURCE CORPORATION, a Delaware corporation ("AmeriSource"), as the initial Servicer (in that capacity, together with any successor in that capacity, the "Servicer"), and MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation, as Trustee (in that capacity, together with any successor in that capacity, the "Trustee"). Pursuant to the Pooling and Servicing Agreement, dated as of December 13, 1994, (as it may be amended, supplemented or otherwise modified from time to time, and as supplemented hereby, the "Pooling Agreement"), among ARC, the Servicer and the Trustee, ARC may from time to time direct the Trustee to issue, on behalf of the Trust, one or more Series of Investor Revolving Certificates representing undivided interests in the Trust. Certain terms applicable to a Series are to be set forth in a Supplement. This Supplement is a Supplement as such is defined in the Pooling Agreement. Pursuant to this Supplement, ARC and the Trustee shall create a Series of Investor Revolving Certificates and specify certain terms thereof. ARTICLE I DEFINITIONS; INCORPORATION OF TERMS OF POOLING AGREEMENT SECTION 1.01 Definitions. (a) Except as otherwise defined herein, ----------- capitalized terms have the meanings that Appendix A to the Pooling Agreement assigns to them, and this Supplement shall be interpreted in accordance with the conventions set forth in Parts B, C and D of that Appendix A. (b) Each capitalized term defined herein relates only to the Series 1994-1 Certificates and to no other Series of Certificates issued by the Trust. Whenever used in this Supplement, the following words and phrases shall have the following meanings: "ABR Tranche" means, at any time, the portion of the Series 1994-1 Invested Amount that is designated by ARC in accordance with the Revolving Certificate Purchase Agreement to accrue interest based on the Alternate Base Rate. "Alternate Base Rate" means, on any day, a fluctuating rate of interest per annum equal to the higher of: (a) the rate of interest most recently announced by the Reference Bank at its principal office as its prime lending rate, and page 1 (b) the Federal Funds Rate plus 50 basis points. Any change in the interest rate resulting from a change in the prime lending rate announced by the Reference Bank shall become effective without prior notice to ARC or the Servicer as of 12:01 a. m., New York City time, on the Business Day on which each change in the prime lending rate is announced by the Reference Bank. The prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged by the Reference Bank to any customer. The Reference Bank may make commercial loans or other loans at rates of interest at, above or below the prime lending rate. "Applicable Margin" means: (a) with respect to any Eurodollar Tranche and any period set forth below, the number of basis points set forth opposite the period:
Period Basis Points ------ ------------ Closing to the date six months after the Closing Date 50 then to the date nine months after the Closing Date 62.5 then to the date one year after the Closing Date 75 thereafter 150
(b) with respect to any ABR Tranche and any period set forth below, the number of basis points set forth opposite the period:
Period Basis Points ------ ------------ Closing to the date one year after the Closing Date 0 thereafter 50
"Applicable Ratings Agencies" means each of the nationally recognized statistical rating agencies that, at the request of ARC, at that time maintains a credit rating of the Series 1994-1 Certificates. "Base Amount" means the Base Amount as calculated pursuant to Section 4.03(b) of the Pooling Agreement; provided, however, that upon ARC's giving of notice to the Revolving Purchasers, pursuant to Section 2.03 of the Revolving Certificate Purchase Agreement for this Series, that each of their Stated Amounts is to be reduced to zero due to the issuance of another Series of Certificates (the "Take-out Certificates"), the Base Amount shall equal the lower of (a) the Base Amount as calculated for purposes of the Series 1994-1 Certificates and (b) the Base Amount as calculated for purposes of the Take-out Certificates that are to be issued. page 2 "Eligible Institution" means a bank that has a long-term debt rating of at least "A" by S&P or is otherwise approved by the Applicable Rating Agencies. "Eurodollar Tranche" means, during any Yield Period, any portion of the Series 1994-1 Invested Amount that has been designated by ARC in accordance with the Revolving Certificate Purchase Agreement to accrue interest based on LIBOR. Pursuant to the Revolving Certificate Purchase Agreement, there may be up to four Eurodollar Tranches outstanding at any time. "Expected Final Payment Date" means, with respect to the Series 1994-1 Certificates, the Settlement Date that is 60 months after the Closing Date. "Federal Funds Rate" means the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for the day (or, if the day is not a Business Day, the immediately preceding Business Day) by the Federal Reserve Bank of New York; provided, that, if the rate is not so published for any Business Day, the rate for purposes of this clause will be the average of the quotations for the day on such transactions received by the Reference Bank from three Federal funds brokers of recognized standing selected by it. "LIBOR" means, with respect to any Yield Period, the rate per annum equal to (a) the rate at which deposits in Dollars are offered by the Reference Bank to first-class banks in the London interbank market at approximately 11:00 a. m., London time, two Business Days prior to the first day of the relevant Yield Period, such deposits being in the approximate amount of and having a Yield Period equivalent to the Eurodollar Tranche to be funded or maintained, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to the Yield Period. LIBOR shall be rounded, if necessary, to the next higher of 1/16 of 1%. "Pay-Out Event" is defined in Section 4.01 of this Supplement. ------------ "Reference Bank" means the Agent under the Revolving Certificate Purchase Agreement. "Reserve Requirement" means the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) that is imposed against the Reference Bank in respect of Eurocurrency liabilities, as defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Revolving Certificate Purchase Agreement" means the Revolving Certificate Purchase Agreement dated as of the date hereof among ARC, AmeriSource, the Revolving Purchasers named therein and Bankers Trust Company, as Agent and Revolving Purchaser, as it may be amended, supplemented or otherwise modified from time to time. page 3 "Sale Date" means, with respect to the Series 1994-1 Certificates, the Settlement Date that is 70 months after the Closing Date. "Scheduled Final Payment Date" means the Sale Date. "Scheduled Pay-Out Commencement Date" means the first day of the October, 1999 Calculation Period. "Series 1994-1 Certificate" means any Certificate issued pursuant to this Supplement and the Revolving Certificate Purchase Agreement, substantially in the form of Exhibit A to this Supplement. --------- "Series 1994-1 Initial Invested Amount" means $0. "Series 1994-1 Invested Amount" means, at any time, an amount equal to (a) the sum of (i) the Series 1994-1 Initial Invested Amount, plus (ii) all additions made to the Series 1994-1 Invested Amount pursuant to Section 4.03 of the Pooling Agreement plus (iii) all additions to the principal amount of Series 1994-1 Certificates made pursuant to Section 6.11 of the Pooling Agreement, minus (b) the sum of (i) all reductions in the Series 1994-1 Invested Amount made pursuant to Section 4.03 of the Pooling Agreement, (ii) the aggregate amount of all other principal payments made to the Holders of the Series prior to that time in respect of the Series, (iii) the aggregate amount of all funds on deposit in the Principal Funding Account and the Defeasance Account with respect to the Series and (iv) any Investor Allocable Charged-Off Amounts (net of Investor Net Recoveries) allocated to the Series. "Series 1994-1 Investor Revolving Certificate Rate" means, at any time, the weighted average of the interest rates on all outstanding Tranches. "Tranche" means each of the ABR Tranche and each Eurodollar Tranche. "Yield Period" means, with respect to the Series 1994-1 Certificates: (a) as to the ABR Tranche (if any) from time to time, each period from one Settlement Date to the next Settlement Date (except that the initial Yield Period shall commence on the Closing Date), and (b) as to each Eurodollar Tranche (if any) from time to time, each period from the date upon which it was first designated as such pursuant to the Revolving Certificate Purchase Agreement (or the end of the next preceding Yield Period for such Eurodollar Tranche, if there has been one) to the corresponding date in the next calendar month; provided, that (i) if there is no corresponding date, the Yield Period will end on the last day of the next calendar month and (ii) if any Yield Period for a Eurodollar Tranche would otherwise end on a day that is not a Business Day, such page 4 Eurodollar Tranche shall instead end on the next Business Day (or, if the next Business Day falls in the next calendar month, then the Yield Period shall end on the next preceding Business Day). SECTION 1.02 Incorporation of Terms and Provisions of the Pooling ---------------------------------------------------- Agreement. This Supplement hereby incorporates by reference the terms and - - - --------- provisions of the Pooling Agreement as if they were set forth in full herein. As supplemented by this Supplement, the Pooling Agreement is hereby in all respects ratified and confirmed and both together shall be read, taken and construed as one and the same agreement. In the event of any conflict or inconsistency between the terms of this Supplement and the terms of the Pooling Agreement as the terms apply to any of the Series 1994-1 Certificates, the terms of this Supplement shall control. ARTICLE II DESIGNATION SECTION 2.01 Designation. There is hereby created a Series of Investor ----------- Revolving Certificates to be issued pursuant to the Pooling Agreement and this Supplement to be known as "Series 1994-1 Certificates." Subject to the conditions set forth in the Revolving Certificate Purchase Agreement, the Trustee shall authenticate and deliver the Series 1994-1 Certificates, to or upon the order of ARC, in an aggregate stated amount equal to $230,000,000. The Series 1994-1 Certificates shall be authenticated and delivered in the manner and at the times for authentication and delivery of Investor Revolving Certificates that are specified in Article VI of the Pooling Agreement. The Series 1994-1 Certificates are a Senior Class. ARTICLE III PAYMENTS SECTION 3.01 Payments. Except as expressly provided otherwise in this -------- Supplement, interest and principal shall be distributed in respect of the Series 1994-1 Certificates at the times described in, and in the amounts calculated pursuant to, Articles IV and V of the Pooling Agreement for payments that are to be made with respect to Investor Revolving Certificates. SECTION 3.02 Interest. (a) ARC shall have the right from time to time to -------- allocate the outstanding principal amount under the 1994-1 Certificates to multiple Tranches: up to four Eurodollar Tranches and an ABR Tranche. Interest on the ABR Tranche shall be payable on each Settlement Date, and interest on a Eurodollar Tranche shall be payable at the page 5 end of the applicable Yield Period, except that interest on the amount of any principal repaid on any other date shall be payable on the date of the repayment. (b) Interest on a Eurodollar Tranche shall accrue during any Yield Period at a rate per annum equal to the Applicable Margin plus the applicable LIBOR and shall be calculated on the basis of actual days over a year of 360 days. (c) Interest on the ABR Tranche shall accrue (i) during the period from the Closing Date to (and including) the 75th day following the Closing Date, at 125 basis points over the Federal Funds Rate in effect from time to time, and (ii) thereafter at the Applicable Margin plus the Alternate Base Rate in effect from time to time. The interest shall be calculated on the basis of actual days over a year of 365 or 366 days, as the case may be. (d) Interest with respect to the Series 1994-1 Certificates due but not paid on any Settlement Date or the last day of a Yield Period, as the case may be, will be due on the next Settlement Date or last day of the next Yield Period with additional interest on the amount at 2% above the applicable Certificate Rate to the extent permitted by law. SECTION 3.03 Principal Payments. (a) Prior to the earlier of the ------------------ Liquidation Commencement Date and the Pay-Out Period Commencement Date, the outstanding principal amount of the 1994-1 Certificates shall vary from time to time as positive Variable Amounts and other amounts are allocated (in whole or in part) to increase the Series 1994-1 Invested Amount and as Collections are allocated to repay (in whole or in part) the Series 1994-1 Invested Amount. In any event, the principal amount of any Series 1994-1 Certificate outstanding at any time shall not exceed its Stated Amount. (b) After the commencement of the Liquidation Period or the Pay-Out Period with respect to Series 1994-1 Certificates, no further increases in the Investor Revolving Invested Amount of the Series 1994-1 Certificates shall be made. On each Business Day during the Pay-Out Period for Series 1994-1 Certificates (until the Series 1994-1 Invested Amount has been provided for in full), the Servicer shall allocate a portion of the Collections available in the Master Collection Account, after making any required transfers to the Carrying Cost Account, to the Series 1994-1 Invested Amount and transfer the portion to the Defeasance Account. The portion of Collections so allocated and transferred shall equal (i) the Defeasance Allocation Percentage for the Series 1994-1 Certificates multiplied by (ii) the amount of the available Collections. The amounts so allocated to the Defeasance Account during each Calculation Period shall be paid to the Holders of the Series 1994-1 Certificates in reduction of the Series 1994-1 Invested Amount on the next Settlement Date or on an earlier date that ARC may elect; provided, however, that if the Liquidation Period commences at a time when any such amounts are being held in the Defeasance Account, the amounts being so held shall be reallocated to the Master Collection Account for application along with the other amounts held therein. page 6 (c) If the Liquidation Period commences at any time when the Series 1994-1 Invested Amount is greater than zero, the Series 1994-1 Certificates shall thereafter be entitled to receive, on each Settlement Date occurring after the Calculation Period in which the Liquidation Period commences (and until the principal outstanding under the 1994-1 Certificates has been paid in full) funds in an amount equal to the Principal Distribution Amount with respect to the Series 1994-1 Certificates. SECTION 3.04 Commitment Fees; Additional Amounts; Breakage Payments. (a) ------------------------------------------------------ Non-Usage Fees and other fees payable by ARC to the Revolving Purchasers and the Agent under the Revolving Certificate Purchase Agreement and one or more fee letters executed by ARC shall be payable from funds available for allocation under clause Seventh of Section 4.03(g) of the Pooling Agreement or clause Third of Section 4.03(h) of the Pooling Agreement, as applicable. (b) Additional amounts and breakage payments on account of increased costs relating to eurodollar funding, capital costs, breakage of a Eurodollar Tranche, changes in tax laws and certain indemnity obligations payable under the Revolving Certificate Purchase Agreement shall be payable from funds available for allocation under clause Seventh of Section 4.03(g) or clause Third of Section 4.03(h) of the Pooling Agreement, as applicable. (c) The rating of the Series 1994-1 Certificates will not address the likelihood of payment of any such fees, additional amounts or breakage payments. ARTICLE IV PAY-OUT EVENTS SECTION 4.01 Pay-Out Events. Any of the following shall be a "Pay-Out -------------- Event" with respect to the Series 1994-1 Certificates: (a) The Majority Investors do not declare a Liquidation Commencement Date with respect to a Liquidation Event described in clause (a), (b) or (f) of Section 9.01 of the Pooling Agreement, and Holders of Investor Certificates representing more than 50% of the Series 1994-1 Invested Amount declare that a Pay-Out Event has occurred. (b) The Series 1994-1 Certificates shall cease to be rated "A" or better by S&P and such condition shall continue for a period of 90 days; provided, that during such period ARC, AmeriSource and the Holders of the Certificates shall cooperate in good faith to make such changes to the Program and the Certificates that may be required to restore the rating; and provided further that no such party shall be required to consent to any amendment to a page 7 Transaction Document that it determines in its sole and reasonable discretion to be materially adverse to its own interests. (c) The Scheduled Pay-Out Commencement Date shall occur. ARTICLE V MISCELLANEOUS SECTION 5.01 Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. SECTION 5.02 Counterparts. This Supplement may be executed in any number ------------ of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which together shall constitute one and the same instrument. SECTION 5.03 Severability of Provisions. If any one or more of the -------------------------- provisions or terms of this Supplement shall for any reason whatsoever be held invalid, then the unenforceable provision(s) or term(s) shall be deemed severable from the remaining provisions or terms of this Supplement and shall in no way affect the validity or enforceability of the other provisions or terms of this Supplement. SECTION 5.04 Amendment, Waiver, Etc. The provisions of this Supplement ----------------------- may be amended, modified or waived from time to time by the Servicer, ARC and the Trustee with the consent of the Required Series Holders of the Series 1994-1 Certificates to the extent permitted by Section 13.01 of the Pooling Agreement, and the terms of that section shall apply to any such amendment, modification or waiver. SECTION 5.05 The Trustee. The Trustee shall not be responsible in any ----------- manner whatsoever for or in respect of the validity or sufficiency of this Supplement or for or in respect of the recitals contained herein, all of which recitals are made solely by ARC and the Servicer. SECTION 5.06 Instructions in Writing. All instructions given by the ----------------------- Servicer to the Trustee pursuant to this Supplement shall be in writing, and may be included in a Daily Report or Settlement Statement. page 8 IN WITNESS WHEREOF, ARC, the Servicer and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. AMERISOURCE RECEIVABLES CORPORATION, as transferor By: ______________________________________ Title: __________________________________ Address: P.O. Box 1735 Southeastern, Pennsylvania 19399-1735 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 AMERISOURCE CORPORATION, as initial Servicer By: _____________________________________ Title: _________________________________ Address: 300 Chester Field Parkway Malvern, Pennsylvania 19355 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee By:______________________________________ Title: Assistant Vice President Address: One M&T Plaza - 7th Floor Buffalo, New York 14203 Attention: Russell Whitley Telephone: (716) 842-5602 Facsimile: (716) 842-4474 page 9 STATE OF ___________ ) ) COUNTY OF __________ ) On the _____ day of December, 1994 before me personally came ____________, who being by me duly sworn, did depose and say that he resides at __________________, that he is the ______________ of AmeriSource Receivables Corporation, a Delaware corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this _____ day of December, 1994. ______________________________ Notary Public Type or Print Name:___________________ My commission expires: __________________ page 10 STATE OF ___________ ) ) COUNTY OF __________ ) On the _____ day of December, 1994 before me personally came ____________, who being by me duly sworn, did depose and say that he resides at __________________, that he is the ______________ of AmeriSource Corporation, a Delaware corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this _____ day of December, 1994. _______________________________ Notary Public Type or Print Name:____________________ My commission expires: _________________ page 11 STATE OF ___________ ) ) COUNTY OF __________ ) On the _____ day of December, 1994 before me personally came ____________, who being by me duly sworn, did depose and say that he resides at __________________, that he is the ______________ of Manufacturers and Traders Trust Company, a New York banking corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this _____ day of December, 1994. _______________________________ Notary Public Type or Print Name:____________________ My commission expires: _________________ page 12 EXHIBIT A to the Series 1994-1 Supplement FORM OF SERIES 1994-1 INVESTOR REVOLVING CERTIFICATE ---------------------------------------------------- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE CERTIFICATEHOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QUALIFIED INSTITUTIONAL BUYER"), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND WHOM THE CERTIFICATEHOLDER HAS INFORMED, IN EACH CASE, THAT THE OFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN A TRANSACTION COMPLYING WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND THE TRUSTEE AND ARC RECEIVES WRITTEN REPRESENTATIONS OF THE TRANSFEROR AND TRANSFEREE SATISFACTORY TO THE TRUSTEE AND ARC REGARDING THE DISPOSITIONS, AND, IF THE TRUSTEE OR ARC SO REQUIRES, AN OPINION OF COUNSEL OF THE TRANSFEROR SATISFACTORY TO THE TRUSTEE AND ARC WITH RESPECT TO THE AVAILABILITY OF SUCH EXEMPTION PRIOR TO THE RESALE OR TRANSFER. WITH RESPECT TO CLAUSES (1), (2) AND ----------- --- (3), SUBJECT TO THE RECEIPT BY THE TRUSTEE OF OTHER EVIDENCE ACCEPTABLE TO THE - - - --- TRUSTEE THAT THE OFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA OR OTHER APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. page 1 AMERISOURCE RECEIVABLES MASTER TRUST SERIES 1994-1 INVESTOR REVOLVING CERTIFICATE Initial Stated Amount: $230,000,000 Percentage Interest evidenced by this Certificate: 100% Initial Cut-Off Date: December 12, 1994 First Distribution Date: Settlement Date relating to November 1994 Cut-Off Date THIS CERTIFIES THAT Bankers Trust Company is the registered owner of a nonassessable, fully-paid, fractional undivided interest in the AmeriSource Receivables Master Trust (the "Trust") that was created pursuant to (a) the Pooling and Servicing Agreement, dated as of December 13, 1994 (as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, the "Pooling Agreement"), among AmeriSource Receivables Corporation, a Delaware corporation, as transferor ("ARC"), AmeriSource Corporation, a Delaware corporation, as initial Servicer (in such capacity, the "Servicer"), and Manufacturers and Traders Trust Company, a New York banking corporation, as trustee (together with its successors and assigns in such capacity, the "Trustee") and (b) the Supplement dated as of December 13 relating to the Series 1994-1 Investor Revolving Certificates (the "Supplement"). This Certificate is one of the duly authorized Series 1994-1 Investor Revolving Certificates designated and issued under the Pooling Agreement and the Supplement. Except as otherwise defined herein, capitalized terms have the meanings that the Supplement or Appendix A to the Pooling Agreement assigns to them. This Certificate is subject to the terms, provisions and conditions of, and is entitled to the benefits afforded by, the Pooling Agreement, to which terms, provisions and conditions the Holder of this Certificate by virtue of the acceptance hereof assents and by which the Holder is bound. The Series 1994-1 Investor Revolving Certificates are a Senior Class. This Certificate evidences the amount of Purchases (as defined in the Revolving Certificate Purchase Agreement) made by the Holder hereof that are from time to time outstanding. The Holder hereof shall and is hereby authorized to record on the grid attached to this Certificate (or at such Holder's option, in its internal books and records) the date and amount of each Purchase made by it, the portion of its outstanding Purchases that are from time to time allocated to the ABR Tranche and any Eurodollar Tranche, the amount of each repayment of the principal amount represented by this Certificate and any reductions to the Stated Amount of this Certificate made pursuant to Section 2.03 of the Revolving Certificate Purchase Agreement; provided, however, that failure to make any such recordation on the grid or records or any error in the grid or records shall not adversely affect the Holder's rights with respect to its interest in the assets of the Trust and its right to receive Investor page 2 Revolving Yield in respect of the outstanding principal amount of all Purchases made by the Revolving Purchasers. Investor Revolving Yield shall accrue on this Certificate as set forth in the Pooling Agreement, the Revolving Certificate Purchase Agreement and the Supplement. This Certificate is subject to prepayment prior to the maturity hereof to the extent set forth in the Pooling Agreement and the Supplement. The Pooling Agreement, the Revolving Certificate Purchase Agreement and the Supplement may be amended and the rights and obligations of the parties thereto and of the Holder of this Certificate modified as set forth in the Pooling Agreement, the Revolving Certificate Purchase Agreement and the Supplement. Unless the certificate of authentication hereon shall have been executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, this Certificate shall not entitle the Holder hereof to any benefit under the Transaction Documents or be valid for any purpose. This Certificate does not represent a recourse obligation of, or an interest in, ARC, any Seller, the Servicer, the Trustee or any Affiliate of any of them. This Certificate is limited in right of payment to the Trust Assets. As provided in the Pooling Agreement, and subject to the restrictions on sale, transfer and disposition set forth in the Transaction Documents, upon surrender for registration of transfer of this Certificate at any office or agency of the Transfer Agent and Registrar maintained for that purpose, ARC shall execute and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of the same Class and Series that is/are in authorized denominations of like aggregate fractional interests in the assets of the Trust of the Series 1994-1 Investor Revolving Certificates, and that bear(s) a number that is not contemporaneously outstanding. As provided in the Pooling Agreement, and subject to the restrictions on exchange set forth in the Transaction Documents, at the option of the Holder, this Certificate may be exchanged for other Certificates of the same Class and Series of authorized denominations of like aggregate fractional interests in the Revolving Certificate Interest of the Series 1994-1 Investor Revolving Certificates and bearing numbers that are not contemporaneously outstanding, upon surrender of this Certificate to be exchanged at any such office or agency. If this Certificate is so surrendered for exchange, ARC shall execute, and the Trustee shall authenticate and deliver, the appropriate number of Certificates of the same Class and Series. If this Certificate is presented or surrendered for registration of transfer or exchange, it shall be accompanied by a written instrument of transfer in a form satisfactory to the page 3 Trustee and the Transfer Agent and Registrar duly executed by the Holder hereof or his attorney-in-fact duly authorized in a writing delivered to the Transfer Agent and Registrar. By its acceptance of this Certificate, each Holder hereof (a) acknowledges that it is the intent of ARC, and agrees that it is the intent of the Holder that, for Federal, state and local income and franchise tax purposes only, the Investor Certificates (including this Certificate) will be treated as evidence of indebtedness secured by the Trust Assets and the Trust not be characterized as an association taxable as a corporation, (b) agrees to treat this Certificate for Federal, state and local income and franchise tax purposes as indebtedness and (c) agrees that the provisions of the Transaction Documents shall be construed to further these intentions of the parties. This Certificate shall be construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles, and all obligations, rights and remedies under or arising in connection with this Certificate shall be determined in accordance with the laws of the State of New York. IN WITNESS WHEREOF, ARC has caused this Certificate to be executed by its officer thereunto duly authorized. AMERISOURCE RECEIVABLES CORPORATION By: _______________________________ Title: ___________________________ page 4 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Series 1994-1 Investor Revolving Certificates referred to in the Pooling Agreement. MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee By: ___________________________________ Title: _______________________________ Dated: ______________, ____ page 5 PURCHASES AND REPAYMENTS
Principal Amount of Outstanding Purchase Principal Amount Purchased Repaid Balance Stated Amount - - - ------------------ ----------------- ------------------ -------------------- Yield Base Eurodollar Period (if Base Eurodollar Base Eurodollar Rate Rate applicable) Rate Rate Rate Rate Reduction Net - - - ---------------------------------------------------------------------------------------------------- ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ____________________________________________________________________________________________________
page 6 EXHIBIT D to Revolving Certificate Purchase Agreement Series 1994-1 FORM OF ASSIGNMENT AGREEMENT ---------------------------- This ASSIGNMENT AGREEMENT, dated as of ____________ (this "Agreement"), is made between ____________________ (the "Assignor"), and _____________________ (the "Assignee"). Except as otherwise defined herein, capitalized terms have the meanings assigned to them in the Revolving Certificate Purchase Agreement (as defined below). BACKGROUND 1. The Assignor is a party to the Revolving Certificate Purchase Agreement, dated as of December 13, 1994 (as amended, supplemented or otherwise modified from time time, the "Revolving Certificate Purchase Agreement"), among AmeriSource Receivables Corporation, a Delaware corporation ("ARC"), AmeriSource Corporation, a Delaware corporation, the Revolving Purchasers party thereto (including the Assignor), and Bankers Trust Company, as the Agent and Revolving Purchaser. 2. The Assignor wishes to assign, and the Assignee wishes to be so assigned, the Assignor's rights and obligations arising on and after the Effective Date (as defined below) under the Revolving Certificate Purchase Agreement and its Certificate, including (a) its obligations to make Purchases (its "Credit Exposure") and (b) its outstanding Purchases (the "Purchases"). 3. The Assignor and the Assignee also wish (a) the Assignee to assume the obligations of the Assignor under the Revolving Certificate Purchase Agreement with respect to the Assignee's Share (as defined below) to the extent of the rights assigned and (b) the Assignor to be released from the obligations assumed by Assignee. 4. ARC, by its execution hereof, is providing its written consent to the assignment accomplished by this Agreement. SECTION 1. Assignment. Effective on the Effective Date (as defined below) ---------- and upon payment of the amount specified in Section 3(a), the Assignor hereby ------------ assigns and transfers to the Assignee, without recourse, representation or warranty of any kind, express or implied (except as provided in Sections 6(a) ------------- and (b)), and subject to Section 4(b), the Assignee's Share (as specified in --- ------------ Annex I hereto) (the "Assignee's Share") of all of the - - - ------- page 1 Assignor's rights, title and interest arising under (a) the Revolving Certificate Purchase Agreement relating to the Assignor's Credit Exposure including all rights and obligations with respect to the Purchases attributable to the Assignee's Share and (b) the Assignor's Certificate with respect to the Assignee's Share as will result in the Assignee having from and after the Effective Date the Percentage ("Assignee's Percentage") specified in Annex I. ------- The Stated Amount associated with Assignee's Share is also specified in Annex I. ------- SECTION 2. Assumption. Effective on the Effective Date, the Assignee ---------- hereby irrevocably purchases, assumes and takes from the Assignor, and the Assignor is hereby expressly and absolutely released from, all of the Assignor's obligations arising under the Revolving Certificate Purchase Agreement relating to the Assignee's Share and of any outstanding Purchases attributable to the Assignee's Share. SECTION 3. Payment. In consideration of the assignment by the Assignor to ------- the Assignee as set forth above, the Assignee agrees to pay to the Assignor, in Dollars and in immediately available funds, (a) on or prior to the Effective Date, an amount specified by the Assignor in writing on or prior to the Effective Date that represents the Assignee's Share attributable to the principal amount of the Purchases made pursuant to the Revolving Certificate Purchase Agreement and outstanding on the Effective Date, and (b) from time to time thereafter, other amounts (if any) that the Assignee has agreed in writing to pay to the Assignor after the Effective Date. In consideration of the assumption by the Assignee, the Assignor agrees to pay to the Assignee within two Business Days of the Effective Date, an assignment fee (if any) that previously has been agreed to in writing by both parties. Notwithstanding anything to the contrary in this Agreement, if and when the Assignee receives or collects (x) any payment of principal or Investor Revolving Yield relating to any Purchases or (y) any payment of fees that are required to be paid to the Assignor pursuant to this Agreement, then the Assignee shall forward the payment to the Assignor. To the extent payment of funds to the Assignee or the Assignor are not made within two Business Days, each, as the case may be, shall be entitled to recover the due amount, together with interest thereon at the Federal Funds Rate per annum accruing from the date of payment or the date of receipt of the funds by the other party. SECTION 4. Effectiveness. (a)(i) This Agreement shall become effective ------------- on the date (the "Effective Date") on which it shall have been duly executed by all parties and the Agent shall have recorded the information contained herein in its records (or automatically if not so recorded within five Business Days from the Agent's receipt of this Agreement signed by the Assignor, the Assignee and ARC). The Assignor hereby notifies the Agent of the assignment, effective as of the Effective Date, of the Assignee's Share and any Purchases attributable to the Assignee's Share, and directs the Agent to pay the Assignee (A) any payment of principal of, or Investor Revolving Yield on, any Purchase attributable to the Assignee's Share of any Purchases and (B) any Non-Usage Fees attributable to the page 2 Assignee's Share of the Credit Exposure. No (x) failure of either the Assignee or the Assignor to settle any amount owed to the other (except with respect to the payment of the processing and recordation fee to the Agent and the payment due under Section 3(a)), (y) dispute respecting any other settlement, including ------------ in respect of ARC, or (z) bankruptcy, insolvency or other condition whatsoever respecting any Person, shall in any way impair, reduce or otherwise affect the effectiveness of this Agreement. (ii) The Assignor, the Assignee and the Agent each acknowledges and agrees that from and after the Effective Date, the Agent shall make all payments under the Revolving Certificate Purchase Agreement in respect of the Assignee's Share (including all payments of principal, Investor Revolving Yield and Non-Usage Fees with respect thereto, whether or not the payments shall have accrued prior to or after the Effective Date) to the Assignee only. The Assignor and the Assignee hereby agree further to make all appropriate adjustments in payments to either of them under the Revolving Certificate Purchase Agreement for periods prior to the Effective Date directly between themselves. (b) With respect to any Purchase attributable to the Assignee's Share, if and when the Assignor receives or collects any payment of principal, Investor Revolving Yield, Non-Usage Fees or other fees with respect to the Assignee's Share for any period commencing on or after the Effective Date, the Assignor shall distribute to the Assignee the portion attributable to the Assignee's Share, but only to the extent it accrued on or after the Effective Date and was not theretofore paid to the Assignee by ARC or otherwise. Any principal, Investor Revolving Yield and Non-Usage Fees paid prior to the Effective Date shall be retained by the Assignor. Any principal, Investor Revolving Yield or Non-Usage Fees received by the Assignee that accrued prior to the Effective Date shall be forwarded promptly, in the form received, to the Assignor. The Assignee recognizes and agrees that (i) it shall receive no payment on account of any Agent's fees or other amounts or expenses (including counsel fees) payable to the Agent (in such capacities and for its own account), (ii) this Agreement shall not operate to assign any rights or delegate any obligations of the Agent (in such capacities), and (iii) notwithstanding anything to the contrary in this Agreement, the Assignor shall retain all of its rights to indemnification under the Revolving Certificate Purchase Agreement for any events, acts or omissions occurring prior to the Effective Date. (c) The Agent, by its execution hereof, acknowledges the assignment and agrees to make payments in respect of Investor Revolving Yield, reimbursements and fees as described in clause (a). ---------- SECTION 5. Rights as Revolving Purchaser under Revolving Certificate --------------------------------------------------------- Purchase Agreement. In accordance with Section 10.03 of the Revolving - - - ------------------ Certificate Purchase Agreement, (a) as of the Effective Date, the Assignee will be a Revolving Purchaser under, and party to, the Revolving Certificate Purchase Agreement and shall have (i) all of the rights and obligations of a Revolving Purchaser (to the extent of the assignment and page 3 assumption of the Assignee's Share effected by this Agreement) and (ii) the addresses for (A) notice purposes and (B) LIBOR Office as set forth in items 2 and 3, respectively, of Annex I hereto and (b) promptly on or after the ------- Effective Date, ARC will execute and deliver any documents and instruments that the Assignor or the Assignee reasonably may require. SECTION 6. Representations and Warranties. (a) Each of the Assignor and ------------------------------ the Assignee represents and warrants to the other as follows: (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Agreement, to fulfill the obligations hereunder and to consummate the transactions contemplated hereby, (ii) the making and performance of this Agreement and all documents required to be executed and delivered hereunder do not and will not violate any law or regulation of the jurisdiction of its incorporation or any other applicable law or regulation, (iii) this Agreement has been duly executed and delivered and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, and (iv) all approvals, authorizations or other actions by, or filing with, any Governmental Authority necessary for the validity or enforceability of its obligations under this Agreement have been obtained. (b) The Assignor represents and warrants to the Assignee that the Assignee's Share and the Purchases attributable to the Assignee's Share are not subject to any liens or security interests created by the Assignor. (c) Except as set forth in subsections (a) and (b), the Assignor makes no --------------- --- representations or warranties, express or implied, to the Assignee and shall not be responsible to the Assignee for (i) the execution, effectiveness, genuineness, legality, validity, enforceability, collectibility, regulatory status or sufficiency of the Revolving Certificate Purchase Agreement or any of the other Transaction Documents, (ii) the perfection, priority, value or adequacy of any collateral security or guaranty, (iii) the taking of any action, or the failure to take any action, with respect to any of the Transaction Documents, (iv) any representations, warranties, recitals or statements made in any of the Transaction Documents or in any written or oral financial or other statements, instruments, reports, certificates or documents made or furnished by the Assignor to the Assignee or by or on behalf of ARC or any of its Affiliates to the Assignor or the Assignee in connection with the Transaction Documents and the transactions contemplated thereby, (v) the financial or other condition of ARC or any other Person or (vi) any other matter having any relation to any of the foregoing. The Assignor shall not be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or page 4 agreements contained in any of the Transaction Documents or the existence or possible existence of any Unmatured Liquidation Event, Liquidation Event or Servicer Default. Additionally, the Assignor shall not have any duty or responsibility either initially or on a continuing basis to make any investigation or any appraisal on the Assignee's behalf or to provide the Assignee with any credit or other information with respect thereto, whether coming into the Assignor's possession before the execution of the Revolving Certificate Purchase Agreement or at any time thereafter. The Assignor shall have no responsibility with respect to the accuracy of, or the completeness of, any information provided to the Assignee, whether by the Assignor or by or on behalf of ARC or any other Person obligated under the Revolving Certificate Purchase Agreement or any related instrument or document. (d) The Assignee represents and warrants that it has made its own independent investigation of each of the foregoing matters, including the financial condition and affairs of ARC and its Affiliates, in connection with the making of the Purchases and the execution of this Agreement (including the solvency of ARC and its Affiliates, their ability to pay their respective debts as they mature and the capital of ARC and its Affiliates remaining after the closing under the Transaction Documents and the consummation of the transactions contemplated thereby) and has made and shall continue to make its own appraisal of the creditworthiness of ARC and its Affiliates. The Assignee (i) confirms that it has received copies of the Transaction Documents together with copies of certain other closing documents delivered in connection with the Revolving Certificate Purchase Agreement, financial statements and any other documents and information that it has requested or deemed appropriate to make its own credit analysis and decision to enter into this Agreement and (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Revolving Purchaser and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Transaction Documents. SECTION 7. No Proceedings and Confidentiality. The Assignee hereby agrees ---------------------------------- to be bound by the provisions of Sections 10.14 and 10.15 of the Revolving Certificate Purchase Agreement. SECTION 8. [Withholding Taxes. In accordance with Section 4.06 of the ----------------- Revolving Certificate Purchase Agreement, the Assignee agrees to execute and deliver to the Agent, for delivery to ARC, on or before the Effective Date, and thereafter before January 15th of each year, (a) an Internal Revenue Service Form 1001 or 4224 or successor applicable form, properly completed and duly executed by the Revolving Purchaser certifying that it is entitled to receive payments under the Revolving Certificate Purchase Agreement without deduction or withholding of any United States Federal income taxes, and (b) an original copy of Internal Revenue Service Form W-8 or W-9 or applicable successor form, properly completed and duly executed. The Assignee represents and warrants to ARC and the Assignor that, as of the Effective Date, it shall be entitled to receive payments of principal and Investor Revolving Yield hereunder without deduction for or on account of any taxes page 5 imposed by the United States of America or any political subdivision thereof. In the event that, after delivering the applicable form, the Assignee shall cease to be exempt from withholding and/or deduction of taxes, then the Agent may withhold and/or deduct the applicable amount from any payments of principal, Investor Revolving Yield and any fees to which the Assignee otherwise would be entitled, and the Agent shall have no liability whatsoever to the Assignee for any such withholding or deduction. The Assignee shall indemnify ARC and the Agent from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or expenses that result from the Assignee's breach of such representation and warranty./*/ SECTION 9. ]Miscellaneous. (a) Each of the parties hereto agrees to take ------------- any action and execute and deliver any documents that any party hereto reasonably may request from time to time in order to implement more fully the purposes of this Agreement. Without limiting the generality of the foregoing, the Assignor and the Assignee will cooperate in obtaining for the Assignee a Certificate (as well as a replacement Certificate for the Assignor representing any retained interest of the Assignor). (b) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. (c) Except as otherwise set forth herein, this Agreement sets forth the entire agreement between the parties relating to the subject matter hereof, and no term or provision of this Agreement may be amended, changed, waived, discharged or terminated orally or otherwise, except in a writing signed by the Assignor and the Assignee. (d) This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which together shall constitute one and the same instrument. (e) Each of the parties hereto agrees that each party shall bear its own expenses in connection with the preparation and execution of this Agreement and the consummation of the Assignment described herein. The Assignee further agrees that it shall send a check in the amount of $3,000 to the Agent on or prior to the Effective Date, as payment of the processing and recordation fee described in Section 10.3(c) of the Revolving Certificate Purchase Agreement. (f) All representations and warranties made, and indemnities provided for, herein shall survive the consummation of the transactions contemplated hereby. ____________________________ /*/ If the Assignee is a foreign entity. page 6 (g) The Assignor may at any time or from time to time grant assignments and participations in its rights and obligations under the Revolving Certificate Purchase Agreement and its Certificate to other Persons, but not in the portions thereof assigned to the Assignee. (h) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither the Assignor nor the Assignee may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the other party. The preceding sentence shall not limit the right of the Assignee to assign all or part of the Assignee's Share in the manner contemplated by the Revolving Certificate Purchase Agreement. (i) The Assignee acknowledges that all obligations of the Agent are subject to Article IX of the Revolving Certificate Purchase Agreement. page 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized officers and delivered as of the day and year first above written. _____________________________, as Assignor By: _________________________ Title: _____________________ _____________________________, as Assignee By: _________________________ Title: _____________________ The undersigned hereby acknowledges the terms and provisions of this Agreement, and agrees to make payments in respect of principal, Investor Revolving Yield and fees as described in Section 4(a). ------------ BANKERS TRUST COMPANY, as the Agent By: _______________________ Title: ___________________ page 8 ANNEX I to the Assignment Agreement ITEM 1. ASSIGNEE'S SHARE: (a) Assignee's Stated Amount $______________ (b) Assignee's Percentage ______________% ITEM 2. ADDRESS OF ASSIGNEE FOR NOTICE PURPOSES: __________________________________ __________________________________ __________________________________ Attention: _______________________ Telephone: _______________________ Facsimile: _______________________ ITEM 3. LIBOR OFFICE OF ASSIGNEE: __________________________________ __________________________________ __________________________________ page 9 || APPENDIX X to Revolving Certificate Purchase Agreement Series 1994-1 INDEX OF ADDITIONAL DEFINED TERMS --------------------------------- Agent..........................................................................1 Agreement......................................................................1 AmeriSource....................................................................1 ARC............................................................................1 Assignees.....................................................................25 Certificates...................................................................1 Confidential Information......................................................30 Credit Exposure...............................................................24 Financial Advisors............................................................14 Indemnitees...................................................................27 LIBOR Office...................................................................8 Non-Usage Fee..................................................................7 Participants..................................................................24 Percentage.....................................................................2 Pooling Agreement..............................................................1 Purchase.......................................................................2 Receivables Review............................................................20 Representative................................................................31 Required Revolving Purchasers.................................................19 Revolving Purchasers...........................................................1 Securities Act................................................................13 Servicer.......................................................................1 Specified Basis Points.........................................................7 Stated Amount..................................................................4 Supplement.....................................................................1 Taxes.........................................................................11 Transferee....................................................................26 Trust..........................................................................1 Trust Interest.................................................................1 Trustee........................................................................1 page 10
|| EX-4.14 8 SERIES 1994-1 SUPPLEMENT Exhibit 4.14 ================================================================================ SERIES 1994-1 SUPPLEMENT TO POOLING AND SERVICING AGREEMENT dated as of December 13, 1994 among AMERISOURCE RECEIVABLES CORPORATION, as transferor, AMERISOURCE CORPORATION, as initial Servicer, and MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee ================================================================================ TABLE OF CONTENTS
ARTICLE I DEFINITIONS; INCORPORATION OF TERMS OF POOLING AGREEMENT SECTION 1.01 Definitions .................................................. 1 SECTION 1.02 Incorporation of Terms andProvisions of the Pooling Agreement................................................... 5 ARTICLE II DESIGNATION SECTION 2.01 Designation .................................................. 5 ARTICLE III PAYMENTS SECTION 3.01 Payments ..................................................... 5 SECTION 3.02 Interest ..................................................... 5 SECTION 3.03 Principal Payments ........................................... 6 SECTION 3.04 Commitment Fees; Additional Amounts; Breakage Payment ........ 7 ARTICLE IV PAY-OUT EVENTS SECTION 4.01 Pay-Out Events ............................................... 7 ARTICLE V MISCELLANEOUS SECTION 5.01 Governing Law ................................................ 8 SECTION 5.02 Counterparts ................................................. 8 SECTION 5.03 Severability of Provisions ................................... 8 SECTION 5.04 Amendment, Waiver, Etc ....................................... 8 SECTION 5.05 The Trustee .................................................. 8 SECTION 5.06 Instructions in Writing ...................................... 8
EXHIBIT EXHIBIT A Form of Series 1994-1 Investor Revolving Certificate This Series 1994-1 SUPPLEMENT, dated as of December 13, 1994 (this "Supplement"), is made among AMERISOURCE RECEIVABLES CORPORATION, a Delaware corporation, as transferor ("ARC"), AMERISOURCE CORPORATION, a Delaware corporation ("AmeriSource"), as the initial Servicer (in that capacity, together with any successor in that capacity, the "Servicer"), and MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation, as Trustee (in that capacity, together with any successor in that capacity, the "Trustee"). Pursuant to the Pooling and Servicing Agreement, dated as of December 13, 1994, (as it may be amended, supplemented or otherwise modified from time to time, and as supplemented hereby, the "Pooling Agreement"), among ARC, the Servicer and the Trustee, ARC may from time to time direct the Trustee to issue, on behalf of the Trust, one or more Series of Investor Revolving Certificates representing undivided interests in the Trust. Certain terms applicable to a Series are to be set forth in a Supplement. This Supplement is a Supplement as such is defined in the Pooling Agreement. Pursuant to this Supplement, ARC and the Trustee shall create a Series of Investor Revolving Certificates and specify certain terms thereof. ARTICLE I DEFINITIONS; INCORPORATION OF TERMS OF POOLING AGREEMENT SECTION 1.01 Definitions. (a) Except as otherwise defined herein, ----------- capitalized terms have the meanings that Appendix A to the Pooling Agreement assigns to them, and this Supplement shall be interpreted in accordance with the conventions set forth in Parts B, C and D of that Appendix A. (b) Each capitalized term defined herein relates only to the Series 1994-1 Certificates and to no other Series of Certificates issued by the Trust. Whenever used in this Supplement, the following words and phrases shall have the following meanings: "ABR Tranche" means, at any time, the portion of the Series 1994-1 Invested Amount that is designated by ARC in accordance with the Revolving Certificate Purchase Agreement to accrue interest based on the Alternate Base Rate. "Alternate Base Rate" means, on any day, a fluctuating rate of interest per annum equal to the higher of: (a) the rate of interest most recently announced by the Reference Bank at its principal office as its prime lending rate, and Page 1 (b) the Federal Funds Rate plus 50 basis points. Any change in the interest rate resulting from a change in the prime lending rate announced by the Reference Bank shall become effective without prior notice to ARC or the Servicer as of 12:01 a. m., New York City time, on the Business Day on which each change in the prime lending rate is announced by the Reference Bank. The prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged by the Reference Bank to any customer. The Reference Bank may make commercial loans or other loans at rates of interest at, above or below the prime lending rate. "Applicable Margin" means: (a) with respect to any Eurodollar Tranche and any period set forth below, the number of basis points set forth opposite the period:
Period Basis Points ------ ------------ Closing to the date six months after the Closing Date 50 then to the date nine months after the Closing Date 62.5 then to the date one year after the Closing Date 75 thereafter 150
(b) with respect to any ABR Tranche and any period set forth below, the number of basis points set forth opposite the period:
Period Basis Points ------ ------------ Closing to the date one year after the Closing Date 0 thereafter 50
"Applicable Ratings Agencies" means each of the nationally recognized statistical rating agencies that, at the request of ARC, at that time maintains a credit rating of the Series 1994-1 Certificates. "Base Amount" means the Base Amount as calculated pursuant to Section 4.03(b) of the Pooling Agreement; provided, however, that upon ARC's giving of notice to the Revolving Purchasers, pursuant to Section 2.03 of the Revolving Certificate Purchase Agreement for this Series, that each of their Stated Amounts is to be reduced to zero due to the issuance of another Series of Certificates (the "Take-out Certificates"), the Base Amount shall equal the lower of (a) the Base Amount as calculated for purposes of the Series 1994-1 Certificates and (b) the Base Amount as calculated for purposes of the Take-out Certificates that are to be issued. Page 2 "Eligible Institution" means a bank that has a long-term debt rating of at least "A" by S&P or is otherwise approved by the Applicable Rating Agencies. "Eurodollar Tranche" means, during any Yield Period, any portion of the Series 1994-1 Invested Amount that has been designated by ARC in accordance with the Revolving Certificate Purchase Agreement to accrue interest based on LIBOR. Pursuant to the Revolving Certificate Purchase Agreement, there may be up to four Eurodollar Tranches outstanding at any time. "Expected Final Payment Date" means, with respect to the Series 1994-1 Certificates, the Settlement Date that is 60 months after the Closing Date. "Federal Funds Rate" means the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for the day (or, if the day is not a Business Day, the immediately preceding Business Day) by the Federal Reserve Bank of New York; provided, that, if the rate is not so published for any Business Day, the rate for purposes of this clause will be the average of the quotations for the day on such transactions received by the Reference Bank from three Federal funds brokers of recognized standing selected by it. "LIBOR" means, with respect to any Yield Period, the rate per annum equal to (a) the rate at which deposits in Dollars are offered by the Reference Bank to first-class banks in the London interbank market at approximately 11:00 a. m., London time, two Business Days prior to the first day of the relevant Yield Period, such deposits being in the approximate amount of and having a Yield Period equivalent to the Eurodollar Tranche to be funded or maintained, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to the Yield Period. LIBOR shall be rounded, if necessary, to the next higher of 1/16 of 1%. "Pay-Out Event" is defined in Section 4.01 of this Supplement. ------------ "Reference Bank" means the Agent under the Revolving Certificate Purchase Agreement. "Reserve Requirement" means the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) that is imposed against the Reference Bank in respect of Eurocurrency liabilities, as defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Revolving Certificate Purchase Agreement" means the Revolving Certificate Purchase Agreement dated as of the date hereof among ARC, AmeriSource, the Revolving Purchasers named therein and Bankers Trust Company, as Agent and Revolving Purchaser, as it may be amended, supplemented or otherwise modified from time to time. Page 3 "Sale Date" means, with respect to the Series 1994-1 Certificates, the Settlement Date that is 70 months after the Closing Date. "Scheduled Final Payment Date" means the Sale Date. "Scheduled Pay-Out Commencement Date" means the first day of the October, 1999 Calculation Period. "Series 1994-1 Certificate" means any Certificate issued pursuant to this Supplement and the Revolving Certificate Purchase Agreement, substantially in the form of Exhibit A to this Supplement. --------- "Series 1994-1 Initial Invested Amount" means $0. "Series 1994-1 Invested Amount" means, at any time, an amount equal to (a) the sum of (i) the Series 1994-1 Initial Invested Amount, plus (ii) all additions made to the Series 1994-1 Invested Amount pursuant to Section 4.03 of the Pooling Agreement plus (iii) all additions to the principal amount of Series 1994-1 Certificates made pursuant to Section 6.11 of the Pooling Agreement, minus (b) the sum of (i) all reductions in the Series 1994-1 Invested Amount made pursuant to Section 4.03 of the Pooling Agreement, (ii) the aggregate amount of all other principal payments made to the Holders of the Series prior to that time in respect of the Series, (iii) the aggregate amount of all funds on deposit in the Principal Funding Account and the Defeasance Account with respect to the Series and (iv) any Investor Allocable Charged-Off Amounts (net of Investor Net Recoveries) allocated to the Series. "Series 1994-1 Investor Revolving Certificate Rate" means, at any time, the weighted average of the interest rates on all outstanding Tranches. "Tranche" means each of the ABR Tranche and each Eurodollar Tranche. "Yield Period" means, with respect to the Series 1994-1 Certificates: (a) as to the ABR Tranche (if any) from time to time, each period from one Settlement Date to the next Settlement Date (except that the initial Yield Period shall commence on the Closing Date), and (b) as to each Eurodollar Tranche (if any) from time to time, each period from the date upon which it was first designated as such pursuant to the Revolving Certificate Purchase Agreement (or the end of the next preceding Yield Period for such Eurodollar Tranche, if there has been one) to the corresponding date in the next calendar month; provided, that (i) if there is no corresponding date, the Yield Period will end on the last day of the next calendar month and (ii) if any Yield Period for a Eurodollar Tranche would otherwise end on a day that is not a Business Day, such Page 4 Eurodollar Tranche shall instead end on the next Business Day (or, if the next Business Day falls in the next calendar month, then the Yield Period shall end on the next preceding Business Day). SECTION 1.02 Incorporation of Terms and Provisions of the Pooling ---------------------------------------------------- Agreement. --------- This Supplement hereby incorporates by reference the terms and provisions of the Pooling Agreement as if they were set forth in full herein. As supplemented by this Supplement, the Pooling Agreement is hereby in all respects ratified and confirmed and both together shall be read, taken and construed as one and the same agreement. In the event of any conflict or inconsistency between the terms of this Supplement and the terms of the Pooling Agreement as the terms apply to any of the Series 1994-1 Certificates, the terms of this Supplement shall control. ARTICLE II DESIGNATION SECTION 2.01 Designation. There is hereby created a Series of ----------- Investor Revolving Certificates to be issued pursuant to the Pooling Agreement and this Supplement to be known as "Series 1994-1 Certificates." Subject to the conditions set forth in the Revolving Certificate Purchase Agreement, the Trustee shall authenticate and deliver the Series 1994-1 Certificates, to or upon the order of ARC, in an aggregate stated amount equal to $230,000,000. The Series 1994-1 Certificates shall be authenticated and delivered in the manner and at the times for authentication and delivery of Investor Revolving Certificates that are specified in Article VI of the Pooling Agreement. The Series 1994-1 Certificates are a Senior Class. ARTICLE III PAYMENTS SECTION 3.01 Payments. Except as expressly provided otherwise in -------- this Supplement, interest and principal shall be distributed in respect of the Series 1994-1 Certificates at the times described in, and in the amounts calculated pursuant to, Articles IV and V of the Pooling Agreement for payments that are to be made with respect to Investor Revolving Certificates. SECTION 3.02 Interest. (a) ARC shall have the right from time to -------- time to allocate the outstanding principal amount under the 1994-1 Certificates to multiple Tranches: up to four Eurodollar Tranches and an ABR Tranche. Interest on the ABR Tranche shall be payable on each Settlement Date, and interest on a Eurodollar Tranche shall be payable at the Page 5 end of the applicable Yield Period, except that interest on the amount of any principal repaid on any other date shall be payable on the date of the repayment. (b) Interest on a Eurodollar Tranche shall accrue during any Yield Period at a rate per annum equal to the Applicable Margin plus the applicable LIBOR and shall be calculated on the basis of actual days over a year of 360 days. (c) Interest on the ABR Tranche shall accrue (i) during the period from the Closing Date to (and including) the 75th day following the Closing Date, at 125 basis points over the Federal Funds Rate in effect from time to time, and (ii) thereafter at the Applicable Margin plus the Alternate Base Rate in effect from time to time. The interest shall be calculated on the basis of actual days over a year of 365 or 366 days, as the case may be. (d) Interest with respect to the Series 1994-1 Certificates due but not paid on any Settlement Date or the last day of a Yield Period, as the case may be, will be due on the next Settlement Date or last day of the next Yield Period with additional interest on the amount at 2% above the applicable Certificate Rate to the extent permitted by law. SECTION 3.03 Principal Payments. (a) Prior to the earlier of the ------------------ Liquidation Commencement Date and the Pay-Out Period Commencement Date, the outstanding principal amount of the 1994-1 Certificates shall vary from time to time as positive Variable Amounts and other amounts are allocated (in whole or in part) to increase the Series 1994-1 Invested Amount and as Collections are allocated to repay (in whole or in part) the Series 1994-1 Invested Amount. In any event, the principal amount of any Series 1994-1 Certificate outstanding at any time shall not exceed its Stated Amount. (b) After the commencement of the Liquidation Period or the Pay-Out Period with respect to Series 1994-1 Certificates, no further increases in the Investor Revolving Invested Amount of the Series 1994-1 Certificates shall be made. On each Business Day during the Pay-Out Period for Series 1994-1 Certificates (until the Series 1994-1 Invested Amount has been provided for in full), the Servicer shall allocate a portion of the Collections available in the Master Collection Account, after making any required transfers to the Carrying Cost Account, to the Series 1994-1 Invested Amount and transfer the portion to the Defeasance Account. The portion of Collections so allocated and transferred shall equal (i) the Defeasance Allocation Percentage for the Series 1994-1 Certificates multiplied by (ii) the amount of the available Collections. The amounts so allocated to the Defeasance Account during each Calculation Period shall be paid to the Holders of the Series 1994-1 Certificates in reduction of the Series 1994-1 Invested Amount on the next Settlement Date or on an earlier date that ARC may elect; provided, however, that if the Liquidation Period commences at a time when any such amounts are being held in the Defeasance Account, the amounts being so held shall be reallocated to the Master Collection Account for application along with the other amounts held therein. Page 6 (c) If the Liquidation Period commences at any time when the Series 1994-1 Invested Amount is greater than zero, the Series 1994-1 Certificates shall thereafter be entitled to receive, on each Settlement Date occurring after the Calculation Period in which the Liquidation Period commences (and until the principal outstanding under the 1994-1 Certificates has been paid in full) funds in an amount equal to the Principal Distribution Amount with respect to the Series 1994-1 Certificates. SECTION 3.04 Commitment Fees; Additional Amounts; Breakage Payments. (a) ------------------------------------------------------ Non-Usage Fees and other fees payable by ARC to the Revolving Purchasers and the Agent under the Revolving Certificate Purchase Agreement and one or more fee letters executed by ARC shall be payable from funds available for allocation under clause Seventh of Section 4.03(g) of the Pooling Agreement or clause Third of Section 4.03(h) of the Pooling Agreement, as applicable. (b) Additional amounts and breakage payments on account of increased costs relating to eurodollar funding, capital costs, breakage of a Eurodollar Tranche, changes in tax laws and certain indemnity obligations payable under the Revolving Certificate Purchase Agreement shall be payable from funds available for allocation under clause Seventh of Section 4.03(g) or clause Third of Section 4.03(h) of the Pooling Agreement, as applicable. (c) The rating of the Series 1994-1 Certificates will not address the likelihood of payment of any such fees, additional amounts or breakage payments. ARTICLE IV PAY-OUT EVENTS SECTION 4.01 Pay-Out Events. Any of the following shall be a "Pay-Out -------------- Event" with respect to the Series 1994-1 Certificates: (a) The Majority Investors do not declare a Liquidation Commencement Date with respect to a Liquidation Event described in clause (a), (b) or (f) of Section 9.01 of the Pooling Agreement, and Holders of Investor Certificates representing more than 50% of the Series 1994-1 Invested Amount declare that a Pay-Out Event has occurred. (b) The Series 1994-1 Certificates shall cease to be rated "A" or better by S&P and such condition shall continue for a period of 90 days; provided, that during such period ARC, AmeriSource and the Holders of the Certificates shall cooperate in good faith to make such changes to the Program and the Certificates that may be required to restore the rating; and provided further that no such party shall be required to consent to any amendment to a Page 7 Transaction Document that it determines in its sole and reasonable discretion to be materially adverse to its own interests. (c) The Scheduled Pay-Out Commencement Date shall occur. ARTICLE V MISCELLANEOUS SECTION 5.01 Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. SECTION 5.02 Counterparts. This Supplement may be executed in any number ------------ of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which together shall constitute one and the same instrument. SECTION 5.03 Severability of Provisions. If any one or more of the -------------------------- provisions or terms of this Supplement shall for any reason whatsoever be held invalid, then the unenforceable provision(s) or term(s) shall be deemed severable from the remaining provisions or terms of this Supplement and shall in no way affect the validity or enforceability of the other provisions or terms of this Supplement. SECTION 5.04 Amendment, Waiver, Etc. The provisions of this Supplement ----------------------- may be amended, modified or waived from time to time by the Servicer, ARC and the Trustee with the consent of the Required Series Holders of the Series 1994-1 Certificates to the extent permitted by Section 13.01 of the Pooling Agreement, and the terms of that section shall apply to any such amendment, modification or waiver. SECTION 5.05 The Trustee. The Trustee shall not be responsible in any ----------- manner whatsoever for or in respect of the validity or sufficiency of this Supplement or for or in respect of the recitals contained herein, all of which recitals are made solely by ARC and the Servicer. SECTION 5.06 Instructions in Writing. All instructions given by the ----------------------- Servicer to the Trustee pursuant to this Supplement shall be in writing, and may be included in a Daily Report or Settlement Statement. Page 8 IN WITNESS WHEREOF, ARC, the Servicer and the Trustee have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. AMERISOURCE RECEIVABLES CORPORATION, as transferor By: _________________________________________ Title: _____________________________________ Address: P.O. Box 1735 Southeastern, Pennsylvania 19399-1735 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 AMERISOURCE CORPORATION, as initial Servicer By: _________________________________________ Title: _____________________________________ Address: 300 Chester Field Parkway Malvern, Pennsylvania 19355 Attention: Kurt Hilzinger Telephone: (610) 296-4480 Facsimile: (610) 993-9085 MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee By: _________________________________________ Title: Trust Officer Address: One M&T Plaza - 7th Floor Buffalo, New York 14203 Attention: Russell Whitley Telephone: (716) 842-5602 Facsimile: (716) 842-4474 STATE OF ___________ ) ) COUNTY OF __________ ) On the _____ day of December, 1994 before me personally came ____________, who being by me duly sworn, did depose and say that he resides at __________________, that he is the ______________ of AmeriSource Receivables Corporation, a Delaware corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this _____ day of December, 1994. _________________________________ Notary Public Type or Print Name: _____________________ My commission expires: ___________________ STATE OF ___________ ) ) COUNTY OF __________ ) On the _____ day of December, 1994 before me personally came ____________, who being by me duly sworn, did depose and say that he resides at __________________, that he is the ______________ of AmeriSource Corporation, a Delaware corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this _____ day of December, 1994. _________________________________ Notary Public Type or Print Name: _____________________ My commission expires: ___________________ STATE OF ___________ ) ) COUNTY OF __________ ) On the _____ day of December, 1994 before me personally came ____________, who being by me duly sworn, did depose and say that he resides at __________________, that he is the ______________ of Manufacturers and Traders Trust Company, a New York banking corporation, the corporation described in and that executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of the corporation. Given under my hand and notarial seal, this _____ day of December, 1994. _________________________________ Notary Public Type or Print Name: _____________________ My commission expires: ___________________ EXHIBIT A to the Series 1994-1 Supplement FORM OF SERIES 1994-1 INVESTOR REVOLVING CERTIFICATE ---------------------------------------------------- THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE CERTIFICATEHOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A "QUALIFIED INSTITUTIONAL BUYER"), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND WHOM THE CERTIFICATEHOLDER HAS INFORMED, IN EACH CASE, THAT THE OFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN A TRANSACTION COMPLYING WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND THE TRUSTEE AND ARC RECEIVES WRITTEN REPRESENTATIONS OF THE TRANSFEROR AND TRANSFEREE SATISFACTORY TO THE TRUSTEE AND ARC REGARDING THE DISPOSITIONS, AND, IF THE TRUSTEE OR ARC SO REQUIRES, AN OPINION OF COUNSEL OF THE TRANSFEROR SATISFACTORY TO THE TRUSTEE AND ARC WITH RESPECT TO THE AVAILABILITY OF SUCH EXEMPTION PRIOR TO THE RESALE OR TRANSFER. WITH RESPECT TO CLAUSES (1), (2) AND ----------- --- (3), SUBJECT TO THE RECEIPT BY THE TRUSTEE OF OTHER EVIDENCE ACCEPTABLE TO THE - - - --- TRUSTEE THAT THE OFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA OR OTHER APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. Page 1 AMERISOURCE RECEIVABLES MASTER TRUST SERIES 1994-1 INVESTOR REVOLVING CERTIFICATE Initial Stated Amount: $230,000,000 Percentage Interest evidenced by this Certificate: 100% Initial Cut-Off Date: December 12, 1994 First Distribution Date: Settlement Date relating to November 1994 Cut-Off Date THIS CERTIFIES THAT Bankers Trust Company is the registered owner of a nonassessable, fully-paid, fractional undivided interest in the AmeriSource Receivables Master Trust (the "Trust") that was created pursuant to (a) the Pooling and Servicing Agreement, dated as of December 13, 1994 (as the same may be amended, supplemented, amended and restated or otherwise modified from time to time, the "Pooling Agreement"), among AmeriSource Receivables Corporation, a Delaware corporation, as transferor ("ARC"), AmeriSource Corporation, a Delaware corporation, as initial Servicer (in such capacity, the "Servicer"), and Manufacturers and Traders Trust Company, a New York banking corporation, as trustee (together with its successors and assigns in such capacity, the "Trustee") and (b) the Supplement dated as of December 13 relating to the Series 1994-1 Investor Revolving Certificates (the "Supplement"). This Certificate is one of the duly authorized Series 1994-1 Investor Revolving Certificates designated and issued under the Pooling Agreement and the Supplement. Except as otherwise defined herein, capitalized terms have the meanings that the Supplement or Appendix A to the Pooling Agreement assigns to them. This Certificate is subject to the terms, provisions and conditions of, and is entitled to the benefits afforded by, the Pooling Agreement, to which terms, provisions and conditions the Holder of this Certificate by virtue of the acceptance hereof assents and by which the Holder is bound. The Series 1994-1 Investor Revolving Certificates are a Senior Class. This Certificate evidences the amount of Purchases (as defined in the Revolving Certificate Purchase Agreement) made by the Holder hereof that are from time to time outstanding. The Holder hereof shall and is hereby authorized to record on the grid attached to this Certificate (or at such Holder's option, in its internal books and records) the date and amount of each Purchase made by it, the portion of its outstanding Purchases that are from time to time allocated to the ABR Tranche and any Eurodollar Tranche, the amount of each repayment of the principal amount represented by this Certificate and any reductions to the Stated Amount of this Certificate made pursuant to Section 2.03 of the Revolving Certificate Purchase Agreement; provided, however, that failure to make any such recordation on the grid or records or any error in the grid or records shall not adversely affect the Holder's rights with respect to its interest in the assets of the Trust and its right to receive Investor Page 2 Revolving Yield in respect of the outstanding principal amount of all Purchases made by the Revolving Purchasers. Investor Revolving Yield shall accrue on this Certificate as set forth in the Pooling Agreement, the Revolving Certificate Purchase Agreement and the Supplement. This Certificate is subject to prepayment prior to the maturity hereof to the extent set forth in the Pooling Agreement and the Supplement. The Pooling Agreement, the Revolving Certificate Purchase Agreement and the Supplement may be amended and the rights and obligations of the parties thereto and of the Holder of this Certificate modified as set forth in the Pooling Agreement, the Revolving Certificate Purchase Agreement and the Supplement. Unless the certificate of authentication hereon shall have been executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, this Certificate shall not entitle the Holder hereof to any benefit under the Transaction Documents or be valid for any purpose. This Certificate does not represent a recourse obligation of, or an interest in, ARC, any Seller, the Servicer, the Trustee or any Affiliate of any of them. This Certificate is limited in right of payment to the Trust Assets. As provided in the Pooling Agreement, and subject to the restrictions on sale, transfer and disposition set forth in the Transaction Documents, upon surrender for registration of transfer of this Certificate at any office or agency of the Transfer Agent and Registrar maintained for that purpose, ARC shall execute and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Certificates of the same Class and Series that is/are in authorized denominations of like aggregate fractional interests in the assets of the Trust of the Series 1994-1 Investor Revolving Certificates, and that bear(s) a number that is not contemporaneously outstanding. As provided in the Pooling Agreement, and subject to the restrictions on exchange set forth in the Transaction Documents, at the option of the Holder, this Certificate may be exchanged for other Certificates of the same Class and Series of authorized denominations of like aggregate fractional interests in the Revolving Certificate Interest of the Series 1994-1 Investor Revolving Certificates and bearing numbers that are not contemporaneously outstanding, upon surrender of this Certificate to be exchanged at any such office or agency. If this Certificate is so surrendered for exchange, ARC shall execute, and the Trustee shall authenticate and deliver, the appropriate number of Certificates of the same Class and Series. If this Certificate is presented or surrendered for registration of transfer or exchange, it shall be accompanied by a written instrument of transfer in a form satisfactory to the Page 3 Trustee and the Transfer Agent and Registrar duly executed by the Holder hereof or his attorney-in-fact duly authorized in a writing delivered to the Transfer Agent and Registrar. By its acceptance of this Certificate, each Holder hereof (a) acknowledges that it is the intent of ARC, and agrees that it is the intent of the Holder that, for Federal, state and local income and franchise tax purposes only, the Investor Certificates (including this Certificate) will be treated as evidence of indebtedness secured by the Trust Assets and the Trust not be characterized as an association taxable as a corporation, (b) agrees to treat this Certificate for Federal, state and local income and franchise tax purposes as indebtedness and (c) agrees that the provisions of the Transaction Documents shall be construed to further these intentions of the parties. This Certificate shall be construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles, and all obligations, rights and remedies under or arising in connection with this Certificate shall be determined in accordance with the laws of the State of New York. IN WITNESS WHEREOF, ARC has caused this Certificate to be executed by its officer thereunto duly authorized. AMERISOURCE RECEIVABLES CORPORATION By: __________________________________ Title: ______________________________ Page 4 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Series 1994-1 Investor Revolving Certificates referred to in the Pooling Agreement. MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee By: _____________________________________ Title: _________________________________ Dated: December 13, 1994 Page 5 PURCHASES AND REPAYMENTS
Principal Amount of Outstanding Purchase Principal Amount Purchased Repaid Balance Stated Amount - - - ------------------ ---------------- ---------------------- ---------------- Yield Base Eurodollar Period (if Base Eurodollar Base Eurodollar Rate Rate applicable) Rate Rate Rate Rate Reduction Net - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ---------------------------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------------------------
Page 6 EX-10.13 9 JOINT DEFENSE EXHIBIT 10.13 JOINT DEFENSE MATERIAL PRIVILEGED AND CONFIDENTIAL AGREEMENT --------- THIS AGREEMENT is made as of October 14, 1994, among the undersigned corporations ("Party" and "Parties"), each of which is a defendant in at least one proceeding consolidated or coordinated for pre-trial purposes before the Hon. Charles P. Kocoras, in the United States District Court for the Northern District of Illinois under Prescription Drug Master File No. 94 C 897 (the "MDL Action"), or in related cases filed in state courts in Alabama, California and Wisconsin alleging that the Parties charged collusively inflated and/or discriminatory prices for prescription pharmaceutical products. Such cases already filed, along with any others that may be filed in the future based on allegations of similar conduct commencing before the effective date of this Agreement, are collectively referred to herein as the "Prescription Drug Cases." Some of these Prescription Drug Cases have been brought as purported class actions. The Parties include manufacturers of prescription pharmaceutical products ("Manufacturer Defendants") and wholesalers of prescription pharmaceutical products ("Wholesaler Defendants"). WHEREAS plaintiffs in some of the Prescription Drug Cases have brought claims against the Manufacturer Defendants under, among other statutes, Section 1 of the Sherman Act that the Manufacturer Defendants and Wholesaler Defendants believe to be without basis in fact; - 2 - WHEREAS such claims, in addition to being without basis in fact, have been brought by retail pharmacies which, in the great majority of instances, do not purchase prescription pharmaceutical products directly from the Manufacturer Defendants; WHEREAS such claims are generally barred by the decision in Illinois Brick -------------- Co. v. Illinois, 431 U.S. 720 (1977) ("Illinois Brick"), wherein the Supreme - - - --------------- -------------- Court of the United States ruled that those who do not purchase products directly from a manufacturer cannot assert antitrust damage claims under Section 1 of the Sherman Act against the manufacturer; WHEREAS some of those plaintiffs, in order to avoid the impact of the holding in Illinois Brick, have alleged that the Wholesaler Defendants from -------------- which they purchase prescription pharmaceutical products directly also violated Section 1 of the Sherman Act; WHEREAS those plaintiffs have no basis for suing the Wholesaler Defendants but, by filing suit, will require such defendants collectively to spend substantial sums in attorneys' fees and defense costs; WHEREAS the Wholesaler Defendants have filed, in the MDL Action, a motion to have the case against them dismissed, as it should be; WHEREAS the Manufacturer Defendants have been advised that the plaintiffs had offered to drop their claims against the - 3 - Wholesaler Defendants, if the Wholesaler Defendants would transfer to the plaintiffs any claims the Wholesaler Defendants may have against the Manufacturer Defendants as direct purchasers from them, and that the plaintiffs renewed that offer when the Wholesaler Defendants filed their motion to have the case against them dismissed; WHEREAS the Wholesaler Defendants do not wish to transfer to the plaintiffs any claims the Wholesaler Defendants may have against the Manufacturer Defendants, which claims the Wholesaler Defendants believe are completely without merit, but neither do they wish to spend substantial sums in defending themselves in the Prescription Drug Cases; WHEREAS the Wholesaler Defendants have asked the Manufacturer Defendants to reimburse them for certain defense costs in accordance with Part I below, and to permit them to join the judgment sharing arrangement set forth in Part II below, in return for which the Wholesaler Defendants will defend themselves on the merits in the Prescription Drug Cases (or settle on some other basis) rather than assigning to the plaintiffs claims that the Wholesaler Defendants do not believe are valid; and WHEREAS the Wholesaler Defendants will accept the consideration received by them pursuant to this Agreement in complete settlement of any claims they have or might have against any of the Manufacturer Defendants for any acts which are the subject of the Prescription Drug Cases, and will expressly release the Manufacturer Defendants for any liability thereon; - 4 - NOW THEREFORE PART I ------ 1. The undersigned Manufacturer Defendants shall reimburse the Wholesaler Defendants, which are parties to this Agreement, for the first $9 million in attorneys' fees and disbursements that such Wholesaler Defendants collectively have been or will be required to pay and/or incur to litigate Prescription Drug Cases brought against one or more Manufacturer Defendant. The amounts payable to individual Wholesaler Defendants from said $9 million shall be determined by agreement among the wholesaler Defendants in a manner designed by them equitably to share the burdens imposed on the Wholesaler Defendants by the Prescription Drug Cases. 2. The undersigned Manufacturer Defendants shall allocate any reimbursement payments made or to be made to the Wholesaler Defendants among Manufacturer Defendants according to the percentages set forth in Exhibit A annexed hereto and made a part hereof. Exhibit A is based on purchases in dollars of each Manufacturer Defendant's prescription pharmaceutical products by retail drug outlets in the United States made either from the manufacturers directly or through wholesalers. 3. Within thirty days after the effective date of this Agreement, and on a monthly basis thereafter, the Wholesaler Defendants, acting through Weil Gotshal & Manges or another entity designated by the wholesaler Defendants (the "Wholesaler - 5 - Defendants' Agent"), shall furnish to Simpson Thacher and Bartlett or another entity designated by the Manufacturer Defendants (the "Manufacturer Defendants' Agent") statements setting forth the amount of attorneys fees and disbursements for which each Wholesaler Defendant seeks reimbursement pursuant to this Agreement. The furnishing of such statements shall constitute (i) a representation by the respective Wholesaler Defendant's attorneys that the attorneys fees and disbursements set forth therein have been incurred in connection with one or more of the Prescription Drug Cases brought against one or more of the Manufacturer Defendants, are reasonable, comport with the Wholesaler Defendant's guidelines, if any, respecting the handling of litigation matters, and have been reviewed and approved by their Wholesaler Defendant client, and (ii) a representation by the Wholesaler Defendants' Agent that such defendants have agreed among themselves, pursuant to Section 1, above, that the statements should be reimbursed by the Manufacturer Defendants pursuant to this Agreement. The statements shall be paid by the Manufacturer Defendants within thirty days of receipt by the Manufacturer Defendants' Agent unless Manufacturer Defendants' Agent has a good faith objection thereto. 4. The Wholesaler Defendants hereby assign to the undersigned Manufacturer Defendants the rights, if any, of Wholesaler Defendants to recover from the plaintiffs, under Rule 11, Fed. R. Civ. P., 28 U.S.C. (S) 1927 or any other applicable provision or principle of state or federal law2, any and all costs - 6 - and/or attorneys fees incurred by them in defending against baseless charges in the Prescription Drug Cases to the extent that such attorneys fees and/or costs have been reimbursed by the Manufacturer Defendants under Section 1, above; and 5. The undersigned Wholesaler Defendants shall not assign to the plaintiffs or to any other person or entity the claims or causes of action, if any, that such Wholesaler Defendants have or may have against one or more of the Manufacturer Defendants for the acts that are the subject of the Prescription Drug Cases; and each of the undersigned Wholesaler Defendants shall execute a release in favor of each of the undersigned Manufacturer Defendants in the form attached as Exhibit B. - 7 - PART II ------- Section 1: Preamble -------- The Parties believe that they have no liability to the plaintiffs (including, without limitation, any and all purported classes or groups of plaintiffs) in the Prescription Drug Cases, and have expressly denied any and all such alleged liability. The Parties recognize, however, that, in the unlikely event that an adverse judgment is rendered against two or more of them, jointly and severally, in any Prescription Drug Case, the plaintiffs may attempt to satisfy, collect or enforce the entire amount of the judgment from or against any one of the Parties alone. The Parties further recognize that any judgment would be trebled and attorneys fees added because of the law applicable in antitrust cases. Accordingly, the Parties wish to provide for an equitable apportionment among themselves respecting the payment of any such judgment, and to avoid controversy, dispute or litigation among themselves with respect thereto. Section 2: Definitions ----------- The following terms shall be defined, solely for purposes of Part II of this Agreement, as follows: 2.1 "Party" or "Parties" shall mean a signatory to this Agreement, its subsidiaries and controlled affiliates and their successors and assigns. In the event that a successor to a Party ("Party A") is itself a Party ("Party B"), the obligations - 8 - of the successor entity under this Agreement shall be the sum of the obligations of Party A and Party B. 2.2 "Non-party Judgment Debtor" shall mean any person or entity other than a Party who is found jointly and severally liable in a Final Judgment together with a Party or Parties in any Prescription Drug Case. In the event that a Party becomes the successor to a Non-party Judgment Debtor, the succcessor Party shall be deemed to be a Non-party Judgment Debtor with respect to all obligations of the Non-party Judgment Debtor to which it succeeded. 2.3 "Claim" shall mean any demand in any Prescription Drug Case for damages, or for a refund or adjustment of prior charges, against more than one Party, based on conduct commencing before the date of this Agreement and extending up to the time of trial of such Prescription Drug Case, allegedly charging or agreeing to charge inflated or discriminatory prices for prescription pharmaceutical products in violation of the Sherman Act or any other statute or rule of law, state or federal, prohibiting such conduct. 2.4 "Claimant" shall mean any person (including, without limitation, any natural person and any legal entity of any type whatsoever) who asserts a Claim or on whose behalf a Claim is asserted. 2.5 "Final Judgment" shall mean any judgment or part thereof for money damages, entered jointly and severally, on any - 9 - Claim against two or more Parties in any Prescription Drug Case by the trial court under Fed. R. Civ. P. 58 or any analogous rule in state or federal court upon which execution may be had against one or more such Parties. A Final Judgment means not only damages awarded by the jury, but the tripling of such damages as required by law, together with any statutory penalties, punitive damages, and any sum awarded as attorneys' fees (for trial and, if applicable, for appellate review), taxable costs (for trial and, if applicable, for appellate review), and interest, less any payment or offset for prior settlements, or other deductions as required by law. 2.6 "Shared Judgment" shall mean any Final Judgment less amounts paid on such Final Judgment by Non-party Judgment Debtors or other payments reducing the amount of the Final Judgment which may legally be collected from the Parties. 2.7 "Manufacturer Shared Judgment" shall mean any Shared Judgment less amounts due on such Shared Judgment from Wholesaler Defendants under Section 3.2 of this Agreement. 2.8 "Settlement" shall mean any disposition of a Claim, in whole or in part, by agreement between a Party and a Claimant, at any time, irrespective of whether such disposition results in entry of judgment in favor of such Claimant. 2.9 "Amount Paid in Settlement" shall mean all consideration having a monetary value, including monetary consideration and goods and services, provided by a Party to a - 10 - Claimant pursuant to a Settlement with such Claimant, including, without limitation, any amounts paid for or attributed to costs of litigation or attorneys' fees. Injunctive relief agreed to in any Settlement with a Claimant shall, for the purpose of this provision, have no monetary value. 2.10 "Settling Party" means any Party to this Agreement who enters into a Settlement of any Claim in any Prescription Drug Case in whole or in part at any time. 2.11 "Payment" shall mean any amounts paid by any Party to this Agreement in satisfaction of all or any part of a Final Judgment entered against it, or deemed to have been entered against it as provided in Section 4.2 or Section 6 of this Agreement. 2.12 "Determination" shall mean (i) a ruling of the Court or, absent that, (ii) an answer to a special jury interrogatory or a special verdict or, absent either of the foregoing, (iii) a general verdict based on a Claimant's final theory of damages presented at trial in one or more of the Prescription Drug Cases. 2.13 "Sharing Parties" or "Sharing Party" shall mean those Parties against which a Final Judgment is entered, or deemed to have been entered under Section 4.2(a) or Section 6 of this Agreement. - 11 - Section 3: Allocation of Payments and Satisfaction of Judgment --------------------------------------------------- 3.1 If a Final Judgment is entered in any Prescription Drug Case, the amount of the Shared Judgment shall be computed and Payment in satisfaction thereof shall be allocated among the Sharing Parties in accordance with the following provisions of this Agreement. 3.2 Each Sharing Party which is a Wholesaler Defendant ("Wholesaler Sharing Party") shall pay, with respect to all of the Prescription Drug Cases, the lesser amount of either (i) 1% of each Shared Judgment or (ii) an aggregate amount of one million dollars ($1 million) on all Shared Judgments in all Prescription Drug Cases. For purposes of this section, each Wholesaler Sharing Party shall include any wholly owned subsidiaries, controlled affiliate and successors and assigns, regardless of whether or not they are named as separate defendants in any of the Prescription Drug Cases; and that Wholesaler Sharing Party, including its subsidiaries, controlled affiliates and successors and assigns shall pay only once the 1% or $1 million. 3.3 In the case of a Sharing Party which is a Manufacturer Defendant ("Manufacturer Sharing Party"), the first one half of any Manufacturer Shared Judgment shall be allocated among the Manufacturer Sharing Parties as provided in Section 3.4, below; and the second one-half of the Manufacturer Shared - 12 - Judgment shall be allocated among the Manufacturer Sharing Parties in accordance with 3.5 below. 3.4 The first one-half of any Manufacturer Shared Judgment shall be allocated among the Manufacturer Sharing Parties in proportion to the percentages set forth in Exhibit A. Thus if a Final Judgment is entered against all Manufacturer Defendants which are Parties, each such Manufacturer Defendant will be a Manufacturer Sharing Party and will pay - as to the first one-half of the Manufacturer Shared Judgment - the percentage thereof set forth opposite its name on Exhibit A. If a Final Judgment is entered against less than all of the Manufacturer Defendants which are Parties, then those Manufacturer Defendants against which the Final Judgment is entered will be Manufacturer Sharing Parties and will pay all of the first one-half of the Manufacturer Shared Judgment in proportion, pro --- rata, to their percentages as set forth opposite their respective names in - - - ---- Exhibit A. 3.5 Each Manufacturer Sharing Party shall pay a portion of the second one-half of the Manufacturer Shared Judgment which is equal to the ratio of a) the dollar sales of prescription pharmaceutical products sold by that Manufacturer Sharing Party as to which damages were awarded in the Final Judgment to b) the dollar sales of prescription pharmaceutical products sold by all Manufacturer Sharing Parties as to which damages were awarded in the Final Judgment. - 13 - 3.6 For the purposes of the application of Section 3.5, supra, it shall be presumed that payment of the second one-half of said Manufacturer Shared Judgment shall be allocated between or among the Manufacturer Sharing Parties in accordance with the percentages set forth in Exhibit A, unless a) the award and calculation of damages was made with reference to dollar sales of prescription pharmaceutical products by the Manufacturer Sharing Parties, so that it is feasible to apply the ratio set forth in Section 3.5, supra, and b) it --- affirmatively appears from a Determination either that some or all of a Manufacturer Sharing Party's sales of prescription pharmaceutical products made to a Claimant through a non-Claimant wholesaler were not included in the award and calculation of damages, or that one or more of the brand name prescription pharmaceutical products sold by a Manufacturer Sharing Party was not included in the award and calculation of damages. If both a) and b) above are true, the second one half of the Manufacturer Shared Judgment shall not be allocated in accordance with Exhibit A, but in accordance with the ratio set forth in Section 3.5. 3.7 Except as expressly provided in Sections 4.2 and 6 of this Agreement, no Party shall be under any obligation to make any Payment in full or partial satisfaction of a Final Judgment unless such Final Judgment is entered against such Party. 3.8 If a judgment is entered against any particular Party and that judgment shows, in whole or in part, that any particular Party's liability is not joint and several with any - 14 - other Party's, then the Party whose liability is separate shall not be obligated or benefitted under this Agreement with respect to that judgment or part thereof. The intent of this Section 3.8 is that, if any Final Judgment (which is defined herein to include a part of a judgment) is subject to joint and several liability, then the Parties intend that the payment of such Final Judgment shall be allocated, pursuant to this Agreement, among those Parties which are jointly and severally liable for that Final Judgment. If, however, there is no joint and several liability as to any judgment or any part thereof in a Prescription Drug Case or as to any one or more Parties, then the Parties intend that there would be no sharing or allocation of liability under this Agreement as to the payment of that judgment or part thereof or as to any Party not found to be jointly and severally liable. 3.9 If a Final Judgment is entered in any Prescription Drug Case, the Sharing Parties shall consult with each other with a view toward arranging the satisfaction of such Final Judgment. If any Party is required by a Claimant to make a Payment in excess of the amount allocable to it pursuant to this Agreement, then within thirty (30) days after written demand by such Party upon all other Sharing Parties, the other Sharing Parties shall pay to the Party demanding payment the amount or amounts required to allocate the payment of the Final Judgment in accordance with Section 3.2 through 3.8, inclusive, of this Agreement. Any Sharing Party that fails to make its portion of such payment to - 15 - the Party demanding payment within thirty (30) days of such demand shall remain bound by the terms and conditions of this Agreement and, in addition, shall not, during such time as it shall remain in default on its obligations under this Section 3.9 be entitled to receive from any of the other Sharing Parties reimbursement for any Payment made by it. Section 4: Settlement ---------- 4.1 Any Party may settle any Prescription Drug Case, in whole or in part, whether for monetary or non-monetary consideration or injunctive relief, or any combination thereof, at any time. A Settling Party shall provide the other Parties with prompt written notice of (i) any such Settlement, (ii) the identity of each Claimant that is a party to the Settlement and (iii) those terms of the Settlement the presence or absence of which are pertinent to Section 4.2 of this Agreement. 4.2 The conditions set forth in Sections 4.2 and 4.3 shall govern in the event of a Settlement of any Prescription Drug Case by any Manufacturer Defendant ("Manufacturer Settling Party"): 4.2(a) Any Manufacturer Settling Party that does not include a provision in an agreement of Settlement of a Prescription Drug Case with the characteristics set forth in Subsection 4.2(b) of this Agreement or, to the extent applicable, in Section 4.3 of this Agreement shall, for the purpose of this Agreement, be deemed liable with regard to any Final Judgment on a Claim susceptible to joint and several liability as to which it - 16 - was a named defendant, and shall remain liable under this Agreement for the difference between the Amount Paid in Settlement and the amount it would otherwise have paid in accordance with Sections 3.2 through 3.9, inclusive, of this Agreement for its proportionate share of any Final Judgment. 4.2(b) To avoid the liability described in Subsection 4.2(a) of this Agreement, a Manufacturer Settling Party's agreement of Settlement of any Prescription Drug Case must expressly provide that the Claimant or Claimants with whom it has settled any Claim or Claims shall exclude from the dollar amount collectable from non-Settling Parties on any Final Judgment entered on the Claim or Claims an amount calculated as follows: i) determine the percentages (of each half of the Manufacturer ----------- Shared Judgment) for which the Manufacturer Settling Party would have been responsible under Sections 3.4 and 3.5 had it remained a Sharing Party with respect to the Final Judgment, and ii) apply those percentages to each half of the Shared Judgment. 4.2(c) Any manufacturer Settling Party's agreement of Settlement entered in accordance with Section 4.2 and its subsections shall provide that each of the other Parties shall be third party beneficiaries of the undertaking set forth therein so as to reduce the Final Judgment in accordance with subsection 4.2(b). 4.2(d) Thus, in the event of a Settlement by all Manufacturer Defendants in any Prescription Drug Case in - 17 - accordance with Section 4.2 and its subsections, the Claimants in that case will have agreed to reduce 100% (i.e., to zero) the dollar amount of any Final Judgment collectable by the Claimants from any non-Settling Wholesaler Defendants that might be jointly and severally liable on such Final Judgment. 4.3 If a Manufacturer Settling Party agrees to a Settlement of a judgment following trial, and before any judgment for money damages entered jointly and severally on any Claim in any Prescription Drug Case becomes a Final Judgment, it shall, as a condition to avoid the liability described in Subsection 4.2(a) of this Agreement, obtain from plaintiffs a written agreement, enforceable by any other Party, that provides in addition to the provisions specified in Sub-sections 4.2(b) and 4.2(c) that the amount of any supersedeas bond required on appeal with respect to such judgment shall be reduced by the amounts (or by any multiple of such amount if the supersedeas bond required is in excess of the amount of such judgment) that the Manufacturer Settling Party would have been required to pay pursuant to Sections 3.2 through 3.9, inclusive, if the judgment was a Final Judgment and the Manufacturer Settling Party was a Manufacturer Sharing Party with respect thereto. 4.4 Notwithstanding anything contained in this Section 4, if any Party obtains a good faith litigated decision from a District Court or other trial court, or from a jury, that the Party is not liable to plaintiffs in the Prescription Drug Cases for any damages whatsoever, and the said non-liable Party - 18 - thereafter settles with plaintiffs before entry of an order by the appellate court to which an appeal is taken, Section 4.1-4.3 shall not be applicable to that non-liable Party. Section 5: Conclusive Effect of Judgment in Principal Suit ----------------------------------------------- In any arbitration or litigation between Parties concerning claims, disputes or other questions arising out of, or relating to, this Agreement, including, without limitation, any breach thereof, a Final Judgment in the Prescription Drug Cases (i) shall be conclusive with respect to all issues necessarily decided therein and (ii) may not be collaterally attacked by any Party in any such arbitration or litigation. Section 6: Default Judgment and Confession of Judgment ------------------------------------------- Any Party against which a default judgment has been entered in the Prescription Drug Cases and which is not thereafter satisfied, or which has confessed judgment in the Prescription Drug Cases, shall be deemed, for purposes of this Agreement to be subject to any Final Judgment entered in the Prescription Drug Cases in which such default or confessed judgment is entered, and said Party shall be obligated to pay its proportionate share of such Final Judgment as provided for in Sections 3.2 through 3.6 and Section 3.9, hereof but shall not be entitled to receive from any other Party hereto any reimbursement whatsoever for Payment made be said Party. - 19 - Section 7: Default by Party in Payment --------------------------- If, because of bankruptcy or for any other reason, any Sharing Party fails or refuses to pay its share of (i) a Final Judgment or (ii) the amounts due under Part I, paragraph 1 hereof or any portion thereof (a "Defaulting Party") the unpaid balance of such share shall be borne by the other Manufacturer Parties, in the same proportion as such other Manufacturer Parties would have been obligated to pay such Final Judgment (as provided for in Sections 3.2 through 3.6) or such amounts (as provided in Part I, paragraph 1 hereof), as if the Defaulting party had not been a signatory to this Agreement, without in any way waiving any rights the Parties have against the Defaulting Party or its successors or assigns. Section 8: Interest and Attorney's Fees ---------------------------- If any Party defaults in its obligation to reimburse to any other Party in accordance with the terms of this Agreement, the amount due as said reimbursement shall bear interest at the prime interest rate charged by the Continental Illinois National Bank & Trust Co. at Chicago, Illinois, or any successor in interest thereto from time to time prevailing, computed from the date that the other Party serves written notice of demand for reimbursement upon the Party in default. In addition, if litigation or any other judicial or quasi-judicial proceeding is brought by one or more Parties against one or more Parties to enforce or collect any monetary - 20 - obligation under this Agreement, the prevailing Party or Parties will be entitled to recover in full the reasonable attorneys' fees, expenses and costs incurred in pursuing or defending that litigation, or other judicial or quasi-judicial proceeding. Section 9: Contribution ------------ Except as provided in this Agreement, each Party waives and agrees not to assert against any other Party, any claim of any kind, whether now existing or hereafter created, for contribution, indemnity or sharing, arising from the Prescription Drug Cases, including, without limitation, any such claim arising from any judgment for contribution, indemnity or sharing arising from the Prescription Drug Cases entered in favor of a non-Party defendant against any Party. Any such judgment shall be paid by the Parties named in such judgment in accordance with the allocation provisions set forth in Sections 3.2 through 3.6 and Section 3.9 of this Agreement. Nothing herein shall be deemed to be a recognition that there exist any rights of contribution, or indemnity or sharing other than as provided in this Agreement. Section 10: Exclusive Remedy ---------------- 10.1 Each Party agrees and covenants that it shall bring no action, arbitration or proceeding against any other Party for indemnification, contribution or sharing with respect to the Prescription Drug Cases except an action to enforce or for breach of this Agreement. - 21 - 10.2 Each Party covenants not to sue any other Party on any claim for indemnification, contribution or sharing arising from the Prescription Drug Cases, except that this covenant shall not extend or be applicable to any violation of the terms of this Agreement. 10.3 This Agreement and the covenants herein contained are made solely for the benefit of the respective Parties, and no other person or entity shall be entitled to enforce this Agreement or to any rights hereunder. 10.4 The Parties recognize that, in the event of a breach of this Agreement by another Party or Parties, an award of monetary damages may not adequately compensate the Parties injured by such a breach. Accordingly, each Party hereby agrees that any breach of this Agreement may cause irreparable injury and that the injured Party or Parties may sue for and have equitable relief, including, without limitation, specific enforcement and/or injunctive relief, to prevent any such actual or threatened breach. Section 11: Assignment, Successors and Assigns ---------------------------------- This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Parties; provided, however, that the obligations of one or more Parties pursuant to this Agreement may not be assigned to any person or entity without the prior written consent of each of the other Parties hereto, which consent may not be unreasonably withheld. A merger - 22 - or consolidation involving one or more of the Parties hereto whereby said reimbursement obligation is assigned by operation of law, or the transfer of all or substantially all of its wholesaling or manufacturing assets and liabilities to another shall not require such prior written consent. A Party who assigns or otherwise transfers its rights under this Agreement shall, notwithstanding such assignment, be entitled to exercise such rights to the extent necessary to recover the portion of any Payment it is required to make that is in excess of the amount allocable to it pursuant to this Agreement. Section 12: Costs Not Included in Agreement ------------------------------- This Agreement does not provide for reimbursement of, and does not obligate any Party hereto to reimburse, the attorneys' fees, costs or other expenses paid or incurred by any of the Manufacturer Defendants in defense of the Prescription Drug Cases. Section 13: Counterclaims ------------- Nothing contained in the Agreement is intended to be, or shall be deemed to be, a waiver of any defense or counterclaim in any Prescription Drug Case, nor shall any amount recovered by any Party pursuant to any counterclaim against a Claimant be subject to, or affected by, this Agreement. - 23 - Section 14: Notices ------- All notices under this Agreement shall be in writing and shall be sent by registered or certified mail, first-class postage prepaid, or by fax to the respective Parties hereto at their addresses or such other addresses as the Parties from time to time may designate in writing. Section 15: Applicable Law -------------- This Agreement shall be construed and enforced in accordance with the internal law of the State of Delaware, without regard to its choice of law or conflict of laws principles. Section 16: Counterparts ------------ This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, provided that the Agreement shall not become binding on any Party unless it has been executed by all Parties whose names are typed at the end of this Agreement. Any defendant in the Prescription Drug Cases may execute and become a Party to this Agreement by signing any such counterpart and delivering the same to Howrey & Simon, 1299 Pennsylvania Avenue, N.W., Washington, D.C. 20004, provided that the Agreement shall not become binding on any Party unless and until it has been executed by all Parties whose names are typed at the end of this Agreement. Howrey & Simon shall retain all executed counterparts - 24 - of this Agreement and shall circulate to the Parties a conformed copy of this Agreement indicating all signatures thereto. Section 17: Miscellaneous ------------- 17.1 Each Party, with the assistance of its respective counsel, has read this Agreement together with Exhibit A hereto, and the attached form of Release which is Exhibit B hereto and has had an opportunity fully to negotiate the terms of said Agreement and Release. Accordingly, any rule of construction seeking to resolve any ambiguities against the drafting party shall not be applied in the interpretation of this Agreement. 17.2(a) The Agreement contains the entire agreement and understanding among the Parties as to the subject matter of the Agreement, and merges and supersedes all prior agreements, commitments, representations, writings and discussions among them. None of the Parties will be bound by any prior obligations, conditions, or representations with respect to the subject matter of the Agreement, unless expressly incorporated into the Agreement. 17.2(b) Nothing in this Agreement, including, without limitation, the waivers and agreements not to sue or claim against set forth in Sections 9 and 10, and the provisions of Section 11 and 17.2(a), shall be deemed to supersede, preclude or otherwise affect any prior or future agreements that are made between any of the Parties or their affiliated entities in connection with the acquisition of one Party or any of its - 25 - affiliated entities by another Party or its affiliated entities and that allocate, as between the parties to those agreement, their rights and obligations in respect of the Prescription Drug Cases. 17.3 Each of the Parties to this Agreement hereby affirms and acknowledges: (a) that a representative of the Party with the authority to bind the Party with respect to the matters set forth herein has read and understood the Agreement; (b) that the terms of this Agreement and the effects thereof have been fully explained to that representative by its counsel; (c) that the representative fully understands each term of the Agreement and its effect; and (d) that no Party has relied upon any statement, representation or inducement (whether material, false, negligently made or otherwise) of any other Party with respect to said Party's decision to execute this Agreement. - 26 - IN WITNESS WHEREOF, and intending to be legally bound hereby, the Parties have caused this Agreement to be executed by their officers hereunto duly authorized, effective as of the date first above mentioned. In so doing, the Parties expressly agree to and intend to be legally bound by both Part I and Part II of this Agreement. By: _____________________ Dated: __________________ For Abbott Laboratories By: _____________________ Dated: __________________ For American Cyanamid By: _____________________ Dated: __________________ For American Home Products Corporation By: _____________________ Dated: __________________ For AmeriSource Corporation By: _____________________ Dated: __________________ For Bergen Brunswig Drug Co. By: _____________________ Dated: __________________ For Boehringer Ingelheim Corp. - 27 - By:_________________________ Dated:______________________ For Bindley Western Industries, Inc. By:_________________________ Dated:______________________ For Bristol-Meyers Squibb Co. By:_________________________ Dated:______________________ For Burroughs Wellcome Co. By:_________________________ Dated:______________________ For Cardinal Health, Inc. By:_________________________ Dated:______________________ For Ciba-Geigy Corporation By:_________________________ Dated:______________________ For Eli Lilly and Company By:_________________________ Dated:______________________ For DuPont-Merck Pharmaceuticals Co. - 28 - By: _______________________ Dated:_____________________ For Forest Laboratories, Inc. By: _______________________ Dated:_____________________ For FoxMeyer Drug Company By: _______________________ Dated:_____________________ For Glaxo, Inc. By: _______________________ Dated:_____________________ For Hoffmann-La Roche Inc. By: _______________________ Dated:_____________________ For Johnson & Johnson By: _______________________ Dated:_____________________ For Knoll Pharmaceutical Company By: _______________________ Dated:_____________________ For Marion Merrell Dow, Inc. By: _______________________ Dated:_____________________ For McKesson Corporation - 29 - By: _______________________ Dated:_____________________ For Merck & Co., Inc. By: _______________________ Dated:_____________________ For Pfizer, Inc. By: _______________________ Dated:_____________________ For The Purdue Frederick Company By: _______________________ Dated:_____________________ For Rhone-Poulenc Rorer, Inc. By: _______________________ Dated:_____________________ For Sandoz Corporation By: _______________________ Dated:_____________________ For Schering-Plough Corporation By: _______________________ Dated:_____________________ For G.D. Searle & Co. - 30 - By: _______________________ Dated:_____________________ For SmithKline Beecham Pharmaceuticals Co. By: _______________________ Dated:_____________________ For The Upjohn Company By: _______________________ Dated:_____________________ For Whitmire Distribution Corporation By: _______________________ Dated:_____________________ For Warner-Lambert Company By: _______________________ Dated:_____________________ For Zeneca Inc. EX-21 10 SUBSIDIARIES OF AMERISOURCE EXHIBIT 21 Subsidiaries of AmeriSource Distribution Corporation As of December 1, 1994, the subsidiaries of AmeriSource Distribution Corporation, together with their respective jurisdictions of incorporation, were as follows: Subsidiary Jurisdictions of Incorporation ---------- ------------------------------ AmeriSource Corporation Delaware Subsidiaries of AmeriSource Corporation As of December 1, 1994, the subsidiaries of AmeriSource Corporation, together with their respective jurisdictions of incorporation, were as follows: Subsidiary Jurisdictions of Incorporation ---------- ------------------------------ AmeriSource Receivables Corporation Delaware Health Services Capital Corporation Delaware Health Services Plus, Inc. Delaware EX-27.1 11 FINANCIAL DATA SCHEDULE OF AMERICOURCE CORP.
5 0000731269 AMERISOURCE CORPORATION 1,000 YEAR SEP-30-1994 OCT-01-1993 SEP-30-1994 25,273 0 272,281 9,370 351,676 651,672 67,598 26,416 705,955 524,079 343,562 1 0 0 (171,473) 705,955 4,301,832 4,301,832 4,066,641 4,066,641 0 4,612 47,273 (149,161) 23,080 (172,241) 0 (442) (35,045) (207,728) 0 0
EX-27.2 12 FINANCIAL DATA SCHEDULE OF AMERISOURCE DIST. CORP.
5 0000855042 AMERISOURCE DISTRIBUTION CORPORATION 1,000 YEAR SEP-30-1994 OCT-01-1993 SEP-30-1994 25,311 0 272,281 9,370 351,676 651,710 67,598 26,416 711,644 518,355 487,575 51 0 0 (300,777) 711,644 4,301,832 4,301,832 4,066,641 4,066,641 0 4,612 62,611 (164,603) 7,814 (172,417) 0 (656) (34,598) (207,671) (41.53) (41.53)
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