-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iio/YOpabJK/rzT0DIsG57Nlvbtu5Sg5Vanu5WxjTIR1j96+OUAM25ByEhP5qUPq Gg9/+DpGl4TVrKRz2KNK5Q== 0001036050-99-000268.txt : 19990215 0001036050-99-000268.hdr.sgml : 19990215 ACCESSION NUMBER: 0001036050-99-000268 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERISOURCE DISTRIBUTION CORP CENTRAL INDEX KEY: 0000855042 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 232546940 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20485 FILM NUMBER: 99537394 BUSINESS ADDRESS: STREET 1: 300 CHESTER FIELD PWKY CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6102964480 MAIL ADDRESS: STREET 1: 300 CHESTER FIELD PKWY CITY: MALVERN STATE: PA ZIP: 19355 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-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1998
COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO. - ----------- ---------------------------------- ------------------ 33-27835-01 AmeriSource Health Corporation 23-2546940 (a Delaware Corporation) (formerly AmeriSource Distribution Corporation) P.O. Box 959, Valley Forge, Pennsylvania 19482 (610) 296-4480
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] The number of shares of common stock of AmeriSource Health Corporation outstanding as of December 31, 1998 was: Class A--21,368,448, Class B-- 2,750,783; Class C--127,801. INDEX AMERISOURCE HEALTH CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated balance sheets--December 31, 1998 and September 30, 1998 Consolidated statements of operations--Three months ended December 31, 1998 and December 31, 1997 Consolidated statements of cash flows--Three months ended December 31, 1998 and December 31, 1997 Management's Discussion and Analysis of Financial Condition and Item 2. Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K
2 PART 1. FINANCIAL INFORMATION ITEM 1. AMERISOURCE HEALTH CORPORATION FINANCIAL STATEMENTS (UNAUDITED) AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30, 1998 1998 ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.......................... $ 44,406 $ 48,461 Restricted cash.................................... 31,526 37,044 Accounts receivable less allowance for doubtful accounts: 12/98--$24,997, 9/98--$26,477........... 522,044 458,238 Merchandise inventories............................ 1,066,567 870,223 Prepaid expenses and other......................... 3,150 4,356 ---------- ---------- Total current assets............................. 1,667,693 1,418,322 Property and equipment, at cost: Land............................................... 3,907 3,907 Buildings and improvements......................... 33,710 33,339 Machinery, equipment and other..................... 81,000 81,267 ---------- ---------- 118,617 118,513 Less accumulated depreciation...................... 58,766 57,724 ---------- ---------- 59,851 60,789 Other assets, less accumulated amortization: 12/98--$9,634; 9/98--$8,847......................... 79,374 73,171 ---------- ---------- $1,806,918 $1,552,282 ========== ==========
See notes to consolidated financial statements. 3 AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30, 1998 1998 ------------ ------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................... $ 908,529 $ 873,181 Accrued expenses and other......................... 42,158 48,532 Accrued income taxes............................... 11,629 78 Deferred income taxes.............................. 97,430 93,385 ---------- ---------- Total current liabilities........................ 1,059,746 1,015,176 Long-term debt: Revolving credit facility.......................... 331,660 145,000 Receivables securitization financing............... 299,956 299,948 Other debt......................................... 8,654 8,813 ---------- ---------- 640,270 453,761 Other liabilities.................................... 8,730 8,036 Stockholders' equity Common stock, $.01 par value: Class A (voting and convertible): 50,000,000 shares authorized; issued 12/98--21,719,571 shares; 9/98--21,592,010 shares.......................... 217 216 Class B (non-voting and convertible): 15,000,000 shares authorized; issued 12/98--5,700,783 shares; 9/98--5,700,783 shares........................... 57 57 Class C (non-voting and convertible): 2,000,000 shares authorized; issued 12/98--127,801 shares; 9/98--129,237 shares............................. 1 1 Capital in excess of par value..................... 249,681 244,664 Retained earnings (deficit)........................ (145,564) (163,409) Cost of common stock in treasury................... (6,220) (6,220) ---------- ---------- 98,172 75,309 ---------- ---------- $1,806,918 $1,552,282 ========== ==========
See notes to consolidated financial statements. 4 AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED DECEMBER 31, --------------------- (UNAUDITED) 1998 1997 ---------- ---------- Operating revenue........................................ $2,160,904 $2,254,560 Bulk deliveries to customer warehouses................... 8,762 24,998 ---------- ---------- Total revenue............................................ 2,169,666 2,279,558 Operating cost of goods sold............................. 2,059,211 2,148,954 Cost of goods sold--bulk deliveries...................... 8,762 24,998 ---------- ---------- Total cost of goods sold................................. 2,067,973 2,173,952 ---------- ---------- Gross profit............................................. 101,693 105,606 Selling and administrative expenses...................... 61,013 65,765 Depreciation............................................. 3,500 3,155 Amortization............................................. 256 282 ---------- ---------- Operating income......................................... 36,924 36,404 Interest expense......................................... 8,141 12,662 ---------- ---------- Income before taxes...................................... 28,783 23,742 Taxes on income.......................................... 10,938 9,259 ---------- ---------- Net income............................................... $ 17,845 $ 14,483 ========== ========== Net income per share..................................... $ .74 $ .61 ========== ========== Net income per share--assuming dilution.................. $ .73 $ .60 ========== ==========
See notes to consolidated financial statements. 5 AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED DECEMBER 31 -------------------- (UNAUDITED) 1998 1997 --------- --------- OPERATING ACTIVITIES Net income.............................................. $ 17,845 $ 14,483 Adjustments to reconcile net income to net cash used in operating activities: Depreciation........................................... 3,500 3,155 Amortization........................................... 712 711 Provision for losses on accounts receivable............ 595 3,066 Gain on disposal of property and equipment............. (2) (131) Deferred income taxes.................................. 4,045 997 Changes in operating assets and liabilities: Restricted cash....................................... 5,518 (23) Accounts receivable................................... (66,525) (27,609) Merchandise inventories............................... (196,344) (16,282) Prepaid expenses...................................... (100) 245 Accounts payable, accrued expenses and income taxes... 43,143 (172,023) Miscellaneous.......................................... 9 77 --------- --------- NET CASH USED IN OPERATING ACTIVITIES................ (187,604) (193,334) INVESTING ACTIVITIES Capital expenditures.................................... (2,612) (2,552) Purchase of equity interest in a business............... (3,551) -- Proceeds from sales of property and equipment........... 33 1,291 --------- --------- NET CASH USED IN INVESTING ACTIVITIES................ (6,130) (1,261) FINANCING ACTIVITIES Long-term debt borrowings............................... 470,281 774,312 Long-term debt repayments............................... (283,775) (583,105) Exercise of stock options............................... 3,173 465 --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES............ 189,679 191,672 --------- --------- Decrease in cash and cash equivalents.................... (4,055) (2,923) Cash and cash equivalents at beginning of period......... 48,461 60,045 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 44,406 $ 57,122 ========= =========
See notes to consolidated financial statements. 6 AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--BASIS OF PRESENTATION The accompanying financial statements present the consolidated financial position, results of operations and cash flows of AmeriSource Health Corporation and its wholly-owned subsidiaries (the "Company") as of the dates and for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of December 31, 1998, the results of operations for the three months ended December 31, 1998 and 1997 and the cash flows for the three months ended December 31, 1998 and 1997 have been included. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles, but which are not required for interim reporting purposes, have been omitted. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1998. NOTE 2--LEGAL MATTERS AND CONTINGENCIES In the ordinary course of its business, the Company becomes involved in lawsuits, administrative proceedings, and governmental investigations, including antitrust, environmental, product liability, and regulatory agency and other matters. In some of these proceedings, plaintiffs may seek to recover large and sometimes unspecified amounts and the matters may remain unresolved for several years. On the basis of information furnished by counsel and others, the Company does not believe that these matters, individually or in the aggregate, will have a material adverse effect on its business or financial condition. A former customer of the Company has alleged that the Company failed to fulfill its obligations under the service contract between the Company and the former customer. In connection with this claim, the former customer withheld payment on $22 million of invoices. In response, the Company filed suit to collect the outstanding amount. The former customer has countersued the Company for an unspecified amount. The Company believes there is no merit to this counterclaim and intends to aggressively pursue collection of the outstanding amount. Because the Company is unable at this time to determine the outcome of this matter, no provision for loss has been made. In November 1993, the Company was named a defendant, along with six other wholesale distributors and twenty-four pharmaceutical manufacturers, in a series of purported class action antitrust lawsuits brought by retail pharmacies and alleging violations of various antitrust laws stemming from the use of chargeback agreements. In addition, the Company and four other wholesale distributors were added as defendants in a series of related antitrust lawsuits brought by independent pharmacies and chain drug stores, both of which opted out of the class cases. The Company also was named a defendant in parallel suits filed in state courts in Minnesota, Alabama, Tennessee and Mississippi. The federal class actions were originally filed in the United States District Court for the Southern District of New York, but were transferred along with the individual and chain drug store cases to the United States District Court for the Northern District of Illinois. Plaintiffs seek injunctive relief, treble damages, attorneys' fees and costs. In October 1994, the Company entered into a Judgment Sharing Agreement with the other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred up to an aggregate of $9 million; and (b) if a judgment is entered against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or $1 million. In addition, the Company has released any claims which it might have had against 7 AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) the manufacturers for the claims presented by the Plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. On April 4, 1996, the District Court granted the Company's motion for summary judgment in the class case. Plaintiffs subsequently appealed the Company's grant of summary judgment to the United States Court of Appeals for the Seventh Circuit. On August 15, 1997, the Court of Appeals reversed the District Court's order granting summary judgment in favor of the Company and the other wholesalers. The Court of Appeals also denied the Company's petition for rehearing. The Company and the other wholesalers filed a petition for a writ of certiorari to the United States Supreme Court; the petition was denied. Trial in the class case commenced in the United States District Court for the Northern District of Illinois on September 23, 1998. After a ten-week trial, the Court granted all of the defendants motions for a directed verdict and dismissed the claims the class plaintiffs had asserted against the Company and the other defendants. On or about October 2, 1997, a group of retail chain drug stores and individual pharmacies, both of which had opted-out of the class cases, filed a motion with the United States District Court for the Northern District of Illinois seeking to add the Company and the other wholesale distributors as defendants in their cases against the manufacturer defendants, which cases are consolidated before the same judge who is presently presiding over the class case. This motion was granted and the Company and the other wholesale distributors have been added as defendants in those cases as well. As a result, the Company has been served with approximately 120 additional complaints on behalf of approximately 4,000 pharmacies and chain retailers. Discovery and motion practice is presently underway in all of these opt-out cases. The Company believes it has meritorious defenses to the claims asserted in these lawsuits and intends to vigorously defend itself in all of these cases. The Company is subject to contingencies pursuant to environmental laws and regulations at one of its former distribution centers that may require the Company to take remediation efforts. In fiscal 1994, the Company accrued $4.1 million to cover future consulting, legal, and remediation and ongoing monitoring costs. The accrued liability, which is reflected in other long-term liabilities on the accompanying consolidated balance sheet ($3.8 million at December 31, 1998), is based on an engineering analysis prepared by outside consultants and represents an estimate of the extent of contamination and choice of remedy based on existing technology and presently enacted laws and regulations. However, changes in remediation standards, improvements in cleanup technology and discovery of additional information concerning the site could affect the estimated liability in the future. The Company is investigating the possibility of asserting claims against responsible parties for recovery of these costs. Whether or not any recovery may be forthcoming is unknown at this time, although the Company intends to vigorously enforce its rights and remedies. NOTE 3--EARNINGS PER SHARE Earnings per share is computed on the basis of its weighted average number of shares outstanding during the periods presented (24,184,010 and 23,856,067 for the three months ended December 31, 1998 and December 31, 1997, respectively). Earnings per share--assuming dilution is computed on the basis of the weighted average number of shares outstanding during the period plus the dilutive effect of stock options (249,762 and 367,514 for the three months ended December 31, 1998 and December 31, 1997, respectively). NOTE 4-STOCK OPTION PLANS On December 8, 1998, the Company's Board of Directors approved the AmeriSource Health Corporation 1999 Stock Option Plan (the "1999 Option Plan") and the AmeriSource Health Corporation 1999 Non-Employee Directors Stock Option Plan (the "1999 Directors Plan"). The 1999 Option Plan and the 1999 Directors Plan are subject to shareholder approval and provide for the granting of nonqualified stock options to 8 AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED) acquire up to 1,600,000 and 175,000 shares of common stock, respectively, at a price not less than the fair market value of the common stock on the date the option is granted. Generally, the option term is ten years and the options vest at the rate of 25% per year, commencing one year following the grant. The number of options to be granted annually under the 1999 Directors Plan is fixed by the plan and such options vest one year from the grant date. Options expire ten years after the date of grant. NOTE 5--SUBSEQUENT EVENT On January 26, 1999 the Company's Board of Directors approved a two-for-one stock split, subject to shareholders authorizing additional shares. Shareholders will receive one additional share for each share held on the anticipated record date of March 3, 1999. As of December 31, 1998, AmeriSource had approximately 24.4 million diluted shares outstanding and that number will increase to approximately 48.9 million. This stock split has not been reflected in the accompanying financial statements. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating revenue for the fiscal quarter ended December 31, 1998 decreased 4% to $2.2 billion from $2.3 billion in the first quarter of fiscal 1998. The decline from the prior year was due to the termination of service contracts with two major warehousing chains and one large mail order customer in the prior year that accounted for approximately $300 million of revenues in the prior year quarter. During the quarter ended December 31, 1998, sales to hospitals and managed care facilities increased 7%, sales to independent drug store customers increased 5%, and sales to the chain drug store customer group decreased 39%, as compared with the prior year quarter. Future revenues may also be impacted by the continuing consolidation of customers and price competition in the industry. During the quarter ended December 31, 1998 sales to hospitals and managed care facilities accounted for 50% of total revenues, while sales to independent drug stores accounted for 36% and sales to chain drug stores accounted for 14% of the total. Gross profit of $101.7 million in the first fiscal quarter of 1999 decreased by 4% from fiscal 1998 due to the decrease in revenue. As a percentage of operating revenue, the gross profit in the first quarter of fiscal 1999 was 4.71% as compared to 4.68% in the prior year period. The increase in gross profit percentage was due to the change in customer mix described above. Gross profit may continue to be impacted by price competition, changes in customer and product mix, and distribution center performance. In the fourth quarter of fiscal 1998, the Company began to centralize its data processing, accounting, contract administration and purchasing functions, reorganize its pharmaceutical distribution facilities into five regions, and consolidate one pharmaceutical distribution facility into another facility. These initiatives are expected to be completed by the end of 1999 and a charge of $8.3 million was recognized in the fourth quarter of fiscal 1998 related to this effort. The charge included severance of $3.3 million for approximately 350 administrative and warehouse personnel and asset write-downs and lease cancellation costs of $5.0 million. As of December 31, 1998, approximately 30 employees have been terminated and severance costs of $0.2 million were paid during the quarter ended December 31, 1998. In addition, $0.4 million of lease cancellation costs were expended during the quarter and remaining severance and lease obligations of $4.9 million are included in accrued expenses and other. Selling and administrative and depreciation expenses decreased by $4.4 million or 6% in the first quarter of fiscal 1999 compared with the prior year period, and as a percentage of operating revenue, were 2.99% in fiscal 1999 and 3.06% in fiscal 1998. The decrease in expenses was due to a lower provision for bad debts and a reduction in delivery and warehouse expense related to the termination of service contracts with the two warehousing chains. Operating income of $36.9 million in the quarter ended December 31, 1998 increased by 1% from the prior year period. The Company's operating margin increased to 1.71% in fiscal 1999 from 1.61% in fiscal 1998. The increase is due to the increase in gross profit percentage discussed above, as well as the reduction in operating expenses as a percentage of operating revenues. Interest expense of $8.1 million in the first quarter of fiscal 1999 represents a decrease of 36% compared to the prior year period. The decrease over the prior year was primarily due to decreased borrowings from the prior year in which borrowings increased to fund the Thorofare, NJ expansion and the purchase of Walker Drug Company. Average borrowings during the quarter ended December 31, 1998 were $517 million as compared to average borrowings of $719 million in the prior fiscal year. The income tax provision for the quarter ended December 31, 1998 was computed based on an estimate of the full year effective tax rate. Net income in the first quarter of fiscal 1999 increased to $17.8 million from $14.5 million in the prior year quarter and net income per share-- assuming dilution was $0.73, a 22% increase over the prior year. 10 LIQUIDITY AND CAPITAL RESOURCES During the quarter ended December 31, 1998, the Company's operating activities used $187.6 million in cash due to increases in merchandise inventories of $196.3 million and accounts receivable of $66.5 million offset in part by increases in accounts payable and accrued expenses of $43.1 million. Merchandise inventories increased due to seasonal purchases to increase safety stock in anticipation of manufacturer shut-downs and in anticipation of manufacturer price increases. Operating cash uses during the fiscal quarter ended December 31, 1998 included $7.5 million in interest payments and $6.1 million of operating cash was provided by net income tax refunds. Capital expenditures for the quarter ended December 31, 1998 were $2.6 million and relate principally to investments in warehouse automation, warehouse improvements, and information technology. Similar expenditures of approximately $15 to $17 million are expected to occur later in fiscal 1999. Cash provided by financing activities during fiscal 1999 represents borrowings under the Company's revolving credit facility and its Receivables Program primarily to fund its working capital requirements. At December 31, 1998, borrowings under the Company's $500 million revolving credit facility were $331.7 million (at an average interest rate of 6.5%) and borrowings under the $375 million receivables securitization financing were $300.0 million (at an average interest rate of 5.9%). The revolving credit facility expires in January 2002 and provides for interest rates ranging from LIBOR plus 25 basis points to LIBOR plus 125 basis points based upon certain financial ratios. The receivables securitization facility represents a financing vehicle utilized by the Company because of the availability of attractive interest rates relative to other financing sources. The Company securitizes its trade accounts and notes receivable, which are generally non-interest bearing, in transactions that do not qualify as sales transactions under SFAS No.125. In December 1998, the Company entered into a short-term supplemental $100 million revolving credit agreement with the same terms as its Credit Agreement. This agreement expires March 31, 1999 and is intended to fund seasonal inventory purchases. The Company's primary exposure to market risk consists of changes in interest rates on borrowings. An increase in interest rates would adversely affect the Company's operating results and the cash flow available after debt service to fund operations and expansion and, if permitted to do so under its revolving credit facility, to pay dividends on its capital stock. The Company enters into interest rate protection agreements to hedge the exposure to increasing interest rates with respect to its long-term debt agreements. The Company provides protection to meet actual exposure and does not speculate in derivatives. The Company is required by its Credit Agreement to maintain interest rate cap protection on a minimum of $112.5 million through January 1999 and has interest rate cap agreements expiring in May 1999, which provide protection on $115 million of its long-term borrowings. For every $100 million of unhedged variable rate debt, a 75 basis point increase in interest rates would increase the Company's annual interest expense by $0.75 million. The Company's operating results have generated sufficient cash flow which, together with borrowings under its debt agreements and credit terms from suppliers, have provided sufficient capital resources to finance working capital and cash operating requirements, fund capital expenditures, and interest currently payable on outstanding debt. The Company's primary ongoing cash requirements will be to fund payment of interest on indebtedness, finance working capital, and fund capital expenditures and routine growth and expansion through new business opportunities. Future cash flows from operations and borrowings are expected to be sufficient to fund the Company's ongoing cash requirements. A former customer of the Company has alleged that the Company failed to fulfill its obligations under the service contract between the Company and the former customer. In connection with this claim, the former customer withheld payment on $22 million of invoices. In response, the Company filed suit to collect the outstanding amount. The former customer has countersued the Company for an unspecified amount. The Company believes there is no merit to this counterclaim and intends to aggressively pursue collection of the outstanding amount. Because the Company is unable at this time to determine the outcome of this matter, no provision for loss has been made. The Company is subject to certain contingencies pursuant to environmental laws and regulations at one of its former distribution centers that may require remediation efforts. In fiscal 1994, the Company accrued a 11 liability of $4.1 million to cover future consulting, legal and remediation, and ongoing monitoring costs. The accrued liability ($3.8 million at December 31, 1998), which is reflected in other long-term liabilities on the accompanying consolidated balance sheet, is based on an estimate of the extent of contamination and choice of remedy, existing technology, and presently enacted laws and 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. GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business practices. The Company began addressing the Year 2000 Issue in 1995 on a decentralized basis at each of its regional data processing centers. In 1997, the Company began monitoring progress on a corporate level and a formal Year 2000 committee, reporting to senior management, was established in early 1998 to coordinate and monitor the Year 2000 Issue on an enterprise-wide basis. Based on assessments made since 1995, the Company determined that modifications to or in limited cases replacement of computer software and hardware was necessary to enable those systems to operate properly after December 31, 1999. The Company presently believes that with modifications to and replacement of existing software and hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue can have a material impact on the operations of the Company. In the fourth quarter of fiscal 1998, the Company announced plans to consolidate its data processing from its regional facilities to one corporate facility by the end of 1999. However, the Company's plan to resolve the Year 2000 Issue described below is not dependent on the timely completion of the Company's consolidation efforts. The Company's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing, and implementation. To date, the Company has completed its assessment of all systems that could be significantly affected by the Year 2000. The assessment indicated that most of the Company's significant information technology systems could be affected, particularly the Company's warehouse and distribution operating and accounting systems. The assessment also indicated that software and hardware (embedded chips) used in warehouse automation, scanning, and ordering as well as other equipment used in the distribution process (operating equipment) are also at risk. Because the Company is a distributor of pharmaceuticals, the Company's products are not at risk. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase The following estimates of completion percentages and dates are based on the Company's best estimates. However, there can be no guarantee that these dates can be achieved and actual results may differ. For its information technology exposures, to date the Company is approximately 95% complete on the remediation phase and expects to be completed with its software reprogramming and replacement no later than March 31, 1999. Once software is reprogrammed or replaced for a system, the Company begins testing and implementation. These phases run concurrently for different systems. To date, the Company has completed 90% of its testing and has implemented 85% of its remediated systems. Completion of the testing phase for all significant operating 12 systems is expected by March 31, 1999, with all remediated systems fully tested and implemented by June 30, 1999. The remediation of operating equipment with embedded chips or software is approximately 95% complete and is expected to be completed by March 31, 1999. Testing of the affected equipment is approximately 90% complete and implementation of affected equipment is 85% complete. Testing is expected to be complete by March 31, 1999, and implementation by June 30, 1999. Nature and Level of Importance of Third Parties and their Exposure to the Year 2000 Many of the Company's customers order products from the Company using ECHO(R), the Company's proprietary software system. ECHO(R) was developed in- house and has been Year 2000 compliant from its inception. The Company also issues the majority of its purchase orders to vendors through the use of Electronic Data Interchange ("EDI"). The Company is approximately 50% complete with its remediation efforts relating to EDI software and expects to be complete by March 31, 1999. Testing and implementation of this software is expected to be completed by June 30, 1999. The Company is planning to survey its significant customers and vendors as to their Year 2000 compliance in February and March, 1999. Based on the nature of their responses, the Company will develop contingency plans as appropriate. However, the Company has no means of assuring that external customers and vendors will be Year 2000 compliant. The inability of these third parties to complete their Year 2000 resolution process in a timely fashion could materially impact the Company. Costs The Company has utilized and will continue to utilize both internal and external resources to reprogram, or replace, test, and implement the software and operating equipment for Year 2000 modifications. Many of the program fixes were completed in conjunction with other projects and had little incremental cost. The Company estimates that incremental costs relating to Year 2000 projects to date approximate $2 million. These costs have been expensed as incurred. The Company expects to spend less than $1 million on Year 2000 projects in fiscal 1999. Year 2000 costs are difficult to estimate accurately and the projected cost could change due to unanticipated technical difficulties, project delays, and third party non-compliance, among other things. Risks Management of the Company believes that it has an effective program in place to resolve the Year 2000 Issue in a timely manner. As noted above, the Company has not yet completed all necessary phases of its Year 2000 plan. Because of the range of possible issues and the large number of variables involved, it is impossible to quantify the potential cost of problems should the Company or its trading partners not properly complete their Year 2000 plans and become Year 2000 compliant. Such costs and any failure of compliance efforts could have a material adverse effect on the Company. The Company believes that the most likely risks of serious Year 2000 business disruption are external in nature, including continuity of utility, telecommunication and transportation services, and the potential failure of the Company's customers due to their own non-compliance or the non-compliance of their business partners. In addition, the Company may be affected by disruptions in the supply channel due to excess demand for inventory by customers in anticipation of Year 2000 problems. In the event the Company does not properly complete its Year 2000 efforts or is affected by the disruption of outside services, the Company could be unable to take orders, distribute goods, invoice customers or collect payments. In addition, disruptions in the economy generally resulting from Year 2000 could have a material adverse effect on the Company. The Company could be subject to litigation for computer systems failure. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans The Company is currently in process of developing contingency plans to address the above Year 2000 risks as necessary. The Company plans to evaluate the status of completion of its Year 2000 efforts by March 31, 13 1999 and to determine what contingency plans are necessary at that time. In the normal course of business, the Company has contingency plans for disruption of business events and intends to augment those plans with specific Year 2000 considerations. Certain information in this Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements as such term is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. Certain factors such as changes in interest rates, competitive pressures, customer and product mix, inventory investment buying opportunities, regulatory changes, the Year 2000 Issue and capital markets could cause actual results to differ materially from those in forward- looking statements. 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27--Financial Data Schedule 10.19--Underwriting Agreement, dated February 4, 1999, among the Registrant, the Selling Stockholders--399 Venture Partners, Inc. and Citigroup Foundation--and Donaldson, Lufkin & Jenrette Securities Corporation and the other underwriters named therein. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 1998. 15 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. Amerisource Health Corporation /s/ Kurt J. Hilzinger _____________________________________ KURT J. HILZINGER SENIOR VICE PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) /s/ Michael D. DiCandilo _____________________________________ MICHAEL D. DICANDILO VICE PRESIDENT, CONTROLLER (PRINCIPAL ACCOUNTING OFFICER) Date: February 12, 1999 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1999 OCT-01-1998 DEC-31-1998 75,932 0 522,044 24,997 1,066,567 1,667,693 118,617 58,766 1,806,918 1,059,746 640,270 0 0 275 97,897 1,806,918 2,169,666 2,169,666 2,067,973 2,067,973 64,769 595 8,141 28,783 10,938 17,845 0 0 0 17,845 .74 .73
EX-10.19(C) 3 UNDERWRITING AGREEMENT, DATED FEBRUARY 4, 1999 EXHIBIT 10.19 6,000,000 Shares AMERISOURCE HEALTH CORPORATION Common Stock UNDERWRITING AGREEMENT ---------------------- February 4, 1999 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON SMITH BARNEY INC. J.P. MORGAN SECURITIES INC. FIRST UNION CAPITAL MARKETS CORP. MCDONALD INVESTMENTS INC. PIPER JAFFRAY INC. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Dear Sirs: Certain stockholders of AmeriSource Health Corporation, a Delaware corporation (the "Company"), named in Schedule II hereto (the "Selling Stockholders") severally propose to sell to you hereto (the "Underwriters"), an aggregate of 6,000,000 shares of the Class A Common Stock, par value $.01 per share of the Company (the "Shares"), each Selling Stockholder selling the amount set forth opposite such Selling Stockholder's name in Schedule II hereto. The shares of common stock of the Company to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the "Common Stock". SECTION 1. Registration Statement and Prospectus. The Company has ------------------------------------- prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3, in- -2- cluding a prospectus, relating to the Shares. The registration statement, as amended at the time it became effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement"; and the prospectus in the form first used to confirm sales of Shares is hereinafter referred to as the "Prospectus" (including, in the case of all references to the Registration Statement or the Prospectus, documents incorporated therein by reference). The terms "supplement" and "amendment" or "amend" as used in this Agreement with respect to the Registration Statement or the Prospectus shall include all documents subsequently filed by the Company with the Commission pursuant to the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act") that are deemed to be incorporated by reference in the Prospectus. SECTION 2. Agreements to Sell and Purchase and Loc-Up Agreements. On ----------------------------------------------------- the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, each Selling Stockholder agrees, severally and not jointly, to sell the number of Shares set forth opposite such Selling Stockholder's name in Schedule II hereto and each Underwriter agrees, severally and not jointly, to purchase from each Selling Stockholder at a price per Share of $73.63 (the "Purchase Price") the number of Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Shares to be sold by such Selling Stockholder as the number of Shares set forth opposite the name of such Underwriter in Schedule I hereto bears to the total number of Shares. The Company and each Selling Stockholder hereby agrees not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any Common Stock (regardless of whether any of the transactions described in clause (i) or (ii) is to be settled by the delivery of Common Stock, or such other securities, in cash or -3- otherwise), except to the Underwriters pursuant to this Agreement, for a period of 90 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during such period (A) the Company (i) may grant stock options pursuant to the Company's stock option plans and (ii) may issue shares of Common Stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and (B) each Selling Stockholder may engage in any of such transactions pursuant to transfers to affiliated entities. The Company also agrees not to file any registration statement with respect to any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for a period of 90 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, except for registration statements on Form S-8 or S-3 relating to securities issued in connection with employee benefit plans. In addition, each Selling Stockholder agrees that, for a period of 90 days after the date of the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation, it will not make any demand for, or exercise any right with respect to, the registration of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. Except as disclosed in the Prospectus, the Company shall, prior to or concurrently with the execution of this Agreement, deliver an agreement executed by certain directors and each of its executive officers of the Company to the effect that such person will not, during the period commencing on the date such person signs such agreement and ending 90 days after the date of the Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in any of the transactions described in the first sentence of this paragraph or (B) make any demand for, or exercise any right with respect to, the registration of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock; provided, however, that this shall not apply to sales in private transactions - -------- ------- (i.e., transactions not involving a public sale, public distribution or other --- public disposition of shares of capital stock of the Company, nor any sale pursuant to Rule 144A promulgated under the Act). SECTION 3. Terms of Public Offering. The Company and Selling ------------------------ Stockholders are advised by you that the Underwriters propose (i) to make a public offering of their respective portions of the Shares as soon after the execution and delivery of this Agreement as in your judgment is advisable and -4- (ii) initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. Delivery and Payment. The Shares shall be represented by -------------------- definitive certificates and shall be issued in such authorized denominations and registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation shall request no later than two business days prior to the Closing Date. The Shares shall be delivered by or on behalf of the Selling Stockholders, with any transfer taxes thereon duly paid by the respective Selling Stockholders, to Donaldson, Lufkin & Jenrette Securities Corporation through the facilities of The Depository Trust Company ("DTC"), for the respective accounts of the several Underwriters, against payment to the Selling Stockholders of the Purchase Price therefore by wire transfer of Federal or other funds immediately available in New York City. The certificates representing the Shares shall be made available for inspection not later than 9:30 A.M., New York City time, on the business day prior to the Closing Date, at the office of DTC or its designated custodian (the "Designated Office"). The time and date of delivery and payment for the Shares shall be 9:00 A.M., New York City time, on February 10, 1999 or such other time on the same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree in writing. The time and date of delivery and payment for the Firm Shares are hereinafter referred to as the "Closing Date". The documents to be delivered on the Closing Date on behalf of the parties hereto pursuant to Section 9 of this Agreement shall be delivered at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, NY 10005 and the Shares shall be delivered at the Designated Office, all on the Closing Date. SECTION 5. Agreements of the Company. The Company agrees with you: ------------------------- (a) To advise you promptly and, if requested by you, to confirm such advice in writing, (i) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for such pur- -5- poses, (iii) when any amendment to the Registration Statement becomes effective, (iv) if the Company files a Rule 462(b) Registration Statement after the effectiveness of this Agreement, when the Rule 462(b) Registration Statement has become effective and (v) of the happening of any event during the period referred to in Section 5(d) below which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you 3 signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits and documents incorporated therein by reference, and to furnish to you and each Underwriter designated by you such number of conformed copies of the Registration Statement as so filed and of each amendment to it, without exhibits but including documents incorporated therein by reference, as you may reasonably request. (c) To prepare the Prospectus, the form and substance of which shall be reasonably satisfactory to you, and to file the Prospectus in such form with the Commission within the applicable period specified in Rule 424(b) under the Act; during the period specified in Section 5(d) below, not to file any further amendment to the Registration Statement and not to make any amendment or supplement to the Prospectus of which you shall not previously have been advised or to which you shall reasonably object after being so advised; and, during such period, to prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or amendment or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Shares by you, and to use its reasonable efforts to cause any such amendment to the Registration Statement to become promptly effective. (d) Prior to 10:00 A.M., New York City time, on the first business day after the date of this Agreement and from time to time thereafter for such period as in the opinion of counsel for the Underwriters a prospectus is -6- required by law to be delivered in connection with sales by an Underwriter or a dealer, to furnish in New York City to each Underwriter and any dealer as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) and any documents incorporated therein by reference as such Underwriter or dealer may reasonably request. (e) If during the period specified in Section 5(d), any event shall occur or condition shall exist as a result of which, in the judgment of the Company or in the opinion of its counsel or in the opinion of counsel for the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements of material facts therein not misleading, or if, in the judgment of the Company or in the opinion of its counsel or in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare and file with the Commission an appropriate amendment or supplement to the Prospectus so that the statements of material facts in the Prospectus, as so amended or supplemented, will not in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with applicable law, and to furnish to each Underwriter and to any dealer as many copies thereof as such Underwriter or dealer may reasonably request. (f) Prior to any public offering of the Shares, to cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offer and sale by the several Underwriters and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may reasonably request, to continue such registration or qualification in effect so long as required for distribution of the Shares and to file such consents to service of process or other documents as may be necessary in order to effect such registration or qualification; provided, however, that the Company shall not be required in connection therewith to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process or taxation other than as to matters and transactions relating to the Prospectus, the Registration Statement, any preliminary prospectus or the offering or sale of the Shares, in any jurisdiction in which it is not now so subject. -7- (g) To mail and make generally available to its stockholders as soon as reasonably practicable an earnings statement covering the twelve-month period ending March 31, 2000 that shall satisfy the provisions of Section 11(a) of the Act, and to advise you in writing when such statement has been so made available. (h) During the period of three years after the date of this Agreement, to furnish to you as soon as reasonably practicable after they become available copies of all reports or other communications furnished to the record holders of Common Stock or furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed and such other publicly available information concerning the Company and its subsidiaries as you may reasonably request. (i) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all reasonable expenses incident to the performance of the Company's or the Selling Stockholders' obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel, the Company's accountants and any Selling Stockholder's counsel (in addition to the Company's counsel) in connection with the registration and delivery of the Shares under the Act and all other fees and expenses in connection with the preparation, printing, filing and distribution of the Registration Statement (including financial statements and exhibits), any preliminary prospectus, the Prospectus and all amendments and supplements to any of the foregoing, including the mailing and delivering of copies thereof to the Underwriters and dealers in the quantities specified herein, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) all reasonable expenses in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states and all costs of printing or producing any Blue Sky Survey in connection therewith (including the filing fees and fees and disbursements of counsel for the Underwriters in connection with such registration or qualification and memoranda relating thereto), (iv) the filing fees and disbursements of counsel for the Underwriters in connection with the review and clearance of the offering of the Shares by the National Association of Securities Dealers, Inc., (v) all costs and -8- expenses incident to the listing of the Shares on the NYSE, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar and/or depositary, and (viii) all other costs and expenses incident to the performance of the obligations of the Company and the Selling Stockholders hereunder for which provision is not otherwise made in this Section. The provisions of this Section shall not supersede or otherwise affect any agreement that the Company and the Selling Stockholders may otherwise have for allocation of such expenses among themselves. Except as expressly provided in this paragraph (i), the Underwriters agree to pay all of their costs and expenses, including fees and disbursements of their counsel. (j) During the period of three years after the date of this Agreement, to mail and make generally available as soon as reasonably practicable after the end of each fiscal year to the record holders of its Common Stock a financial report of the Company and its subsidiaries on a consolidated basis (and a similar financial report of all unconsolidated subsidiaries, if any), all such financial reports to include a consolidated balance sheet, a consolidated statement of operations, a consolidated statement of cash flows and a consolidated statement of shareholders' equity as of the end of and for such fiscal year, together with comparable information as of the end of and for the preceding year, certified by independent public accountants, and to mail and make generally available as soon as reasonably practicable after the end of each quarterly period (except for the last quarterly period of each fiscal year) to such holders, a consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows (and similar financial reports of all unconsolidated subsidiaries, if any) as of the end of and for such period, and for the period from the beginning of such year to the close of such quarterly period, together with comparable information for the corresponding periods of the preceding year. (k) To use its best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Shares. (l) If the Registration Statement at the time of the effectiveness of this Agreement does not cover all of the -9- Shares, to file a Rule 462(b) Registration Statement with the Commission registering the Shares not so covered in compliance with Rule 462(b) by 11:00 A.M., New York City time, on the first business day following the date of this Agreement and to pay to the Commission the filing fee for such Rule 462(b) Registration Statement at the time of the filing thereof or to give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act. SECTION 6. Representations and Warranties of the Company. The --------------------------------------------- Company represents and warrants to each Underwriter that: (a) The Registration Statement has become effective (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement); any Rule 462(b) Registration Statement filed after the effectiveness of this Agreement will become effective no later than 11:00 A.M., New York City time, on the first business day following the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission. (b) (i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in the Prospectus complied or will comply when so filed in all material respects with the Exchange Act; (ii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement), when it became effective, did not contain and, as amended, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) the Registration Statement (other than any Rule 462(b) Registration Statement to be filed by the Company after the effectiveness of this Agreement) and the Prospectus comply and, as amended or supplemented, if applicable, will comply in all material respects with the Act, (iv) if the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement and any amendments thereto, when they become effective (A) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not -10- misleading and (B) will comply in all material respects with the Act and (v) the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in the Registration Statement or the Prospectus (or any supplements or amendments to them) based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein. (c) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in any preliminary prospectus based upon information relating to any Underwriter furnished to the Company in writing by or on behalf of such Underwriter through you expressly for use therein. (d) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to carry on its business as described in the Prospectus and to own, lease and operate its properties, and each is duly qualified and is in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (e) There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens granted or issued by the Company or any of its subsidiaries relating to or entitling any person to purchase or otherwise to acquire any shares of the -11- capital stock of the Company or any of its subsidiaries, except as otherwise disclosed in the Registration Statement and except for options which may be granted pursuant to the Company's stock option plans. (f) All the outstanding shares of capital stock of the Company (including the Shares to be sold by the Selling Stockholders) have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights; and the Shares to be sold by the Selling Stockholders have been duly authorized and, when delivered to the Underwriters against payment therefor as provided by this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights. (g) Except as described in the Prospectus, all of the outstanding shares of capital stock of each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, directly or indirectly through one or more subsidiaries, free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. (h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus. (i) Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, except for any such default that would not have a material adverse effect on the Company and its subsidiaries taken as a whole. (j) The execution, delivery and performance of this Agreement by the Company, the compliance by the Company with all the provisions hereof and the consummation of the transactions contemplated hereby will not (i) require any consent, approval, authorization or other order of, or -12- qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or by-laws of the Company or any of its subsidiaries or any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over the Company, any of its subsidiaries or their respective property or (iv) result in the suspension, termination or revocation of any Authorization (as defined below) of the Company or any of its subsidiaries or any other impairment of the rights of the holder of any such Authorization which, in the case of any conflict, breach, default, violation, suspension, termination or revocation described in clauses (ii) through (iv) of this paragraph (j), would result in a material adverse effect on the Company and its subsidiaries taken as a whole. (k) There are no legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is or, to the knowledge of the Company, could be a party or to which any of their respective property is or could be subject that are required to be described in the Registration Statement or the Prospectus and are not so described; nor are there any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required. (l) Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the Employee Retirement Income Security Act of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act or the rules and regulations promulgated thereunder, except for such violations which, singly or in the aggregate, would not have a material adverse effect on -13- the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole. (m) Each of the Company and its subsidiaries has such permits, licenses, consents, exemptions, franchises, authorizations and other approvals (each, an "Authorization") of, and has made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable Environmental Laws, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. Each such Authorization is valid and in full force and effect and each of the Company and its subsidiaries is in compliance with all the material terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization except for such events which, singly or in the aggregate, would not have a material adverse effect on the business, prospects, financial condition or results of operation of the Company and its subsidiaries, taken as a whole; and such Authorizations contain no restrictions that are burdensome to the Company or any of its subsidiaries; except as disclosed in the Prospectus or where such failure to be valid and in full force and effect or to be in compliance, the occurrence of any such event or the presence of any such restriction would not, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (n) Except as disclosed in the Prospectus, there are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating -14- expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any Authorization, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole. (o) This Agreement has been duly authorized, executed and delivered by the Company. (p) Ernst & Young are independent public accountants with respect to the Company and its subsidiaries as required by the Act. (q) The consolidated financial statements included in the Registration Statement and the Prospectus (and any amendment or supplement thereto), together with related schedules and notes, present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at September 30, 1998 and 1997 and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles; the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein; the supporting schedules, if any, included in the Registration Statement present fairly in accordance with generally accepted accounting principles the information required to be stated therein; and the other financial and statistical information and data set forth in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (r) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (s) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a regis- -15- tration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (t) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there has not occurred any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there has not been any material adverse change or any development involving a prospective material adverse change in the capital stock or in the long- term debt of the Company or any of its subsidiaries and (iii) other then in the ordinary course of business, consistent with past experience, neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent. (u) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to the Underwriters as to the matters covered thereby. SECTION 7. Representations and Warranties of the Selling --------------------------------------------- Stockholders. Each Selling Stockholder represents and warrants to each - ------------ Underwriter that: (a) Such Selling Stockholder is the lawful owner of the Shares to be sold by such Selling Stockholder pursuant to this Agreement and has, and on the Closing Date will have, good and clear title to such Shares, free of all restrictions on transfer, liens, encumbrances, security interests, equities and claims whatsoever. (b) Such Selling Stockholder has, and on the Closing Date will have, full legal right, power and authority, and all authorization and approval required by law, to enter into this Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder in the manner provided herein and therein. -16- (c) This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder. (d) Upon delivery of and payment for the Shares to be sold by such Selling Stockholder pursuant to this Agreement, good and clear title to such Shares will pass to the Underwriters, free of all restrictions on transfer, liens, encumbrances, security interests, equities and claims whatsoever, except any restrictions, liens, encumbrances, security interests, equities and claims arising out of any act of the Underwriters. (e) The execution, delivery and performance of this Agreement by the Selling Stockholders, the compliance by such Selling Stockholders with all the provisions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under the securities or Blue Sky laws of the various states), (ii) conflict with or constitute a breach of any of the terms or provisions of, or a default under, the organizational documents of such Selling Stockholder or any indenture, loan agreement, mortgage, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any property of such Selling Stockholder is bound or (iii) violate or conflict with any applicable law or any rule, regulation, judgment, order or decree of any court or any governmental body or agency having jurisdiction over such Selling Stockholder or any property of such Selling Stockholder, except such conflict, breach, default or violation described in clauses (ii) through (iii) of this paragraph (e), which would not result in a material adverse effect on such Selling Stockholder or the Offering. (f) The information in the Registration Statement under the caption "Selling Stockholders" which specifically relates to such Selling Stockholder does not, and will not on the Closing Date, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. -17- (g) At any time during the period described in Section 5(d), if there is any change in the information referred to in Section 7(f), such Selling Stockholder will notify you of such change as soon as it is reasonably practicable. (h) Each certificate signed by or on behalf of such Selling Stockholder and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by such Selling Stockholder to the Underwriters as to the matters covered thereby. SECTION 8. Indemnification. (a) The Company agrees to indemnify and --------------- hold harmless each Underwriter, its directors, its officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any such matter) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished in writing to the Company by such Underwriter through you expressly for use therein; provided, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter who failed to deliver a Prospectus, as then amended or supplemented (so long as the Prospectus and any amendment or supplement thereto was provided by the Company to the several Underwriters in the requisite quantity and on a timely basis to permit proper delivery on or prior to the Closing Date) to the person asserting any losses, claims, damages, liabilities or judgments caused by any untrue statement or alleged untrue statement of a material fact contained in such preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in the Prospectus, as so amended or supplemented, and such Prospectus was required by law to be de- -18- livered at or prior to the written confirmation of sale to such person, unless such failure is the result of noncompliance by the Company with Section 5(d) hereof. (b) Each Selling Stockholder agrees, severally and not jointly, to indemnify and hold harmless each Underwriter, its directors, its officers and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent and subject to the same exceptions and limitations as the foregoing indemnity from the Company to such Underwriter, its directors, its officers and each person, if any, who control such Underwriter, but only with reference to information relating to such Selling Stockholder furnished in writing to the Company expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. Notwithstanding the foregoing, the aggregate liability of any Selling Stockholder pursuant to this Section 8(b) shall be limited to an amount equal to the total proceeds (before deducting underwriting discounts and commissions and expenses) received by such Selling Stockholder from the Underwriters for the sale of the Shares sold by such Selling Stockholder hereunder. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling Stockholder and each person, if any, who controls such Selling Stockholder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter but only with reference to information relating to such Underwriter furnished in writing to the Company by or on behalf of such Underwriter through you expressly for use in the Registration Statement (or any amendment thereto), the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus. (d) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a), 8(b) or 8(c) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in -19- the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a), 8(b) and 8(c), the Underwriters shall not be required to assume the defense of such action pursuant to this Section 8(d), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of such Underwriter). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for (i) the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all Underwriters, their officers and directors and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act, (ii) the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and all persons, if any, who control the Company within the meaning of either such Section and (iii) the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all Selling Stockholders and all persons, if any, who control any Selling Stockholder within the meaning of either such Section, and all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Underwriters, their officers and directors and such control persons of any Underwriters, such firm shall be designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such separate firm for the Company and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. In the case of -20- any such separate firm for the Selling Stockholders and such control persons of any Selling Stockholders, such firm shall be designated in writing by 399 Venture Partners, Inc. The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action effected with its written consent. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (e) To the extent the indemnification provided for in this Section 8 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 8(e)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(e)(i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (after deducting underwriting discounts and commissions, but before deducting expenses) received by the Selling Stockholders, and the total underwriting discounts and commissions received by the Underwriters, bear to the total price to the public of the Shares, in each case as set forth in the table on the cover page of the Prospectus. -21- The relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such indemnified party in connection with investigating or defending any matter, including any action, that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Selling Stockholders' and the Underwriters' obligations to contribute pursuant to this Section 8(e) are several in proportion to the respective number of Shares purchased or sold by each of the Selling Stockholders or Underwriters hereunder, and not joint. (f) The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (g) Each Selling Stockholder hereby accepts the jurisdiction of any state or federal court in the state of New -22- York in such action, and waives, to the fullest extent permitted by applicable law, any defense based upon lack of personal jurisdiction or venue. A copy of any such process shall be sent or given to such Selling Stockholder, at the address for notices specified in Section 12 hereof. SECTION 9. Conditions of Underwriters' Obligations. The several --------------------------------------- obligations of the Underwriters to purchase the Shares under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date. (b) If the Company is required to file a Rule 462(b) Registration Statement after the effectiveness of this Agreement, such Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., New York City time, on the date of this Agreement; and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or contemplated by the Commission. (c) You shall have received on the Closing Date a certificate dated the Closing Date, signed by Kurt J. Hilzinger and Michael D. DiCandilo, in their capacities as the Senior Vice President, Chief Operating Officer and Chief Financial Officer and Vice President and Controller of the Company, confirming the matters set forth in Sections 6(t), 9(a) and 9(b) and that the Company has complied in all material respects with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by the Company on or prior to the Closing Date. (d) Since the respective dates as of which information is given in the Prospectus other than as set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), (i) there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or the earnings, business, management or operations of the Company and its subsidiaries, taken as a whole, (ii) there shall not have been any change or any development involving a prospective change -23- in the capital stock or in the long-term debt of the Company or any of its subsidiaries and (iii) neither the Company nor any of its subsidiaries shall have incurred any liability or obligation, direct or contingent, the effect of which, in any such case described in clause 9(d)(i), 9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse to the Company and its subsidiaries taken as a whole and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (e) All the representations and warranties of each Selling Stockholder contained in this Agreement shall be true and correct on the Closing Date with the same force and effect as if made on and as of the Closing Date and you shall have received on the Closing Date a certificate dated the Closing Date from each Selling Stockholder to such effect and to the effect that such Selling Stockholder has complied in all material respects with all of the agreements and satisfied all of the conditions herein contained and required to be complied with or satisfied by such Selling Stockholder on or prior to the Closing Date. (f) Cahill Gordon & Reindel, counsel for the Underwriters, shall have furnished to you their written opinion, dated the Closing Date, with respect to the matters covered in paragraphs (i), the last clause of (ii) relating to the description of the Shares, (iii) and the first clause of (vi) relating to compliance as to form of subsection (g) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (g) Dechert Price & Rhoads, counsel for the Company, shall have furnished to you their written opinion, dated the Closing Date, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Delaware, with corporate power and corporate authority to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capital stock as incorporated by reference in the Prospectus, and all of the issued shares of capital stock of the Com- -24- pany (including the Shares being delivered on the Closing Date by the Selling Stockholders) have been duly and validly authorized and issued and are fully paid and non-assessable; and the Shares conform in all material respects to the description of the Common Stock incorporated by reference in the Prospectus; (iii) This Agreement has been duly authorized, executed and delivered by the Company; (iv) The Company is not an "investment company" or an entity "controlled by an "investment company", as such terms are defined in the Investment Company Act; (v) The documents incorporated by reference in the Prospectus and any further amendment or supplement thereto made by the Company prior to the Closing Date (other than any exhibits to such documents, the financial statements including the notes thereto and related schedules and other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and a statement to the effect that although they are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in such documents and have not made any independent check or verification thereof, on the basis of the foregoing (relying as to materiality, to the extent they deem appropriate, upon the statements of officers and other representatives of the Company), no facts have come to their attention that have caused them to believe that any of such documents (other than any exhibits to such documents, the financial statements including the notes thereto and related schedules and other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion), when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact re- -25- quired to be stated therein or necessary to make the statements therein not misleading, or contained, in the case of other documents which were filed under the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and (vi) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to the Closing Date (other than any exhibits to such documents, any documents referred to in the first clause of (v) above and the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; a statement to the effect that, although they are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (except as set forth in the last clause of (ii) above), and have not made any independent check or verification thereof, on the basis of the foregoing (relying as to materiality, to the extent they deem appropriate, upon the statements of officers and other representatives of the Company), no facts have come to their attention that have caused them to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to the Closing Date (other than the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus and any further amendment or supplement thereto made by the Company prior to the Closing Date (other than the financial statements including the notes thereto and related schedules and other financial data contained or incorporated by -26- reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of the Closing Date, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to the Closing Date (other than the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may state that their opinion is limited to the laws of the United States of America, the State of New York and the General Corporation Law of the State of Delaware, and that such counsel expresses no opinion with respect to the effect of any laws or regulations relating to the Drug Enforcement Agency, the Food and Drug Administration, state boards of pharmacy and departments of health, the Pharmaceutical Drug Marketing Act, the Department of Transportation or government procurement laws and regulations. In rendering its statements included in (vi) above, such counsel may state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters, at which the contents of the Registration Statement and the Prospectus and related matters were discussed. (h) William D. Sprague, Esq., Vice President, General Counsel and Secretary for the Company, shall have furnished to you his written opinion, dated the Closing Date in form and substance satisfactory to you, to the effect that: (i) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or -27- disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (ii) Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; and all of the issued shares of capital stock of each such subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and (except as set forth in the Prospectus) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company or its subsidiaries, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (iii) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which could reasonably be expected to be determined adversely to the Company or any of its subsidiaries and would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (iv) The sale of the Shares being delivered at the Closing Date and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or vio -28- lation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties except, in each case (other than with respect to such Certificate of Incorporation or By-laws), for such conflicts, violations, breaches or defaults which would not result in a material adverse change in the business, prospects, financial conditions or results of operations of the Company and its subsidiaries taken as a whole; (v) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares, and such consents, approvals, authorizations, registrations or qualifications as may be required under state or foreign securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters or under the rules of the National Association of Securities Dealers, Inc.; (vi) Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound which breach or default (other than with respect to such Certificate of Incorporation or By-laws) would have a material adverse effect on the Company and its subsidiaries taken as a whole; -29- (vii) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to the Closing Date (other than any exhibits to such documents, the financial statements including the notes thereto and related schedules and other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; although he does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in such documents, no facts have come to his attention that have caused him to believe that any of such documents, when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of other documents which were filed under the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and (viii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to the Closing Date (other than any exhibits to such documents, any documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to the Closing Date and the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder; although he does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or -30- the Prospectus, no facts have come to his attention that have caused him to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to the Closing Date (other than the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to the Closing Date (other than the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of the Closing Date, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Company prior to the Closing Date (other than the financial statements including the notes thereto and related schedules and the other financial data contained or incorporated by reference therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and, to the best of his knowledge, there is not any amendment to the Registration Statement required to be filed or any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required. (i) Counsel for each of the Selling Stockholders, Karen Kirchen for 399 Venture Partners, Inc. and Stephen E. Dietz for Citigroup Foundation, each shall have furnished to you her or his written opinion with respect -31- to each of the Selling Stockholders for whom she or he is acting as counsel, dated the Closing Date, in form and substance satisfactory to you, to the effect that: (i) This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and thereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach or violation of any terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel after due inquiry to which such Selling Stockholder is a party or by which such Selling Stockholder is bound, or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation or any statute, order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder (where the consequences of such conflict, breach, violation or default would affect the ability of such Selling Stockholder to sell its Shares to the Underwriters pursuant to this Agreement or materially affect the ability of such Selling Stockholder to perform its obligations under this Agreement); (ii) No consent, approval, authorization or order of any court or the State of Delaware (as it relates to the Delaware General Corporate Law, the State of New York or any federal governmental body or agency) is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder, except such consents, approvals, authorization or orders which have been duly obtained and are in full force and effect, such as have been obtained under the Act and such as may be required by the National Association of Securities Dealers, Inc., under state securities or Blue Sky -32- laws in connection with the purchase and distribution of such Shares by the Underwriters; (iii) Good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, in each case created by the Selling Stockholders, has been transferred to each of the several Underwriters who have purchased such Shares in good faith and without notice of any such lien, encumbrance, equity or claim or any other adverse claim within the meaning of the Uniform Commercial Code. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction outside the United States and in rendering the opinion in subparagraph (iii) such counsel may rely upon a certificate of such Selling Stockholder in respect of matters of fact as to ownership of, and liens, encumbrances, equities or claims on the Shares sold by such Selling Stockholder, provided that such counsel shall state that they believe that both you and they are justified in relying upon such certificate. The opinions described above shall be rendered to you at the request of the Company and the Selling Stockholders and shall so state therein. In giving such opinions, Dechert Price & Rhoads and William D. Sprague may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto and documents incorporated therein by reference and review and discussion of the contents thereof, but is without independent check or verification except as specified. In giving such opinions, Cahill Gordon & Reindel may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and Prospectus and any amendments or supplements thereto (other than the documents incorporated therein by reference) and review and discussion of the contents thereof (including the documents incorporated therein by reference), but are without independent check or verification except as specified. (j) You shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to you, from Ernst & Young, in- -33- dependent public accountants, containing the information and statements of the type ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into the Registration Statement and the Prospectus. (k) The Company shall have delivered to you the agreements specified in Section 2 hereof which agreements shall be in full force and effect on the Closing Date. (l) The Company and the Selling Stockholders shall not have failed on or prior to the Closing Date to perform or comply in any material respect with any of the agreements herein contained and required to be performed or complied with by the Company or the Selling Stockholders, as the case may be, on or prior to the Closing Date. SECTION 10. Effectiveness of Agreement and Termination. This ------------------------------------------ Agreement shall become effective upon the execution and delivery of this Agreement by the parties hereto. This Agreement may be terminated at any time on or prior to the Closing Date by you by written notice to the Company and the Selling Stockholders if any of the following has occurred: (i) any outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic conditions or in the financial markets of the United States or elsewhere that, in your judgment, is material and adverse and, in your judgment, makes it impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus, (ii) the suspension or material limitation of trading in securities or other instruments on the New York Stock Exchange, the American Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation on prices for securities or other instruments on any such exchange or the Nasdaq National Market, (iii) the suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects, or will materially and adversely affect, the business, prospects, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by either federal or New York State authorities or (vi) the taking of any action by any fed- -34- eral, state or local government or agency in respect of its monetary or fiscal affairs which in your opinion has a material adverse effect on the financial markets in the United States. If on the Closing Date any one or more of the Underwriters shall fail or refuse to purchase the Shares which it has or they have agreed to purchase hereunder on such date and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the total number of Shares to be purchased on such date by all Underwriters, each non-defaulting Underwriter shall be obligated severally, in the proportion which the number of Shares set forth opposite its name in Schedule I bears to the total number of Shares which all the non-defaulting Underwriters have agreed to purchase, or in such other proportion as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares which any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased pursuant to this Section 10 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If on the Closing Date any Underwriter or Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Shares to be purchased by all Underwriters and arrangements satisfactory to you, the Company and the Selling Stockholders for purchase of such Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders. In any such case which does not result in termination of this Agreement, either you, the Company or the Selling Stockholders shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of any such Underwriter under this Agreement. SECTION 11. Agreements of the Selling Stockholders. Each Selling -------------------------------------- Stockholder agrees with you and the Company: (a) To pay or to cause to be paid all transfer taxes payable in connection with the transfer of the Shares to be sold by such Selling Stockholder to the Underwriters. -35- (b) To do and perform all things to be done and performed by such Selling Stockholder under this Agreement prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Shares to be sold by such Selling Stockholder pursuant to this Agreement. SECTION 12. Miscellaneous. Notices given pursuant to any provision ------------- of this Agreement shall be addressed as follows: (i) if to the Company, to AmeriSource Health Corporation, 300 Chester Field Parkway, Malvern, Pennsylvania 19355, Attention: General Counsel, (ii) if to 399 Venture Partners, Inc. to 399 Park Avenue, 14th Floor, Zone 4, New York, NY 10043, Attention: Helene Shavin, (iii) if to Citigroup Foundation to 425 Park Avenue, 2nd Floor, New York, NY 10043, Attention: Stephen E. Dietz and (iii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate Department, or in any case to such other address as the person to be notified may have requested in writing. The respective indemnities, contribution agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Shares, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the officers or directors of any Underwriter, any person controlling any Underwriter, the Company, the officers or directors of the Company, any person controlling the Company, any Selling Stockholder or any person controlling such Selling Stockholder, (ii) acceptance of the Shares and payment for them hereunder and (iii) termination of this Agreement. If for any reason the Shares are not delivered by or on behalf of any Seller as provided herein (other than as a result of any termination of this Agreement pursuant to Section 10), the Selling Stockholders agree, severally but not jointly, to reimburse the several Underwriters for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by them. Notwithstanding any termination of this Agreement, the Company shall be liable for all expenses which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also agree, jointly and severally, to reimburse the several Underwriters, their directors and officers and any persons controlling any of the Underwriters for any and all fees and expenses (including, without limitation, the fees disburse- -36- ments of counsel) incurred by them in connection with enforcing their rights hereunder (including, without limitation, pursuant to Section 8 hereof). Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Selling Stockholders, the Underwriters, the Underwriters' directors and officers, any controlling persons referred to herein, the Company's directors and the Company's officers who sign the Registration Statement and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Shares from any of the several Underwriters merely because of such purchase. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law hereof. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. S-1 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters. Very truly yours, AMERISOURCE HEALTH CORPORATION By: /s/ William D. Sprague -------------------------------- Title: Vice President 399 VENTURE PARTNERS, INC. By: /s/ Helene Shavin -------------------------------- Title: Vice President CITIGROUP FOUNDATION By: /s/ Alan Okada -------------------------------- Title: Treasurer S-2 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON SMITH BARNEY INC. J.P. MORGAN SECURITIES INC. FIRST UNION CAPITAL MARKETS CORP. MCDONALD INVESTMENTS INC. PIPER JAFFRAY INC. Acting severally on behalf of themselves and the several Underwriters named in Schedule I hereto By DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Michael Bruder ------------------------------------ Vice President SCHEDULE I ---------- Number of Shares Underwriters to be Purchased - ------------ ---------------- Donaldson, Lufkin & Jenrette 2,940,000 Securities Corporation Salomon Smith Barney, Inc. 1,080,000 J.P. Morgan Securities Inc. 1,080,000 First Union Capital Markets Corp. 300,000 McDonald Investments Inc. 300,000 Piper Jaffray Inc. 300,000 ---------------- Total 6,000,000 SCHEDULE II ----------- Selling Stockholders -------------------- Number of Shares Being Sold ---------------- 399 Venture Partners, Inc. 5,480,000 Citigroup Foundation 520,000 ---------------- Total 6,000,000 -----END PRIVACY-ENHANCED MESSAGE-----