-----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, E6qZNwt1a1hungKQmySlzPZWAVWsUFOsl3OEzHwHOSCAjmuvlz1SI4H1+KnYFb1R tHssipfA4vuAaeVrv6GlCg== 0001036050-99-001201.txt : 19990624 0001036050-99-001201.hdr.sgml : 19990624 ACCESSION NUMBER: 0001036050-99-001201 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990528 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: S-4 SEC ACT: SEC FILE NUMBER: 333-79591 FILM NUMBER: 99637595 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 S-4 1 AMERISOURCE HEALTH CORPORATION FORM S-4 As filed with the Securities and Exchange Commission on May 28, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- AMERISOURCE HEALTH CORPORATION (Exact name of Registrant as specified in its charter) Delaware 5122 23-2546940 (State or Other (Primary Standard Industrial (I.R.S. Employer Jurisdiction Classification Code Number) Identification No.) of Incorporation or Organization) --------------- 300 Chester Field Parkway Malvern, Pennsylvania 19355 (610) 296-4480 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------- WILLIAM D. SPRAGUE, ESQ. AmeriSource Health Corporation 300 Chester Field Parkway Malvern, Pennsylvania 19355 (610) 296-4480 (Name, address including zip code, and telephone number, including area code, of agent for service) --------------- With Copies to: CRAIG L. GODSHALL, ESQ. JAMES M. ASH, ESQ. Dechert Price & Rhoads Blackwell Sanders Peper Martin LLP 4000 Bell Atlantic Tower 2300 Main, Suite 1000 1717 Arch Street Kansas City, Missouri 64108 Philadelphia, Pennsylvania 19103 (816) 983-8000 (215) 994-4000 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the merger of Hawk Acquisition Corp. with and into C.D. Smith Healthcare, Inc. have been satisfied or waived. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] --------------- CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
Title Of Each Class Of Proposed Maximum Proposed Maximum Securities To Be Amount to Be Offering Price Per Aggregate Offering Amount Of Registered Registered(1) Unit Price(2) Registration Fee - ---------------------------------------------------------------------------------------------- Class A Common Stock, par value $0.01 per share................. 2,690,000 N/A $129,962 $36.13 - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
(1) Represents the maximum number of shares of Class A Common Stock, par value $0.01 per share, of AmeriSource Health Corporation to be issued to the holders of securities of C.D. Smith Healthcare, Inc. ("C.D. Smith") pursuant to the Amended and Restated Agreement and Plan of Reorganization. (2) Calculated pursuant to Rule 457(f) of the Securities Act of 1933, as amended, on the basis of the aggregate book value as of March 31, 1999, of the shares of C.D. Smith to be acquired by the Registrant in the merger. --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information contained in this Proxy Statement/Prospectus is not complete + +and may be changed. AmeriSource may not sell these securities until the + +registration statement filed with the Securities and Exchange Commission is + +effective. This Proxy Statement/Prospectus is not an offer to sell these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, dated May 28, 1999 [C.D. Smith Logo] MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT The boards of directors of AmeriSource Health Corporation and C.D. Smith Healthcare, Inc. have agreed to the merger of C.D. Smith and AmeriSource. Your vote, as a shareholder of C.D. Smith or as a participant in its Employee Stock Ownership Plan, is now needed to approve the merger. In the merger, AmeriSource may issue up to 2,690,000 shares of AmeriSource common stock in exchange for all outstanding shares of C.D. Smith common stock, assuming the exercise of all stock options and warrants. AmeriSource common stock is traded on the New York Stock Exchange under the symbol "AAS." After the merger, C.D. Smith will be a wholly-owned subsidiary of AmeriSource. The C.D. Smith board has unanimously approved the merger and strongly recommends that you approve it. The merger cannot be completed unless C.D. Smith's shareholders approve it by a two-thirds vote. C.D. Smith's board has scheduled a special meeting for C.D. Smith's shareholders and Employee Stock Ownership Plan participants to vote on the merger as follows: , 1999, at , local time St. Joseph, Missouri If you are an individual shareholder, please take the time to vote by completing and returning the enclosed proxy card in the enclosed envelope. Employee Stock Ownership Plan participants who are entitled to vote should complete the enclosed direction form and return it in the enclosed envelope. The direction form will direct the ESOP trustee how to vote your allocated shares. Even if you plan to attend the meeting, please complete and return your proxy card or direction form. If you are both an individual shareholder and an ESOP participant, you should complete and return both a proxy card and a direction form. This document serves as a prospectus of AmeriSource relating to the issuance of up to 2,690,000 shares of common stock in connection with the proposed merger and a proxy statement of C.D. Smith in connection with the solicitation of proxies by the C.D. Smith board for use at the special meeting of shareholders. We encourage you to read this entire document carefully. Please see "Additional Information--Where You Can Find More Information" on page 69 for additional information about AmeriSource on file with the SEC. This investment involves risk. See "Risk Factors" beginning on page 15. We appreciate your interest in C.D. Smith. /s/ Robert C. Farley Robert C. Farley Chairman of the Board, President and Chief Executive Officer Neither the SEC nor any state securities commission has approved or disapproved the AmeriSource common stock or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this proxy statement/prospectus is [ ], 1999, andis first being mailed to shareholders on [ ], 1999. C.D. SMITH HEALTHCARE, INC. 3907 S. 48TH TERRACE, P.O. Box 789 ST. JOSEPH, MISSOURI 64503 NOTICE OF SPECIAL MEETING TO SHAREHOLDERS [ ], 1999 ---------------- A special meeting of the shareholders of C.D. Smith Healthcare, Inc., a Missouri corporation, will be held at [ ], St. Joseph, Missouri, at [ ], local time, on [ ], 1999 for the following purposes: (1) To consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Reorganization, dated as of April 28, 1999, by and among AmeriSource Health Corporation, Hawk Acquisition Corp., C.D. Smith and a Person to be designated Escrow Agent, as amended and restated as of May 27, 1999, and the merger of Hawk Acquisition Corp. into C.D. Smith; and (2) To consider and act upon such other business as may properly come before the special meeting or any adjournment or postponement thereof. Only holders of C.D. Smith common stock of record at the close of business on [ ], 1999 and participants in C.D. Smith's Employee Stock Ownership Plan who have shares allocated to their accounts at the close of business on such date are entitled to notice of and to vote at the special meeting or any adjournment or postponement thereof. Your vote is important. Even if you plan to attend the special meeting, please vote now. To vote as a shareholder, complete, date and sign the enclosed proxy card and promptly return it in the envelope provided. To vote as an ESOP participant, please complete, date and sign the enclosed direction form and promptly return it in the envelope provided. Your board of directors has unanimously approved the merger agreement and the merger. The board of directors believes that the terms of the merger are fair to, and in the best interests of, C.D. Smith and its shareholders and unanimously recommends that shareholders vote "FOR" approval of the merger and the merger agreement. By Order of the Board of Directors: Delora J. Jamison Vice President, Administration and Secretary St. Joseph, Missouri [ ], 1999 ---------------- TABLE OF CONTENTS ---------------- DOCUMENTS INCORPORATED BY REFERENCE....................................... iii QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1 SUMMARY................................................................... 3 The Companies.......................................................... 3 Special Meeting........................................................ 4 The Merger and the Agreement and Plan of Reorganization................ 4 Comparative Per Share Information...................................... 8 Market Price Information............................................... 10 Selected Historical Consolidated Financial Data of AmeriSource......... 11 Selected Historical Consolidated Financial Data of C.D. Smith.......... 12 Summary Selected Unaudited Pro Forma Combined Financial Information.... 13 RISK FACTORS.............................................................. 15 Fixed Per Share Merger Consideration Despite Changes in AmeriSource Stock Price........................................................... 15 Possible Volatility Of AmeriSource's Stock Price....................... 15 Uncertainties in Integrating Business Operations....................... 15 Intense Competition May Erode Profit Margins........................... 16 Debt And Interest Expense May Affect Earnings And Operations........... 16 Key Managers May Leave The Company..................................... 16 Risks Generally Associated with Acquisitions........................... 16 Year 2000; Information Technology...................................... 17 Changing United States Health Care Environment......................... 17 Interests of Certain Persons in the Merger............................. 17 THE SPECIAL MEETING....................................................... 19 Matters to be Considered............................................... 19 Record Date; Quorum.................................................... 19 Voting and Revocation of Proxies or Direction Forms.................... 20 Votes Required; Effect of Abstentions.................................. 20 Solicitation of Proxies................................................ 21 Expenses............................................................... 21 Surrender of Certificates.............................................. 21 THE COMPANIES............................................................. 22 C.D. Smith............................................................. 22 AmeriSource............................................................ 23 THE MERGER................................................................ 24 Background of the Merger............................................... 24 AmeriSource's Reasons for the Merger................................... 26 C.D. Smith's Reasons for the Merger; Recommendation of C.D. Smith's Board of Directors.................................................... 26 Opinion of C.D. Smith's Financial Advisor.............................. 28 Interests of C.D. Smith's Management and Directors in the Merger....... 30 Federal Income Tax Consequences........................................ 31 Regulatory Matters..................................................... 33 Impact on ESOP......................................................... 33 Restrictions on Resales by C.D. Smith Affiliates....................... 33
i Voting/Support Agreements............................................... 34 Accounting Treatment.................................................... 34 Dissenters' Rights...................................................... 34 Conduct of Business after the Merger.................................... 36 THE AGREEMENT AND PLAN OF REORGANIZATION................................... 37 The Merger and Its Effective Time....................................... 37 What C.D. Smith Shareholders Will Receive............................... 37 Manner of Converting Shares............................................. 38 Stock Options........................................................... 38 Indemnification; Escrow Funds........................................... 38 Conditions to the Merger................................................ 39 Representations and Warranties.......................................... 40 Conduct of Business Prior to the Effective Time......................... 41 No Solicitation......................................................... 42 Employee Benefit Matters................................................ 43 Amendment............................................................... 43 Termination of the Agreement and Plan of Reorganization................. 43 MARKET PRICE AND DIVIDEND INFORMATION...................................... 44 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF AMERISOURCE AND C.D. SMITH................................................................ 45 BENEFICIAL OWNERSHIP OF SECURITIES......................................... 54 C.D. Smith Stock Ownership.............................................. 54 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF C.D. SMITH................................... 56 General................................................................. 56 Results of Operations................................................... 57 Liquidity and Capital Resources......................................... 59 Year 2000 Compliance.................................................... 60 New Accounting Pronouncements........................................... 61 COMPARATIVE RIGHTS OF C.D. SMITH SHAREHOLDERS AND AMERISOURCE STOCKHOLDERS.............................................................. 62 Authorized and Outstanding Capital Stock................................ 62 Number of Directors..................................................... 62 Classified Board of Directors........................................... 63 Removal of Directors.................................................... 63 Stockholder Action by Written Consent................................... 63 Indemnification and Limitation of Liability............................. 63 Amendment of Charters................................................... 64 Amendment of Bylaws..................................................... 64 Notice of Stockholder Proposals and Nomination of Directors............. 64 Stockholder Inspection.................................................. 64 Duration of Proxies..................................................... 65 Dissenters' Rights...................................................... 65 Anti-Takeover Statutes.................................................. 65 LEGAL MATTERS.............................................................. 68 EXPERTS.................................................................... 68 AMERISOURCE STOCKHOLDER PROPOSALS.......................................... 68 ADDITIONAL INFORMATION..................................................... 69
ii Cautionary Statement Concerning Forward-Looking Statements.............. 69 Where You Can Find More Information..................................... 69 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES.............................................................. F-1 Annexes: Annex A: Amended and Restated Agreement and Plan of Reorganization......... A-1 Annex B: Opinion of BT Alex. Brown Incorporated............................ B-1 Annex C: Dissenters' Rights Statute........................................ C-1
DOCUMENTS INCORPORATED BY REFERENCE This proxy statement/prospectus incorporates by reference important business and financial information regarding AmeriSource that we have not included and are not delivering with this document. Refer to the section entitled "Additional Information--Where You Can Find More Information" on page 69 for more details. You can obtain this information without charge by contacting: AmeriSource Health Corporation Investor Relations 300 Chester Field Parkway Malvern, Pennsylvania 19355 Tel: (610) 296-4480 To ensure timely delivery of the documents in advance of the special meeting, you should make your request no later than [ ], 1999. iii QUESTIONS AND ANSWERS ABOUT THE MERGER Q: What happens to my C.D. Smith shares in the merger (See page 37)? A: You will receive up to approximately 16.995 shares of AmeriSource common stock for each share of C.D. Smith common stock you own in connection with the merger. On the effective date of the merger, a portion of the shares of AmeriSource stock to be issued to you will be deposited into two escrow funds. These shares may be distributed to you upon the termination of these escrow funds. You will receive only whole shares of AmeriSource common stock. Shares of C.D. Smith common stock held by the ESOP will be converted into shares of AmeriSource common stock, allocated to participants' ESOP accounts and held in the ESOP until distributed in accordance with its terms. Q: When do you expect the merger to be completed (See page 37)? A: The merger is subject to regulatory approvals and certain other conditions. We intend to close the merger as soon as practicable after all of these apaprovals and conditions have been obtained, satisfied or waived. Q: What should I do now (See page 38)? A: C.D. Smith's shareholders should mail their signed and dated proxy cards in the enclosed envelope as soon as possible to ensure that their shares will be represented at the special meeting. ESOP participants should do the same with their direction forms. If you are both an individual shareholder and an ESOP participant, you should complete and return both the proxy card and the direction form. The special meeting will take place on [ ], 1999. Q: Should an individual shareholder send in stock certificates now (See page 38)? A: No. After the merger closes, AmeriSource will send you written instructions for exchanging C.D. Smith stock certificates for AmeriSource stock certificates. Q: If I am not going to attend the special meeting, should I return my proxy card or direction form (See page 20)? A: Yes. Returning your proxy card or direction form ensures that your shares will be represented at the special meeting, even if you are unable or do not want to attend. Q: How are ESOP shares voted (See page 20)? A: A separate ESOP direction form is included. Participants may direct the ESOP trustee on how to vote the shares in each employee's account. The trustee, as directed by the ESOP committee, votes all unallocated ESOP shares and any shares not directed by a participant. Q: May I change my vote after I mail my proxy card or direction form (See page 20)? A: Yes. You may change your vote at any time before we vote your shares at the special meeting in several ways: 1 . First, you may revoke your proxy by sending a written revocation notice to C.D. Smith at its address listed below so long as it is received prior to the special meeting. . Second, you may complete a new proxy card and send it to the C.D. Smith address below, and, if it is received prior to the special meeting, the new proxy card will automatically replace any earlier dated proxy card that you returned. . Third, shareholders may attend the special meeting and vote in person. . Fourth, if you instructed the ESOP trustee how to vote your shares, you may deliver a new direction form to the ESOP trustee at its address set forth below, and if it is received prior to the special meeting, the new direction form will automatically replace any earlier dated direction form that you returned. You should send any notice of revocation or your completed new proxy card to C.D. Smith at the following address: C.D. Smith Healthcare, Inc. 3907 S. 48th Terrace, P.O. Box 789 St. Joseph, Missouri 64503 Attn: Corporate Secretary Facsimile: (816) 232-2067 You should send any notice of revocation of a direction form or your new direction form to the ESOP trustee at the following address: George K. Baum Trust Company 120 W. 12th Street, Suite 800 Kansas City, Missouri 64105 Q: Who can answer my other questions? A: You should contact: AmeriSource Health Corporation 300 Chester Field Parkway Malvern, Pennsylvania 19355 Attn: General Counsel Tel: (610) 296-4480; or C.D. Smith Healthcare, Inc. 3907 S. 48th Terrace, P.O. Box 789 St. Joseph, Missouri 64503 Attn: Corporate Secretary Tel: (816) 232-5471 2 SUMMARY This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire proxy statement/prospectus including the Amended and Restated Agreement and Plan of Reorganization attached as Annex A. The Companies (See page 22) C.D. Smith Healthcare, Inc. 3907 S. 48th Terrace, P.O. Box 789 St. Joseph, Missouri 64503 (816) 232-5471 C.D. Smith is a leading regional wholesale distributor of pharmaceuticals and related products. C.D. Smith distributes over 25,000 products to more than 3,000 customers located predominantly in the midwestern United States and New England. Since being acquired by its management and employees in 1991, C.D. Smith has grown from a small pharmaceutical distributor serving rural customers into a full-line, full-service regional wholesale distributor with a major presence in both rural and urban markets within its core territories. This growth has been achieved principally by gaining new customers within the C.D. Smith's territories, converting customer relationships from secondary to primary supplier status and expanding its service territories. In October 1997, C.D. Smith acquired General Drug Company and James Brudnick Company, full-service wholesale distributors with operations in the greater Chicago and Boston markets. As part of this transaction, C.D. Smith also acquired SBS Pharmaceuticals, Inc., a pharmaceuticals repackaging and distribution business. AmeriSource Health Corporation 300 Chester Field Parkway Malvern, Pennsylvania 19355 (610) 296-4480 AmeriSource is one of the largest full-service wholesale distributors of pharmaceutical products and related health care services in the United States. AmeriSource's suppliers are primarily pharmaceutical manufacturers. AmeriSource's customers include hospitals, alternate care facilities and independent and chain pharmacies. AmeriSource serves customers nationwide through 19 drug distribution facilities and three specialty products distribution facilities. AmeriSource is typically the primary source of supply for its customers and offers a broad range of services designed to enhance the operating efficiencies and competitive positions of its customers and suppliers. Over the past five fiscal years AmeriSource has grown significantly, primarily as a result of market share gains in existing markets, geographic expansion and overall industry growth. During that period, operating revenues have increased at a compound annual growth rate of 18.6% and operating income (before unusual items and amortization) has increased at a compound annual growth rate of 15.8%. 3 Special Meeting (See page 19) A special meeting of C.D. Smith shareholders and ESOP participants entitled to vote on the merger will be held on [ ], 1999, at [ ], St. Joseph, Missouri, at [ ], local time. C.D. Smith shareholders of record on [ ], 1999, and participants in C.D. Smith's ESOP who have shares allocated to their accounts are entitled to vote at the special meeting. Shareholders and ESOP participants may vote by signing and returning the enclosed proxy card or direction form, or by attending the special meeting and voting at the meeting. The quorum necessary for the special meeting is the presence of the record holders of a majority of the outstanding shares of C.D. Smith common stock. ESOP participants who have shares allocated to their accounts are not counted as record holders; rather, the ESOP trustee is the record holder of all shares held by the ESOP. The affirmative vote of at least two-thirds of the total number of shares of C.D. Smith common stock outstanding on [ ], 1999, is necessary to approve the merger agreement and the merger. Abstentions will have the effect of a vote against the merger agreement and the merger. On May 27, 1999, C.D. Smith's directors and officers and affiliates beneficially owned approximately 23% of the outstanding shares of C.D. Smith's common stock and have agreed to vote for approval of the merger agreement and the merger. This makes it more likely that we will obtain the votes necessary for approval of the merger. You will have one vote at the special meeting for each share of C.D. Smith common stock you owned at the close of business on [ ], 1999. You will also have one vote for each share of C.D. Smith common stock that is allocated to you in the ESOP as of that date. On that date, [ ] shares of common stock were outstanding. The Merger and the Agreement and Plan of Reorganization (See page 24) What C.D. Smith Shareholders Will Receive in the Merger: An aggregate of 2,690,000 shares of AmeriSource Class A common stock may be issued to C.D. Smith shareholders, including the ESOP, in connection with the merger. However, C.D. Smith's shareholders are required to indemnify AmeriSource for breaches by C.D. Smith of the merger agreement and certain other damages AmeriSource may incur. To provide this indemnification, there are two escrow funds. Initially, 269,000 shares will be deposited with an escrow agent in a general escrow fund. Additional shares worth $3.3 million, based on the closing price of AmeriSource stock on the closing date of the merger, will be deposited with the escrow agent in a special escrow fund until the resolution of certain matters. The total number of shares to be issued less the amounts held in escrow will be available for distribution upon the closing of the merger. Upon the termination of the general escrow or the resolution of the special escrow matters, any remaining shares will be distributed to C.D. Smith shareholders, including the ESOP. If all shares held in escrow are eventually released from escrow, you will receive approximately 16.995 shares of AmeriSource common stock for each share of C.D. Smith common stock you hold. You will receive only whole shares of AmeriSource common stock, 4 and any fractional shares you are entitled to receive will be rounded to the nearest whole share. Soon after the merger occurs, AmeriSource will send you a letter of transmittal describing surrender of your C.D. Smith common stock certificates. You should not surrender your C.D. Smith stock certificates until you receive a letter of transmittal following the merger. Reasons for the Merger. Following are the principal reasons why the C.D. Smith board approved the merger: . Exchanging C.D. Smith stock for publicly traded AmeriSource common stock is expected to increase shareholders' liquidity. . C.D. Smith will no longer be required to purchase for cash the shares of C.D. Smith stock distributed by the ESOP to participants. . The merger provides C.D. Smith's shareholders with the opportunity to participate in a combined entity with greater financial stability and the potential for increased economic growth and diversification. . The merger may result in cost savings. In short, the C.D. Smith board believes that the merger offers C.D. Smith's shareholders, customers and employees a unique opportunity to realize the benefits created by combining the two companies. The AmeriSource board of directors believes that the merger presents AmeriSource with an opportunity to expand its geographical presence consistent with its overall business strategy. AmeriSource's board also believes that there are opportunities to increase the efficiency of the combined companies. Recommendation of C.D. Smith's Board. C.D. Smith's board of directors believes that the terms of the merger are fair to, and in the best interests of, C.D. Smith and its shareholders. The board has unanimously approved the merger agreement and the merger, and recommends that you vote FOR the proposal to approve the merger agreement and the merger. Opinion of C.D. Smith's Financial Advisor. The C.D. Smith board has received an opinion from its financial advisor, BT Alex. Brown Incorporated, as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to the holders of C.D. Smith common stock. The full text of the written opinion of BT Alex. Brown dated April 28, 1999 is attached to the back of this document as Annex B, and should be read carefully in its entirety. The opinion of BT Alex. Brown is directed to the C.D. Smith board and does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to matters relating to the proposed merger. Regulatory Matters. For the merger to close, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 must expire or terminate. In addition, there are other state and regulatory approvals which must be obtained. See "The Merger--Regulatory Matters" on page 33. Interests of C.D. Smith's Management and Directors in the Merger. When considering the recommendation of C.D. Smith's board, you should be aware that certain directors and members of C.D. Smith's management have interests in the merger that differ from, or may 5 be in addition to, your interests. For example: . Some officers and directors hold C.D. Smith stock options that will be converted into stock options of AmeriSource as a result of the merger. . Robert Farley and Delora Jamison have employment agreements that provide for employment through February 28, 2000. These agreements also provide for payments through their remaining terms if they are terminated without cause. . Delora Jamison has a severance agreement that requires C.D. Smith to pay her two times her base annual salary from the previous year if she is terminated within twelve months of a change in control of C.D. Smith. . In addition, the merger agreement provides for certain transactions between C.D. Smith and Robert Farley. These interests may cause C.D. Smith's directors and management to have conflicts of interest regarding the merger. C.D. Smith's board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement. For more information on the interests of C.D. Smith's management and directors in the merger, see "The Merger--Interests of C.D. Smith's Management and Directors in the Merger" on page 30. Impact on ESOP. Upon consummation of the merger, all C.D. Smith shares held by the ESOP will be converted into shares of AmeriSource common stock. AmeriSource will become the plan sponsor of the ESOP and will have the power to continue, terminate or freeze the ESOP, or to combine the ESOP with an existing AmeriSource plan. However, you will most likely cease to accrue benefits under the ESOP following the merger. Federal Income Tax Consequences. A condition to C.D. Smith's and AmeriSource's obligations to consummate the merger is the receipt of an opinion from legal counsel stating that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Assuming that the merger is so treated, for federal income tax purposes C.D. Smith's shareholders will not recognize any income, gain or loss upon the exchange of their shares for shares of AmeriSource common stock under the merger, and neither C.D. Smith nor AmeriSource will recognize any gain or loss as a result of the merger. However, we urge you to consult your own tax advisor. For more information about tax matters, see "The Merger-- Federal Income Tax Consequences" on page 31. Conditions to the Completion of the Merger. The merger may not be completed until certain conditions are satisfied or waived, including the following: . the merger is approved by C.D. Smith's shareholders; . the Hart-Scott-Rodino waiting period has lapsed or is terminated; . the representations of AmeriSource and C.D. Smith are true and correct in all material respects at the time of closing; . the companies each receive opinions of counsel regarding the tax treatment of the merger and other legal matters; and 6 . AmeriSource's independent auditors must advise that they concur with AmeriSource's conclusion that the merger can properly be accounted for as a "pooling of interests" business combination. For more information on these and other conditions to the merger, see "The Agreement and Plan of Reorganization--Conditions to the Merger" on page 39. Termination Fees and Expenses. The merger agreement requires C.D. Smith to pay AmeriSource a fee of $8.5 million if AmeriSource or C.D. Smith terminates the merger agreement because C.D. Smith's shareholders do not approve the merger by August 31, 1999, and C.D. Smith enters into an acquisition agreement with another company within six months or consummates a sale transaction with another company within 12 months. For more information on the fees and expenses that may be paid, and the conditions under which the merger agreement may terminate, see "The Agreement and Plan of Reorganization-- Termination of the Agreement and Plan of Reorganization" on page 43. Dissenters' Rights. Under Missouri law, each C.D. Smith common shareholder who dissents from the merger has the right to have the fair value of his or her shares appraised by a court and paid to him or her in cash. In order to exercise dissenters' rights, the shareholder must comply with specific procedural requirements. If the shareholder fails to comply with these requirements, dissenters' rights will not be available. See "The Merger-- Dissenters' Rights" on page 34. Comparative Rights of Shareholders. When the merger closes, C.D. Smith shareholders will become AmeriSource stockholders. Their rights will then be governed by AmeriSource's governing corporate documents and Delaware law, rather than C.D. Smith's governing corporate documents and Missouri law, as is currently the case. Accordingly, in a number of respects the rights of C.D. Smith's shareholders will change as a result of the merger. For a description of these changes, see "Comparative Rights of C.D. Smith Shareholders and AmeriSource Stockholders" beginning on page 62. There are risks involved in deciding to vote on the merger and in acquiring or holding AmeriSource common stock. Please read carefully the section entitled "Risk Factors" beginning on page 15. 7 Comparative Per Share Information We have summarized below the per share information of AmeriSource and C.D. Smith on a historical, pro forma combined and equivalent pro forma combined basis under the pooling of interests accounting method and assumed that each share of C.D. Smith common stock is exchanged for 16.995 shares of AmeriSource common stock. C.D. Smith's fiscal year ends on February 28. For purposes of combining AmeriSource's historical financial data with C.D. Smith's historical financial data in the pro forma combined financial data, C.D. Smith's financial data has been reported using the twelve-month periods ended September 30, 1998, 1997, and 1996, and the six-month periods ended March 31, 1999 and 1998. Please read this table together with the historical financial statements and related notes of AmeriSource incorporated into this document by reference and for C.D. Smith contained herein, and with the selected historical and unaudited pro forma financial information which we have included in this proxy statement/prospectus. The pro forma information does not necessarily portray the historical results or financial position we would have had or the future results we will experience after the merger. Neither AmeriSource nor C.D. Smith has paid cash dividends to its stockholders.
As of or for the As of or for the six months ended fiscal year ended March 31, September 30, ----------------- ---------------------- 1999 1998 1998 1997 1996 -------- -------- ------- ------ ------ Historical--AmeriSource (a) Earnings per share: Income before extraordinary items.... $ 0.79 $ 0.64 $ 1.05 $ 1.00 $ 0.94 Net income........................... 0.79 0.64 1.05 0.96 0.78 Earnings per share--assuming dilu- tion: Income before extraordinary items.... 0.78 0.63 1.04 0.99 0.93 Net income........................... 0.78 0.63 1.04 0.94 0.77 Book value per share................. 2.54 1.56 As of or for the fiscal year ended February 28, ---------------------- 1999 1998 1997 ------- ------ ------ Historical--C.D. Smith (b) Earnings per share: Net income (loss).................... $(66.71) $33.11 $14.69 Earnings per share--assuming dilu- tion: Net income (loss).................... (66.71) 28.58 14.32 Book value per share (deficit)....... (5.80)
8
As of or for the As of or for the six months ended fiscal year ended March 31, September 30, ----------------- -------------------- 1999 1998 1998 1997 1996 -------- -------- ------ ------ ------ Pro forma combined (a) Earnings per share: Income before extraordinary items...... $ 0.76 $ 0.67 $ 0.92 $ 1.01 $ 0.91 Net income per share................... 0.76 0.67 0.92 0.97 0.76 Earnings per share--assuming dilution: Income before extraordinary items...... 0.74 0.66 0.91 1.00 0.90 Net income............................. 0.74 0.66 0.91 0.96 0.75 Book value per share................... 2.61 1.50 Equivalent pro forma combined per C.D. Smith share (a)(c) Earnings per share: Income before extraordinary items...... $ 12.84 $ 11.45 $15.68 $17.22 $15.41 Net income............................. 12.84 11.45 15.68 16.54 12.84 Earnings per share--assuming dilution: Income before extraordinary items...... 12.63 11.15 15.43 16.93 15.27 Net income............................. 12.63 11.15 15.43 16.27 12.72 Book value per share................... 44.35 25.49
- -------- Note: We calculated earnings per share using the weighted average number of shares of common stock outstanding for each company during the periods presented. We calculated earnings per share--assuming dilution using the weighted average number of shares of common stock outstanding for each period presented plus the number of potentially dilutive shares of common stock outstanding for each company issuable during the period (e.g., shares issuable upon the conversion of stock options or warrants). The C.D. Smith common shares and equivalents were adjusted by the exchange ratio. (a) Share and per share amounts prior to March 1999 have been adjusted for the AmeriSource two-for-one stock split declared March 3, 1999 and distributed March 24, 1999 to stockholders of record on March 3, 1999. (b) The most recently completed fiscal year for C.D. Smith is February 28, 1999. Accordingly, no historical interim period data is presented. (c) The equivalent pro forma combined information represents the equivalent of one share of C.D. Smith common stock to one share of AmeriSource common stock. We calculated this information by multiplying the pro forma combined amounts presented by 16.995, which is the approximate number of shares of AmeriSource common stock that C.D. Smith shareholders are assumed to receive for each share of C.D. Smith common stock they hold immediately before the merger. 9 Market Price Information On April 28, 1999, the last full trading day prior to the first public announcement of the merger, the closing price of AmeriSource common stock, as reported on the New York Stock Exchange, was $31.00 per share. The high trading price on that day was $31.00 per share and the low trading price was $28.50 per share. There is no active trading market for C.D. Smith common stock. 10 Selected Historical Consolidated Financial Data of Amerisource The following table sets forth AmeriSource's selected consolidated financial data for each of the five years ended September 30, 1998 and the six-month periods ended March 31, 1999 and 1998. Such information has been prepared from the audited consolidated financial statements and the unaudited consolidated financial statements of AmeriSource. You should read this information together with the audited consolidated financial statements and other financial information contained in AmeriSource's Annual Report on Form 10-K for the year ended September 30, 1998 and AmeriSource's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 both incorporated by reference in this proxy statement/prospectus.
For the six months ended March 31, For the fiscal year ended September 30, ----------------------- ----------------------------------------------------------- 1999 1998 1998(a) 1997(b) 1996 1995 1994(c) ----------- ----------- ---------- ---------- ----------- ----------- ----------- (amounts in thousands, except per share data) Statements of Operations Data: Operating revenue....... $ 4,328,888 $ 4,446,845 $8,575,443 $7,815,942 $ 5,551,671 $ 4,668,948 $ 4,182,193 Bulk deliveries to customer warehouses.... 16,671 51,067 93,361 124,956 111,046 107,342 119,639 ----------- ----------- ---------- ---------- ----------- ----------- ----------- Total revenue........... 4,345,559 4,497,912 8,668,804 7,940,898 5,662,717 4,776,290 4,301,832 Gross profit............ 212,919 218,619 421,345 387,476 302,433 266,355 235,191 Operating expenses, excluding amortization........... 133,123 142,965 295,265 266,804 204,244 168,343 149,137 Operating income (loss)................. 79,286 75,011 124,944 119,613 97,889 97,835 (101,992) Income (loss) before extraordinary items and in 1994 the cumulative effect of accounting changes................ 38,213 30,693 50,519 47,449 42,650 28,218 (172,417) Net income (loss)....... $ 38,213 $ 30,693 $ 50,519 $ 45,467 $ 35,408 $ 10,181 $ (207,671) Earnings (loss) per share--assuming dilution (d): Income (loss) before extraordinary items and in 1994 the cumulative effect of accounting changes.... $.78 $.63 $1.04 $.99 $.93 $.77 $(5.84) Net income (loss)...... .78 .63 1.04 .94 .77 .28 (7.04) Weighted average shares outstanding--assuming dilution (d)........... 49,144 48,464 48,550 48,121 45,792 36,637 29,500 As of As of September 30, March 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 1994 Balance Sheet Data: ----------- ---------- ---------- ----------- ----------- ----------- Cash, cash equivalents, and restricted cash.... $ 155,474 $ 85,505 $ 68,931 $ 71,201 $ 46,809 $ 25,311 Accounts receivable, net.................... 480,326 458,238 533,319 390,331 318,652 272,281 Merchandise inventories............ 942,152 870,223 1,017,782 650,296 404,522 351,676 Property and equipment, net.................... 59,752 60,789 67,462 51,666 45,244 41,182 Total assets............ $ 1,719,525 $1,552,282 $1,745,040 $ 1,187,960 $ 838,673 $ 711,644 Accounts payable........ $ 917,292 $ 873,181 $1,036,462 $ 714,984 $ 462,804 $ 449,991 Long-term debt.......... 518,564 453,761 589,819 433,693 435,764 487,575 Stockholders' equity (deficit).............. 123,889 75,309 14,311 (36,808) (135,724) (300,726) Total liabilities and stockholder's equity (deficit).............. $ 1,719,525 $1,552,282 $1,745,040 $ 1,187,960 $ 838,673 $ 711,644
- -------- (a) Includes the effect of $18.4 million of merger costs and $8.3 million of costs related to facility consolidations and employee severance. (b) Includes the effect of $11.6 million of costs related to facility consolidations and employee severance. (c) Includes the effect of the $179.8 million write-off of goodwill, the cumulative effect of accounting changes for income taxes of $33.4 million and postretirement benefits other than pensions of $1.2 million. (d) Share and per share amounts prior to March 1999 have been adjusted for the two-for-one stock split declared March 3, 1999 and distributed March 24, 1999 to stockholders of record on March 3, 1999. 11 Selected Historical Consolidated Financial Data of C.D. Smith The following table sets forth C.D. Smith's selected historical consolidated financial data for each of the five years in the period ended February 28, 1999. Such information has been prepared from the audited consolidated financial statements of C.D. Smith. The fiscal 1998 information includes the results of operations of the General Drug companies since their acquisition on October 3, 1997. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements included elsewhere in this proxy statement/prospectus.
For the fiscal year ended February 28, --------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (amounts in thousands, except per share data) Statements of Operations Data: Operating revenue.............. $794,547 $532,410 $301,523 $224,163 $171,977 Bulk deliveries to customer warehouses.................... 31,939 11,680 -- -- -- -------- -------- -------- -------- -------- Total revenue.................. 826,486 544,090 301,523 224,163 171,977 Gross profit................... 40,518 27,422 14,738 10,682 7,751 Operating expenses, excluding amortization (a).............. 27,882 16,532 10,265 8,196 8,023 Operating income (loss)........ 11,695 10,496 4,474 2,486 (272) Net income (loss) (b).......... $ (7,718) $ 3,872 $ 1,930 $ 634 $ (864) Net income (loss) per share- assuming dilution............. $ (66.71) $ 28.58 $ 14.32 $ 3.40 $ (4.32) Weighted average shares outstanding-assuming dilution...................... 116 135 135 186 200 As of February 28, --------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Balance Sheet Data: Cash........................... $ 86 $ 42 $ 17 $ 104 $ 9 Accounts receivable, net....... 58,080 56,059 15,400 10,766 10,363 Merchandise inventories........ 82,961 73,672 30,733 20,623 14,352 Property and equipment, net.... 7,518 6,723 3,175 2,358 2,290 Total assets................... $175,458 $165,327 $ 49,761 $ 34,539 $ 27,680 Accounts payable............... $ 67,443 $ 70,798 $ 26,428 $ 21,197 $ 15,974 Long-term debt................. 89,038 79,423 17,150 9,239 9,617 Common stock put warrants...... 12,218 2,569 -- -- -- Stockholders' equity (deficit)..................... (670) 7,004 3,167 1,884 1,266 Total liabilities and stockholders' equity (deficit)..................... $175,458 $165,327 $ 49,761 $ 34,539 $ 27,680
- -------- (a) Includes $2.2 million in severance payments to former management and other costs resulting primarily from the integration of the General Drug companies subsequent to their acquisition and $1.3 million of expense recognized upon the termination of the C.D. Smith initial public offering effort for the fiscal year ended February 28, 1999. (b) Includes a $9.6 million adjustment of the C.D. Smith common stock put warrants to their fair value for the fiscal year ended February 28, 1999. 12 Summary Selected Unaudited Pro Forma Combined Financial Information The following unaudited pro forma information combines the historical consolidated financial statements of AmeriSource and C.D. Smith after accounting for the merger under the pooling of interests accounting method, and accordingly, gives effect to the merger as if it had occurred at the beginning of the earliest period presented. C.D. Smith's fiscal year ends on February 28. For purposes of combining AmeriSource's historical financial data with C.D. Smith's historical financial data in the pro forma combined financial data, C.D. Smith has been reported using twelve month periods ended on September 30, 1998, 1997 and 1996, and the six-month periods ended March 31, 1999 and 1998. The unaudited pro forma combined condensed statements of operations data do not reflect any cost savings or other synergies anticipated by management as a result of the merger. They also do not reflect any merger-related or restructuring expenses, which are currently estimated to be in the range of $8.0 million to $16.0 million. The pro forma information does not necessarily portray the historical results or financial position that would have been achieved had the merger occurred at the beginning of the earliest period presented. and you should consider it as representative of future results. You should read this information together with "Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith" on page 45.
For the six months ended For the fiscal year ended March 31, September 30, ------------------------- ------------------------------------ 1999(a)(b) 1998 1998(a)(b)(c) 1997(d) 1996 ------------------------- ------------- ---------- ---------- (amounts in thousands, except per share data) Statements of Operations Data Operating revenue....... $ 4,735,520 $ 4,849,993 $9,373,482 $8,173,679 $5,806,126 Bulk deliveries to customer warehouses.... 24,386 65,596 129,555 124,956 111,046 ------------ ------------ ---------- ---------- ---------- Total revenue........... 4,759,906 4,915,589 9,503,037 8,298,635 5,917,172 Gross profit............ 234,112 239,738 461,898 404,136 314,488 Operating expenses, excluding amortization........... 146,964 155,042 320,916 277,632 213,681 Operating income (loss)................. 86,168 83,587 138,907 125,445 100,507 Income before extraordinary items.... 38,114 33,502 46,030 50,123 43,463 Net income.............. 38,114 33,502 46,030 48,141 36,221 Earnings per share (e): Income before extraordinary items.... $ 0.76 $ 0.67 $ 0.92 $ 1.01 $ 0.91 Extraordinary items..... -- -- -- (0.04) (0.15) ------------ ------------ ---------- ---------- ---------- Net income.............. $ 0.76 $ 0.67 $ 0.92 $ 0.97 $ 0.76 ============ ============ ========== ========== ========== Earnings per share-- assuming dilution (e): Income before extraordinary items.... $ 0.74 $ 0.66 $ 0.91 $ 1.00 $ 0.90 Extraordinary items..... -- -- -- (0.04) (0.15) ------------ ------------ ---------- ---------- ---------- Net income.............. $ 0.74 $ 0.66 $ 0.91 $ 0.96 $ 0.75 ============ ============ ========== ========== ========== Weighted average shares outstanding (e): Basic................... 50,443 49,723 49,876 49,467 47,929 Assuming dilution....... 51,289 51,044 50,686 50,301 48,376
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As of March 31 1999 ---------- Balance Sheet Data(f): Cash, cash equivalents and restricted cash...... $ 159,592 Accounts receivable, net........................ 536,236 Merchandise inventories......................... 1,023,700 Property and equipment, net..................... 67,633 Total assets.................................... $1,895,513 Accounts payable................................ $ 989,887 Long-term debt.................................. 602,229 Stockholders' equity............................ 132,237 Total liabilities and stockholder's equity...... $1,895,513
- -------- (a) Includes $1.8 million and $7.8 million for the periods ended March 31, 1999 and September 30, 1998, respectively, for the adjustment of C.D. Smith's common stock put warrants to their fair value. (b) The six months ended March 31, 1999 includes $0.9 million in severance payments to former C.D. Smith management and other costs resulting primarily from the integration of the General Drug companies subsequent to their acquisition (collectively referred to as "severance and integration costs"), and $1.3 million of expense recognized upon the termination of the C.D. Smith initial public offering effort. The fiscal year ended September 30, 1998 includes $1.3 million of severance and integration costs. (c) Includes the effect of AmeriSource's $18.4 million of merger costs and $8.3 million of costs related to facility consolidations and employee severance. (d) Includes the effect of AmeriSource's $11.6 million of costs related to facility consolidations and employee severance. (e) Share and per share amounts prior to March 1999 have been adjusted for the AmeriSource two-for-one stock split declared March 3, 1999 by AmeriSource and distributed March 24, 1999 to shareholders of record on March 3, 1999. The pro forma earnings per share data assumes that each share of C.D. Smith common stock has been exchanged for 16.995 shares of AmeriSource common stock. (f) The pro forma combined consolidated balance sheet data reflects $4.0 million of merger-related costs, including investment banking, legal, accounting and other related costs and fees, and assumes the exercise of the C.D. Smith common stock warrants anticipated upon the consummation of the merger. 14 RISK FACTORS An investment in shares of AmeriSource common stock involves risk. You should carefully consider the following factors as well as the other information contained and incorporated by reference in this proxy statement/prospectus before deciding to invest. Fixed Per Share Merger Consideration Despite Changes in AmeriSource Stock Price The maximum number of shares of AmeriSource common stock that you will receive for the shares of C.D. Smith common stock that you own or have allocated to your ESOP account is fixed based on your pro rata share of the aggregate 2,690,000 shares of AmeriSource common stock that may be issued in the merger. You may ultimately receive fewer than 16.995 shares for each share of C.D. Smith that you own because of the escrow fund arrangements. Further, the price of AmeriSource common stock may be higher or lower than the price on the date of this proxy statement/prospectus or on the date of the special meeting of shareholders. Changes in the business, operations or prospects of AmeriSource, or changes in the pharmaceutical industry or the economy generally, could all adversely affect the price of AmeriSource shares. Therefore, there is no way to be sure of the market value of the AmeriSource shares that you will receive in the merger. Possible Volatility Of AmeriSource's Stock Price The stock market and the price of AmeriSource common stock may be subject to volatile fluctuations based on general economic and market conditions. Since AmeriSource's initial public offering in April 1995, the closing sale price to May 27, 1999 has ranged from a low of $10 per share to a high of $40 17/32 per share. The market price of AmeriSource's common stock may also be affected by its ability to meet analysts' expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the market price of its common stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. If similar litigation were instituted against AmeriSource, it could result in substantial costs and a diversion of management's attention and resources, which could have an adverse effect on AmeriSource's business. Uncertainties in Integrating Business Operations In determining that the merger is in the best interests of AmeriSource or C.D. Smith, the boards of directors of each company considered the potential complementary effects of combining the companies' assets, personnel and operational expertise. The integration of businesses, however, involves a number of special risks. These include the following: . the diversion of management's attention away from other business concerns; . difficulties in integrating operations and systems; . the assimilation and retention of the personnel of the acquired companies; and . challenges in retaining the customers of the combined businesses. 15 Intense Competition May Erode Profit Margins The wholesale distribution of pharmaceuticals and related health care services is highly competitive. AmeriSource competes primarily with the following: . National wholesale distributors of pharmaceuticals such as Bergen Brunswig Corporation, Bindley Western Industries, Inc., Cardinal Health, Inc., and McKessonHBOC Corporation; . Regional and local distributors of pharmaceuticals; . Warehousing chain drug stores; . Direct-selling manufacturers; and . Other specialty distributors. Some of AmeriSource's competitors have greater financial resources and geographic coverage than AmeriSource has. Competitive pressures have contributed to a decline in AmeriSource's gross profit margins on operating revenues from 6.52% in fiscal 1991 to 4.91% in fiscal 1998. This trend may continue and AmeriSource's business could be adversely affected as a result. Debt And Interest Expense May Affect Earnings And Operations AmeriSource's balance sheet is highly leveraged with approximately $518.6 million in aggregate long-term debt and $123.9 million of stockholders' equity at March 31, 1999. At March 31, 1999, the combined operations of AmeriSource and C.D. Smith, after giving effect to the merger, would have had approximately $602.2 million in long-term debt outstanding. This could negatively affect its operations in a number of ways, including: . AmeriSource may be unable to obtain additional financing when needed for its operations or when desired for other acquisitions or expansions. . A large part of AmeriSource's cash flow from operations must be dedicated to interest payments on its debt, thereby reducing funds available for other corporate purposes. . Since much of AmeriSource's debt is at variable or floating interest rates, a rise in market interest rates will increase its interest expense. . The level of AmeriSource's debt could limit its flexibility in responding to downturns in the economy or in its business. . The terms of AmeriSource's debt agreements limit its ability to borrow additional money, pay dividends, divest assets and make acquisitions. Key Managers May Leave The Company AmeriSource depends on its senior and regional management. If some of these employees leave, operating results could be adversely affected. Although AmeriSource has employment contracts with its chief executive officer, chief operating officer and one other key employee, AmeriSource cannot be assured that it will be able to retain these or any other key employees. Risks Generally Associated with Acquisitions An element of AmeriSource's business strategy is the pursuit of acquisitions that either expand or complement its business. Acquisitions involve a number of special risks, including the risks pertaining to integrating acquired businesses that are noted above under "-Uncertainties in Integrating 16 Business Operations." AmeriSource may also incur debt to finance future acquisitions and may issue securities in connection with future acquisitions, which may have a dilutive effect on its stockholders. AmeriSource's inability to complete and integrate strategic acquisitions in a timely manner could adversely impact a portion of AmeriSource's business strategy. Year 2000; Information Technology AmeriSource relies on both information technology systems and operating equipment with embedded chips or software. Historically, certain computerized systems have used two digits rather than four to define the applicable year. Computer equipment and software and devices with imbedded technology that are time-sensitive may recognize a date using "00" as the year 1900 rather than the year 2000, resulting in system failure or miscalculations. This problem is generally referred to as the "Year 2000 issue." AmeriSource has developed a plan to address the Year 2000 issue, but it has not yet completed all necessary phases of its Year 2000 plan. There is a range of possible issues and many variables involved in its Year 2000 plan. This makes it impossible for AmeriSource to quantify the potential costs of the Year 2000 issue. AmeriSource believes that the most likely risks include the following: . the disruption of utility, telecommunication and transportation services; . the failure of customers and vendors due to their own problems stemming from the Year 2000 issue; and . disruption in the supply channel due to excess demand for inventory by customers in anticipation of Year 2000 problems. If AmeriSource does not complete its Year 2000 plan, or, if a significant number of customers fail to complete their Year 2000 plans, AmeriSource may be unable to perform certain core business functions, such as taking orders, distributing goods and processing invoices. AmeriSource could also be sued for computer systems failure. AmeriSource cannot estimate the amount of potential liability and lost revenue. Changing United States Health Care Environment The health care industry has undergone significant change driven by efforts to reduce costs. These efforts include the following: . consolidation of pharmaceutical and medical/surgical supply distributors; . the development of large and sophisticated purchasing groups of pharmaceuticals and medical/surgical supplies; . potential legislative health care reform; . trends towards managed care; and . cuts in Medicare. AmeriSource expects that the industry will continue to undergo these and similar changes for the foreseeable future. These changes could have a material adverse effect on AmeriSource's results of operations. Interests of Certain Persons in the Merger In considering the recommendation of the C.D. Smith board of directors that you approve the merger, you should be aware that certain of the directors and officers of C.D. Smith have interests 17 that differ from, and may be in addition to, your interests in the merger. These interests include certain transactions that will be entered into in connection with the merger, severance payments under certain circumstances, and employment agreements. These interests were considered, along with other factors, by the C.D. Smith board in recommending the merger to C.D. Smith's shareholders. These interests are described in greater detail in the section entitled "The Merger--Interests of C.D. Smith's Management and Directors in the Merger" on page 30. 18 THE SPECIAL MEETING Matters to be Considered At the special meeting, C.D. Smith's shareholders and certain ESOP participants will consider and vote on a proposal to approve the merger agreement and the merger. The shareholders will also consider any other matters that may properly come before the special meeting or any adjournment or postponement of the special meeting. Record Date; Quorum C.D. Smith's board of directors has fixed the close of business on [ ], 1999 as the record date for the special meeting. Only the following persons are entitled to receive notice of and to vote at the special meeting: . shareholders of record on the record date; and . participants in C.D. Smith's Employee Stock Ownership Plan (the "ESOP") who have shares allocated to their accounts at the close of business on the record date. On the record date, [ ] shares of C.D. Smith common stock were outstanding and held by [ ] holders of record. Each outstanding share of C.D. Smith common stock is entitled to one vote on each matter to be considered at the special meeting. The presence, either in person or by proxy, of the record holders of a majority of the issued and outstanding shares of C.D. Smith common stock entitled to vote at the special meeting is necessary to constitute a quorum for the transaction of business at the special meeting. ESOP participants who have shares allocated to their accounts are not counted for this purpose; rather, the ESOP trustee is the record holder of all shares held by the ESOP. Abstentions are counted for purposes of determining the presence of a quorum at the special meeting. As an example, assume a shareholder of record of 100 shares of C.D. Smith common stock is also an ESOP participant with 75 shares allocated to his or her account under the terms of the ESOP. If this shareholder either attends the special meeting in person or returns a proxy card, 100 shares are present for purposes of determining a quorum. Assuming the ESOP trustee is present in person or by proxy, the 75 shares held by that shareholder in his or her ESOP account will also be counted as present. In the absence of a quorum at the special meeting or for any other reason, the holders of a majority of the shares of C.D. Smith common stock present in person or represented by proxy at the special meeting may adjourn the special meeting for the purpose of allowing additional time to solicit and obtain additional proxies or votes or for any other purpose. At any adjourned meeting at which a quorum is present, all proxies will be voted in the same manner as those proxies would have been voted at the meeting at which the adjournment is taken, except for any proxies that have been revoked or withdrawn. Once a quorum is present, C.D. Smith may reconvene the special meeting without notice to shareholders, other than an announcement at the meeting at which the adjournment is taken, unless the adjournment is for more than 90 days or a new record date has been set. 19 Voting and Revocation of Proxies or Direction Forms All shares of C.D. Smith common stock represented at the special meeting by properly executed proxies received before or at the special meeting, unless the proxies have been revoked, will be voted at the special meeting, or at any postponement or adjournment of the special meeting. If no instructions are indicated, the proxies will be voted FOR approval of the merger agreement and the merger. In addition, the persons designated in the proxies will have discretion to vote upon any other matters that may properly come before the special meeting, including the right to vote for any adjournment of the special meeting to solicit additional proxies. ESOP participants who have shares allocated to their accounts in the ESOP should complete the enclosed direction form. This form, when executed, will direct George K. Baum Trust Company, the ESOP trustee, how to vote the shares allocated to the participant's ESOP account. The ESOP advisory committee, consisting of five ESOP participants, will direct George K. Baum Trust Company how to vote any shares that have not been allocated under the ESOP and any allocated shares that were not voted by the ESOP participants. A person giving a proxy or direction form pursuant to this solicitation may revoke it at any time before the shares are voted at the special meeting. Attending the special meeting will not, in and of itself, revoke a proxy or a direction form. A proxy or direction form may be revoked before the special meeting: . by filing a written instrument revoking the proxy with the Secretary of C.D. Smith, at 3907 S. 48th Terrace, P.O. Box 789, St. Joseph, Missouri 64503, facsimile no: (816) 232-2067; . by completing a new proxy card and sending it to the address above, in which case the new proxy card will automatically replace any earlier dated proxy card if it is received prior to the meeting; . if you are a shareholder, by voting in person at the special meeting; or . if you are an ESOP participant, by delivering to the ESOP trustee at or prior to the meeting a new direction form. C.D. Smith will appoint one or more inspectors, who may be employees of C.D. Smith, to determine, among other things, the number of shares of C.D. Smith common stock represented at the special meeting and the validity of the proxies submitted for vote at the special meeting. The inspector(s) of election appointed for the special meeting will tabulate votes cast by proxy and in person. Votes Required; Effect of Abstentions The affirmative vote of the holders of at least two-thirds of the outstanding shares of C.D. Smith common stock entitled to vote at the special meeting is required to approve the merger agreement and the merger. Abstentions will have the effect of a vote against the approval of the merger agreement and the merger. On May 27, 1999, C.D. Smith's directors and officers and their affiliates beneficially owned 23% of the shares of C.D. Smith common stock outstanding. They have agreed to vote for approval of the merger agreement and the merger. See "The Merger--Voting/Support 20 Agreements" on page 34. This makes it more likely that the merger agreement and the merger will be approved by the shareholders of C.D. Smith. Solicitation of Proxies Proxies and direction forms are being solicited by and on behalf of C.D. Smith's board of directors. Directors, officers and employees of C.D. Smith may solicit proxies and direction forms by mail, in person or by telephone, facsimile or other means of communication. Expenses C.D. Smith will bear its own expenses in connection with the special meeting and the solicitation of proxies and direction forms from its shareholders and ESOP participants. Surrender of Certificates If the merger is consummated, holders of C.D. Smith common stock will receive instructions regarding the surrender of their stock certificates. Shareholders should keep their stock certificates until they receive those instructions. 21 THE COMPANIES C.D. Smith C.D. Smith Healthcare, Inc. is a leading regional wholesale distributor of pharmaceuticals and related products. C.D. Smith distributes over 25,000 products to more than 3,000 customers located predominantly in the midwestern United States and New England. Since being acquired by its management and employees in 1991, C.D. Smith has grown from a small pharmaceutical distributor serving rural customers into a full-line, full-service regional wholesale distributor with a major presence in both rural and urban markets within its core territories. This growth has been achieved principally by gaining new customers within the C.D. Smith's territories, converting customer relationships from secondary to primary supplier status and expanding its service territories. In October 1997, C.D. Smith acquired General Drug Company and James Brudnick Company, full-service wholesale distributors with operations in the greater Chicago and Boston markets. As part of this transaction, C.D. Smith also acquired SBS Pharmaceuticals, Inc., a pharmaceuticals repackaging and distribution business. Operations. C.D. Smith has three distribution centers with advanced material handling systems for receiving, storing and distributing the approximately 25,000 products which make up its product offerings. . The St. Joseph, Missouri facility was built in 1994. The facility operates 24 hours per day in three shifts. Bar code scanners are used to automate the receiving process and update inventory levels. In most cases, customer orders may be received as late as 9:00 p.m. for delivery the following business day, and deliveries are made to customers six days per week. . The Chicago operation was acquired in the General Drug acquisition. In 1998, the Chicago distribution center added a second operating shift and a sixth day of operations to increase customer service levels. It has historically been a secondary supplier to a majority of its customers. . The Boston distribution center, also acquired in the General Drug acquisition, currently operates two shifts, five days per week. C.D. Smith currently has 135,000 square feet of warehouse space to accommodate sales of core pharmaceutical products. Customers and Markets. C.D. Smith's customer base consists of over 3,000 independent pharmacies, regional and national chain pharmacies, supermarkets, mass merchandisers, hospitals, nursing homes, and healthcare institutions. C.D. Smith believes it is the primary supplier to the majority of its customers. C.D. Smith also serves as a secondary supplier to several large chain drug stores, supermarkets and mass merchandisers for items the primary supplier does not carry or periodically cannot supply. 22 C.D. Smith historically has focused its marketing efforts on independent pharmacies. Since 1991, C.D. Smith has expanded its principally rural customer base to include the major metropolitan areas of its core midwestern states and has increased its market share of retail chains, healthcare institutions and mass merchandisers. The General Drug companies historically have had strong relationships with government and managed care customers and less exposure to independent pharmacies than C.D. Smith's St. Joseph operations. Suppliers. C.D. Smith purchases pharmaceutical and other products from over 1,000 suppliers. Sales and Marketing. C.D. Smith maintains an outside sales force to contact customers, emphasizing frequent on-site personal interaction and consultation on merchandising, stocking and inventory management. An internal customer service staff emphasizes rapid response to customer inquiries, efficient order placement and fulfillment and a high service level for routine and emergency inventory replacement. Internal marketing programs are designed to give customers access to special price and promotional offerings of the manufacturers to better plan inventory investments. AmeriSource AmeriSource is one of the largest full-service wholesale distributors of pharmaceutical products and related health care services in the United States. AmeriSource's suppliers are primarily pharmaceutical manufacturers. AmeriSource's customers include hospitals, alternate care facilities and independent and chain pharmacies. AmeriSource serves customers nationwide through 19 drug distribution facilities and three specialty products distribution facilities. AmeriSource is typically the primary source of supply for its customers and offers a broad range of services designed to enhance the operating efficiencies and competitive positions of its customers and suppliers. Over the past five fiscal years AmeriSource has grown significantly, primarily as a result of market share gains in existing markets, geographic expansion and overall industry growth. During that period operating revenues have increased at a compound annual growth rate of 18.6% and operating income (before unusual items and amortization) has increased at a compound annual growth rate of 15.8%. Effective May 27, 1999, George L. James, III became Vice President and the Chief Financial Officer of AmeriSource. Prior to joining AmeriSource, Mr. James was the Chief Financial Officer of BetzDearborn, Inc., since 1995. Prior to that time he served in various executive capacities with Scott Paper Company. Effective May 1, 1999, Edward E. Hagenlocker was appointed to the board of directors of AmeriSource. Prior to such time, Mr. Hagenlocker served in various executive capacities at Ford Motor Company for more than five years, until retirement in January 1999. 23 THE MERGER Background of the Merger In early 1998, as part of its regular review and planning process, C.D. Smith's management and board of directors reviewed the company's strategic direction and explored a variety of financing alternatives, including public and private offerings of securities, strategic alliances and business combinations with other companies. Key to this review was consideration of the debt C.D. Smith had incurred in connection with its recent General Drug acquisition, concerns regarding shareholder liquidity and the growing obligation to repurchase the stock of employees held in the ESOP whenever a vested employee left the company. Prior to the General Drug acquisition, C.D. Smith's operations were financed principally through line of credit borrowings and cash from operations. The General Drug acquisition required C.D. Smith to incur a significant additional amount of debt. Future acquisitions, if determined by the board of directors to be advisable, would challenge the company in determining how to finance such acquisitions. Throughout early 1998, C.D. Smith management explored various alternatives to address these and related issues. In May 1998, C.D. Smith management concluded that, at that time, the best alternative to continue the company's growth and to implement its strategic plan was to engage in a public offering of its stock. However, due to market conditions, C.D. Smith management decided in August 1998 to postpone the offering. During August 1998, C.D. Smith management and BT Alex. Brown, C.D. Smith's co-managing underwriter for its proposed public offering, monitored the state of the initial public offering market while also discussing a potential business combination with industry participants. Several companies provided preliminary indications of interest, but C.D. Smith's management and board of directors deemed them to be undervalued and decided to wait until market conditions were more favorable for a public offering. Throughout late 1998 and early 1999, C.D. Smith's management and its managing underwriters monitored the initial public offering market and the stock price performance of the industry peers. The initial public offering market remained unstable, and industry peers experienced significant volatility in their stock prices. In late January 1999, C.D. Smith determined that there were limited prospects for an initial public offering for the foreseeable future. During late 1998 and early 1999, several industry participants contacted C.D. Smith management to inquire about the timing of the planned initial public offering and potential business combinations. In February 1999, C.D. Smith management and its board of directors decided to resume investigating the possibility of entering into a business combination. During the week of February 11, 1999, Mr. Robert Farley, C.D. Smith's Chairman, President and Chief Executive Officer, attended an industry conference where informal discussions with several companies took place. At that conference, Mr. Farley spoke to Mr. R. David Yost, AmeriSource's President and Chief Executive Officer, and Mr. Kurt J. Hilzinger, AmeriSource's Chief Operating Officer. 24 Based upon the results of these meetings and events, C.D. Smith determined that AmeriSource was an excellent strategic fit for C.D. Smith in a business combination. This determination was based primarily on AmeriSource's focused strategy on the pharmaceutical distribution business, the potential benefits of its broad product and service offering to C.D. Smith customers, its focus on the needs of independent pharmacies, which compose the bulk of the company's customer base, the complementary geographic fit of distribution facilities and markets served, and AmeriSource's potential to execute the C.D. Smith strategy of consolidating remaining independent distributors. The desirable strategic and corporate culture fit was confirmed when Mr. Farley, Mr. Eric Farley, Ms. Delora Jamison and Ms. Jeanne Mathiesen of C.D. Smith and Messrs. Yost and Hilzinger of AmeriSource met on February 17 and 18, 1999 at C.D. Smith's St. Joseph facility. As a result of this meeting, the management of C.D. Smith reviewed with Christenberry, Collet & Co., Inc., C.D. Smith's investment advisor, the strategic fit of C.D. Smith and AmeriSource, preliminary financial terms of a possible transaction, and C.D. Smith's historical and projected financial information. On February 26, 1999, a meeting of C.D. Smith and AmeriSource management attended by Mr. Robert Farley, Mr. William Collet of Christenberry, Collet & Co., Inc., Messrs. Yost and Hilzinger, and Mr. Michael D. DiCandilo, AmeriSource's Controller, was held at AmeriSource's headquarters at which C.D. Smith made a presentation to AmeriSource. Following this presentation, on March 9, 1999, Messrs. Robert Farley and Yost discussed the potential terms of a business combination between the two companies. On March 12, 1999, C.D. Smith and AmeriSource executed a non-binding letter agreement in which the parties stated their intent to pursue a business combination. For the next month, the parties conducted due diligence and negotiated the terms of the merger agreement. Messrs. Yost and Hilzinger met with Mr. Robert Farley on April 7 in St. Joseph Missouri, regarding a potential business combination between C.D. Smith and AmeriSource and the terms thereof. On April 19 through April 20, Mr. Yost, Mr. Hilzinger and Mr. William D. Sprague, General Counsel of AmeriSource, along with a representative of Dechert Price & Rhoads, AmeriSource's counsel, met with Mr. Collet, representatives of Blackwell Sanders Peper Martin LLP, C.D. Smith's counsel, and Mr. Robert Farley at the offices of Blackwell Sanders and began negotiations of a definitive merger agreement. Further telephone negotiations ensued during the following week. The Capital Appropriations Committee of AmeriSource's board of directors met on April 23, 1999 to consider the transaction. After reviewing management's findings and the terms of the proposed merger and the merger agreement, the Capital Appropriations Committee recommended that the matter be brought before the full board of directors for consideration. On April 25, 1999, AmeriSource's board of directors held a special meeting to consider the proposed merger and the merger agreement. Following a presentation by Mr. Yost and Mr. Hilzinger, the AmeriSource board unanimously approved the merger and the merger agreement, subject to the resolution of certain remaining issues. 25 On April 26, 1999, the C.D. Smith board of directors met to discuss the merger agreement and terms of the proposed merger. At the board meeting, legal counsel to C.D. Smith summarized and discussed the terms of the merger agreement. In addition, BT Alex. Brown rendered to the C.D. Smith board its oral opinion to the effect that, as of the date of the opinion and based upon and subject to review of the final merger agreement and other customary matters, the merger consideration was fair, from a financial point of view, to the holders of C.D. Smith common stock. The board of directors then unanimously approved the merger agreement and the merger, subject to the resolution of certain remaining issues. After the approvals by the boards of directors of the companies, members of management of each company and their counsel continued to negotiate the remaining terms of the merger and the merger agreement. On April 28, 1999, the merger agreement was executed, and BT Alex. Brown confirmed its oral opinion by delivery of a written opinion dated April 28, 1999. AmeriSource's Reasons for the Merger The AmeriSource board of directors has unanimously approved the merger agreement and the merger. AmeriSource's board, in reaching this determination, consulted with members of its management, legal counsel and accountants. The principal reasons that the AmeriSource board of directors approved the merger were: . One of AmeriSource's business strategies is to expand into new geographic markets by making selective and complementary acquisitions. AmeriSource's board of directors believes that the merger with C.D. Smith provides an opportunity for AmeriSource to expand into markets in which AmeriSource previously has not had a significant presence. . Through discussions with the management of C.D. Smith and reviews of C.D. Smith's operations, AmeriSource's management determined that significant opportunities may exist to reduce costs of operations if the companies were combined due to business synergies between AmeriSource and C.D. Smith. C.D. Smith's Reasons for the Merger; Recommendation of C.D. Smith's Board of Directors C.D. Smith's board of directors believes that the terms of the merger are fair to, and in the best interests of, C.D. Smith and its shareholders. The board also believes that the merger will benefit C.D. Smith's customers and employees. Accordingly, the board approved the merger agreement and the merger and recommends approval of the merger agreement and the merger by C.D. Smith's shareholders. C.D. Smith's board of directors believes that: . the merger offers shareholders greater liquidity for their investment than is available by holding stock of a private company; . the merger will eliminate C.D. Smith's obligation to repurchase ESOP stock; . C.D. Smith's shareholders may benefit by participating in the combined economic growth of the service territories of AmeriSource and C.D. Smith, and from the inherent increase in scale, the market diversification and the resulting increased financial stability and strength of the combined entity; . the merger may result in cost savings from a reduction in operating expenses and other factors; 26 . the combined enterprise may more effectively participate in the increasingly competitive wholesale distribution market; . the merger provides C.D. Smith customers with access to the Family Pharmacy(R) program for independent pharmacies, the MedAssess(TM) program, and the AmeriSource ECHO(R) software; . the merger provides the opportunity to continue consolidating remaining independent pharmaceutical distributors, which the company believes to be desirable for C.D. Smith shareholder value and which would be more challenging for C.D. Smith alone; and . the combined enterprise offers a potential increase in earnings and shareholder value in excess of what could be achieved by C.D. Smith alone. In reaching its determination to approve the merger agreement and the merger, C.D. Smith's board of directors considered a variety of factors, including the following: . the prospective financial performance, condition, business operations and prospects of AmeriSource and the fact that, on a combined basis, AmeriSource will likely have greater financial stability and strength than C.D. Smith standing alone; . current and prospective industry, economic, market and regulatory conditions encourage consolidation to reduce risk and provide opportunities for new avenues of earnings growth; . C.D. Smith's prospects for sales, earnings and cash flow growth on a stand-alone basis in light of C.D. Smith's size relative to its competitors; . the anticipated positive effect of the merger on C.D. Smith's shareholders and customers, including the ability to remain competitive, integrate corporate and administrative functions and reduce operating costs; . the terms of the merger agreement and other agreements executed and to be executed in connection with the merger, and the course of negotiations and discussions leading to the execution of the merger agreement; . discussions with other persons regarding a possible business combination with C.D. Smith; . that the merger is expected to be treated as a tax-free reorganization to C.D. Smith and its shareholders; . the board's review of the strategic options available to C.D. Smith, including its review of the unstable initial public offering market and uncertainty of completing such a transaction; . the opinion of BT Alex. Brown, described below, as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration provided for in the merger agreement; . the availability of dissenters' rights to C.D. Smith's shareholders; and . the effect of the merger on the employees of C.D. Smith, as well as its effect on the communities in which C.D. Smith operates. In determining that the merger is fair to and in the best interests of C.D. Smith's shareholders, C.D. Smith's board of directors considered the above factors as a whole and did not assign specific or relative weights to any one factor or group of factors. 27 C.D. Smith's board unanimously recommends a vote "FOR" approval of the merger agreement and the merger. Opinion of C.D. Smith's Financial Advisor C.D. Smith engaged BT Alex. Brown to act as financial advisor to C.D. Smith in connection with the merger. On April 26, 1999, at a meeting of the C.D. Smith board held to evaluate the proposed merger, BT Alex. Brown rendered an oral opinion to the effect that, as of the date of the opinion and based upon and subject to review of the final merger agreement and other customary matters, the merger consideration was fair, from a financial point of view, to the holders of C.D. Smith common stock. BT Alex. Brown subsequently confirmed its oral opinion by delivery of a written opinion dated April 28, 1999, the date of the execution of the merger agreement. The full text of BT Alex. Brown's written opinion dated April 28, 1999, which describes the assumptions made, matters considered and limitations of the review undertaken, is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. BT Alex. Brown's opinion is directed to the C.D. Smith board, addresses only the fairness of the merger consideration from a financial point of view, does not address the merits of the underlying decision by C.D. Smith to engage in the merger, and does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to matters relating to the proposed merger. The summary of BT Alex. Brown's opinion described below is qualified in its entirety by reference to the full text of such opinion. In arriving at its opinion, BT Alex. Brown: . reviewed available financial and other information concerning C.D. Smith, publicly available financial and other information concerning AmeriSource and internal analyses and other information furnished to or discussed with BT Alex. Brown by C.D. Smith, AmeriSource and their advisors; . held discussions with members of the senior management of C.D. Smith and AmeriSource regarding the business and prospects of their respective companies and the joint prospects of a combined company; . reviewed the historical reported prices and trading activity of AmeriSource common stock; . compared financial information for C.D. Smith and financial information and stock market information for AmeriSource with similar information for other companies whose securities are publicly traded; . reviewed the financial terms of recent business combinations which BT Alex. Brown deemed comparable in whole or in part; . reviewed the terms of the merger agreement; and . performed other studies and analyses and considered other factors as BT Alex. Brown deemed appropriate. BT Alex. Brown did not assume responsibility for independent verification of, and did not independently verify, any information, whether publicly available or furnished to BT Alex. Brown, concerning C.D. Smith, AmeriSource or the combined company, including, without limitation, any financial information, forecasts or projections considered in connection with the rendering of its 28 opinion. For purposes of its opinion, BT Alex. Brown assumed and relied upon the accuracy and completeness of all information reviewed and BT Alex. Brown did not conduct a physical inspection of any of the properties or assets, and did not prepare or obtain any independent evaluation or appraisal of any of the assets or liabilities, of C.D. Smith or AmeriSource. With respect to the financial forecasts and projections made available to BT Alex. Brown and used in its analyses, BT Alex. Brown assumed that they were prepared on bases reflecting reasonable estimates and judgments as to the matters covered thereby. In rendering its opinion, BT Alex. Brown expressed no view as to the reasonableness of the forecasts and projections or the assumptions on which they are based. In connection with its opinion, BT Alex. Brown was not requested to, and did not, solicit third party indications of interest with respect to the acquisition of all or a part of C.D. Smith, nor was BT Alex. Brown requested to, and it did not, participate in the negotiation or structuring of the merger. BT Alex. Brown's opinion was necessarily based upon economic, market and other conditions existing on, and the information made available to BT Alex. Brown as of, the date of its opinion. For purposes of rendering its opinion, BT Alex. Brown assumed that, in all respects material to its analysis, the representations and warranties of C.D. Smith, AmeriSource and Hawk Acquisition Corp. contained in the merger agreement are true and correct; each of C.D. Smith, AmeriSource and Hawk Acquisition Corp. will perform all of the covenants and agreements required to be performed by it under the merger agreement; and all conditions to the obligations of each of C.D. Smith, AmeriSource and Hawk Acquisition Corp. to consummate the merger will be satisfied without any waiver. BT Alex. Brown also assumed that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the merger will be obtained and that in connection with obtaining any necessary governmental, regulatory or other approvals and consents, or any amendments, modifications or waivers to any agreements, instruments or orders to which either C.D. Smith or AmeriSource is a party or is subject or by which it is bound, no limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have a material adverse effect on C.D. Smith or AmeriSource or materially reduce the contemplated benefits of the merger to C.D. Smith. C.D. Smith informed BT Alex. Brown, and for purposes of rendering its opinion, BT Alex. Brown assumed, that the merger will qualify as a tax-free reorganization for federal income tax purposes and will be accounted as a pooling of interests. BT Alex. Brown expressed no opinion as to the price at which the AmeriSource common stock will trade at any time. No other instructions or limitations were imposed by the C.D. Smith board upon BT Alex. Brown with respect to the investigations made or the procedures followed by it in rendering its opinion. BT Alex. Brown is an internationally recognized investment banking firm and, as a customary part of its investment banking business, is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements and valuations for estate, corporate and other purposes. C.D. Smith selected BT Alex. Brown based on BT Alex. Brown's reputation, expertise and familiarity with C.D. Smith. BT Alex. Brown acted as a co-managing underwriter in connection with C.D. Smith's proposed initial public offering and thereafter, at the request of C.D. Smith, held discussions with certain third parties to solicit indications of interest with respect to the possible acquisition of C.D. Smith. 29 BT Alex. Brown maintains a market in AmeriSource common stock and regularly publishes research reports regarding the businesses and securities of AmeriSource and other publicly traded companies in the pharmaceutical wholesale distribution industry. In the ordinary course of business, BT Alex. Brown and its affiliates may actively trade or hold the securities and other instruments and obligations of AmeriSource for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities, instruments or obligations. The type and amount of consideration payable in the merger was determined through negotiation between C.D. Smith and AmeriSource. Although BT Alex. Brown has delivered to the C.D. Smith board an opinion in connection with the merger with respect to the fairness, from a financial point of view, of the merger consideration, the decision to enter into the merger was solely that of the C.D. Smith board. BT Alex. Brown's opinion was only one of many factors considered by the C.D. Smith board in its evaluation of the proposed merger and should not be viewed as determinative of the views of the C.D. Smith board or management with respect to the merger consideration or the merger. Pursuant to the terms of BT Alex. Brown's engagement, C.D. Smith has agreed to pay BT Alex. Brown upon completion of the merger an aggregate fee equal to 1.0% of the aggregate consideration, including liabilities assumed, payable in connection with the merger. C.D. Smith has also agreed to reimburse BT Alex. Brown for its reasonable travel and out-of-pocket expenses, including reasonable fees and disbursements of counsel, and to indemnify BT Alex. Brown and related parties against liabilities, including liabilities under the federal securities laws, relating to, or arising out of, its engagement. Interests of C.D. Smith's Management and Directors in the Merger You should be aware that certain members of C.D. Smith's management and C.D. Smith's board of directors have certain interests in the merger that differ from, and are in addition to, the interests of the shareholders of C.D. Smith. These interests, which are described below, may present these individuals with potential conflicts of interest. C.D. Smith's board was aware of these interests and considered them, among other matters, in approving the merger and adopting the merger agreement. Stock Options. The merger agreement provides that, at the effective time of the merger, AmeriSource will assume each outstanding option to purchase C.D. Smith common stock. As of May 27, 1999, C.D. Smith's executive officers held options (all of which are currently exercisable) to purchase an aggregate of 7,000 shares of C.D. Smith common stock. After the merger is completed, the holders of C.D. Smith options will have options exercisable for shares of AmeriSource common stock. See "The Agreement and Plan of Reorganization--Stock Options" on page 38. 30 As of May 27, 1999, the following executive officers of C.D. Smith had the following stock options:
Number of Shares of C.D. Smith Individual Common Stock Exercise Price ---------- ---------------- -------------- Robert Farley............................. 4,000 $ 22.40 Delora Jamison............................ 2,500 22.40 Eric Farley............................... 500 337.50
Employment/Severance Agreements. Robert Farley and Delora Jamison have employment agreements that generally provide for employment through February 28, 2000. These agreements provide for payments through the remaining term of the contract if they are terminated without cause. Delora Jamison has a severance agreement that will pay her two times her base annual salary from the previous year if she is terminated within twelve months of a change in control of C.D. Smith. Transactions with Mr. Farley. In addition, the merger agreement provides for certain transactions between C.D. Smith and Robert Farley as of the effective time. See "Agreement and Plan of Reorganization --Conduct of Business Prior to the Effective Time," on page 41. Post-Closing Indemnification. The merger agreement provides that, after the effective time, AmeriSource will indemnify and hold harmless all current and former C.D. Smith officers and directors for claims arising out of or in connection with certain litigation matters. This indemnification obligation will also extend two years beyond any dissolution event involving C.D. Smith. Federal Income Tax Consequences The following discussion is a summary of certain material U. S. federal income tax consequences of the merger, and does not purport to be a complete analysis or description of all potential tax effects of the merger. The following discussion is based on the Internal Revenue Code, Treasury Regulations under the Internal Revenue Code, and administrative rulings and pronouncements and judicial decisions in effect as of the date of this proxy statement/prospectus, all of which are subject to change, possibly with retroactive effect, and to differing interpretation. The discussion below does not address the effects of any state, local or foreign tax laws on the merger. The tax treatment for a C.D. Smith shareholder may vary depending upon his or her particular situation, and certain C.D. Smith shareholders (including, among others, certain entities, persons who do not hold C.D. Smith common stock as capital assets, individuals who received C.D. Smith common stock as compensation, and non-U.S. persons) may be subject to special rules not discussed below. Each C.D. Smith shareholder is urged to consult his or her tax advisor with respect to the specific tax consequences to him or her as a result of the merger, including the effect of U.S. federal, state and local, and foreign and other tax rules, and the effect of possible changes in tax laws. 31 It is a condition to C.D. Smith's obligation to consummate the merger that C.D. Smith receive an opinion from its counsel, Blackwell Sanders Peper Martin LLP, and it is a condition to AmeriSource's obligation to consummate the merger that AmeriSource receive an opinion from its counsel, Dechert Price & Rhoads, in each case to the effect that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. In rendering their opinions, Dechert Price and Blackwell Sanders will make certain assumptions, and will receive and rely upon unverified representations contained in certificates of C.D. Smith, AmeriSource and possibly others. The inaccuracy of any of those assumptions or representations might jeopardize the validity of the opinions rendered. Assuming that, consistent with the opinions of counsel referred to above, the merger is treated for federal income tax purposes as a tax free reorganization within the meaning of Section 368(a) of the Internal Revenue Code, for federal income tax purposes: . C.D. Smith and AmeriSource will each be a party to the reorganization within the meaning of Section 368(b) of the Internal Revenue Code; . neither C.D. Smith nor AmeriSource will recognize any gain or loss as a result of the merger; . a C.D. Smith shareholder will not recognize any income, gain or loss upon the conversion of his or her shares of C.D. Smith common stock solely into shares of AmeriSource common stock pursuant to the merger; . a C.D. Smith shareholder's aggregate tax basis in the AmeriSource common stock received solely in exchange for shares of C.D. Smith common stock pursuant to the merger will equal the aggregate tax basis in his or her shares of C.D. Smith stock exchanged; and . a C.D. Smith shareholder's holding period for the AmeriSource common stock received in exchange for such shares of C.D. Smith common stock pursuant to the merger will include the holding period for his or her shares of C.D. Smith common stock exchanged. The tax opinions referred to above are not binding on the IRS or any court and do not preclude the IRS or a court from reaching a contrary conclusion. Moreover, no rulings have been or will be sought from the IRS concerning the tax consequences of the merger. If the merger were not treated as a tax free reorganization under Section 368 of the Internal Revenue Code, a C.D. Smith shareholder would recognize gain or loss equal to the difference between the aggregate fair market value of the AmeriSource common stock received and the aggregate tax basis of the C.D. Smith stock exchanged. A C.D. Smith shareholder who exercises dissenters' rights as described below under "Dissenters' Rights" should, in general, treat the difference between the tax basis of the C.D. Smith common stock held by such shareholder and the amount received through the exercise of those rights as capital gain or loss for federal income tax purposes. 32 Regulatory Matters The merger cannot be completed until AmeriSource and C.D. Smith receive certain regulatory approvals, all of which are presently anticipated to be received by July 1999. The following is a summary of the material regulatory requirements affecting the merger. State Approvals. Various state distribution and controlled substance licenses may be affected by a change of control of C.D. Smith and will require either notification or a new license. Federal Approvals. The Drug Enforcement Administration requires either notification or consent to continue using DEA licenses currently held by C.D. Smith, or the DEA may require approval for a new license. Antitrust Considerations. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 provides that certain transactions, such as the merger, may not be consummated until certain information has been submitted to the U.S. Department of Justice and the Federal Trade Commission and specified waiting period requirements have been satisfied or waived. Impact on ESOP Upon consummation of the merger, all C.D. Smith shares held by the ESOP will be converted into shares of AmeriSource common stock. Upon termination of the two escrow funds, the ESOP shall receive its proportion of any remaining shares. Concurrently with the merger, a loan collateralized by the unallocated shares held by the ESOP may be required to be paid off. If the loan is paid off, the unallocated shares will be allocated to ESOP participants' accounts in accordance with the terms of the ESOP. Upon the effectiveness of the merger, AmeriSource will become the plan sponsor of the ESOP. AmeriSource is considering its options with respect to the ESOP. Its options include continuing, terminating or freezing the ESOP, or combining the ESOP with an existing AmeriSource plan. If the ESOP is terminated, frozen or combined with another plan, ESOP participants may no longer accrue benefits under the ESOP following the merger. Restrictions on Resales by C.D. Smith Affiliates All shares of AmeriSource common stock to be issued in connection with the merger are being registered under the Securities Act of 1933, as amended. These shares will be freely transferable unless they are held by "affiliates" of C.D. Smith. The term "affiliates" is defined under the Securities Act, and includes, among others, C.D. Smith's officers, directors and significant shareholders. Affiliates may resell their shares only in transactions permitted by Rule 145 under the Securities Act, under an effective registration statement, or as otherwise permitted under the Securities Act. C.D. Smith has delivered to AmeriSource a letter agreement executed by each affiliate of C.D. Smith. The letter agreement states that the affiliate will not sell or otherwise dispose of any shares of AmeriSource common stock issued to him or her in connection with the merger in violation of the Securities Act or the rules and regulations of the SEC. 33 Voting/Support Agreements Concurrently with the execution of the merger agreement, Churchill ESOP Capital Partners, a Minnesota limited partnership and the holder of a warrant to purchase approximately 15% of C.D. Smith's common stock, and certain officers and directors of C.D. Smith executed voting/support agreements. Pursuant to the voting/support agreements, Churchill and these officers and directors appointed Hawk Acquisition Corp. as proxy and attorney-in-fact to vote the shares of C.D. Smith common stock held by Churchill or these officers and directors at any special or annual meeting of C.D. Smith. Churchill and these officers and directors authorized Hawk Acquisition Corp. pursuant to the voting/support agreements to vote for the merger at the special meeting and at any adjournment or postponement of the special meeting. Churchill and these officers and directors also agreed not to transfer any shares of C.D. Smith common stock without the prior written consent of AmeriSource. Churchill further agreed to exercise its warrant prior to the effective time of the merger. Accounting Treatment AmeriSource and C.D. Smith intend to account for the merger as a pooling of interests. Under this method of accounting, the consolidated assets and liabilities of C.D. Smith will be carried forward to the consolidated financial statements of AmeriSource at their recorded amounts and the consolidated results of operations of C.D. Smith will be combined with the results of operations of AmeriSource. In order to qualify for the pooling of interests accounting method, the affiliates of C.D. Smith must agree to certain restrictions on their ability to transfer the AmeriSource stock they receive in the merger. Dissenters' Rights Under a Missouri statute, the relevant provisions of which are attached to this document as Annex C, each C.D. Smith shareholder who dissents from the merger and who complies with various procedural requirements is entitled to receive the fair value of his or her shares of C.D. Smith common stock in cash. ESOP participants may have dissenters' rights under the Missouri statute and should consult with their own counsel and the ESOP trustee regarding how to exercise dissenters' rights, if available to them. Specifically, a C.D. Smith shareholder may dissent from the merger and C.D. Smith, as the merger's surviving corporation, must pay to the shareholder, upon the surrender of certificates representing his or her shares, the fair value of the shares as of the day prior to C.D. Smith's special meeting. However, this obligation applies only if the shareholder: . files with C.D. Smith prior to or at the special meeting a written objection to the merger; . does not vote in favor of the merger; and . within 20 days after the merger's effective time, makes a written demand to C.D. Smith for payment of the fair value of the shares held by the shareholder as of the day prior to the date of the special meeting. The demand must state the class and number of shares owned by the dissenting shareholder. 34 Written objections to the merger and demands for the payment of fair value should be addressed to: C.D. Smith Healthcare, Inc. 3907 S. 48th Terrace Post Office Box 789 St. Joseph, Missouri 64503 Attention: Corporate Secretary A proxy marked "against" the merger will not be considered to be a written notice of an objection to the merger. A shareholder who wishes to dissent from the merger must provide a separate written notice of objection complying with the requirements described in the Missouri statutes. Shareholders who have not complied with all of the procedural requirements of applicable law will be bound by the terms of the merger. C.D. Smith will provide written notice of the effective time of the merger to all shareholders who have timely filed a written objection and who did not vote in favor of the merger. A beneficial owner of shares who is not the record owner may not assert dissenters' rights directly. If the stock is owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, or by a nominee, the demand asserting dissenters' rights must be executed by the fiduciary or nominee. If the stock is owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for a shareholder of record. But the agent must identify the record owner(s) and expressly disclose the fact that, in executing the demand, he is acting as agent for the record owner(s). If within 30 days after the effective time the value of the shares of C.D. Smith common stock held by a dissenting shareholder is agreed upon between the shareholder and C.D. Smith, C.D. Smith must pay the shareholder the agreed amount within 90 days after the effective time, upon the surrender by the shareholder of the certificate or certificates representing the shares. Upon payment of the agreed amount the dissenting shareholder will cease to have any interest in the shares or in C.D. Smith. If within that 30-day period, the dissenting shareholder and C.D. Smith cannot agree as to the value of the shares, then the dissenting shareholder may, within 60 days after the expiration of the 30-day period, file a petition in any court of competent jurisdiction within Buchanan County, Missouri, asking the court to determine the fair value of the shares. Once the court makes its finding, the shareholder will be entitled to judgment against C.D. Smith for the amount of the fair value as of the day prior to the date of the special meeting, together with interest to the date of the judgment. The judgment is payable only upon, and simultaneously with, the surrender to C.D. Smith of the certificate or certificates representing the shares with respect to which dissenters' rights have been exercised. Once the judgment is paid, the dissenting shareholder will cease to have any interest in the shares or in C.D. Smith. If the dissenting shareholder fails to file a petition within the 60-day period, the shareholder will be conclusively presumed to have approved and ratified the merger and will be bound by its terms. 35 The right of a dissenting shareholder to be paid the fair value of his or her shares will cease if the shareholder fails to comply with the procedures described above, or if the merger agreement is terminated for any reason. The foregoing is not a complete statement of the procedures to be followed by shareholders desiring to exercise dissenters' rights of appraisal. In view of the fact that the exercise of the rights requires strict adherence to the relevant provisions of Missouri law, shareholders who desire to exercise dissenters' rights are advised to carefully review all applicable provisions of law and to obtain legal counsel concerning proper compliance with those provisions. Conduct of Business after the Merger Upon the closing of the merger, Hawk Acquisition Corp. will cease to exist as a separate legal entity, and C.D. Smith will continue as the merger's surviving corporation. AmeriSource intends to operate the businesses of C.D. Smith as a subsidiary of AmeriSource. AmeriSource's board of directors and management will not change as a result of the merger. No significant changes in the management of C.D. Smith are contemplated as a result of the merger, except that Robert Farley and Eric Farley have expressed their intent to resign from C.D. Smith upon or shortly following the merger. 36 THE AGREEMENT AND PLAN OF REORGANIZATION The following is a summary of the material terms of the Amended and Restated Agreement and Plan of Reorganization, dated as of April 28, 1999, by and among AmeriSource Health Corporation, Hawk Acquisition Corp., C.D. Smith Healthcare, Inc., and a Person to be Designated as Escrow Agent, as amended and restated as of May 27, 1999, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated in this proxy statement/prospectus by reference. This summary is qualified in its entirety by reference to the full text of the merger agreement. The Merger and Its Effective Time Subject to the satisfaction of various conditions, including your approval of the merger agreement, Hawk Acquisition Corp. will be merged into C.D. Smith at the effective time. At the effective time of the merger, the separate corporate existence of Hawk Acquisition Corp. will cease. C.D. Smith will be the surviving corporation in the merger and will continue its corporate existence as a subsidiary of AmeriSource and will continue to be governed by the laws of the State of Missouri. The merger becomes effective upon the issuance of a certificate of merger by the Secretary of State of the State of Missouri. What C.D. Smith Shareholders Will Receive Upon completion of the merger, each share of C.D. Smith common stock that is outstanding immediately prior to the effective time of the merger (other than shares held by shareholders who exercise dissenter's rights) will be automatically converted into the right to receive AmeriSource common stock. C.D. Smith shares held as treasury stock will be canceled. Up to 2,690,000 shares of AmeriSource common stock may be issued to C.D. Smith shareholders, including the ESOP, in connection with the merger in exchange for all the outstanding shares of C.D. Smith common stock, assuming the exercise of all stock options and warrants. Initially, 269,000 shares will be deposited into a general escrow fund. Additional shares worth approximately $3.3 million, based on the closing price of AmeriSource common stock on the New York Stock Exchange on the closing date, will be deposited into a special escrow fund until the resolution of certain matters. See "--Indemnification; Escrow Funds" on page 38. The total number of shares to be issued less the amount held in escrow will be available for distribution upon closing of the merger. Upon the termination of the general escrow and the special escrow, any shares remaining in escrow will be distributed to C.D. Smith shareholders. Based on the number of C.D. Smith shares, stock options and warrants outstanding as of the date of this proxy statement/prospectus, each share of C.D. Smith common stock will be converted into the right to receive approximately 16.995 shares of AmeriSource common stock. This assumes that all of the shares deposited into escrow are eventually released to C.D. Smith shareholders. The number of shares of AmeriSource common stock each C.D. Smith shareholder will receive will be adjusted for any stock dividend, stock split, reclassification or other similar change relating to AmeriSource's common stock. AmeriSource shares distributed to the ESOP will remain in the ESOP until distributed to participants in accordance with the terms of the ESOP. 37 Manner of Converting Shares Prior to the effective time, a transmittal letter will be mailed to each record holder of shares of C.D. Smith common stock. The transmittal letter will include instructions to be followed in exchanging your C.D. Smith shares for AmeriSource common stock. After the merger is effective, you may surrender your certificates representing shares of C.D. Smith common stock to the exchange agent for cancellation, together with a signed copy of the transmittal letter. In return, you will receive certificates for the appropriate number of shares of AmeriSource common stock (with the amount of shares to be reduced by the number of shares to be placed in escrow). You will not receive any fractional shares of AmeriSource common stock. The number of shares of AmeriSource common stock that you are entitled to receive will be rounded to the nearest whole share of AmeriSource common stock. The ESOP trustee will exchange the C.D. Smith shares held by the ESOP for AmeriSource common stock. A holder of an unsurrendered C.D. Smith stock certificate will not be entitled to receive dividends or other distributions payable by AmeriSource. Upon surrender, those dividends or distributions, if any, will be paid to the holder without interest. You should not send in your C.D. Smith stock certificates until you receive a transmittal letter. If there is a transfer of C.D. Smith common stock that is not registered in C.D. Smith's stock transfer records, then a certificate representing the proper number of shares of AmeriSource common stock may be issued to the person to whom the stock was transferred. However, as a condition to that issuance, that person must deliver the certificate representing the C.D. Smith common stock to the exchange agent, along with documents that prove that the transfer has been properly made. The holder of such a certificate must also pay any transfer taxes required by the exchange. Once the merger is effective, there will be no more transfers of C.D. Smith common stock recorded in C.D. Smith's stock transfer records. Stock Options Certain members of C.D. Smith's management hold options to acquire C.D. Smith common stock pursuant to C.D. Smith's Amended and Restated 1996 Equity Compensation Plan. AmeriSource has agreed to assume these options at the effective time of the merger. Each such assumed option shall continue to have, and be subject to, the same terms and conditions as are currently applicable to such options. However, once assumed, such options will be exercisable for a pro rata portion of the shares to be issued in connection with the merger with respect to each share of C.D. Smith stock for which such option was previously exercisable. For example, an option to purchase 10 shares of C.D. Smith common stock, once assumed, will be exercisable for approximately 170 shares of AmeriSource common stock. In addition, the per share exercise price for the shares of AmeriSource common stock subject to the option will equal the current exercise price of the option divided by the share exchange ratio (e.g., approximately 16.995) rounded up to the nearest whole cent. Indemnification; Escrow Funds The merger agreement provides that AmeriSource and its officers, directors and affiliates will be indemnified by C.D. Smith's shareholders (through the escrow funds) against all losses incurred by AmeriSource or its affiliates as a result of any inaccuracy or breach of a representation or warranty of 38 C.D. Smith, any failure by C.D. Smith to perform or comply with any covenant contained in the merger agreement and certain other specified matters. To provide for this indemnification, there are two escrow funds. A. General Escrow Fund. The indemnification amount for general claims, breaches or failure to comply with covenants will be limited to a general escrow fund that will be created at closing by depositing 10% of the AmeriSource stock to be received by the C.D. Smith shareholders (269,000 shares) into an escrow account to be administered by an escrow agent. Generally, losses must exceed in the aggregate $620,000 in order for AmeriSource to collect any amount from the general escrow fund, but indemnification for certain matters is not subject to this requirement. The general escrow fund will remain in existence until the earlier of the date of AmeriSource's audit report for fiscal 1999 or one year after the closing, except that the general escrow fund remains in existence to the extent necessary to cover any known pending claims. Upon expiration of the general escrow, to the extent there are no pending claims by AmeriSource for indemnification, you will receive shares of AmeriSource stock that remain in the general escrow fund. The merger agreement names Mr. Eric Farley as the representative for all shareholders to act in connection with any disputes or decisions relating to the escrow fund. A vote to approve the merger will also act to approve Mr. Farley as the shareholder representative. B. Special Escrow Fund. In addition to the general escrow fund, a special escrow fund will be created at the effective time by depositing a number of shares of AmeriSource stock to be received by the C.D. Smith shareholders equal to $3.3 million, based on the closing price of AmeriSource common stock as reported on the composite tape of the New York Stock Exchange on the closing date, in a special escrow account. This fund will be set up to address disputes relating to certain matters. The fund will terminate on August 31, 2007 or earlier if all claims related to the special escrow have been resolved, except that the escrow fund remains in existence to the extent necessary to cover any known pending claims. Your portion of any shares left in the special escrow fund will be distributed to you upon termination of the special escrow fund. Conditions to the Merger The closing of the merger is subject to the satisfaction of several conditions, including: . The holders of two-thirds of the outstanding shares of C.D. Smith's common stock must approve the merger agreement; . AmeriSource and C.D. Smith must obtain all regulatory consents and approvals under applicable laws; . there must be no legal restraint or prohibition preventing the closing of the merger; and . no stop order suspending the effectiveness of the registration statement of which this proxy statement/prospectus is a part may be in effect or pending or threatened. AmeriSource's obligation to complete the merger is subject to the satisfaction or waiver of further conditions, the principal ones being: . the representations and warranties of C.D. Smith set forth in the merger agreement must be true and correct in all material respects; . C.D. Smith must have complied in all material respects with all covenants and obligations required to be complied with by it under the merger agreement prior to the effective time; 39 . the SEC shall have declared effective the registration statement of which this proxy statement/prospectus forms a part; . the shareholders of C.D. Smith shall have approved the merger agreement and the merger in the manner described in this document; . AmeriSource must have received an opinion from its tax counsel, Dechert Price & Rhoads, that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code; . AmeriSource must have received a letter from Ernst & Young LLP regarding its concurrence with the desired pooling of interests accounting treatment; . no material adverse effect on C.D. Smith may have occurred; . the senior lenders of AmeriSource shall have consented to the merger and the transactions contemplated in the merger agreement; . any obligation of C.D. Smith to make any payment to or for the benefit of LaSalle National Bank pursuant to a put agreement with Robert Farley shall be terminated; and . certain sites shall satisfy environmental tests without remediation expenses exceeding $100,000. C.D. Smith's obligation to complete the merger is also subject to the satisfaction or waiver of additional conditions, the principal ones being: . the representations and warranties of AmeriSource and Hawk Acquisition Corp. set forth in the merger agreement must be true and correct in all material respects; . AmeriSource must have complied in all material respects with all covenants and obligations required to be complied with by it under the merger agreement prior to the effective time; . the SEC shall have declared effective the registration statement of which this proxy statement/prospectus forms a part; . the shareholders of C.D. Smith shall have approved the merger agreement and the merger in the manner described in this document; . C.D. Smith must have received an opinion from its tax counsel, Blackwell Sanders Peper Martin LLP, that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code; and . no material adverse effect on AmeriSource may have occurred. Representations and Warranties The merger agreement contains various representations and warranties made by AmeriSource and C.D. Smith that relate to, among other things: . corporate organization, good standing and corporate power; . capital structure; . corporate authorization; . no conflicts with, or violations of, charter documents, certain agreements and applicable law resulting from the signing and delivery of the merger agreement; 40 . documents and reports filed by AmeriSource with the SEC; and . the information contained in this proxy statement/prospectus and the registration statement of which it forms a part. In addition, C.D. Smith has made several other representations and warranties that relate to, among other things: . existence of its subsidiaries; . accuracy of its financial statements; . absence of certain changes or events; . payment of taxes; . condition of inventory; . litigation; . environmental matters; . condition of assets; . compensation matters; . products liability; . employee benefits and labor matters; and . Year 2000 compliance. Conduct of Business Prior to the Effective Time The merger agreement provides that, prior to the effective time, C.D. Smith will conduct its operations in the ordinary course of business consistent with past practice and will use reasonable efforts to preserve existing business and employee relationships. In addition, C.D. Smith has agreed to certain limitations on its ability to do certain things, including: . make agreements regarding marketing or distribution of products or technology; . commence or settle litigation; . merge or consolidate with any other entity or purchase assets of any other entity; . issue securities; . sell assets other than in the ordinary course of business; . incur material liens on any material asset; . incur or guarantee indebtedness; . make material loans or capital contributions; . declare or pay dividends; . adopt employee benefit plans or employment agreements; . take actions with respect to accounting policies and procedures; . take various specified actions with respect to its capital stock; . terminate or modify existing contracts; 41 . make capital expenditures; . make material tax elections; . make changes in compensation, benefits or benefit plans; . take actions that would interfere with the pooling treatment of the transaction; . take actions that might reasonably result in a material breach of the merger agreement; and . take actions that would result in the failure of the merger to qualify as a tax-free reorganization. The merger agreement also contains limitations on AmeriSource's ability to do certain things, including taking actions that would result in the failure of the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The merger agreement provides that certain transactions with Mr. Robert Farley, the President of the Company, or his affiliates, shall occur at the closing. These include the following: . An unoccupied office building currently under construction will be sold to Mr. Farley for a purchase price equal to C.D. Smith's cost incurred for such facility and furnishings. . The current Kansas City Chiefs football suite and the related football tickets held by C.D. Smith will be transferred to Mr. Farley. Mr. Farley will reimburse C.D. Smith for its cost (approximately $31,000) of such tickets and any other amounts paid by C.D. Smith as of the closing date of the merger. . The current U.S. Open golf tournament tickets held by C.D. Smith will be transferred to Mr. Farley. Mr. Farley will reimburse C.D. Smith for the amount (approximately $45,000) previously paid for such tickets and will be responsible for the remaining cost (approximately $45,000) of such tickets. . If Mr. Farley chooses, the $1,000,000 split dollar life insurance policy held by C.D. Smith on his life will be transferred to Mr. Farley for a purchase price equal to its net cash surrender value. No Solicitation Takeover Proposals. The merger agreement provides that neither C.D. Smith nor certain of its shareholders will, prior to the effective time or the termination of the merger agreement: . solicit, encourage, initiate or participate in any negotiations or discussions regarding any business combination involving C.D. Smith; . disclose any information about C.D. Smith not customarily disclosed to any person; . assist or cooperate with any person regarding a purchase of the stock or assets of C.D. Smith; or . enter into any agreement involving a business combination with C.D. Smith. C.D. Smith also agreed not to permit any of its officers, directors, agents, representatives or affiliates to do any of the foregoing. If C.D. Smith or certain shareholders receive any offer, proposal or request relating to any business combination, they are required by the merger agreement to notify AmeriSource. 42 Employee Benefit Matters The merger agreement provides that C.D. Smith will not be required by AmeriSource to terminate any C.D. Smith employee benefit plan prior to the effective time of the merger. Amendment AmeriSource and C.D. Smith may amend the merger agreement at any time before or after you approve the merger agreement. After you approve the merger agreement, however, we are required under Missouri law to obtain the approval of C.D. Smith's shareholders for certain amendments. In any event, the merger agreement may not be amended except by an instrument in writing signed on behalf of both AmeriSource and C.D. Smith. Termination of the Agreement and Plan of Reorganization Either before or after the C.D. Smith shareholders approve the merger agreement, it may be terminated as follows: . by mutual written consent of AmeriSource and C.D. Smith; . by either AmeriSource or C.D. Smith, if the effective time does not occur on or before September 1, 1999, subject to certain limitations; . by AmeriSource if a governmental authority takes any action that prohibits the closing of the merger; . by AmeriSource, if C.D. Smith breaches in any material respect any representation, warranty, covenant or agreement set forth in the merger agreement, subject to a 10-day cure period and certain other exceptions; . by C.D. Smith, if AmeriSource breaches in any material respect any representation, warranty, covenant or agreement set forth in the merger agreement, subject to a 10-day cure period and certain other exceptions; . by either AmeriSource or C.D. Smith, if an event having a material adverse affect occurs to the other party; and . by either AmeriSource or C.D. Smith, if C.D. Smith's shareholders do not approve the merger on or before August 31, 1999. If AmeriSource or C.D. Smith terminates the merger agreement because C.D. Smith's shareholders do not approve the merger agreement by the required two- thirds vote before August 31, 1999, and within six months after termination, C.D. Smith enters into an acquisition agreement with another company or within 12 months consummates a transaction with another company, then C.D. Smith is required to pay AmeriSource a fee of $8.5 million. 43 MARKET PRICE AND DIVIDEND INFORMATION As of [ ], there were [ ] holders of record of C.D. Smith stock. There is no established public trading market for the shares of C.D. Smith. The price paid by C.D. Smith for shares it repurchases from employees receiving shares from the ESOP is established each year by an independent appraisal. Neither AmeriSource nor C.D. Smith has historically paid cash dividends. AmeriSource has no present intention to pay cash dividends, and its ability to do so is restricted by financial tests contained in its agreements with lenders. 44 UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATAOF AMERISOURCE AND C.D. SMITH The following unaudited pro forma combined condensed financial data present, under the pooling of interests accounting method, the combined condensed balance sheet of AmeriSource and C.D. Smith as of March 31, 1999 and the combined condensed statements of operations of AmeriSource and C.D. Smith for the six-month periods ended March 31, 1999 and 1998 and the fiscal years ended September 30, 1998, 1997 and 1996. The unaudited pro forma combined condensed statements of operations do not reflect any cost savings or other synergies anticipated as a result of the merger or any merger-related expenses. The unaudited pro forma combined consolidated financial data is not necessarily indicative of the actual results of operations or the financial position of the combined companies had the merger actually been completed at the beginning of the earliest period presented, nor are they indicative of future results of operations or financial position of the combined companies. AmeriSource's fiscal year ends on September 30, and C.D. Smith's fiscal year ends on February 28. For purposes of combining AmeriSource's historical financial data with C.D. Smith's historical financial data in the unaudited pro forma combined condensed financial data included in this proxy statement/prospectus, the financial information of C.D. Smith has been reported using the six-month periods ended March 31, 1999 and 1998, and the twelve-month periods ended September 30, 1998, 1997, and 1996. The unaudited pro forma combined condensed financial data should be read in conjunction with the historical audited and unaudited condensed financial statements of AmeriSource and C.D. Smith and the notes to the Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith, incorporated by reference or appearing elsewhere in this proxy statement/prospectus. See "Additional Information--Where You Can Find More Information" on page 69. 45 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS SIX-MONTH PERIOD ENDED MARCH 31, 1999
Pro Forma Historical Historical ----------------------- AmeriSource C.D. Smith Adjustments Combined ----------- ---------- ----------- ---------- (In thousands, except per share data) Operating revenue.............. $4,328,888 $406,632 $ -- $4,735,520 Bulk deliveries to customer warehouses.................... 16,671 7,715 -- 24,386 ---------- -------- ------ ---------- Total revenue.................. 4,345,559 414,347 -- 4,759,906 Operating cost of goods sold... 4,115,969 385,439 -- 4,501,408 Cost of goods sold-bulk deliv- eries......................... 16,671 7,715 -- 24,386 ---------- -------- ------ ---------- Total cost of goods sold....... 4,132,640 393,154 -- 4,525,794 Gross profit................... 212,919 21,193 -- 234,112 Selling and administrative ex- penses........................ 126,123 13,264 -- 139,387 Depreciation................... 7,000 577 -- 7,577 Amortization................... 510 470 -- 980 ---------- -------- ------ ---------- Operating income............... 79,286 6,882 -- 86,168 Interest expense............... 17,651 4,039 -- 21,690 Interest expense - adjustment of common stock put warrants to fair value................. -- 1,833 -- 1,833 ---------- -------- ------ ---------- Income before taxes............ 61,635 1,010 -- 62,645 Taxes on income................ 23,422 1,109 -- 24,531 ---------- -------- ------ ---------- Net income (loss).............. $ 38,213 $ (99) $ -- $ 38,114 ========== ======== ====== ========== Earnings per share: Net income (loss)............. $ 0.79 $ (0.86) $ -- $ 0.76 ========== ======== ====== ========== Net income (loss)--assuming dilution..................... $ 0.78 $ (0.86) $ -- $ 0.74 ========== ======== ====== ========== Weighted average shares out- standing: Basic......................... 48,478 116 1,849(1) 50,443 Assuming dilution............. 49,144 116 2,029(1) 51,289
See Notes to Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith. - -------- (1) Reflects the effect of exchanging each share of C.D. Smith common stock (and options and warrants, assuming dilution) for 16.995 shares of AmeriSource common stock. 46 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS SIX-MONTH PERIOD ENDED MARCH 31, 1998
Pro Forma ---------------------- Historical Historical AmeriSource C.D. Smith Adjustments Combined ----------- ---------- ----------- ---------- (In thousands, except per share data) Operating revenue............... $4,446,845 $403,148 $ -- $4,849,993 Bulk deliveries to customer warehouses..................... 51,067 14,529 -- 65,596 ---------- -------- ----- ---------- Total revenue................... 4,497,912 417,677 -- 4,915,589 Operating cost of goods sold.... 4,228,226 382,029 -- 4,610,255 Cost of goods sold-bulk deliveries..................... 51,067 14,529 -- 65,596 ---------- -------- ----- ---------- Total cost of goods sold........ 4,279,293 396,558 -- 4,675,851 Gross profit.................... 218,619 21,119 -- 239,738 Selling and administrative expenses....................... 136,452 11,509 -- 147,961 Depreciation.................... 6,513 568 -- 7,081 Amortization.................... 643 466 -- 1,109 ---------- -------- ----- ---------- Operating income................ 75,011 8,576 -- 83,587 Interest expense................ 24,692 4,137 -- 28,829 ---------- -------- ----- ---------- Income before taxes............. 50,319 4,439 -- 54,758 Taxes on income................. 19,626 1,630 -- 21,256 ---------- -------- ----- ---------- Net income...................... $ 30,693 $ 2,809 $ -- $ 33,502 ========== ======== ===== ========== Earnings per share: Net income.................... $ 0.64 $ 24.20 $ -- $ 0.67 ========== ======== ===== ========== Net income--assuming dilution..................... $ 0.63 $ 18.64 $ -- $ 0.66 ========== ======== ===== ========== Weighted average shares outstanding: Basic......................... 47,750 116 1,857(1) 49,723 Assuming dilution............. 48,464 151 2,429(1) 51,044
See Notes to Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith. - -------- (1) Reflects the effect of exchanging each share of C.D. Smith common stock (and options and warrants, assuming dilution) for 16.995 shares of AmeriSource common stock. 47 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FISCAL YEAR ENDED SEPTEMBER 30, 1998
Pro Forma ---------------------- Historical Historical AmeriSource C.D. Smith Adjustments Combined ----------- ---------- ----------- ---------- (In thousands, except per share data) Operating revenue............... $8,575,443 $798,039 $ -- $9,373,482 Bulk deliveries to customer warehouses..................... 93,361 36,194 -- 129,555 ---------- -------- ----- ---------- Total revenue................... 8,668,804 834,233 -- 9,503,037 Operating cost of goods sold.... 8,154,098 757,486 -- 8,911,584 Cost of goods sold-bulk deliveries..................... 93,361 36,194 -- 129,555 ---------- -------- ----- ---------- Total cost of goods sold........ 8,247,459 793,680 -- 9,041,139 Gross profit.................... 421,345 40,553 -- 461,898 Selling and administrative expenses....................... 254,895 24,522 -- 279,417 Depreciation.................... 13,681 1,129 -- 14,810 Amortization.................... 1,136 939 -- 2,075 Merger costs.................... 18,406 -- -- 18,406 Facility consolidations and employee severance............. 8,283 -- -- 8,283 ---------- -------- ----- ---------- Operating income................ 124,944 13,963 -- 138,907 Interest expense................ 42,124 8,215 -- 50,339 Interest expense - adjustment of common stock put warrants to fair value..................... -- 7,816 -- 7,816 ---------- -------- ----- ---------- Income (loss) before taxes...... 82,820 (2,068) -- 80,752 Taxes on income................. 32,301 2,421 -- 34,722 ---------- -------- ----- ---------- Net income (loss)............... $ 50,519 $ (4,489) $ -- $ 46,030 ========== ======== ===== ========== Earnings per share: Net income (loss).............. $ 1.05 $ (38.72) $ -- $ 0.92 ========== ======== ===== ========== Net income (loss)--assuming dilution...................... $ 1.04 $ (38.72) $ -- $ 0.91 ========== ======== ===== ========== Weighted average shares outstanding: Basic.......................... 47,906 116 1,854(1) 49,876 Assuming dilution.............. 48,550 116 2,020(1) 50,686
See Notes to Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith. - -------- (1) Reflects the effect of exchanging each share of C.D. Smith common stock (and options and warrants, assuming dilution) for 16.995 shares of AmeriSource common stock. 48 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FISCAL YEAR ENDED SEPTEMBER 30, 1997
Pro Forma Historical Historical ---------------------- AmeriSource C.D. Smith Adjustments Combined ----------- ---------- ----------- ---------- (In thousands, except per share data) Operating revenue............. $7,815,942 $357,737 $ -- $8,173,679 Bulk deliveries to customer warehouses................... 124,956 -- -- 124,956 ---------- -------- ----- ---------- Total revenue................. 7,940,898 357,737 -- 8,298,635 Operating cost of goods sold.. 7,428,466 341,077 -- 7,769,543 Cost of goods sold-bulk deliv- eries........................ 124,956 -- -- 124,956 ---------- -------- ----- ---------- Total cost of goods sold...... 7,553,422 341,077 -- 7,894,499 Gross profit.................. 387,476 16,660 -- 404,136 Selling and administrative ex- penses....................... 243,853 10,501 -- 254,354 Depreciation.................. 11,380 327 -- 11,707 Amortization.................. 1,059 -- -- 1,059 Facility consolidations and employee severance........... 11,571 -- -- 11,571 ---------- -------- ----- ---------- Operating income.............. 119,613 5,832 -- 125,445 Interest expense.............. 41,581 1,678 -- 43,259 ---------- -------- ----- ---------- Income before taxes and ex- traordinary item............. 78,032 4,154 -- 82,186 Taxes on income............... 30,583 1,480 -- 32,063 ---------- -------- ----- ---------- Income before extraordinary item......................... 47,449 2,674 -- 50,123 Extraordinary item--early re- tirement of debt, net of in- come tax benefits............ (1,982) -- -- (1,982) ---------- -------- ----- ---------- Net income.................... $ 45,467 $ 2,674 $ -- $ 48,141 ========== ======== ===== ========== Earnings per share: Income before extraordinary item......................... $ 1.00 $ 22.42 $ -- $ 1.01 Extraordinary item............ (0.04) -- -- (0.04) ---------- -------- ----- ---------- Net income.................... $ 0.96 $ 22.42 $ -- $ 0.97 ========== ======== ===== ========== Earnings per share--assuming dilution: Income before extraordinary item......................... $ 0.99 $ 21.12 $ -- $ 1.00 Extraordinary item............ (0.04) -- -- (0.04) ---------- -------- ----- ---------- Net income--assuming dilu- tion......................... $ 0.94* $ 21.12 $ -- $ 0.96 ========== ======== ===== ========== Weighted average shares out- standing: Basic........................ 47,439 119 1,909(1) 49,467 Assuming dilution............ 48,121 127 2,053(1) 50,301
See Notes to Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith. - -------- (1) Reflects the effect of exchanging each share of C.D. Smith common stock (and options and warrants, assuming dilution) for 16.995 shares of AmeriSource common stock. * Difference due to rounding. 49 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FISCAL YEAR ENDED SEPTEMBER 30, 1996
Pro Forma Historical Historical ---------------------- AmeriSource C.D. Smith Adjustments Combined ----------- ---------- ----------- ---------- (In thousands, except per share data) Operating revenue............. $5,551,671 $254,455 $ -- $5,806,126 Bulk deliveries to customer warehouses................... 111,046 -- -- 111,046 ---------- -------- ----- ---------- Total revenue................. 5,662,717 254,455 -- 5,917,172 Operating cost of goods sold.. 5,249,238 242,400 -- 5,491,638 Cost of goods sold-bulk deliveries................... 111,046 -- -- 111,046 ---------- -------- ----- ---------- Total cost of goods sold...... 5,360,284 242,400 -- 5,602,684 Gross profit.................. 302,433 12,055 -- 314,488 Selling and administrative expenses..................... 195,350 9,199 -- 204,549 Depreciation.................. 8,894 238 -- 9,132 Amortization.................. 300 -- -- 300 ---------- -------- ----- ---------- Operating income.............. 97,889 2,618 -- 100,507 Interest expense.............. 35,980 1,344 -- 37,324 ---------- -------- ----- ---------- Income before taxes and extraordinary item........... 61,909 1,274 -- 63,183 Taxes on income............... 19,259 461 -- 19,720 ---------- -------- ----- ---------- Income before extraordinary item......................... 42,650 813 -- 43,463 Extraordinary item--early retirement of debt, net of income tax benefit........... (7,242) -- -- (7,242) ---------- -------- ----- ---------- Net income.................... $ 35,408 $ 813 $ -- $ 36,221 ========== ======== ===== ========== Earnings per share: Income before extraordinary item......................... $ 0.94 $ 5.41 $ -- $ 0.91 Extraordinary item............ (0.16) -- -- (0.15) ---------- -------- ----- ---------- Net income.................... $ 0.78 $ 5.41 $ -- $ 0.76 ========== ======== ===== ========== Earnings per share--assuming dilution: Income before extraordinary item......................... $ 0.93 $ 5.41 $ -- $ 0.90 Extraordinary item............ (0.16) -- -- (0.15) ---------- -------- ----- ---------- Net income--assuming dilution..................... $ 0.77 $ 5.41 $ -- $ 0.75 ========== ======== ===== ========== Weighted average shares outstanding: Basic......................... 45,373 150 2,406(1) 47,929 Assuming dilution............. 45,792 150 2,434(1) 48,376
See Notes to Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith. - -------- (1) Reflects the effect of exchanging each share of C.D. Smith common stock (and options and warrants, assuming dilution) for 16.995 shares of AmeriSource common stock. 50 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET March 31, 1999
Pro Forma Historical Historical ------------------------------- AmeriSource C.D. Smith Adjustments Combined ----------- ---------- ----------- ---------- (In thousands, except per share data) ASSETS Cash, cash equivalents and restricted cash.... $ 155,474 $ 4,118 $ -- $ 159,592 Accounts receivable..... 480,326 55,910 -- 536,236 Merchandise invento- ries................... 942,152 81,548 -- 1,023,700 Prepaid expenses and other current assets... 3,816 728 -- 4,544 Property and equipment, net.................... 59,752 7,881 -- 67,633 Other assets............ 78,005 25,803 -- 103,808 ---------- -------- ------- ---------- $1,719,525 $175,988 $ -- $1,895,513 ========== ======== ======= ========== LIABILITIES AND STOCK- HOLDERS' EQUITY Accounts payable........ $ 917,292 $ 72,595 $ -- $ 989,887 Accrued expenses and other.................. 42,111 4,142 4,000 (/1/) 50,253 Accrued income taxes.... 7,927 -- -- 7,927 Current portion of de- ferred income taxes.... 100,671 402 -- 101,073 Long-term debt, includ- ing current portion.... 518,971 85,913 -- 604,884 Other liabilities....... 8,664 588 -- 9,252 Common stock put war- rants.................. -- 12,218 (12,218)(/2/) -- Stockholders' equity.... 123,889 130 8,218 (/1/)(/2/) 132,237 ---------- -------- ------- ---------- $1,719,525 $175,988 $ -- $1,895,513 ========== ======== ======= ==========
See Notes to Unaudited Pro Forma Combined Condensed Financial Data of AmeriSource and C.D. Smith. - -------- (1) Represents merger-related costs currently estimated to be between $2.0 and $4.0 million, including investment banking, legal, accounting and other related costs and fees. (2) Represents the exercise of the common stock put warrants anticipated upon the consummation of the merger. 51 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA OF AMERISOURCE AND C.D. SMITH 1. AmeriSource and C.D. Smith Historical Fiscal Years AmeriSource's fiscal year ends on September 30. C.D. Smith's fiscal year ends on February 28. For purposes of combining AmeriSource's historical financial data with C.D. Smith's historical financial data in the unaudited pro forma combined condensed financial data in this proxy statement/prospectus, the financial information of C.D. Smith has been reported using the twelve-month periods ended September 30, 1998, 1997, and 1996, and the six-month periods ended March 31, 1999 and 1998. C.D. Smith values its inventories at the lower of cost (determined on a first-in, first-out (FIFO) basis) or market. AmeriSource values its inventories using the last-in, first-out (LIFO) method. The unaudited pro forma combined condensed financial statements do not include adjustments to C.D. Smith's historical cost of sales to conform their method of accounting for inventories from FIFO to the AmeriSource method of LIFO because it is not possible to calculate such pro forma adjustments. 2. Merger and Integration Expenses In connection with the merger, the companies expect to incur charges for the merger which are currently estimated to be between $2.0 to $4.0 million. Such merger-related costs include investment banking, legal, accounting and other related costs and fees. These merger-related costs do not include restructuring costs related to the expected combination of the operations of the separate companies, including the consolidation of certain distribution and administrative operations. These restructuring costs will be charged to expense upon completion of the merger, and are estimated to be between $6.0 million and $12.0 million. Since the merger has not yet been consummated, the merger- related and restructuring costs can only be estimated at this time, and are subject to revision as further information becomes available. The combined company may incur integration-related expenses not currently planned. Such costs, if any, will be charged to expense as incurred. Neither the merger expenses nor the restructuring expenses are included in the unaudited pro forma combined condensed statements of operations data. The pro forma combined condensed balance sheet includes estimated merger-related costs of $4.0 million. 3. Earnings Per Share The pro forma earnings per share reflect the weighted average number of shares of AmeriSource common stock that would have been outstanding had the merger occurred at the beginning of the earliest period presented, and reflect the assumed merger consideration of 16.995 shares of AmeriSource common stock for each share of C.D. Smith common stock outstanding after giving effect to the AmeriSource two-for-one stock split declared March 3, 1999 and distributed March 24, 1999 to stockholders of record on March 3, 1999. All C.D. Smith options and warrants have been assumed to be converted into common shares of AmeriSource, unless their effects would be antidilutive. 52 The shares used in computing pro forma combined earnings per share are as follows:
Six months ended Fiscal year ended March 31, September 30, ----------------- -------------------- 1999 1998 1998 1997 1996 -------- -------- ------ ------ ------ (in thousands) AmeriSource weighted average shares outstanding........................... 48,478 47,750 47,906 47,439 45,373 Weighted average shares of AmeriSource stock assumed to be issued upon completion of the merger with C.D. Smith................................. 1,965 1,973 1,970 2,028 2,556 -------- -------- ------ ------ ------ Weighted average shares used in computing pro forma net income per share................................. 50,443 49,723 49,876 49,467 47,929 Common stock equivalents for AmeriSource stock options granted..... 666 714 644 682 419 Common stock equivalents for the assumed conversion of C.D. Smith stock options and warrants(a)............... 180 607 166 152 28 -------- -------- ------ ------ ------ Weighted average shares used in computing pro forma diluted net income per share-assuming dilution........... 51,289 51,044 50,686 50,301 48,376 ======== ======== ====== ====== ======
- -------- (a) The C.D. Smith common stock warrants are not considered common stock equivalents for the fiscal year ended September 30, 1998 and six months ended March 31, 1999 as the impact is anti-dilutive. 53 BENEFICIAL OWNERSHIP OF SECURITIES C.D. Smith Stock Ownership The following table sets forth certain information as of May 27, 1999, relating to the beneficial ownership of C.D. Smith stock by (a) each person known to C.D. Smith to be the beneficial owner of 5% or more of the outstanding C.D. Smith stock, (b) each director and executive officer of C.D. Smith, and (c) all directors and executive officers of C.D. Smith as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities. Except as otherwise indicated, each person indicated below has sole voting and investment power with respect to the shares of C.D. Smith stock reported as beneficially owned by such person.
Name of Director or Executive Officer or Percentage of Beneficial Name and Address of Beneficial Owner Number of Shares Ownership(1) ---------------------------------------- ---------------- ------------------------ C.D. Smith Employee Stock Ownership Plan(1) 3907 S. 48th Terrace P.O. Box 789 St. Joseph, MO 64503...................... 107,810 68.11% Robert C. Farley(2) 3907 S. 48th Terrace P.O. Box 789 St. Joseph, MO 64503...................... 16,259 10.27% S. Jeanne Mathiesen(3)..................... 3,345 2.11% Delora J. Jamison(4)....................... 5,885 3.72% Eric M. Farley(5).......................... 989 0.62% Churchill ESOP Capital Partners(6) 2400 Metropolitan Centre 333 South Seventh St. Minneapolis, MN 55402..................... 24,436 15.44% Richard M. Meehan(7) 3907 S. 48th Terrace P.O. Box 789 St. Joseph, MO 64503...................... 8,544 5.40% Duane Weeks................................ -- -- David R. Parker............................ -- -- Barbara J. Mowry........................... -- -- All directors and executive officers As a group (8 persons)(8)................. 26,478 16.73%
- -------- (1) Of the shares held of record by the C.D. Smith Employee Stock Ownership Plan, 87,849 shares have been allocated to 190 participants in the ESOP as of December 31, 1998, and 19,961 shares are unallocated. The allocated shares are voted by George K. Baum Trust Company, as trustee of the ESOP, as directed by those ESOP participants who complete and return a direction form. The C.D. Smith ESOP Committee directs George K. Baum Trust Company how to vote the unallocated shares, any allocated shares for which no ESOP direction form is received, and shares pending forfeiture. (2) Includes 4,000 shares subject to immediately exercisable options and 5,959 shares allocated under the ESOP as of December 31, 1998. (3) Includes 1,616 shares allocated under the ESOP as of December 31, 1998. (4) Includes 2,500 shares subject to immediately exercisable options and 3,385 shares allocated under the ESOP as of December 31, 1998. 54 (5) Includes 500 shares subject to immediately exercisable options and 489 shares allocated under the ESOP as of December 31, 1998. (6) Shares subject to immediately exercisable warrants. (7) Includes 4,000 shares subject to immediately exercisable options and 4,544 shares allocated under the ESOP as of December 31, 1998. (8) Includes 7,000 shares subject to immediately exercisable options and 11,449 shares allocated under the ESOP as of December 31, 1998. 55 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF C.D. SMITH The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" as well as the consolidated financial statements of C.D. Smith and notes thereto contained elsewhere in this proxy statement/prospectus. General Founded in 1886, C.D. Smith was family-owned and operated until being acquired by its management and employees in 1991. Since that time, C.D. Smith has grown from a small pharmaceutical distributor serving rural customers into a full-line, full-service regional wholesale distributor. In October 1997, C.D. Smith acquired the General Drug companies for $28.0 million in cash and refinanced an additional $39.5 million of existing debt of the General Drug companies. The General Drug companies are wholesale distributors with operations in the greater Chicago and Boston markets, with net sales for the twelve months ended February 28, 1999 of approximately $373.6 million. During fiscal 1999, C.D. Smith focused on the integration of the operations of the General Drug companies, including eliminating duplicate functions and integrating management information systems, adding additional sales personnel and second operating shifts at the distribution facilities, and evaluating the profitability of and demand for certain product lines. Inventories for C.D. Smith are accounted for at the lower of cost or market, calculated under the FIFO method. C.D. Smith has the right to return all potentially impaired or expiring products to suppliers for full credit; and therefore, generally does not incur any losses as a result of obsolete, slow- moving, or impaired inventories. 56 Results of Operations The following table presents certain items from the statements of income of C.D. Smith, on a consolidated basis, as a percentage of net sales:
Fiscal year ended February 28, ----------------------------------- 1999 1998 1997 ---------- ---------- ---------- Net sales............................. 100.0% 100.0% 100.0% Cost of goods sold.................... 95.1 95.0 95.1 ---------- ---------- ---------- Gross profit.......................... 4.9 5.0 4.9 Operating expenses: Selling, general and administrative..................... 3.2 2.9 3.3 Depreciation and amortization....... 0.3 0.2 0.1 Operating income...................... 1.4 1.9 1.5 Other income (expense): Interest expense.................... (1.0) (0.9) (0.5) Adjustment of common stock put war- rant to fair value................. (1.2) -- -- Other............................... 0.1 0.1 -- ---------- ---------- ---------- Income (loss) before income taxes..... (0.7) 1.1 1.0 Provision for income taxes............ 0.2 0.4 0.4 ---------- ---------- ---------- Net income (loss)..................... (0.9)% 0.7% 0.6% ========== ========== ==========
Fiscal Year Ended February 28, 1999 Compared to Fiscal Year Ended February 28, 1998 Net sales for fiscal 1999 were $826.5 million, an increase of 51.9% from $544.1 million for fiscal 1998. Fiscal 1999 net sales included a full year of operations of the General Drug companies compared to five months of operations included in fiscal 1998. The General Drug companies contributed $373.6 million of net sales for fiscal 1999 compared to $157.4 million in fiscal 1998. Net sales excluding the impact of the General Drug acquisition increased 17.1% to $452.9 million in fiscal 1999 from $386.7 million in fiscal 1998. This growth is attributable to market share gains in independent pharmacy customers and increased penetration of chain store and healthcare institutions markets, which included the addition of several new regional customers. Gross profit for fiscal 1999 was $40.5 million, an increase of 47.8% from $27.4 million for fiscal 1998, resulting primarily from the increase in net sales. Gross profit as a percentage of net sales decreased slightly in fiscal 1999 to 4.9% compared to 5.0% in fiscal 1998, due to slightly lower selling margins at the General Drug companies. Selling, general, and administrative expense for fiscal 1999 was $26.7 million, an increase of 68.4% from $15.9 million for fiscal 1998, principally due to the full year of operating expenses associated with the General Drug acquisition and certain integration costs. Selling, general, and administrative costs for fiscal 1999 include $3.5 million of unusual expenses, resulting from $2.2 million in severance payments to former management and other costs resulting primarily from the integration of the General Drug companies subsequent to their acquisition and $1.3 million of expenses recognized upon the termination of the C.D. Smith public offering effort during fiscal 1999. Selling, general, and administrative expense as a percentage of net sales increased to 3.2% for fiscal 1999 compared to 2.9% for fiscal 1998, reflecting the $3.5 million of unusual expenses. 57 Depreciation and amortization expense increased in fiscal 1999 to $2.1 million from $1.0 million for fiscal 1998. Depreciation expense increased to $1.1 million from $0.7 million, and amortization expense increased to $1.0 million from $0.3 million, reflecting a full year of depreciation and amortization related to the General Drug acquisition. Operating income for fiscal 1999 was $11.7 million, an increase of 11.4% from $10.5 million for fiscal 1998. Excluding unusual charges, operating income was $15.2 million representing a 44.9% increase from fiscal 1998. Operating income as a percentage of net sales was 1.4% for fiscal 1999, and 1.8% of net sales excluding unusual charges, compared to 1.9% of net sales for fiscal 1998. Interest expense increased to $8.5 million for fiscal 1999 from $4.6 million for fiscal 1998 due to the full year of borrowing under C.D. Smith's line of credit indebtedness and subordinated note related to the General Drug acquisition. C.D. Smith recorded a $9.6 million charge to income in fiscal 1999 related to the adjustment of the common stock put warrants to fair value, estimated to be $12.2 million at February 28, 1999. Income tax expense decreased to $1.6 million for fiscal 1999, reflecting an effective tax rate of 26.8% on a $6.1 million pre-tax loss compared to $2.3 million and an effective tax rate of 36.9% for fiscal 1998. The income tax expense recorded in fiscal 1999 resulted primarily from the effects of non- deductibility for tax purposes of the adjustment of the common stock put warrants to fair value and the amortization of certain intangible assets related to the General Drug acquisition. Fiscal Year Ended February 28, 1998 Compared to Fiscal Year Ended February 28, 1997 Net sales for fiscal 1998 were $544.1 million, an increase of 80.4% from $301.5 million for fiscal 1997. Fiscal 1998 net sales included five months of operations of the General Drug companies, which contributed $157.4 million, representing approximately 52.2% of the 80.4% fiscal 1998 net sales growth. Net sales excluding the impact of the General Drug acquisition increased 28.2% to $386.7 million in fiscal 1998 from $301.5 million in fiscal 1997. This growth is attributable to market share gains in independent pharmacy customers, increased penetration of the chain store and healthcare institution markets and the addition of several new regional chain store customers. Gross profit for fiscal 1998 was $27.4 million, an increase of 86.1% from $14.7 million for fiscal 1997, primarily resulting from the increase in net sales. Gross profit as a percentage of net sales increased in fiscal 1998 to 5.0% compared to 4.9% in fiscal 1997 due to the positive impact of the slightly higher gross margin sales of the General Drug companies. 58 Selling, general and administrative expense for fiscal 1998 was $15.9 million, an increase of 59.0% from $10.0 million for fiscal 1997, principally due to the operating expenses associated with the General Drug acquisition. Selling, general and administrative expense as a percentage of net sales decreased to 2.9% for fiscal 1998 compared to 3.3% in fiscal 1997, reflecting synergies achieved to date from the General Drug acquisition. Depreciation and amortization expense increased in fiscal 1998 to $1.0 million from $0.3 million in fiscal 1997. Depreciation expense increased to $0.7 million from $0.3 million, reflecting five months of depreciation related to the General Drug acquisition. Amortization expense of $0.4 million in fiscal 1998 reflects the amortization of intangible assets related to the General Drug acquisition. Operating income for fiscal 1998 was $10.5 million, an increase of 134.6% from $4.5 million for fiscal 1997. Operating income as a percentage of net sales increased to 1.9% in fiscal 1998 compared to 1.5% in fiscal 1997 due to the increase in gross margin and the 0.3% decrease in operating expenses as a percentage of net sales. Interest expense increased to $4.6 million for fiscal 1998 from $1.6 million for fiscal 1997 due to increased borrowing under the credit facility and interest on the subordinated note related to the financing of the General Drug acquisition. Income tax expense increased to $2.3 million for fiscal 1998, reflecting an effective tax rate of 36.9% compared to $1.1 million and an effective tax rate of 36.3% in fiscal 1997. C.D. Smith's St. Joseph facility is located in a tax enterprise zone where certain state and local tax abatement provisions have reduced the effective tax rate. Liquidity and Capital Resources C.D. Smith has historically met its working capital requirements through a combination of internally generated funds, borrowings under a revolving credit facility, and trade credit. The credit facility consists of a revolving line of credit and various term notes which expire or mature in October 2000 and is secured by substantially all of the assets of C.D. Smith. The revolving line of credit has a maximum availability of $90.0 million ($100.0 million at February 28, 1999 due to an additional seasonal advance of $10 million expiring on February 28, 1999) based on eligible inventory and accounts receivable. At February 28, 1999, approximately $85.0 million was outstanding on the revolving line of credit, excluding the effects of unapplied lock box receipts totaling $6.3 million. The revolving portion of the credit facility carries an interest rate at the bank's prime rate or LIBOR plus 175 basis points. Principal on the term notes, approximately $2.4 million at February 28, 1999, is payable monthly based on an amortized term of seven to fifteen years plus interest ranging from 50 basis points below prime to the bank's prime rate. The credit facility contains certain financial covenants and other covenants that restrict C.D. Smith's ability to pay dividends and take certain extraordinary actions. 59 Working capital at February 28, 1999 was $67.7 million, an increase of $13.3 million from working capital of $54.4 million on February 28, 1998. The increase in working capital reflects normal fluctuations related to the timing of inventory receipts, vendor payments, and customer accounts receivable collections. Working capital at February 28, 1998 of $54.4 million reflected an increase of $36.9 million from working capital of $17.5 million on February 28, 1997. This increase was due primarily to the acquisition of the General Drug companies (which had working capital of $32.3 million at the date of the acquisition), as well as increased inventory and receivables attributable to the growth in C.D. Smith's business during the year. C.D. Smith had $2.1 million of capital expenditures for fiscal 1999, primarily for facilities improvements at the General Drug companies, construction of a corporate office building in St. Joseph, and technology- related assets. This amount compared to $0.8 million and $1.1 million of capital expenditures in fiscal 1998 and fiscal 1997, respectively, primarily for distribution equipment and technology-related assets. Historically, C.D. Smith has invested in technology-related assets financed primarily by operating leases. In fiscal 1998, C.D. Smith acquired the equity interests of the General Drug companies for $28.0 million, which was financed through borrowings under its credit facility of $16.0 million and the issuance of a subordinated note for $12.0 million. In addition, C.D. Smith refinanced approximately $39.5 million of indebtedness of the General Drug companies through its credit facility. The $12.0 million subordinated note issued in conjunction with the General Drug acquisition bears interest at 12.0%, matures on October 3, 2004, and has detachable warrants with a nominal exercise price to acquire 24,436 shares of Common Stock. The estimated fair market value of the warrants at the time of issuance was $2.6 million, and it was recorded as a discount on the subordinated note, resulting in an effective interest rate of 17.9% for the subordinated note. C.D. Smith believes that it is in material compliance with the covenants of its credit facility and subordinated note, and it has adequate capital resources at its disposal to meet currently anticipated capital expenditures, routine business growth, and current projected debt service requirements. In April 1999, C.D. Smith entered into a merger agreement with AmeriSource Health Corporation. Pursuant to the merger agreement each outstanding share of common stock of the Company is expected to be converted into approximately 16.995 shares of AmeriSource common stock. The merger is subject to shareholder and certain regulatory approvals and is expected to close in July 1999. The merger will be accounted for as a pooling of interests. In the event the merger agreement is terminated because shareholder approval of the merger agreement is not obtained on or before August 31, 1999 and C.D. Smith enters into a business combination within twelve months after termination, C.D. Smith is required to pay a termination fee of $8.5 million to AmeriSource. Year 2000 Compliance C.D. Smith, its vendors and customers use software and related technologies throughout their businesses that will be affected by the Year 2000 problem, which is common to most businesses, and concerns the inability of information systems, primarily computer software programs, to properly 60 recognize and process date-sensitive information as the year 2000 approaches. This inability 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 activities. Management has developed and has largely completed the implementation of a plan to modify C.D. Smith's management information systems to properly recognize the Year 2000 and believes that, with the modifications to existing software completed and the near-term conversions to new software, the Year 2000 issue can be mitigated. C.D. Smith has used both internal and external resources to test and reprogram or replace the software for Year 2000 modifications. Management currently assesses that the majority of systems conversions have been made, as of March 1999, and that the remaining initiatives will be completed by the late summer of 1999. The costs to date for modification of existing software and for conversion to new software have been accounted for as operating expenses. Furthermore, this project is not expected to have a significant effect on operations through the remaining implementation steps. C.D. Smith has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which C.D. Smith is vulnerable to those third parties' failure to remediate their own Year 2000 issues. However, there can be no assurance that the systems of other companies will be timely converted. The remaining costs of the project and the date on which C.D. Smith plans to complete the Year 2000 modifications are based on management's best estimates. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. C.D. Smith does not currently have a contingency plan if it or any of its material suppliers or customers experience failure due to the Year 2000 problem, but it expects to have a plan in place early in the third quarter of fiscal year 2000. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. C.D. Smith does not anticipate that the adoption of SFAS No. 133 will have a significant effect on the financial position or results of operations. 61 COMPARATIVE RIGHTS OF C.D. SMITH SHAREHOLDERS AND AMERISOURCE STOCKHOLDERS C.D. Smith is incorporated in Missouri, and AmeriSource is incorporated in Delaware. As a result of the merger, C.D. Smith's shareholders, whose rights are currently governed by Missouri law and C.D. Smith's articles of incorporation and bylaws, will become AmeriSource stockholders. Following the merger, their rights will be governed by Delaware law and AmeriSource's certificate of incorporation and bylaws. The material differences between the rights of C.D. Smith's shareholders and AmeriSource's shareholders result from differences in the companies' governing corporate documents and applicable state law. These differences are summarized below. The following summary is not intended to be complete and is qualified by reference to applicable Missouri and Delaware corporate law, C.D. Smith's articles of incorporation and bylaws and AmeriSource's certificate of incorporation and bylaws. See "Additional Information--Where You Can Find More Information" on page 69. Authorized and Outstanding Capital Stock Both Missouri and Delaware law require that a corporation's governing corporate documents set forth the total number of shares of stock which the corporation has the authority to issue. The authorized capital stock of C.D. Smith consists of 90,000,000 shares of common stock, of which approximately 119,199 shares are issued and outstanding as of May 27, 1999, and 10,000,000 shares of preferred stock, of which no shares are currently outstanding. The authorized capital stock of AmeriSource consists of 100,000,000 shares of Class A common stock, of which approximately 48,476,288 shares were issued and outstanding as of May 27, 1999; 15,000,000 shares of Class B common stock, of which approximately 8,446 shares were issued and outstanding as of May 27, 1999; and 2,000,000 shares of Class C common stock, of which approximately 255,602 shares were issued and outstanding as of May 27, 1999. The rights of holders of AmeriSource's Class A common stock, Class B common stock and Class C common stock are substantially identical, except that holders of Class B and Class C common stock do not possess the right to vote on matters to be voted on by AmeriSource's stockholders, unless otherwise provided by law. Holders of Class B common stock may elect at any time to convert their Class B shares into Class A common stock, on a share-for-share basis. Class C common stock automatically converts into Class A common stock immediately before or upon certain public sales of Class C common stock. If the merger is approved, you will receive AmeriSource Class A common stock in exchange for your shares of C.D. Smith common stock. AmeriSource's certificate of incorporation does not authorize the issuance of preferred stock. Number of Directors The AmeriSource bylaws provide that the Board of Directors shall have the authority to determine the number of directors constituting the Board and to fix the terms of office of the directors. Currently, AmeriSource has nine directors, each serving an annual term. 62 The bylaws of C.D. Smith provide that the number of directors shall be not less than three nor more than nine as authorized by the board of directors. C.D. Smith's Board of Directors currently consists of six directors. Classified Board of Directors AmeriSource does not currently have a classified board of directors. However, the Board has the authority pursuant to AmeriSource's bylaws to divide the Board into different classes with staggered terms. This could have the effect of making it more difficult for a third party to gain control of AmeriSource. C.D. Smith's Board of Directors is currently classified into three classes, each class serving a three-year term. Removal of Directors Neither the certificate of incorporation nor the bylaws of AmeriSource prohibit or restrict the removal of directors from the AmeriSource board. Delaware law provides that directors on an unclassified board, such as the AmeriSource board, may be removed with or without cause by the vote of the holders of a majority of the shares entitled to vote. The articles of incorporation of C.D. Smith provide that directors may be removed for cause by the vote of a majority of the shareholders or the directors. Stockholder Action by Written Consent Neither the certificate of incorporation nor the bylaws of AmeriSource limits the ability of the stockholders to act by written consent. Absent a restriction in the company's certificate of incorporation, Delaware law permits stockholder action by written consent. The articles of incorporation of C.D. Smith provide that the shareholders may not act by written consent. Indemnification and Limitation of Liability The provisions of Missouri and Delaware law relating to a corporation's ability to indemnify its officers and directors are substantially similar. Generally, the directors and officers of both C.D. Smith and AmeriSource are indemnified for their actions to the fullest extent permitted by applicable law. AmeriSource's certificate of incorporation also expressly eliminates, to the fullest extent permitted by Delaware law, the personal liability of any AmeriSource director to AmeriSource or its shareholders for money damages for any breach by the director of his fiduciary duties to AmeriSource. C.D. Smith's articles of incorporation have a similar provision. The bylaws of AmeriSource require AmeriSource to pay the expenses that its officers and directors incur in defending a civil or criminal action against them prior to the final disposition of such action. C.D. Smith's bylaws permit, rather than require, C.D. Smith to pay such expenses prior to the final disposition of an action. However, unless C.D. Smith enters into a different agreement with the person to be indemnified, C.D. Smith must, prior to advancing any expenses, receive a written 63 agreement from the officer or director who is to be indemnified that the officer or director will repay such amounts if the officer or director is not entitled to indemnification. Amendment of Charters Amendments to AmeriSource's certificate of incorporation are governed by Delaware law. Delaware law generally provides that to amend a corporation's certificate of incorporation the corporation's board of directors must adopt a resolution setting forth the proposed amendment and declaring its advisability. The amendment then requires the affirmative vote of a majority of all outstanding shares entitled to vote to be approved. Amendments to C.D. Smith's articles of incorporation are governed by Missouri law. Missouri law generally provides that to amend a corporation's articles of incorporation, a majority of all outstanding shares must vote to approve the amendment. However, certain provisions in C.D. Smith's articles of incorporation may not be repealed or amended without the affirmative vote of at least 80% of all outstanding shares. Unlike Delaware law, Missouri law does not require, though it does expressly permit, the corporation's board of directors to first adopt a resolution setting forth the proposed amendment and directing that it be submitted to a vote by the shareholders. Amendment of Bylaws The bylaws of AmeriSource may be altered, amended or appealed by a vote of a majority of all of the directors or by the vote of the holders of a majority of the outstanding stock entitled to vote. The articles of incorporation of C.D. Smith provide that the power to adopt, amend or repeal the bylaws is vested solely in the board of directors. Notice of Stockholder Proposals and Nomination of Directors AmeriSource's certificate of incorporation and bylaws do not contain provisions requiring advance notice for the nomination of directors or of business to be brought before a stockholders' meeting by a stockholder. C.D. Smith's bylaws provide that the shareholders must notify C.D. Smith at least 150 days prior to a meeting of the shareholders of business to be brought before a shareholders' meeting. Shareholders wishing to nominate a director for election must notify C.D. Smith at least 60 days prior to the regularly scheduled date of the annual meeting. Stockholder Inspection Under Delaware law, any stockholder may inspect a Delaware corporation's stock ledger, stockholder list and other books and records for any proper purpose. A "proper purpose" is defined as a purpose reasonably related to the person's interest as a stockholder. Delaware law specifically provides that a stockholder may appoint an agent for the purpose of examining the corporation's books and records. The right of shareholders to inspect a Missouri corporation's stock ledger, shareholder list and other books and records is similar to that of shareholders of Delaware corporations. Unlike Delaware 64 law, however, Missouri law does not provide specific guidance as to the extent to which a shareholder must have a "proper purpose" to examine books and records or whether a shareholder may appoint an agent to do so. Duration of Proxies Under Delaware law, no proxy is valid more than three years after its date unless otherwise provided in the proxy. Under Missouri law, no proxy is valid more than 11 months after its date unless otherwise provided in the proxy. Dissenters' Rights Both Delaware and Missouri law provide dissenters' rights to all shareholders entitled to vote in merger transactions, except as explained below. Missouri law also provides these rights in a sale of assets, while Delaware law does not. Delaware law also does not provide dissenters' rights in certain stock-for-stock mergers if the dissenting shares of the corporation are traded nationally or held of record by more than 2,000 shareholders, or if the corporation is the surviving corporation and no vote of its shareholders is required, subject to certain exceptions. Dissenters' rights, also known as appraisal rights, are rights afforded to shareholders who dissent from specific transactions. The dissenting shareholders, if they comply with the procedural requirements of applicable law, are entitled to elect not to participate in the subject transaction and to receive instead the fair value of their shares in cash. See "The Merger--Dissenters' Rights" on page 34. Anti-Takeover Statutes Both Delaware and Missouri law contain statutory provisions that may have anti-takeover effects. Business Combination Statutes. Missouri has a statute known as a "business combination statute." This statute restricts certain "business combinations" between a Missouri corporation and an "interested shareholder." For this purpose, a "business combination" means one of various types of transactions, including mergers, that increases the proportionate voting power of the interested shareholder. An "interested shareholder" means any person who owns or controls 20% or more of the outstanding shares of the corporation's voting stock. Under the statute, a Missouri corporation may not engage in a business combination with an interested shareholder other than: . business combination approved by the corporation's board of directors prior to the date on which the interested shareholder became an interested shareholder; . a business combination approved by the holders of a majority of the outstanding voting stock not owned by the interested shareholder at a meeting called no earlier than five years after the date on which the interested shareholder became an interested shareholder; or . a business combination that satisfies certain detailed fairness and procedural requirements. In any event, unless the corporation's board of directors, on or before the date the interested shareholder acquired the corporation's stock, approved either the business combination or the interested shareholder's acquisition of stock, the corporation may not engage in any business combination with the interested shareholder for a period of five years after that date. 65 A Missouri corporation may opt out of coverage by the business combination statute by including a provision to that effect in its governing corporate documents. C.D. Smith has not done so. However, these statutes do not apply to this transaction because the C.D. Smith board of directors has approved the merger. Delaware also has a business combination statute, and its provisions are similar to the Missouri business combination statute. However, an "interested stockholder" under Delaware law means any person who owns or controls 15% or more, rather than 20% or more, of the outstanding shares of the corporation's voting stock. An "interested stockholder" under Delaware law also includes affiliates of the corporation who own 15% or more of the corporation's outstanding voting stock at any time within three years prior to the relevant date. Under the statute, a Delaware corporation may not engage in a business combination with an interested stockholder for a period of three years following the time the interested stockholder became an interested stockholder, unless: . prior to that time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; . upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding stock owned by persons who are directors and also officers; or . at or after that time the business combination is approved by the board of directors and authorized at a shareholders' meeting by the affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder. Note that the Delaware statute imposes a shorter prohibition period than the Missouri statute for business combinations with interested shareholders, namely three years instead of five. Also, because the Delaware statute does not apply if the interested stockholder obtains at least 85% of the corporation's voting stock upon consummation of the transaction resulting in the stockholder becoming an interested stockholder, a person acquiring at least 85% of the corporation's voting stock could avoid application of the Delaware statute. This would not be the case under the Missouri statute. As under Missouri law, a Delaware corporation may opt out of coverage by the business combination statute by including a provision to that effect in its governing corporate documents. AmeriSource has opted out of coverage of such statute. Control Share Acquisition Statutes. Missouri also has a statute known as a "control share acquisition statute." This statute provides that any person must obtain shareholder approval before acquiring any shares of stock of a publicly traded Missouri corporation, if after the acquisition he or she would have the power to exercise certain levels of voting power set forth in the statute. If the acquiring person fails to obtain shareholder approval, the acquiring person's shares lose their voting rights. The voting rights may be retained or restored only if certain disclosure requirements are met and if approved by both a majority of the outstanding voting stock and a majority of the outstanding voting stock after the exclusion of "interested shares." For this purpose, "interested shares" means 66 all shares owned by the acquiring person, by directors of the corporation who are also its employees, and by officers of the corporation. A number of acquisitions are deemed not to constitute control share acquisitions for purposes of Missouri's control share acquisition statute, including mergers which otherwise satisfy Missouri law. Thus, the statute does not apply to the merger with AmeriSource. Also, a Missouri corporation may opt out of coverage by the control share acquisition statute by including a provision to that effect in its governing corporate documents. C.D. Smith has not done so. Delaware does not have a control share acquisition statute, and therefore AmeriSource is not subject to one. 67 LEGAL MATTERS Dechert Price & Rhoads, legal counsel to AmeriSource, will pass upon the validity of the AmeriSource common stock to be issued in connection with the merger. Barton J. Winokur, a partner of Dechert Price & Rhoads, is a director of AmeriSource. Blackwell Sanders Peper Martin LLP, legal counsel to C.D. Smith, and Dechert Price & Rhoads each will render an opinion that the description of the U.S. federal income tax consequences described under the caption "The Merger-- Federal Income Tax Consequences" is true and correct in all material respects. As a condition to the merger, Dechert Price & Rhoads and Blackwell Sanders is each required to provide its client with a tax opinion to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. EXPERTS Ernst & Young LLP, independent auditors, have audited AmeriSource's consolidated financial statements and schedules included in its Annual Report on Form 10-K for the year ended September 30, 1998, as set forth in their report contained therein, which is incorporated by reference in this proxy statement/prospectus and registration statement. AmeriSource's financial statements and schedules are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited C.D. Smith Healthcare, Inc.'s consolidated financial statements at February 28, 1999 and 1998, and for each of the three years in the period ended Febraury 28, 1999, as set forth in their report contained herein. We've included C.D. Smith Healthcare, Inc.'s financial statements in this proxy statement/prospectus and registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. AMERISOURCE STOCKHOLDER PROPOSALS In the event that the merger is consummated, you should know that if you desire to have a proposal included in the AmeriSource proxy statement and form of proxy for the annual meeting of stockholders to be held in 2000, the proposal must be received by AmeriSource in writing on or before September 30, 1999, by certified mail, return receipt requested. The proposal must comply in all respects with applicable rules and regulations of the SEC, the laws of the State of Delaware and the bylaws of AmeriSource relating to such inclusion. With respect to a stockholder proposal that is not included in the 2000 proxy statement and form of proxy but which properly comes before the 2000 meeting, if AmeriSource does not receive notice of such proposal, by certified mail, return receipt requested, on or before December 20, 1999, then the proxy solicited by the AmeriSource board of directors for the 2000 meeting may confer discretionary authority with respect to such proposal. Stockholder proposals may be mailed to the Secretary, AmeriSource Health Corporation, 300 Chester Field Parkway, Malvern, PA 19355. 68 ADDITIONAL INFORMATION Cautionary Statement Concerning Forward-Looking Statements In this document, AmeriSource and C.D. Smith each has made forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include statements concerning possible or assumed future results of operations and cost savings set forth: . under "Questions and Answers About the Merger;" . under "The Merger--Background of the Merger;" . in statements about the benefits that AmeriSource or C.D. Smith may achieve as a result of the merger, or about other effects of the merger or the future development of AmeriSource; . in statements before, after or including the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," " plan," "estimate," or "continue" or similar expressions; and . in other statements about matters that are not historical facts. Various risks and uncertainties may cause actual results to differ materially from the results that these statements express or imply. Please do not place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement/prospectus. Where You Can Find More Information AmeriSource files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. AmeriSource's SEC filings are also available to the public from commercial retrieval services and at the website maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and other information are also available for inspection at the offices of the NYSE. In addition, AmeriSource filed a registration statement on Form S-4 with the SEC to register the AmeriSource common stock to be issued to C.D. Smith's shareholders in the merger. This document is a part of that registration statement and constitutes a prospectus of AmeriSource in addition to being a proxy statement of C.D. Smith for its special meeting. As allowed by SEC rules, this document does not contain all the information you can find in the registration statement or the exhibits to the registration statement. The SEC allows AmeriSource to "incorporate by reference" the information that AmeriSource files with the SEC. This means that AmeriSource can disclose important information to you by referring you to those filed documents. The information incorporated by reference is considered to be a part of this proxy statement/prospectus, except if it is superseded by information in this proxy statement/prospectus or by later information that AmeriSource files with the SEC. Information that is filed with the SEC after the date of this proxy statement/prospectus will automatically update and supersede the information contained or incorporated by reference in this proxy statement/prospectus. 69 The documents listed below are incorporated by reference in this proxy statement/prospectus. In addition, any future filings AmeriSource may make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, before the date of the special meeting, are incorporated by reference in this proxy statement/prospectus. The following documents contain important information about AmeriSource and its financial condition. . AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30, 1998, filed with the SEC on December 23, 1998 (SEC File No. 000-20485); . AmeriSource's Quarterly Report on Form 10-Q, for the quarterly period ended December 31, 1998, filed with the SEC on February 12, 1999 (SEC File No. 000-20485); . AmeriSource's Quarterly Report on Form 10-Q, for the quarterly period ended March 31, 1999, filed with the SEC on May 17, 1999 (SEC File No. 000-20485); and . the description of AmeriSource's common stock contained in the Company's Registration Statement on Form 8-A, filed May 14, 1996 (SEC File No. 000-20485), which incorporates by reference the section entitled "Description of Capital Stock" in the Company's Registration Statement on Form S-2 (SEC File No. 33-57513), filed March 8, 1995, and including any amendment or report filed for the purpose of updating such description. You may request a copy of these filings, excluding all exhibits unless an exhibit has been specifically incorporated by reference, at no cost, by writing or telephoning AmeriSource at: AmeriSource Health Corporation 300 Chester Field Parkway Malvern, PA 19355 610-296-4480 Attention: General Counsel When you are deciding whether to purchase the shares being offered by this proxy statement/prospectus, you should rely only on the information incorporated by reference or provided in this proxy statement/prospectus or any supplement. AmeriSource has not authorized anyone else to provide you with different information. This proxy statement/prospectus is not an offer to sell shares of common stock in any state where such an offer is not permitted. You should not assume that the information in this proxy statement/prospectus or any supplement is accurate as of any date other than the date on the front of those documents. 70 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES
Page ---- Report of Independent Auditors........................................... F-2 Consolidated Balance Sheets at February 28, 1999 and 1998................ F-3 Consolidated Statements of Operations for the Fiscal Years ended February 28, 1999, 1998 and 1997................................................. F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the Fiscal Years ended February 28, 1999, 1998 and 1997............................ F-5 Consolidated Statements of Cash Flows for the Fiscal Years ended February 28, 1999, 1998 and 1997................................................. F-6 Notes to Consolidated Financial Statements............................... F-7
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders C.D. Smith Healthcare, Inc. We have audited the accompanying consolidated balance sheets of C.D. Smith Healthcare, Inc. and subsidiaries (the Company) as of February 28, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended February 28, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of C.D. Smith Healthcare, Inc. and subsidiaries at February 28, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1999, in conformity with generally accepted accounting principles. Kansas City, Missouri April 23, 1999 F-2 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
February 28 -------------------------- 1999 1998 ------------ ------------ Assets (Note 5) Current assets: Cash............................................. $ 85,948 $ 42,243 Trade accounts and notes receivable, less allowance for doubtful receivables of $1,225,524 in 1999 and $650,384 in 1998.................... 58,079,674 56,059,092 Other receivables................................ 117,607 49,656 Merchandise inventory............................ 82,961,088 73,671,570 Refundable income taxes.......................... 491,259 542,762 Prepaid expenses................................. 289,709 380,307 ------------ ------------ Total current assets............................... 142,025,285 130,745,630 Property and equipment, net (Note 3)............... 7,518,192 6,723,476 Other assets: Intangible assets, net of accumulated amortization of $1,855,886 in 1999 and $545,845 in 1998 (Notes 2 and 4)......................... 25,580,386 26,678,427 Deferred income taxes (Note 8)................... -- 786,000 Other............................................ 334,563 393,867 ------------ ------------ Total assets....................................... $175,458,426 $165,327,400 ============ ============ Liabilities and shareholders' equity (deficit) Current liabilities: Accounts payable................................. $ 67,443,646 $ 70,798,129 Accrued expenses................................. 4,190,933 2,708,626 Deferred income taxes (Note 8)................... 402,000 2,380,000 Current portion of long-term debt (Note 5)....... 445,072 445,072 Current portion of subordinated note payable (Note 6)........................................ 1,803,044 -- ------------ ------------ Total current liabilities.......................... 74,284,695 76,331,827 Deferred income taxes (Note 8)..................... 588,000 -- Line of credit (Note 5)............................ 78,663,288 67,388,507 Long-term debt, less current portion (Note 5)...... 1,925,960 2,371,036 Subordinated note payable, less current portion (Note 6).......................................... 8,448,460 9,663,026 Common stock put warrants (Note 7)................. 12,218,000 2,569,000 Shareholders' equity (deficit) (Notes 5, 9 and 11): Preferred stock, 10,000,000 shares authorized, none outstanding Common stock, $.01 par value, 90,000,000 shares authorized, 200,000 shares issued........................... 2,000 2,000 Additional paid-in capital....................... 198,000 198,000 Retained earnings................................ 635,603 8,353,444 Treasury stock, at cost, 84,530 shares in 1999 and 84,230 shares in 1998....................... (1,234,543) (1,133,331) ------------ ------------ (398,940) 7,420,113 Less note receivable from ESOP (Note 9)............ (271,037) (416,109) ------------ ------------ (669,977) 7,004,004 ------------ ------------ Total liabilities and shareholders' equity (deficit)......................................... $175,458,426 $165,327,400 ============ ============
See accompanying notes. F-3 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended February 28 ---------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Net sales excluding sales to customer warehouses.......................... $794,546,872 $532,409,730 $301,523,181 Bulk deliveries to customer warehouses.......................... 31,939,444 11,680,485 -- ------------ ------------ ------------ Total net sales...................... 826,486,316 544,090,215 301,523,181 Cost of goods sold excluding sales to customer warehouses................. 754,029,280 504,987,284 286,784,687 Cost of goods sold-bulk deliveries to customer warehouses................. 31,939,444 11,680,485 -- ------------ ------------ ------------ Total cost of goods sold............. 785,968,724 516,667,769 286,784,687 ------------ ------------ ------------ Gross profit......................... 40,517,592 27,422,446 14,738,494 Operating expenses: Selling, general and administrative.................... 26,733,395 15,878,659 9,985,350 Depreciation and amortization...... 2,089,502 1,048,178 279,280 ------------ ------------ ------------ 28,822,897 16,926,837 10,264,630 ------------ ------------ ------------ Operating income..................... 11,694,695 10,495,609 4,473,864 Other income (expense): Interest income.................... 376,196 238,352 142,385 Interest expense on credit facilities........................ (6,417,083) (3,834,459) (1,571,214) Interest expense on subordinated debt (Note 6)..................... (2,048,478) (812,026) -- Adjustment of common stock put warrants to fair value (Note 7)... (9,649,000) -- -- Other, net......................... (43,482) 51,101 (15,842) ------------ ------------ ------------ (17,781,847) (4,357,032) (1,444,671) ------------ ------------ ------------ Income (loss) before income taxes.... (6,087,152) 6,138,577 3,029,193 Income tax provision (Note 8)........ 1,630,689 2,266,864 1,099,190 ------------ ------------ ------------ Net income (loss).................... $ (7,717,841) $ 3,871,713 $ 1,930,003 ============ ============ ============ Net income (loss) per share (Note 1): Basic.............................. $ (66.71) $ 33.11 $ 14.69 ============ ============ ============ Diluted............................ $ (66.71) $ 28.58 $ 14.32 ============ ============ ============
See accompanying notes. F-4 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Note Additional Receivable Common Paid-In Retained Treasury from Stock Capital Earnings Stock ESOP Total ------ ---------- ----------- ----------- ---------- ----------- Balances at February 29, 1996................... $2,000 $198,000 $ 2,551,728 $ (161,400) $(706,253) $ 1,884,075 Net income............ -- -- 1,930,003 -- -- 1,930,003 Collections on note receivable........... -- -- -- -- 145,072 145,072 Purchase of treasury stock................ -- -- -- (791,795) -- (791,795) ------ -------- ----------- ----------- --------- ----------- Balances at February 28, 1997................... 2,000 198,000 4,481,731 (953,195) (561,181) 3,167,355 Net income............ -- -- 3,871,713 -- -- 3,871,713 Collections on note receivable........... -- -- -- -- 145,072 145,072 Purchase of treasury stock................ -- -- -- (180,136) -- (180,136) ------ -------- ----------- ----------- --------- ----------- Balances at February 28, 1998................... 2,000 198,000 8,353,444 (1,133,331) (416,109) 7,004,004 Net loss.............. -- -- (7,717,841) -- -- (7,717,841) Collections on note receivable........... -- -- -- -- 145,072 145,072 Purchase of treasury stock................ -- -- -- (101,212) -- (101,212) ------ -------- ----------- ----------- --------- ----------- Balances at February 28, 1999................... $2,000 $198,000 $ 635,603 $(1,234,543) $(271,037) $ (669,977) ====== ======== =========== =========== ========= ===========
See accompanying notes. F-5 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended February 28 ---------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Operating activities Net income (loss)................... $ (7,717,841) $ 3,871,713 $ 1,930,003 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation....................... 1,148,957 653,478 279,280 Amortization....................... 1,687,866 781,241 -- Adjustment of common stock put warrants to fair value............ 9,649,000 -- -- Net (gain) loss on sale of property and equipment..................... 52,160 (7,775) -- Provision for doubtful accounts.... 761,413 200,825 222,900 Deferred income taxes.............. (604,000) (44,496) 243,000 Changes in operating assets and liabilities, net of the effects of the General Drug Acquisition: Trade accounts and notes receivable........................ (2,781,995) (5,277,838) (4,856,823) Other receivables.................. (67,951) 14,813 37,458 Refundable income taxes............ 51,503 808,531 -- Merchandise inventory.............. (9,289,518) (1,984,843) (10,110,601) Prepaid expenses................... 90,598 34,642 71,233 Other.............................. 57,957 5,598 62,545 Accounts payable................... (3,354,483) 13,675,995 7,908,922 Accrued expenses................... 1,482,307 (4,810,404) 245,963 Income taxes payable............... -- (334,035) 258,402 ------------ ------------ ------------ Net cash provided by (used in) operating activities............... (8,834,027) 7,587,445 (3,707,718) Investing activities Purchases of property and equipment.......................... (2,085,733) (819,275) (1,109,324) Proceeds from sale of property and equipment.......................... 89,900 56,875 12,500 Collections on note receivable from ESOP............................... 145,072 145,072 145,072 Net cash paid in the General Drug Acquisition, including transaction costs.............................. -- (29,097,392) -- ------------ ------------ ------------ Net cash used in investing activities......................... (1,850,761) (29,714,720) (951,752) Financing activities Borrowings on line of credit........ 862,983,820 563,371,726 303,354,114 Principal payments on line of credit............................. (851,709,039) (551,639,405) (298,517,612) Proceeds from issuance of long-term debt............................... -- 1,859,996 800,000 Principal payments on long-term debt............................... (445,076) (1,603,389) (271,440) Proceeds from issuance of subordinated note payable with common stock put warrants.......... -- 12,000,000 -- Payments of debt issuance costs..... -- (1,656,711) -- Purchases of treasury stock......... (101,212) (180,136) (791,795) ------------ ------------ ------------ Net cash provided by financing activities......................... 10,728,493 22,152,081 4,573,267 ------------ ------------ ------------ Increase (decrease) in cash......... 43,705 24,806 (86,203) Cash at beginning of year........... 42,243 17,437 103,640 ------------ ------------ ------------ Cash at end of year................. $ 85,948 $ 42,243 $ 17,437 ============ ============ ============ Supplemental disclosures of cash flow information Cash paid during the year for: Interest........................... $ 7,115,120 $ 4,025,577 $ 1,523,760 Income taxes....................... 2,514,016 1,814,000 597,788 Cash received during the year for: Income tax refund.................. $ 330,830 $ -- $ --
See accompanying notes. F-6 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 1999 1. Significant Accounting Policies Description of Business C.D. Smith Healthcare, Inc. (C.D. Smith), a Missouri corporation, and its subsidiaries (collectively referred to as the Company) are regional full-line, full-service wholesale distributors of pharmaceuticals and related products. The Company's customers consist primarily of independent pharmacies, health care institutions and regional and national chain pharmacies located in its core territories of the midwestern United States and New England. Principles of Consolidation The consolidated financial statements include the accounts of C.D. Smith and its wholly owned subsidiaries, C.D.S. Transportation, Inc. and G.D. Holdings of Delaware, Inc., (Holdings). Holdings owns 100% of the common stock of General Drug Company and its wholly owned subsidiaries, James Brudnick Company, Inc. and SBS Pharmaceuticals, Inc. (collectively referred to as the General Drug Companies). All significant intercompany balances and transactions have been eliminated upon consolidation. As discussed in Note 2, the General Drug Companies were acquired in October 1997 (the General Drug Acquisition) in connection with the acquisition of Gimbel Investor Group, L.P. (Gimbel). Revenue Recognition The Company recognizes sales when products are shipped. The Company, at its discretion, accepts and grants credit for the return of certain unused or expiring products, less any applicable restocking charges. Expiring products are generally returned to the Company's vendors for credit. Sales returns and allowances are recognized in the period in which the related sales are recorded. The Company also acts as an intermediary in the bulk shipment of pharmaceuticals from manufacturers to customers' warehouses. Inventories Inventories are stated at the lower of cost, which approximates the first- in, first-out (FIFO) method, or market. The Company has the right to return all potentially impaired or expiring products to suppliers for full credit and therefore, generally does not incur any losses as a result of obsolete, slow- moving or impaired inventories. Property and Equipment Property and equipment are stated on the basis of cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Generally, the estimated useful lives are five to forty years for buildings and improvements, five to fifteen years for machinery and equipment, five years for vehicles, and three to seven years for office equipment. F-7 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other Receivables Other receivables consist principally of rebates receivable from manufacturers, which are recognized when earned. Intangible Assets Goodwill and customer lists, resulting from the General Drug Acquisition, are being amortized over their estimated lives of 40 years and 20 years, respectively, using the straight-line method. Debt issuance costs that were incurred in obtaining financing for the General Drug Acquisition (see Note 2) are being amortized to interest expense over the term of the debt instruments, which range from three to seven years. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, the liability method is used in accounting for income taxes, whereby deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Credit Concentrations The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. Credit losses are provided for in the Company's consolidated financial statements and consistently have been within management's expectations. Financial Instruments The carrying value of the Company's financial instruments, including cash, trade accounts and notes receivable, accounts payable and long-term debt, as reported in the accompanying consolidated balance sheets, approximates fair value. Cash The Company maintains both a lockbox account for cash received from customers and a controlled disbursement checking account. Cash received from customers in the lockbox account must be used to reduce borrowings on the revolving line of credit (see Note 5). At February 28, 1999 F-8 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) and 1998, cash received from customers in the lockbox account of $6,306,231 and $6,012,976, respectively, has been recorded as a reduction in the balance of the revolving line of credit in the accompanying consolidated balance sheets. The controlled disbursement account allows for daily advances from the revolving line of credit in amounts sufficient to cover checks presented for payment at the bank each day. The amount of checks issued but not presented at the bank, totaling $11,059,531 and $13,492,420 at February 28, 1999 and 1998, respectively, has been included in the balance of accounts payable in the accompanying consolidated balance sheets. Employee Stock Ownership Plan The Company has elected to follow Statement of Position (SOP) 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans," issued by the American Institute of Certified Public Accountants (AICPA). The amount contributed or committed to be contributed to the C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan (ESOP) with respect to a given year is charged to expense. The compensation and interest elements of the contribution are separately reported. See Note 9. Stock-Based Compensation The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee stock options because, as discussed in Note 11, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, compensation expense is recorded over the related vesting period when the exercise price is less than the estimated fair value of the stock at the date of grant. The Company has established the exercise prices of options granted at fair value, as determined by the Board of Directors, giving consideration to the valuation of the Company's common stock completed by an independent appraiser within the year in which the stock options were granted. In accordance with APB No. 25, the Company has recorded no compensation expense related to options granted. See Note 11. Earnings Per Share In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings Per Share." SFAS No 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earning per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented and, where appropriate, restated to conform to SFAS No. 128 requirements. F-9 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the computation of basic and diluted earnings per share in accordance with SFAS No. 128:
Year ended February 28 ---------------------------------- 1999 1998 1997 ----------- ---------- ---------- Numerator (basic and diluted): Net income (loss)....................... $(7,717,841) $3,871,713 $1,930,003 =========== ========== ========== Denominator: Denominator for basic earnings per share--weighted average shares outstanding........................... 115,691 116,931 131,365 Effect of dilutive securities: Stock options.......................... -- 8,611 3,385 Warrants............................... -- 9,907 -- ----------- ---------- ---------- Dilutive potential common shares........ -- 18,518 3,385 ----------- ---------- ---------- Denominator for diluted earnings per share.................................. 115,691 135,449 134,750 =========== ========== ========== Net income (loss) per share--basic...... $ (66.71) $ 33.11 $ 14.69 =========== ========== ========== Net income (loss) per share--diluted.... $ (66.71) $ 28.58 $ 14.32 =========== ========== ==========
All shares held by the ESOP are considered outstanding for purposes of computing earnings per share. The effects of outstanding stock options and warrants for the year ended February 28, 1999 are antidilutive and therefore are excluded. Reclassifications Certain reclassifications have been made to the 1998 and 1997 consolidated financial statements to conform to the 1999 presentation. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. The Company does not anticipate that the adoption of SFAS No. 133 will have a significant effect on its financial position or results of operations. F-10 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. The General Drug Acquisition Effective October 3, 1997, C.D. Smith consummated the General Drug Acquisition, purchasing all outstanding partnership interests in Gimbel, which owns 100% of the outstanding stock of Holdings, the parent company of the General Drug Companies, for $28 million in cash. The transaction was accounted for using the purchase method. The purchase price was allocated to net assets acquired on the basis of their estimated fair values. Inventories of the General Drug Companies, previously accounted for using the last-in, first-out method, were valued at replacement cost and deferred taxes were recorded for the resulting difference from the tax basis of such inventories. In addition, the recorded amounts of goodwill were written off. The excess of the purchase price, including approximately $1.1 million of transaction costs, over the fair market value of the net assets acquired amounted to $25,779,561, of which $12,000,000 has been allocated to customer lists and $13,779,561 has been allocated to goodwill. All operations acquired from Gimbel are conducted within the General Drug Companies. Gimbel and Holdings had no material assets or liabilities aside from those related to their investment in the General Drug Companies. The General Drug Companies' results of operations have been included in the consolidated results of operations since the date of acquisition. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and the General Drug Companies as if the General Drug Acquisition had occurred at the beginning of the fiscal year ended February 28, 1997. Pro forma adjustments principally give effect to amortization of goodwill and customer lists, interest expense on debt issued to fund the acquisition and the exclusion of certain compensation expenses contractually required as a result of the General Drug Acquisition and related income tax effects. The unaudited pro forma information has been prepared for comparative purposes only and does not purport to be indicative of the results of operations had this acquisition been completed as of these dates or which may occur in the future.
Fiscal Year Ended February 28 ----------------------------- 1998 1997 -------------- -------------- Net sales................................... $ 762,259,269 $ 693,209,531 Gross profit................................ 39,928,433 37,420,424 Operating income............................ 12,457,513 11,577,999 Net income.................................. 2,439,310 2,282,557 Net income per share -- diluted............. 18.01 16.94
F-11 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Property and Equipment Property and equipment at February 28, 1999 and 1998 consists of the following:
1999 1998 ----------- ----------- Land............................................... $ 273,500 $ 273,500 Building and improvements.......................... 4,866,248 3,736,708 Machinery and equipment............................ 1,363,705 1,398,209 Vehicles........................................... 321,932 326,102 Office equipment................................... 2,914,614 2,485,602 ----------- ----------- 9,739,999 8,220,121 Less accumulated depreciation...................... (2,221,807) (1,496,645) ----------- ----------- $ 7,518,192 $ 6,723,476 =========== ===========
4. Intangible Assets Intangible assets at February 28, 1999 and 1998 consists of the following:
1999 1998 ----------- ----------- Goodwill........................................... $13,779,561 $13,567,561 Customer lists..................................... 12,000,000 12,000,000 Debt issuance costs................................ 1,656,711 1,656,711 ----------- ----------- 27,436,272 27,224,272 Less accumulated amortization...................... (1,855,886) (545,845) ----------- ----------- $25,580,386 $26,678,427 =========== ===========
5. Line of Credit and Long-Term Debt With the General Drug Acquisition, the Company refinanced its senior credit facility with a group of lending institutions providing for a revolving line of credit and certain term notes. All existing debt of the General Drug Companies was refinanced through the new credit facility. Under the terms of the new facility, which expires in October 2000, the Company may borrow up to approximately $90 million ($100 million at February 28, 1999 due to an additional seasonal advance of $10 million expiring on February 28, 1999) in addition to the amounts outstanding under the term notes described below, based on eligible inventory and accounts receivable balances (the borrowing base). At February 28, 1999 and 1998, the borrowing base amounted to approximately $104 million and $102 million, respectively. The Company must pay an aggregate commitment fee of 0.2% per annum on the unused balance of the credit facility plus an agency fee of $10,000 per month. At February 28, 1999 and 1998, availability under the revolving line of credit was $15,030,481 and $16,582,069, respectively, excluding the effects of lockbox receipts included in outstanding line-of-credit borrowings, as discussed in Note 1. Generally, advances bear interest at the lender's prime rate (7.75% and 8.5% at February 28, 1999 and 1998, respectively) payable monthly. The Company has an option to pay interest on a specified amount of not less than $1 million at the London Interbank Offered Rate (LIBOR) plus 1.75% if LIBOR loans are purchased. Such interest periods are of a 30-, F-12 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 60-, or 90-day duration. The line of credit borrowings, amounting to $78,663,288 and $67,388,507 at February 28, 1999 and 1998, respectively, and bearing interest at a weighted-average LIBOR-based rate of 7.04% and 7.75% at February 28, 1999 and 1998, respectively, are collateralized by substantially all assets of the Company and its subsidiaries. Beginning in October 2000, the senior credit facility can be renewed for one-year terms upon mutual consent. The agreement governing the senior credit facility contains several covenants which, among other things, restrict capital expenditures and dividend payments and require the Company to maintain certain specified levels of net worth, interest and debt service coverage and minimum levels of stock ownership by the ESOP and the Chief Executive Officer of C.D. Smith. This agreement also limits cash dividends, loans or cash transfers from the General Drug Companies to C.D. Smith, other than purchases and sales between the companies in the normal course of business. The restricted net assets of the General Drug companies were approximately $22.5 million at both February 28, 1999 and 1998. The Company's long-term debt at February 28, 1999 and 1998, all of which is due in October 2000 unless extended by mutual consent of the Company and the lending institutions, consists of the following:
1999 1998 ---------- ---------- Notes payable to lending institutions under term note provisions of the senior credit facility described above, in monthly installments of $12,089, plus interest at .5% below the bank's prime rate, collateralized by 19,961 shares of common stock held by the ESOP.......................................... $ 271,037 $ 416,109 Notes payable to lending institutions under term note provisions of the senior credit facility described above, in monthly installments of $16,667, plus interest at the bank's prime rate, collateralized by certain warehouse equipment.......................... 733,328 933,332 Notes payable to lending institutions under term note provisions of the senior credit facility described above, in monthly installments aggregating $8,333, plus interest at the bank's prime rate, collateralized by certain real estate................ 1,366,667 1,466,667 ---------- ---------- 2,371,032 2,816,108 Less current portion.................................. 445,072 445,072 ---------- ---------- $1,925,960 $2,371,036 ========== ==========
The prime rate of the lending institutions providing the term debt discussed above was 7.75% and 8.5% at February 28, 1999 and 1998, respectively. Principal maturities of long-term debt, other than borrowings under the line of credit which expires in October 2000, for each of the next two years are as follows:
Year ending Amount ----------- ---------- February 29, 2000................................................. $ 445,072 February 28, 2001................................................. 1,925,960
F-13 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. Subordinated Note Payable In conjunction with the General Drug Acquisition, C.D. Smith issued a subordinated note payable due October 3, 2004 in the principal amount of $12 million with detachable stock warrants (see Note 7) to an investment group. Interest at 12% per annum is payable quarterly. Principal installments are due and payable 90 days after the end of each fiscal year, commencing with the fiscal year ending February 28, 1999, in an amount equal to 30% of "Excess Cash Flow" as defined below subject to certain conditions. "Excess Cash Flow" is generally defined in the related agreement as consolidated earnings before interest expense, income taxes, depreciation and amortization (EBITDA) minus current tax liabilities, interest paid, principal payments and capital expenditures. The principal installment due during the year ended February 29, 2000 pursuant to these provisions is $1,803,044. The estimated fair value of the warrants at October 3, 1997, amounting to $2,569,000, was recorded as a discount on the subordinated debt. The discount is being amortized to interest expense over the seven-year term using the interest method resulting in an effective interest rate of 17.9% on the subordinated debt. The amount of unamortized discount at February 28, 1999 and 1998 is $1,748,496 and $2,336,974, respectively. The subordinated note agreement contains several covenants which are similar to the covenants associated with the Company's senior credit facility (see Note 5). 7. Common Stock Put Warrants The detachable common stock warrants to purchase 24,436 shares of common stock of the Company discussed in Note 6 are subject to certain antidilution and other adjustments, as defined in the related agreement. The warrants are exercisable on October 3, 2002, or earlier if certain events occur as defined in the agreement, at a price of $0.02 per share. After the fifth anniversary of the closing of the General Drug Acquisition, the holders have an option to put the warrants to the Company at a price based on a multiple of EBITDA less indebtedness and certain other amounts as defined in the agreement. Once the warrants have been put to the Company, the put price is payable no earlier than 90 days but no later than 100 days of the put date. Additionally, after the sixth anniversary of the closing, the Company has the option to exercise a call right to purchase from the holders all or any portion of such warrant securities, and the holders are obligated to sell at a price determined in a similar manner to that of the put option. The fair value of these put warrants, amounting to $12,218,000 at February 28, 1999, is presented in accordance with Emerging Issues Task Force (EITF) Issue 96-13 as a liability in the accompanying consolidated balance sheet due to the holder's option to require settlement in cash. The Company recorded $9,649,000 of expense during the year ended February 28, 1999 to adjust the common stock put warrants to their estimated fair value based on the implied value of the Company in the transaction discussed in Note 13. 8. Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax F-14 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) purposes. The Company files its consolidated income tax return using a September 30 year end. However, for purposes of computing deferred taxes in the accompanying consolidated financial statements, the tax bases of assets and liabilities are determined as if the Company were filing a tax return as of the balance sheet dates. The Company's effective tax rate differed from the statutory federal income tax rate as follows:
Year ended February 28 --------------------------- 1999 1998 1997 -------- ------- ------- Federal income tax statutory rate............. (34.0)% 34.0% 34.0% State income taxes, net of federal tax benefit...................................... 1.1 2.5 2.0 Nondeductible amortization expense............ 5.2 1.0 -- Put warrant fair value adjustment............. 53.8 -- -- Other, net.................................... .7 (.6) 0.3 -------- ------- ------- 26.8% 36.9% 36.3% ======== ======= =======
Significant components of the Company's deferred tax assets and liabilities as of February 28, 1999 and 1998 are as follows:
1999 1998 ----------- ----------- Deferred tax assets: Allowance for doubtful receivables.............. $ 283,000 $ 241,000 Uniform capitalization costs.................... 96,000 95,000 Tax basis of noncompete asset................... 1,277,000 1,677,000 Vacation accrual................................ 114,000 129,000 ----------- ----------- Total deferred tax assets......................... 1,770,000 2,142,000 Deferred tax liabilities: Inventory....................................... (2,277,000) (3,259,000) Depreciation.................................... (483,000) (477,000) ----------- ----------- Total deferred tax liabilities.................... (2,760,000) (3,736,000) ----------- ----------- Net deferred tax liability........................ $ (990,000) $(1,594,000) =========== ===========
F-15 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The income tax provision (benefit) for February 28, 1999, 1998 and 1997 consists of the following:
Current Deferred Total ---------- --------- ---------- 1999 Federal................................... $1,992,409 $(460,448) $1,531,961 State..................................... 242,280 (143,552) 98,728 ---------- --------- ---------- $2,234,689 $(604,000) $1,630,689 ========== ========= ========== 1998 Federal................................... $2,068,965 $ (38,692) $2,030,273 State..................................... 242,395 (5,804) 236,591 ---------- --------- ---------- $2,311,360 $ (44,496) $2,266,864 ========== ========= ========== 1997 Federal................................... $ 781,154 $ 224,816 $1,005,970 State..................................... 75,036 18,184 93,220 ---------- --------- ---------- $ 856,190 $ 243,000 $1,099,190 ========== ========= ==========
9. Employee Benefit Plans Employee Stock Ownership Plan The Company has an ESOP covering substantially all employees with over one year of service who are not associated with a collective bargaining unit. Under the ESOP, the Company initially obtained a term loan from an outside bank in 1991 (see Note 5) and disbursed the proceeds to the ESOP in exchange for a note receivable for purposes of acquiring shares from the original shareholders. Shares held as collateral under the term loan are released each year in the proportion of principal and interest paid in the current year to the principal and interest remaining to be paid over the life of the loan. The Company is obligated to make annual contributions sufficient to enable the ESOP to repay the loan with interest at .5% below the prime rate. The ESOP currently owns 109,470 shares of stock in the Company, of which 89,509 are allocated at February 28, 1999. ESOP contributions totaling $145,072 for each of the three years in the period ended February 28, 1999 were expensed. The estimated repurchase obligation for allocated shares which are vested at February 28, 1999, 1998 and 1997 was approximately $27.4 million, $6.2 million and $1.1 million, respectively. The loan and receivable are recorded in the Company's consolidated balance sheets as long-term debt and a reduction in shareholders' equity, respectively. Defined Contribution Plan The Company maintains a defined contribution 401(k) plan which covers substantially all C.D. Smith employees with at least one year of service and, effective January 1, 1998, substantially all nonunion employees of General Drug Company with at least one year of prior service. Under the F-16 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) plan, employees may elect to contribute a percentage of their annual salary subject to Internal Revenue Code (IRC) maximum limitations. The plan provides for employer matching and discretionary contributions, the amounts of which are to be determined annually by the Board of Directors. During the 1998 plan year, the Company matched 50% of employee contributions up to 4% of qualified compensation. James Brudnick Company, Inc. maintained a defined contribution plan which covered substantially all employees with at least six months of service. The plan provided for employer discretionary contributions, the amounts of which were determined annually by the Company's Board of Directors. Effective July 1, 1998, the company changed coverage to the Company's defined contribution 401(k) plan, as described in the above paragraph. Contribution expense, representing employer contributions under the above plans, was $67,255, $96,830 and $13,666 for the years ended February 28, 1999, 1998 and 1997, respectively. Multiemployer Plans The Company also participates in two multiemployer, union administered, pension plans that principally cover warehouse workers and drivers at the General Drug Companies. The Company recognizes as an expense the required contributions for these plans, which were $48,382 and $25,940 for the years ended February 28, 1999 and 1998, respectively. 10. Leases The Company has entered into noncancelable operating leases for certain facilities, computer equipment and vehicles. Future minimum rental payments under these noncancelable operating leases are as follows:
Year ending February 28 Amount ----------- ---------- 2000.............................................................. $ 850,541 2001.............................................................. 594,560 2002.............................................................. 316,509 2003.............................................................. 223,363 2004.............................................................. 138,061 ---------- Total........................................................... $2,123,034 ==========
Total rent expense for the years ended February 28, 1999, 1998 and 1997 was $816,225, $417,767 and $285,129, respectively. An option exists for James Brudnick Company, Inc. to renew their facility lease at the end of the term for an additional five years. F-17 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Stock Options The Company has established the C.D. Smith Drug Company 1996 Equity Compensation Plan pursuant to which options to purchase up to 2,000,000 shares of common stock may be granted to employees at prices which approximate the fair value of the shares on the dates of grant. The terms and vesting provisions of these options are determined by the Board of Directors and may vary by optionee; however, no term may be longer than 10 years from the date of grant. A summary of outstanding stock options is as follows:
Weighted- Average Number Exercise of Shares Price --------- --------- Outstanding at February 28, 1996......................... -- $ -- Granted................................................ 15,500 22.40 Forfeited.............................................. -- -- Expired................................................ -- -- ------ Outstanding at February 28, 1997......................... 15,500 22.40 Granted................................................ 5,500 105.90 Forfeited.............................................. -- -- Expired................................................ -- -- ------ Outstanding at February 28, 1998......................... 21,000 44.27 Granted................................................ 1,550 337.50 Forfeited.............................................. 2,500 105.90 Expired................................................ 900 337.50 ------ Outstanding at February 28, 1999......................... 19,150 $ 46.18 ======
The following table summarizes information about stock options outstanding at February 28, 1999:
Weighted-Average Exercise Number Remaining Price of Options Contractual Life -------- ---------- ---------------- $ 22.40 15,500 7.42 105.90 3,000 8.58 337.50 650 9.85
No options were exercised during the years ended February 28, 1999, 1998 and 1997. All options become exercisable immediately upon the date of grant. The weighted-average fair values of options granted during the years ended February 28, 1999, 1998 and 1997, determined in accordance with SFAS No. 123, equaled $14.65, $29.38 and $6.12, respectively. The fair values of options granted were estimated at the date of grant using the Minimum Value Option Pricing Model with the following weighted-average assumptions, depending on the terms of the underlying stock options, for the years ending February 28, 1999, 1998 and 1997: a risk-free interest rate ranging from 4.37% to 6.5% and a weighted-average expected life ranging from 90 days to five years. Under the Minimum Value Option Pricing Model, the volatility factor is excluded. The Company assumed a 0% dividend yield over the expected life of the options. F-18 C.D. SMITH HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Minimum Value Option Pricing Model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of the pro forma disclosures required under SFAS No. 123, the estimated fair value of the options is expensed in the year of grant as the options are vested immediately upon date of grant. For the years ended February 28, 1999, 1998 and 1997 the Company's pro forma net income (loss) was $(7,737,032), $3,768,619 and $1,871,848 respectively, pro forma net income (loss) per share -- basic was $(66.88), $32.23 and $14.25, respectively, and pro forma net income (loss) per share -- diluted was $(66.88), $27.82 and $13.89, respectively. 12. Contingencies In July 1998 a subsidiary of the Company signed a three year agreement with a repackager of bottled products, providing for a minimum throughput of 9,000,000 bottles at a cost of $.69 per bottle. At the current utilization rate, the subsidiary would not meet the minimum throughput required in the agreement. The subsidiary's failure to achieve such minimum could result in significant damages. On August 19, 1998, Bart A. Brown, Jr., as Chapter 7 trustee for the estate of FoxMeyer Drug Company (FoxMeyer), filed a complaint in the United States District Court for the District of Delaware (Case No. 98-494) against the Company, William D. Bonds, Robert C. Farley, Anthony P. Denicola, Kenneth A. Trant, John C. Thompson and Richard Meehan. The complaint alleges that the Company usurped FoxMeyer's Kansas City sales force without paying consideration therefor and that the defendants conspired to cause, plan and implement the resignation of most of FoxMeyer's Kansas City sales representatives. For each alleged cause of action, the plaintiff is asking for actual and punitive damages in amounts to be determined at trial, but not less than $50 million in each case. The Company believes this complaint is without merit and intends to defend the matter vigorously. 13. Subsequent Event On April 28, 1999, the Company entered into an agreement and Plan of Reorganization with AmeriSource Health Corporation (AmeriSource), Hawk Acquisition Corp., a wholly-owned subsidiary of AmeriSource (Subsidiary) and C.D. Smith Healthcare Inc., pursuant to which the Subsidiary will be merged with and into the Company, and the Company will become a wholly-owned subsidiary of AmeriSource. Each outstanding share of common stock of the Company will be converted into 16.995 shares of AmeriSource's common stock. The merger will be accounted for as a pooling of interests. F-19 AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG AMERISOURCE HEALTH CORPORATION, HAWK ACQUISITION CORP., C.D. SMITH HEALTHCARE, INC. AND A PERSON TO BE DESIGNATED AS ESCROW AGENT HEREUNDER Dated as of April 28, 1999 as amended and restated as of May 27, 1999 INDEX OF EXHIBITS
Exhibit Description ------- ----------- Exhibit A Form of Voting Agreement Exhibit B Form of Articles of Merger Exhibit C Company Affiliate Agreement Exhibit D Form of Legal Opinion of Counsel to the Parent Exhibit E Form of Legal Opinion of Counsel to the Company Exhibit F Designated Employees, Minimum Sales Volume Exhibit G Form of Employment Agreement
TABLE OF CONTENTS
Page ARTICLE I THE MERGER.................................................... 1 1.1 The Merger.................................................. 1 1.2 Effective Time.............................................. 2 1.3 Effect of the Merger........................................ 2 1.4 Articles of Incorporation; Bylaws........................... 2 1.5 Directors and Officers...................................... 2 Effect of the Merger on the Capital Stock of the Constituent 1.6 Corporations................................................ 2 1.7 Dissenting Shares........................................... 8 1.8 Surrender of Certificates................................... 8 1.9 No Further Ownership Rights in Company Capital Stock........ 10 1.10 Dissenting Shares After Payment of Fair Value............... 10 1.11 Tax and Accounting Consequences............................. 10 1.12 Taking of Necessary Action; Further Action.................. 10 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 10 2.1 Organization................................................ 11 2.2 Capitalization and Ownership; Power and Authority........... 11 2.3 Subsidiaries................................................ 11 2.4 Qualification; Location of Business and Assets.............. 11 2.5 Authority................................................... 12 2.6 No Violation of Laws or Agreements.......................... 12 2.7 Financial Statements........................................ 12 2.8 No Undisclosed Liabilities.................................. 13 2.9 No Changes.................................................. 13 2.10 Taxes....................................................... 15 2.11 Inventory................................................... 17 2.12 Accounts Receivable......................................... 17 2.13 No Pending Litigation or Proceedings........................ 17 2.14 Contracts; Compliance....................................... 18 2.15 Compliance With Laws........................................ 18 2.16 Consents.................................................... 20 2.17 Title....................................................... 20 2.18 Real Estate................................................. 21 2.19 Transactions with Related Parties........................... 22 2.20 Condition of Assets......................................... 23 Compensation Arrangements; Bank Accounts; Officers and 2.21 Directors................................................... 23 2.22 Labor Relations............................................. 23 2.23 Products Liability.......................................... 23 2.24 Insurance................................................... 24 2.25 Patents and Intellectual Property Rights.................... 24 2.26 Year 2000................................................... 25 Employee Retirement Income Security Act of 1974, as amended 2.27 ("ERISA")................................................... 25 2.28 Questionable Payments....................................... 27 2.29 State Takeover Statutes..................................... 27 2.30 Disclosure.................................................. 27 2.31 Registration Statement; Proxy Statement..................... 27
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Page ARTICLE III REPRESENTATION AND WARRANTIES OF PARENT AND SUB.............. 28 3.1 Organization................................................. 28 3.2 Power and Authority.......................................... 28 3.3 Authorization and Enforceability............................. 28 3.4 Brokerage.................................................... 28 3.5 SEC Documents; Parent Financial Statements................... 28 3.6 No Violation of Laws or Agreements........................... 28 3.7 Disclosure................................................... 29 3.8 Consents..................................................... 29 3.9 Registration Statement; Joint Proxy Statement................ 29 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME........................... 30 4.1 Conduct of Business of the Company........................... 30 4.2 No Solicitation.............................................. 32 ARTICLE V ADDITIONAL AGREEMENTS.......................................... 33 5.1 Registration Statement....................................... 33 5.2 Access to Information........................................ 33 5.3 Confidentiality.............................................. 33 5.4 Expenses..................................................... 33 5.5 Public Disclosure............................................ 33 5.6 Consents..................................................... 33 5.7 Reasonable Efforts........................................... 34 5.8 Notification of Certain Matters.............................. 34 5.9 Affiliate Agreements......................................... 34 5.10 Additional Documents and Further Assurances.................. 34 5.11 Tax-Free Reorganization...................................... 35 5.12 Pooling Accounting........................................... 35 5.13 Company Stockholders Meeting................................. 35 5.14 Proxy Statement; Registration Statement...................... 35 5.15 Employee Benefits............................................ 36 5.16 Transactions with Mr. Farley................................. 36 5.17 Indemnification.............................................. 36 5.18 Reporting Obligations........................................ 37 5.19 Debt Repayment............................................... 37 ARTICLE VI CONDITIONS TO THE MERGER...................................... 37 6.1 Conditions to Obligations of Company......................... 37 6.2 Conditions to the Obligations of Parent and Sub.............. 38 ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.. 40 7.1 Survival of Representations and Warranties................... 40 7.2 Escrow Arrangements.......................................... 40 7.3 Stockholder Representatives.................................. 46 7.4 Parent Indemnity............................................. 47 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER........................... 47 8.1 Termination.................................................. 47 8.2 Effect of Termination........................................ 48 8.3 Amendment.................................................... 49 8.4 Extension, Remedy............................................ 49
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Page ARTICLE IX GENERAL PROVISIONS............................................ 49 9.1 Notices....................................................... 49 9.2 Interpretation................................................ 50 9.3 Counterparts.................................................. 50 9.4 Entire Agreement; Assignment.................................. 51 9.5 Severability.................................................. 51 9.6 Other Remedies................................................ 51 9.7 Governing Law................................................. 51 9.8 Rules of Construction......................................... 51 9.9 Facsimiles.................................................... 51
iii EXECUTION VERSION AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of April 28, 1999 among AmeriSource Health Corporation, a Delaware corporation ("Parent"), Hawk Acquisition Corp., a Missouri corporation and a wholly-owned subsidiary of Parent ("Sub"), C.D. Smith Healthcare, Inc., a Missouri corporation (the "Company"), and a person or entity to be designated as Escrow Agent in accordance with Article VII, as Escrow Agent as amended and restated as of May 27, 1999. RECITALS A. The Boards of Directors of each of the Company, Parent and Sub believe it is in the best interests of each company and their respective stockholders that Parent acquire the Company through the statutory merger of Sub with and into the Company (the "Merger") and, in the furtherance thereof, have approved the Merger. B. Pursuant to the Merger, among other things, all of the issued and outstanding shares of capital stock of the Company and shall be converted into the right to receive shares of common stock of Parent. C. A portion of the shares of common stock of Parent otherwise issuable by Parent in connection with the Merger shall be placed in escrow by Parent for purposes of satisfying damages, losses, expenses and other similar charges which result from breaches of the representations, warranties and covenants of the Company contained herein. D. Concurrently with the execution of this Agreement, and as a condition and inducement to Parent's and Sub's willingness to enter into this Agreement, each of the Principal Stockholders is entering into a Voting Agreement in the form attached hereto as Exhibit A (the "Voting Agreements"). E. The parties intend that the Merger shall (i) constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) qualify for accounting treatment as a pooling of interests. F. The Company, on the one hand, and Parent and Sub, on the other hand, desire to make certain representations, warranties, covenants and other agreements in connection with the Merger. NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the parties agree as follows: ARTICLE I THE MERGER 1.1. The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the Missouri General Business and Corporation Law (the "MGBCL"), Sub shall be merged with and into the Company, the separate corporate existence of Sub shall cease, and the Company shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 1.2. Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than two (2) business days following satisfaction or waiver of the conditions set forth in Article VI, at the offices of Dechert Price & Rhoads, 4000 Bell Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania unless another place or time is agreed to in writing by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing Articles of Merger (or like instrument) substantially in the form attached hereto as Exhibit B (the "Articles of Merger") with the Secretary of State of the State of Missouri, in accordance with the applicable provisions of the MGBCL (the time of acceptance by the Secretary of State of the State of Missouri of such filing being referred to herein as the "Effective Time"). 1.3. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the MGBCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4. Articles of Incorporation; Bylaws. (a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Articles of Incorporation of Sub shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Articles of Incorporation; provided, however that Article I of the Articles of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is C.D. Smith Healthcare, Inc." (b) The Bylaws of Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5. Directors and Officers. The directors of the Surviving Corporation immediately after the Effective Time shall be the directors of Sub immediately prior to the Effective Time, each to hold the office of director of the Surviving Corporation in accordance with the provisions of the applicable laws of the State of Missouri and the Articles of Incorporation and Bylaws of the Surviving Corporation until their successors are duly qualified and elected. The officers of the Surviving Corporation immediately after the Effective Time shall be the officers of Sub immediately prior to the Effective Time, each to hold office in accordance with the provisions of the Bylaws of the Surviving Corporation. 1.6. Effect of the Merger on the Capital Stock of the Constituent Corporations. (a) Certain Definitions. For all purposes of this Agreement, the following terms shall have the following meanings: "Aggregate Merger Consideration" means 2,690,000 shares of Parent Common Stock, subject to adjustment as contemplated by Section 7.2(b). 2 "Ancillary Agreements" means any agreement required by or executed in connection with this Agreement to which the Company, any Company stockholder, or Parent is a party. "Company Capital Stock" shall mean shares of common stock of the Company and shares of any other capital stock of the Company, exclusive of shares of Company Capital Stock issuable upon exercise of Company Options and Company Warrants. "Company Options" shall mean all issued and outstanding options, and other rights to acquire or receive from the Company Capital Stock (whether or not vested), other than Company Warrants. "Company Warrants" shall mean all issued and outstanding warrants to acquire Company Capital Stock. "Company's Accountants" means Ernst & Young LLP, Kansas City, Missouri. "Dissenting Shares" shall have the meaning given the term on Section 1.7. "Escrow Fund" means the General Escrow Fund and the Special Escrow Fund. "Escrow Period" means each of the General Escrow Period and the Special Escrow Period. "ESOP" means the C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan, dated January 1, 1989, as restated on December 10, 1991, as amended on October 1, 1992, December 2, 1994, October 1, 1996 and January 1, 1998. "GAAP" means generally accepted United States accounting principles. "General Escrow Amount" means 10% of the Aggregate Merger Consideration. "Governmental Entity" means any entity exercising executive, legislative, judicial, regulatory or administrative function of or pertaining to government of any nation, state or other political subdivision thereof. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Lien" means (i) in respect of any asset (other than a security), any lien, charge, pledge, restriction on transfer, claim, security interest, conditional sale agreement, mortgage, security agreement, option or other encumbrance and (ii) in respect of any security, any of the foregoing (to the extent not imposed by any applicable securities laws) and, in addition, any adverse claim or restriction on voting. "Material Adverse Effect" means any circumstance or event which, individually or in the aggregate with any other circumstance or event is reasonably likely to be material and adverse to the business, properties, operations, earnings, prospects, condition (financial or otherwise), products, assets, results of operations or liabilities of the Company and its Subsidiaries, taken as a whole. For the purposes of this Agreement, the determination of whether a breach of a representation and warranty or covenant of this Agreement shall be deemed to give rise to a Material Adverse Effect shall be determined on a cumulative basis by adding the effect of the breach of any such representation and warranty or covenant (determined without regard to any materiality or Material Adverse Effect qualifiers) to the effect of all other breaches of representations and warranties and covenants of this Agreement (determined without regard to 3 any materiality or Material Adverse Effect qualifiers) for each of the applicable period or periods to which each such representation, warranties or covenants relate, in all cases before applying the materiality standard set forth in the preceding sentence, and then determining whether, for any of the applicable periods, such aggregate sum exceeds the materiality standard set forth in the preceding sentence. For purposes of this definition of Material Adverse Effect, the effect of any matter as to any past period shall be determined based on its actual effect, and its effect as to any future period shall be determined based on the effect that such matter is reasonably likely to have. "Parent Common Stock" shall mean shares of Class A Common Stock, par value $0.01 per share, of the Parent. "Parent Material Adverse Effect" means any circumstance or event which, individually or in the aggregate with any other circumstance or event is reasonably likely to be material and adverse to the business, properties, operations, earnings, prospects, condition (financial or otherwise), products, assets, results of operations or liabilities of Parent and its subsidiaries, taken as a whole. For the purposes of this Agreement, the determination of whether a breach of a representation and warranty or covenant of this Agreement shall be deemed to give rise to a Material Adverse Effect shall be determined on a cumulative basis by adding the effect of the breach of any such representation and warranty or covenant (determined without regard to any materiality or Material Adverse Effect qualifiers) to the effect of all other breaches of representations and warranties and covenants of this Agreement (determined without regard to any materiality or Material Adverse Effect qualifiers) for each of the applicable period or periods to which each such representation, warranties or covenants relate, in all cases before applying the materiality standard set forth in the preceding sentence, and then determining whether, for any of the applicable periods, such aggregate sum exceeds the materiality standard set forth in the preceding sentence. For purposes of this definition of Material Adverse Effect, the effect of any matter as to any past period shall be determined based on its actual effect, and its effect as to any future period shall be determined based on the effect that such matter is reasonably likely to have. "Per Share Merger Consideration" means a number of shares of Parent Common Stock equal to a fraction, the numerator of which is the Aggregate Merger Consideration, and the denominator of which is the total number of shares of Company Capital Stock on a fully-diluted basis, after giving effect to the exercise, conversion or exchange of all options, warrants or other instruments convertible into or exchangeable for Company Capital Stock. "Principal Stockholders" means each of Churchill ESOP Capital Partners, a Minnesota Limited partnership, Robert C. Farley, Delora Jamison, and Jeanne Mathiesen, and the other persons set forth on Annex A. "Related Party" means, with respect to the Company or any Subsidiary, any director, officer, beneficial owner, or holder of more than 5% of the Company Capital Stock on a fully diluted basis, any family member of the foregoing, or any corporation, partnership or other entity in which the foregoing have an interest. "SEC" means the Securities and Exchange Commission or any successor thereto. "Special Escrow Amount" means a number of shares of Parent Common Stock equal to the quotient of $3,300,000 divided by the closing price of the Parent Common Stock on the 4 New York Stock Exchange composite tape on the Closing Date, subject to adjustment as contemplated by Section 7.2(b). "Stockholder" shall mean each holder of any Company Capital Stock immediately prior to the Effective Time. "Subsidiary(ies)" means any person or entity of which the Company owns, directly or indirectly, more than 50% of the stock or other equity interests. (b) Cross Reference Table for Certain Defined Terms. The following terms are defined in this Agreement in the section set forth opposite such term below:
Term Section ---- ---------- Acquisition Agreement............................................. 8.2 Affiliate......................................................... 5.9 Articles of Merger................................................ 1.2 Balance Sheet..................................................... 2.7 Balance Sheet Date................................................ 2.7 Basket Amount..................................................... 7.2 Benefit Plans..................................................... 2.27(a) Business Combination.............................................. 8.2 CERCLA............................................................ 2.15(a) CERCLIS........................................................... 2.15(a) Closing........................................................... 1.2 Closing Date...................................................... 1.2 Code.............................................................. Recital E Company........................................................... Recitals Company Certificate............................................... 1.8(c) Company Savings Plan.............................................. 5.15(a) Company Stockholders Meeting...................................... 5.13 Disclosure Schedule............................................... Article II Dissenting Shares................................................. 1.7(a) Effective Time.................................................... 1.2 Environmental Audits.............................................. 2.15(a) Environmental Laws................................................ 2.15(a) Environmental Permits............................................. 2.15(a) ERISA............................................................. 2.27(a) ERISA Affiliate................................................... 2.27 (j) Escrow Agent...................................................... 7.2(a) Exchange Agent.................................................... 1.8(a) Expiration Date................................................... 7.1 FICA.............................................................. 2.10(b) Former ERISA Affiliate............................................ 2.27(j) FUTA.............................................................. 2.10(b) General Escrow Fund............................................... 7.2(a) General Escrow Period............................................. 7.2(c) Hazardous Materials............................................... 2.15(a) Indemnified Parties............................................... 7.2(a) Intellectual Property............................................. 2.25
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Term Section ---- --------- IRS............................................................... 2.10(b) Leased Real Property.............................................. 2.18(c) Leases............................................................ 2.18(b) Loss(es).......................................................... 7.2 Manage(ment)...................................................... 2.15(a) Merger............................................................ Recital A MGBCL............................................................. 1.1 New Shares........................................................ 7.2(c) NPL............................................................... 2.15(a) Officer's Certificate............................................. 7.2(d) Option Plan....................................................... 1.6(c) Owned Real Property............................................... 2.18(c) Parent............................................................ Recitals Parent Balance Sheet.............................................. 3.5 Parent Financials................................................. 3.5 Parent's 401(k) Plan.............................................. 5.15(a) PBGC.............................................................. 2.27(h) Permitted Encumbrances............................................ 2.17 Prospectus........................................................ 2.31 Proxy Statement................................................... 2.31 RCRA.............................................................. 2.15(a) Real Properties................................................... 2.18(a) Recommendation.................................................... 5.13 Registration Statement............................................ 2.31 Released.......................................................... 2.15(a) Returns........................................................... 2.10(b) Rule 145.......................................................... 5.9 SEC Documents..................................................... 3.5 Securities Act.................................................... 2.31 Special Escrow Fund............................................... 7.2(b) Special Escrow Period............................................. 7.2(c) Sub............................................................... Recitals Surviving Corporation............................................. 1.1 Tax(es)........................................................... 2.10(a) Termination Fee................................................... 8.2 Third Party Expenses.............................................. 5.4 Voting Agreements................................................. Recital D
(c) Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the Sub, the Company or the Stockholders, each share of the Company Capital Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares (as defined in Section 1.7)) will be canceled and extinguished and be converted automatically into the right to receive, upon surrender of the certificate representing such share of the Company Capital Stock in the manner provided in Section 1.8(c), the Per Share Merger Consideration. Each 6 share of Company Capital Stock held as treasury shares shall be canceled and retired and no payment shall be made in respect thereof. (d) Stock Options. (i) Assumption of Company Options. At the Effective Time, each Company Option under the Company's Amended and Restated 1996 Equity Compensation Plan (the "Option Plan") or otherwise, whether vested or unvested, will, in connection with the Merger, be assumed by Parent. Each Company Option so assumed by Parent under this Agreement shall continue to have, and be subject to, the same terms and conditions, including vesting, set forth in the Option Plan and as provided in the respective option agreements immediately prior to the Effective Time, except that (A) such assumed Company Option will be exercisable for that number of shares of Parent Common Stock equal to the product obtained by multiplying the number of shares of Company Capital Stock that were issuable upon exercise in full of such assumed Company Option immediately prior to the Effective Time by the number value equal to the Per Share Merger Consideration rounded down to the nearest whole number of shares of Parent Common Stock, and (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Option shall be equal to the quotient obtained by dividing the exercise price per share of the Company Capital Stock at which such Company Option was exercisable immediately prior to the Effective Time by the number value equal to the Per Share Merger Consideration, rounded up to the nearest whole cent. (ii) Assumption of Company Warrants. At the Effective Time, each Company Warrant outstanding immediately prior to the Effective Time, will be assumed by Parent in connection with the Merger. Each Company Warrant so assumed by Parent shall continue to have, and be subject to, the same terms and conditions as provided in the respective Company Warrant immediately prior to the Effective Time, except that (A) such assumed Company Warrant will be exercisable for that number of shares of Parent Common Stock equal to the product obtained by multiplying the number of shares of Company Capital Stock that were issuable upon exercise in full of such assumed Company Warrant immediately prior to the Effective Time by the number value equal to the Per Share Merger Consideration rounded down to the nearest whole number of shares of Parent Common Stock, and (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Warrant shall be equal to the quotient obtained by dividing the exercise price per share of the Company Capital Stock at which such Company Warrant was exercisable immediately prior to the Effective Time by the number value equal to the Per Share Merger Consideration, rounded up to the nearest whole cent. (iii) Assumption Agreement. Promptly following the Effective Time, Parent will issue to each holder of an outstanding Company Option or Company Warrant a document evidencing the foregoing assumption of such Company Option or Company Warrant by Parent. (e) Capital Stock of Sub. Each share of common stock, par value $0.01 per share, of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. Each stock certificate of Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. 7 (f) Adjustment to Parent Common Stock. The number of shares of Parent Common Stock issuable hereunder shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof. (g) Fractional Shares. No fractional shares of Parent Common Stock shall be issued in the Merger. The aggregate Per Share Merger Consideration to be issued to the holder of a certificate previously evidencing Company Capital Stock shall be rounded to the nearest whole share of Parent Common Stock. 1.7. Dissenting Shares. (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time that are held by a Stockholder who has exercised and perfected appraisal rights ("Dissenting Shares"), shall not be converted into or represent a right to receive Parent Common Stock pursuant to Section 1.6, but the holder thereof shall only be entitled to such rights as are granted by the MGBCL. (b) Notwithstanding the provisions of subsection (a), if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) his or her appraisal rights, then, as of the later of Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the Per Share Merger Consideration to which such stockholder would otherwise be entitled under Section 1.6(c) (less the number of shares allocable to such Stockholder that have been deposited into the Escrow Fund on such holder's behalf pursuant to Article VII), upon surrender of the certificate representing such shares. (c) The Company shall give Parent (i) prompt notice of any written demand for appraisal received by the Company pursuant to the applicable provisions of the MGBCL and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any such demands or offer to settle or settle any such demands. 1.8. Surrender of Certificates. (a) Exchange Agent. The Corporate Secretary of Parent shall serve as exchange agent (the "Exchange Agent") in the Merger. (b) Parent to Provide Common Stock. Promptly after the Effective Time, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I the shares of Parent Common Stock issuable pursuant to Section 1.6(c) in exchange for all the outstanding shares of Company Capital Stock; provided, however, that on behalf of the Stockholders, pursuant to Section 7.2 hereof, Parent shall deposit the General Escrow Amount into the General Escrow Fund and, subject to Section 7.2(b), Parent shall deposit the Special Escrow Amount into the Special Escrow Fund, on behalf of the Stockholders pursuant to Section 1.6(c). The portion of the General Escrow Amount and the Special Escrow Amount contributed on behalf of each Stockholder shall be in 8 proportion to the aggregate Per Share Merger Consideration that such Stockholder would otherwise be entitled to receive in the Merger by virtue of ownership of outstanding shares of Company Capital Stock. (c) Exchange Procedures. On the Closing Date, the Stockholders will surrender the certificates representing their Company Capital Stock (the "Company Certificates") to the Exchange Agent for cancellation together with a letter of transmittal in such form and having such provisions as Parent may reasonably request. Upon surrender of a Company Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, the Exchange Agent will promptly deliver to the holder of such Company Certificate in exchange therefor a certificate representing the number of whole shares of Parent Common Stock (less the number of shares of Parent Common Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to Section 1.8(b) and Article VII) to which such Stockholder is entitled pursuant to Section 1.6, and the Company Certificate so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Company Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends as provided in Section 1.8(d), to evidence only the right to receive the number of full shares of Parent Common Stock into which such shares of Company Capital Stock shall have been converted pursuant to this Article I. As soon as practicable after the Effective Time, and subject to and in accordance with the provisions of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent a certificate or certificates representing the General Escrow Amount and the Special Escrow Amount, which shall be registered in the books of Parent in the name of the Escrow Agent. Such shares shall be beneficially owned by the holder on whose behalf such shares were deposited in the General Escrow Fund and the Special Escrow Fund and shall be available to compensate Parent as provided in Article VII. (d) Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock will be paid to any holder of any unsurrendered Company Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Company Certificate shall surrender such Company Certificate. Subject to applicable law, following surrender of any such Company Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, and at the time of such surrender, the amount of dividends or other distributions, without interest, with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock. (e) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the Company Certificate surrendered in exchange therefor is registered, it will be a condition to the issuance thereof that the Company Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Company Certificate surrendered, or established to the satisfaction of the Parent or any agent designated by it that such tax has been paid or is not payable. 9 (f) Lost, Stolen or Destroyed Company Certificate. In the event any Company Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Company Certificate, upon the making of an affidavit of that fact by the holder thereof, the number of shares of Parent Common Stock, if any, as may be required pursuant to Section 1.6; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Company Certificates to deliver a bond in such sum as it may reasonably direct against any claim that may be made against Parent or Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed. (g) No Liability. Notwithstanding anything to the contrary in this Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.9. No Further Ownership Rights in Company Capital Stock. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to be full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers in the records of the Surviving Corporation of shares of Company Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.10. Dissenting Shares After Payment of Fair Value. Dissenting Shares, if any, after payments of fair value in respect thereto have been made to dissenting Stockholders of the Company pursuant to the MGBCL, shall be canceled. 1.11. Tax and Accounting Consequences. It is intended by the parties hereto that the Merger shall (i) constitute a reorganization with the meaning of Section 368 of the Code and (ii) qualify for accounting treatment as a pooling of interests. Each party has consulted with, and is relying exclusively upon, its own tax advisors and accountants with respect to the tax and accounting consequences, respectively, of the Merger. 1.12. Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Sub, the officers and directors of the Company, Parent and Sub are fully authorized in the name of their respective corporation or otherwise to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Sub, subject to such exceptions as are specifically disclosed in the disclosure schedule (subject to Section 9.2, referencing the 10 appropriate section and paragraph numbers) supplied by the Company to Parent (the "Disclosure Schedule"), and dated as of the date hereof, that on the date hereof and as of the Effective Time as though made at the Effective Time as follows: 2.1. Organization. The Company and each Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to own or lease its properties and assets as now owned or leased and to carry on its business as and where now being conducted. The copies of the Company's and each Subsidiary's articles of incorporation, bylaws, and other constituent documents, as amended to date, have been delivered to Parent, and are correct and complete and in full force and effect. 2.2. Capitalization and Ownership; Power and Authority. The authorized capital stock of the Company consists of 90,000,000 shares of common stock, par value $0.01 per share, of which 117,470.11434 shares are issued and outstanding, and 10,000,000 shares of preferred stock, par value $.01 per share, of which no shares are issued and outstanding. All of the Company Capital Stock and the capital stock of each Subsidiary has been duly authorized, validly issued and is fully paid and nonassessable, were not issued in violation of the terms of any agreement or other understanding binding upon the Company or any Subsidiary, and were issued in compliance with all applicable federal and state securities or "blue-sky" laws and regulations. Schedule 2.2 sets forth all holders of Company Options and Company Warrants, the number of Company Options and Company Warrants held by each such holder, and the exercise price of each Company Option and Company Warrant. Except as set forth on Schedule 2.2, there are no outstanding options, warrants, rights, agreements, calls, commitments or demands of any character relating to the Company Capital Stock or securities of any Subsidiary and no securities convertible into or exchangeable for any of such securities. Except for the approval of the board of directors of the Company and any approvals required on the part of Parent and Sub, the approval of the Stockholders is the only vote necessary to approve this Agreement and the Merger and the transactions contemplated hereby. There are no shareholder, voting trust, or other agreements or understandings to which the Company or any Subsidiary is a party or to which it is bound relating to the voting of any of the Company Capital Stock. Except as set forth on Schedule 2.16, the Company has full legal right, power and authority to enter into this Agreement and the Ancillary Agreements, and to perform its obligations hereunder and thereunder without the need for the consent of any other person or entity. 2.3. Subsidiaries. Schedule 2.3 lists all of the authorized, issued and outstanding capital stock of each of the Subsidiaries. Except as set forth on Schedule 2.3, all such shares of capital stock are owned by the Company, free and clear of all Liens. Except as set forth on Schedule 2.3, the Company does not, directly or indirectly, own any stock of, or any other interest in, any other corporation, limited liability company, joint venture, partnership, trust or other business entity. There are no outstanding options, warrants, puts, calls, contracts, agreements, conversion rights or preemptive or other rights to subscribe for, purchase or otherwise acquire any securities of any Subsidiary. 2.4. Qualification; Location of Business and Assets. The Company and each Subsidiary is duly qualified and in good standing and duly authorized to do business in the jurisdictions set forth on Schedule 2.4, which jurisdictions are the only jurisdictions wherein the character of the properties 11 owned or leased or the nature of activities conducted by it make such qualification necessary and in which the failure to qualify or be in good standing would have a Material Adverse Effect. Set forth on Schedule 2.4 is each location (specifying state, county and city) where the Company or any Subsidiary (a) has a place of business, (b) owns or leases real property and (c) owns or leases any other property, including inventory, equipment or furniture. 2.5. Authority. The Company has all requisite power and authority to enter into this Agreement and any Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and any Ancillary Agreements to which the Company is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, and no further action is required on the part of the Company to authorize the Agreement and any Ancillary Agreements to which it is a party and the transactions contemplated hereby and thereby, subject only to the approval of this Agreement and the Merger by the Stockholders. This Agreement and the Merger have been approved by the members of the Board of Directors of the Company, of which all members voting thereon approved this Agreement and the Merger. This Agreement and each of the Ancillary Agreements to which the Company is a party have been duly executed and delivered by the Company, and assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute the valid and binding obligations of the Company, enforceable against it in accordance with their respective terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 2.6. No Violation of Laws or Agreements. The execution and delivery of this Agreement and the Ancillary Agreements do not, and the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements and the compliance with the terms, conditions and provisions of this Agreement and the Ancillary Agreements by the Company, will not (a) contravene any provision of the Company's articles of incorporation, bylaws or other constituent documents; (b) except as set forth on Schedule 2.6, violate, conflict with or result in a breach of or constitute a default (or an event which might, with the passage of time or the giving of notice or both, constitute a default) under any of the terms, conditions or provisions of any indenture, mortgage, loan or credit agreement or any other agreement or instrument to which the Company is a party or by which any of its assets may be bound or affected, or any judgment or order of any court or governmental department, commission, board, agency or instrumentality, domestic or foreign, or any applicable law, rule or regulation except such violations, conflicts, breaches or defaults that would not have a Material Adverse Effect; (c) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the Company's or any Subsidiary's assets, the Company Capital Stock or give to others any interests or rights therein; (d) except as set forth on Schedule 2.6, result in the maturation or acceleration of any liability or obligation of the Company or any Subsidiary (or give others the right to cause such a maturation or acceleration); or (e) except as set forth on Schedule 2.6, result in the termination of or loss of any right (or give others the right to cause such a termination or loss) under any agreement or contract to which the Company or any Subsidiary is a party or by which it may be bound. 2.7. Financial Statements. The books of account and related records of the Company fairly reflect in reasonable detail its assets, liabilities and transactions in accordance with GAAP applied on 12 a consistent basis. The Company has delivered to Parent the following financial statements (the "Financial Statements"): statements of income, retained earnings and cash flows of the Company for the fiscal years ended February 28, 1995 through February 28, 1999, inclusive, and balance sheets of the Company as at each of such dates. The Financial Statements: (a) are correct and complete and in accordance with the books and records of the Company, (b) fairly present the financial condition, assets and liabilities of the Company as at their respective dates and the results of operations and cash flows for the periods covered thereby and (c) have been prepared in accordance with GAAP consistently applied. The Financial Statements referred to above have been certified by the Company's Accountants, except that the Financial Statements for the period ending February 28, 1995 were certified by Grant Thornton & Company. All references in this Agreement to the "Balance Sheet" shall mean the balance sheet of the Company as at February 28, 1999 included in the Financial Statements and all references to the "Balance Sheet Date" shall mean February 28, 1999. 2.8. No Undisclosed Liabilities. Neither the Company nor any Subsidiary has any liability or obligation of any nature, whether due or to become due, absolute, contingent or otherwise, including liabilities for or in respect of federal, state and local taxes and any interest or penalties relating thereto, except (a) to the extent reflected as a liability on the Balance Sheet, (b) liabilities incurred in the ordinary course of business consistent with historical practice since the Balance Sheet Date and fully reflected as liabilities on the Company's books of account, none of which would have a Material Adverse Effect and (c) liabilities disclosed on Schedule 2.8. 2.9. No Changes. Except as disclosed on Schedule 2.9, since the Balance Sheet Date, the Company and each Subsidiary has conducted its business only in the ordinary course consistent with historical practice. Without limiting the generality of the foregoing sentence, except as disclosed on Schedule 2.9, since the Balance Sheet Date, there has not been: (a) a Material Adverse Effect; (b) any damage, destruction or loss, whether or not covered by insurance, adversely affecting the properties, business or prospects of the Company or any Subsidiary, or any deterioration in the operating condition of the assets of the Company or any Subsidiary that would have a Material Adverse Effect; (c) any mortgage, pledge or subjection to lien, charge or encumbrance of any kind of any of the assets, tangible or intangible of the Company or any Subsidiary that would have a Material Adverse Effect; (d) any strike, walkout, work stoppage, labor trouble or any other new or continued event, development or condition of any character that would have a Material Adverse Effect; (e) any declaration, setting aside or payment of a dividend or other distribution in respect of any of the equity interests of the Company or any Subsidiary, or any direct or indirect repurchase or other acquisition of equity interests of the Company or any Subsidiary or any rights to purchase such equity interests or securities convertible into or exchangeable for such equity interests; 13 (f) any increase in the salaries or other compensation payable or to become payable to, or any advance (excluding advances for ordinary business expenses) or loan to, any officer, director, or employee of the Company or any Subsidiary (except normal annual merit increases made in the ordinary course of business and consistent with past practice), or any increase in, or any addition to, other benefits (including without limitation any bonus, profit sharing, pension or other plan) to which any of its officers, directors, or employees may be entitled, or any payments to any pension, retirement, profit sharing, bonus or similar plan except payments in the ordinary course of business and consistent with past practice made pursuant to the employee benefit plans described on Schedule 2.27, or any other payment of any kind to or on behalf of any such officer, director, or employee other than payment of base compensation and reimbursement for reasonable business expenses in the ordinary course of business; (g) any making or authorization of any capital expenditures in excess of $25,000 individually; (h) any cancellation or waiver of any right material to the operation of the business of the Company or any Subsidiary or any cancellation or waiver of any debts or claims of substantial value or any cancellation or waiver of any debts or claims against any Principal Stockholder; (i) any sale, transfer or other disposition of any assets of the Company or any Subsidiary, except sales of inventory in the ordinary course of business or assets that individually do not have a fair market value of more than $5,000. (j) any payment, discharge or satisfaction of any liability or obligation (whether accrued, absolute, contingent or otherwise) by the Company or any Subsidiary, other than the payment, discharge or satisfaction, in the ordinary course of business, of liabilities or obligations shown or reflected on the Balance Sheet or incurred in the ordinary course of business since the Balance Sheet Date; (k) any change or any threat of any change in the Company's or any Subsidiary's relations with, or any loss or threat of loss of, any of the Company's or any Subsidiary's important suppliers, clients or customers that would have a Material Adverse Effect; (l) any write-offs as uncollectible of any notes or accounts receivable of the Company or any Subsidiary or write-downs of the value of any assets or inventory by the Company or any Subsidiary other than in immaterial amounts or in the ordinary course of business consistent with past practice and at a rate no greater than during the twelve months ended on the Balance Sheet Date; (m) any change by the Company in any method of accounting or keeping its books of account or accounting practices; (n) any creation, incurrence, assumption or guarantee by the Company or any Subsidiary of any obligations or liabilities (whether absolute, accrued, contingent or otherwise and whether due or to become due), except in the ordinary course of business, or any creation, incurrence, assumption or guarantee by the Company or any Subsidiary of any indebtedness for money borrowed; (o) any payment, loan or advance of any amount to or in respect of, or the sale, transfer or lease of any properties or assets (whether real, personal or mixed, tangible or intangible) to, or entering into of any agreement, arrangement or transaction with, any Principal Stockholder, 14 except for compensation to the officers and employees of the Company at rates not exceeding the rates of compensation disclosed on Schedule 2.21 hereto; (p) any disposition of or failure to keep in effect any rights in, to or for the use of any patent, trademark, service mark, trade name or copyright, or any disclosure to any person not an employee or other disposal of any trade secret, process or know-how; (q) any transaction, agreement or event outside the ordinary course of the Company's business or inconsistent with past practice, including, but not limited to, any agreement by the Company or any Affiliate of the Company to compensate any employee of the Company in any manner upon or with respect to the consummation of the transactions contemplated at Closing; or (r) any agreement, arrangement or understanding to do the foregoing. 2.10. Taxes. (a) Definition of Taxes. For the purposes of this Agreement, the term "Tax" or, collectively, "Taxes" shall mean (i) any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts, (ii) any liability for the payment of any amounts of the type described in clause (i) of this Section 2.10(a) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, and (iii) any liability, other than liability for a lessor's taxes pursuant to leases set forth on Schedules 2.18(a) and 2.14, for the payment of any amounts of the type described in clauses (i) or (ii) of this Section 2.10(a) as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. (i) As of the Effective Time, the Company and each Subsidiary will have prepared and timely filed all required federal, state, local and foreign returns, estimates, information statements and reports ("Returns") relating to any and all Taxes concerning or attributable to the Company or such Subsidiary or their operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) As of the Effective Time, each of the Company and each Subsidiary (A) will have paid all Taxes it is required to pay and will have withheld with respect to its employees all federal and state income taxes, Federal Insurance Contribution Act ("FICA"), Federal Unemployment Tax Act ("FUTA") and other Taxes required to be withheld, and (B) will have accrued on the Balance Sheet all Taxes attributable to the periods preceding the Balance Sheet and will not have incurred any liability for Taxes for the period commencing after the Balance Sheet Date and ending immediately prior to the Effective Time, other than in the ordinary course of business. (iii) Neither the Company nor any Subsidiary has been delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against the Company or any 15 Subsidiary, nor has the Company or any Subsidiary executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company or any Subsidiary is presently in progress, nor has the Company or any Subsidiary been notified of any request for such an audit or other examination. (v) Neither the Company nor any Subsidiary has any liabilities for unpaid federal, state, local and foreign Taxes which have not been accrued or reserved on the Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any liability for Taxes since the Balance Sheet Date other than in the ordinary course of business. (vi) The Company has made available to Parent or its legal counsel, copies of all foreign, federal, state and local income and all state and local sales and use Returns for the Company and all of its Subsidiaries filed for the three previous years ended September 30, 1998. (vii) There are (and immediately following the Effective Time there will be) no Liens on the assets of the Company or any Subsidiary relating to or attributable to Taxes other than Liens for Taxes not yet due and payable. (viii) The Company has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien on the assets of the Company or any Subsidiary. (ix) None of the Company's or any Subsidiary's assets are treated as "tax- exempt use property," within the meaning of Section 168(h) of the Code. (x) Neither the Company nor any Subsidiary has filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xi) Neither the Company nor the Subsidiary is a party to any tax sharing, indemnification or allocation agreement nor does the Company owe any amount under such agreement. (xii) Each of the Company's and the Subsidiary's tax basis in its assets for purposes of determining its future amortization, depreciation and other federal income Tax deductions is accurately reflected on the Company's and the Subsidiary's tax books and records. (xiii) Neither the Company nor any Subsidiary, and neither has been at any time, a "United States Real Property Holding Corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) Neither the Company nor any Subsidiary has ever been included in or been required to be included in a consolidated or combined Return with any other corporation. (xv) Except as set forth on Schedule 2.10, neither the Company nor any Subsidiary has filed a request for rulings or a change in method of accounting with the Internal Revenue Service (the "IRS") for any of the five years ended September 30, 1998 or for the current year. 16 (xvi) Except as set forth on Schedule 2.10, neither the Company nor any Subsidiary has ever been examined by the IRS or any other tax authority within the past five years, and no adjustment relating to any Return filed by the Company or any Subsidiary that remains unresolved has been proposed formally or, to the knowledge of the Company, informally, by any tax authority to the Company or any Subsidiary or any representative thereof. Neither the Company nor any Subsidiary has consented to the extension of the statute of limitations with respect to any Tax that remains outstanding. Neither the Company nor any Subsidiary is a party to any closing agreement with the IRS or other tax authority under Section 7121 of the Code or a comparable provision of state law that will have a continuous effect on the computation of taxable income following the date of this Agreement. (c) Executive Compensation Tax. There is no contract, agreement, plan or arrangement to which the Company or Subsidiary is a party, including, without limitation, the provisions of this Agreement, covering any employee or former employee of the Company or any Subsidiary, which, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G or 162(m) of the Code. 2.11. Inventory. All of the inventories of the Company and the Subsidiaries, including that reflected in the Balance Sheet, are valued at the lower of cost or market, the cost thereof being determined on a first-in, first-out basis, except as disclosed in the Financial Statements. All of the inventories reflected in the Balance Sheet and all inventories acquired by the Company or any Subsidiary since the Balance Sheet Date consist of items of a quality and quantity usable and saleable in the ordinary course of the Company's business within a reasonable period of time and at normal profit margins. 2.12. Accounts Receivable. All of the accounts and notes receivable of the Company and the Subsidiaries represent amounts receivable for merchandise actually delivered or services actually provided (or, in the case of non-trade accounts or notes represent amounts receivable in respect of other bona-fide business transactions), have arisen in the ordinary course of business, and have been billed and are generally due within 30 days after such billing. The reserve for doubtful accounts reflected on the Balance Sheet is adequate in light of the Company's historical collection experience. Schedule 2.12 sets forth (a) the total amount of accounts receivable of the Company outstanding as of the last day of the month immediately preceding the present month and (b) the agings of such receivables based on the following schedule: 0-30 days, 31- 60 days, 61-90 days, and over 90 days, from the due date thereof. 2.13. No Pending Litigation or Proceedings. Except as set forth on Schedule 2.13, there are no actions, suits, investigations, or proceedings pending or, to the Company's knowledge, threatened against or affecting the Company, any Subsidiary or any of their assets or affecting the Company Capital Stock or any Stockholder's rights thereto, at law or in equity, by or before any court or governmental department, agency or instrumentality, and there is no basis for any such action, suit, investigation or proceeding, except such actions, suits, investigations or proceedings that would not have a Material Adverse Effect. There are presently no outstanding judgments, decrees or orders of any court or any governmental or administrative agency against or affecting the Company, or any of its assets or business or affecting the Company Capital Stock or any Stockholder's rights thereto. 17 2.14. Contracts; Compliance. Neither the Company nor any Subsidiary has any material lease, contract or commitment of any kind, oral or written, formal or informal (including without limitation mortgages, security agreements, guaranties, agreements relating to the borrowing of money, employment agreements, collective bargaining agreements, powers of attorney, distribution arrangements, non-competition agreements, patent license agreements, contracts or orders for future purchase or delivery of goods or rendition of services, bonus, deferred compensation, pension or retirement plans, accrued vacation pay and group insurance and welfare arrangements), except as described on Schedule 2.14. Except as set forth on Schedule 2.14, neither the Company nor any Subsidiary is a party to any employment agreement, nor has it executed any letter relating to employment, which provides for any increase in compensation (including severance pay or benefits) based on a change in control, sale of business or a merger involving the Company. All leases, contracts and other commitments to which the Company or any Subsidiary is a party or by which it is bound are in full force and effect; except as set forth on Schedule 2.14, the Company and its Subsidiaries have complied with the provisions thereof where the failure to comply would have a Material Adverse Effect; to the knowledge of the Company, each other party has complied with the provisions thereof and no other party is in default under any of the terms thereof; and to the knowledge of the Company, except as set forth on Schedule 2.14, no event has occurred that with the passage of time or the giving of notice or both would constitute a default by any party under any provision thereof, which default would have a Material Adverse Effect. 2.15. Compliance With Laws (a) Environmental Compliance. (i) The Company and the Subsidiaries have conducted and are now conducting their respective businesses in material compliance with all applicable federal, state and local environmental and employee protection laws, rules, regulations, judgments, orders and consent agreements ("Environmental Laws"). "Environmental Laws" shall not include any law, rule, regulation, judgment, order or consent agreement relating to the handling, storage, distribution or other use of pharmaceuticals or controlled substances except to the extent pertaining to the regulation and protection of the environment, human health or damage to natural resources. (ii) The Company and the Subsidiaries do not hold and are not required to hold permits, certificates, licenses, approvals, registrations and authorizations required under Environmental Laws ("Environmental Permits"). (iii) Neither the Company nor any of its Subsidiary uses, possesses, generates, treats, manufactures, processes, handles, stores, recycles, transports or disposes of ("Manage" or "Management") any hazardous or toxic material, substance, waste, or any other pollutant, contaminant, chemical or substance regulated by any Environmental Laws, including without limitation petroleum products, asbestos or polychlorinated biphenyls ("Hazardous Materials") in connection with the operations of the Company's or Subsidiaries' business in quantities or in a manner which requires a treatment, storage or disposal permit or which imposes generator requirements under the Resource Conservation and Recovery Act, as amended ("RCRA"), or any similar Environmental Laws or in a manner which has caused, causes or threatens to cause a Release of Hazardous Materials. 18 (iv) Neither the Company nor any Subsidiary has received any notice, citation, summons, order or complaint, no penalty has been assessed or is pending or, to the Company's knowledge, threatened by any third party including any governmental agency or other entity with respect to the Management or Release (as defined herein) of Hazardous Materials by or on behalf of the Company, its affiliates or any of their predecessors or in relation to the Company's business or exposure to such Hazardous Materials. Neither the Company nor any of its Subsidiaries have received any requests for information, notices of claim, demands or other notifications that it or they (or any of their predecessors) are or may be potentially responsible with respect to any investigation or cleanup of Hazardous Materials Released or Managed at any property now or formerly owned, operated or leased by the Company or any of its Subsidiaries or at any other property, facility or off-site location to which the Hazardous Materials Released or Managed by the Company or any of its affiliates or any of their predecessors have been transported or disposed of or have come to be located. (v) Schedule 2.15(a) lists all properties currently or formerly owned, operated or leased by the Company or any of its Subsidiaries or any of their predecessors in connection with the operation of the businesses. No property now owned, operated or leased by the Company or any of its Affiliates or any of their predecessors, or, to the Company's knowledge, formerly owned, operated or leased by the Company or any of its Affiliates or any of their predecessors, or otherwise used in connection with the operation of their businesses is listed or proposed for listing on the National Priorities List ("NPL") promulgated pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA"), or the Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") or on any similar state list of sites requiring investigation or cleanup, or the subject of federal, state or local enforcement actions or other investigations which may lead to claims against the Companies or Parent for cleanup costs, remedial work, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA. (vi) There are no underground or above ground storage tanks located at, on or under any property owned, operated or leased by the Company or any of its Subsidiaries, and any underground or above ground storage tanks which have been removed or closed by or on behalf of the Company or any of its Subsidiaries or for which the Company or any of its Subsidiaries is or may be responsible, have been removed or closed in compliance with applicable Environmental Laws. (vii) Except as disclosed on Schedule 2.15(a), there is no friable asbestos or friable asbestos-containing building materials at any property owned, operated or leased by the Company or any of its Subsidiaries, which materials are not maintained in compliance with applicable law. (viii) Except as disclosed on Schedule 2.15(a), no Hazardous Materials have been released, spilled, leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape ("Released") at, on, about, under or from any property now or formerly owned, operated or leased by the Company or any of its Subsidiaries or any of their predecessors or in connection with the operation of their respective businesses. (ix) All environmental inspections, investigations, studies, audits, tests, reviews or other analysis conducted in relation to any property, asset or business now or previously owned, 19 operated, or leased by the Company or any of its Subsidiaries relating to or in connection with the operation of their respective businesses (collectively, "Environmental Audits") have been provided or made available to Parent, and all such Environmental Audits are listed on Schedule 2.15(a). (x) Neither Company nor any of its Subsidiaries has retained or assumed, by contract, law or otherwise, any liability or responsibility for any environmental claims or conditions. (b) Other Laws. Except for permits, certificates, licenses, orders, registrations, franchises, authorizations and approvals that the failure to maintain would not have a Material Adverse Effect, Schedule 2.15(b) sets forth a list of all permits, certificates, licenses, orders, registrations, franchises, authorizations and other approvals from federal, state, local and foreign governmental and regulatory bodies held by the Company or any of its Subsidiaries, and no additional permits, certificates, licenses, approvals, registrations or authorizations are required to be held by the Company or any of its Subsidiaries under any laws, rules and regulations in connection with its business. All such permits, certificates, licenses, orders, registrations, franchises, authorizations and other approvals are in full force and effect and the Company and its Subsidiaries are in compliance with the terms and conditions thereof, except for such non-compliance which would not have a Material Adverse Effect. The Company and its Subsidiaries have complied with all applicable statutes, rules, regulations and orders, federal, state and municipal (including without limitation those relating to environmental protection, occupational safety and health, equal employment practices and fair trade practices), except for such non-compliance which would not have a Material Adverse Effect. No notice, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and, to the knowledge of the Company, no investigation or review is pending or threatened by any governmental or other entity (i) with respect to any alleged violation by the Company or any of its Subsidiaries of any law, ordinance, rule, regulation or order of any governmental entity or (ii) except as set forth on Schedule 2.15(b), with respect to any alleged failure by the Company or any of its Subsidiaries to have any permit, certificate, license, approval, registration or authorization required in connection with its business or any suspension or adverse modification thereof. 2.16. Consents. Except as disclosed on Schedule 2.16 and except as required under the HSR Act and the filing of the Articles of Merger, no consent, approval or authorization of, or registration or filing with, any person, including any governmental authority or other regulatory agency, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or the conduct by the Surviving Corporation of the Company's business after the Effective Time without interruption or delay. 2.17. Title. The Company and its Subsidiaries have good and marketable title to all of their respective properties and assets, including the properties and assets reflected in the Balance Sheet (except those disposed of in the ordinary course of business since the Balance Sheet Date), free and clear of any Lien, tenancy, license, or any other matter affecting title, except (a) minor imperfections of title, none of which, individually or in the aggregate, materially detracts from the value of or impairs the use of the affected properties or impairs the operations of the Company or any of its Subsidiaries, (b) Liens for current taxes not yet due and payable, and (c) as disclosed on Schedule 2.17 (collectively "Permitted Encumbrances"). 20 2.18. Real Estate (a) Except as disclosed on Schedule 2.18(a) hereto, neither of the Company nor any Subsidiary owns any fee interest, leasehold interest or other right, title or interest whatsoever in any real property. Schedule 2.18(a) hereto contains a true, correct and complete list of all real properties owned, leased, subleased, licensed or otherwise occupied by the Company or any of its Subsidiaries (collectively, the "Real Properties"). Except as set forth on Schedule 2.18(a) hereto, no other Person has any oral or written right, agreement or option to acquire, lease, sublease or otherwise occupy all or any portion of such Real Properties. Neither the Company nor any of its Subsidiaries has received any written or oral notice for assessment for public improvements against any of the Real Properties which remains unpaid and, to the best knowledge of the Company and its Subsidiaries, no such assessment has been proposed. To the knowledge of the Company, there is no pending condemnation, expropriation, eminent domain or similar proceeding affecting all or any portion of any of the Real Properties and, to the best knowledge of the Company and its Subsidiaries, no such proceeding is contemplated. (b) Accurate and current copies of all real property leases, subleases, licenses or other occupancy agreements (and all amendments thereto) listed on Schedule 2.18(a) hereto have previously been delivered to Parent (collectively, the "Leases"). Neither the Company nor any of its Subsidiaries has assigned its rights under any of the Leases. The Leases are in full force and effect and constitute binding obligations of the Company or Subsidiaries party to the Leases and, to the knowledge of the Company, the other parties thereto, and (i) there are no defaults thereunder by the Company or any of its Subsidiaries or, to the knowledge of the Company, by any other party thereto, and (ii) no event has occurred which, with notice, lapse of time, or both, would constitute a default by the Company or any of its Subsidiaries, or, to the knowledge of the Company, by any other party thereto. (c) Except as disclosed on Schedule 2.18(c) hereto, (i) The Company and each Subsidiary has good, marketable and insurable legal and equitable (A) fee simple title to the real property owned by the Company or Subsidiary (the "Owned Real Property"), and (B) leasehold title to the property leased pursuant to the Leases (the "Leased Real Property"), in all cases, free and clear of any and all Liens, exceptions, items, encumbrances, easements, restrictions and other matters either of record or not of record, except for those which could not have a Material Adverse Effect. Neither the Company nor its Subsidiaries is in default or breach under any of the covenants, conditions, restrictions, rights-of-way or easements, if any, affecting all or any portion of the Real Properties, except for any default or breach which would not have a Material Adverse Effect. (ii) The zoning for the Real Properties is as set forth on Schedule 2.18(c) hereto and the current zoning of each of the Real Properties permits the operator of such property for the current respective use thereof. Neither the Company nor any of its Subsidiaries has made an application for a rezoning of any of the Real Properties, has any knowledge of any proposed or pending change to any zoning affecting any of the Real Properties, or has any knowledge of any expropriation or condemnation or similar proceeding pending or threatened against any of the Real Properties or any part of the Real Properties. 21 (iii) All utilities, including without limitation, potable water, sewer, gas, electric, telephone, and other public utilities and all storm water drainage required by law or necessary for the operation of the Real Properties (A) either enter the Real Properties through open public streets adjoining the Real Properties, or, if they pass through adjoining private land, do so in accordance with valid public or private easements or rights of way which will inure to the benefit of Surviving Corporation, and (B) are adequate (in both quality and quantity) to service the Real Properties for their respective use in the business of the Companies as presently conducted thereon. (iv) All accounts for work and services performed or materials placed or furnished upon or in respect of the construction and completion of any of the buildings, improvements or other structures constructed on the Real Properties have been fully paid and no one is entitled to claim a lien under any Federal, state, provincial, municipal or local legislation for such work performed by or on behalf of the Company or any of its Subsidiaries. (v) Each of the Real Properties is located along one or more dedicated public streets or has access thereto. All curb-cut and street-opening permits or licenses required for vehicular access to and from the Real Properties to any adjoining public street or to any parking spaces utilized in connection with the Owned Real Property have been obtained and paid for, are in full force and effect and shall inure to the benefit of the Surviving Corporation. (vi) To the Company's knowledge, there are no material (a) defects in, (b) mechanical failure of or (c) damage to the improvements located on the Real Properties, including the roof, structure, elevators, walls, heating, ventilation, air conditioning, plumbing, electrical, drainage, fire alarm, communications, sprinkler, security and exhaust systems and their component parts, or other improvements on or forming a part of the Real Properties. Neither the Company nor any Subsidiary has received any notification of, nor has any knowledge of, any outstanding or incomplete work orders in respect of any of the buildings, improvements or other structures constructed on the Real Properties or of any current non-compliance with applicable statutes and regulations or building and zoning by-laws and regulations, which non-compliance would have a Material Adverse Effect. (d) Except as set forth on Schedule 2.18 hereto, there are no deeds of trust or mortgages which are a Lien upon the Real Properties. 2.19. Transactions with Related Parties. Except as disclosed on Schedule 2.19, and except for intercompany transactions solely between the Company and its wholly owned Subsidiaries, no Related Party or Principal Stockholder: (a) has borrowed money or loaned money to the Company or any Subsidiary that has not been repaid; (b) has any contractual or other claim, express or implied, of any kind whatsoever against the Company or any Subsidiary; (c) had, since January 1, 1997, any interest in any property or assets used by the Company or any Subsidiary in its business; or 22 (d) has been engaged, since January 1, 1997, in any other transaction with the Company or any Subsidiary (other than employment relationships at no more than the salaries, benefits and bonuses disclosed on Schedule 2.21). 2.20. Condition of Assets. The buildings, machinery, equipment, furniture, improvements and other assets of the Companies, including those reflected in the Balance Sheet, are in good operating condition and repair (reasonable wear and tear excepted) and are suitable for the purposes for which they are used in its business. Except as set forth on Schedule 2.20, the physical security controls for the Company's and its Subsidiaries' Schedule 3, Schedule 4 and Schedule 5 controlled substance security enclosure and Schedule 2 vault and vault door are constructed in accordance with the current requirements of 21 CFR (S)1301.72. 2.21. Compensation Arrangements; Bank Accounts; Officers and Directors. Schedule 2.21 sets forth the following information: (a) the names and current annual salary, of all present officers and employees of the Company or any Subsidiary whose current annual salary, equals or exceeds $50,000, together with a statement of the full amount of all remuneration paid by the Company to each such person and to any director of the Company or any Subsidiary, during the twelve-month period ending December 31, 1998; (b) the name of each bank in which the Company or any Subsidiary has an account or safe deposit box, the identifying numbers or symbols thereof and the names of all persons authorized to draw thereon or to have access thereto; and (c) the names and titles of all directors and officers of the Company and each Subsidiary and each trustee, fiduciary or plan administrator of each employee benefit plan of the Company and each Subsidiary. 2.22. Labor Relations. To the knowledge of the Company, the relations of the Company and its Subsidiaries with their employees are good. Except as disclosed on Schedule 2.22, (a) no employee of the Company or any Subsidiary is represented by any union or other labor organization; (b) there is no unfair labor practice complaint against the Company or any Subsidiary pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or similar agency; (c) there is no labor strike, dispute, slow down or stoppage actually pending or, to the knowledge of the Companies, threatened against or involving the Companies; (d) no grievance which would have a Material Adverse Effect is pending; (e) no private agreement restricts the Company or any Subsidiary from relocating, closing or terminating any of its operations or facilities; and (f) neither the Company nor any Subsidiary in the past three years has experienced any work stoppage or committed any unfair labor practice. Schedule 2.22 contains a list of all employment manuals and other similar documents containing rules or regulations or policies of the Company and its Subsidiaries currently in effect regarding the general conduct, compensation, labor relations and employment and severance of the Company's and its Subsidiaries' employees, copies of which have heretofore been provided to Parent. 2.23. Products Liability. Except as set forth on Schedule 2.23, and except for lawsuits, claims, damages and expenses adequately covered by insurance or indemnification arrangements or rights, there are no (a) liabilities of the Company or any Subsidiary, fixed or contingent, asserted or 23 unasserted, with respect to any product liability or any similar claim that relates to any product stored, manufactured, distributed or sold by the Company or any Subsidiary to others, except for any liability that would not have a Material Adverse Effect, or (b) liabilities of the Company or any Subsidiary, fixed or contingent, asserted or unasserted, with respect to any claim for the breach of any express or implied product warranty or any other similar claim with respect to any product stored, manufactured, distributed or sold by the Company or any Subsidiary to others other than standard warranty obligations (to replace, repair or refund) made by the Company or any Subsidiary in the ordinary course of business to purchasers of its products, except for any liability that would not have a Material Adverse Effect. 2.24. Insurance. Attached hereto as Schedule 2.24 is a complete and correct list of all policies and contracts for insurance (including, but not limited to, property, product liability and general liability) of which the Company or any Subsidiary is the owner, insured or beneficiary, or covering any of its properties, indicating for each policy the carrier, risks insured, the amounts and dates of coverage, deductible, premium rate, cash value if any, expiration date and any pending claims thereunder. All such policies are outstanding and in full force and effect. There is no default by the Company or any Subsidiary with respect to any provision contained in any such policy, nor has there been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by the policy. Except as set forth on Schedule 2.24, (a) there are no outstanding claims under such policies, (b) there are no premiums or claims due under such policies which remain unpaid, and (c) there have been no gaps in coverage for the last five years. Schedule 2.24 contains an accurate and complete description of any provision contained in such policies which provides for retrospective or retroactive premium adjustments. Within the past two years, no notice of cancellation or non-renewal with respect to, or disallowance of any material claim under, any such policy has been received by the Companies. Neither the Company nor any Subsidiary has been refused any insurance, nor has its coverage been limited by any insurance carrier to which it has applied for insurance or with which it has carried insurance during the last five years. Since March 1, 1994, all products liability and general liability policies maintained by or for the benefit of the Company have been "occurrence" policies and not "claims made" policies. 2.25. Patents and Intellectual Property Rights. Attached hereto as Schedule 2.25 is a correct list of all patents, patent applications, trademarks, trade names, copyrights, service marks, logos and the like, and any registrations therefor, and licenses, sublicenses or other rights entered into with respect thereto, both U.S. and foreign, presently held, owned or used by the Company or any of its Subsidiaries ("Intellectual Property"), all of which are valid and in good standing. Neither the Company nor any Subsidiary has received any claims that any of its Intellectual Property infringes the Intellectual Property rights of others. No Person has made any claim or demand that challenges the rights of the Company or any of its Subsidiaries with respect to any of the Company's or any Subsidiary's Intellectual Property or that claims that any of the Company's or any Subsidiary's Intellectual Property infringes the Intellectual Property rights of others. To the Company's knowledge, the packaging, distribution, sale or use of any products now or heretofore packaged, distributed or sold by the Company did not and does not infringe (nor has any claim been made that any such action infringes) the Intellectual Property rights of others. After the Effective Time, all patents, patent applications or other intellectual property rights used or useful in the business of the 24 Company or any Subsidiary and held by any Related Party shall remain the property or rights of the Surviving Corporation. 2.26. Year 2000. All of the Company's or Subsidiary's software, hardware, firmware, telecommunications systems, network systems, embedded systems and other systems, components and/or services (other than general utility services including gas, electric, telephone and postal) that are owned, used, sold, or licensed by the Company or any Subsidiary in the conduct of its business or of its customers businesses (i) will record, store, process, calculate and present calendar dates falling on and after (and if applicable, spans of time including) January 1, 2000, and will calculate any information dependent on or relating to such dates in the same manner, and with the same functionality, data integrity and performance, as such systems, components and/or services record, store, process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates, and (ii) will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. 2.27. Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (a) The only employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), welfare benefit plans (as defined in Section 3(1) of ERISA), bonus, stock purchase, stock ownership, stock option, deferred compensation, incentive, severance, termination or other compensation plan or arrangement, or other employee fringe benefit plans presently maintained by, or contributed to by the Company or any Subsidiary (other than a multiemployer plan as defined in Section 3(37) of ERISA) are those listed in Schedule 2.27 (the "Benefit Plans"), a true, complete and correct copy of each of which and (where applicable) a copy of the most recent IRS Form 5500 filed with respect to each such Benefit Plan, has been furnished to Parent. (b) Except any instance that would not have a Material Adverse Effect: (i) The Companies and each of the Benefit Plans are in compliance with the applicable provisions of ERISA, and those provisions of the Code applicable to the Benefit Plans. (ii) Except as set forth in Schedule 2.27, all contributions to, and payments from, the Benefit Plans which may have been required to be made in accordance with the terms of the Benefit Plans and (where applicable) Section 302 of ERISA or Section 412 of the Code have been duly and timely made. All such contributions to the Benefit Plans, and all payments under the Benefit Plans, except those to be made from a trust qualified under section 401(a) of the Code, for any period ending before the Effective Time that are not yet, but will be, required to be made are properly provided for in the most recent of the Financial Statements. (iii) Except as described in Schedule 2.27, all reports, returns and similar documents with respect to the Benefit Plans required to be filed with any governmental agency or distributed to any Benefit Plan participant have been duly and timely filed or distributed. (iv) The Option Plan issues stock options that are not qualified under Section 422 of the Code. Except as set forth in Schedule 2.27, all of the Benefit Plans which are pension benefit plans have received determination letters from the IRS to the effect that such plans are qualified and exempt from federal income Taxes under Sections 401(a) and 501(a) of the Code, as amended through December 31, 1996; and no determination letter with respect to any Benefit 25 Plan has been revoked nor, to the best of the Company's knowledge, has revocation been threatened, nor has any Benefit Plan been amended since the date of its most recent determination letter or application therefor in any respect which would adversely affect its qualification or materially increase its cost. (v) Each of the Benefit Plans has been administered at all times in accordance with its terms except that in any case in which any Benefit Plan is currently required to comply with a provision of ERISA or the Code, but is not yet required to be amended to reflect such provision, it has been administered in accordance with such provision. (vi) Except as set forth in Schedule 2.27, there are no pending investigations by any governmental authority involving any of the Benefit Plans, no termination proceedings involving any of the Benefit Plans, and no threatened or pending claims (except for claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings against any Benefit Plan or asserting any rights or claims to benefits under any Benefit Plan which could give rise to any liability, nor, to the best of the Company's knowledge, are there any facts which could give rise to any liability in the event of any such investigation, claim, suit or proceeding. (vii) Neither any of the Benefit Plans, Principal Stockholders, the Company, any Subsidiary nor any employee of the foregoing, nor, to the best of the Company's knowledge, any trusts created thereunder, nor any trustee, administrator or other fiduciary thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 4975 of the Code or Section 406 of ERISA) which could subject any thereof to the Tax or penalty on prohibited transactions imposed by such Section 4975 or the sanctions imposed under Title I of ERISA. Except as set forth in Schedule 2.27, neither any of the Benefit Plans nor any such trust has been terminated nor have there been any "reportable events" (as defined in Section 4043 of ERISA and the regulations thereunder) with respect to either thereof. (viii) Neither the Company nor any Subsidiary has incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC") with respect to any Benefit Plan subject to Title IV of ERISA, other than for the payment of premiums, all of which have been paid when due. No Benefit Plan has applied for or received a waiver of the minimum funding standards imposed by Section 412 of the Code. The Company has furnished to Parent true, correct and complete copies of the most recent actuarial reports with respect to each Benefit Plan that is a defined benefit pension plan, as defined by Section 3(35) of ERISA. No event has occurred since the date of any such actuarial report that had, or is likely to have, a materially adverse effect on the ratio of plan assets to the actuarial present value of plan obligations for accumulated benefits shown in such report. (ix) At no time since January 1, 1990 has the Company, or any other employer (an "ERISA Affiliate") that is, together with the Company, treated as a "single employer" under Section 414(b), 414(c) or 414(m) of the Code, or any employer which was at any time after September 2, 1974, an ERISA Affiliate of the Company (a "Former ERISA Affiliate"), incurred any liability which could subject the Company to any liability under Section 4062, 4063 or 4064 of ERISA. (x) Except as set forth on Schedule 2.27, at no time since January 1, 1990 has the Company or any ERISA Affiliate or Former ERISA Affiliate been required to contribute to, or incurred any withdrawal liability (within the meaning of Section 4201 of ERISA) to, any 26 multiemployer pension plan (within the meaning of Section 3(37) of ERISA). All required contributions, withdrawal liability payments or other payments of any type that the Company or any ERISA Affiliate or Former ERISA Affiliate have been obligated to make to any multiemployer plan have been duly and timely made. Any withdrawal liability incurred with respect to any multiemployer plan has been fully paid as of the date hereof. (xi) The Company has not incurred, nor is it reasonably likely to incur, any liability with respect to any plan or arrangement that would be included within the definition of "Benefit Plan" hereunder but for the fact that such plan or arrangement was terminated before the date of this Agreement. 2.28. Questionable Payments. Neither the Company, its current or former officers or directors, nor, to the knowledge of the Company, any of the current or former stockholders, agents, employees, sales persons or other persons associated with or active on behalf of the Company or any Subsidiary, has on behalf of the Company or any Subsidiary or in connection with their businesses (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) made any direct or indirect unlawful payments to foreign or domestic government officials or employees from corporate funds, (c) violated any provision of the Foreign Corrupt Practices Act of 1977, (d) established or maintained any unlawful or unrecorded fund of corporate monies or other assets, (e) made any false or fictitious entries on the books and records of the Company or any Subsidiary, or (f) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature. 2.29. State Takeover Statutes. The provisions of Section 351.459 and Section 351.407 of the MGBCL will not prohibit the consummation of the Merger or the transactions contemplated hereby, and will not apply to, restrict, affect or impair Parent's operation of the Company after the Effective Time. 2.30. Disclosure. No representation or warranty by the Company in this Agreement or the Ancillary Agreements, and no exhibit, document, statement, certificate or schedule furnished or to be furnished to Parent pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading or necessary to provide Parent with adequate and complete information as to the Company and its Subsidiaries and their affairs. 2.31. Registration Statement; Proxy Statement. None of the information provided by the Company or Principal Stockholders for inclusion in the registration statement on Form S-4 (such registration statement as amended, supplemented or modified, the "Registration Statement") to be filed with the SEC by Parent under the Securities Act, of 1933, as amended (the "Securities Act"), including the prospectus relating to the shares of Parent Common Stock to be issued in the Merger (as amended, supplemented or modified, the "Prospectus") and the proxy statement and form of proxies relating to the vote of the stockholders of the Company (as amended, supplemented or modified, the "Proxy Statement"), at the time the Registration Statement becomes effective or, in the case of the Proxy Statement, at the date of mailing and at the date of the Company Stockholders Meeting, will contain any untrue statement of a material fact or omit to state a material fact required 27 to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. ARTICLE III REPRESENTATION AND WARRANTIES OF PARENT AND SUB Parent and Sub jointly and severally represent and warrant to the Company and the Stockholders as follows: 3.1. Organization. Parent and Sub are corporations duly organized, validly existing and in good standing under the laws of the States of Delaware and Missouri, respectively. 3.2. Power and Authority. Parent and Sub have full corporate power and authority to make, execute, deliver and perform this Agreement and the Ancillary Agreements to which they are parties. 3.3. Authorization and Enforceability. The execution, delivery and performance of this Agreement and the Ancillary Agreements by Parent and Sub have been duly authorized by all necessary corporate action on the part of Parent and Sub, and each of this Agreement and the Ancillary Agreements constitutes the legal, valid and binding obligation of Parent and Sub, enforceable against them in accordance with their respective terms. 3.4. Brokerage. Parent and Sub have not made any agreement or taken any other action which might cause anyone to become entitled to a broker's fee or commission as a result of the transactions contemplated hereunder. 3.5. SEC Documents; Parent Financial Statements. Parent has furnished the Company with a true and complete copy of all of its filings with the Securities and Exchange Commission since September 30, 1998 (the "SEC Documents"). As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended, as applicable, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed document with the SEC. The SEC Documents contain an audited consolidated balance sheet of Parent as of September 30, 1998 (the "Parent Balance Sheet") and the related audited consolidated statements of income and cash flow for the year then ended (the "Parent Financials"). The Parent Financials have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other. The Parent Financials present fairly the consolidated financial condition and operating results and cash flows of Parent and its subsidiaries as of the dates and during the periods indicated therein. Since the date of the Parent Balance Sheet and until the date of this Agreement, there has not occurred any material adverse change in the business, assets or condition (financial or otherwise) of Parent and its subsidiaries, taken as a whole. 3.6. No Violation of Laws or Agreements. The execution and delivery of this Agreement and the Ancillary Agreements do not, and the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements and the compliance with the terms, conditions and 28 provisions of this Agreement and the Ancillary Documents by the Parent and Sub will not, (a) contravene any provision of the Parent's or Sub's certificate or articles of incorporation, bylaws or other constituent documents (b) violate, conflict with or result in a breach of or constitute a default (or an event which might, with the passage of time or the giving of notice or both, constitute a default) under any of the terms, conditions or provisions of any indenture, mortgage, loan or credit agreement or any other material agreement or instrument to which the Parent or Sub is a party or by which any of them or any of their assets may be bound or affected, or any judgment or order of any court or governmental department, commission, board, agency or instrumentality, domestic or foreign, or any applicable law, rule or regulation; (c) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the Parent's or Sub's assets, or give to others any interests or rights therein; (d) result in the maturation or acceleration of any liability or obligation of the Parent or Sub (or give others the right to cause such a maturation or acceleration); or (e) result in the termination of or loss of any right (or give others the right to cause such a termination or loss) under any agreement or contract to which the Parent or Sub is a party or by which either of them may be bound; except, with respect to clauses (a), (b), (c), (d) or (e), for any of the foregoing that would not, individually or in the aggregate, reasonably be expected to materially adversely impair the parties' ability to consummate the transactions contemplated hereby. 3.7. Disclosure. No representations or warranty by the Parent or Sub in this Agreement or the Ancillary Documents, and no exhibit, document, statement, certificate or schedule furnished or to be furnished to the Company pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading or necessary to provide the Company with adequate or complete information as to the Parent and its subsidiaries and their affairs. 3.8. Consents. Except as disclosed on Schedule 3.8 and except as required under the HSR Act, and except as would not, individually or in the aggregate, reasonably be expected to materially adversely impair the parties' ability to consummate the transactions contemplated herein, no consent, approval or authorization of, or registration or filing with, any person, including any governmental authority or other regulatory agency, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or the conduct by the Company of the Parent's business after the Effective Time without interruption or delay. 3.9. Registration Statement; Joint Proxy Statement. None of the information provided by Parent for inclusion in the Registration Statement or the Proxy Statement, at the time the Registration Statement becomes effective or, in the case of the Proxy Statement, at the date of mailing and at the date of the Company Stockholders Meeting, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement, except for such portion thereof that relates only to the Company and its Subsidiaries (as to which no representations or warranties are made), will comply as to form in all material respects with the provisions of the Securities Act. 29 ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME 4.1. Conduct of Business of the Company. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing), to carry on the Company's business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay the debts and Taxes of the Company when due, to pay or perform other obligations when due, and, to the extent consistent with such business, use its reasonable efforts consistent with past practice and policies to preserve intact the Company's present business organizations, keep available the services of the Company's present officers and key employees and preserve the Company's relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, all with the goal of preserving the Company's goodwill and ongoing businesses at the Effective Time. The Company shall promptly notify Parent of any event or occurrence or emergency not in the ordinary course of business of the Company and any material event involving the Company. Except as expressly contemplated by this Agreement or as set forth on Schedule 4.1, the Company shall not, without the prior written consent of Parent: (a) Enter into or amend any contract pursuant to which any other party is granted marketing, distribution or similar rights of any type of scope with respect to any products or technology of the Company; (b) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the contracts set forth or described in the Disclosure Schedule; (c) Commence or settle any litigation; (d) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of the Company, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of the capital stock of the Company (or options, warrants or other rights exercisable therefor); (e) Issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue or purchase any such shares or other convertible securities, except upon exercise of any previously granted stock options or warrants. (f) Cause or permit any amendments to its Articles of Incorporation or Bylaws; (g) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the Company's business; 30 (h) Selling, lease, license or otherwise dispose of any of its properties or assets, except inventory and only in the ordinary course of business and consistent with past practices or assets that individually do not have a fair market value of more than $5,000; (i) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others other than advances under the revolving portion of the Loan and Security Agreement among the Company and LaSalle Business Credit, Inc., Heller Financial, Inc., and American National Bank & Trust Company of Chicago, as lenders, dated October 3, 1997; (j) Grant any loans to others or purchase debt securities of others or amend the terms of any outstanding loan agreement; (k) Except as contemplated by this Agreement, grant any severance or termination pay (i) to any director or officer or (ii) to any other employee except payments made pursuant to written agreements outstanding on the date hereof and disclosed in the Disclosure Schedule; (l) Adopt any employee benefit plan, or enter into any employment contract, pay or agree to pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its employees, except salary or wage rate increases for non-executive employees pursuant to their annual review process which will not exceed an aggregate average of 5% of prior year salary or wage rate for all Company employees and will not exceed 10% of prior year salary or wage rate for any individual; (m) Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business or as may be required by GAAP; (n) waive or permit the loss of any substantial right; (o) Pay, discharge or satisfy, in an amount in excess of $10,000 (in any one case) or $50,000 (in the aggregate), any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Balance Sheet; (p) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (q) Enter into any strategic alliance or joint marketing arrangement or agreement; (r) Amend, freeze or terminate the ESOP and, except for acceleration of vesting under the ESOP, accelerate the vesting schedule of any of the outstanding Company Options or Company Capital Stock; (s) Take any action that would be reasonably likely to interfere with Parent's ability to account for the Merger as a pooling of interests whether or not otherwise permitted under this Section 4.1; (t) Make any capital expenditures or enter into any commitments or transactions exceeding $25,000 in the aggregate (other than as contemplated by Schedule 2.9) or enter into 31 any commitment or transaction of the type described in subsections (e)-(j) or (n)-(r) of Section 2.9 hereof; (u) change or modify in any manner its existing credit, collection and payment policies, procedures and practices with respect to accounts receivable and accounts payable, respectively, including without limitation, accelerating collections of receivables, failing to make or delaying making collections of receivables (whether or not past due), accelerating payment of payables or failing to pay or delaying payment of payables; (v) Make any change in the Company's or any Subsidiary's method of accounting or keeping its books of accounts or accounting practices; or (w) Take, or agree in writing or otherwise to take, any of the actions described in Sections 4.1(a) through (v) above, any action that would cause the representations and warranties contained in Section 2.9 not to be true as of the Effective Time in any material respect, or any other action that would prevent the Company from performing or cause the Company not to perform its covenants hereunder in all material respects. 4.2. No Solicitation. Until the earlier of the Effective Time or the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, neither the Company nor the Principal Stockholders will (nor will the Company permit any of its officers, directors, agents, representatives or affiliates to) directly or indirectly, take any of the following actions with any party other than Parent and its designees: (a) solicit, encourage, initiate or participate in any negotiations or discussions with respect to, any offer or proposal to acquire all, substantially all or a significant portion of the Company's business, properties or technologies or any portion of the Company Capital Stock (whether or not outstanding) whether by merger, purchase of assets, or otherwise, or effect any such transaction, (b) disclose any information not customarily disclosed to any person concerning the Company's business, technologies or properties or afford to any person or entity access to its properties, technologies, books or records, (c) assist or cooperate with any person to make any proposal to purchase all or any part of the Company Capital Stock or assets, or (d) enter into any agreement with any person providing for the acquisition of all or any significant portion of the Company (whether by way of merger, purchase of assets, tender offer or otherwise). In addition to the foregoing, if the Company or any Principal Stockholder receives, prior to the Effective Time or the termination of this Agreement, any offer, proposal, or request relating to any of the above, the Company or such Principal Stockholder, as applicable, shall immediately notify Parent thereof, including information as to the identity of the offer or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Parent may reasonably request. The parties hereto agree that irreparable damage would occur in the event that the provisions of this Section 4.2 were not performed in accordance with their specific terms or were otherwise breached it is accordingly agreed by the parties that Parent shall be entitled to seek an injunction or injunctions to prevent breaches of the provisions of this Section 4.2 and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which Parent may be entitled at law or in equity. 32 ARTICLE V ADDITIONAL AGREEMENTS 5.1. Registration Statement. Parent shall use its reasonable best efforts to prepare and file the Registration Statement and to perform all such acts as are reasonably necessary to have the Registration Statement declared effective by the SEC. 5.2. Access to Information. The Company shall afford Parent and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (a) all of the Company's and its Subsidiaries' properties, books, contracts, commitments and records, (b) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of the Company and its Subsidiaries as Parent may reasonably request and (c) all key employees of the Company and its Subsidiaries as identified by Parent. The Company agrees to provide to Parent and its accountants, counsel and other representatives copies of internal financial statements (including by returns and supporting documentation) promptly upon request. Notwithstanding the foregoing, the Company may, to the extent it deems necessary, withhold access to certain competitive information where the disclosure to or use of such information by Parent would be in violation of applicable law. Parent shall provide the Company with copies of such publicly available information about Parent as the Company may request. No information or knowledge obtained in any investigation pursuant to this Section 5.2 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligation of the parties to consummate the Merger. 5.3. Confidentiality. Each of the parties hereto hereby agrees that the information obtained in any investigation pursuant to Section 5.2 or pursuant to the negotiation and execution of this Agreement or the effectuation of the transaction contemplated hereby shall be governed by the Terms of the Confidentiality Agreement between the Company and the Parent. 5.4. Expenses. All fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties ("Third Party Expenses") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. 5.5. Public Disclosure. Unless otherwise required by law, prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto unless approved by Parent prior to release, provided that such approval shall not be unreasonably withheld, subject, in the case of Parent, to Parent's obligation to comply with applicable securities laws and the rules and regulations of the New York Stock Exchange, Inc. 5.6. Consents. The Company shall use its best efforts to obtain the consents, waivers, assignments and approvals under the HSR Act and under any of the contracts as may be required in connection with the Merger (all of such consents, waivers and approvals are set forth in the Disclosure Schedule) so as to preserve all rights of, and benefits to, the Company thereunder. 33 5.7. Reasonable Efforts. Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use commercially reasonable efforts to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals and to effect all necessary registrations and filings and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement; provided that Parent shall not be required to agree to any divestiture by Parent or the Company or any of Parent's subsidiaries or affiliates of shares of capital stock or of any business, assets or property of Parent or its subsidiaries or affiliates or of the Company, its affiliates, or the imposition of any material limitation on the ability of any of them to conduct their businesses or to own or exercise control of such assets, properties and stock. 5.8. Notification of Certain Matters. The Company shall give prompt notice to Parent of (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is reasonably foreseeable to cause any representation or warranty of the Company contained in this Agreement to be untrue or inaccurate at or prior to the Effective Time in all material respects and (ii) any failure of the Company to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder in all material respects; provided, however, that the delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise affect any remedies available to the party receiving such notice. No disclosure by the Company pursuant to this Section 5.8, however, shall be deemed to amend or supplement the Disclosure Schedule or prevent or cure any misrepresentations, breach of warranty or breach of covenant. Notwithstanding the foregoing, the Company may, not later than five days prior to the Closing, deliver to Parent updated Disclosure Schedules which may only reflect matters that arise after the date hereof (and that the Company could not reasonably have known or anticipated as of the date hereof) and, provided that such Disclosure Schedules are acceptable to Parent in its sole discretion, such Disclosure Schedules shall supersede and replace the Disclosure Schedules delivered by the Company at the signing of this Agreement. 5.9. Affiliate Agreements. Schedule 5.9 sets forth those persons who, in the Company's reasonable judgment, are or may be "affiliates" of the Company within the meaning of Rule 145 (each such person, an "Affiliate") promulgated under the Securities Act ("Rule 145"). The Company shall provide Parent with such information and documents as Parent reasonably requests for purposes of reviewing such list. The Company shall deliver or cause to be delivered to Parent, concurrently with the execution of this Agreement (and in any case prior to the Closing Date) from each of the Affiliates of the Company, an executed Affiliate Agreement in the form attached hereto as Exhibit C, each of which will be in full force and effect as of the Effective Time. Parent shall be entitled to place appropriate legends on the certificates evidencing any Parent Common Stock to be received by such Affiliates pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for Parent Common Stock, consistent with the terms of such Affiliate Agreements. 5.10. Additional Documents and Further Assurances. Each party hereto, at the request of another party hereto, shall execute and deliver such other instruments and do and perform such other 34 acts and things as may be reasonably necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby. 5.11. Tax-Free Reorganization. The parties intend to adopt this Agreement and the Merger as a tax free plan of reorganization under Section 368 of the Code. The parties shall not take position on any tax return inconsistent with this Section 5.11. From and after the Effective Time, neither Parent, Sub, nor the Company shall take any action that could reasonable be expected to cause the Merger not to be treated as a reorganization within the meaning of Section 368 of the Code. 5.12. Pooling Accounting. Parent and the Company shall each use their best efforts to cause the business combination to be effected by the Merger to be accounted for as a pooling of interests. Each of the Parent and the Company shall use its best efforts to cause its Affiliates (as defined in Section 5.9) not to take any action that would adversely affect the ability of Parent to account for the business combination to be effected by the Merger as a pooling of interests. 5.13. Company Stockholders Meeting. The Company shall take all action in accordance with the federal securities laws, the MGBCL and the Company's articles of incorporation and bylaws necessary to convene a special meeting of the stockholders of the Company entitled to vote (the "Company Stockholders Meeting"), to be held and completed on the earliest practicable date determined by Parent, subject to the consent of the Company (which shall not be unreasonably withheld) and subject to prior satisfaction of the conditions set forth in Sections 6.2(b) (but only with respect to the HSR Act), (c), and (e), to consider and vote upon approval of the Merger, this Agreement and the transactions contemplated hereby. The Company's Board of Directors, at a meeting duly called and held at which a quorum was present throughout, has by requisite vote of the directors resolved to recommend that the stockholders of the Company approve this Agreement and the transactions contemplated hereby (the "Recommendation"). Upon any written request by Parent, the Company's Board of Directors shall immediately reaffirm its recommendation that the stockholders of the Company approve this Agreement and the transactions contemplated hereby. In the event that the Recommendation shall at any time be withdrawn, revoked or modified, or the Company's Board of Directors shall not reaffirm its recommendation as contemplated hereby and (i) the stockholders of the Company shall not have approved this Agreement, the transactions contemplated hereby and the Merger at the Company Stockholders Meeting or (ii) the Company Stockholders Meeting shall not have been held within 30 days after declaration of the effectiveness of the Registration Statement, the Company shall immediately pay to Parent the Termination Fee (as such term is defined in Section 8.2). 5.14. Proxy Statement; Registration Statement. The Company shall cooperate with Parent in the preparation and filing of the Registration Statement in a timely fashion and shall use all reasonable efforts to assist Parent in having the Registration Statement declared effective by the SEC as promptly as practicable and in maintaining the effectiveness of the Registration Statement through the Effective Time. If, at any time prior to the Effective Time, the Company shall obtain knowledge of any information pertaining to the Company that would require any amendment or supplement to the Registration Statement or the Proxy Statement, the Company shall so advise Parent in writing and shall promptly furnish Parent with all information as shall be required for such amendment or supplement and shall promptly take such action as shall be required to amend or supplement the 35 Registration Statement and/or Proxy Statement. The Company shall use all reasonable efforts to mail at the earliest practicable date to the stockholders of the Company the Proxy Statement, which shall include all information required under applicable laws to be furnished to the stockholders of the Company in connection with the Merger and the transactions contemplated thereby and shall include the Company Board Recommendation. 5.15. Employee Benefits. The Company will not be required by Parent to terminate any Company employee benefit plan prior to the Effective Time. 5.16. Transactions with Mr. Farley. The Parent and the Company acknowledge that the following transactions shall occur, effective as of the Closing Date: (a) Corporate Office Building. The corporate headquarters and furnishings currently under construction shall be sold to Mr. Bob Farley or an affiliate of his, for a purchase price payable in cash in an amount equal to the Company's cost incurred for such facility and furnishings through the Effective Time to be paid by Mr. Farley. (b) Football Tickets. The current Kansas City Chiefs' football suite and the related football tickets held by the Company shall be transferred in the name of Mr. Farley and Mr. Farley shall reimburse the Company for the $15,831 previously paid (and any payments subsequent to the date hereof) with respect thereto by payment to the Company in cash of such amounts. (c) U.S. Open. The current agreement of the Company with respect to the 2000 U.S. Open shall be transferred in the name of Mr. Farley and Mr. Farley shall reimburse the Company for the $45,000 previously paid with respect thereto and be solely responsible for the remaining $45,000 owed to the U.S. Open by paying such amounts to the Company or to such person as the Company may in its reasonable discretion designate. (d) Split Dollar Life Insurance. At the election of Mr. Farley, the $1,000,000 split dollar life insurance policy held by the Company on Mr. Farley's life will be transferred to Mr. Farley, for a purchase price equal to the net cash surrender value of such policy as of the Effective Time, which amount shall be paid by Mr. Farley in cash. 5.17. Indemnification. After the Effective Time, Parent agrees to indemnify and hold harmless all current and former directors and officers of the Company for claims arising out of or in connection with litigation set forth on Schedule 5.17, and the Company will continue to indemnify such persons to the same extent of the indemnification rights of such persons existing on the date hereof, from and after the Effective Time, except for liability (i) for any breach of fiduciary duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for any transaction in which the director or officer derived an improper personal benefit, or (iv) for which indemnification by Parent or the Company is prohibited by law. In addition, in the event that on or after the Effective Time, the Company is liquidated or dissolved or all or substantially all of its assets are transferred (in one or a series of transactions) other than for value (a "Dissolution Event"), then Parent will indemnity such 36 persons, to the same extent as the Company was obligated to do so hereunder, for a period of two (2) years following such Dissolution Event. 5.18. Reporting Obligations. Parent hereby covenants that, if the Effective Time is less than 30 days prior to the end of Parent's 1999 third fiscal quarter or occurs during the first 30 days of Parent's 1999 fourth fiscal quarter, Parent shall use reasonable efforts to prepare and publicly release, as soon as practicable following the end of the first month ending at least 30 days after the Effective Time, a report filed with the SEC on Form 8-K or any other public filing, statement or announcement which includes the combined financial results (including combined sales and net income) of Parent and the Company for a period of at least 30 days of combined operations of Parent and the Company following the Effective Time; provided, however, that, in lieu of the 30-day requirements set forth in the first clause of this Section 5.18, Parent shall have the option, exercisable in its reasonable discretion, based upon its review of such combined results, to prepare and release, as soon as practicable, a report or other filing, statement or announcement that includes the combined financial results (including combined sales and net income) of Parent and the Company for a period of at least 60 days of combined operations of Parent and the Company following the Effective Time. 5.19. Debt Repayment. Parent hereby covenants that, the indebtedness of the Company to Churchill ESOP Capital Partners, A Minnesota Limited Partnership, pursuant to the Note Purchase Agreement dated October 3, 1997 shall be repaid in full immediately after the Effective Time. ARTICLE VI CONDITIONS TO THE MERGER 6.1. Conditions to Obligations of Company. The obligations of the Company to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) Representations, Warranties and Covenants. The representations and warranties of Parent and Sub in this Agreement shall be true and correct in all material respects (except such representations and warranties qualified by materiality which shall be true and correct) on and as of the Effective Time as though such representations and warranties were made on and as of such time and each of Parent and Sub shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by it as of the Effective Time. (b) No Material Adverse Changes. There shall not have occurred any Parent Material Adverse Effect. (c) No Injunction or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administration, agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; nor shall there any action taken, or any statute, rule, regulation or other enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. 37 (d) Registration Statement. The SEC shall have declared the Registration Statement effective under the Securities Act, and no stop order or similar restraining order suspending the effectiveness of the Registration Statement shall be in effect and no proceeding for such purpose shall be pending before or threatened by the SEC or any state securities administrator. (e) Legal Opinion. The Company shall have received a legal opinion from Dechert Price & Rhoads, legal counsel to Parent, substantially in the form of Exhibit D hereto. (f) Tax Opinion. The Company shall have received a written opinion from its tax counsel, Blackwell Sanders Peper Martin LLP, substantially similar to the form of opinion of counsel referred to in Section 6.2(h), to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code and such opinion shall not have been withdrawn; provided, however, that if counsel to the Company does not render such opinion, this condition shall nonetheless be deemed to be satisfied if counsel to Parent renders such opinion to the Company. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinion. (g) Certificate of Parent. The Company shall have been provided with a certificate executed on behalf of Parent by a Vice President to the effect that, as of the Effective Time: (i) all representations and warranties made by Parent and Sub in this Agreement are true and correct in all material respects on and as of the Effective time as though such representations and warranties were made on and as of such time; (ii) all covenants and obligations of this Agreement to be performed by Parent on or before such date have been so performed in all material respects; and (iii) the conditions set forth in Section 6.1(b) have been satisfied. (h) HSR Approval. Any applicable waiting period under the HSR Act, including any extension thereof, shall have expired or earlier terminated. (i) Stockholder Approval. This Agreement, the Merger and the transactions contemplated hereby and thereby shall have been approved and adopted by the Stockholders of the Company entitled to vote thereon, in the manner required by all applicable laws. 6.2. Conditions to the Obligations of Parent and Sub. The obligations of Parent and Sub to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) Representations, Warranties and Covenants. The representations and warranties of the Company in this Agreement shall be true and correct in all material respects (except such representations and warranties qualified by materiality, which shall be true and correct) on and as of the Effective Time as though such representations and warranties were made on and as of the Effective Time and the Company shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by it as of the Effective Time. (b) Third Party Consents. Any applicable waiting period under the HSR Act, including any extension thereof, shall have expired or earlier terminated, and any and all consents, waivers, assignments and approvals listed in the Disclosure Schedule shall have been obtained. 38 (c) Consent by Lenders. The senior lenders of Parent shall have consented to the transactions contemplated herein under terms acceptable to Parent in its sole discretion. (d) No Injunction or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect, nor shall any proceeding brought by an administration, agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. (e) Registration Statement. The SEC shall have declared the Registration Statement effective under the Securities Act, and no stop order or similar restraining order suspending the effectiveness of the Registration Statement shall be in effect and no proceeding for such purpose shall be pending before or threatened by the SEC or any state securities administrator. (f) Litigation. There shall be no bona fide action, suit, claim or proceeding of any nature pending, or overtly threatened, against Parent, Sub or the Company, their respective properties or any of their officers, directors, arising out of, or in any way connection with, the Merger or the other transactions contemplated by the terms of this Agreement. (g) Legal Opinion. Parent shall have received a legal opinion from Blackwell Sanders Peper Martin LLP, legal counsel to the Company, substantially in the form of Exhibit E hereto. (h) Tax Opinion. Parent shall have received a written opinion from its tax counsel, Dechert Price & Rhoads, substantially similar to the form of opinion of counsel referred to in Section 6.1(f), to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code and such opinion shall not have been withdrawn; provided, however, that if counsel to Parent does not render such opinion, this condition shall nonetheless be deemed to be satisfied if counsel to the Company renders such opinion to Parent. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinion. (i) Employment Agreements. Designated Employees as set forth on Exhibit F representing sales volume equal to not less than the "Minimum Sales Amount" as set forth on Exhibit F attached hereto, shall have executed and delivered to Parent an Employment Agreement in the form attached hereto as Exhibit G attached hereto. (j) No Material Adverse Changes. There shall not have occurred any Material Adverse Effect. (k) Stockholder Approval. This Agreement, the Merger and the transactions contemplated hereby and thereby shall have been approved and adopted by the Stockholders of the Company entitled to vote thereon, in the manner required by all applicable laws. (l) Affiliate Agreements. Each of the persons listed in Section 5.9 of the Disclosure Schedule shall have executed an Affiliate Agreement in substantially the form attached as Exhibit C. 39 (m) Opinion of Accountants. Parent and the Company shall have received letter from Ernst & Young LLP, dated within two (2) business days prior to the Closing Date, regarding their concurrence with Parent's and the Company's management's conclusions as to the appropriateness of pooling of interest accounting for the Merger under Accounting Principles Board Opinion No. 16, if the Merger is consummated in accordance with this Agreement. (n) Certificate of the Company. Parent shall have been provided with a certificate executed on behalf of the Company by its Chief Executive Officer and its Chief Financial Officer to the effect that, as of the Effective Time: (i) all representations and warranties made by the Company in this Agreement are true and correct in all material respects on and as of the Effective Time as though such representations and warranties were made on and as of such time; and (ii) all covenants and obligations of this Agreement to be performed by the Company on or before such date have been so performed in all material respects; and (iii) the conditions set forth in Section 6.2(j) have been satisfied. (o) Farley Share Pledge. Any obligation of the Company to make any payment to or for the benefit of LaSalle National Bank under the Put Agreement referred to on Schedule 2.2 hereto shall have been terminated. (p) Environmental Audits. Any sites for which Parent has reasonably requested a Phase I environmental audit has had such audit completed and the results of such investigations shall not reveal any condition or conditions, the response to which would cost more than $100,000 in Parent's reasonable estimation. ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 7.1. Survival of Representations and Warranties. All of the representations and warranties in this Agreement shall survive the Merger and continue until the earlier of the date which is the date of the auditor's report for the first audit of Parent's financial statements after the Closing Date or the date which is one year following the Closing Date (the "Expiration Date"). 7.2. Escrow Arrangements. (a) General Escrow Fund. As security for the indemnity provided for in this Section 7.2 and by virtue of this Agreement, the Stockholders will be deemed to have received and deposited with the Escrow Agent (as defined below) the General Escrow Amount (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time with respect to the General Escrow Amount) without any act of any Stockholder. As soon as practicable after the Effective Time, the General Escrow Amount, without any act of any Stockholder, will be deposited with an institution acceptable to Parent in its reasonable discretion as Escrow Agent which shall execute a joinder hereto (the "Escrow Agent"), such deposit to constitute an escrow fund (the "General Escrow Fund") to be governed by the terms set forth herein. The Escrow Agent may execute this Agreement following the date hereof and prior to the Effective Time, 40 and such later execution, if so executed after the date hereof, shall not affect the binding nature of this Agreement as of the date hereof between the other signatories hereto. The portion of the General Escrow Amount contributed on behalf of each Stockholder shall be in proportion to the aggregate Parent Common Stock which such holder would otherwise be entitled under Section 1.6. The Stockholders shall jointly indemnify and hold Parent and its officers, directors and affiliates (the "Indemnified Parties") harmless against all claims, losses, liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses of investigation (hereinafter individually a "Loss" and collectively "Losses") incurred by Parent, its officers, directors, or affiliates (including the Surviving Corporation) directly or indirectly as a result of (i) any inaccuracy or breach of a representation or warranty of the Company contained in this Agreement or any Ancillary Agreement, (ii) any failure by the Company to perform or comply with any covenant contained in this Agreement, (iii) any legal, accounting, financial advisor, investment banker or other third-party professional fees, costs, commissions or expenses incurred by the Company in connection with the Merger, this Agreement, or the transactions contemplated hereby, other than as set forth on Schedule 7.2, (iv) any Losses arising in connection with any tax liability asserted by the State of Illinois with respect to sales and/or use taxes, or (v) any Losses arising in connection with any filing or failure to file timely, accurately and completely any Form 5500 applicable to the Company or any of its Subsidiaries prior to the Effective Time; provided, however, that the aggregate amount for which the Stockholders are required to indemnify the Indemnified Parties under this Section 7.2(a) shall not exceed the amount deposited in the General Escrow Fund. Parent shall receive shares from the General Escrow Fund to the extent that Officer's Certificates (as defined in paragraph (e) below) identifying Losses under this Section 7.2(a), which Losses (other than those described in clauses (iii) and (v) of this Section 7.2 (a)) in the aggregate exceed $620,000 (the "Basket Amount"), have been delivered to the Escrow Agent as provided in paragraph (e) below; and provided, further, that no Loss shall be allowed that is based upon the failure of the Company to have satisfied any covenant required to have been satisfied by the Company prior to Closing if satisfaction of such covenant is a condition to Closing set forth in Section 7.1 hereof and Parent expressly waives satisfaction of such condition in writing at or prior to the Effective Date. In no event will losses suffered under clauses (iii) or (v) of this Section 7.2(a) be subject to the Basket Amount. No Stockholder shall have any right to contribution from the Company for any claim made by Parent after the Effective Time. For purposes of determining the existence of any misrepresentation, breach of warranty, or nonfulfillment of any covenant or agreement, or calculating the amount of any Losses incurred in connection with any such misrepresentation, breach of warranty, or nonfulfillment of any covenant or agreement, any and all references to material or Material Adverse Effect (or other correlative terms) shall be disregarded. (b) Special Escrow Fund. As security for the indemnity provided for in this Section 7.2(b) and by virtue of this Agreement, the Stockholders will be deemed to have received and deposited with the Escrow Agent the Special Escrow Amount (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time with respect to the Special Escrow Amount) without any act of any Stockholder. As soon as practicable after the Effective Time, the Special Escrow Amount, without any act of any Stockholder, will be deposited with the Escrow Agent, such deposit to constitute an escrow fund (the "Special Escrow Fund") to be governed by the terms set forth herein. The portion of the Special Escrow Amount contributed on behalf of each Stockholder shall be in proportion to the aggregate Parent Common Stock which such 41 holder would otherwise be entitled under Section 1.6. The Stockholders shall jointly indemnify and hold the Indemnified Parties harmless against all Losses incurred by Parent, its officers, directors, or affiliates (including the Surviving Corporation) directly or indirectly in connection with those matters set forth on Schedule 7.2(b); provided, however, that the aggregate amount for which the Stockholders are required to indemnify the Indemnified Parties under this Section 7.2(b) shall not exceed the amount deposited in the Special Escrow Fund. Parent shall receive shares from the Special Escrow Fund to the extent that Officer's Certificates identifying Losses have been delivered to the Escrow Agent as provided in paragraph (e) below. No Stockholder shall have any right to contribution from the Company for any claim made by Parent after the Effective Time. Notwithstanding the foregoing, in the event that the issues underlying the bases for indemnification in this Section 7.2(b) are resolved, in part, prior to the Closing Date to the satisfaction of Parent in its sole discretion, Parent will negotiate in good faith with the Company to modify the terms of this Section 7.2(b) in a manner consistent with such resolution, and in the event that the issues underlying the bases for indemnification in this Section 7.2(b) are completely and unconditionally resolved prior to the Closing Date to the satisfaction of Parent in its reasonable discretion (and all persons identified on Schedule 7.2(b) shall provide an unlimited waiver and release in connection therewith, which shall be in a form acceptable to Parent), the amount of the Special Escrow Fund shall be reduced to zero (0) and the amount of the Aggregate Merger Consideration shall be reduced by the number of shares of Parent Common Stock equal to the amount of any costs and expenses suffered by the Company in connection therewith (such Parent Common Stock to be valued at the closing price of the Parent Common Stock on the New York Stock Exchange composite tape on the Closing Date). (c) Escrow Period; Distribution upon Termination of Escrow Periods. Subject to the following requirements, the General Escrow Fund shall be in existence immediately following the Effective Time and shall terminate on the Expiration Date (such period being the "General Escrow Period"); provided, however, that the Escrow Period shall not terminate with respect to any amount which, in the reasonable judgment of Parent, subject to the objection of the Stockholder Representative (as defined in Section 7.3 below), is necessary to satisfy any unsatisfied claims specified in any Officer's Certificate delivered to the Escrow Agent prior to termination of such General Escrow Period with respect to facts and circumstances existing prior to the termination of such General Escrow Period, or is specified in a certificate of an officer of Parent stating that a third party has asserted a claim for which Parent reasonably anticipates it will be entitled to indemnification hereunder. As soon as all such claims have been resolved the Escrow Agent shall deliver to the Stockholders the remaining portion of the General Escrow Fund not required to satisfy such claims. Deliveries of General Escrow Amounts to the Stockholders pursuant to this Section 7.2(c) shall be made in proportion to their respective original contributions to the General Escrow Fund. Subject to the following requirements, the Special Escrow Fund shall be in existence immediately following the Effective Time and shall terminate on August 31, 2007 (such period being the "Special Escrow Period"); provided, however, that the Special Escrow Period shall not terminate with respect to any amount which, in the reasonable judgment of Parent, subject to the objection of the Stockholder Representative (as defined in Section 7.3 below), is specified in a certificate of an officer of Parent stating that any person has asserted a claim for which Parent reasonably anticipates it will be entitled to indemnification hereunder. As soon as all such claims have been resolved the Escrow Agent shall deliver to the Stockholders the remaining portion of the Special Escrow Fund not 42 required to satisfy such claims. Deliveries of Special Escrow Amounts to the Stockholders pursuant to this Section 7.2(c) shall be made in proportion to their respective original contributions to the Special Escrow Fund. (d) Protection of Escrow Fund. (i) The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Parent and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. (ii) Any shares of Parent Common Stock or other equity securities issued or distributed by Parent (including shares issued upon a stock split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Parent Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the record holders thereof. Cash dividends on Parent Common Stock shall not be added to the Escrow Fund but shall be distributed to the record holders thereof. (iii) Each Stockholder shall have voting rights and the right to distributions of dividends with respect to the shares of Parent Common Stock contributed to the Escrow Fund by such Stockholder (and on any voting securities added to the Escrow Fund in respect of such shares of Parent Common Stock). As the record holder of such shares, the Escrow Agent shall vote such shares in accordance with the instructions of the Stockholders having the beneficial interest therein and shall promptly deliver copies of all proxy solicitation materials to such Stockholders. (e) Claims Upon Escrow Fund. (i) Subject to subsection (f) below, thirty (30) days after receipt by the Escrow Agent at any time on or before the last day of the applicable Escrow Period of a certificate signed by any officer of Parent "Officer's Certificate" (A) stating that Parent has paid or properly accrued and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall, subject to the provisions of Section 7.2(f) hereof, deliver to Parent out of the applicable Escrow Fund, as promptly as practicable, shares of Parent Common Stock held in the applicable Escrow Fund with a value equal to such Losses. (ii) For the purposes of determining the number of shares of Parent Common Stock to be delivered to Parent out of the Escrow Fund as indemnity pursuant to Section 7.2(e)(i) hereof, the shares of Parent Common Stock shall be valued at the closing price of the Parent Common Stock on the New York Stock Exchange composite tape on the Closing Date, which the parties shall certify to the Escrow Agent in writing. (f) Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Stockholder Representative, and 43 for a period of thirty (30) days after such delivery, the Escrow Agent shall make no delivery to Parent of any amounts in any Escrow Fund pursuant to Section 7.2(e) hereof unless the Escrow Agent shall have received written authorization from the Stockholder Representative to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent shall make delivery of shares of Parent Common Stock from the applicable Escrow Fund in accordance with Section 7.2(e) hereof; provided, however, that no such payment or delivery may be made if the Stockholder Representative shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty (30) day period. (g) Resolution of Conflicts. In case the Stockholder Representative shall object in writing to any claim or claims made in any Officer's Certificate, the Stockholder Representative and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Stockholder Representative and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock from the Escrow Fund in accordance with the terms thereof. (h) Third-Party Claims. In the event Parent becomes aware of a third-party claim which Parent believes may result in a demand against the Escrow Fund, Parent shall notify the Stockholder Representative of such claim, and the Stockholders shall be entitled, at their expense, to participate in any defense of such claim. Parent shall have the right in its sole discretion to settle any such claim. In the event that the Stockholder Representative has consented to any such settlement, the Stockholders shall have no power or authority to object under any provision of this Article VII to the amount of any claim by Parent against the Escrow Fund with respect to such settlement. (i) Escrow Agent's Duties. (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Stockholder Representative, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. (ii) The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person, excepting only orders or process of courts of law. and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 44 (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. (v) In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any instrument, including any written statement of affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (vi) If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of Parent Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of Parent Common Stock held in escrow, except all cost, expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the interpleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. (vii) The parties and their respective successors and assigns agree jointly and severally to indemnify and hold Escrow Agent harness against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, including allocated costs of in-house counsel and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his/her duties under this Agreement, including but not limited to any Litigation arising from this Agreement or involving its subject matter other than arising out of its negligence or willful misconduct. (viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the 45 parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. Upon appointment of a successor escrow agent, the Escrow Agent shall be discharged from any further duties and liability under this Agreement. (j) Fees. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by Parent as Parent and the Escrow Agent shall agree. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorney's fees, including allocated costs of in-house counsel, and expenses occasioned by such default, delay, controversy or litigation. (k) Consequential Damages. In no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (l) Successor Escrow Agents. Any corporation into which the Escrow Agent in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity may be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. 7.3. Stockholder Representatives. (a) In the event that the Merger is approved, effective upon such vote, and without further act of any Stockholder, Eric Farley shall be appointed as agent and attorney-in-fact (the "Stockholder Representative") for each Stockholder, for and on behalf of the Stockholders, to give and receive notices and communications, to authorize delivery to Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Stockholder Representative for the accomplishment of the foregoing. Such agency may be changed by the Stockholders from time to time upon not less than thirty (30) days prior written notice to Parent; provided, however, that the Stockholder Representative may not be removed unless holders of a majority in interest in the Escrow Fund agree to such 46 removal and to the identity of the substituted agent. Any vacancy in the position of Stockholder Representative may be filled by approval of the holders of a majority in interest in the Escrow Fund. No bond shall be required of the Stockholder Representative, and the Stockholder Representative shall not receive compensation for his or her services. Notices or communications to or from the Stockholder Representative shall constitute notice to or from each of the Stockholders. (b) The Stockholder Representative shall not be liable for any act done or omitted hereunder as Stockholder Representative, except due to such person's gross negligence or bad faith. The Stockholders on whose behalf the Escrow Amount was contributed to the Escrow Fund shall severally indemnify the Stockholder Representative and hold the Stockholder Representative harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Stockholder Representative and arising out of or in connection with the acceptance or administration of the Stockholder Representative's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Stockholder Representative. The Stockholder Representative will be reimbursed out of Escrow Funds, to the extent available, for services rendered hereunder at a rate of $90 per hour upon delivery of appropriate documentation of such services rendered. (c) A decision, act, consent or instruction of the Stockholder Representative shall constitute a decision of all Stockholders for whom a portion of the Escrow Amount otherwise issuable to them is deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such Stockholders, and the Escrow Agent and Parent may rely upon any such decision, act, consent or instruction of the Stockholder Representative as being the decision, act, consent or instruction of each and every such Stockholder. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Stockholder Representative. 7.4. Parent Indemnity. Parent shall indemnify and hold the Stockholders harmless against all Losses incurred by them directly or indirectly which exceed in the aggregate $620,000 as a result of (i) any inaccuracies or breaches of a representation or warranty of Parent or Sub contained herein or (ii) any failure of Parent or Sub to perform or comply with any of their covenants contained herein. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1. Termination. Except as provided in Section 8.2, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) by mutual consent of the Company and Parent; (b) by Parent or the Company if (i) the Effective Time has not occurred by September 1, 1999; provided, however, that the right to terminate this Agreement under this Section 8.1(b)(i) 47 shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement; or (ii) there shall be a final nonappealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal; (c) by Parent if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity, which would: (i) prohibit Parent's or Sub's ownership or operation of any portion of the business of the Company or (ii) compel Parent or the Company to dispose of or hold separate all or a portion of the business or assets of the Company or Parent as a result of the Merger; (d) by Parent if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and such breach has not been cured within ten (10) calendar days after written notice to the Company; provided, however, that, no cure period shall be required for a breach which by its nature cannot be cured; (e) by the Company if neither it nor any Principal Stockholder is in material breach of their respective obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Sub and such breach has not been cured within ten (10) calendar days after written notice to Parent; provided, however, that no cure period shall be required for a breach which by its nature cannot be cured; (f) by Parent if an event having a Material Adverse Effect shall have occurred after the date hereof; (g) by the Company if an event having a Parent Material Adverse Effect shall have occurred after the date hereof; or (h) by Parent or the Company if the Stockholders of the Company do not approve the Merger, this Agreement and the transactions contemplated thereby and hereby on or before August 31, 1999. Where action is taken to terminate this Agreement pursuant to this Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 8.2. Effect of Termination. In the event termination of this Agreement as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Sub or the Company, or their respective officers, directors or Stockholders, provided that each party shall remain liable for breaches of this Agreement prior to its termination; provided, further, that the provisions of Sections 5.3 and 5.4, Article IX and this Section 8.2 shall remain in full force and effect and survive any termination of this Agreement; provided, further, that in the event of a termination of this Agreement pursuant to Section 8.1(h), and (x) within six (6) months after such termination, the Company shall enter into an Acquisition Agreement for a Business Combination or (y) within twelve (12) months after such termination, the Company shall 48 consummate a Business Combination, the Company shall immediately pay to Parent in cash by wire transfer in immediately available funds to an account designated by Parent a termination fee in the amount of eight million five hundred thousand dollars ($8.5 million) (the "Termination Fee"). For purposes of this Agreement, "Acquisition Agreement" means a letter of intent, agreement- in-principal, acquisition agreement or similar agreement, and "Business Combination" means (i) a merger, consolidation, share exchange, business combination or similar transaction involving the Company as a result of which the stockholders of the Company prior to such transaction in the aggregate cease to own at least a majority of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof), (ii) a sale, lease, exchange, transfer or other disposition of 50% or more of the assets of the Company and its subsidiaries, taken as a whole, in a single transaction or a series of related transactions, or (iii) the acquisition, by a person (other than Parent or any affiliate thereof) or group (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations thereunder) of beneficial ownership of more than 25% of the Company Capital Stock whether by tender or exchange offer or otherwise. 8.3. Amendment. This Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed on behalf of each of the parties hereto, except that the Stockholder Representative's signature on such writing shall only be required for amendments to Article VII. 8.4. Extension, Remedy. At any time prior to the Effective Time, Parent and Sub, on the one hand, and the Company, on the other hand, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other party hereto, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial messenger or courier service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), provided, however, that notices sent by mail will not be deemed given until received: (a) if to Parent or Sub, to: AmeriSource Health Corporation 300 Chester Field Parkway Malvern, PA 19355 Attention: President; and General Counsel Telephone No.: (610) 296-4480 Facsimile No.: (610) 993-9085 49 with a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attention: Craig L. Godshall, Esquire Telephone No.: (215) 994-4000 Facsimile No.: (215) 994-2222 (b) if to the Company, to C.D. Smith Healthcare, Inc. 3907 S. 48th Terrace St. Joseph, MO 64502 Attention: President Telephone No.: (816) 232-5471 (ext. 150) Facsimile No: (816) 232-2187 with a copy to: Blackwell Sanders Peper Martin 2300 Main Street, Suite 1100 Kansas City, MO 64108 Attention: Jim Ash, Esq. Telephone No.: (816) 983-8137 Facsimile No: (816) 983-9083 (c) if to the Stockholder Representative, to: Eric Farley 2620 Ashland Avenue St. Joseph, MO 64506 Telephone No.: (816) 390-9841 if to the Escrow Agent, to the address provided by Escrow Agent in its joinder to this Agreement. 9.2. Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any information that appears in reasonable detail in any part of a schedule to this Agreement shall be deemed to have been included and be a part of any other schedule to this Agreement in which such information would otherwise have been required to be included, but only to the extent that the purpose for which such information is deemed to be disclosed is readily apparent on its face. The phrase "the date hereof" and similar and correlative phrases when used herein shall be deemed in each case to refer to April 28, 1999. 9.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more 50 counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 9.4. Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the Disclosure Schedule, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings both written and oral, among the parties with respect to the subject matter hereof, (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned (other than by operation of law), except that Parent and Sub may assign their respective rights and delegate their respective obligations hereunder to their respective affiliates. 9.5. Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 9.6. Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 9.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9.8. Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefor, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 9.9. Facsimiles. This Agreement and any Ancillary Agreement, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or any party to any such Ancillary Agreement, each other party hereto or thereto shall reexecute original forms thereof and deliver them to all other parties. No party hereto or to any such Ancillary Agreement shall claim that this Agreement or such Ancillary Agreement is invalid, not binding or unenforceable based upon the use of a facsimile machine to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine, and each such party forever waives any such claim or defense. [Signature page follows] 51 IN WITNESS WHEREOF, Parent, Sub, the Company, the Stockholder Representative and the Escrow Agent have caused this Agreement to be signed, all as of the date first written above. AMERISOURCE HEALTH CORPORATION C.D. SMITH HEALTHCARE, INC. /s/ Robert David Yost /s/ Robert C. Farley By: _________________________________ By: _________________________________ Chief Executive Officer HAWK ACQUISITION CORP. /s/ Robert David Yost By: _________________________________ President STOCKHOLDER REPRESENTATIVE (As to the provisions of Article VII only) /s/ Eric M. Farley _____________________________________ 52 Annex B [LETTERHEAD OF BT ALEX. BROWN INCORPORATED] April 28, 1999 Board of Directors C.D. Smith Healthcare, Inc. 3907 South 48th Terrace St. Joseph, Missouri 64502 Members of the Board: BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial advisor to C.D. Smith Healthcare, Inc. ("C.D. Smith") in connection with the proposed merger transaction involving C.D. Smith and AmeriSource Health Corporation ("AmeriSource") pursuant to the Agreement and Plan of Reorganization, dated as of April 28, 1999 (the "Agreement"), among AmeriSource, Hawk Acquisition Corp., a wholly owned subsidiary of AmeriSource ("Sub"), C.D. Smith and a designated escrow agent. The Agreement provides, among other things, for the merger of Sub with and into C.D. Smith (the "Merger") pursuant to which C.D. Smith will become a wholly owned subsidiary of AmeriSource. As set forth more fully in the Agreement, as a result of the Merger, each outstanding share of the common stock, par value $0.01 per share, of C.D. Smith ("C.D. Smith Common Stock") will be converted into the right to receive that number of shares of Class A common stock, par value $0.01 per share, of AmeriSource ("AmeriSource Common Stock") equal to a fraction, the numerator of which is 2,690,000 shares of AmeriSource Common Stock (subject to adjustment pursuant to certain escrow provisions specified in the Agreement) and the denominator of which is the total number of shares of C.D. Smith Common Stock on a fully-diluted basis (the number of shares of AmeriSource Common Stock into which such shares of C.D. Smith Common Stock will be so converted, the "Exchange Ratio"). The terms and conditions of the Merger are more fully set forth in the Agreement. You have requested BT Alex. Brown's opinion as to the fairness, from a financial point of view, of the Exchange Ratio to the holders of C.D. Smith Common Stock. In arriving at its opinion, BT Alex. Brown has reviewed certain available financial and other information concerning C.D. Smith, certain publicly available financial and other information concerning AmeriSource and certain internal analyses and other information furnished to or discussed with it by C.D. Smith, AmeriSource and their respective advisors. BT Alex. Brown has also held discussions with members of the senior management of C.D. Smith and AmeriSource regarding the business and prospects of their respective companies and the joint prospects of a combined company. In addition, BT Alex. Brown has (i) reviewed the reported prices and trading activity for AmeriSource Common Stock, (ii) compared certain financial information for C.D. Smith and certain financial information and stock market information for AmeriSource with similar information for certain other companies whose securities are publicly traded, (iii) reviewed the financial terms of certain recent business combinations which it deemed comparable in whole or in part, (iv) reviewed the terms of the Agreement, and (v) performed such other studies and analyses and considered such other factors as it deemed appropriate. B-1 Board of Directors C.D. Smith Healthcare, Inc.April 28, 1999 Page 2 BT Alex. Brown has not assumed responsibility for independent verification of, and has not independently verified, any information, whether publicly available or furnished to it, concerning C.D. Smith, AmeriSource or the combined company, including, without limitation, any financial information, forecasts or projections considered in connection with the rendering of its opinion. Accordingly, for purposes of its opinion, BT Alex. Brown has assumed and relied upon the accuracy and completeness of all such information and BT Alex. Brown has not conducted a physical inspection of any of the properties or assets, and has not prepared or obtained any independent evaluation or appraisal of any of the assets or liabilities, of C.D. Smith or AmeriSource. With respect to the financial forecasts and projections made available to BT Alex. Brown and used in its analyses, BT Alex. Brown has assumed that they have been prepared on bases reflecting reasonable estimates and judgments as to the matters covered thereby. In rendering its opinion, BT Alex. Brown expresses no view as to the reasonableness of such forecasts and projections or the assumptions on which they are based. In connection with its opinion, BT Alex. Brown was not requested to, and did not, solicit third party indications of interest with respect to the acquisition of all or a part of C.D. Smith, nor was BT Alex. Brown requested to, and it did not, participate in the negotiation or structuring of the Merger. BT Alex. Brown's opinion is necessarily based upon economic, market and other conditions as in effect on, and the information made available to it as of, the date hereof. For purposes of rendering its opinion, BT Alex. Brown has assumed that, in all respects material to its analysis, the representations and warranties of C.D. Smith, AmeriSource and Sub contained in the Agreement are true and correct, C.D. Smith, AmeriSource and Sub will each perform all of the covenants and agreements to be performed by it under the Agreement and all conditions to the obligations of each of C.D. Smith, AmeriSource and Sub to consummate the Merger will be satisfied without any waiver thereof. BT Alex. Brown has also assumed that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the Merger will be obtained and that in connection with obtaining any necessary governmental, regulatory or other approvals and consents, or any amendments, modifications or waivers to any agreements, instruments or orders to which either C.D. Smith or AmeriSource is a party or is subject or by which it is bound, no limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have a material adverse effect on C.D. Smith or AmeriSource or materially reduce the contemplated benefits of the Merger to C.D. Smith. In addition, you have informed BT Alex. Brown, and accordingly for purposes of rendering its opinion BT Alex. Brown has assumed, that the Merger will qualify as a tax-free reorganization for federal income tax purposes and will be accounted for as a pooling of interests. BT Alex. Brown is expressing no opinion as to the price at which the AmeriSource Common Stock will trade at any time. This opinion is addressed to, and for the use and benefit of, the Board of Directors of C.D. Smith and is not a recommendation to any stockholder as to how such stockholder should vote with respect to matters relating to the proposed Merger. This opinion is limited to the fairness, from a B-2 Board of Directors C.D. Smith Healthcare, Inc.April 28, 1999 Page 3 financial point of view, of the Exchange Ratio to the holders of C.D. Smith Common Stock, and BT Alex. Brown expresses no opinion as to the merits of the underlying decision by C.D. Smith to engage in the Merger. BT Alex. Brown, as a customary part of its investment banking business, is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements and valuations for estate, corporate and other purposes. BT Alex. Brown will receive a fee for its services to C.D. Smith in connection with the Merger, a significant portion of which is contingent upon the consummation of the Merger and a portion of which is payable upon delivery of this opinion. BT Alex. Brown acted as a co-managing underwriter in connection with C.D. Smith's proposed initial public offering for which a registration statement was filed in June 1998 and, thereafter, at the request of C.D. Smith, held discussions with certain third parties to solicit indications of interest with respect to the possible acquisition of C.D. Smith. BT Alex. Brown maintains a market in AmeriSource Common Stock and regularly publishes research reports regarding the businesses and securities of AmeriSource and other publicly traded companies in the pharmaceutical wholesale distribution industry. In the ordinary course of business, BT Alex. Brown and its affiliates may actively trade or hold the securities and other instruments and obligations of AmeriSource for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities, instruments or obligations. Based upon and subject to the foregoing, it is BT Alex. Brown's opinion that, as of the date of this letter, the Exchange Ratio is fair, from a financial point of view, to the holders of C.D. Smith Common Stock. Very truly yours, /s/ BT ALEX. BROWN INCORPORATED BT ALEX. BROWN INCORPORATED B-3 Annex C 351.455. Shareholder who objects to merger may demand value of shares, when 1. If a shareholder of a corporation which is a party to a merger or consolidation shall file with such corporation, prior to or at the meeting of shareholders at which the plan of merger or consolidation is submitted to a vote, a written objection to such plan of merger or consolidation, and shall not vote in favor thereof, and such shareholder, within twenty days after the merger or consolidation is effected, shall make written demand on the surviving or new corporation for payment of the fair value of his shares as of the day prior to the date on which the vote was taken approving the merger or consolidation, the surviving or new corporation shall pay to such shareholder, fair value thereof. Such demand shall state the number and class of the shares owned by such dissenting shareholder. Any shareholder failing to make demand within the twenty day period shall be conclusively presumed to have consented to the merger or consolidation and shall be bound by the terms thereof. 2. If within thirty days after the date on which such merger or consolidation was effected the value of such shares is agreed upon between the dissenting shareholder and the surviving or new corporation, payment therefor shall be made within ninety days after the date on which such merger or consolidation was effected, upon the surrender of his certificate or certificates representing said shares. Upon payment of the agreed value the dissenting shareholder shall cease to have any interest in such shares or in the corporation. 3. If within such period of thirty days the shareholder and the surviving or new corporation do not so agree, then the dissenting shareholder may, within sixty days after the expiration of the thirty day period, file a petition in any court of competent jurisdiction within the county in which the registered office of the surviving or new corporation is situated, asking for a finding and determination of the fair value of such shares, and shall be entitled to judgment against the surviving or new corporation for the amount of such fair value as of the day prior to the date on which such vote was taken approving such merger or consolidation, together with interest thereon to the date of such judgment. The judgment shall be payable only upon and simultaneously with the surrender to the surviving or new corporation of the certificate or certificates representing said shares. Upon the payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares, or in the surviving or new corporation. Such shares may be held and disposed of by the surviving or new corporation as it may see fit. Unless the dissenting shareholder shall file such petition within the time herein limited, such shareholder and all persons claiming under him shall be conclusively presumed to have approved and ratified the merger or consolidation, and shall be bound by the terms thereof. 4. The right of a dissenting shareholder to be paid the fair value of his shares as herein provided shall cease if and when the corporation shall abandon the merger or consolidation. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers Reference is made to information provided under Item 6 of the Company's Registration Statement on Form S-8 (SEC File No. 333-45547), filed with the SEC on February 3, 1998, which information is incorporated herein by reference. Item 21. Exhibits The following exhibits are filed herewith or incorporated herein by reference.
Exhibit Number Description ------- ----------- 2 Amended and Restated Agreement and Plan of Reorganization by and among AmeriSource Health Corporation, Hawk Acquisition Corp., C.D. Smith Healthcare, Inc. and a Person to be Designated Escrow Agent, dated as of April 28, 1999, as amended and restated as of May 27, 1999 (included as Annex A to the prospectus filed in Part I of this Registration Statement). 3.1* Restated Certificate of Incorporation of the Company, as amended. 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, Amendment No. 1 (SEC File No. 33-44244). 4.1 Receivables Purchase Agreement, dated as of December 13, 1994 between AmeriSource, as Seller and AmeriSource Receivables Corporation, as Purchaser (incorporated by reference to Exhibit 4.11 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1994). 4.2 AmeriSource Receivables Master Trust Pooling and Servicing Agreement, dated as of December 13, 1994 among AmeriSource Receivables Corporation, as transferor, AmeriSource, as the initial Servicer, and Manufacturers and Traders Trust Company, as Trustee (incorporated by reference to Exhibit 4.12 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1994). 4.3 Revolving Certificate Purchase Agreement, dated as of December 13, 1994 among AmeriSource Receivables Corporation, AmeriSource, The Revolving Purchasers and Bankers Trust Company, as Agent and Revolving Purchaser (incorporated by reference to Exhibit 4.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1994). 4.4 Series 1994-1 Supplement to Pooling and Servicing Agreement, dated as of December 13, 1994 among AmeriSource Receivables Corporation, as Transferor, AmeriSource, as Initial Servicer, and Manufacturers and Traders Trust Company, as Trustee (incorporated by reference to Exhibit 4.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1994).
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Exhibit Number Description ------- ----------- 4.5 Credit Agreement, dated as of January 8, 1997 among AmeriSource Corporation as Borrower, AmeriSource Health Corporation and Certain Subsidiaries and Affiliates, as Guarantors and Nations Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 4.14 to Registrant's Quarterly Report Form 10-Q for its fiscal quarter ended December 31, 1996). 4.6 Amendment No. 1, dated as of February 26, 1997 to the January 1997 Credit Agreement (incorporated by reference to Exhibit 4.15 to Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 1997). 4.7 Amendment to Pooling and Servicing Agreement and Receivables Purchase Agreement, dated as of March 5, 1997 among AmeriSource Receivables Corporation, AmeriSource Corporation, and Manufacturers and Traders Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 1997). 4.8 Certificate Purchase Agreement, dated as of April 11, 1997, among AmeriSource Corporation, AmeriSource Receivables Corporation, BT Securities Corporation, Bankers Trust International PLC, and Bankers Trust Australia Limited (incorporated by reference to Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 1997). 4.9 Amendment to Pooling and Servicing Agreement and Receivables Purchase Agreement dated as of April 17, 1997 among AmeriSource Receivables Corporation, AmeriSource Corporation, and Manufacturers and Traders Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 1997). 4.10 Series 1997-1 Supplement to Pooling and Servicing Agreement dated as of April 17, 1997 among AmeriSource Receivables Corporation as Transferor, AmeriSource Corporation as initial Servicer and Manufacturers and Traders Trust Company as Trustee (incorporated by reference to Exhibit 4.4 to Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 1997). 4.11 Amendment No. 3, dated October 1997, to the January 1997 Credit Agreement (incorporated by reference to Exhibit 4.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998). 4.12 Amendment No. 4, dated November 1998, to the January 1997 Credit Agreement (incorporated by reference to Exhibit 4.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998). 4.13 Receivables Purchase Agreement among AmeriSource Receivables Financial Corporation, as Seller, AmeriSource Corporation, as Guarantor, Delaware Funding Corporation, as Buyer, and Morgan Guaranty Trust Company of New York, as Administrative Agent, dated as of May 14, 1999. 4.14 Purchase Agreement between Amerisource Corporation, as Seller, and AmeriSource Receivable Financial Corporation, as Payer, dated as of May 14, 1999. 5* Opinion of Dechert Price & Rhoads. 8.1* Opinion of Dechert Price & Rhoads. 8.2* Opinion of Blackwell Sanders Peper Martin LLP.
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Exhibit Number Description ------- ----------- 10.1 AmeriSource Master Pension Plan (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1, Registration No. 33- 27835, filed March 29, 1989). 10.2 AmeriSource 1988 Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1, Registration No. 33-27835, filed March 29, 1989). 10.3 Form of Take-Along and Registration Rights Agreement between Registrant and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit 4.19 to Amendment No. 2, filed September 7, 1989, to the Registration Statement on Form S-1, Registration No. 33-27835). 10.4 Agreement, dated October 14, 1994, among certain manufacturers and wholesalers of prescription products, including AmeriSource (incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1994). 10.5 Registrant's 1995 Stock Option Plan (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the Registrant's Registration Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513). 10.6 Registrant's Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the Registrant's Registration Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513). 10.7 Registration Rights Agreement dated as of March 30, 1995 among Registrant and 399 Venture Partners, Inc. (incorporated by reference to Exhibit 10.18 to Amendment No. 2 to the Registrant's Registration Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513). 10.8 Employment Agreement, dated September 4, 1997, between AmeriSource and R. David Yost (incorporated by reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1997). 10.9 Employment Agreement, dated September 4, 1997, between AmeriSource and David M. Flowers (incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1997). 10.10 Employment Agreement, dated September 4, 1997, between AmeriSource and Kurt J. Hilzinger (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1997). 10.11 AmeriSource Health Corporation 1996 Stock Option Plan (incorporated by reference to Appendix C to Registrant's Proxy Statement dated January 15, 1997 for the Annual Meeting of Stockholders held on February 11,1997). 10.12 AmeriSource Health Corporation 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to Appendix D to Registrant's Proxy Statement dated January 15, 1997 for the Annual Meeting of Stockholders held on February 11, 1997). 10.13 1996 Amendment to the AmeriSource Health Corporation 1995 Stock Option Plan (incorporated by reference to Appendix A to Registrant's Proxy Statement dated January 15, 1997 for the Annual Meeting of Stockholders held on February 11, 1997). 10.14 Consulting Agreement, dated October 31, 1997, between AmeriSource Corporation and John F. McNamara (incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1997).
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Exhibit Number Description ------- ----------- 10.15 Form of Voting/Support Agreement among AmeriSource Health Corporation, Hawk Acquisition Corp. and certain executives of C.D. Smith. 10.16 Form of Voting/Support Agreement among AmeriSource Health Corporation, Hawk Acquisition Corp. and Churchill ESOP Capital Partners. 10.17 C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan, dated January 1, 1987, as restated on December 10, 1991. 10.18 Amendment, dated October 1, 1992 to the C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan. 10.19* Amendment, dated December 2, 1994, to the C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan. 10.20* Amendment, dated October 1, 1996, to the C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan. 10.21* Amendment, dated January 1, 1998, to the C.D. Smith Healthcare, Inc. Employee Stock Ownership Plan. 21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 of Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998). 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Dechert Price & Rhoads (included in Exhibit 5). 23.4 Consent of Blackwell Sanders Peper Martin LLP (included in Exhibit 8.2). 24 Power of Attorney (included on signature page). 99.1 C.D. Smith proxy card. 99.2 C.D. Smith ESOP direction form. 99.3 Consent of BT Alex. Brown Incorporated.
- -------- * To be filed by amendment Item 22. Undertakings The undersigned Registrant hereby undertakes: (1) To file, during any period on which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1993; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the II-4 commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange of 1934 (and, where applicable, each filing of employee benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (5) That, prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (6) That, every prospectus: (i) that is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 will be filed as part of an amendment of the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (7) To respond to requests for information that is incorporated by reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (8) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-5 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Malvern, Commonwealth of Pennsylvania on May 28, 1999. Amerisource Health Corporation /s/ R. David Yost By:__________________________________ R. David Yost President and Chief Executive Officer POWER OF ATTORNEY KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints R. David Yost, Kurt J. Hilzinger and William D. Sprague, each and individually, his attorneys-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement or any Registration Statement for the same offering that is effective upon filing pursuant to rule 462(b) under the Securities Act of 1933, as amended, and to file the same with exhibits thereto and other documents in connection therewith or in connection with the registration of common stock under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission, granting unto each of such attorneys-in- fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that each such attorney-in-fact, or his agent or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. /s/R. David Yost President and Chief May 28, 1999 ______________________________________ Executive Officer and R. David Yost Director (principal executive officer) /s/ Lawrence C. Karlson Chairman of the Board May 28, 1999 ______________________________________ Lawrence C. Karlson /s/ Bruce C. Bruckmann Director May 28, 1999 ______________________________________ Bruce C. Bruckmann /s/ Michael A. Delaney Director May 28, 1999 ______________________________________ Michael A. Delaney
II-7 /s/ Richard C. Gozon Director May 28, 1999 ______________________________________ Richard C. Gozon /s/ Edward E. Hagenlocker Director May 28, 1999 ______________________________________ Edward E. Hagenlocker /s/ George Strong Director May 28, 1999 ______________________________________ George Strong /s/ James A. Urry Director May 28, 1999 ______________________________________ James A. Urry /s/ Barton J. Winokur Director May 28, 1999 ______________________________________ Barton J. Winokur /s/ George L. James, III Vice President and Chief May 28, 1999 ______________________________________ Financial Officer George L. James, III (principal financial officer) /s/ Michael D. DiCandilo Vice President and May 28, 1999 _____________________________________ Controller (principal Michael D. DiCandilo accounting officer)
II-8 EX-4.13 2 RECEIVABLES PURCHASE AGREEMENT Exhibit 4.13 - -------------------------------------------------------------------------------- RECEIVABLES PURCHASE AGREEMENT among AMERISOURCE RECEIVABLES FINANCIAL CORPORATION, as Seller, AMERISOURCE CORPORATION, as Servicer, AMERISOURCE HEALTH CORPORATION, as Guarantor DELAWARE FUNDING CORPORATION, as Buyer, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent dated as of May 14, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS; CONSTRUCTION 1.01. Certain Definitions ................................................................... 2 1.02. Interpretation and Construction ....................................................... 25 1.03. Obligor Classification ................................................................ 26 ARTICLE II PURCHASES AND SETTLEMENTS 2.01. General Assignment and Conveyance ..................................................... 26 2.02. Purchase Limits ....................................................................... 27 2.03. Purchase Price ........................................................................ 28 2.04. Deferred Purchase Price ............................................................... 28 2.05. Reinvestment Purchases ................................................................ 28 2.06. Funding of the Net Investment ......................................................... 29 2.07. Discount .............................................................................. 30 2.08. Non-Liquidation Settlements and Other Payment Procedures .............................. 30 2.09. Liquidation Settlement Procedures ..................................................... 32 2.10. Fees .................................................................................. 33 2.11. Optional Reduction of Maximum Net Investment; Optional Reduction of Net Investment .... 33 2.12. Mandatory Repurchase Under Certain Circumstances ...................................... 34 2.13. Payments and Computations, Etc.; Allocation of Collections ............................ 34 2.14. Reports ............................................................................... 35 2.15. Excess Funding Account ................................................................ 35 2.16. Expiration Date ....................................................................... 36 2.17. Optional Retransfer ................................................................... 36 2.18. Breakage Payments ..................................................................... 36
-i- TABLE OF CONTENTS (continued)
Page ARTICLE III CLOSING PROCEDURES 3.01. Purchase and Sale Procedures .......................................................... 37 3.02. Conditions to Closing ................................................................. 37 3.03. Conditions to Effectiveness ........................................................... 39 3.04. Conditions to Reinvestment and Incremental Purchases .................................. 40 ARTICLE IV PROTECTION OF THE OWNERS; ADMINISTRATION AND SERVICING OF RECEIVABLES; COLLECTIONS 4.01. Acceptance of Appointment and Other Matters Relating to the Servicer .................. 40 4.02. Maintenance of Information and Computer Records ....................................... 41 4.03. Protection of the Interests of the Owners ............................................. 41 4.04. Maintenance of Writings and Records ................................................... 42 4.05. Information ........................................................................... 43 4.06. Performance of Undertakings Under the Receivables ..................................... 43 4.07. Administration and Collections ........................................................ 43 4.08. Complete Servicing Transfer ........................................................... 44 4.09. Lockboxes; Collection Account ......................................................... 46 4.10. Servicing Default ..................................................................... 48 4.11. Servicer Indemnification of Affected Parties .......................................... 49 4.12. Servicer not to Resign ................................................................ 49 ARTICLE IV-A GUARANTY 4.01A. The Guaranty ......................................................................... 50 4.02A. Guaranty Unconditional ............................................................... 50 4.03A. Representations and Warranties of the Guarantor ...................................... 51
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Page ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01. General Representations and Warranties of the Seller .................................. 51 5.02. Representations and Warranties of the Seller With Respect to Each Sale of Receivables . 54 5.03. Representations and Warranties of Servicer ............................................ 55 ARTICLE VI COVENANTS 6.01. Affirmative Covenants of the Seller ................................................... 58 6.02. Negative Covenants of the Seller ...................................................... 63 6.03. Affirmative Covenants of the Servicer ................................................. 63 6.04. Negative Covenants of the Servicer .................................................... 67 6.05. Affirmative Covenants of the Guarantor ................................................ 68 ARTICLE VII TERMINATION 7.01. Termination Events..................................................................... 69 7.02. Consequences of a Termination Event.................................................... 71 ARTICLE VIII THE ADMINISTRATIVE AGENT 8.01. Authorization and Action .............................................................. 72 8.02. UCC Filings ........................................................................... 73 8.03. Administrative Agent's Reliance, Etc .................................................. 73 8.04. Administrative Agent and Affiliates ................................................... 74 8.05. Indemnification ....................................................................... 74 8.06. Successor Administrative Agent ........................................................ 74
-iii- TABLE OF CONTENTS (continued)
Page ARTICLE IX MISCELLANEOUS 9.01. Expenses ................................................................................. 75 9.02. Indemnity for Taxes, Reserves and Expenses ............................................... 75 9.03. Indemnity ................................................................................ 77 9.04. Holidays ................................................................................. 78 9.05. Records .................................................................................. 78 9.06. Amendments and Waivers ................................................................... 78 9.07. Term of Agreement ........................................................................ 78 9.08. No Implied Waiver; Cumulative Remedies ................................................... 79 9.09. No Discharge ............................................................................. 79 9.10. Notices .................................................................................. 79 9.11. Severability ............................................................................. 79 9.12. Governing Law; Submission to Jurisdiction ................................................ 79 9.13. Prior Understandings ..................................................................... 80 9.14. Survival ................................................................................. 80 9.15. Counterparts ............................................................................. 80 9.16. Set-Off .................................................................................. 80 9.17. Successors and Assigns ................................................................... 81 9.18. Confidentiality .......................................................................... 81 9.19. Payments Set Aside ....................................................................... 81 9.20. No Petition .............................................................................. 82 9.21. No Recourse .............................................................................. 82 9.22. Tax Forms ................................................................................ 82 9.23. Characterization of the Transactions Contemplated by this Agreement ...................... 82
-iv- Exhibits Exhibit A Credit and Collection Policy Exhibit B Form of Purchase Notice for Incremental Purchase Exhibit C Form of Tranche Selection Notice Exhibit D Form of Report Showing Discount Exhibit E List of Special Obligors Exhibit F Form of Monthly Report Exhibit G Form of Acknowledgement Letter for Account Transfer, Form of Transfer Letter, Form of Lockbox Letter Agreement, Form of Concentration Account Letter Agreement Exhibit H Responsible Officers, Location of Records, Former Names and Merger, Consolidation and Bankruptcy Information Exhibit I Litigation Involving Servicer Exhibit J Permitted Lockbox Banks, Lockbox Account Numbers, Permitted Lockboxes, Permitted Concentration Account Bank and Concentration Account Number -v- RECEIVABLES PURCHASE AGREEMENT ------------------------------ RECEIVABLES PURCHASE AGREEMENT, dated as of May 14, 1999, among AMERISOURCE RECEIVABLES FINANCIAL CORPORATION, a Delaware corporation (the "Seller"), AMERISOURCE CORPORATION, a Delaware corporation (the "Servicer" or - ------- -------- "AmeriSource"), AMERISOURCE HEALTH CORPORATION, a Delaware corporation (the - ------------ "Guarantor"), DELAWARE FUNDING CORPORATION, a Delaware corporation (with its - ---------- successors and assigns, the "Buyer"), and MORGAN GUARANTY TRUST COMPANY OF NEW ----- YORK, a trust company organized under the laws of the State of New York, as administrative agent (with its successors and assigns, the "Administrative -------------- Agent"), for each of the Owners (as defined below). RECITALS WHEREAS, AmeriSource in the ordinary course of its business generates certain accounts receivable and related rights and interests; WHEREAS, the Seller is authorized, from time to time, to purchase such accounts receivable and related rights and interests from AmeriSource; WHEREAS, the Buyer shall cause the Administrative Agent, on behalf of the Buyer and/or the other Owners, from time to time to purchase from the Seller undivided percentage ownership interests in such receivables pursuant to and in accordance with the terms hereof; WHEREAS, the Servicer has agreed to service the receivables in accordance with the terms hereof; WHEREAS, the Guarantor has agreed to guaranty the performance of AmeriSource under the Purchase Documents (as defined below). WHEREAS, the Buyer may in the future determine from time to time to sell undivided interests in the Purchased Interest (as defined below) pursuant to and in accordance with the terms of the Asset Purchase Agreement (as defined below); and WHEREAS, the Administrative Agent will act on behalf of the Owners of interests in receivables hereunder; NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION 1.01. Certain Definitions. As used in this Agreement, the following ------------------- terms shall have the following meanings: "Account Transfer Letter" shall have the meaning ascribed to such term ----------------------- in Section 3.03(g) hereof. "Adjusted Buyer's Percentage Interest" shall mean, at any time of ------------------------------------ determination, a percentage equal to the following: ANI + DPP + BD -------------- NRB Where: ANI = the Adjusted Net Investment at the time of such determination; DPP = the Deferred Purchase Price at the time of such determination; BD = the Buyer's Discount at the time of such determination; and NRB = the Net Receivables Balance at the time of such determination. The Adjusted Buyer's Percentage Interest shall be calculated by the Servicer on or before the second Business Day after the Buyer's Percentage Interest (as most recently computed) exceeds 100%. In computing the Adjusted Buyer's Percentage Interest, the Servicer shall use the Receivables information contained in the last Monthly Report (or any more recently delivered information) delivered to the Administrative Agent. "Adjusted Net Investment" shall mean, at any time, the Net Investment ----------------------- minus the amount, if any, on deposit in the Excess Funding Account. "Adjusted Total Reserve Percentage" shall mean, at any time of --------------------------------- determination, a percentage equal to the following: TR -------- 1-TR Where TR = the Total Reserve Percentage at the time of such determination. 2 "Administrative Agent" shall mean Morgan Guaranty Trust Company of New -------------------- York, together with its successors and assigns, or such other Person as provided in this Agreement, in the capacity of administrative agent for the Owners. "Affected Party" shall mean each of the Owners, any assignee of an -------------- Owner, the Collateral Agent, the APA Lending Banks, the Program LOC Bank, any assignee of any of the Buyer's obligations to the APA Lending Banks or the Program LOC Bank under the Program Letter of Credit Reimbursement Agreement, respectively, and the APA Agent and the Administrative Agent, as the case may be. "Affiliate" shall mean, with respect to a Person, any other Person, --------- which directly or indirectly controls, is controlled by or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Unpaids" shall mean, at any time, an amount equal to the ----------------- sum of (i) the aggregate accrued and unpaid Discount with respect to all Tranche Periods for all Tranches at such time, (ii) the Net Investment at such time, (iii) all fees accrued and unpaid hereunder or under the Fee Letter at such time and (iv) all other amounts owed (whether due or accrued) hereunder by the Seller to the Owners at such time. "Agreement" shall mean this Receivables Purchase Agreement, as the --------- same may from time to time be amended, supplemented or otherwise modified. "APA Agent" shall mean Morgan Guaranty Trust Company of New York, --------- together with its successors and assigns, in its capacity as agent under the APA Credit Agreement. "APA Credit Agreement" shall mean the Amended and Restated APA Credit -------------------- Agreement dated as of December 6, 1995, as amended, among the Buyer, the APA Agent and the lenders party thereto, as the same may from time to time be amended, supplemented or otherwise modified. "APA Lending Banks" shall mean the lenders who are parties, from time ----------------- to time, to the APA Credit Agreement. "APA Purchasers" shall mean the purchasers who are parties to the -------------- Asset Purchase Agreement. "Arrangement Fee" shall have the meaning set forth in the Fee Letter. --------------- "Asset Purchase Agreement" shall mean the Asset Purchase Agreement ------------------------ dated as of May 14, 1999, among the Buyer, the Administrative Agent and each of the APA Purchasers signatory thereto, as the same may from time to time be amended, supplemented or otherwise modified. 3 "Average Collection Period" shall mean, at any time, the product of ------------------------- (a) the sum of the beginning and ending Outstanding Balances of Receivables during the immediately preceding Monthly Period divided by two, multiplied by ------- ---------- (b) 30, divided by the aggregate amount payable pursuant to invoices giving rise ------- to Receivables that were generated during such Monthly Period. "Base Rate" shall mean, for any day, the higher of (i) the prime rate --------- announced from time to time by Morgan Guaranty Trust Company of New York in effect on such day, and (ii) (x) the rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by Morgan Guaranty Trust Company of New York from three Federal funds brokers of recognized standing selected by it, plus (y) one-half of one percent (1/2%). "Business Day" shall mean any day other than a Saturday, Sunday, ------------ public holiday under the Laws of the State of Delaware, the State of New York, the Commonwealth of Pennsylvania or any other day on which banking institutions are authorized, obligated to close in the State of Delaware, the State of New York or the Commonwealth of Pennsylvania. "Buyer" shall mean Delaware Funding Corporation, a Delaware ----- corporation. "Buyer's Discount" shall mean, at any time, an amount equal to the ---------------- following: NI x ((TR x RV) + PF + SCR) x (CP x 2.0) ---------------------------------------- WAP Where: NI = the Net Investment at such time; TR = the highest Tranche Rate applicable to any outstanding Tranche at such time; PF = the Program Fee; RV = the Rate Variance Factor; SCR = the Servicing Compensation Rate; CP = the Average Collection Period; and WAP = the weighted average number of days in the annual period of all Tranches then outstanding, with Tranches having Tranche Rates calculated by reference to a rating other than Base Rate having a 360-day annual period and Tranches having Tranche Rates calculated by reference to the Base Rate having a 365- or 366-day, as the case may be, annual period. 4 "Buyer's Percentage Interest" shall mean, at any time of --------------------------- determination, the result of the following formula, expressed as a percentage: NI + DPP + BD ------------- NRB Where: NI = the Net Investment at the time of such determination; DPP = the Deferred Purchase Price at the time of such determination; BD = the Buyer's Discount at the time of such determination; and NRB = the Net Receivables Balance at the time of such determination. Notwithstanding the foregoing computation, for the purpose of computing the Purchase Price under the Asset Purchase Agreement, the Buyer's Percentage Interest shall not exceed 100%. The Buyer's Percentage Interest shall be calculated by the Servicer on the closing date of the initial Incremental Purchase hereunder. Thereafter, until the Expiration Date, the Buyer's Percentage Interest shall be recomputed in Monthly Reports delivered pursuant to Section 2.14 hereof and reports delivered pursuant to Section 2.08(b) hereof, in Purchase Notices delivered pursuant to Section 2.03 hereof and otherwise in writing upon the reasonable request (which requests shall be no more frequently than two times per month, unless a Termination Event or Potential Termination Event shall have occurred and be continuing) of the Buyer or the Administrative Agent made to the Servicer. Absent any error in calculation, the Buyer's Percentage Interest shall remain constant from the time as of which any such computation or recomputation is made until the time as of which the next such recomputation shall be made, notwithstanding any additional Receivables arising or any reinvestment Purchase made pursuant to Section 2.05 hereof and 2.08(a) hereof during any period between computations of the Buyer's Percentage Interest; provided, however, that on and after the Expiration Date, -------- ------- the Buyer's Percentage Interest shall be equal to the Buyer's Percentage Interest on the first Business Day preceding the occurrence of the Expiration Date. If the Servicer shall fail to promptly calculate the Buyer's Percentage Interest as required herein, the Buyer or the Administrative Agent may compute the Buyer's Percentage Interest, which computation shall be conclusive absent manifest error. "Capitalized Lease" of a Person shall mean any lease of property by ----------------- such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Charge-Off" shall mean a Receivable (or any portion thereof): (i) ---------- which has been identified by the Servicer as uncollectible, or (ii) which, in accordance with AmeriSource's Credit and Collection Policy, should be written off the Seller's books as uncollectible. "Chief Executive Office" shall mean, with respect to the Seller, ---------------------- AmeriSource or the Servicer, the place where the Seller, AmeriSource or the Servicer, as the case may be, is located, within the meaning of Section 9- 103(3)(d), or any analogous provision, of the UCC, in 5 effect in the jurisdiction whose Law governs the perfection of the Administrative Agent's (for the benefit of the Owners) ownership interests in any Receivables. "Closing Date" shall mean the date on which each of the conditions ------------ precedent set forth in Section 3.02 have been satisfied. "Collateral Agent" shall mean Morgan Guaranty Trust Company of New ---------------- York, together with its successors and assigns, as collateral agent under the Security Agreement. "Collection Account" shall have the meaning specified in Section ------------------ 4.09(c) hereof. "Collections" shall mean, for any Receivable as of any date, (i) the ----------- sum of all amounts, whether in the form of wire transfer, cash, checks, drafts, or other instruments, received by the Seller or the Servicer or in a Permitted Lockbox or the Concentration Account in payment of, or applied to, any amount owed by an Obligor on account of such Receivable (including but not limited to all amounts received on account of any Defaulted Receivable) on or before such date, including, without limitation, all amounts received on account of such Receivable and all other fees and charges, (ii) cash Proceeds of Related Security with respect to such Receivable and (iii) all amounts deemed to have been received by the Seller or the Servicer as a Collection pursuant to Sections 2.08(c), 2.08(d), or 2.08(f) hereof. "Commercial Paper" shall mean promissory notes of the Buyer issued by ---------------- the Buyer in the commercial paper market. "Complete Servicing Transfer" shall have the meaning ascribed to such --------------------------- term in Section 4.08(a) hereof. "Concentration Account" shall mean the demand depository account --------------------- identified on Exhibit J hereto maintained by the Permitted Concentration Account Bank pursuant to the Concentration Account Servicing Instructions for the purpose of receiving wire transfer payments made by Obligors or such other demand depositary account as the Administrative Agent and Seller may agree upon from time to time. "Concentration Account Servicing Instructions" shall mean the -------------------------------------------- instructions relating to the Concentration Account which are contained in the applicable Account Transfer Letter and are reasonably satisfactory to the Administrative Agent, which have been agreed upon by the Seller and/or Servicer and the Permitted Concentration Account Bank. "Concentration Factor" shall mean (i) for any Group A Obligor and its -------------------- Subsidiaries and Affiliates, 11.0% of an amount equal to the Outstanding Balances of all Eligible Receivables, (ii) for any Group B Obligor and its Subsidiaries and Affiliates, 5.5% of an amount equal to the Outstanding Balances of all Eligible Receivables, (iii) for any Group C Obligor and its Subsidiaries and Affiliates, 3.67% of an amount equal to the Outstanding Balances of all Eligible Receivables, (iv) for any Group D Obligor and its Subsidiaries and Affiliates, 2.75% of an amount equal to the Outstanding Balances of all Eligible Receivables and (v) for any Special Obligor and its Subsidiaries and Affiliates listed on Exhibit E hereto, the percentage set forth opposite such Special Obligor's name on Exhibit E hereto of an amount equal to the Outstanding Balances of all Eligible Receivables. The Servicer and the Administrative Agent agree that the 6 definition of "Concentration Factor" may be amended from time to time by letter agreement among the Servicer and the Administrative Agent. "Conduit Fee" shall have meaning set forth in the Fee Letter. ----------- "Consolidated Adjusted EBITDAR" shall mean, for any period for the ----------------------------- Consolidated Group, the sum of Consolidated EBITDA plus rent expense minus ---- ----- capital expenditures made or incurred, in each case on a consolidated basis determined in accordance with GAAP. Except as expressly provided otherwise, the applicable period shall be the four consecutive quarters ending as of the date of determination. "Consolidated EBITDA" shall mean, for any period for the Consolidated ------------------- Group, the sum of Consolidated Net Income plus Consolidated Interest Expense ---- plus all provisions for any Federal, state or other domestic and foreign income - ---- taxes plus depreciation and amortization plus extraordinary losses minus ---- ---- ----- extraordinary gains (excluding any one-time charges incurred in connection with mergers/acquisitions, including the terminated merger with McKesson Corporation; provided that such exclusion has been approved by the lenders under the Credit - -------- Agreement), in each case on a consolidated basis determined in accordance with GAAP. Except as expressly provided otherwise, the applicable period shall be the four consecutive quarters ending as of the date of determination. "Consolidated Fixed Charges" shall mean, for any period for the -------------------------- Consolidated Group, the sum of the cash portion of the Consolidated Interest Expense plus rent expense plus scheduled maturities of Funded Debt paid during ---- ---- such period plus any cash dividends paid during such period by the Guarantor to its stockholders, in each case on a consolidated basis determined in accordance with GAAP. Except as expressly provided otherwise, the applicable period shall be the four consecutive quarters ending as of the date of determination. "Consolidated Fixed Charge Coverage Ratio" shall mean, for any period, ---------------------------------------- the ratio of Consolidated Adjusted EBITDAR to Consolidated Fixed Charges. "Consolidated Funded Debt" shall mean Funded Debt of the Consolidated ------------------------ Group, determined on a consolidated basis in accordance with GAAP. Except as expressly provided otherwise, Consolidated Funded Debt shall be, and mean, as of the last day of any fiscal quarter, the average of Consolidated Funded Debt on such day and the last day of the three (3) consecutive fiscal quarters immediately preceding such day; provided, that in the case of an Equity -------- Transaction, such transaction will be deemed to have occurred as of the first day of the four consecutive fiscal-quarter period ending as of such day. "Consolidated Group" shall mean the Guarantor and its Consolidated ------------------ Subsidiaries, as determined in accordance with GAAP. "Consolidated Interest Expense" shall mean, for any period for the ----------------------------- Consolidated Group, all interest expense, including the amortization of debt discount and premium, the interest component under Capitalized Leases and the implied component under any securitization transactions, in each case on a consolidated basis determined in accordance with GAAP. Except 7 as expressly provided otherwise, the applicable period shall be the four consecutive quarters ending as of the date of determination. "Consolidated Leverage Ratio" shall mean, as of the last day of any --------------------------- fiscal quarter, the ratio of Consolidated Funded Debt on such day to Consolidated EBITDA for the period of four consecutive fiscal quarters ending as of such day. "Consolidated Net Income" shall mean, for any period, the net income ----------------------- of the Consolidated Group on a consolidated basis determined in accordance with GAAP. "Consolidated Net Worth" shall mean total stockholders' equity of the ---------------------- Consolidated Group, in each case on a consolidated basis as determined in accordance with GAAP. "Consolidated Subsidiary" shall mean, at any date, for any Person, any ----------------------- Subsidiary or other entity the accounts of which would be consolidated under GAAP with those of such Person in its consolidated financial statements as of such date. "Contract" shall mean a binding contract between AmeriSource and an -------- Obligor including any and all instruments, agreements, invoices or other writings which gives rise to a short-term trade receivable arising from the sale by AmeriSource of goods or services in the ordinary course of AmeriSource's business. "Credit Agreement" shall mean the Credit Agreement dated as of January ---------------- 8, 1997, among AmeriSource Corporation, AmeriSource Health Corporation, the lenders named therein and NationsBank, N.A., as the same may from time to time be amended, supplemented or otherwise modified. "Credit and Collection Policy" shall mean, with respect to AmeriSource ---------------------------- and the Servicer, such Person's credit, collection, enforcement, procedure and other policies and practices relating to Contracts and Receivables existing on the date hereof and as set forth on Exhibit A hereto, as the same may be modified from time to time in compliance with Section 6.04(c) hereof. "Default Ratio" shall mean, on any Monthly Report Date, the ratio ------------- (expressed as a percentage) calculated as of the end of the preceding Monthly Period (the "Calculation Month") of (i) the aggregate Outstanding Balance of all ----------------- Receivables which were not Defaulted Receivables as of the first day of the Calculation Month but which were Defaulted Receivables or Early Charge-Offs as of the last day of the Calculation Month to (ii) the aggregate Outstanding Balance of all Receivables generated by AmeriSource during the Monthly Period that occurred four calendar months before the Calculation Month. "Defaulted Receivable" shall mean a Receivable (i) which has become -------------------- uncollectible by reason of the Obligor's inability to pay, as determined by the Servicer in accordance with AmeriSource's Credit and Collection Policy, (ii) in respect of which an Event of Bankruptcy (without giving effect to the 60-day grace period in paragraph (b) of such definition) has occurred with respect to the related Obligor or (iii) in respect of which the Obligor is more than 90 days past due, except that portion of the Outstanding Balance of the Receivables of such 8 Obligor which is the subject of a good faith Dispute between the Servicer or AmeriSource and the Obligor as to the amount due on the related Contract. "Deferred Purchase Price" shall mean, at any time, the Adjusted Total ----------------------- Reserve Percentage at such time multiplied by the Net Investment at such time. "Delinquency Ratio" shall mean, for each Monthly Period, the ratio ----------------- (expressed as a percentage) of (i) the aggregate Outstanding Balance of all Receivables which are greater than 60 days but less than 91 days past due as of the last day of such Monthly Period to (ii) the aggregate Outstanding Balance of all Receivables generated by the Originator during the Monthly Period that occurred three calendar months before the Monthly Period for which the Delinquency Ratio is being calculated. "DFC Program Facility" shall mean the facility governed by and/or -------------------- consisting of the APA Credit Agreement, APA Agent, APA Lending Banks, Program Letter of Credit, Program Letter of Credit Reimbursement Agreement, Program LOC Bank, Security Agreement and the Collateral Agent. "Dilution Factors" shall mean credits issued for returned or ---------------- repossessed goods, shortages, pricing adjustments and volume rebates and other allowances, adjustments and deductions (including, without limitation, any special or other discounts or any reconciliations or actual set-offs of an Eligible Government Receivable) that (i) are given to an Obligor in accordance with AmeriSource's Credit and Collection Policy and (ii) result in a reduction of such Obligor's payment obligation. "Dilution Ratio" shall mean, for any Monthly Period, the ratio -------------- (expressed as a percentage) of (i) the aggregate Dilution Factors of all Receivables as of the last day of such Monthly Period to (ii) the aggregate Outstanding Balance all Receivables generated during the prior Monthly Period. "Dilution Reserve Percentage" shall mean, at any time, the greatest --------------------------- of: (i) 7%, (ii) (1.5 x ED) and (iii) (1.3 x DS). Where: ED = Expected Dilution and DS = Dilution Spike. "Dilution Spike" shall mean, at any time, the highest of the Dilution -------------- Ratios as calculated for the twelve most recent Monthly Periods ending on the most recent Monthly Period. "Discount" shall mean with respect to any Tranche Period for any -------- Tranche: (TR + PF) x TNI x AD -------------------- AP 9 Where: TR = the Tranche Rate applicable to such Tranche Period for such Tranche; PF = the Program Fee; TNI = the amount of such Tranche; AD = the actual number of days (including the first but excluding the last day) during such Tranche Period; and AP = the number of days in the annual period on the basis of which Discount for such Tranche Period is calculated, being 360 if the Tranche Rate for such Tranche Period is calculated by reference to any rate other than Base Rate, and 365 or 366, as the case may be, if the Tranche Rate for such Tranche Period is calculated by reference to Base Rate; provided, however, that no provision of this Agreement shall require the payment - -------- ------- or permit the collection of Discount in excess of the maximum permitted by applicable Law; and provided, further, that Discount shall not be considered -------- -------- paid by any distribution if at any time such distribution is rescinded or must be returned for any reason. "Dispute" shall mean any dispute, deduction, claim, offset, defense, ------- counterclaim, set-off or obligation of any kind, contingent or otherwise, relating to a Receivable, including, without limitation, any dispute relating to goods or services already paid for. "Dollar" and "$" shall mean lawful currency of the United States of ------ - America. "Early Charge-Off" shall mean a Receivable (or any portion thereof) ---------------- which is (i) a Charge-Off and (ii) less than 120 days past due. "Effective Date" shall mean the later of (i) July 15, 1999 and (ii) -------------- the date on which the conditions set forth in Section 3.03 have been satisfied. "Eligible Government Receivables" shall mean, at the time, any ------------------------------- Eligible Receivables for which the related Obligor is the United States of America, any State or any agency or instrumentality or political subdivision thereof. "Eligible Receivable" shall mean, at the time, any Receivable: ------------------- (a) which complies with all applicable Laws and other legal requirements, whether Federal, state or local, including, without limitation, to the extent applicable, usury laws, the Federal Consumer Credit Protection Act, the Fair Credit Billing Act, the Federal Truth in Lending Act, and Regulation Z of the Board of Governors of the Federal Reserve System; (b) which constitutes an "account" or a "general intangible" as defined in the UCC as in effect in the State of New York and the jurisdiction whose Law governs the perfection of the Owners' ownership interests therein, and is not evidenced by an "instrument", as defined in the UCC as so in effect; 10 (c) which was originated in connection with a sale of goods or the provision of services by AmeriSource in the ordinary course of AmeriSource's business to an Obligor who was approved by AmeriSource in accordance with its Credit and Collection Policy, and which Obligor is not an Affiliate of the Seller or AmeriSource; (d) which (i) arises from a Contract and has been billed, or in respect of which the related Obligor is otherwise liable, in accordance with the terms of such Contract and (ii) arises from a Contract that (A) does not require the Obligor under such Contract to consent to the transfer, sale or assignment of the rights and duties of AmeriSource or the Seller under such Contract and (B) does not contain any provision that restricts the ability of the Administrative Agent or an Owner to exercise its rights under this Agreement, including, without limitation, its right to review the Contract; (e) which is genuine and constitutes a legal, valid, binding and irrevocable payment obligation of the related Obligor, enforceable in accordance with its terms, and which is not subject to any Disputes or other offsets (other than Eligible Government Receivables), counterclaims or defenses; (f) which provides for payment in Dollars by the related Obligor; (g) which directs payment thereof to be sent to a Permitted Lockbox or the Concentration Account; (h) which has not been repurchased by the Seller or the Servicer pursuant to the repurchase provisions of this Agreement; (i) which is not a Defaulted Receivable; (j) which has a related Obligor who (i) is not more than 90 days past due on greater than 50% of the aggregate outstanding balance of such Receivable and other receivables generated by AmeriSource and (ii) is not the subject of a current Event of Bankruptcy and has not been the subject of an Event of Bankruptcy during the prior 24 months unless otherwise agreed to in writing by the Administrative Agent (acting on behalf of the Owners); (k) which has a related Obligor that is a Person domiciled in the United States of America or Canada; (l) which was not originated in or subject to the Laws of a jurisdiction whose Laws would make such Receivable, the related Contract or the sale of the Purchased Interest to the Buyer hereunder unlawful, invalid or unenforceable and which is not subject to any legal limitation on transfer; (m) which is owned solely by the Seller free and clear of all Liens, except for the Lien arising in connection with this Agreement and the DFC Program Facility; (n) for which all goods, services, and other products and transactions in connection with such Receivable have been finally performed or delivered to and accepted by the Obligor without Dispute; 11 (o) which does not provide the Obligor with the right to obtain any cash advance thereunder; (p) which has not been selected in a manner materially adverse to the Buyer; (q) which, if such Receivable is not interest bearing, by its terms requires payment in respect thereof to be made no later than 120 days after the date of the original invoice with respect thereto; (r) which is an eligible asset within the meaning of Rule 3a-7 promulgated under the Investment Company Act of 1940, as amended from time to time; (s) which is not of a type that has been disqualified by S&P or Moody's for any other reason; (t) which is not payable in installments (except for Receivables related to opening orders); (u) which is not evidenced by a promissory note; and (v) which has terms which have not been modified, impaired, waived, altered, extended or renegotiated since the initial sale or provision of service to an Obligor in any way not provided for in this Agreement. Notwithstanding anything to the contrary contained in this Agreement, (i) no Receivable, the obligor of which is a Federal Obligor, shall be included as an Eligible Receivable if the Servicer fails to calculate the Federal Set Off Reserve and (ii) no Receivable, the obligor of which is a State Obligor or a Local Obligor, shall be included as an Eligible Receivable if the Servicer fails to calculate the State/Local Set Off Reserve. "Equity Transaction" shall mean, with respect to any member of the ------------------ Consolidated Group, any issuance of shares of its capital stock or other equity interest; provided, however, that any Equity Transaction shall not include any -------- ------- such issuance (A) to a member of the Consolidated Group or (B) to an employee, officer or director or former employee, officer or director pursuant to a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement. "ERISA" shall mean, with respect to any Person, the Employee ----- Retirement Income Security Act of 1974, as amended from time to time and any successor thereto, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" shall mean, with respect to any Person, any --------------- corporation or person which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Internal Revenue Code of which such Person is a member, or (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Internal Revenue Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Internal Revenue Code, described in Section 414(m) or (o) of the Internal Revenue Code of which such Person is a member. 12 "Event of Bankruptcy" shall mean, for any Person: ------------------- (a) that such Person shall fail generally to, or admit in writing its inability to, pay its debts as they become due; or (b) a proceeding shall have been instituted (i) in a court having jurisdiction in the premises seeking a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar Law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for any substantial part of its property, or for the winding-up or liquidation of its affairs and (ii) either such proceedings shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceedings shall occur provided that the grace period allowed for by this clause (ii) shall not apply to any proceeding instituted by an Affiliate of such Person in furtherance of any of the actions set forth in the preceding clause (i); or (c) the commencement by such Person of a voluntary case under any applicable bankruptcy, insolvency or other similar Law now or hereafter in effect, or such Person's consent to the entry of an order for relief in an involuntary case under any such Law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for any substantial part of its property, or any general assignment for the benefit of creditors; or (d) if such Person is a corporation, such Person or any Subsidiary of such Person shall take any corporate action in furtherance of any of the actions set forth in the preceding clause (a), (b) or (c). "Event of Termination" shall mean, with respect to any Person, (i) a -------------------- contribution failure shall occur with respect to any Plan sufficient to give rise to a lien under Section 302(f) of ERISA; or (ii) the Internal Revenue Service shall, or shall indicate its intention in writing to the Seller, AmeriSource or any ERISA Affiliate to, file a notice of lien asserting a claim or claims pursuant to the Internal Revenue Code with regard to any of the assets of the Seller, AmeriSource or any ERISA Affiliates; or (iii) the PBGC shall, or shall indicate its intention in writing to the Seller, AmeriSource or any ERISA Affiliate to, either file a notice of lien asserting a claim pursuant to ERISA with regard to any assets of the Seller, AmeriSource or any ERISA Affiliate or terminate any Plan that has unfunded benefit liabilities; or (iv) any steps shall have been taken to terminate any Plan subject to Title IV of ERISA. "Excess Funding Account" shall mean the Excess Funding Account ---------------------- established and maintained in accordance with Section 2.15 hereof. "Expected Dilution" shall mean, at any time, the greatest consecutive ----------------- three-month average of the Dilution Ratios as calculated for the twelve most recent Monthly Periods ending on the most recent Monthly Period. "Expiration Date" shall mean the earliest of (i) May 10, 2002, (ii) --------------- the latest Purchase Termination Date under the Asset Purchase Agreement, (iii) the date of termination of any credit agreement under the DFC Program Facility, (iv) the date of termination of the 13 commitment of any APA Purchaser under the Asset Purchase Agreement (unless other APA Purchaser(s) or a replacement APA Purchaser accepts such terminating APA Purchaser's commitment) or (v) the day on which the Administrative Agent delivers a Notice of Termination pursuant to Section 7.02 hereof or a Termination Event described in Section 7.01(k) hereof occurs. "Federal Obligor" shall mean the United States of America or any --------------- department, agency or instrumentality thereof; provided, that any such -------- department, agency or instrumentality may be recharacterized as other than a Federal Obligor if AmeriSource shall have presented the Administrative Agent with evidence that such Person is not entitled to set off for obligations owed to other Federal Obligors and the Administrative Agent shall have been satisfied with respect to such recharacterization. "Federal Set Off Reserve" shall mean the combined total of (a) the sum ----------------------- of (i) the aggregate amount of Federal income taxes ("FIT") and Federal --- Unemployment Taxes ("FUT") accrued by the Guarantor and/or any of its --- Subsidiaries prior to the current calendar quarter that have not been paid plus (ii) one-ninetieth of the aggregate amount of FIT and FUT accrued by the Guarantor and/or any of its Subsidiaries during the most recently ended calendar quarter (the "Benchmark Quarter") times the sum of (x) the number of days as of ----------------- the current calculation date ("Report Date") that have elapsed during the ----------- current calendar quarter since the last full payment of FIT and FUT by the Guarantor and/or any of its Subsidiaries plus (y) 36 days and (b)(i) the aggregate amount of Federal payroll witholding taxes due but not paid by the Guarantor and/or any of its Subsidiaries prior to the current calculation date ("Report Date") plus (ii) one-ninetieth of the aggregate amount of Federal ----------- payroll witholding taxes accrued during the Benchmark Quarter times 44 days; provided, however, that in no event shall the Federal Set Off Reserve exceed the - -------- ------- aggregate Outstanding Balance of Receivables owed by Federal Obligors that have not waived their rights to setoff amounts owed to them; and, provided further, -------- ------- that the Guarantor and/or any of its Subsidiaries may by notice in any Monthly Report, change the methodology for calculating the Federal Set Off Reserve after approval by the Administrative Agent, S&P and Moody's. "Fee Letter" shall mean the agreement dated as of May 14, 1999 between ---------- the Seller and the Buyer setting forth the fees payable to the Owners and the Referral Agent by the Seller in connection with the Owners' investment in the Seller's Receivables. "Fiscal Year" shall mean each year ending September 30, which is the ----------- fiscal year of the Seller and the Servicer for accounting purposes. "Funded Debt" shall mean, for any Person, without duplication, (i) ----------- obligations for borrowed money, (ii) obligations representing the deferred purchase price of property, (iii) obligations, whether or not assumed, which are secured by liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person; provided, that for the purposes -------- of calculating the financial covenants contained in Section 6.05 hereof, the amount of such Funded Debt shall be limited to the greater of (A) the amount of such Funded Debt as to which there is recourse to such Person and (B) the fair market value of the property which is subject to the Lien, (iv) obligations which are evidenced by notes, acceptances or other instruments, (v) Capitalized Lease obligations, (vi) obligations pursuant to a Guarantee, (vi) the 14 outstanding principal amount under any securitization transaction, (vii) the principal outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP. The Funded Debt of any Person shall include the Funded Debt of any partnership or joint venture in which such Person is a general partner or joint venturer, but only to the extent to which there is recourse to such Person for the payment of such Funded Debt. "GAAP" shall mean generally accepted accounting principles in the ---- United States of America, applied on a consistent basis and applied to both classification of items and amounts, and shall include, without limitation, the official interpretations thereof by the Financial Accounting Standards Board, its predecessors and successors. "Government Set Off Reserve" shall mean the Federal Set Off Reserve -------------------------- plus the State/Local Set Off Reserve. "Group A Obligor" shall mean any Obligor who is not listed on Exhibit --------------- E hereto and whose short-term debt is rated at least "A-1" by S&P, and at least "P-1" by Moody's, or in the case of an Obligor with long-term debt ratings only, at least "A" by S&P, and at least "A2" by Moody's. "Group B Obligor" shall mean any Obligor who is not listed on Exhibit --------------- E hereto and (i) who is not a Group A Obligor and (ii) whose short-term debt is rated at least "A-2" by S&P and at least "P-2" by Moody's, or in the case of an Obligor with long-term debt ratings only, at least "BBB+" by S&P and at least "Baa1" by Moody's. "Group C Obligor" shall mean any Obligor who is not listed on Exhibit --------------- E hereto and (i) who is not a Group A Obligor or a Group B Obligor and (ii) whose short-term debt is rated at least "A-3" by S&P and at least "P-3" by Moody's, or in the case of an Obligor with long-term debt ratings only, at least "BBB-" by S&P and at least "Baa3" by Moody's. "Group D Obligor" shall mean any Obligor who is not a Group A Obligor, --------------- Group B Obligor or Group C Obligor and who is not listed on Exhibit E hereto. "Guarantee" shall mean, as applied to any Indebtedness, (i) a --------- guarantee (other than by endorsement for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such Indebtedness or (ii) an agreement, direct or indirect, contingent or otherwise, providing assurance of the payment or performance (or payment of damages in the event of non-performance) of any part or all of such Indebtedness, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. The amount of any Guarantee shall be deemed to be the maximum amount of the Indebtedness guaranteed for which the guarantor could be held liable under such Guarantee. "Guaranteed Obligations" shall have the meaning set forth in Section ---------------------- 4.01A. "Guarantor" shall mean AmeriSource Health Corporation, a Delaware --------- corporation. 15 "Incremental Purchase" shall have the meaning ascribed to such term in -------------------- Section 2.02 hereof. "Indebtedness" of any Person shall mean, without duplication, (i) all ------------ obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (iii) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (iv) all obligations of such Person issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within twelve months of the incurrence thereof) which would appear as liabilities on a balance sheet of such Person, (v) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (vi) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, provided that for purposes hereof the amount of such Indebtedness shall be limited to the greater of (A) the amount of such Indebtedness as to which there is recourse to such Person and (B) the fair market value of the property which is subject to the Lien, (vii) all Guarantees of such Person, (viii) the principal portion of all obligations of such Person under Capitalized Leases, (ix) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements, (x) the maximum amount of all standby letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (xi) all preferred stock issued by such Person and required by the terms thereof to be redeemed, or for which mandatory sinking fund payments are due by a fixed date, (xii) the principal balance outstanding under any securitization transaction and (xiii) the principal balance outstanding under any synthetic lease, tax retention operating lease, off- balance sheet loan or similar off-balance sheet financing product to which such Person is a party, where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, but only to the extent to which there is recourse to such Person for payment of such Indebtedness. "Indemnified Parties" shall have the meaning ascribed to such term in ------------------- Section 9.02(a)(i) hereof. "Individual Group Reserve" shall mean, with respect to any Set Off ------------------------ Group on any day, (a) 90 multiplied by the State/Local Tax Per Diem plus (b) an ---- amount equal to the State/Local Tax Per Diem for each day that has elapsed since the end of the most recent State/Local Tax Period plus (c) the aggregate amount ---- of any state/local income tax obligations accrued prior to the current State/Local Tax Period that have not been paid; provided, that if the Servicer -------- shall have elected to exclude Receivables owed by all Obligors in a Set Off Group from the Eligible Receivables on any day, the Individual Group Reserve for that Set Off Group on 16 such day shall be zero; provided further, that the Individual Group Reserve for -------- ------- any Set Off Group shall not exceed the aggregate Outstanding Balance of Eligible Receivables owed by Obligors in such Set Off Group; and provided further, that -------- ------- the Seller may by notice in any Monthly Report, change the methodology for calculating the Individual Group Reserve as to any Set Off Group after approval by the Administrative Agent, S&P and Moody's. "Intercreditor Agreement" shall mean the Amended and Restated ----------------------- Intercreditor Agreement dated as of July 15, 1999, between the Seller, AmeriSource, the Administrative Agent and NationsBank, N.A., as administrative agent for the lenders named in the Credit Agreement, as the same may from time to time be amended, supplemented or otherwise modified. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, --------------------- as amended from time to time and any successor thereto, and the regulations promulgated and rulings issued thereunder. "JPM" shall have the meaning ascribed to such term in Section 7.01(m) --- hereof. "Law" shall mean any law (including common law), constitution, --- statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "Lien", in respect of the property of any Person, shall mean any ---- ownership interest of any other Person, any mortgage, deed of trust, hypothecation, pledge, lien, security interest, filing of any financing statement, charge or other encumbrance or security arrangement of any nature whatsoever, including, without limitation, any conditional sale or title retention arrangement, and any assignment, deposit arrangement, consignment or lease intended as, or having the effect of, security. "Local Obligor" shall mean any county, municipal or other local ------------- government or any department, agency or instrumentality thereof. "Lockbox Account" shall mean a demand deposit account identified on --------------- Exhibit J hereto maintained with a Permitted Lockbox Bank pursuant to the Lockbox Servicing Instructions for the purpose of depositing payments made by the Obligors or such other account as the Seller and the Administrative Agent may agree upon from time to time. "Lockbox Servicing Instructions" shall mean the instructions relating ------------------------------ to lockbox services in connection with a Permitted Lockbox and related Lockbox Account which are contained in the applicable Account Transfer Letter or other agreement and are reasonably satisfactory to the Administrative Agent, which have been agreed upon by the Seller and the related Permitted Lockbox Bank. "Loss Horizon Ratio" shall mean a fraction, (i) the numerator of which ------------------ is equal to the aggregate Outstanding Balance of all Receivables generated during the period of the four consecutive Monthly Periods ending on the last day of the month as of which the Total Reserve Percentage is computed times the Weighted Average Term Factor and (ii) the denominator of which is equal to the Net Receivables Balance on the last day of the month as of which the Total Reserve Percentage is computed. 17 "Loss Ratio" shall mean the highest average of the Default Ratios ---------- computed for any three consecutive Monthly Periods that occurred during the most recent twelve consecutive Monthly Periods ending on the last day of the month as of which the Total Reserve Percentage is computed. "Loss Reserve Percentage" shall mean the percentage calculated as of ----------------------- the end of the preceding Monthly Period to be in effect for the succeeding Monthly Period, equal to the greater of: (i) 11% and (ii) 2.0 x LR x LHR. Where: LR = the Loss Ratio and LHR = Loss Horizon Ratio. "Majority Owners" shall mean, at any time, the Administrative Agent --------------- and those Owners owning in aggregate in excess of 50% of the Purchased Interest at such time. "Maximum Net Investment" shall mean $325,000,000, unless otherwise ---------------------- increased with the consent of the Buyer and confirmation by S&P and Moody's of the then-current ratings of the Commercial Paper, or reduced as provided in Section 2.11(a) hereof; provided, however, that at all times on and after the -------- ------- Expiration Date, the "Maximum Net Investment" shall mean the Net Investment. ---------------------- "Monthly Period" shall mean a calendar month. -------------- "Monthly Report" shall have the meaning ascribed to such term in -------------- Section 2.14(a) hereof. "Monthly Report Date" shall mean, with respect to each Monthly Period, ------------------- the twenty-fourth (24th) Business Day following the last day of such Monthly Period. "Moody's" shall mean Moody's Investors Service, Inc., together with ------- its successors. "Multiemployer Plan" shall mean, with respect to any Person, a ------------------ "multiemployer plan," as defined in Section 4001(a)(3) of ERISA, which is or was at any time during the current year or the immediately preceding five years contributed to by such Person or any ERISA Affiliate on behalf of its employees and which is covered by Title IV of ERISA. "Net Investment" shall mean, at any time, the sum of the amounts of -------------- Purchase Price paid to the Seller for each Incremental Purchase less the aggregate amount of Collections and other amounts received and applied by the Servicer or the Administrative Agent to reduce such Net Investment pursuant to Sections 2.08(b), 2.08(e), 2.08(f), 2.09 and 2.11(b) hereof; provided that the -------- Net Investment shall be increased by the amount of any Collections so received 18 and applied if at any time the distribution of such Collections is rescinded or must otherwise be returned or restored for any reason. "Net Receivables Balance" shall mean, at any time, the Outstanding ----------------------- Balances of the Eligible Receivables at such time reduced by the (i) Government Set Off Reserves and (ii) aggregate amount by which the Outstanding Balances of all Receivables of each Obligor at such time exceeds the Concentration Factor for such Obligor at such time. "Notice of Termination" shall have the meaning ascribed to such term --------------------- in Section 7.02 hereof. "Obligor" shall mean, for any Receivable, each and every Person who ------- purchased goods or services on credit under a Contract and who is obligated to make payments to AmeriSource or the Seller as assignee thereof pursuant to such Contract. "Office" shall mean, when used in connection with the Administrative ------ Agent, the Buyer, the Seller or the Servicer, their respective offices as set forth on the signature pages hereto, or at such other office or offices of the Administrative Agent, the Buyer, the Seller, the Servicer or branch, Subsidiary or Affiliate of any thereof as may be designated in writing from time to time by the Administrative Agent, the Buyer, the Seller or the Servicer to the Administrative Agent, the Buyer, the Seller, or the Servicer, as appropriate. "Official Body" shall mean any government or political subdivision or ------------- any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Outstanding Balance" of any Receivable shall mean, at any time, the ------------------- then outstanding amount thereof. "Owner" shall mean, at any time, the Buyer, each APA Purchaser, if ----- any, and all other owners by assignment or otherwise of the Purchased Interest at such time. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any ---- entity succeeding to any or all of its functions under ERISA. "Permitted Concentration Account Bank" shall mean the bank identified ------------------------------------ on Exhibit J hereto or such other bank or financial institution or entity as the Seller and the Administrative Agent may agree upon from time to time. "Permitted Lockbox" shall mean a post office box or other mailing ----------------- location identified on Exhibit J hereto maintained by a Permitted Lockbox Bank pursuant to the Lockbox Servicing Instructions for the purpose of receiving payments made by the Obligors for subsequent deposit into a related Lockbox Account, or such other post office box or mailing location, or an account, or such other account identified on Exhibit J hereto, all as the Administrative Agent and the Seller may agree upon from time to time. 19 "Permitted Lockbox Bank" shall mean a bank identified on Exhibit J ---------------------- hereto or such other bank or financial institution or entity as the Seller and the Administrative Agent may agree upon from time to time. "Person" shall mean an individual, corporation, limited liability ------ company, partnership (general or limited), trust, business trust, unincorporated association, joint venture, joint-stock company, Official Body or any other entity of whatever nature. "Plan" shall mean, with respect to any Person, any employee benefit or ---- other plan which is or was at any time during the current year or immediately preceding five years established or maintained by such Person or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Potential Termination Event" shall mean an event or condition which --------------------------- with the giving of notice, the passage of time or any combination of the foregoing, would, unless cured or waived, constitute a Termination Event. "Proceeds" shall mean "proceeds" as defined in Section 9-306(1) of the -------- UCC as in effect in the State of New York and the jurisdiction whose Law governs the perfection of the Owners' ownership interests therein. "Program Fee" shall have the meaning set forth in the Fee Letter. ----------- "Program Letter of Credit" shall mean the letter of credit issued by ------------------------ the Program LOC Bank under the Program Letter of Credit Reimbursement Agreement. "Program Letter of Credit Reimbursement Agreement" shall mean the ------------------------------------------------ Amended and Restated Program Letter of Credit Reimbursement Agreement dated as of December 6, 1995, as amended, between the Buyer and the Program LOC Bank, as the same may from time to time be amended, supplemented or otherwise modified. "Program LOC Bank" shall mean Morgan Guaranty Trust Company of New ---------------- York or such other Person, together with its successors or assigns, as the party to the Program Letter of Credit Reimbursement Agreement issuing the Program Letter of Credit. "Purchase" shall mean a purchase by an Owner of an undivided -------- percentage ownership interest in Receivables hereunder, together with the Related Security and Collections with respect thereto. "Purchase Agreement" shall mean the Purchase Agreement dated as of May ------------------ 14, 1999, by and between the Seller, as purchaser, and AmeriSource, as seller, of the Receivables, as the same may from time to time be amended, supplemented or otherwise modified. "Purchase Availability Amount" shall mean, as of any date, an amount ---------------------------- equal to the excess, if any, of (i) the Maximum Net Investment as of such date over (ii) the Net Investment as of such date. "Purchase Availability Fee" shall have the meaning set forth in the ------------------------- Fee Letter. 20 "Purchase Documents" shall mean this Agreement, the Purchase ------------------ Agreement, the Lockbox Servicing Instructions, the Concentration Account Servicing Instructions, the Account Transfer Letters, and such other agreements, documents and instruments entered into and delivered by Seller or the Servicer in connection with the transactions contemplated by this Agreement. "Purchase Notice" shall have the meaning ascribed to such term in --------------- Section 2.03 hereof. "Purchase Price" shall mean with respect to any Incremental Purchase, -------------- the amount agreed to by the Seller and the Administrative Agent and paid to the Seller by the Administrative Agent, on behalf of the Owners, as set forth in the Purchase Notice related to such Incremental Purchase, but not in excess of the Purchase Availability Amount on the date of such Incremental Purchase (without giving effect thereto). Purchase Price refers to an amount actually paid and does not include any amount of Deferred Purchase Price. "Purchased Interest" shall mean, at any time, an undivided percentage ------------------ ownership interest in (i) each and every then outstanding Receivable, (ii) all Related Security with respect to each such Receivable, (iii) all Collections with respect thereto, and (iv) other Proceeds of the foregoing, equal to the Buyer's Percentage Interest at such time, and only at such time (without regard to prior calculations). The Purchased Interest in each Receivable, together with Related Security and Collections with respect thereto, shall at all times be equal to the Purchased Interest in each other Receivable, together with Related Security and Collections. To the extent that the Purchased Interest shall decrease as a result of a recalculation of the Buyer's Percentage Interest, each Owner, ratably in accordance with the percentage of the Purchased Interest owned by the Administrative Agent, on behalf of such Owner, shall be deemed to have reconveyed to the Seller an undivided percentage ownership interest in each Receivable, together with Related Security and Collections, in an amount equal to such decrease such that in each case the Purchased Interest in each Receivable shall be equal to the Purchased Interest in each other Receivable. "Qualified Institution" shall mean (i) a depositary institution --------------------- organized under the laws of the United States or any one of the States thereof including the District of Columbia, the deposits in which are insured by the FDIC and which at all times has a short-term unsecured debt rating of at least A-1+ by S&P and P-1 by Moody's or (ii) a depositary institution acceptable to each of S&P and Moody's; provided, however, that an institution which shall have -------- ------- corporate trust powers and which maintains the Collection Account as a fully segregated trust account with the trust department of such institution shall not be required to meet the foregoing rating requirements, and need only at all times have a long-term unsecured debt rating of at least Baa3 by Moody's. "Rate Variance Factor" shall mean an interest rate variance factor -------------------- equal to 1.2. "Receivable" shall mean, all indebtedness owed to the Seller (after ---------- giving effect to the sale by AmeriSource to the Seller under the Purchase Agreement) by any Obligor (without giving effect to any purchase hereunder by the Buyer at any time) under a Contract, whether or not constituting an account or a general intangible and whether or not evidenced by chattel paper 21 or an instrument, whether now existing or hereafter arising and wherever located, arising in connection with the sale of goods or the rendering of services by AmeriSource, all monies due or to become due under such Contract, and including the right to payment of any other obligations of such Obligor with respect thereto, but excluding any amount of sales tax, excise tax or other similar tax or charge incurred in connection with the sale of the goods or services which gave rise to such indebtedness. Notwithstanding the foregoing, once a Receivable has been deemed collected or is repurchased pursuant to Section 2.08(c), 2.08(d), 2.08(e) or 2.08(f) hereof and payments therefor received by the Servicer, it shall no longer constitute a Receivable hereunder. "Records" shall mean correspondence, memoranda, computer programs, ------- tapes, discs, papers, books or other documents or transcribed information of any type whether expressed in ordinary or machine readable language maintained with respect to the Receivables and the related Obligors. "Referral Agent" shall mean Morgan Guaranty Trust Company of New York, -------------- together with its successors or assigns, in its capacity as referral agent for the Buyer under the Amended and Restated Referral Agreement dated as of December 6, 1995, as amended, between the Buyer and the Referral Agent, as the same may from time to time be amended, supplemented or otherwise modified. "Related Security" shall mean with respect to any Receivable: ---------------- (a) all Contracts with respect to such Receivable; (b) all of the Seller's interest, if any, in the goods, merchandise (including returned merchandise) or equipment, if any, the sale of which by Seller gave rise to such Receivable; (c) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (d) all guarantees, indemnities, letters of credit, insurance or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; (e) all Records relating to, and all service contracts and any other contracts associated with, the Receivables, the Contracts or the Obligors; (f) all of the Seller's right, title and interest in and to the Purchase Agreement; and (g) all Proceeds of the foregoing. "Remainder" shall have the meaning ascribed to such term in Section --------- 2.08(a) hereof. 22 "Responsible Officer" shall mean, with respect to the Seller, the ------------------- Servicer or AmeriSource, the chief executive officer, chief financial officer or treasurer of such Person and any other Person designated as a Responsible Officer by any such officers, identified on the List of Responsible Officers attached as Exhibit H hereto (as such List may be amended or supplemented from time to time) and agreed to by the Administrative Agent. "Security Agreement" shall mean the Amended and Restated Security ------------------ Agreement dated as of December 6, 1995, as amended, between the Buyer and Morgan Guaranty Trust Company of New York, as collateral agent for, among other parties, the APA Purchasers, the Program LOC Bank, the APA Lending Banks, the APA Agent and the holders from time to time of the Commercial Paper, as the same may from time to time be amended, supplemented or otherwise modified. "Seller" shall mean AmeriSource Receivables Financial Corporation, a ------ Delaware corporation. "Servicer" shall mean, initially, AmeriSource and, thereafter, any -------- Person which upon the termination of AmeriSource as the Servicer succeeds to the functions performed by AmeriSource as the Servicer of the Receivables pursuant to a Complete Servicing Transfer. "Servicing Compensation" shall have the meaning ascribed to such term ---------------------- in Section 4.07(e) hereof. "Servicing Compensation Rate" shall mean 1.0% per annum expressed as a --------------------------- decimal; provided, however, that if AmeriSource is the Servicer, such rate shall -------- ------- mean .125% per annum. "Servicing Default" shall have the meaning specified in Section 4.10 ----------------- hereof. "Set Off Group" shall mean, initially, with respect to each state, all ------------- State Obligors and Local Obligors arising for such state; provided, however, -------- ------- that, with respect to any state, if the Administrative Agent has been satisfied after AmeriSource shall have provided the Administrative Agent with information to the effect that: (a) the State Obligors in that state could not set off taxes owed by AmeriSource to such State Obligors against Receivables owed by Local Obligors in that state to AmeriSource, and (b) the Local Obligors in that state could not set off taxes owed by AmeriSource to such Local Obligors against Receivables owed by State Obligors in that state to AmeriSource, then AmeriSource could elect to create several separate Set Off Groups for that state, one of which would contain all of such State Obligors and each other of which would contain a Local Obligor; and, provided further, that any State -------- ------- Obligor or Local Obligor that has waived its right to setoff amounts owed to it against the Receivables in a manner satisfactory to the Administrative Agent need not be included in any Set Off Group. "Special Obligor" shall mean any Obligor listed from time to time on --------------- Exhibit E hereto, such Exhibit E to be amended from time to time with the prior written approval of the Administrative Agent and confirmation from each of Moody's and S&P that its then current rating of the Commercial Paper will not be reduced or withdrawn solely as a result of the amendment of the list of Special Obligors. 23 "State/Local Set Off Reserve" shall mean, on any day, the aggregate --------------------------- amount of the Individual Group Reserves for all Set Off Groups. "State/Local Tax Per Diem" shall mean, for any Set Off Group, (a) the ------------------------ amount of state and local tax obligations of the Guarantor and/or any of its Subsidiaries to the Obligors in such Set Off Group accrued during the calendar quarter ending prior to the most recent Monthly Report Date, whether remitted to the applicable State Obligor and Local Obligor quarterly, monthly or otherwise, divided by (b) 90. "State/Local Tax Period" shall mean, for any Set Off Group, the period ---------------------- selected by AmeriSource, subject to the satisfaction of the Administrative Agent. "State Obligor" shall mean any state or any department, agency or ------------- instrumentality thereof. "Subservicer" shall mean any Person to whom the Servicer from time to ----------- time may delegate all or any part of its servicing obligations hereunder pursuant to Section 4.07(f). "Subservicing Agreement" shall mean any written contract between the ---------------------- Servicer and any Subservicer relating to the servicing or administration of all or any portion of the Receivables. "Subsidiary" shall mean, for any Person, any corporation or other ---------- entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "S&P" shall mean Standard & Poor's Rating Services, a division of The --- McGraw-Hill Companies, Inc., together with its successors. "Termination Event" shall have the meaning ascribed to such term in ----------------- Section 7.01 hereof. "Total Reserve Percentage" shall mean, at any time of determination, ------------------------ the sum of (i) the Loss Reserve Percentage and (ii) the Dilution Reserve Percentage. "Tranche" shall have the meaning ascribed to such term in Section ------- 2.06(b) hereof. "Tranche Period" shall mean, with respect to any Tranche, (i) prior to -------------- the Expiration Date, a period of up to 120 days requested by the Seller and determined by the Administrative Agent in consultation with each Owner, commencing on the Business Day requested by the Seller and determined by the Administrative Agent in consultation with each Owner, and (ii) after the Expiration Date, a period of one day (unless the Administrative Agent, after consultation with each Owner, agrees at such time to a longer period). If such Tranche Period would end on a day which is not a Business Day, such Tranche Period shall end on the next succeeding Business Day (provided, that for any -------- Tranche funded by reference to the Eurodollar Rate (as defined in the Asset Purchase Agreement), if the next succeeding Business 24 Day is in the next calendar month, such Tranche Period shall end on the next preceding Business Day). "Tranche Rate" shall mean, for any Tranche Period for any Tranche, a ------------ rate per annum (expressed as a percentage and an interest yield equivalent and calculated on the basis of a 360-day year and the actual days elapsed) equal to the rate of interest (or if more than one rate, the weighted average of the rates) at which funds are borrowed, drawn down or otherwise obtained during such Tranche Period, in connection with the issuance of Commercial Paper, the provision of loans under the APA Credit Agreement, the sale of Receivables by the Buyer pursuant to the Asset Purchase Agreement, the assignment of the Buyer's purchase obligation hereunder pursuant to the Asset Purchase Agreement, drawing under the Program Letter of Credit or otherwise, by an Owner for the purpose of making or maintaining its investment in such Tranche, excluding from the computation of such rates any dealer's discount or fees and excluding any and all other fees directly attributable to such funding. In the case of the issuance of Commercial Paper, such rate of interest shall equal the rate of interest (computed as described in the preceding sentence) of Commercial Paper issued by the Buyer. In the case of borrowings under the APA Credit Agreement or drawings under the Program Letter of Credit, such rate of interest, at the option of the Buyer, may be determined by the weighted average of such interest rates as applicable to all sellers of receivables to the Buyer; provided, -------- however, that the "Tranche Rate" for any Tranche Period shall not exceed the - ------- Base Rate plus 2% per annum. At all times on and after the Expiration Date occurring for the reason set forth in clause (v) of the definition of such term (other than due to a Termination Event described in Section 7.01(h) or Section 7.01(m) hereof), the Administrative Agent, after consultation with each Owner, may declare the "Tranche Rate" for any Tranche Period to be equal to the Base Rate plus 2% per annum. "Tranche Selection Notice" shall have the meaning ascribed to such ------------------------ term in Section 2.06(c) hereof. "Transaction Costs" shall have the meaning ascribed to such term in ----------------- Section 9.01 hereof. "UCC" shall mean, with respect to any jurisdiction, the Uniform --- Commercial Code, or any successor statute, or any comparable law, as the same may from time to time be amended, supplemented or otherwise modified and in effect in such jurisdiction. "Weighted Average Term Factor" shall mean an amount equal to the ---------------------------- greater of: (i) 1.0 or (ii) the ratio of (A) the weighted average payment terms plus 90 to (B) 120. "Year 2000 Compliant" shall have the meaning ascribed to such term in ------------------- Section 5.03(m) hereof. 1.02. Interpretation and Construction. Unless the context of this ------------------------------- Agreement otherwise clearly requires, references to the plural include the singular, the plural and the part the whole. References in this Agreement to "determination" by the Buyer or the Administrative Agent shall be conclusive absent manifest error and include good faith estimates by the Buyer or the Administrative Agent, as the case may be (in the case of quantitative determinations), and good faith beliefs by the Buyer or the Administrative Agent, as the case may be (in the case of 25 qualitative determinations). The words "hereof", "herein", "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." The section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation hereof in any respect. Section, subsection and exhibit references are to this Agreement unless otherwise specified. As used in this Agreement, the masculine, feminine or neuter gender shall each be deemed to include the others whenever the context so indicates. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. Terms not otherwise defined herein which are defined in the UCC as in effect in the State of New York on the date hereof shall have the respective meanings ascribed to such terms therein unless the context otherwise clearly requires. 1.03. Obligor Classification. The unsubordinated debt rating of an ---------------------- Obligor shall be determined as follows: (a) short-term debt ratings shall be utilized in determining the relevant Obligor classification unless an Obligor has long-term debt ratings only, in which case the long-term ratings may be utilized in determining the relevant Obligor classification; (b) if any debt rating of an Obligor which is based upon (i) full credit enhancement provided by a third party, (ii) a guaranty in full by the parent or (iii) collateral of the entire obligation, the debt rating of the credit enhancer, guarantor or collateral shall be utilized; (c) if more than one rating agency provides a rating of any type of the Obligor's debt, the lowest rating for such type of debt shall be utilized; (d) if no ratings are available for an Obligor who is not a Special Obligor, then such Obligor shall be a Group D Obligor; and (e) if an Obligor's obligations under Receivables Contracts are fully guaranteed by its parent, the debt ratings of such Obligor's parent shall be utilized (following the rules set forth in clauses (a) through (d) of this Section 1.03). ARTICLE II PURCHASES AND SETTLEMENTS ------------------------- 2.01. General Assignment and Conveyance. At the time of each --------------------------------- Incremental Purchase pursuant to Sections 2.02 and 2.03 hereof and each reinvestment Purchase pursuant to Section 2.05 hereof, the Seller hereby sells, bargains, grants, assigns, transfers and conveys to the Administrative Agent, for the benefit of the applicable Owner or Owners, and the applicable Owner or Owners hereby cause the Administrative Agent, on behalf of the applicable Owner or Owners, to purchase and accept assignment and transfer from the Seller of, all of the Seller's 26 right, title and interest in and to the Purchased Interest in the Receivables then existing as well as any additional Receivables thereafter arising. At the time of each recalculation pursuant hereto of the Buyers' Percentage Interest, each Owner, ratably in accordance with the percentage of the Purchased Interest owned by the Administrative Agent, for the benefit of such Owner, hereby causes the Administrative Agent, on behalf of such Owner, to reassign, retransfer and reconvey to the Seller an undivided percentage ownership interest in each Receivable, together with Related Security and Collections, equal to any reduction of the Buyer's Percentage Interest effected by such recalculation, in relation to the Buyer's Percentage Interest in effect immediately prior to such recalculation. It is not the intention of the parties that such Incremental Purchases and reinvestment Purchases be deemed a pledge of the Seller's Purchased Interest in the Receivables to the Administrative Agent (on behalf of the Owners) to secure a debt or other obligation of the Seller. However, in the event that, notwithstanding the intent of the parties, the Purchased Interest in the Receivables is held to be the property of the Seller, or if for any other reason this Agreement is held or deemed to create a security interest in the Purchased Interest in the Receivables then this Agreement shall be deemed to be a security agreement and the conveyance provided for in this Section 2.01 shall be deemed to be a grant by the Seller to the Administrative Agent (for the benefit of the Owners) of a security interest in all of the Seller's right, title, and interest, whether now owned or hereafter acquired, in and to (a) all accounts, contract rights, general intangibles, chattel paper, instruments, documents, money, deposit accounts, certificates of deposit, goods, letters of credit, advices of credit and uncertificated securities consisting of, arising from or relating to (i) the Receivables, (ii) the Related Security with respect to such Receivables, (iii) all collections, including all cash collections and other cash proceeds of the Receivables, with respect to, and other proceeds of, such Receivables, and (iv) all monies from time to time on deposit in any Permitted Lockbox or related Lockbox Account, the Concentration Account, the Excess Funding Account or the Collection Account; and (b) all cash and non-cash proceeds of any of the foregoing. The possession by the Administrative Agent or its transferee (on behalf of the Owners) of notes, and such other goods, letters of credit, advices of credit, money, documents, chattel paper or certificated securities shall be deemed to be "possession by the secured party," for purposes of perfecting the security interest pursuant to the UCC (including, without limitation, Sections 9-305 thereof) as in force in the relevant jurisdiction. Notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed to be notifications to, or acknowledgments, receipts or confirmations from, bailees or agents (as applicable) of the Administrative Agent or its transferee for the purpose of perfecting such security interest under applicable Laws. 2.02. Purchase Limits. On or after the Effective Date, subject to --------------- the terms and conditions hereof, the Seller may at any time and from time to time at its option sell to the Administrative Agent (as agent for the applicable Owner or Owners) and the applicable Owner or Owners agree to cause the Administrative Agent, on behalf of the applicable Owner or Owners, to purchase from the Seller, undivided percentage ownership interests in each and every Receivable (including any additional Receivables thereafter arising), together with the Related Security and Collections with respect thereto (each an "Incremental Purchase"). The Owners shall have no obligation to make an -------------------- Incremental Purchase on any day, to the extent that the amount of such purchase shall exceed the Purchase Availability Amount, or shall cause the Buyer's Percentage Interest (after giving effect to such purchase) to exceed 100%. The Owners shall not be obligated to increase the Maximum Net Investment. The Buyer shall have no 27 obligation to make an Incremental Purchase if the Buyer determines that it is not practicable to issue Commercial Paper and no Owner shall have an obligation to make any such purchase at or after the earlier to occur of (i) the Expiration Date and (ii) the reduction of the Maximum Net Investment to zero pursuant to Sections 2.11(a) or 2.17 hereof. Each Incremental Purchase shall be in an amount of $1,000,000 or any higher multiple of $100,000. 2.03. Purchase Price. The Seller shall provide the Administrative -------------- Agent with a notice in substantially the form of Exhibit B hereto (a "Purchase -------- Notice") at least two Business Days prior to each Incremental Purchase - ------ (including the initial Incremental Purchase). On the closing date for each Incremental Purchase, the Administrative Agent, on behalf of the applicable Owner or Owners, shall deposit to the Seller's account at the location indicated on the signature page hereof, in immediately available funds, an amount equal to the Purchase Price for such Incremental Purchase. The Purchase Price of the initial Incremental Purchase shall equal the Owners' initial Net Investment. Each Purchase Notice shall be irrevocable and binding on the Seller and the Seller shall indemnify the applicable Owner or Owners against any loss or expense incurred by the applicable Owner or Owners, either directly or indirectly, including, in the case of the Buyer, losses and expenses incurred through the DFC Program Facility, as a result of any failure by the Seller to complete such Incremental Purchase including, without limitation, any loss (including the Program Fee attributable to any Incremental Purchase) or expense incurred by the applicable Owner or Owners, either directly or indirectly, including, in the case of the Buyer, losses and expenses incurred through the DFC Program Facility, by reason of the liquidation or reemployment of funds acquired by the applicable Owner or Owners (including, without limitation, funds obtained by issuing commercial paper (in the case of the Buyer) or promissory notes or obtaining deposits as loans from third parties) for the applicable Owner or Owners to fund such Incremental Purchase. The Owner or Owners shall make a good faith effort to mitigate any of the losses or expenses described in the immediately preceding sentence and incurred as a result of the failure by the Seller to complete such Incremental Purchase including, without limitation, any loss (including the Program Fee attributable to any Incremental Purchase) or expense incurred by the applicable Owner or Owners, either directly or indirectly including, in the case of the Buyer, losses and expenses incurred through the DFC Program Facility. The Administrative Agent shall notify the Seller of the amount determined by the applicable Owner or Owners to be necessary to compensate such Owner or Owners for such loss or expense. Such amount shall be due and payable by the Seller to the Administrative Agent for distribution to the applicable Owner or Owners ten Business Days after such notice is given. 2.04. Deferred Purchase Price. The applicable Owner or Owners shall ----------------------- defer from paying to the Seller with respect to their purchases of ownership interests in the Receivables an amount equal to the Deferred Purchase Price. The Seller shall calculate the Deferred Purchase Price as of the closing date for each Incremental Purchase and the Servicer shall calculate the Deferred Purchase Price as of the date of each Monthly Report and at such other times as the Administrative Agent shall request in writing. 2.05. Reinvestment Purchases. On each Business Day occurring after ---------------------- the initial Incremental Purchase hereunder and prior to the Expiration Date, the Seller hereby bargains, grants, sells, assigns, transfers and conveys to the Administrative Agent, for the benefit of the applicable Owner or Owners, and, subject to Section 3.04 hereof, such Owner or Owners hereby cause the Administrative Agent, on behalf of such Owner or Owners, to purchase from the Seller 28 undivided percentage ownership interests in each and every Receivable (including any additional Receivables arising), together with Related Security and Collections with respect thereto, to the extent that Collections are available for such Purchase in accordance with Section 2.08(a) hereof, such that after giving effect to such Purchase, (i) the amount of the Net Investment at the close of such Owner's or Owners' business on such Business Day shall be equal to the amount of the Net Investment at the close of such Owner's or Owners' business on the Business Day immediately preceding such Business Day, plus the ---- Purchase Price paid with respect to any Incremental Purchase made on such day, if any, minus the reduction in Net Investment pursuant to Section 2.08(b), ----- 2.08(e), 2.08(f), 2.11(b) or 2.17 hereof made on such day, if any, and (ii) such Owner's or Owners' Purchased Interest in each Receivable, together with Related Security and Collections with respect thereto, shall be equal to its Purchased Interest in each other Receivable, together with Related Security and Collections with respect thereto. 2.06. Funding of the Net Investment. ----------------------------- (a) At all times hereafter, but prior to the Expiration Date, the Buyer shall utilize its best efforts to issue Commercial Paper prior to selling any Purchased Interest to the APA Purchasers under the Asset Purchase Agreement to fund the Net Investment; provided, however, that nothing herein shall require -------- ------- the Buyer to issue Commercial Paper when it is uneconomical or unavailable or limit the rights of the Buyer to sell any Purchased Interest to the APA Purchasers under the Asset Purchase Agreement or obtain funds through the DFC Program Facility to fund the Net Investment; provided, further, if any Purchased -------- ------- Interest has been purchased by an APA Purchaser, such Purchased Interest shall be funded using the Rates (as defined in the Asset Purchase Agreement) for such APA Purchaser set forth in the Asset Purchase Agreement. (b) At all times hereafter, but prior to the occurrence of the Expiration Date, the Seller shall, subject to the Buyer's, and, if applicable, each APA Purchaser's, approval and the limitations described below, request Tranche Periods and allocate a portion of the Net Investment to each selected Tranche Period (each such portion so allocated being herein called a "Tranche"), ------- so that the aggregate amount of all Tranches shall at all times equal the Net Investment. Each Tranche shall be in an amount of $1,000,000 or increments of $100,000 in excess thereof. The Tranche Period corresponds to the funding term for each Tranche, and the Seller shall not request a Tranche Period whose final day would be a day on or after the second Business Day prior to the Expiration Date. The Seller shall request no Tranche Period for a Tranche funded with Commercial Paper that would exceed 120 days. The Administrative Agent shall select no Tranche Period for a Tranche funded with Commercial Paper that would expire on or after the Expiration Date. (c) The Seller shall give the Administrative Agent notice of a requested initial Tranche Period or Periods for each Incremental Purchase at least two Business Days prior to each Incremental Purchase and notice of each new requested Tranche Period for any Tranche at least two Business Days prior to the expiration of any then existing Tranche Period for such Tranche (each such notice shall be irrevocable, shall be in the form of Exhibit C hereto and shall be referred to as a "Tranche Selection Notice"); provided, however, that the ------------------------ -------- ------- Buyer and, if applicable, each APA Purchaser, may select, in its sole discretion, any such Tranche Period if (i) the Seller fails to provide such notice on a timely basis or (ii) the Buyer and, if applicable, each 29 APA Purchaser, determines, in its sole discretion, that the Tranche Period requested by the Seller is unavailable or uneconomical. Upon the occurrence of a Termination Event or a market disruption, the Administrative Agent and each APA Purchaser may, in its sole discretion, at any time or from time to time, by written notice to the Seller, declare any Tranche Period to be terminated and allocate the amount of Net Investment allocated to the Tranche for such Tranche Period to one or more other Tranches and Tranche Periods as the Administrative Agent or such APA Purchaser, as the case may be, shall select. In the case of any Tranche Period ending after the Expiration Date, such Tranche Period shall end on the Expiration Date and thereafter, all such Tranche Periods shall be a period of one day (unless the Administrative Agent, after consultation with each Owner agrees at such time to a longer period). The Owners shall be entitled to indemnification from the Seller in accordance with Section 2.03 in the event that a Tranche Period is ended before its scheduled final day due to the occurrence of an Expiration Date occurring for the reason set forth in clause (v) of the definition of such term. (d) At all times on and after the Expiration Date occurring for the reason set forth in clause (v) of the definition of such term (other than due to a Termination Event described in Section 7.01(h) and Section 7.01(m) hereof), the Administrative Agent, after consultation with each Owner, may declare the Tranche Rates applicable to the Net Investment to be equal to the Base Rate plus 2%. 2.07. Discount. The Administrative Agent will provide the Seller -------- and the Servicer with a report in substantially the form of Exhibit D hereto showing the Discount attributable to each Tranche for its then current Tranche Period on or prior to the third Business Day following the commencement of each Tranche Period and otherwise upon the reasonable request of the Seller and setting forth the Rate Variance Factor then in effect. The Tranche Rate and the Program Fee with respect to each Tranche shall accrue on each day occurring during the Tranche Period related thereto and the related Discount shall be payable by the Seller on the last day of the applicable Tranche Period. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day (unless the amount is payable in respect of a Tranche, the Tranche Rate of which is determined by reference to the Eurodollar Rate (as defined in the Asset Purchase Agreement), and the next succeeding Business Day is in the next calendar month, in which event the amount shall be payable on the next preceding Business Day). Discount payable hereunder shall be calculated for the actual days elapsed on the basis of a 360-day year for all Tranche Periods other than Tranche Periods with a Tranche Rate calculated by reference to the Base Rate, and on the basis of a 365- or 366-day year, as the case may be, for the Tranche Periods with a Tranche Rate calculated by reference to the Base Rate. Nothing in this Agreement shall limit in any way the obligations of Seller to pay the amounts set forth in this Section 2.07. 2.08. Non-Liquidation Settlements and Other Payment Procedures. -------------------------------------------------------- (a) On each day after the day of the initial Incremental Purchase but prior to the Expiration Date, with respect to all Collections received on such day, the Owners shall be entitled to an allocation of such Collections in an amount, and there shall be allocated by the Servicer to the Owners an amount of such Collections, equal to the product of (i) the Buyer's Percentage Interest, expressed as a decimal and (ii) Collections, if any, received on or prior to such day and not previously applied or accounted for. The Servicer may, subject to Section 4.09 30 hereof, upon receipt of the Collections, commingle such Collections with its other funds; however, the books and records of the Servicer shall at all times reflect that the Buyer's Percentage Interest of the Collections received on each day is held in trust for the benefit of the Owners. Out of the Buyer's Percentage Interest of the Collections described in the first sentence of this Section 2.08(a), on each such day, all Discount accrued through such day and not previously so held or paid shall be paid to the Owners as provided below. The remainder of such amount of Collections (the "Remainder") in respect of such --------- Buyer's Percentage Interest shall, subject to the terms and conditions of this Agreement, be used by the Servicer to make a reinvestment Purchase of additional undivided percentage interests for the benefit of the Owners in each Receivable pursuant to Section 2.05 hereof. On the last day of each Tranche Period, from the Collections held by the Servicer, the Servicer shall deposit to the Administrative Agent's account, for distribution to the Owners in accordance with this Agreement and the Asset Purchase Agreement, an amount equal to the accrued and unpaid Discount for such Tranche Period. Not later than the Monthly Report Date in each month, the Servicer shall, for the immediately preceding Monthly Period, calculate (i) the amount of Collections for such preceding Monthly Period, (ii) the amount of such Collections allocated to the Owners, (iii) of the amount so allocated to the Owners, the portion thereof representing Discount accrued during such preceding Monthly Period and the portion which is the Remainder, (iv) of the Remainder, the amount which was used to make reinvestment Purchases of additional undivided interests in Receivables for the benefit of the Owners as provided in Section 2.05 and (v) the amount of the balance of the Remainder, if any, which the Servicer shall apply as provided in (b) below. (b) On each Monthly Report Date, the Servicer shall, in addition to the calculations described above, also calculate the Buyer's Percentage Interest. In the event that after giving effect to the application of the Remainder to make reinvestment Purchases pursuant to Section 2.05 and 2.08(a) hereof, the Buyer's Percentage Interest calculated as of the end of the preceding Monthly Period was greater than 100%, then the Servicer shall, unless the provisions in the last sentence of this Section 2.08(b) are applicable, within two Business Days following the Monthly Report Date, pay the amount of the Remainder not applied to make reinvestment Purchases either (i) to the Administrative Agent in reduction of the Net Investment or (ii) to the Administrative Agent for deposit into the Excess Funding Account as provided in Section 2.15(b) hereof. If the Buyer's Percentage Interest calculated on any Monthly Report Date is greater than 100%, the Servicer may calculate the Adjusted Buyer's Percentage Interest within two Business Days of such Monthly Report Date and in so calculating use more recently delivered information, and the Servicer may use the Adjusted Buyer's Percentage Interest in place of the Buyer's Percentage Interest for purposes of determining payments required under (i) or (ii) of the preceding sentence. (c) If on any day the Outstanding Balance of a Receivable is (w) reduced or canceled as a result of any defective or rejected goods or services, any cash discount or any adjustment by the Servicer in accordance with AmeriSource's Credit and Collection Policy, or (x) reduced or canceled as a result of a set-off (including any set-off of any Eligible Government Receivables) in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), or (y) reduced or canceled as a result of any forgiveness of the obligation or of any adjustment by the Servicer in accordance with AmeriSource's Credit and Collection Policy, or (z) otherwise reduced or canceled as a result of any Dilution Factor with respect to such Receivable, the Servicer shall be deemed to have 31 received on such day a Collection of such Receivable in the amount of such reduction or cancellation. If on any day any of the representations or warranties in Section 5.02 hereof is no longer true or was not true when made with respect to a Receivable, the Seller shall be deemed to have received on such day a Collection of such Receivable in full on the date of discovery that such representation or warranty was not true when made. If, on any day, the Seller or the Servicer becomes aware that any Receivable was, on the date such Receivable was purchased, subject to a Dispute or other offsets, counterclaims or defenses, the Seller shall be deemed to have received a Collection of such Receivable in full on the date of discovery of such Dispute, offset, counterclaim or defense. (d) The Seller has the option, to be exercised in its sole and absolute discretion, to repurchase the Owners' interest in any Receivable (or, alternatively, to substitute another Eligible Receivable) on and after the date on which such Receivable ceases to be an Eligible Receivable, by delivering to the Servicer a repurchase amount equal to Collections in full of such Receivable. Any repurchase amount received pursuant to this Section 2.08(d) shall be treated as a Collection hereunder. (e) Any Collections deemed to be received by the Seller pursuant to Section 2.08(c) hereof during any Monthly Period shall be paid by the Seller to the Servicer on or before the Monthly Report Date of the following month or on such other day as specified by the Administrative Agent. The Servicer shall hold or distribute all Collections deemed received pursuant to Section 2.08(c) hereof to the same extent as if such Collections had actually been received on the day on which the deemed Collection occurred. So long as the Servicer shall hold any Collections or deemed Collections required to be paid to an Owner, it shall hold such Collections in trust for such Owner. (f) Any repurchase price received by the Servicer pursuant to Section 2.12(a) hereof and any amounts held in the Excess Funding Account shall be treated as Collections and shall be applied to a reduction of the Net Investment on the next day on which any Tranche Period ends. (g) On each day after the day of the initial Incremental Purchase hereunder, the Servicer shall allocate and distribute to the Seller an amount of Collections equal to the difference between (i) the aggregate amount of Collections, if any, received on or prior to such day and not previously allocated to the Owners or the Seller minus (ii) the amount of such Collections allocated to the Owners on such day pursuant to the first sentence of Section 2.08(a). The amount so allocated to the Seller shall be distributed to the Seller not later than the Monthly Report Date following receipt of such Collections. 2.09. Liquidation Settlement Procedures. On the Expiration Date and --------------------------------- on each day thereafter, the Servicer shall set aside and hold in trust for the Owners, an amount equal to the product of (i) the Buyer's Percentage Interest, expressed as a decimal and (ii) Collections, if any, received on such day. Any amount not so required to be set aside and held in trust for the Owners, following each calculation of the Collections, allocation and Buyer's Percentage Interest, shall be set aside and held in trust for the Seller. On the last day of the Tranche Period for each Tranche to occur on or after the Expiration Date, the Servicer shall deposit the amount which has been held in trust for the Owners, together with any remaining amounts set aside 32 pursuant to Section 2.08(a), into the Administrative Agent's account indicated on the signature page hereof, for distribution to the Owners in accordance with this Agreement and the Asset Purchase Agreement. If there shall be insufficient funds on deposit for the Administrative Agent to distribute funds in payment in full of the aforementioned amounts to an Owner, the Administrative Agent shall distribute funds first, in payment of all fees and expenses payable to the ----- Buyer, second, in payment of the Discount due, third, in reduction of such ------ ----- Owner's percentage of the Net Investment allocated to such Tranche Period, and fourth, in payment of all other Aggregate Unpaids (whether due or accrued). If - ------ the Expiration Date was caused by an event described in clause (v) of the definition of such term, then following the distribution of funds described in the immediately preceding sentence, the Servicer shall withdraw from the funds held in trust for the Seller and pay to the Administrative Agent, for distribution to the Owners, an amount sufficient to ensure payment in full of the amounts set forth in clauses first, second and fourth of the immediately ----- ------ ------ preceding sentence. Any amounts held in trust for the Seller and not withdrawn to make the payments set forth in the immediately preceding sentence shall be distributed to the Seller on the last day of the Tranche Period. Following the date on which the Net Investment has been reduced to zero and all Discount due and all other Aggregate Unpaids have been indefeasibly paid in full, (i) upon retransfer by the Administrative Agent to the Seller of all of its right, title and interest to and under the Receivables and all Related Security and Collections, the Deferred Purchase Price shall be deemed to have been paid in full, (ii) the Buyer's Percentage Interest shall be deemed to be zero, (iii) the Owners shall be deemed to have reconveyed to the Seller any interest in the Receivables (including the Purchased Interest), (iv) the Servicer shall pay to the Seller any remaining Collections set aside and held by the Servicer pursuant to the first sentence of this Section 2.09 and (v) the Administrative Agent and the Owners shall execute and deliver to the Seller, at Seller's expense, such documents or instruments as are reasonably necessary to terminate the Owners' interest in the Receivables. 2.10. Fees. Notwithstanding any limitation on recourse contained in ---- this Agreement, the Seller shall pay the non-refundable fees set forth in the Fee Letter. Any of the fees described in the Fee Letter which are accrued but unpaid on the Expiration Date shall be paid in full by the Seller on the Expiration Date. 2.11. Optional Reduction of Maximum Net Investment; Optional ------------------------------------------------------- Reduction of Net Investment. - --------------------------- (a) The Seller may reduce in whole or in part the Maximum Net Investment (but not below the Net Investment) by giving the Administrative Agent written notice thereof at least three Business Days before such reduction is to take place; provided, however, that any partial reduction shall be in an amount -------- ------- of $5,000,000 or any higher multiple of $100,000. The Seller shall pay the Buyer any accrued and unpaid Purchase Availability Fee on the date of such reduction with respect to the reduction amount. (b) The Seller may reduce the Net Investment in whole or in part with respect to any Tranche on the last day of the related Tranche Period by giving the Administrative Agent at least two Business Days' written notice. If the Seller delivers such a notice of reduction, the Seller shall pay to the Administrative Agent for distribution to the Owners in accordance with the Asset Purchase Agreement (or cause the Servicer to pay to the Administrative Agent) on the last day of such Tranche Period an amount equal to (i) the amount of the proposed reduction, (ii) 33 any Discount otherwise payable on such date and (iii) if such reduction reduces the Net Investment to zero, all other Aggregate Unpaids; provided, however, that -------- ------- any partial reduction shall be in an amount of $1,000,000 or any higher multiple of $100,000. Such reduction shall become effective upon payment of the amounts in the preceding clauses (i), (ii) and, if applicable, (iii). (c) Before any reduction of the Maximum Net Investment shall become effective pursuant to Section 2.11(a) above, the Administrative Agent shall give notice thereof to S&P and Moody's. 2.12. Mandatory Repurchase Under Certain Circumstances. ------------------------------------------------ (a) The Seller agrees to repurchase from the Administrative Agent (as agent for the Owners) the Purchased Interest in any Receivable if (i) at any time the Administrative Agent, on behalf of the Owners, shall cease to have a perfected ownership interest, or a first priority perfected security interest, in such Receivable, free and clear of any Lien (except as provided herein) or (ii) any representation or warranty made in connection with this Agreement shall prove to be, or have been, false as of the time made, within five days of notice thereof by the Administrative Agent. The Seller shall pay the repurchase price in an amount equal to the Outstanding Balance of such Receivable to the Administrative Agent for distribution to the Owners in accordance with Section 2.08(f) or 2.09 hereof. (b) If an APA Purchaser's Purchase Commitment (as defined in the Asset Purchase Agreement) terminates and no other APA Purchaser(s) or replacement APA Purchaser(s) accept such terminating APA Purchaser's Purchase Commitment, the Maximum Net Investment shall be automatically reduced by the amount of such APA Purchaser's Purchase Commitment. If, following such reduction of the Maximum Net Investment, the Net Investment is greater than the Maximum Net Investment, the Seller agrees to either (i) pay to the Administrative Agent in reduction of the Net Investment or (ii) fund the Excess Funding Account, in an amount equal to but not less than the excess of the Net Investment over the Maximum Net Investment. Such funding shall occur on the date of termination of the APA Purchaser's Purchase Commitment. 2.13. Payments and Computations, Etc.; Allocation of Collections. ---------------------------------------------------------- (a) All per annum fees payable under this Agreement shall be calculated for the actual days elapsed on the basis of a 360-day year. All amounts to be paid or deposited by the Seller or the Servicer hereunder shall be paid or deposited in accordance with the terms hereof in immediately available funds no later than 2:00 p.m. (New York City time) on the day when due; if such amounts are payable to an Owner or Owners they shall be paid or deposited in the Administrative Agent's account indicated on the signature page hereof, until otherwise notified by the Administrative Agent. The Seller shall, to the extent permitted by Law, pay to the Administrative Agent for the account of each Owner upon demand of the Administrative Agent, interest on all amounts not paid or deposited when due to the Administrative Agent for the account of each Owner hereunder at a rate equal to 2% per annum plus the Base Rate. All computations of interest hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed other than computations 34 of interest calculated by reference to the Base Rate which shall be calculated on the basis of a 365- or 366-day year, as applicable. Any computations of amounts payable by the Seller hereunder made by the Buyer, the Administrative Agent or the relevant party under the DFC Program Facility shall be binding absent manifest error. (b) Any payment by an Obligor in respect of any indebtedness owed by it to the Seller shall, except as otherwise specified by such Obligor or otherwise required by Contract or Law and unless otherwise instructed by the Administrative Agent, be applied as a Collection of any Receivable of such Obligor included in the Purchased Interest (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other indebtedness of such Obligor. 2.14. Reports. ------- (a) Prior to or on the Monthly Report Date in each month, the Servicer shall prepare and forward to the Administrative Agent (i) a monthly report, substantially in the form of Exhibit F (a "Monthly Report"), as of the -------------- close of business on the last Business Day of the related Monthly Period and (ii) if requested by the Administrative Agent, (which request shall be no more frequently than once per quarter unless a Termination Event or Potential Termination Event shall have occurred and be continuing), a listing by Obligor of all Receivables together with an aging of such Receivables and such other information concerning actual and historical collections experience and other matters as the Administrative Agent may reasonably request and which the Servicer can produce from its current programs. (b) On the second (2nd) Business Day after the Buyer's Percentage Interest exceeds 100%, the Servicer shall prepare and forward to the Administrative Agent a revised Monthly Report, based on the same data contained in the last delivered Monthly Report (or any more recently available information). The revised Monthly Report shall specifically include the Adjusted Net Investment, the Adjusted Buyer's Percentage Interest, deposits in the Excess Funding Account and the amount of repayment of a maturing Tranche pursuant to Section 2.08(b) or 2.15(c) hereof, if any, as of the date of such Monthly Report. (c) Upon the request of the Administrative Agent, the Servicer shall provide in writing to the Buyer the list of Obligors under Contracts related to the Receivables including, for each Obligor added to the list, the name, address, telephone number and account number of such Obligor and if there have been changes in the name, address, telephone number or account number of any existing Obligor, the revisions shall be provided. (d) The Seller shall, or shall cause the Servicer to, furnish to the Administrative Agent at any time and from time to time, such other or further information in respect of the Receivables, the Seller and the Obligors as the Administrative Agent may reasonably request and which the Servicer can produce from its current programs. 2.15. Excess Funding Account. ---------------------- (a) The Administrative Agent shall establish and maintain the Excess Funding Account, in the name of the Administrative Agent, for the benefit of the Owners. 35 (b) If, at any time the Buyer's Percentage Interest, as calculated in accordance with the definition thereof, is determined to exceed 100%, the Seller may fund the Excess Funding Account after such determination in an amount sufficient to cause the Adjusted Buyer's Percentage Interest not to exceed 100%. (c) Moneys in the Excess Funding Account shall be used to repay maturing Tranches in accordance with Section 2.08(f) or 2.09 hereof. (d) On the next day on which a Monthly Report delivered to the Administrative Agent indicates that the Buyer's Percentage Interest is less than or equal to 100%, then any amounts remaining in the Excess Funding Account shall be returned to the Seller. (e) The Administrative Agent will use its best efforts to invest moneys in the Excess Funding Account in obligations that are rated at least "A-1+" by S&P and at least "P-1" by Moody's. Earnings on such investment (after deducting any losses), if any, shall be paid to the Seller. 2.16. Expiration Date. --------------- Subject to other provisions of this Agreement requiring earlier termination, the Administrative Agent's obligation to make Purchases hereunder shall terminate on the Expiration Date. 2.17. Optional Retransfer. ------------------- (a) At its option and at any time, the Seller shall have the right to repurchase any or all of the Purchased Interest in the Receivables. The Seller shall be entitled to effectuate such reconveyance upon five Business Days prior written notice to the Administrative Agent and payment of the Net Investment plus any Aggregate Unpaids on such date. - ---- (b) On any day, with respect to any Receivable which has been repurchased pursuant to Section 2.17(a), the Administrative Agent shall, on such day and at the expense of the Seller, (i) retransfer to the Seller all of its right, title and interest to and under such Receivable and all Related Security and Collections with respect thereto, and all Proceeds of the foregoing and (ii) execute any and all instruments, certificates and other documents reasonably necessary to effect such retransfer. Each Monthly Report delivered by the Servicer shall state the aggregate Outstanding Balance of the repurchased and reconveyed Receivables for the preceding Monthly Period. 2.18. Breakage Payments. The Seller shall pay to the Administrative ----------------- Agent, for the account of the Owners, upon the request of the Administrative Agent, such amount or amounts as shall compensate the Owners for any loss (including any Program Fee attributable to any Incremental Purchase), cost or expense incurred by the Owners as a result of any reduction in the Net Investment or repurchase of the Purchased Interest in the Receivables, including, without limitation, any reduction or repurchase made pursuant to Sections 2.08, 2.11, 2.12 and 2.17. The Seller shall be obligated to pay such amount or amounts promptly upon receipt from the Administrative Agent of a certificate setting forth in reasonable detail the computation of 36 such amount or amounts. The determination by the Administration Agent or the relevant Owner or Owners shall be conclusive absent manifest error. ARTICLE III CLOSING PROCEDURES ------------------ 3.01. Purchase and Sale Procedures. ---------------------------- (a) Maximum Net Investment. If, on any closing date for an ---------------------- Incremental Purchase, the Purchase Price to be paid on such date for such Incremental Purchase would cause the Net Investment to exceed the Maximum Net Investment, the Owners may, at their option, either refuse to make such Incremental Purchase or make a smaller Incremental Purchase such that, immediately after the payment of the smaller Purchase Price, the Net Investment would not exceed the Maximum Net Investment. (b) Non-Assumption by the Owners of Obligations. No obligation or ------------------------------------------- liability of the Seller to any Obligor or any third party under any Receivable or Contract which is part of the Receivables in which an Owner has a Purchased Interest shall be assumed by any Owner, and any such assumption is hereby expressly disclaimed. Each Owner and the Administrative Agent shall be indemnified by the Seller in accordance with Section 9.03 hereof in respect of any losses, claims, damages, liabilities, costs or expenses arising out of or incurred in connection with any Obligor's assertion of such obligation or liability against the Owners or the Administrative Agent. 3.02. Conditions to Closing. On or prior to the date of the --------------------- execution of this Agreement, the Seller shall deliver to the Administrative Agent the following documents and instruments, all of which shall be in a form and substance acceptable to the Administrative Agent (with such additional copies thereof as the Administrative Agent may request): (a) A copy of the resolutions of the Board of Directors of each of the Seller, the Servicer and the Guarantor certified as of the date hereof by such Person's secretary or assistant secretary authorizing the execution, delivery and performance of this Agreement and the other documents to be delivered by such Person hereunder and approving the transactions contemplated hereby and thereby; (b) The Certificate of Incorporation or organizational documents of each of the Seller, the Servicer and the Guarantor certified as of a date reasonably near the date hereof by the Secretary of State or other similar official of such Person's jurisdiction of incorporation; (c) A good standing certificate for each of the Seller, the Servicer and the Guarantor issued by the Secretary of State or other similar official of such Person's jurisdiction of incorporation, and certificates of the appropriate state official in each jurisdiction specified by the Administrative Agent as to the absence of any tax Liens against such Person under the Laws of such jurisdiction, each such certificate to be dated a date reasonably near the date hereof; (d) A certificate of the secretary or assistant secretary of each of the Seller, the Servicer and the Guarantor dated the date hereof and certifying (i) the names and signatures of 37 the officers authorized on such Person's behalf to execute, and the officers and other employees authorized to perform, this Agreement and any other documents to be delivered by such Person hereunder (on which certificate the Administrative Agent and each Owner may conclusively rely until such time as the Administrative Agent shall receive from such Person a revised certificate meeting the requirements of this clause (d)(i)) and (ii) a copy of such Person's By-laws; (e) Acknowledgment copies of proper financing statements (Form UCC-l) dated a date reasonably near the date hereof (i) naming the Seller as the transferor (debtor) of the Receivables and Morgan Guaranty Trust Company of New York, as Administrative Agent (for the benefit of the Owners), as the transferee (secured party) or other similar instruments or documents as may be necessary or, in the opinion of the Administrative Agent, desirable under the UCC of all appropriate jurisdictions to evidence or perfect the Owners' ownership interests in all Receivables and (ii) naming AmeriSource as the transferor (debtor) of the applicable Receivables and the Seller as the transferee (secured party), or other similar instruments or documents as may be necessary or, in the opinion of the Administrative Agent, desirable under the UCC of all appropriate jurisdictions to evidence or perfect the Seller's ownership interest in all Receivables; (f) Certified copies of requests for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Administrative Agent) dated a date reasonably near the date hereof listing all effective financing statements which name the Seller or AmeriSource (under their respective present names and any previous names) as debtor and which are filed in jurisdictions in which the filings were made pursuant to item (e) above, together with copies of such financing statements (none of which shall cover any Receivables or Contracts or inventory or goods the sale of which may give rise to a Receivable); (g) A favorable opinion or opinions of counsel for the Seller, dated the date hereof relating to corporate matters, legality, validity and enforceability of the Purchase Documents, true sale and non-consolidation and such other matters as the Administrative Agent may reasonably request; (h) A favorable opinion or opinions of counsel for the Servicer, dated the date hereof, relating to corporate matters, legality, validity and enforceability of the Purchase Documents, and such other matters as Administrative Agent may reasonably request; (i) A favorable opinion or opinions of counsel for AmeriSource, dated the date hereof, relating to corporate matters, legality, validity and enforceability of the Purchase Agreement, and such other matters as the Administrative Agent may reasonably request; (j) A favorable opinion or opinions of counsel for the Guarantor, dated the date hereof, relating to corporate matters, legality, validity and enforceability of the Purchase Documents, and such other matters as Administrative Agent may reasonably request; (k) An officer's certificate of each of the Seller, the Servicer and the Guarantor dated the date hereof, executed by a Responsible Officer of each such Person, in form and substance acceptable to the Administrative Agent; (l) The Arrangement Fee and Conduit Fee shall have been paid; 38 (m) An executed copy of the Purchase Agreement and each document or certificate delivered in connection therewith; (n) An officer's certificate of the Seller dated the date hereof, executed by a Responsible Officer of the Seller, setting forth each jurisdiction in which the Seller is qualified as a foreign corporation; and (o) Such other documents as the Buyer shall reasonably request. 3.03. Conditions to Effectiveness. The obligation of the --------------------------- Administrative Agent (as agent for the applicable Owner or Owners) to make an Incremental Purchase is subject to the satisfaction of the following conditions precedent: (a) The Closing Date shall have occurred; (b) An officer's certificate of each of the Seller, the Servicer and the Guarantor, dated the Effective Date and executed by a Responsible Officer of each such Person, certifying that the representations and warranties contained in Sections 4.03A, 5.01 and 5.03 hereof are true and correct as if such representations and warranties were made on the Effective Date; (c) The Administrative Agent shall have received the Purchase Notice and the Tranche Selection Notice for the initial Incremental Purchase hereunder; (d) A computer file or tape containing a true and complete list of all Receivables, identified by account number, account name and by aggregate Outstanding Balance of each Receivable; (e) Certified copies of requests for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Administrative Agent) dated a date reasonably near the date of the initial Incremental Purchase listing all effective financing statements which name the Seller or AmeriSource (under their respective present names and any previous names) as debtor and which are filed in jurisdictions in which filings were made pursuant to the filing of financing statements on Form UCC-1, together with copies of such financing statements (none of which shall cover any Receivables or Contracts or inventory or goods the sale of which may give rise to a Receivable); (f) Copies of proper financing statements (Form UCC-3), if any, necessary under the laws of all appropriate jurisdictions to release all security interests and other rights of any Person in Receivables previously granted by the Seller, AmeriSource or any Affiliate thereof; (g) Either (i) undated duly executed lockbox transfer letters substantially in the form of Exhibits G-1 or G-2 or (ii) an executed lockbox letter agreement substantially in the form of Exhibits G-3 or G-4 addressed to or from, as applicable, each Permitted Lockbox Bank or Permitted Concentration Account Bank (together, the "Account Transfer Letter"); ----------------------- (h) A Monthly Report for April 1999; 39 (i) An executed copy of the Intercreditor Agreement and each document or certificate delivered in connection therewith; and (j) A favorable opinion or opinions of counsel for AmeriSource, dated the Effective Date, relating to perfection and priority of the Seller's security interest in the applicable Receivables and such other matters as the Administrative Agent may reasonably request; (k) A favorable opinion or opinions of counsel for the Seller, dated the Effective Date, relating to perfection and priority of the Owners' ownership or security interest in the Purchased Assets and such other matters as the Administrative Agent may reasonably request; (l) Such other documents as the Buyer shall reasonably request. 3.04. Conditions to Reinvestment and Incremental Purchases. The truth ---------------------------------------------------- and correctness of the representations and warranties in Article V hereof as of the date of the Incremental Purchase or reinvestment Purchase referred to below as though made on and as of such date, compliance with the covenants and agreements in Articles II, IV and VI hereof, the requirement that no Termination Event or Potential Termination Event shall occur as a result of such Incremental Purchase or reinvestment Purchase, in the case of an Incremental Purchase, the satisfactory completion of any due diligence conducted by the Buyer with respect to the Receivables and the related Obligors and Contracts which are the subject of such Purchase, the receipt by the Administrative Agent of a Tranche Selection Notice in the case of an Incremental Purchase, the receipt by the Administrative Agent of all Monthly Reports required to be delivered and the receipt by the Owners or the Administrative Agent of any approvals, opinions or other documents as the Owners or the Administrative Agent shall have reasonably requested shall be conditions precedent to any Incremental Purchase under Sections 2.02 and 2.03 hereof and any reinvestment Purchase under Section 2.05 hereof. ARTICLE IV PROTECTION OF THE OWNERS; ADMINISTRATION AND SERVICING OF RECEIVABLES; COLLECTIONS 4.01. Acceptance of Appointment and Other Matters Relating to the ----------------------------------------------------------- Servicer. - -------- (a) AmeriSource agrees to act, and is hereby appointed by the Administrative Agent to act, subject to the terms hereof, as the Servicer under this Agreement, and all Owners are deemed to have consented to AmeriSource acting as Servicer. The Servicer shall collect payments due under the applicable Receivables in accordance with its customary and usual servicing procedures for servicing receivables owned by it and comparable to the Receivables and in accordance with its Credit and Collection Policy and shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable; provided, however, that -------- ------- if any Person succeeds as the Servicer, such successor Servicer shall service the applicable Receivables in accordance with the standards that would be employed by a prudent institution in servicing comparable receivables for its own account. 40 (b) Without limiting the generality of the foregoing and subject to Sections 4.09 and 4.10 hereof, the Servicer is hereby authorized and empowered (i) to receive and hold in trust for the Owners Collections received from Receivables as set forth in Article II and elsewhere in this Agreement and (ii) to execute and deliver, on behalf of the Administrative Agent (for the benefit of the Owners), any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables permitted under and in compliance with applicable Law and regulations. To the extent Collections are transferred to or otherwise received by the Servicer, the Servicer is hereby authorized and empowered to receive and hold in trust such Collections for the Owners to be allocated and distributed as provided in this Agreement. (c) Subject to the rights retained by the Administrative Agent pursuant to Section 4.09 hereof, each of the Seller, the Owners and the Administrative Agent hereby appoint the Servicer to enforce its respective rights and interests in and to the Purchased Interest and the Receivables. If any Person succeeds the initial Servicer as a Servicer, the replaced Servicer shall promptly deliver to such successor Servicer and the replaced Servicer shall hold in trust for the Administrative Agent, the Owners and the Seller, in accordance with their respective interests, all documents instruments and records (including computer tapes or disks) that are reasonably necessary to service or collect the Receivables. 4.02. Maintenance of Information and Computer Records. The Servicer ----------------------------------------------- will hold in trust and keep safely for the Owners all evidence of the Administrative Agent's (for the benefit of the Owners) right, title and interest in and to the Purchased Interest in the Receivables. The Servicer will, or will cause the Subservicer to, on or prior to each Incremental Purchase, and with respect to all Receivables that are added to the pool of Receivables in which the Administrative Agent has a Purchased Interest after the initial Incremental Purchase, on each respective date such Receivables are added, place an appropriate code or notation in its Records to indicate that the Administrative Agent, acting on behalf of the Owners, has a Purchased Interest in each and every such Receivable. 4.03. Protection of the Interests of the Owners. ----------------------------------------- (a) The Servicer will, or will cause the Seller to, from time to time and at Seller's sole expense, do and perform any and all acts and execute any and all documents (including, without limitation, the obtaining of additional search reports, the delivery of further opinions of counsel, the execution, amendment or supplementation of any financing statements, continuation statements and other instruments and documents for filing under the provisions of the UCC of any applicable jurisdiction, the execution, amendment or supplementation of any instrument of transfer and the making of notations on the Records of the Seller and AmeriSource) as may be requested by the Administrative Agent in order to effect the purposes of this Agreement and the sale of Purchased Interest hereunder, to protect or perfect the Owners' right, title and interest in the Purchased Interest in the Receivables (other than a Receivable which has been deemed collected pursuant to Section 2.08(c) or repurchased pursuant to Sections 2.08(d), 2.12 or 2.17), together with Related Security and all Collections with respect thereto, against all Persons whomsoever or to enable the Owners or the Administrative Agent to exercise or enforce any of their respective rights hereunder. 41 (b) To the fullest extent permitted by applicable Law, the Seller hereby irrevocably grants to the Administrative Agent and the Referral Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to sign and file in the name of the Seller, or in its own name, such financing statements and continuation statements and amendments thereto or assignments thereof as the Administrative Agent deems necessary to protect or perfect the Purchased Interest. (c) At any time, upon reasonable notice to the Seller or the Servicer, the Seller or the Servicer, as the case may be, shall permit the Administrative Agent, or such Person as the Administrative Agent may designate, during business hours, to conduct audits or visit and inspect any of the properties of the Seller or the Servicer, as the case may be, to examine the Records, internal controls and procedures maintained by the Seller or the Servicer, as the case may be, and take copies and extracts therefrom, and to discuss the Seller's or the Servicer's, as the case may be, affairs with its officers, employees and independent accountants. The Seller or the Servicer, as the case may be, hereby authorizes such officers, employees and independent accountants to discuss with the Administrative Agent, or such Person as the Administrative Agent may designate, the affairs of the Seller or the Servicer, as the case may be. The Seller shall reimburse the Owners and the Administrative Agent for all reasonable fees, costs and out-of-pocket expenses (not to exceed $20,000 annually) incurred by or on behalf of the Owners or the Administrative Agent in connection with the foregoing actions promptly upon receipt of a written invoice therefor; provided, however, following the occurrence of a Termination Event, -------- ------- the Seller shall reimburse the Owners and the Administrative Agent for all reasonable fees, costs and out-of-pocket expenses incurred by or on behalf of the Owners and the Administrative Agent in connection with the foregoing actions promptly upon receipt of written invoice therefor. Subject to the requirements of applicable laws, each Owner and the Administrative Agent agrees to use commercially reasonable precautions to keep confidential, in accordance with its respective customary procedures for handling confidential information, any non-public information supplied to it by the Seller or the Servicer, as the case may be, pursuant to any such audit or visit which is identified by the Seller or the Servicer, as the case may be, as being confidential at the time the same is delivered to the Administrative Agent or any Owner. Notwithstanding the foregoing, subject to applicable Laws, the Seller and the Servicer hereby consents to the disclosure of any nonpublic information supplied by it to any of the Affected Parties, provided that each such Affected Party shall agree to be bound by this provision or substantially similar confidentiality provisions. (d) The Administrative Agent shall have the right to do all such acts and things as it may deem necessary to protect the interests of the Owners, including, without limitation, confirmation and verification of the existence, amount and status of the Receivables. 4.04. Maintenance of Writings and Records. The Servicer will at all ----------------------------------- times until completion of a Complete Servicing Transfer keep or cause to be kept at its Chief Executive Office or at an office of such Servicer designated in advance to the Administrative Agent, each writing or Record which evidences, and which is necessary or desirable to establish or protect, including such books of account and other Records as will enable the Administrative Agent or its designee to determine at any time the status of, the Purchased Interest of the Owners in each applicable Receivable. The Servicer shall at its own expense prepare and maintain such Records in electronically-readable form in such format as the Servicer customarily maintains its records; 42 provided, however, that upon a Complete Servicing Transfer with respect to the - -------- ------- Servicer, the replaced Servicer shall within 15 days of such Complete Servicing Transfer prepare such Records in such format as may be required to permit or facilitate the transfer of such Records to the successor Servicer. 4.05. Information. The Servicer will furnish to the Administrative ----------- Agent such information with respect to the Receivables (including but not limited to its procedures for selecting Receivables for sale and its standards and procedures for selling goods or services on credit) as the Administrative Agent may reasonably request. The Servicer will also furnish to the Administrative Agent all modifications, adjustments or supplements to AmeriSource's Credit and Collection Policy; provided, however, the Servicer -------- ------- shall not, without the Administrative Agent's prior written consent, alter or consent to the alteration of AmeriSource's Credit and Collection Policy as in effect from time to time unless such alteration is in compliance with Section 6.04(c) hereof. 4.06. Performance of Undertakings Under the Receivables. The ------------------------------------------------- Servicer will at all times observe and perform, or cause to be observed and performed, all material obligations and undertakings to the Obligors arising in connection with each applicable Receivable or related Contract and will not take any action or cause any action to be taken to impair the rights of the Administrative Agent or any Owner to its Purchased Interest in the applicable Receivables. 4.07. Administration and Collections. ------------------------------ (a) General. Until a Complete Servicing Transfer shall have ------- occurred, with respect to it, the Servicer will be responsible for the administration, servicing and collection of the Receivables. (b) Administration. The Servicer shall, to the full extent permitted -------------- by Law, have the power and authority, on behalf of each Owner, to take such action in respect of any applicable Receivable as the Servicer may deem advisable, including the resale of any repossessed, returned or rejected goods; provided, however, that the Servicer may not, and may not allow any Subservicer - -------- ------- to, under any circumstances compromise, rescind, cancel, adjust or modify (including by extension of time for payment or granting any discounts, allowances or credits) the Outstanding Balance of the related Contract for any Receivable (other than a Receivable which has been deemed collected pursuant to Section 2.08(c) or repurchased pursuant to Section 2.08(d), 2.12 or 2.17), except in accordance with the AmeriSource's Credit and Collection Policy or otherwise with the prior written consent of the Majority Owners. (c) Enforcement Proceedings. In the event of a default under any ----------------------- Receivable before a Termination Event, the Servicer shall, at the Seller's sole expense, to the full extent permitted by Law, have the power and authority, on behalf of each Owner, to take or cause to be taken any action in respect of any such Receivable as the Servicer may deem advisable; provided, however, that the -------- ------- Servicer shall take no enforcement action (judicial or otherwise) with respect to such Receivable (other than a Receivable which has been deemed collected pursuant to Section 2.08(c) or repurchased pursuant to Sections 2.08(d), 2.08(f), 2.12, or 2.17), except in accordance with AmeriSource's Credit and Collection Policy or otherwise with the written consent of the Administrative Agent. The Servicer will apply or will cause to be applied at all 43 times before a Termination Event the same standards and follow the same procedures with respect to deciding to commence, and in prosecuting, litigation on such Receivable as is applied and followed with respect to like accounts not owned by the Owners. In no event shall the Servicer or the Seller, as the case may be, be entitled to make or authorize any Person to make any Owner a party to any litigation without such Owner's express prior written consent. (d) Obligations of the Administrative Agent and the Owners. The ------------------------------------------------------ Administrative Agent may, but shall have no obligation to, after a Servicing Default, Termination Event or Potential Termination Event has occurred, take any action or commence any proceeding to realize upon any Receivable, including, but not limited to, delivery to an Obligor of notice of the Owners' interest in the Receivables, any such action or commencement of proceeding to be at the sole expense of the Seller. At such time as the Servicer has any obligation to pursue the collection of Receivables and the Administrative Agent or an Owner possesses any documents necessary therefor, the Administrative Agent or such Owner, as the case may be, agrees to furnish such documents to the Servicer, to the extent and for the period necessary for the Servicer to comply with its obligations hereunder. (e) Servicing Compensation. The daily servicing compensation amount ---------------------- (the "Servicing Compensation") due to the Servicer for performing its ---------------------- obligations hereunder shall be equal to the quotient of (A) the product of (1) the Servicing Compensation Rate and (2) the Outstanding Balances of all Receivables on such day, divided by (B) 360. Subject to Section 4.08(a) hereof, the Servicing Compensation shall be paid to the Servicer by the Seller in arrears on the last Business Day of each fiscal quarter. (f) Subservicing. The Servicer may enter into Subservicing ------------ Agreements with Subservicers for the servicing and administration of the Receivables and Collections; provided, that (i) each such Subservicer is approved by the Seller and the Administrative Agent, which approval shall not be unreasonably withheld, (ii) the Servicer shall remain liable for the performance of the duties and obligations of the Servicer pursuant to the terms hereof, (iii) any applicable Subservicing Agreement provides that such Subservicer may be replaced as Subservicer if it fails to perform its duties as Subservicer or if any event occurs which materially and adversely affects the ability of such Subservicer to collect the applicable Receivables or the ability of such Subservicer to perform its duties and obligations as Subservicer. The Servicer will be responsible for any compensation paid to a Subservicer. The appointment of any Subservicer of any Receivables shall not relieve the Servicer of its obligation to service and administer such Receivables. 4.08. Complete Servicing Transfer. --------------------------- (a) General. If at any time a Termination Event shall have occurred ------- and be continuing, the Administrative Agent may by notice in writing to the Seller and the Servicer, terminate the Servicer's capacity as Servicer in respect of the Receivables (such termination referred to herein as a "Complete -------- Servicing Transfer"). After a Complete Servicing Transfer, the Administrative - ------------------ Agent (or its designee approved by the Majority Owners) may itself administer, service and collect the Receivables, and in such event, may retain the Servicing Compensation for its own account, in any manner it sees fit, including, without limitation, by compromise, extension or settlement of such Receivables. Alternatively, the Majority Owners may engage 44 affiliated or unaffiliated contractors to perform all or any part of the administration, servicing and collection of the Receivables and require the Seller to pay to such contractors all or a portion of the Servicing Compensation in consideration thereof. The Administrative Agent shall give S&P and Moody's prompt notice of the occurrence of a Complete Servicing Transfer; provided, -------- however, that failure to give such notice shall not affect the effectiveness of - ------- the notice delivered with respect to, or the rights of the Owners resulting from, such Complete Servicing Transfer. (b) Transition. The Servicer, promptly but in no event later than ---------- ten Business Days after receiving a notice pursuant to Section 4.08(a) hereof, shall, at the Seller's sole expense, (x) deliver to the Administrative Agent or its designated agent (i) a schedule of the Receivables serviced by the Servicer in which the Owners have a Purchased Interest indicating as to each such Receivable information as to the related Obligor, the Outstanding Balance as of such date of the related Contract and the location of the evidences of such Receivable and related Contract, together with such other information as the Administrative Agent may reasonably request and (ii) all evidence of such Receivables and related Contracts and such other Records related thereto (including, without limitation, true copies of any computer tapes and data in computer memories), (y) permit the Administrative Agent access during business hours to the Servicer's premises, equipment and files and other Records, and (z) take all actions as are reasonably necessary to transfer or cause to be transferred to the Administrative Agent or its designated agent any software that relates to, and is necessary for the servicing of, such Receivables, in each case as the Administrative Agent may reasonably deem necessary to enable it to protect and enforce its rights and the rights of the Owners to the Purchased Interest therein. After any such delivery, the Servicer will not hold or retain any executed counterpart or any document evidencing such Receivables or related Contracts without clearly marking the same to indicate conspicuously that the same is not the original and that transfer thereof does not transfer any rights against the related Obligor or any other Person. (c) Collections. If at any time there shall be a Complete Servicing ----------- Transfer, the terminated Servicer will cause to be transmitted and delivered directly to the Administrative Agent or its designated agent, for the account of the Owners, forthwith upon receipt and in the exact form received, all Collections (properly endorsed, where required, so that such items may be collected by the Administrative Agent on behalf of the Owners) on account of their Purchased Interest in any Receivables. All such Collections consisting of cash shall not be commingled with other items or monies of the terminated Servicer for a period longer than two Business Days. If the Administrative Agent or its designated agent receives items or monies that are not payments on account of the Owners' interest in any Receivables, such items or monies shall be delivered promptly to the Seller after being so identified by the Administrative Agent or its designated agent. Each of the Seller and the terminated Servicer hereby irrevocably grants the Administrative Agent or each of its designated agent, if any, an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of the Seller or the terminated Servicer, as the case may be, all steps with respect to any Receivable which the Administrative Agent, in its sole discretion, may deem necessary or advisable to negotiate or otherwise realize on any right of any kind held or owned by the Seller or the terminated Servicer, as the case may be, or transmitted to or received by the Administrative Agent or its designated agent (whether or not from the Seller or any Obligor) in connection with the Owners' Purchased Interest in any Receivable. The Administrative Agent will provide such periodic accountings 45 and other information related to the disposition of funds so collected as the Seller and the terminated Servicer may reasonably request. (d) Collection and Administration at Expense of the Seller. The ------------------------------------------------------ Seller agrees that in the event of a Complete Servicing Transfer, it will reimburse the Administrative Agent and each Owner for all reasonable out-of-pocket expenses (including, without limitation, attorneys' and accountants' and other third parties' fees and expenses, expenses incurred by the Administrative Agent or such Owner, as the case may be, expenses of litigation or preparation therefor, and expenses of audits and visits to the offices of the Seller) incurred by the Administrative Agent or such Owner in connection with the transfer of functions following a Complete Servicing Transfer. (e) Payments by Obligors. At any time, and from time to time -------------------- following a Complete Servicing Transfer, or if a Termination Event shall have occurred and be continuing, the Seller and the terminated Servicer shall permit such Persons as the Administrative Agent may designate to open and inspect all mail received by the Seller or the terminated Servicer, as the case may be, at any of its offices, and to remove therefrom any and all Collections or other correspondence from Obligors or the Servicer in respect of Receivables. All Collections received by the Administrative Agent shall be applied in accordance with Section 2.13(b) hereof. The Administrative Agent shall be entitled to notify the Obligors of Receivables to make payments directly to the Administrative Agent of amounts due thereunder at any time and from time to time following the occurrence of (i) a Termination Event, (ii) a Complete Servicing Transfer or (iii) a violation by the Servicer of the provisions of Section 4.09 hereof. 4.09. Lockboxes; Collection Account. ----------------------------- (a) The Servicer hereby agrees: (i) to instruct all Obligors with respect to applicable Receivables to cause all Collections on account of such Receivables to be mailed to a Permitted Lockbox or wired directly to the Concentration Account; (ii) not to suffer or permit any material funds other than such Collections to be mailed to Permitted Lockboxes or deposited into related Lockbox Accounts or the Concentration Account; (iii) to make the necessary bookkeeping entries to reflect such Collections on the Records pertaining to such Receivables; (iv) to apply all such Collections as provided in this Agreement; (v) not to amend or modify any term of any Lockbox Servicing Instructions or Concentration Account Servicing Instructions without the prior written consent of the Administrative Agent to such amendment or modification; and (vi) not to amend or modify any term, with respect to the disposition of such Collections or any other amounts received by the Seller, the Servicer, any Permitted Lockbox Bank or the Permitted Concentration Account Bank, of this Agreement or any other agreement (other than Lockbox Servicing Instructions or the Concentration Account Servicing Instructions) without the prior written consent of the Administrative Agent to such amendment or modification. (b) The Servicer further represents and warrants and covenants and agrees as follows: (i) each Lockbox Account shall be maintained with a Permitted Lockbox Bank and the Concentration Account will be maintained with a Permitted Concentration Account Bank; (ii) each Lockbox Account and the Concentration Account shall be established in the name of the Seller as a segregated account; (iii) the funds deposited in each Lockbox Account and the 46 Concentration Account from time to time shall not be commingled with any other material funds of the Seller, the Servicer or any of their Affiliates; (iv) the location of each Permitted Lockbox and each related Lockbox Account and the Concentration Account shall not be changed without 10 Business Days prior written notice to the Administrative Agent; (v) funds deposited in each Lockbox Account and the Concentration Account shall be transferred to the Servicer not later than the next Business Day after such funds are deposited and available as collected funds in each such Lockbox Account or the Concentration Account, as the case may be; (vi) each Lockbox Account and the Concentration Account shall be insured by the Federal Deposit Insurance Corporation to the full extent permitted by Law; (vii) the Administrative Agent or the Collateral Agent shall have the right to obtain control over each Permitted Lockbox and related Lockbox Account and the Concentration Account, or appoint a successor servicer, and, in either case, direct the Permitted Lockbox Bank or the Permitted Concentration Account Bank, as the case may be, not to transfer funds in such Lockbox Account or the Concentration Account, as the case may be, to the Servicer, and direct the Permitted Lockbox Bank or Permitted Concentration Account Bank, as the case may be, to transfer the funds in such Lockbox Account or the Concentration Account, as the case may be, to an account designated by the Administrative Agent or the Collateral Agent, as the case may be, if an event or circumstance arises which would constitute a Complete Servicing Transfer under this Agreement by, as applicable, (i) dating and delivering the Account Transfer Letter with respect to such Permitted Lockbox or the Concentration Account, as the case may be, and in such event the Seller and the Servicer hereby irrevocably authorize the Administrative Agent to date and deliver an Account Transfer Letter to each Permitted Lockbox Bank or to the Permitted Concentration Account Bank, as the case may be, or (ii) instructing the Permitted Lockbox Bank or Permitted Concentration Account Bank, as the case may be, to take such action as are necessary to effectuate control over each Permitted Lockbox and related Lockbox Account and the Concentration Account and the funds on deposit therein as contemplated by this clause; (viii) each of the Seller and the Servicer represents that it has not given and agrees that it shall not give any instructions to any Permitted Lockbox Bank or the Permitted Concentration Account Bank inconsistent with the Account Transfer Letter; and (ix) the Seller and the Servicer shall cooperate fully with the Administrative Agent in effecting any such transfer of control. The Servicer shall not enter into any Lockbox Servicing Instructions, Concentration Account Servicing Agreement or other lockbox or concentration account servicing agreement, which does not contain the foregoing provisions and terms, unless such deviation is consented to by the Administrative Agent. (c) Anything to the contrary herein notwithstanding, if a Termination Event specified in Section 7.01 hereof shall occur and be continuing (other than due to a Termination Event described in Section 7.01(h) and Section 7.01(m) hereof), then (i) the Administrative Agent may direct the Servicer to establish and maintain, and upon such direction the Servicer shall cause to be established and maintained in the name of the Administration Agent, a non-interest bearing segregated account (the "Collection Account"), bearing a designation clearly ------------------ indicating that the funds deposited therein are held in trust for the benefit of the Owners, at a Qualified Institution and (ii) the Servicer shall deposit all Collections in respect of the Receivables within two days of receipt thereof into the Collection Account. The Servicer shall have the revocable power to withdraw funds from the Collection Account for the purposes of carrying out or causing to be carried out its duties hereunder. 47 (d) If the Administrative Agent has taken control of the Permitted Lockbox and the related Lockbox Account and the Concentration Account pursuant to the terms of this Agreement, the Administrative Agent agrees that it shall take such actions as are requested by the Seller (and at the expense of the Seller) to return control of such accounts to the Seller after all Aggregate Unpaids owed to the Administrative Agent (for the benefit of the Owners) have been repaid in full and this Agreement shall have terminated in accordance with Section 9.07. 4.10. Servicing Default. A "Servicing Default" shall occur with ----------------- ----------------- respect to the Servicer if one or more of the following events or conditions shall occur: (a) the Servicer shall fail to remit or fail to cause to be remitted to the Administrative Agent or any Owner on any day any Collections, including any amounts to be remitted to reduce the Net Investment or any portion thereof, or Discount required to be remitted to the Administrative Agent or such Owner on such day and, with respect to failure to remit Discount, such failure shall continue for three Business Days after the date on which such or Discount became due; or (b) the Servicer shall fail to deposit, or pay or fail to cause to be deposited or paid when due any other amount due hereunder and such failure shall continue for five Business Days after the date when such amount became due; or (c) any material representation, warranty, certification or statement made by the Servicer under this Agreement or in any agreement, certificate, report, appendix, schedule or document furnished by the Servicer to the Buyer, any APA Purchaser or the Administrative Agent pursuant to or in connection with this Agreement shall prove to have been false or misleading in any respect material to this Agreement or the transactions contemplated hereby as of the time made (including by omission of material information necessary to make such representation, warranty, certification or statement not misleading) and which continues to be false or misleading in any material respect for a period of 30 days after the date on which notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Administrative Agent; or (d) the Servicer shall default or fail in the performance or observance of any other material covenant, agreement or duty applicable to it contained herein and such default or failure shall continue for 30 Business Days after either (i) any Responsible Officer of the Servicer becomes aware thereof or (ii) notice thereof to such Person by the Administrative Agent or any Owner; or (e) there shall be a final judgment or judgments for the payment of money in excess of $20,000,000 individually or in the aggregate rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Servicer and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 90 days from the date of entry thereof; or (f) there shall have occurred any material adverse change in the operations of the Servicer since the end of the last fiscal year ending prior to the date of its appointment as Servicer hereunder which, in the commercially reasonable judgment of the Administrative 48 Agent, materially and adversely affects the Servicer's ability either to collect the Receivables or to perform hereunder; or (g) an Event of Bankruptcy shall occur with respect to the Servicer. 4.11. Servicer Indemnification of Affected Parties. -------------------------------------------- (a) The Servicer agrees to indemnify and hold harmless the Affected Parties and their assigns (and their respective directors, officers, employees and agents), from and against any loss (other than any losses relating to defaults or collectibility of the Receivables), liability, expense, damage or injury suffered or sustained by reason of any material breach by the Servicer of any of its representations, warranties or covenants contained in this Agreement, including any judgment, award, settlement, reasonable attorneys fees and other reasonable costs or expenses incurred in connection with the defense of any actual action, proceeding or claim; provided, however, that the Servicer shall -------- ------- not indemnify the Affected Parties and their assigns if such acts or omissions were attributable to fraud, negligence, breach of fiduciary duty or willful misconduct by any such Affected Party. (b) Promptly upon receipt by any Affected Party under this Section 4.11 of notice of the commencement of any suit, action, claim, proceeding or governmental investigation against such Affected Party, such Affected Party shall, if a claim in respect thereof is to be made against the Servicer hereunder, notify the Servicer in writing of the commencement thereof. The Servicer may participate in and assume the defense of any such suit, action, claim, proceeding or investigation at its expense, and no settlement thereof shall be made without the prior approval of the Servicer and the Affected Party. The approval of the Servicer and the Affected Party will not be unreasonably withheld or delayed. After notice from the Servicer to the Affected Party of its intention to assume the defense thereof with counsel reasonably satisfactory to the Administrative Agent and the Affected Party, and so long as the Servicer so assumes the defense thereof in a commercially reasonable manner, the Servicer shall not be liable for any legal expenses of counsel unless there shall be a conflict between the interests of the Servicer and the Affected Party. (c) Any indemnification pursuant to this Section 4.11 shall be had only from the assets of the indemnifying Servicer. The provisions of such indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. The provisions of this Section 4.11 shall survive the termination of this Agreement. 4.12. Servicer not to Resign. ---------------------- (a) Subject to Section 4.12(b) hereof, the Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable Law, regulation or order and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable Law, regulation or order. Any such determination permitting the resignation of the Servicer shall be evidenced by an opinion of counsel to such effect reasonably acceptable and delivered to the Administrative Agent. No such resignation shall become effective until the Administrative Agent or a successor Servicer shall have assumed 49 the responsibilities and obligations of such Servicer in accordance with Section 4.08 hereof. The Administrative Agent shall promptly notify S&P and Moody's of receipt of the Servicer's notice of resignation and of the appointment of a successor Servicer. (b) The Servicer may resign from the obligations and duties imposed on it as Servicer pursuant to the terms of this Agreement if (i) a successor Servicer shall have assumed the responsibilities and obligations of such Servicer in accordance with Section 4.08 hereof, and (ii) if such successor Servicer is not an Affiliate of such Person (x) such successor Servicer shall agree to establish a Permitted Lockbox and Lockbox Account with a Permitted Lockbox Bank, a Concentration Account with a Permitted Concentration Account Bank and comply with the other requirements of Section 4.09(c) hereof and (y) such successor Servicer shall be acceptable to Owners in their reasonable judgment and acceptable to the Rating Agencies. ARTICLE IV-A GUARANTY 4.01A. The Guaranty. The Guarantor hereby unconditionally and ----------- irrevocably guarantees to cause the due performance and observance by AmeriSource of all of the terms, covenants, conditions and undertakings by AmeriSource to be performed or observed under the Purchase Documents in accordance with the terms thereof including, without limitation, any agreement of AmeriSource to pay any money under the terms of the Purchase Documents (all such terms, covenants, conditions, agreements and undertakings, including, without limitation, any agreement to pay money, on the part of AmeriSource are collectively referred to as the "Guaranteed Obligations"). In the event that ---------------------- AmeriSource shall fail in any manner whatsoever to perform or observe any of the Guaranteed Obligations when the same shall be required to be performed or observed under the Purchase Documents, then the Guarantor will itself duly perform or observe, or cause to be duly performed or observed, such Guaranteed Obligation, and it shall not be a condition to the accrual of the obligation of the Guarantor hereunder to perform or observe any Guaranteed Obligation (or to cause the same to be performed or observed) that the Owners or the Administrative Agent or their respective permitted assignees shall have first made any request of or demand upon or given any notice to the Guarantor or have instituted any action or proceeding against the Guarantor in respect thereof. 4.02A. Guaranty Unconditional. The Guarantor's obligation under ---------------------- Section 4.01A shall be unconditional, irrespective of the validity or enforceability of any other provision of the Purchase Documents. To the extent permitted by Law, the Guarantor will perform its obligations under Section 4.01A regardless of any Law now or hereafter in effect in any jurisdiction affecting any of the terms of the Purchase Documents or the rights of the Owners or their respective permitted assignees with respect thereto. The Guarantor agrees that it shall have no right of subrogation, indemnity, reimbursement or contribution against the Owners or the Administrative Agent for amounts paid under Section 4.01A until such time as the Owners have been paid in full, this Agreement has terminated and no Person or Official Body shall have any right to request any return or reimbursement of funds from the Owners in connection with monies received under the Purchase Documents. 50 4.03A. Representations and Warranties of the Guarantor. The ----------------------------------------------- Guarantor hereby represents and warrants to the Buyer, each APA Purchaser and the Administrative Agent for itself and as of the date hereof and as of the date of each Incremental Purchase and each reinvestment Purchase that the representations and warranties set forth in Section 5.01 are true and correct as applicable to the Guarantor. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ 5.01. General Representations and Warranties of the Seller. The ---------------------------------------------------- Seller, in addition to its other representations and warranties contained herein or made pursuant hereto, hereby represents and warrants to the Buyer, each APA Purchaser and the Administrative Agent on and as of the date hereof and on and as of the date of each Incremental Purchase and each reinvestment Purchase that: (a) Organization and Qualification. The Seller is a corporation duly ------------------------------ organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation. The Seller is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which the ownership of its properties or the nature of its activities (including transactions giving rise to Receivables), or both, requires it to be so qualified or, if not so qualified, the failure to so qualify would not have a material adverse effect on its financial condition or results of operations. (b) Authority. The Seller has the legal power and authority to --------- execute and deliver the Purchase Documents, to make the sales provided for herein and to perform its obligations under this Agreement and the other Purchase Documents. (c) Execution and Binding Effect. Each of the Purchase Documents to ---------------------------- which the Seller is a party has been duly and validly executed and delivered by the Seller and (assuming the due and valid execution and delivery thereof by the other parties thereto), constitutes a legal, valid and binding obligation of the Seller enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity, and will vest absolutely and unconditionally in the Administrative Agent, for the benefit of the applicable Owner or Owners, a valid undivided security interest in the Receivables purported to be assigned thereby, subject to no Liens whatsoever. Upon the filing of the necessary financing statements under the UCC as in effect in the jurisdiction whose Law governs the perfection of the Administrative Agent's (for the benefit of the Owners) ownership or security interests in the Receivables, the Administrative Agent's (for the benefit of the Owners) security interests in the Receivables will be perfected under Article Nine of such UCC, prior to and enforceable against all creditors of and purchasers from the Seller and all other Persons whatsoever (other than the Administrative Agent and the Owners and their successors and assigns). 51 (d) Authorizations and Filings. No authorization, consent, approval, -------------------------- license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Official Body is or will be necessary or, in the opinion of the Seller, advisable in connection with the execution and delivery by the Seller of each of the Purchase Documents to which the Seller is a party, the consummation by the Seller of the transactions herein or therein contemplated or the performance by the Seller of or the compliance by the Seller with the terms and conditions hereof or thereof, to ensure the legality, validity or enforceability hereof or thereof, or to ensure that the Owners will have an ownership or security interest in and to the Receivables which is perfected and prior to all other Liens (including competing ownership interests), interests other than the filing of financing statements under the UCC in the jurisdiction of the Seller's Chief Executive Office and of AmeriSource's Chief Executive Office. (e) Absence of Conflicts. Neither the execution and delivery by the -------------------- Seller of each of the Purchase Documents to which the Seller is a party, nor the consummation by the Seller of the transactions herein or therein contemplated, nor the performance by the Seller of or the compliance by the Seller with the terms and conditions hereof or thereof, will (i) violate any Law or (ii) conflict with or result in a breach of or a default under (A) the Certificate of Incorporation or By-laws of the Seller or (B) any agreement or instrument, including, without limitation, any and all indentures, debentures, loans or other agreements to which the Seller is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound, which would have a material adverse effect on the financial position or results of operations of the Seller or result in rendering any Debt evidenced thereby due and payable prior to its maturity or result in the creation or imposition of any Lien pursuant to the terms of any such instrument or agreement upon any property (now owned or hereafter acquired) of the Seller. The Seller has not entered into any agreement with any Obligor prohibiting, restricting or conditioning the assignment of any portion of the Receivables. (f) Location of Chief Executive Office, etc. As of the date hereof: --------------------------------------- (i) the Seller's Chief Executive Office is located at the address for notices set forth on the signature page hereof; (ii) the offices where the Seller keeps all of its Records are listed on Exhibit H hereto; and (iii) since its incorporation, the Seller has operated only under the names identified in Exhibit H hereto, and has not changed its name, merged or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit H hereto. (g) No Termination Event. No event has occurred and is continuing -------------------- and no condition exists which constitutes a Termination Event. (h) Accurate and Complete Disclosure. No information furnished in -------------------------------- writing by the Seller to the Buyer, any APA Purchaser or the Administrative Agent pursuant to or in connection with this Agreement or any transaction contemplated hereby is false or misleading in any material respect as of the date as of which such information was furnished (including by omission of material information necessary to make such information not misleading). (i) No Proceedings. There are no proceedings or investigations -------------- pending, or to the knowledge of the Seller, threatened, before any Official Body (A) asserting the invalidity of the Purchase Documents, (B) seeking to prevent the consummation of any of the transactions 52 contemplated by the Purchase Documents, or (C) seeking any determination or ruling that might materially and adversely affect (i) the performance by either the Seller or the Servicer of its obligations under the Purchase Documents or (ii) the validity or enforceability of the Purchase Documents, the Contracts or any material amount of the Receivables. (j) Bulk Sales Act. No transaction contemplated hereby requires -------------- compliance with any bulk sales act or similar law. (k) Litigation. No injunction, decree or other decision has been ---------- issued or made by any Official Body that prevents, and to the knowledge of the Seller, no threat by any Person has been made to attempt to obtain any such decision that would have a material adverse effect on, the conduct by the Seller of a significant portion of the Seller's business operations or any portion of its business operations affecting the Receivables, and no litigation, investigation or proceeding of the type referred to in Section 6.01(i) hereof exists. (l) Margin Regulations. The use of all funds acquired by the Seller ------------------ under this Agreement will not conflict with or contravene any of Regulations T, U and X of the Board of Governors of the Federal Reserve System, as the same may from time to time be amended, supplemented or otherwise modified. (m) Taxes. The Seller has timely filed all United States Federal ----- income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns and paid or contested any assessment received by the Seller related to such returns. (n) Books and Records. The Seller has indicated on its books and ----------------- records (including any computer files), that the Purchased Interest in the Receivables sold by the Seller hereunder is the property of the Owners. The Seller maintains at, or shall cause the Servicer to maintain at, one or more of their respective offices listed in Exhibit H hereto the complete Records for the Receivables. (o) Creditor Approval. The Seller has obtained from its creditors ----------------- (i) all approvals necessary to sell and assign the Receivables and (ii) releases of any security interests in the Receivables. (p) Financial Condition. The Seller is not insolvent or the subject ------------------- of any Event of Bankruptcy and the sale of Receivables on such day will not be made in contemplation of the occurrence thereof. (q) Financial Information. If and when produced in accordance with --------------------- the terms of this Agreement, the consolidated balance sheet of the Seller as at the most recent Fiscal Year end and the related statements of income of the Seller for the Fiscal Year then ended, fairly present the consolidated financial position of the Seller as at such date and the consolidated results of the operations of and changes in consolidated cash flows of the Seller for the period ended on such date, all in accordance with GAAP. 53 (r) Investment Company. The Seller is not an "investment company" or ------------------ a company "controlled by an investment company" within the meaning of the Investment Company Act of 1940, as amended. 5.02. Representations and Warranties of the Seller With Respect to ------------------------------------------------------------ Each Sale of Receivables. By selling undivided ownership interests in - ------------------------ Receivables to the Owners either by Incremental Purchase or reinvestment Purchase, the Seller represents and warrants to each Owner and the Administrative Agent as of the date of such sale of an Incremental Purchase or reinvestment Purchase (in addition to its other representations and warranties contained herein or made pursuant hereto) that: (a) Purchase Notice. If such sale relates to an Incremental --------------- Purchase, all information set forth on the related Purchase Notice is true and correct as of the date of such Incremental Purchase. (b) Assignment. This Agreement vests in the Administrative Agent, ---------- for the benefit of each Owner all the right, title and interest of the Seller in and to the Purchased Interest in the Receivables, and the Related Security and Collections with respect thereto, and constitutes a valid sale of or grant of a security interest in the Purchased Interest, enforceable against all creditors of and purchasers from the Seller. (c) No Liens. Each Receivable, together with the related Contract and -------- all purchase orders and other agreements related to such Receivable, is owned by the Seller free and clear of any Lien, except as provided herein, and is not subject to any Dispute, except as provided herein. When each Owner makes a purchase of a Purchased Interest in such Receivable, it shall have acquired and shall continue to have maintained an undivided percentage ownership interest to the extent of its percentage of the Purchased Interest in such Receivable and in the Related Security and the Collections with respect thereto free and clear of any Lien, except as provided herein. The Seller has not and will not prior to the time of the sale of any such interest to the Owners have sold, pledged, assigned, transferred or subjected, and will not thereafter sell, pledge, assign, transfer or subject, to a Lien any of the Receivables, the Related Security or the Collections, other than the assignment of Purchased Interests therein to the Administrative Agent, for the benefit of the Owners, in accordance with the terms of this Agreement. (d) Filings. On or prior to each Purchase and each recomputation of ------- the Purchased Interest, all financing statements and other documents required to be recorded or filed in order to perfect and protect the Purchased Interest against all creditors of and purchasers from the Seller and all other Persons whatsoever will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Credit and Collection Policy. AmeriSource's Credit and ---------------------------- Collection Policy has been complied with in all material respects in regard to each Receivable and related Contract. (f) Permitted Lockbox Banks and Lockbox Accounts. The names and -------------------------------------------- addresses of all Permitted Lockbox Banks, together with the numbers of all Lockbox Accounts at 54 such Permitted Lockbox Banks and the addresses of all related Permitted Lockboxes, are specified in Exhibit J (or such other Permitted Lockbox Banks, Lockbox Accounts and/or Permitted Lockboxes that have been changed or established in accordance with Section 4.09 and the definition of "Permitted Lock Banks," "Lockbox Accounts," or "Permitted Lockboxes," as appropriate). (g) Permitted Concentration Account Bank and Concentration Account. -------------------------------------------------------------- The name and address of the Permitted Concentration Account Bank, together with the number of the Concentration Account at such Permitted Concentration Account Bank is specified in Exhibit J (or such other Permitted Concentration Account Bank and Concentration Account that have been changed or established in accordance with Section 4.09 and the definition of "Permitted Concentration Account Bank," and "Concentration Account," as appropriate). (h) Nature of Receivables. Each Receivable is, or will be, an --------------------- eligible asset within the meaning of Rule 3a-7 promulgated under the Investment Company Act of 1940, as amended from time to time. (i) Bona Fide Receivables. Each Receivable is an obligation of an --------------------- Obligor arising out of a past, current or future sale or performance by AmeriSource, in accordance with the terms of the Contract giving rise to such Receivable. The Seller has no knowledge of any fact that should have led it to expect at the time of the initial creation of an interest in any Receivable hereunder that such Receivable would not be paid in full when due except with respect to any Dilution Factor. Each Receivable classified as an "Eligible Receivable" by the Seller in any document or report delivered hereunder satisfies the requirements of eligibility contained in the definition of Eligible Receivable. 5.03. Representations and Warranties of Servicer. The Servicer ------------------------------------------ represents and warrants to each Owner and Administrative Agent, on and as of the date hereof and as of the date of each Incremental Purchase and each reinvestment Purchase after such date: (a) Organization and Qualification. The Servicer is a corporation ------------------------------ duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation. The Servicer is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which the ownership of its properties or the nature of its activities, or both, requires it to be so qualified or, if not so qualified, the failure to so qualify would not have a material adverse effect on its financial condition or results of operations. (b) Authority. The Servicer has the legal power and authority to --------- execute and deliver this Agreement and to perform its obligations hereunder and thereunder. (c) Execution and Binding Effect. This Agreement has been duly and ---------------------------- validly executed and delivered by the Servicer and (assuming the due and valid execution and delivery thereof by the other parties thereto), constitutes a legal, valid and binding obligation of the Servicer enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity, and will vest absolutely and unconditionally in the Administrative Agent, for the benefit of the 55 applicable Owner or Owners, an ownership or security interest in the Receivables purported to be assigned thereby, subject to no Liens whatsoever. Upon the filing of the necessary financing statements under the UCC as in effect in the jurisdiction whose Law governs the perfection of the Administrative Agent's (for the benefit of the Owners) ownership or security interests in the Receivables, the Administrative Agent's (for the benefit of the Owners) ownership or security interests in the Receivables will be perfected under Article Nine of such UCC, prior to and enforceable against all creditors of and purchasers from the Seller and all other Persons whatsoever (other than the Administrative Agent and the Owners and their successors and assigns). (d) Authorizations and Filings. No authorization, consent, approval, -------------------------- license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Official Body is or will be necessary or, in the opinion of the Servicer, advisable in connection with the execution and delivery by the Servicer of this Agreement, the consummation by the Servicer of the transactions herein or therein contemplated or the performance by the Servicer of or the compliance by the Servicer with the terms and conditions hereof or thereof, to ensure the legality, validity or enforceability hereof, or to ensure that the Owners will have an ownership or security interest in and to the Receivables which is perfected and prior to all other Liens (including competing ownership interests), other than the filing of financing statements under the UCC in the jurisdictions of AmeriSource's Chief Executive Office and of the Servicer's Chief Executive Office. (e) Absence of Conflicts. Neither the execution and delivery by the -------------------- Servicer of this Agreement, nor the consummation by the Servicer of the transactions herein contemplated, nor the performance by the Servicer of or the compliance by the Servicer with the terms and conditions hereof, will (i) violate any Law or (ii) conflict with or result in a breach of or a default under (A) the Certificate of Incorporation or By-laws of the Servicer or (B) any agreement or instrument, including, without limitation, any and all indentures, debentures, loans or other agreements to which the Servicer is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound, which would have a material adverse effect on the financial position or results of operations of the Servicer or result in rendering any debt in excess of $10,000,000 evidenced thereby due and payable prior to its maturity or result in the creation or imposition of any Lien pursuant to the terms of any such instrument or agreement upon any property (now owned or hereafter acquired) of the Servicer. The Servicer has not entered into any agreement with any Obligor prohibiting, restricting or conditioning the assignment of any portion of the Receivables. (f) No Termination Event. No event has occurred and is continuing and -------------------- no condition exists which constitutes a Termination Event. (g) Accurate and Complete Disclosure. No information furnished in -------------------------------- writing by a Responsible Officer of the Servicer to the Buyer, any APA Purchaser or the Administrative Agent pursuant to or in connection with this Agreement or any transaction contemplated hereby is false or misleading in any material respect as of the date as of which such information was furnished (including by omission of material information necessary to make such information not misleading). 56 (h) No Proceedings. There are no proceedings or investigations -------------- pending, or to the knowledge of the Servicer, threatened, before any Official Body (A) asserting the invalidity of the Purchase Documents, (B) seeking to prevent the consummation of any of the transactions contemplated by the Purchase Documents, or (C) seeking any determination or ruling that might materially and adversely affect (i) the performance by either the Seller or the Servicer of its obligations under this Agreement or (ii) the validity or enforceability of the Purchase Documents, the Contracts or any material amount of the Receivables. (i) No Change in Ability to Perform. Since the date on which the ------------------------------- Servicer accepted its duties hereunder, there has been no material adverse change in the ability of the Servicer to perform its obligations hereunder. (j) Credit and Collection Policy. The Credit and Collection Policy ---------------------------- has been complied with in all material respects in regard to each Receivable and related Contract. (k) Financial Condition. (x) The consolidated balance sheet of the ------------------- Servicer and its Consolidated Subsidiaries as at the most recent Fiscal Year end and the related statements of income and cash flows of the Servicer and its Consolidated Subsidiaries for the fiscal year then ended, certified by Ernst & Young LLP, independent accountants, or another nationally recognized firm of independent accountants, copies of which have been furnished to the Administrative Agent, fairly present the consolidated financial position of the Servicer and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of and changes in consolidated cash flows of the Servicer and its Consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP and (y) the unaudited consolidated balance sheet of the Servicer and its Consolidated Subsidiaries as at most recent fiscal quarter end and the related unaudited statements of income and cash flows of the Servicer and its Consolidated Subsidiaries for the periods then ended, copies of which have been furnished to the Administrative Agent, fairly present the consolidated financial position of the Servicer and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of and changes in consolidated cash flows of the Servicer and its Consolidated Subsidiaries for the periods ended on such date, all in accordance with GAAP. (l) Litigation. No injunction, decree or other decision has been ---------- issued or made by any Official Body that prevents, and to the knowledge of the Servicer, no threat by any Person has been made to attempt to obtain any such decision that would have a material adverse effect on, the conduct by the Servicer of a significant portion of its business operations or any portion of its business operations affecting the Receivables, and no litigation, investigation or proceeding of the type referred to in Section 6.03(m) hereof exists except as set forth on Exhibit I. (m) Year 2000 Compliance. The Servicer has initiated a review and -------------------- assessment of all material computer applications which are related to or involved in the origination, collection, management or servicing of the Receivables (the "Receivables System") in connection with making a determination ------------------ about whether such Receivables System will be able to perform properly all material date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 Compliant"). The Servicer is taking action to ensure ------------------- that the Receivables Systems will be Year 2000 Compliant. 57 (n) Insurance. The Servicer currently maintains insurance with --------- respect to its properties and businesses and causes its Subsidiaries to maintain insurance with respect to their properties and business against loss or damage of the kinds customarily insured against by corporations engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations including, without limitation, workers' compensation insurance. (o) ERISA. The Servicer has not (i) engaged or permitted any of its ----- respective ERISA Affiliates to engage in any prohibited transaction (as defined in Section 4975 of the Internal Revenue Code and Section 406 of ERISA) for which an exemption is not available or has not previously been obtained from the U.S. Department of Labor; (ii) permitted to exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of the Internal Revenue Code) or funding deficiency with respect to any Plan other than a Multiemployer Plan; (iii) failed to make any payments to any Multiemployer Plan that the Servicer or any ERISA Affiliate of the Servicer is required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminated any Plan so as to result in any liability; (v) permitted to exist any occurrence of any reportable event described in Title IV of ERISA which represents a material risk of a liability to the Servicer or any ERISA Affiliate of the Servicer under ERISA or the Internal Revenue Code; or (vi) permitted any Plan of the Servicer or any Plan of its ERISA Affiliates to be in non-compliance in any material respect with the applicable provisions of ERISA and the Code, except where the failure to comply would not result in any material adverse effect on the business, financial condition, operations or properties of the Servicer and ERISA Affiliates taken as a whole. ARTICLE VI COVENANTS --------- 6.01. Affirmative Covenants of the Seller. In addition to its other ----------------------------------- covenants contained herein or made pursuant hereto, the Seller covenants with each Owner and the Administrative Agent as follows: (a) Notice of Termination Event. Promptly upon becoming aware of any --------------------------- Termination Event or Potential Termination Event, the Seller shall give the Administrative Agent notice thereof, together with a written statement of a Responsible Officer setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by the Seller. (b) Notice of Material Adverse Change. Promptly upon becoming aware --------------------------------- thereof, the Seller shall give the Administrative Agent notice of any material adverse change in the business, operations or financial condition of the Seller, which reasonably could affect adversely the collectibility of the Receivables. (c) Preservation of Corporate Existence. The Seller shall preserve ----------------------------------- and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction 58 where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of the Administrative Agent or any Owner hereunder or (ii) the ability of the Seller to perform its obligations under the Purchase Documents. (d) Compliance with Laws. The Seller shall comply in all material -------------------- respects with all Laws applicable to the Seller, its business and properties, and all Receivables related to the Purchased Interest. (e) Enforceability of Obligations. The Seller shall take such actions ----------------------------- as are reasonable and within its power to ensure that, with respect to each Receivable, the obligation of any related Obligor to pay the unpaid balance of such Receivable in accordance with the terms of the related Contract remains legal, valid, binding and enforceable against such Obligor except as otherwise permitted by Section 4.07(b) hereof. (f) Books and Records. The Seller shall, to the extent practicable, ----------------- maintain and implement administrative and operating procedures (including, without limitation, the ability to recreate Records evidencing the Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, Records and other information, reasonably necessary or advisable for the collection of all Receivables (including, without limitation, Records adequate to permit the identification of all Related Security and Collections and adjustments to each existing Receivable). (g) Fulfillment of Obligations. The Seller shall do nothing to impair -------------------------- the rights, title and interest of the Administrative Agent or any Owner in and to the Purchased Interest and shall pay when due any taxes, including without limitation any sales tax, excise tax or other similar tax or charge, payable in connection with the Receivables and their creation and satisfaction. (h) Obligor List. The Seller shall at all times maintain (or cause ------------ the Servicer to maintain) a current list (which may be stored on magnetic tapes or disks) of all Obligors under Contracts related to Receivables, including the name, address, telephone number and account number of each such Obligor. A list of all Obligors under Contracts related to Receivables including the name, address and account number of such Obligors shall be provided to the Buyer on the date of execution of this Agreement. In addition, the list shall be updated as provided in Section 2.14(c) and, the Seller shall deliver or cause to be delivered a copy of such list to the Administrative Agent as soon as practicable following the Administrative Agent's request. (i) Litigation. As soon as possible, and in any event within ten ---------- Business Days of the Seller's knowledge thereof, the Seller shall give the Administrative Agent notice of (i) any litigation, investigation or proceeding against the Seller which may exist at any time which, in the reasonable judgment of the Seller, could have a material adverse effect on the financial condition or results of operations of the Seller, impair the ability of the Seller to perform its obligations under this Agreement, or materially adversely affect the collectibility of the Receivables, and (ii) any material adverse development in any such previously disclosed litigation. 59 (j) Notice of Relocation. The Seller shall give the Administrative -------------------- Agent 45 days' prior written notice of any relocation of its Chief Executive Office. The Seller will at all times maintain its Chief Executive Office within a jurisdiction in the United States in which Article Nine of the UCC (1972 or later revision) is in effect as of the date hereof or the date of any such relocation. (k) Further Information. The Seller shall furnish or cause to be ------------------- furnished to the Administrative Agent such other information as promptly as practicable, and in such form and detail, as the Administrative Agent may reasonably request. (l) Fees, Taxes and Expenses. The Seller shall pay all filing fees, ------------------------ stamp taxes and other similar taxes and expenses, including the fees and expenses set forth in Section 9.01 hereof, if any, which may be incurred on account of or arise out of this Agreement and the documents and transactions entered into pursuant to this Agreement. (m) Compliance with Purchase Agreement. The Seller will enforce all ---------------------------------- material obligations and undertakings on the part of AmeriSource to be observed and performed under the Purchase Agreement. (n) Audits. At any time, upon reasonable notice to the Seller, the ------ Seller shall permit the Administrative Agent, or such Person as the Administrative Agent may designate, during business hours, to conduct audits or visit and inspect any of the properties of the Seller to examine the Records, internal controls and procedures maintained by the Seller and take copies and extracts therefrom, and to discuss the Seller's affairs with its officers, employees and independent accountants. The Seller hereby authorizes such officers, employees and independent accountants to discuss with the Administrative Agent, or such Person as the Administrative Agent may designate, the affairs of the Seller. The Seller shall reimburse the Owners and the Administrative Agent for all reasonable fees, costs and out-of-pocket expenses (not to exceed $20,000) annually incurred by or on behalf of the Owners or the Administrative Agent in connection with the foregoing actions promptly upon receipt of a written invoice therefor; provided, however, following the -------- ------- occurrence of a Termination Event, the Seller shall reimburse the Owners and the Administrative Agent for all reasonable fees, costs and out-of-pocket expenses incurred by or on behalf of the Owners and the Administrative Agent in connection with the foregoing actions promptly upon receipt of written invoice therefor. Subject to the requirements of applicable laws, each Owner and the Administrative Agent agrees to use commercially reasonable precautions to keep confidential, in accordance with its respective customary procedures for handling confidential information, any non-public information supplied to it by the Seller pursuant to any such audit or visit which is identified by the Seller as being confidential at the time the same is delivered to the Administrative Agent or any Owner. Notwithstanding the foregoing, subject to applicable Laws, the Seller hereby consents to the disclosure of any nonpublic information supplied by it to any of the Affected Parties, provided that each such Affected Party shall agree to be bound by this provision or substantially similar confidentiality provisions. 60 (o) Separate Corporate Existence. The Seller shall: ---------------------------- (i) Maintain in full effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement and each Purchase Agreement and each other instrument or agreement necessary or appropriate to proper administration hereof and permit and effectuate the transactions contemplated hereby. (ii) Maintain its own deposit account or accounts, separate from those of any of its Affiliates, with commercial banking institutions. The funds of the Seller will not be diverted to any other Person or for other than the corporate use of the Seller and, except as may be expressly permitted by this Agreement, the funds of the Seller shall not be commingled with those of any of its Affiliates. (iii) To the extent that the Seller contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among the Seller and such entities for whose benefit the goods and services are provided, and the Seller and each such entity shall bear its fair share of such costs. All material transactions between the Seller and any of its Affiliates shall be only on an arm's-length basis. (iv) Maintain a principal executive and administrative office through which its business is conducted and a telephone number separate from those of its stockholders and Affiliates. (v) Conduct its affairs strictly in accordance with its Certificate of Incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of such meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, intercompany transaction accounts. Regular stockholders' and directors' meetings shall be held at least annually. (vi) Ensure that decisions with respect to its business and daily operations shall be independently made by the Seller (although the officer making any particular decision may also be an employee, officer or director of an Affiliate of the Seller) and shall not be dictated by an Affiliate of the Seller. (vii) Act solely in its own corporate name and through its own authorized officers and agents, and no Affiliate of the Seller shall be appointed to act as its agent, except as expressly contemplated by this Agreement. The Seller shall at all times use its own stationery. 61 (viii) Ensure that no Affiliate of the Seller shall advance funds to the Seller, other than (i) capital contributions from AmeriSource, made to enable the Seller to pay the purchase price of Receivables or (ii) as is otherwise provided herein or in any Purchase Agreement, and no Affiliate of the Seller will otherwise supply funds to, or guaranty debts of, the Seller; provided, however, that an Affiliate of the Seller may provide -------- ------- funds to the Seller in connection with the capitalization of the Seller, including the provision of capital necessary to assure that the Seller has "substantial assets" as described in Treasury Regulation Section 301.7701- 2(d)(2). (ix) Other than organizational expenses and as expressly provided herein, pay all expenses, indebtedness and other obligations incurred by it. (x) Not enter into any guaranty, or otherwise become liable, with respect to any obligation of any of its Affiliates. (xi) Ensure that any financial reports required of the Seller shall comply with generally accepted accounting principles and shall be issued separately from, but may be consolidated with, any reports prepared for any of its Affiliates. (xii) Ensure that at all times it is adequately capitalized to engage in the transactions contemplated in its Certificate of Incorporation, the Purchase Agreement and this Agreement. (q) Information. The Seller shall, upon the request of the ----------- Administrative Agent, provide the Administrative Agent with the following: (i) as soon as practicable and in any event within 60 days following the close of each fiscal quarter, excluding the last fiscal quarter, of each Fiscal Year of the Seller during the term of this Agreement, an unaudited consolidated balance sheet of the Seller as of the end of such quarter and unaudited consolidated statements of income and cash flows of the Seller for such quarter and for the Fiscal Year through such quarter, setting forth in comparative form the corresponding figures for the corresponding quarter of the preceding Fiscal Year, together with notes thereto as are required to be included therein in accordance with GAAP or applicable Securities and Exchange Commission requirements, all in reasonable detail and certified by the chief financial officer of the Seller, subject to adjustments of the type which would occur as a result of a year-end audit, as having been prepared in accordance with GAAP; and (ii) as soon as practicable and in any event within 120 days after the close of each Fiscal Year of the Seller during the term of this Agreement, a consolidated balance sheet of the Seller as at the close of such Fiscal Year and consolidated statements of income and cash flows of the Seller for such Fiscal Year, setting forth in comparative form the corresponding figures for the preceding Fiscal Year, all in reasonable detail; provided, that following a Termination Event or Potential -------- Termination Event the Administrative Agent may require that such information be certified (with respect to the consolidated financial statements) by independent certified public accountants of nationally recognized standing selected by the Seller whose certificate or opinion 62 accompanying such financial statements shall not contain any qualification, exception or scope limitation not satisfactory to the Administrative Agent, and accompanied by any management letter prepared by such accountants. 6.02. Negative Covenants of the Seller. The Seller covenants that it -------------------------------- will not, without the prior written consent of the Majority Owners: (a) No Rescissions or Modifications. Rescind or cancel any ------------------------------- Receivable or related Contract or modify any terms or provisions thereof or grant any Dilution Factors to an Obligor, except in accordance with AmeriSource's Credit and Collection Policy or otherwise with the prior written consent of the Majority Owners, unless such Receivable has been deemed collected pursuant to Section 2.08(c) or repurchased pursuant to Section 2.08(d), 2.12 or 2.17. (b) No Liens. Cause any of the Receivables or related Contracts, or -------- any inventory or goods the sale of which may give rise to a Receivable, or any Permitted Lockbox, Lockbox Account or the Concentration Account or any right to receive any payments received therein or deposited thereto, to be sold, pledged, assigned or transferred or to be subject to a Lien, other than the sale and assignment of the Purchased Interest therein to the Administrative Agent, for the benefit of the Owners, and the Liens created in connection with the transactions contemplated by this Agreement. (c) Consolidations, Mergers and Sales of Assets. (i) Consolidate or ------------------------------------------- merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; provided that the Seller may merge with another Person if (A) the Seller is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Termination Event shall have occurred and be continuing. (d) No Changes. Make any change in the character of its business, ---------- which change would materially impair the collectibility of any Receivable, without prior written consent of the Administrative Agent, or change its name, identity or corporate structure in any manner which would make any financing statement or continuation statement filed in connection with this Agreement or the transactions contemplated hereby seriously misleading within the meaning of Section 9-402(7) of the UCC of any applicable jurisdiction or other applicable Laws unless it shall have given the Administrative Agent at least 45 days' prior written notice thereof and unless prior thereto it shall have caused such financing statement or continuation statement to be amended or a new financing statement to be filed such that such financing statement or continuation statement would not be seriously misleading. (e) Capital Stock. Issue any capital stock except to AmeriSource. ------------- The Seller shall not pay any dividends to AmeriSource if such payment would be prohibited under the General Corporation Law of the State of Delaware. (f) No Indebtedness. Incur any Indebtedness other than as permitted --------------- under this Agreement. 6.03. Affirmative Covenants of the Servicer. In addition to its ------------------------------------- other covenants contained herein or made pursuant hereto, the Servicer covenants with each Owner and the Administrative Agent as follows: 63 (a) Notice of Termination Event or Servicing Default. Promptly upon ------------------------------------------------ becoming aware of any Termination Event, Potential Termination Event or Servicing Default, the Servicer shall give the Administrative Agent notice thereof, together with a written statement of a Responsible Officer setting forth the details thereof and any action with respect thereto taken or contemplated to be taken by such Servicer. (b) Notice of Material Adverse Change. Promptly upon any Responsible --------------------------------- Officer of the Servicer becoming aware thereof, the Servicer shall give the Administrative Agent notice of any material adverse change in the business, operations or financial condition of the Servicer which reasonably could affect adversely the collectibility of the Receivables or the ability of the Servicer to perform its obligations under this Agreement. (c) Preservation of Corporate Existence. The Servicer shall preserve ----------------------------------- and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of the Administrative Agent or any Owner hereunder or (ii) the ability of such Servicer to perform its obligations under this Agreement. (d) Compliance with Laws. The Servicer shall comply in all material -------------------- respects with all Laws applicable to the Servicer, its business and properties, and all Receivables related to the Purchased Interest. (e) Enforceability of Obligations. The Servicer shall take such ----------------------------- actions as are reasonable and within its power to ensure that, with respect to an applicable Receivable, the obligation of any related Obligor to pay the unpaid balance of such Receivable in accordance with the terms of the related Contract remains legal, valid, binding and enforceable against such Obligor except as otherwise permitted by Section 4.07(b) hereof. (f) Books and Records. The Servicer shall, to the extent practicable, ----------------- maintain and implement administrative and operating procedures (including, without limitation, the ability to recreate Records evidencing the Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, Records and other information reasonably necessary or advisable for the collection of all applicable Receivables (including, without limitation, Records adequate to permit the identification of all Related Security and Collections and adjustments to each existing Receivable). (g) Fulfillment of Obligations. The Servicer will duly observe and -------------------------- perform, or cause to be observed or performed, all material obligations and undertakings on its part or on the part of any Subservicer to be observed and performed under or in connection with the Receivables, will duly observe and perform all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, will do nothing to impair the rights, title and interest of the Administrative Agent or any Owner in and to the Purchased Interest and will pay when due any taxes, including without limitation any sales tax, excise tax or other similar tax or charge, payable in connection with such Receivables and their creation and satisfaction. 64 (h) Obligor List. The Servicer shall at all times maintain a current ------------ list (which may be stored on magnetic tapes or disks) of all Obligors under Contracts related to the applicable Receivables, including the name, address, telephone number and account number of each such Obligor. In addition, the list shall be updated as provided in Section 2.14(c) and, the Servicer shall deliver or cause to be delivered a copy of such list to the Administrative Agent as soon as practicable following the Administrative Agent's request. (i) Total Systems Failure. The Servicer shall promptly notify the --------------------- Administrative Agent of any total systems failure and shall advise the Administrative Agent of the estimated time required to remedy such total systems failure and of the estimated date on which a Monthly Report can be delivered. Until a total systems failure is remedied, the Servicer (i) will furnish to the Administrative Agent such periodic status reports and other information relating to such total systems failure as the Administrative Agent may reasonably request and (ii) will promptly notify the Administrative Agent if the Servicer believes that such total systems failure cannot be remedied by the estimated date, which notice shall include a description of the circumstances which gave rise to such delay, the action proposed to be taken in response thereto, and a revised estimate of the date on which the information required for a Monthly Report can be delivered. The Servicer shall promptly notify the Administrative Agent when a total systems failure has been remedied. (j) Notice of Relocation. The Servicer shall give the Administrative -------------------- Agent 45 days' prior written notice of any relocation of its Chief Executive Office. The Servicer will at all times maintain its Chief Executive Office within a jurisdiction in the United States in which Article Nine of the UCC (1972 or later revision) is in effect as of the date hereof or the date of any such relocation. (k) Administrative and Operating Procedures. The Servicer shall --------------------------------------- maintain and implement administrative and operating procedures adequate to permit the identification of the applicable Receivables and all collections and adjustments attributable thereto and shall comply in all material respects with its Credit and Collection Policy in regard to each applicable Receivable and related Contract. (l) Modification of Systems. The Servicer agrees, promptly after the ----------------------- replacement or any material modification of any computer, automation or other operating systems (in respect of hardware or software) used to perform its services as Servicer or to make any calculations or reports hereunder, to give notice of any such replacement or modification to the Administrative Agent. (m) Litigation. As soon as possible, and in any event within ten ---------- Business Days of the Servicer's knowledge thereof, the Servicer shall give the Administrative Agent notice of (i) any litigation, investigation or proceeding against the Seller which may exist at any time which, in the reasonable judgment of the Servicer could materially impair the ability of the Servicer to perform its obligations under this Agreement and (ii) any material adverse development in any such previously disclosed litigation. No notices, waivers or communications in respect of the matters set forth on Exhibit I hereof shall be required except that the Servicer shall give the Administrative Agent 65 prompt notice of any adverse court decisions, at the trial level or on appeal, and if any judgments are rendered against the Servicer in respect of such matters, the amount and terms of such judgment and provisions which the Servicer has made to pay such judgment. (n) ERISA Events. ------------ (i) Promptly upon becoming aware of the occurrence of any Event of Termination which together with all other Events of Termination occurring within the prior 12 months involve, under ERISA, a payment of money by or a potential aggregate liability of the Servicer or any ERISA Affiliate or any combination of such entities in excess of $10,000,000, the Servicer shall give the Administrative Agent a written notice specifying the nature thereof, what action the Servicer or any ERISA Affiliate has taken and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto. (ii) Promptly upon receipt thereof, the Servicer shall furnish to the Administrative Agent copies of (i) all notices received by the Servicer or any ERISA Affiliate of the PBGC's intent to terminate any Plan or to have a trustee appointed to administer any Plan; (ii) all notices received by the Servicer or any ERISA Affiliate from the sponsor of a Multiemployer Plan pursuant to Section 4202 of ERISA involving a withdrawal liability in excess of $10,000,000; and (iii) all funding waiver requests filed by the Servicer or any ERISA Affiliate with the Internal Revenue Service with respect to any Plan, the accrued benefits of which exceed the present value of the plan assets as of the date the waiver request is filed by more than $10,000,000, and all communications received by the Servicer or any ERISA Affiliate from the Internal Revenue Service with respect to any such funding waiver request. (o) Separate Corporate Existence. As long as AmeriSource is the ---------------------------- Servicer hereunder, the Servicer shall maintain its legal identity separate from the Seller. (p) Year 2000 Compliance. On or before June 30, 1999, the Servicer -------------------- will promptly notify the Administrative Agent in the event the Servicer discovers or determines that any material computer application of the Servicer and its Consolidated Subsidiaries that is necessary for the origination, collection, management, or servicing of the Receivables will not be Year 2000 Compliant on December 31, 1999. (q) Audits. At any time, upon reasonable notice to the Servicer, the ------ Servicer shall permit the Administrative Agent, or such Person as the Administrative Agent may designate, during business hours, to conduct audits or visit and inspect any of the properties of the Servicer to examine the Records, internal controls and procedures maintained by the Servicer and take copies and extracts therefrom, and to discuss the Servicer's affairs with its officers, employees and independent accountants. The Servicer hereby authorizes such officers, employees and independent accountants to discuss with the Administrative Agent, or such Person as the Administrative Agent may designate, the affairs of the Servicer. The Seller shall reimburse the Owners and the Administrative Agent for all reasonable fees, costs and out-of-pocket expenses (not to exceed $20,000 annually) incurred by or on behalf of the Owners or the Administrative Agent in connection with the foregoing actions promptly upon receipt of a 66 written invoice therefor; provided, however, following the occurrence of a -------- ------- Termination Event, the Seller shall reimburse the Owners and the Administrative Agent for all reasonable fees, costs and out of pocket expenses incurred by or on behalf of the Owners and the Administrative Agent in connection with the foregoing actions promptly upon receipt of written invoice therefor. Subject to the requirements of applicable laws, each Owner and the Administrative Agent agrees to use commercially reasonable precautions to keep confidential, in accordance with its respective customary procedures for handling confidential information, any non-public information supplied to it by the Servicer pursuant to any such audit or visit which is identified by the Servicer as being confidential at the time the same is delivered to the Administrative Agent or any Owner. Notwithstanding the foregoing, subject to applicable Laws, the Servicer hereby consents to the disclosure of any nonpublic information supplied by it to any of the Affected Parties, provided that each such Affected Party shall agree to be bound by this provision or substantially similar confidentiality provisions. 6.04. Negative Covenants of the Servicer. The Servicer covenants ---------------------------------- that it will not, without the prior written consent of the Majority Owners: (a) No Rescissions or Modifications. Rescind or cancel any Receivable ------------------------------- or related Contract or modify any terms or provisions thereof or grant any Dilution Factors to an Obligor, except in accordance with AmeriSource's Credit and Collection Policy or otherwise with the prior written consent of the Majority Owners, unless such Receivable has been deemed collected pursuant to Section 2.08(c) or repurchased pursuant to Section 2.08(d), Section 2.12 or Section 2.17. (b) No Liens. Cause any of the applicable Receivables or related -------- Contracts, or any inventory or goods the sale of which may give rise to a Receivable or any Permitted Lockbox, Lockbox Account or Concentration Account or any right to receive any payments received therein or deposited thereto, to be sold, pledged, assigned or transferred or to be subject to a Lien, other than (i) the sale and assignment of the Purchased Interest to the Administrative Agent, for the benefit of the Owners, (ii) the Liens created in connection with the transactions contemplated by this Agreement or (iii) Liens in respect of a Receivable which has been deemed collected pursuant to Section 2.08(c) or repurchased pursuant to Section 2.08(d), Section 2.12 or Section 2.17 and for which payment has been received. (c) No Changes. Make any materially adverse change in its Credit and ---------- Collection Policy, allow any materially adverse change to be made in AmeriSource's Credit and Collection Policy or consent to any materially adverse change in AmeriSource's Credit and Collection Policy without prior written consent of the Administrative Agent, or change its name, identity or corporate structure in any manner which would make any financing statement or continuation statement filed in connection with this Agreement or the transactions contemplated hereby seriously misleading within the meaning of Section 9-402(7) of the UCC of any applicable jurisdiction or other applicable Laws unless it shall have given the Administrative Agent at least 45 days' prior written notice thereof and unless prior thereto it shall have caused such financing statement or continuation statement to be amended or a new financing statement to be filed such that such financing statement or continuation statement would not be seriously misleading. 67 (d) Consolidations, Mergers and Sales of Assets. (i) Consolidate or ------------------------------------------- merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; provided that the -------- Servicer may merge with another Person if (A) the Servicer is the corporation surviving such merger and (B) immediately after giving effect to such merger, no Termination Event shall have occurred and be continuing 6.05. Affirmative Covenants of the Guarantor. The Guarantor -------------------------------------- covenants with each Owner and the Administrative Agent as follows: (a) Consolidated Net Worth. The Guarantor shall maintain, as of the ---------------------- end of each fiscal quarter, Consolidated Net Worth equal to not less than the sum of (i) $7,100,000 plus (ii) on the last day of each fiscal quarter, ---- beginning with the fiscal quarter ending March 31, 1999, an amount equal to fifty percent (50%) of Consolidated Net Income for the fiscal quarter then ended (but not less than zero) plus (iii) an amount equal to 75% of the net proceeds ---- received in connection with any Equity Transaction. (b) Consolidated Leverage Ratio. The Guarantor shall maintain, as of --------------------------- the end of each fiscal quarter, Consolidated Leverage Ratio of not greater than 4.25 to 1.00. (c) Consolidated Fixed Charge Coverage Ratio. The Guarantor shall ---------------------------------------- maintain, as of the end of each fiscal quarter, a Consolidated Fixed Charge Coverage Ratio of at least 1.75 to 1.00. (d) Information. The Guarantor shall, unless the Majority Owners ----------- shall otherwise consent in writing, furnish the following to the Administrative Agent: (i) as soon as practicable and in any event within 60 days following the close of each fiscal quarter, excluding the last fiscal quarter, of each Fiscal Year of the Guarantor during the term of this Agreement, an unaudited consolidated balance sheet of the Guarantor as of the end of such quarter and unaudited consolidated statements of income and cash flows of the Guarantor for such quarter and for the Fiscal Year through such quarter, setting forth in comparative form the corresponding figures for the corresponding quarter of the preceding Fiscal Year, together with notes thereto as are required to be included therein in accordance with GAAP or applicable Securities and Exchange Commission requirements, all in reasonable detail and certified by the chief financial officer of the Guarantor, subject to adjustments of the type which would occur as a result of a year-end audit, as having been prepared in accordance with GAAP; and (ii) as soon as practicable and in any event within 120 days after the close of each Fiscal Year of the Guarantor during the term of this Agreement, a consolidated balance sheet of the Guarantor as at the close of such Fiscal Year and consolidated statements of income and cash flows of the Guarantor for such Fiscal Year, setting forth in comparative form the corresponding figures for the preceding Fiscal Year, all in reasonable detail and certified (with respect to the consolidated financial statements) by independent certified public accountants of nationally recognized standing selected by the Guarantor whose certificate or opinion accompanying such financial statements shall not contain any qualification, exception or scope limitation not satisfactory to the 68 Administrative Agent, and accompanied by any management letter prepared by such accountants. ARTICLE VII TERMINATION ----------- 7.01. Termination Events. A "Termination Event" shall mean the ------------------ ----------------- occurrence and continuance of one or more of the following events or conditions: (a) either the Seller or the Servicer shall fail to remit or fail to cause to be remitted to the Administrative Agent or any Owner on any day any Collections, including any amounts to be remitted to reduce the Net Investment or any portion thereof, or Discount required to be remitted to the Administrative Agent or such Owner on such day, and with respect to failure to remit Discount, such failure shall continue for three Business Days after the date on which such Discount becomes due; or (b) the Seller or the Servicer shall fail to deposit, or pay or fail to cause to be deposited or paid when due any other amount due hereunder and such failure shall continue for five Business Days after the date when such amount became due; or (c) any representation, warranty, certification or statement made by the Seller or the Servicer under this Agreement or in any agreement, certificate, report, appendix, schedule or document furnished by the Seller or the Servicer to the Buyer, any APA Purchaser or the Administrative Agent pursuant to or in connection with this Agreement shall prove to have been false or misleading in any respect material to this Agreement or the transactions contemplated hereby as of the time made or deemed made (including by omission of material information necessary to make such representation, warranty, certification or statement not misleading) and which continues to be false or misleading in any material respect for a period of 30 days after the date on which notice of such failure, requiring the same to be remedied, shall have been given to the Seller or the Servicer, as the case may be, by the Administrative Agent; or (d) the Seller or the Servicer shall fail to obtain the prior consent of the Buyer, the Majority Owners, each of the Owners or the Administrative Agent, as the case may be, to any action or provision as to which such consent is required by the terms of this Agreement; or (e) the Seller or the Servicer shall default or fail in the performance or observance of any other covenant (other than the covenant set forth in Section 6.04(d)), agreement or duty applicable to it contained herein and such default or failure shall continue for 30 days after either (i) any Responsible Officer of the Seller or the Servicer becomes aware thereof or (ii) notice thereof to such Person by the Administrative Agent or any Owner; or (f) the Seller shall fail to pay any Indebtedness when due and such failure shall continue beyond the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or AmeriSource or any of its Consolidated Subsidiaries (other than the Seller, if applicable) shall fail to pay any Indebtedness in excess of $10,000,000 of AmeriSource or any of its Consolidated Subsidiaries, as the case may be, or any interest or 69 premium on such Indebtedness, in either case, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or a final court decision of $10,000,000 or more shall be rendered against AmeriSource or any of its Consolidated Subsidiaries and (i) such amount remains unpaid and (ii) AmeriSource or the relevant Consolidated Subsidiary does not, in good faith, contest such decision within the relevant statutory period; (g) the average of the Default Ratios, computed for each of the three immediately preceding months, shall exceed 2.5%; or the average of the Dilution Ratios computed for each of the immediately preceding three months, shall exceed 8.0%; or the three-month average of the Delinquency Ratios, computed for each of the immediately preceding three months, shall exceed 4.5%; or the Average Collection Period for any month shall exceed 50 days; or (h) (i) a Permitted Lockbox Bank or the Permitted Concentration Account Bank shall default or fail in the performance or observance of any agreement or duty applicable to it in respect of the Permitted Lockbox, the Lockbox Servicing Instructions, the Concentration Account or the Concentration Account Servicing Instructions, as the case may be, and (A) the Servicer has not notified the Administrative Agent, within two Business Days after becoming aware of such default or failure, of the action it intends to take to cure such default or failure or (B) if so requested by the Administrative Agent or the Majority Owners, the Seller has not established, within 15 Business Days of such default or failure, another Permitted Lockbox with another Permitted Lockbox Bank or Concentration Account with a Permitted Concentration Account Bank, as the case may be, or (ii) the Seller or the Servicer shall default or fail in the performance or observance of any covenant, agreement or duty set forth in Section 4.09 hereof which is within the control of the Seller or the Servicer, as the case may be, and such default or failure shall continue for two Business Days after notice thereof; or (i) there shall be pending any litigation, investigation or proceeding, or any material adverse development in any such litigation shall have occurred, which the Seller or the Servicer is required to disclose pursuant to Section 6.01(i) or Section 6.03(m), respectively, hereof, which in the reasonable opinion of the Majority Owners or the Administrative Agent is likely to materially adversely affect the financial position or results of operations of the Seller or the Servicer or impair the ability of the Seller or the Servicer to perform its respective obligations under this Agreement; or (j) there shall have occurred any event which materially adversely affects the collectibility of a material amount of the Receivables or there shall have occurred any other event which materially adversely affects the ability of the Servicer to collect Receivables or the ability of the Servicer to perform hereunder; or 70 (k) an Event of Bankruptcy shall occur with respect to the Seller, the Servicer or the Guarantor; or (l) the Buyer's Percentage Interest shall at any time exceed 100%; provided however, that a Termination Event shall not occur unless the Adjusted - -------- ------- Buyer's Percentage Interest shall exceed 100% on the day it is required to be calculated pursuant to the definition of "Adjusted Buyer's Percentage Interest"; or (m) 60 days following the date on which (i) the Securities and Exchange Commission, any banking regulatory authority or any other Official Body having jurisdiction over J.P. Morgan & Co. Incorporated ("JPM") or any of its --- subsidiaries, shall require the consolidation of the assets and liabilities of the Buyer on the balance sheet of JPM or any of its subsidiaries (including, without limitation, Morgan Guaranty Trust Company of New York) or shall require that capital be maintained with respect thereto under any capital requirements as if such assets were owned by JPM or any of its subsidiaries, (ii) the independent auditors for JPM shall have advised JPM or any of its subsidiaries in writing that in their opinion such consolidation is required by GAAP or applicable Law, rule or regulations, (iii) any Affected Party shall determine that any arrangement or transaction contemplated by this Agreement or the DFC Program Facility will impose a material adverse regulatory impact on such Affected Party, including without limitation, any Transaction Cost described in Section 9.02 hereof; or (iv) the Buyer shall determine that the Buyer may be required to register as an investment company under the Investment Company Act of 1940, as amended; or (n) the Net Investment exceeds the Maximum Net Investment and continues to so exceed for two (2) Business Days following either (i) the Seller's becoming aware thereof or (ii) the Seller's being notified thereof by the Administrative Agent or any Owner; or (o) the occurrence of a Servicing Default; or (p) the Guarantor shall default or fail in the performance or observance of the covenants set forth in Section 6.05(a), (b) or (c); or (q) AmeriSource, as the initial Servicer, shall resign as the Servicer in accordance with the provisions of Section 4.12; or (r) a final court decision for $250,000 or more shall be rendered against the Seller; or (s) AmeriSource shall cease to own 100% of the capital stock of the Seller; or (t) AmeriSource shall (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person unless AmeriSource is the survivor of such transaction. 7.02. Consequences of a Termination Event. ----------------------------------- (a) If a Termination Event specified in Section 7.01 hereof shall occur and be continuing, the Administrative Agent shall, at the request, or may with the consent of the 71 Majority Owners, by notice to the Seller (a "Notice of Termination"), terminate --------------------- the obligation of the Owners to purchase any interest in any Receivables (including by reinvestment) hereunder and declare all outstanding Tranche Periods to be ended; provided that, in the case of a Termination Event under -------- Section 7.01(k) hereof, such obligation of the Owners hereunder shall be automatically terminated without any action on the part of the Administrative Agent and all outstanding Tranche Periods may, in the sole discretion of the Administrative Agent or APA Purchaser, be ended. Thereafter, in accordance with Section 2.06(c) hereof, all Tranche Periods shall be for a period of one day (unless the Administrative Agent, after consultation with each Owner, agrees at such time to a longer period). After such termination the Maximum Net Investment in effect from time to time thereafter may not exceed the amount of the aggregate Net Investment at such time and the Servicer shall make distributions to the Owners in accordance with Section 2.09 hereof. The Administrative Agent, after consultation with each of the Owners may, pursuant to Section 2.06(d) hereof and in any case (other than a termination due to a Termination Event described in Section 7.01(h) and Section 7.01(m) hereof), declare the Tranche Rates applicable to the Net Investment to be the Base Rate plus 2% per annum. The Administrative Agent shall give S&P, Moody's and each Owner prompt notice of the Administrative Agent's delivery of a Notice of Termination to the Seller; provided, however, that failure to give such notice shall not affect the - -------- ------- effectiveness of, or the rights of the Owners resulting from the delivery of, such Notice of Termination. (b) Upon any termination of the Owners' obligations pursuant to this Section 7.02, the Owners and the Administrative Agent shall have, in addition to all rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of the applicable jurisdiction and under other applicable Laws, which rights shall be cumulative. (c) The parties hereto acknowledge that this Agreement is, and is intended to be, a contract to extend financial accommodations to the Seller within the meaning of Section 365(e)(2)(B) of the Federal Bankruptcy Code (11 U.S.C. (S) 365(e)(2)(B)) (or any amended or successor provision thereof or any amended or successor code). ARTICLE VIII THE ADMINISTRATIVE AGENT ------------------------ 8.01. Authorization and Action. Each Owner hereby accepts the ------------------------ appointment of and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. When requested to do so by the Majority Owners, the Administrative Agent shall take such action or refrain from taking such action as the Majority Owners direct under or in connection with or on any matter relating to the Seller or the Servicer, this Agreement and all other Purchase Documents. In the event of a conflict between a determination or calculation made by the Administrative Agent and a determination or calculation made by the Buyer or the Majority Owners, the determination or calculation of the Majority Owners shall control absent manifest error. Except for actions which the Administrative Agent is expressly required to take pursuant to this Agreement or the Asset Purchase Agreement, the Administrative Agent shall not be required to take any action which 72 exposes the Administrative Agent to personal liability or which is contrary to applicable Law unless the Administrative Agent shall receive further assurances to its satisfaction from the Owners of the indemnification obligations under Section 8.05 hereof against any and all liability and expense which may be incurred in taking or continuing to take such action. The Administrative Agent agrees to give to each Owner prompt notice of each notice and determination given to it by the Seller or the Servicer, or by it to the Seller or the Servicer, pursuant to the terms of this Agreement. Subject to Section 8.06 hereof, the appointment and authority of the Administrative Agent hereunder shall terminate at the later to occur of (i) the payment to (a) each Owner of all amounts owing to such Owner hereunder and (b) the Administrative Agent of all amounts due hereunder and (ii) the Expiration Date. 8.02. UCC Filings. The Owners, the Seller, and the Servicer ----------- expressly recognize and agree that the Administrative Agent may be listed as the assignee or secured party of record on, and the Owners expressly authorize the Administrative Agent to execute on their behalf as their agent, the various UCC filings required to be made hereunder in order to perfect the sale of the Purchased Interest from the Seller to the Administrative Agent, for the benefit of the Owners, that such listing and/or execution shall be for administrative convenience only in creating a record or nominee owner to take certain actions hereunder on behalf of the Owners or to execute UCC filings on behalf of the Owners and that such listing and/or execution will not affect in any way the status of the Owners as the beneficial owners of the Purchased Interest. In addition, such listing or execution shall impose no duties on the Administrative Agent other than those expressly and specifically undertaken in accordance with this Article VIII. In furtherance of the foregoing, the Buyer and each APA Purchaser shall be entitled to enforce their respective rights created under this Agreement without the need to conduct such enforcement through the Administrative Agent except as provided herein. 8.03. Administrative Agent's Reliance, Etc. Neither the ------------------------------------- Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Administrative Agent under or in connection with this Agreement (including, without limitation, the Administrative Agent's servicing, administering or collecting Receivables as Servicer pursuant to Section 4.01 hereof), except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Administrative Agent: (i) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Owner and shall not be responsible to any Owner for any statements, warranties or representations made by the Seller in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Seller or the Servicer or to inspect the property (including the books and records) of the Seller or the Servicer; (iv) shall not be responsible to any Owner for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex) believed by it in good faith to be genuine and signed or sent by the proper party or parties. 73 8.04. Administrative Agent and Affiliates. Morgan Guaranty Trust ----------------------------------- Company of New York and its Affiliates may generally engage in any kind of business with the Seller, the Servicer or any Obligor, any of their respective Affiliates and any Person who may do business with or own securities of the Seller, the Servicer or any Obligor or any of their respective Affiliates, all as if Morgan Guaranty Trust Company of New York were not the Administrative Agent and without any duty to account therefor to the Owners. 8.05. Indemnification. Each Owner severally agrees to indemnify the --------------- Administrative Agent (to the extent not reimbursed by the Seller), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement; provided, that (i) an Owner shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting or arising from the Administrative Agent's gross negligence or willful misconduct and (ii) an Owner shall not be liable for any amount in respect of any compromise or settlement or any of the foregoing unless such compromise or settlement is approved by the Majority Owners. Without limitation of the generality of the foregoing, each Owner agrees to reimburse the Administrative Agent, promptly upon demand, for any reasonable out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, provided, that an Owner shall not be responsible for the costs and expenses of the Administrative Agent in defending itself against any claim alleging the gross negligence or willful misconduct of the Administrative Agent to the extent such gross negligence or willful misconduct is determined by a court of competent jurisdiction in a final and non-appealable decision. 8.06. Successor Administrative Agent. The Administrative Agent may ------------------------------ resign at any time by giving sixty days' written notice thereof to the Owners, the Seller and the Servicer. Upon any such resignation, the Majority Owners shall have the right to appoint a successor Administrative Agent approved by the Seller (which approval will not be unreasonably withheld or delayed). If no successor Administrative Agent shall have been so appointed by the Majority Owners, and shall have accepted such appointment, within sixty days after the retiring Administrative Agent's giving of notice or resignation, then the retiring Administrative Agent may, on behalf of the Owners, appoint a successor Administrative Agent approved by the Seller (which approval will not be unreasonably withheld or delayed), which successor Administrative Agent shall be (a) either (i) a commercial bank having a combined capital and surplus of at least $250,000,000, (ii) an Affiliate of such bank, or (iii) an Affiliate of JPM and (b) experienced in the types of transactions contemplated by this Agreement. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 74 ARTICLE IX MISCELLANEOUS ------------- 9.01. Expenses. The Seller agrees, upon receipt of a written -------- invoice, to pay or cause to be paid, and to save each Owner, the Administrative Agent and the Referral Agent harmless against liability for the payment of, all reasonable out-of-pocket expenses (including, without limitation, attorneys', accountant's and other third parties' fees and expenses, any filing fees and expenses incurred by officers or employees of each Owner, the Administrative Agent and the Referral Agent, but excluding salaries and similar overhead costs of each Owner, the Administrative Agent and the Referral Agent which are incurred notwithstanding the execution and performance of this Agreement) incurred by or on behalf of any Owner, the Administrative Agent and the Referral Agent (i) in connection with the negotiation, execution, delivery and preparation of the Purchase Documents and the transactions contemplated by or undertaken pursuant to or in connection herewith or therewith (including, without limitation, the perfection or protection of the Purchased Interest in the Receivables) and (ii) from time to time (a) relating to any requested amendments, waivers or consents under the Purchase Documents, (b) arising in connection with the Owners' or the Administrative Agent's or their enforcement or preservation of their respective rights (including, without limitation, the perfection and protection of the Purchased Interest in the Receivables) under the Purchase Documents, or (c) arising in connection with any audit, dispute, disagreement, litigation or preparation for litigation involving the Purchase Documents, which, including all amounts payable under Section 9.02 hereof, shall be referred to in this Agreement as "Transaction Costs." ----------------- 9.02. Indemnity for Taxes, Reserves and Expenses. ------------------------------------------ (a) If after the date hereof, the adoption of any Law or bank regulatory guideline or any amendment or change in the interpretation of any existing or future Law or bank regulatory guideline by any Official Body charged with the administration, interpretation or application thereof, or the compliance with any directive of any Official Body (in the case of any bank regulatory guideline, whether or not having the force of Law): (i) shall subject any Affected Party and any permitted assigns (collectively, the "Indemnified Parties") to any tax, duty or other charge ------------------- with respect to the Purchase Documents, the Purchased Interest, the Receivables or payments of amounts due thereunder, or shall change the basis of taxation of payments to any Indemnified Party of amounts payable in respect of the Purchase Documents, the Purchased Interest, the Receivables or payments of amounts due thereunder or its obligation to advance funds in respect of the Purchase Documents, the Purchased Interest or the Receivables (except for changes in the rate of general corporate, franchise, net income or other income tax imposed on such Indemnified Party by the jurisdiction in which such Indemnified Party's principal executive office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the 75 Board of Governors of the Federal Reserve System) against assets of, deposits with or for the account of, or credit extended by, any Indemnified Party or shall impose on any Indemnified Party or on the United States market for certificates of deposit or the London interbank market any other condition affecting the Purchase Documents, the Purchased Interest, the Receivables or payments of amounts due thereunder or its obligation to advance funds in respect of the Purchase Documents, the Purchased Interest or the Receivables; or (iii) imposes upon any Indemnified Party any other expense (including, without limitation, reasonable attorneys' fees and expenses, and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to the Purchase Documents, the Purchased Interest, the Receivables or payments of amounts due thereunder or its obligation to advance funds in respect of the Purchase Documents, the Purchased Interest or the Receivables; and the result of any of the foregoing is to increase the cost to such Indemnified Party with respect to the Purchase Documents, the Purchased Interest, the Receivables, the obligations thereunder, the funding of any purchases thereunder, under the Asset Purchase Agreement or any DFC Program Facility credit agreement, by an amount deemed by such Indemnified Party to be material, then, within 10 days after demand by any Owner or the Administrative Agent, the Seller shall pay to such Owner or the Administrative Agent such additional amount or amounts as will compensate such Indemnified Party for such increased cost. (b) If any Indemnified Party shall have determined that, after the date hereof, the adoption of any applicable Law or bank regulatory guideline regarding capital adequacy, or any change therein, or any change in the interpretation thereof by any Official Body, or any directive regarding capital adequacy (in the case of any bank regulatory guideline, whether or not having the force of law) of any such Official Body, has or would have the effect of reducing the rate of return on capital of such Indemnified Party (or its parent) as a consequence of such Indemnified Party's obligations hereunder or with respect hereto to a level below that which such Indemnified Party (or its parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Indemnified Party to be material, then from time to time, within 10 days after demand by any Owner or the Administrative Agent, the Seller shall pay to such Indemnified Party such additional amount or amounts as will compensate such Indemnified Party (or its parent) for such reduction. (c) Each Owner and the Administrative Agent will promptly notify the Seller of any event of which it has knowledge, occurring after the date hereof, which will entitle an Indemnified Party to compensation pursuant to this Section 9.02. A notice by any Owner, or the Administrative Agent on behalf of an Owner, claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, any Owner may use any reasonable averaging and attributing methods. Payment of any indemnification amount under this Section 9.02 shall be contingent on the delivery of a certificate by the Owner to the Seller setting forth in reasonable detail the calculation employed by the Owner in determining the amount of such compensation claim. 76 (d) Each Indemnified Party agrees that it will use reasonable efforts to reduce or eliminate any claim for indemnity pursuant to this Section 9.02 including, subject to applicable Law, a change in the funding office of such Indemnified Party; provided, however, that nothing contained herein shall -------- ------- obligate any Indemnified Party to take any action that imposes on such Indemnified Party any additional costs or legal or regulatory burdens which such Indemnified Party reasonably considers material, nor which, in such Indemnified Party's reasonable opinion, would have an adverse effect on its business, operations or financial condition. 9.03. Indemnity. --------- (a) The Seller agrees to indemnify, defend and save harmless each Owner, the Administrative Agent, their directors, officers, shareholders, employees, agents and each legal entity, if any, who controls any Owner or the Administrative Agent, other than for the indemnitee's own gross negligence or willful misconduct, forthwith on demand, from and against any and all losses, claims, damages, liabilities, costs and expenses (including, without limitation, all reasonable attorneys' fees and expenses, expenses incurred by their respective credit recovery groups (or any successors thereto) and expenses of settlement, litigation or preparation therefor) which any Owner or the Administrative Agent may incur or which may be asserted against any Owner or the Administrative Agent by any Person (including, without limitation, any Obligor or any other Person whether on its own behalf or derivatively on behalf of the Seller) arising from or incurred in connection with (i) any breach of a representation, warranty or covenant by the Seller made or deemed made hereunder or in connection herewith or the transactions contemplated hereby or any statements made by any Responsible Officer of the Seller in connection herewith or the transactions contemplated hereby which shall have been incorrect in any material respect when made, (ii) any action taken or, if the Seller is otherwise obligated to take action, failed to be taken, by the Seller with respect to the Purchased Interest or any of its obligations hereunder (whether in its capacity as Seller or Servicer), including, without limitation, the Seller's failure to comply with an applicable law or regulation, (iii) any failure to vest and maintain vested in the Owners an undivided ownership interest in the Receivables included in the Purchased Interest, free and clear of any Lien or other adverse claim, whether existing at the time of Purchase of such Receivables or at any time thereafter, (iv) any failure to pay when due any taxes, including without limitation any sales tax, excise tax or other similar tax or charge payable in connection with the Receivables and their creation or satisfaction, (v) any products liability claim arising out of or which relates to the Purchased Interest in the Receivables or the related Contracts, or (vi) any dispute, suit, action, claim, proceeding or governmental investigation, pending or threatened, whether based on statute, regulation or order, on tort, on contract or otherwise, before any Official Body which arises out of or relates to the obligations of such Person under or with respect to the Contracts; provided that -------- nothing in this Section 9.03(a) shall be deemed to provide indemnity (i) to the Owners or the Administrative Agent for credit losses due to Defaulted Receivables or (ii) to the Indemnified Parties for matters covered pursuant to Section 9.02 hereof. (b) Promptly upon receipt by any indemnified party under this Section 9.03 of notice of the commencement of any suit, action, claim, proceeding or governmental investigation against such indemnified party, such indemnified party shall, if a claim in respect thereof is to be made against the Seller hereunder, notify the Seller in writing of the commencement thereof. The Seller may participate in and assume the defense of any such suit, action, claim, proceeding 77 or investigation at its expense, and no settlement thereof shall be made without the prior approval of the Seller and the indemnified party. The approval of the Seller will not be unreasonably withheld or delayed. After notice from the Seller to the indemnified party of its intention to assume the defense thereof with counsel reasonably satisfactory to the Administrative Agent and the Majority Owners, and so long as the Seller so assumes the defense thereof in a commercially reasonable manner, the Seller shall not be liable for any legal expenses of counsel unless there shall be a conflict between the interests of the Seller and the indemnified party. (c) Each Owner and the Administrative Agent, on behalf of themselves, their directors, officers, shareholders, employees, agents, and each legal entity who controls any Owner or Administrative Agent shall use its good faith efforts to mitigate, reduce or eliminate any losses, expenses or claims for indemnification. 9.04. Holidays. Except as may be provided in this Agreement to the -------- contrary, if any payment due hereunder shall be due on a day which is not a Business Day, such payment shall instead be due the next succeeding Business Day. 9.05. Records. All amounts calculated or due hereunder shall be ------- determined from the records of the Administrative Agent, which determinations shall be conclusive absent manifest error. 9.06. Amendments and Waivers. The Buyer, the Administrative Agent, ---------------------- the Seller and the Servicer may from time to time, with the consent, if required pursuant to this Agreement or the Asset Purchase Agreement of the APA Purchasers, enter into agreements amending, modifying or supplementing this Agreement, and the Buyer, with the consent, if required pursuant to this Agreement or the Asset Purchase Agreement, of the Majority Owners, in its or their sole discretion, may from time to time grant waivers of the provisions of this Agreement or consents to a departure from the due performance of the obligations of the Seller or the Servicer under this Agreement. The Administrative Agent understands that the Guarantor will request amendments of, or related to, the financial covenants set forth in Section 6.05(a), (b) and (c) and agrees that its consent to such amendments will not be unreasonably withheld. Any such amendment, waiver or consent must be in writing and shall be effective only to the extent specifically set forth in such writing and shall be provided to S&P and Moody's, provided that no material amendment, waiver or consent shall be effective unless both S&P and Moody's confirm that their respective ratings of the Commercial Paper will not be lowered or withdrawn solely as a result of such amendment, waiver or consent. Any waiver of any provision hereof, and any consent to a departure by the Seller or the Servicer from any of the terms of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given and if such amendment, waiver or departure would have a material adverse effect on the rights or obligations of the Collateral Agent, the APA Agent or the Program LOC Bank, such amendment, departure or waiver shall not be effective until consented to by the Affected Party. 9.07. Term of Agreement. This Agreement shall terminate following ----------------- the Expiration Date upon the earlier to occur of (i) the reduction of the Net Investment to zero and the indefeasible payment of all Discount and all other Aggregate Unpaids and (ii) the date on which all Receivables have either been collected and the Buyer's Percentage Interest therein delivered to the Administrative Agent or written-off by the Servicer as being uncollectible in 78 accordance with its Credit and Collection Policy; provided, however, that (i) -------- ------- the rights and remedies of the Owners and the Administrative Agent with respect to any representation and warranty made or deemed to be made by the Seller or the Servicer pursuant to this Agreement, (ii) the indemnification and payment provisions set forth in Sections 4.11, 9.01, 9.02 and 9.03 hereof and (iii) the agreement set forth in Section 9.20 hereof shall be continuing and shall survive any termination of this Agreement. 9.08. No Implied Waiver; Cumulative Remedies. No course of dealing -------------------------------------- and no delay or failure of any Owner or the Administrative Agent in exercising any right, power or privilege under the Purchase Documents shall affect any other or future exercise thereof or the exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. The rights and remedies of the Owners under the Purchase Documents are cumulative and not exclusive of any rights or remedies, which any Owner would otherwise have. 9.09. No Discharge. The respective obligations of the Seller and the ------------ Servicer under the Purchase Documents shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by (a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of the Purchase Documents or applicable Law, including, without limitation, any failure to set- off or release in whole or in part by any Owner of any balance of any deposit account or credit on its books in favor of the Seller or the Servicer, as the case may be, or any waiver, consent, extension, indulgence or other action or inaction in respect of any thereof, or (b) any other act or thing or omission or delay to do any other act or thing which would operate as a discharge of the Seller or the Servicer as a matter of Law. 9.10. Notices. All notices under Section 7.02 hereof shall be given ------- to the Seller and the Servicer by telephone or facsimile, confirmed by first- class mail, first-class express mail or courier, in all cases with charges prepaid. All other notices, requests, demands, directions and other communications (collectively "notices") under the provisions of this Agreement ------- shall be in writing (including telexed or facsimile communication) unless otherwise expressly permitted hereunder and shall be sent by first-class mail, first-class express mail, or by telex or facsimile with confirmation in writing mailed first-class mail, in all cases with charges prepaid. Any such properly given notice shall be effective when received. All notices shall be sent to the applicable party at the Office stated on the signature page hereof or in accordance with the last unrevoked written direction from such party to the other parties hereto. 9.11. Severability. The provisions of this Agreement are intended to ------------ be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 9.12. Governing Law; Submission to Jurisdiction. THIS AGREEMENT ----------------------------------------- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF 79 THE STATE OF NEW YORK. Each of the parties hereto submits to the nonexclusive jurisdiction of the courts of the State of New York and the courts of the United States located in the State of New York for the purpose of adjudicating any claim or controversy arising in connection with any of the Purchase Documents or any of the transactions contemplated thereby, and for such purpose, to the extent they may lawfully do so, waive any objection which each may now or hereafter have to such jurisdiction or to venue therein and any claim of inconvenient forum with respect thereto. Nothing in this Section 9.12 shall affect the right of any Owner or the Administrative Agent to bring any action or proceeding against the Seller, the Servicer or their property in the courts of other jurisdictions. 9.13. Prior Understandings. This Agreement sets forth the entire -------------------- understanding of the parties relating to the subject matter hereof, and supersedes all prior understandings and agreements, whether written or oral. 9.14. Survival. All representations and warranties of the Seller and -------- the Servicer contained herein or made in connection herewith shall survive the making thereof, and shall not be waived by the execution and delivery of this Agreement, any investigation by the Buyer, any APA Purchaser or the Administrative Agent, the purchase, repurchase or payment of any Purchased Interest in any Receivable, or any other event or condition whatsoever (other than a written waiver complying with Section 9.06 hereof). The covenants and agreements contained in or given pursuant to this Agreement (including, without limitation, those contained in Articles IV and VI hereof) shall continue in full force and effect until the termination of the obligation to make Purchases hereunder, the reduction of the Net Investment to zero and until the earlier of (i) the payment in full of all Discount and all other Aggregate Unpaids and (ii) the date on which all Receivables have either been collected and the Buyer's Percentage Interest therein delivered to the Administrative Agent or written-off by the Servicer as being uncollectible in accordance with AmeriSource's Credit and Collection Policy. 9.15. Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the different parties hereto on separate counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 9.16. Set-Off. In case a Termination Event shall occur and be ------- continuing, each Owner and, to the fullest extent permitted by Law, the holder of any assignment of the Buyer's rights hereunder pursuant to the Security Agreement, shall each have the right, in addition to all other rights and remedies available to it, with notice to the Seller or the Servicer, as the case may be, to set-off against and to appropriate and apply to any amount owing by (i) the Seller hereunder which has become due and payable, any debt owing to, and any other funds held in any manner for the account of, the Seller by an Owner or by any holder of any assignment, including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise, in each case, a "Deposit Account") now or hereafter maintained by the Seller or the Servicer with an Owner or the Collateral Agent under the Security Agreement and (ii) the Servicer hereunder which has become due and payable, any debt owing to and any other funds held in any manner for the account of such Servicer by an Owner or by any holder of any assignment, including without limitation, all funds in all Deposit Accounts now or hereafter maintained by such Servicer with 80 an Owner or the Collateral Agent under the Security Agreement. Such right shall exist whether or not such debt owing to, or funds held for the account of, the Seller is or are matured other than by operation of this Section 9.16 and regardless of the existence or adequacy of any collateral, guaranty or any other security, right or remedy available to any Owner or any holder. Nothing in this Agreement shall be deemed a waiver or prohibition or restriction of any Owner's or any holder's rights of set-off or other rights under applicable Law. 9.17. Successors and Assigns. This Agreement shall be binding on the ---------------------- parties hereto and their respective successors and assigns; provided, however, -------- ------- that neither the Seller nor the Servicer may assign any of its rights or delegate any of its duties hereunder without the prior written consent of the Majority Owners. Each of the Buyer and its assignees may assign, without any prior written consent, in whole or in part, its interest in the Receivables and obligations hereunder (i) to another conduit managed by the Administrative Agent which issues commercial paper notes rated at least A-1 and P-1 by S&P and Moody's, respectively, (ii) to any of the Owners or (iii) to the Collateral Agent. Notwithstanding the foregoing, the Asset Purchase Agreement shall govern the ability of an APA Purchaser to assign, participate, or otherwise transfer any portion of the Purchased Interest owned by such APA Purchaser. The Seller and the Servicer hereby agree and consent to the complete assignment by the Owners of all of their respective rights under, interest in, title to and obligations under the Purchase Documents to the Collateral Agent. 9.18. Confidentiality. Each Owner, the Administrative Agent, the --------------- Seller and the Servicer shall keep all information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith confidential in accordance with customary procedures for handling confidential information of this nature and will not disclose such information to outside parties (except counsel and auditors) but may make disclosure (a) reasonably required by a bona fide transferee, including without limitation any APA Lending Bank or any successor Owner, in connection with the participation in this Agreement by such APA Lending Bank, or such successor owner, provided that such APA Lending Bank or successor Owner shall use its best -------- efforts to obtain executed confidentiality agreements relating to the disclosure of any such information to any potential participant, (b) necessary in order to obtain any consents, approvals, waivers or other arrangements required to permit the execution, delivery and performance by the Seller and the Servicer of this Agreement or (c) as required or requested by any Official Body or pursuant to legal process or required by applicable Law. 9.19. Payments Set Aside. To the extent that the Seller or any ------------------ Obligor makes a payment to an Owner or an Owner exercises its rights of set-off and such payment or set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by, or is required to be refunded, rescinded, returned, repaid or otherwise restored to the Seller, such Obligor, a trustee, a receiver or any other Person under any Law, including, without limitation, any bankruptcy law, any state or federal law, common law or equitable cause, the obligation or part thereof originally intended to be satisfied shall, to the extent of any such restoration, be reinstated, revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred. The provisions of this Section 9.19 shall survive the termination of this Agreement. 81 9.20. No Petition. The Seller and the Servicer agree that, prior to ----------- the date which is one year and one day after the date upon which all obligations of the Seller to the Buyer hereunder are paid in full and all outstanding Commercial Paper and other indebtedness of the Buyer are paid in full, it will not institute against, or join any other Person in instituting against, the Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other similar proceeding under the laws of the United States or any state of the United States. 9.21. No Recourse. The obligations of the Buyer under this Agreement ----------- are solely the corporate obligations of the Buyer. No recourse shall be had for the payment of any amount owing in respect of this Agreement or for the payment of any fee hereunder or for any other obligation or claim arising out of or based upon this Agreement against Merrill, Goldman, any Affected Party, the Referral Agent or the Administrative Agent, any Affiliate of any of the foregoing, or any stockholder, employee, officer, director, incorporator or beneficial owner of any of the foregoing. For purposes of this paragraph, the term "Merrill" shall mean and include Merrill Lynch Money Markets, Inc. and all Affiliates thereof and any stockholder, employee, officer, director, incorporator or beneficial owner of any of them and, the term "Goldman" shall mean and include Goldman Sachs Money Markets L.P. and all Affiliates thereof and any stockholder, employee, officer, director, incorporator or beneficial owner of any of them; provided, however, that the Buyer shall not be considered to be -------- ------- an Affiliate of Merrill, Goldman, the Referral Agent, any Affected Party or the Administrative Agent for the purposes of this Section. 9.22. Tax Forms. Each Owner (other than Owners organized under the --------- laws of the United States or any state thereof) agrees to promptly provide the Seller and the Administrative Agent with (A) appropriate executed copies of Internal Revenue Service Form 4224 (or alternatively, Internal Revenue Service Form 1001, but only if the applicable treaty described in such Form provides for a complete exemption from federal income tax withholdings), or any successor forms, (i) on or promptly after the date hereof (or, if later, the date on which it becomes an Owner hereunder pursuant to Section 9.17 hereof), and (ii) upon the occurrence of any event that would require the amendment or resubmission of any such Form previously provided hereunder and (B) such other forms or information in connection therewith reasonably requested by the Seller or the Administrative Agent. 9.23. Characterization of the Transactions Contemplated by this --------------------------------------------------------- Agreement. The Seller, the Servicer, the Buyer and the Administrative Agent - --------- agree to treat the transactions contemplated by this Agreement as a financing for tax purposes and further agree to file on a timely basis all federal and other tax returns consistent with such treatment. 82 IN WITNESS WHEREOF, the parties hereto, by their duly authorized signatories, have executed and delivered this Agreement as of the date first above written. DELAWARE FUNDING CORPORATION by: Morgan Guaranty Trust Company of New York, as attorney-in-fact for Delaware Funding Corporation by: ---------------------------------------- Authorized Signatory ---------------------------------------- Title Address for Notices: Delaware Funding Corporation c/o J H Holdings Corporation Ropes & Gray One International Place Boston, MA 02110-2464 Attention: Tel. No.: (617) 951-7000 FAX: (617) 951-7050 With a copy to the Referral Agent: Morgan Guaranty Trust Company of New York 500 Stanton Christiana Road Newark, Delaware 19713-2107 Attention: Asset Finance Group Tel. No.: (302) 634-5487 FAX: (302) 634-5490 [Signature Page for Receivables Purchase Agreement] MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent by: -------------------------------------- Authorized Signatory -------------------------------------- Title Address for Notices: Morgan Guaranty Trust Company of New York 500 Stanton Christiana Road Newark, Delaware 19713-2107 Attention: Asset Finance Group Tel. No.: (302) 634-5487 FAX: (302) 634-5490 Address for Funds Transfer: Morgan Guaranty Trust Company of New York ABA Number: 021-000-238 Account: DELAWARE FUNDING CORPORATION Account No: 600-28-005 Reference: AmeriSource Principal/Interest [Signature Page for Receivables Purchase Agreement] AMERISOURCE RECEIVABLES FINANCIAL CORPORATION, as Seller by: -------------------------------------- Authorized Signatory -------------------------------------- Title Addresses for Notices: 300 Chester Field Parkway Malvern, PA 19355 Attention: John Aberant Tel. No.: (610) 993-3424 FAX: (610) 993-9085 Address for Funds Transfer: First Union National Bank Philadelphia, Pennsylvania ABA No.: 031201467 Account Name: AmeriSource Receivables Financial Corporation Account No.: 2100010193012 [Signature Page for Receivables Purchase Agreement] AMERISOURCE CORPORATION, as Servicer by: -------------------------------------- Authorized Signatory -------------------------------------- Title Addresses for Notices: 300 Chester Field Parkway Malvern, PA 19355 Attention: John Aberant Tel. No.: (610) 993-3424 FAX: (610) 993-9085 Address for Funds Transfer: First Union National Bank Philadelphia, Pennsylvania ABA No.: 031201467 Account Name: AmeriSource Corporation Account No.: 2000200110222 [Signature Page for Receivables Purchase Agreement] AMERISOURCE HEALTH CORPORATION, as Guarantor by: -------------------------------------- Authorized Signatory -------------------------------------- Title Addresses for Notices: 300 Chester Field Parkway Malvern, PA 19355 Attention: John Aberant Tel. No.: (610) 993-3424 FAX: (610) 993-9085 [Signature Page for Receivables Purchase Agreement] EX-4.14 3 PURCHASE AGREEMENT DATED 05/14/99 EXHIBIT 4.14 EXECUTION COPY ----------------------------------------------------- PURCHASE AGREEMENT between AMERISOURCE CORPORATION, as Seller, and AMERISOURCE RECEIVABLES FINANCIAL CORPORATION, as Buyer, Dated as of May 14, 1999 ----------------------------------------------------- TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms............................... 1 SECTION 1.2. Interpretation and Construction..................... 10 ARTICLE II SALES AND TRANSFERS; SETTLEMENTS SECTION 2.1. General Terms....................................... 10 SECTION 2.2. Purchase and Sale................................... 10 SECTION 2.3. Transfers and Assignments........................... 11 SECTION 2.4. Protection of Ownership of the Buyer................ 12 SECTION 2.5. Mandatory Repurchase Under Certain Circumstances.... 13 SECTION 2.6. Deemed Collections.................................. 13 SECTION 2.7. Transfers by Buyer.................................. 14 SECTION 2.8. Payment of Collections and Deemed Collections....... 14 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of Seller............ 14 SECTION 3.2. Representations and Warranties of the Seller With Respect to Each Sale of Receivables................. 18 ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing............................... 19 SECTION 4.2. Conditions to Purchases............................. 20 ARTICLE V COVENANTS SECTION 5.1. Covenants of the Seller............................. 21 SECTION 5.2. Negative Covenants of the Seller.................... 24
-i- TABLE OF CONTENTS (continued)
Page ARTICLE VI TERMINATION SECTION 6.1. Term............................................... 26 SECTION 6.2. Effect of Termination.............................. 26 ARTICLE VII INDEMNIFICATION SECTION 7.1. Expenses........................................... 26 SECTION 7.2. Indemnity for Taxes, Reserves and Expenses......... 27 SECTION 7.3. Indemnity.......................................... 28 ARTICLE VIII MISCELLANEOUS SECTION 8.1. Survival........................................... 29 SECTION 8.2. Waivers; Amendments................................ 30 SECTION 8.3. Notices............................................ 30 SECTION 8.4. Governing Law; Submission to Jurisdiction; Integration........................................ 30 SECTION 8.5. Records............................................ 31 SECTION 8.6. No Implied Waiver; Cumulative Remedies............. 31 SECTION 8.7. No Discharge....................................... 31 SECTION 8.8. Prior Understandings............................... 31 SECTION 8.9. Successors and Assigns............................. 31 SECTION 8.10. No Petition....................................... 32 SECTION 8.11. No Recourse....................................... 32 SECTION 8.12. Severability; Counterparts, Waiver of Setoff...... 32 SECTION 8.13. Confidentiality................................... 32 SECTION 8.14. Third Party Beneficiary........................... 32
-ii- PURCHASE AGREEMENT This PURCHASE AGREEMENT, dated as of May 14, 1999 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), made by --------- and between AMERISOURCE RECEIVABLES FINANCIAL CORPORATION, a Delaware corporation, as buyer (the "Buyer") and AMERISOURCE CORPORATION, a Delaware ----- corporation, as seller (the "Seller"). ------ R E C I T A L S: --------------- WHEREAS, the Seller in the ordinary course of its business generates certain accounts receivable and related rights and interests. WHEREAS, subject to the terms and conditions of this Agreement, the Seller desires to sell from time to time to the Buyer, and the Buyer desires to purchase from time to time from the Seller, certain Receivables (as defined below), subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for good and sufficient consideration, the parties hereto, intending to be legally bound, do hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms. As used in this Agreement, the following --------------------- capitalized terms shall have the following meanings: "Administrative Agent" shall mean Morgan Guaranty Trust Company of New York, -------------------- together with its successors and assigns, or such other Person as provided in the Receivables Purchase Agreement, in the capacity of administrative agent for the "Owners," as such term is defined in the Receivables Purchase Agreement. "Affiliate" shall mean, with respect to a Person, any other Person, which --------- directly or indirectly controls, is controlled by or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Business Day" shall mean any day other than a Saturday, Sunday, public ------------ holiday under the Laws of the State of Delaware, the State of New York, the Commonwealth of Pennsylvania or other day on which banking institutions are authorized or obligated to close in the State of Delaware, the State of New York or the Commonwealth of Pennsylvania. "Charge-Off" shall mean a Receivable (or any portion thereof): (i) which has ---------- been identified by the Servicer as uncollectible or (ii) which, in accordance with the Credit and Collection Policy, should be written off the Seller's books as uncollectible. "Chief Executive Office" shall mean, with respect to the Seller or the Buyer, ---------------------- the place where such Seller or Buyer, as the case may be, is located, within the meaning of Section 9-103(3)(d), or any analogous provision, of the UCC, in effect in the jurisdiction whose Law governs the perfection of the Buyer's ownership of any Purchased Asset. "Closing Date" shall mean May 14, 1999. ------------ "Collections" shall mean, for any Receivable as of any date, (i) the sum of ----------- all amounts, whether in the form of wire transfer, cash, checks, drafts, or other instruments, received by the Seller or the Servicer or in a Permitted Lockbox or the Concentration Account in payment of, or applied to, any amount owed by an Obligor on account of such Receivable (including but not limited to all amounts received on account of any Defaulted Receivable) on or before such date, including, without limitation, all amounts received on account of such Receivable, if any, and all other fees and charges, (ii) cash Proceeds of Related Security with respect to such Receivable, and (iii) all amounts deemed to have been received by the Seller as a Collection pursuant to Section 2.6(a) or 2.6(b) hereof. "Concentration Account" shall mean the demand depository account identified on --------------------- Exhibit B hereto maintained by the Permitted Concentration Account Bank pursuant to the Concentration Account Servicing Instructions for the purpose of receiving wire transfer payments made by Obligors or such other demand depositary account as the Buyer may establish from time to time. "Concentration Account Servicing Instructions" shall mean the instructions -------------------------------------------- relating to the Concentration Account which are in compliance with the Receivables Purchase Agreement, which have been agreed upon by the Buyer and the Permitted Concentration Account Bank. "Consolidated Subsidiary" shall mean, at any date, for any Person, any ----------------------- subsidiary or other entity the accounts of which would be consolidated under GAAP with those of the Seller in its consolidated financial statements as of such date. "Contract" shall mean a binding contract between the Seller and an Obligor, -------- including any and all instruments, agreements, invoices or other writings, which gives rise to a short-term receivable arising from the sale by the Seller of goods or services in the ordinary course of the Seller's business. "Credit and Collection Policy" shall mean the Seller's credit, collection, ---------------------------- enforcement, procedure and other policies relating to the Contracts and the Receivables existing 2 on the date hereof as set forth on Exhibit A hereto, as the same may be amended, supplemented or otherwise modified from time to time in compliance with Section 5.2(g) hereof. "Defaulted Receivable" shall mean a Receivable (i) which has become -------------------- uncollectible by reason of the Obligor's inability to pay, as determined by the Servicer in accordance with the Credit and Collection Policy, (ii) in respect of which an Event of Bankruptcy (without giving effect to the 60-day grace period in clause (b) of such definition) has occurred with respect to the related Obligor or (iii) in respect of which the Obligor is more than 90 days past due, except that portion of the Outstanding Balance thereof which is the subject of a good faith Dispute between the Seller and the Obligor as to the amount due on the related Contract. "Dilution Factors" shall mean credits issued for returned or repossessed ---------------- goods, shortages, pricing adjustments and volume rebates and other allowances, adjustments and deductions (including, without limitation, any special or other discounts or any reconciliations or actual set-offs of an Eligible Government Receivable) that (i) are given to an Obligor in connection with the Credit and Collection Policy and (ii) result in a reduction of such Obligor's payment obligation. "Dispute" shall mean any dispute, deduction, claim, offset, defense, ------- counterclaim, set-off or obligation of any kind, contingent or otherwise, relating to a Receivable, including, without limitation, any dispute relating to goods or services already paid for. "Dollars" or "$" shall mean the lawful currency of the United States of ------- - America. "Eligible Government Receivables" shall mean, at the time, any Eligible ------------------------------- Receivables in respect of which the related Obligor is the United States of America, any State or any agency or instrumentality or political subdivision thereof. "Eligible Receivable" shall mean, at the time, any Receivable: ------------------- (a) which complies with all applicable Laws and other legal requirements, whether Federal, state or local, including, without limitation, to the extent applicable, usury laws, the Federal Consumer Credit Protection Act, the Fair Credit Billing Act, the Federal Truth in Lending Act, and Regulation Z of the Board of Governors of the Federal Reserve System; (b) which constitutes an "account" or a "general intangible" as defined in the UCC as in effect in the State of New York and the jurisdiction whose Law governs the sale and perfection of the Buyer's ownership interests therein, and is not evidenced by an "instrument," as defined in the UCC as so in effect; (c) which was originated in connection with a sale of goods or the provision of services by the Seller in the ordinary course of the Seller's business to an Obligor who was approved by the Seller in accordance with its Credit and Collection Policy, and which Obligor is not an Affiliate of the Seller; 3 (d) which (i) arises from a Contract and has been billed, or in respect of which the related Obligor is otherwise liable, in accordance with the terms of such Contract and (ii) arises from a Contract that (A) does not require the Obligor under such Contract to consent to the transfer, sale or assignment of the rights and duties of the Seller under such Contract, and (B) does not contain any provision that restricts the ability of the Buyer to exercise its rights under this Agreement, including, without limitation, its right to review the Contract; (e) which is genuine and constitutes a legal, valid, binding and irrevocable payment obligation of the related Obligor, enforceable in accordance with its terms, and which is not subject to any Dispute or other offset (other than Eligible Government Receivables), counterclaim or other defense; (f) which provides for payment in Dollars by the related Obligor; (g) which directs payment thereof to be sent to a Permitted Lockbox or the Concentration Account; (h) which has not been repurchased by the Seller pursuant to the repurchase provisions of this Agreement; (i) which is not a Defaulted Receivable; (j) which has a related Obligor who (i) is not more than 90 days past due on greater than 50% of the aggregate outstanding balance of such Receivable and other receivables generated by the Seller and (ii) is not the subject of a current Event of Bankruptcy and has not been the subject of an Event of Bankruptcy during the prior 24 months unless otherwise agreed to in writing by the Buyer; (k) which has a related Obligor which is a Person domiciled in the United States of America or Canada; (l) which was not originated in or subject to the Laws of a jurisdiction whose Laws would make such Receivable, the related Contract or the sale of the Purchased Assets to the Buyer hereunder unlawful, invalid or unenforceable and which is not subject to any legal limitation on transfer; (m) which is owned solely by the Seller free and clear of all Liens, except for the Liens arising in connection with this Agreement; (n) for which all goods, services, and other products and transactions in connection with such Receivable have been finally performed or delivered to and accepted by the Obligor without Dispute; (o) which does not provide the Obligor with the right to obtain any cash advance thereunder; (p) which has not been selected in a manner materially adverse to the Buyer; 4 (q) which, if such Receivable is not interest bearing, by its terms requires payment in respect thereof to be made no later than 120 days after the date of the original invoice with respect thereto; (r) which is an eligible asset within the meaning of Rule 3a-7 promulgated under the Investment Company Act of 1940, as amended from time to time; (s) which is not of a type that has been disqualified by Standard & Poor's Ratings Services or Moody's Investor's Services, Inc., for any other reason; (t) which is not payable in installments (except for Receivables related to opening orders); (u) which is not evidenced by a promissory note; and (v) which has terms which have not been modified, impaired, waived, altered, extended or renegotiated since the initial sale or provision of service to an Obligor in any way not provided for in this Agreement. "ERISA" shall mean, with respect to any Person, the Employee ----- Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder. "ERISA Affiliate" shall mean, with respect to any Person, any --------------- corporation or person which is a member of any group of organizations (i) described in Section 414(b) or (c) of the Internal Revenue Code of which such Person is a member, or (ii) solely for the purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Internal Revenue Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Internal Revenue Code, described in Section 414(m) or (o) of the Internal Revenue Code of which such Person is a member. "Event of Bankruptcy" shall mean, for any Person: ------------------- (a) that such Person shall admit in writing its inability to pay its debts as they become due; or (b) (i) a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar Law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for any substantial part of its property, or for the winding-up or liquidation of its affairs and (ii) either such proceedings shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceedings shall occur provided that the grace period allowed for by this clause (ii) shall not apply to any proceeding instituted by an Affiliate of such Person in furtherance of any of the actions set forth in the preceding clause (i); or 5 (c) the commencement by such Person of a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or such Person's consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator, conservator or other similar official of such Person or for any substantial part of its property, or any general assignment for the benefit of creditors; or (d) if such Person is a corporation, such Person, or any subsidiary of such Person, shall take any corporate action in furtherance of, or the actions of which would result in any of the actions set forth in the preceding clause (a), (b) or (c). "Event of Termination" shall mean, with respect to any Person, (i) a -------------------- contribution failure shall occur with respect to any Plan sufficient to give rise to a lien under Section 302(f) of ERISA; or (ii) the Internal Revenue Service shall, or shall indicate its intention in writing to the Seller, AmeriSource or any ERISA Affiliate to, file a notice of lien asserting a claim or claims pursuant to the Internal Revenue Code with regard to any of the assets of the Seller, AmeriSource or any ERISA Affiliates; or (iii) the PBGC shall, or shall indicate its intention in writing to the Seller, AmeriSource or any ERISA Affiliate to, either file a notice of lien asserting a claim pursuant to ERISA with regard to any assets of the Seller, AmeriSource or any ERISA Affiliate or terminate any Plan that has unfunded benefit liabilities; or (iv) any steps shall have been taken to terminate any Plan subject to Title IV of ERISA. "Facility Documents" shall mean collectively, this Agreement, the Receivables ------------------ Purchase Agreement and all other agreements, documents and instruments delivered pursuant thereto or in connection therewith. "Fiscal Year" shall mean each year ending September 30, which is the fiscal ----------- year of the Seller. "GAAP" shall mean generally accepted accounting principles in the United ---- States of America, applied on a consistent basis and applied to both classification of items and amounts, and shall include, without limitation, the official interpretations thereof by the Financial Accounting Standards Board, its predecessors and successors. "Indemnified Parties" shall have the meaning specified in Section 7.2(a)(i) ------------------- hereof. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as --------------------- amended from time to time, and any successor thereto, and the regulations promulgated and rules issued thereunder. "Law" shall mean any law (including common law), constitution, statute, --- treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "Lien", in respect of the property of any Person, shall mean any ownership ---- interest of any other Person, any mortgage, deed of trust, hypothecation, pledge, lien, security interest, filing of any financing statement, charge or other encumbrance or security arrangement 6 of any nature whatsoever, including, without limitation, any conditional sale or title retention arrangement, and any assignment, deposit arrangement, consignment or lease intended as, or having the effect of, security. "Lockbox Account" shall mean a demand deposit account identified on Exhibit B --------------- hereto maintained with a Permitted Lockbox Bank pursuant to the Lockbox Servicing Instructions for the purpose of depositing payments made by the Obligors or such other account as the Buyer may establish from time to time. "Lockbox Servicing Instructions" shall mean the instructions relating to ------------------------------ lockbox services in connection with a Permitted Lockbox and related Lockbox Account which are in compliance with the Receivables Purchase Agreement, which have been agreed upon by the Buyer and the related Permitted Lockbox Bank. "Monthly Report Date" shall mean, with respect to each Monthly Period the ------------------- twenty-fourth (24th) Business Day following the last day of such Monthly Period (as defined in the Receivables Purchase Agreement). "Multiemployer Plan" shall mean, with respect to any Person, a "multiemployer ------------------ plan," as defined in Section 4001(a)(3) of ERISA, which is or was at any time during the current year or the immediately preceding five years contributed to by such Person or any ERISA Affiliate on behalf of its employees and which is covered by Title IV of ERISA. "Obligor" shall mean, for any Receivable, each and every Person who purchased ------- goods or services on credit under a Contract and who is obligated to make payments to the Seller pursuant to such Contract. "Official Body" shall mean any government or political subdivision or any ------------- agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Outstanding Balance" of any Receivable shall mean, at any time, the then ------------------- outstanding amount thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity ---- succeeding to any or all of its functions under ERISA. "Permitted Concentration Account Bank" shall mean the bank identified on ------------------------------------ Exhibit B hereto or such other bank or financial institution or entity as the Buyer may select for purposes of establishing the Concentration Account. "Permitted Lockbox" shall mean a post office box or other mailing location ----------------- identified on Exhibit B hereto maintained by a Permitted Lockbox Bank pursuant to the Lockbox Servicing Instructions for the purpose of receiving payments made by the Obligors for subsequent deposit into a related Lockbox Account, or such other post office box or other mailing location as the Buyer may establish from time to time. 7 "Permitted Lockbox Bank" shall mean a bank identified on Exhibit B hereto or ---------------------- such other bank or financial institution as the Buyer may select for purposes of establishing a Permitted Lockbox. "Person" shall mean an individual, corporation, limited liability company, ------ partnership (general or limited), trust, business trust, unincorporated association, joint venture, joint-stock company, Official Body or any other entity of whatever nature. "Plan" shall mean, with respect to any Person, any employee benefit or other ---- plan which is or was at any time during the current year or immediately preceding five years established or maintained by such Person or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Proceeds" shall mean "proceeds" as defined in Section 9-306(l) of the -------- Relevant UCC. "Purchase" shall mean a purchase of Receivables, together with the Related -------- Security and Collections with respect thereto, by the Buyer from the Seller pursuant to Sections 2.1 and 2.2 hereof. "Purchase Date" shall mean each Business Day on which a Purchase occurs. ------------- "Purchase Price" shall have the meaning specified in Section 2.2(c) hereof. -------------- "Purchased Assets" shall mean, at any time, the Buyer's undivided ownership ---------------- interest in (i) each and every then outstanding Receivable, (ii) all Related Security with respect to each such Receivable, (iii) all Collections with respect thereto, and (iv) all cash and non-cash Proceeds of the foregoing. "Receivable" shall mean, all indebtedness owed to the Seller by any Obligor ---------- (without giving effect to any Purchase hereunder by the Buyer at any time) under a Contract, whether or not constituting an account or a general intangible and whether or not evidenced by chattel paper or an instrument, whether now existing or hereafter arising and wherever located, arising in connection with the sale of goods or the rendering of services by the Seller and including the right to payment of all monies due and to become due under such Contract and other obligations of the Obligor with respect thereto, but excluding any amount of sales tax, excise tax or other similar tax or charge incurred in connection with the sale of the goods or services which gave rise to such indebtedness. Notwithstanding the foregoing, once a Receivable has been deemed collected pursuant to Section 2.6, it will no longer constitute a Receivable hereunder. "Receivables Purchase Agreement" shall mean the Receivables Purchase Agreement ------------------------------ dated as of May 14, 1999 by and among the Seller, as Servicer, the Buyer, as Seller, AmeriSource Health Corporation, as Guarantor, Delaware Funding Corporation, as Buyer, and 8 the Administrative Agent, as the same may be from time to time amended, modified or supplemented. "Records" shall mean correspondence, memoranda, computer programs, tapes, ------- discs, papers, books or other documents or transcribed information of any type whether expressed in ordinary or machine-readable language maintained with respect to the Receivables and the related Obligors. "Related Security" shall mean with respect to any Receivable: ---------------- (a) all Contracts with respect to such Receivable; (b) all of the Seller's interest, if any, in the goods, merchandise (including returned merchandise) or equipment, if any, the sale of which by the Seller gave rise to such Receivable; (c) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (d) all guarantees, indemnities, letters of credit, insurance or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; (e) all Records relating to, and all service contracts and any other contracts associated with, the Receivables, the Contracts or the Obligors; and (f) all Proceeds of the foregoing. "Relevant UCC" shall mean the UCC as in effect in the State of New York and ------------ the jurisdiction whose Law governs the perfection of the Buyer's ownership interests therein. "Responsible Officer" shall mean, with respect to the Seller or the Buyer, the ------------------- chief executive officer, president, principal financial officer or treasurer of such Person and any other Person designated as a Responsible Officer by any such officers, identified on the List of Responsible Officers attached as Exhibit C hereto (as such list may be amended or supplemented from time to time) and agreed to by the Seller. "Servicer" shall mean, initially, the Seller, and thereafter any successor -------- Servicer designated pursuant to the Receivables Purchase Agreement. "Subordinated Loan" shall have the meaning specified in Section 2.2(d) hereof. ----------------- "Subordinated Note" shall have the meaning specified in Section 2.2(d) hereof. ----------------- 9 "UCC" shall mean, with respect to any jurisdiction, the Uniform Commercial --- Code, or any successor statute, or any comparable law, as the same may from time to time be amended, supplemented or otherwise modified and in effect in such jurisdiction. SECTION 1.2. Interpretation and Construction. Unless the context of this ------------------------------- Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole. References in this Agreement to "determination", "determine" and "determined" by the Buyer shall be conclusive absent manifest error and include good faith estimates by the Buyer (in the case of quantitative determinations), and the good faith belief of the Buyer (in the case of qualitative determinations). The words "hereof", "herein", "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." The section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation hereof in any respect. Section, subsection and exhibit references are to this Agreement unless otherwise specified. As used in this Agreement, the masculine, feminine or neuter gender shall each be deemed to include the others whenever the context so indicates. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. Terms not otherwise defined herein which are defined in the UCC as in effect in the State of New York on the date hereof shall have the respective meanings ascribed to such terms therein unless the context otherwise clearly requires. All other capitalized terms used herein and not otherwise defined shall have the meanings specified in the Receivables Purchase Agreement. ARTICLE II SALES AND TRANSFERS; SETTLEMENTS SECTION 2.1. General Terms. On the terms and conditions hereinafter set ------------- forth, commencing on the later of (a) June 18, 1999 and (b) the date the conditions precedent to the initial Purchase in Section 4.1 are satisfied to the date on which this Agreement terminates in accordance with Section 6.1 hereof, the Seller shall sell to the Buyer on each Purchase Date, without recourse, except as specifically set forth herein, all right, title and interest of the Seller in, to and under the Receivables, along with Related Security with respect to such Receivables and Collections with respect thereto, and the Buyer agrees to purchase such Receivables, Related Security and Collections from the Seller. SECTION 2.2. Purchase and Sale. ----------------- (a) The Seller hereby irrevocably sells, sets over, assigns, transfers and conveys to the Buyer and its successors and assigns, without recourse, except as specifically set forth herein, and the Buyer hereby accepts, purchases and receives, all of the Seller's right, title, and interest in and to the Purchased Assets, whether such Purchased Assets are now owned or hereafter created or acquired by the Seller, along with all monies, instruments, securities, 10 documents and other property from time to time on deposit in or credited to the Lockbox Accounts or the Concentration Account relating to the Purchased Assets. (b) Each Purchase shall be made on a Purchase Date, provided that all conditions to purchase specified in Section 4.2 are satisfied. (c) The purchase price (the "Purchase Price") for the Receivables -------------- (together with the related Purchased Assets) payable with respect to any Purchase Date shall be the fair market value of the Receivables sold on such date, as agreed by the Seller and the Buyer. Subject to paragraph (d) below, the Purchase Price for the Purchased Assets sold by the Seller under this Agreement shall be payable in full in immediately available funds by the Buyer, and on or before the Business Day following a Purchase Date, the Buyer shall, upon satisfaction of the applicable conditions set forth in Article IV, make available to the Seller the cash portion of the Purchase Price in same day funds. (d) The Purchase Price to be paid by the Buyer on the Closing Date and on each subsequent Purchase Date shall be paid (i) in cash, (ii) with the consent of the Seller, by means of capital contributed by the Seller to the Buyer in the form of a contribution of the Purchased Assets and/or (iii) if consented to by the Seller and in the sole discretion of the Seller, by means of a loan by the Seller to the Buyer (each a "Subordinated Loan" and collectively, ----------------- the "Subordinated Loans") evidenced by the subordinated note (the "Subordinated ------------------ ------------ Note") in the form attached hereto as Exhibit D. The Subordinated Loans shall - ---- be made on a revolving basis from time to time during the term of this Agreement as the Buyer may from time to time request and the Seller shall agree for the sole purpose of purchasing Receivables from the Seller. Interest on and principal of the Subordinated Note shall be payable in the amounts and at the times specified in the Subordinated Note. The Seller shall maintain records of the date and amounts of each Subordinated Loan and payments thereon. SECTION 2.3. Transfers and Assignments. ------------------------- (a) It is the intention of the parties hereto that each Purchase made hereunder shall constitute a sale and assignment as such terms are used in Article 9 of the UCC, which sales and assignments are absolute, irrevocable and without recourse except as specifically provided herein and shall provide the Buyer with the full benefits of ownership of the Receivables and the other related Purchased Assets. In the event that such Purchase is deemed to constitute a pledge rather than a sale and assignment of the aforementioned property, the Seller does hereby grant to the Buyer a first priority perfected security interest in and to, and lien on, the Purchased Assets, together with all monies from time to time on deposit in the Lockbox Accounts and the Concentration Account relating to the Purchased Assets. The possession by the Buyer or its transferee or agent of notes and such other goods, money, documents, chattel paper or certificated securities related thereto shall be deemed to be "possession by the secured party" for purposes of perfecting such security interest pursuant to the Relevant UCC (including, without limitation, Section 9-305 thereof). Notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed to be notifications to, or acknowledgments, receipts or confirmations from, bailees or agents (as applicable) of, the Buyer or its transferee for the purpose of perfecting such security 11 interest under the Relevant UCC and other applicable Laws. The sale and conveyance hereunder of the Purchased Assets does not constitute an assumption by the Buyer or its successors and assigns of any obligations of the Seller to Obligors or to any other Person in connection with Receivables or under any agreement or instrument relating to the Receivables. (b) In connection with the sale and transfer under Section 2.2(a), the Seller agrees to record and file, at its own expense, financing statements with respect to the Purchased Assets now existing and hereafter created or acquired, suitable to reflect the transfer of chattel paper, accounts and general intangibles (each as defined in Article 9 of the Relevant UCC) and meeting the requirements of applicable state Law in such manner and in such jurisdictions as are necessary to perfect the sale, transfer and assignment of the Purchased Assets to the Buyer, and to deliver a file-stamped copy of such financing statements or other evidence of such filing satisfactory to the Buyer on or prior to the applicable Purchase Date. In addition to, and without limiting the foregoing, the Seller shall, upon the request of the Buyer, in order to accurately reflect this transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 8.9 hereof) as may be reasonably requested by the Buyer. (c) The Seller shall maintain its books and records, including but not limited to any computer files and master data processing records, so that such records that refer to Receivables sold hereunder shall indicate clearly that the Seller's right, title and interest in such Receivables has been sold to the Buyer and that an interest in such Receivables has been transferred and assigned by the Buyer to the Administrative Agent (for the benefit of the Owners described in the Receivables Purchase Agreement). Indication of the Buyer's interest in Receivables shall be deleted from or modified on the Seller's records when, and only when, the Receivables shall have been paid in full or the Buyer's interest in such Receivables shall have been repurchased or repaid by the Seller hereunder. The Seller agrees to deliver to the Buyer on the first Purchase Date a list, which may be a computer file or microfiche list, containing a true and complete schedule of all Receivables constituting Purchased Assets, identified by account number and by Outstanding Balance as of the origination date of each such Receivables. Such file or list shall be marked as the "Receivables Schedule" and as Schedule 1 to this Agreement, shall be delivered to the Buyer as confidential and proprietary, and is hereby incorporated into and made a part of this Agreement. SECTION 2.4. Protection of Ownership of the Buyer. ------------------------------------ (a) The Seller agrees that from time to time, at its expense, it shall promptly execute and deliver all additional instruments and documents and take all additional action that the Buyer may reasonably request in order to perfect the interests of the Buyer in and to, or to protect, the Purchased Assets or to enable the Buyer to exercise or enforce any of its rights hereunder. To the fullest extent permitted by applicable Law, the Buyer shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Seller's signature in such cases where the Seller is obligated hereunder or under the Relevant UCC to sign such statements, amendments or assignments if, after written notice to the Seller, the Seller shall have failed to sign such continuation statements, amendments or assignments within ten (10) Business Days after receipt of such notice from the Buyer. Carbon, photographic 12 or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (b) At any reasonable time and from time to time at the Buyer's reasonable request and upon seven days' prior notice to the Seller, the Seller shall permit such Person as the Buyer may designate, at such Person's expense, to conduct audits or visit and inspect any of the properties of the Seller to examine the Records, internal controls and procedures maintained by the Seller with respect to the Receivables and take copies and extracts therefrom, and to discuss the Seller's affairs with its officers, employees and, upon notice to the Seller, independent accountants. The Seller hereby authorizes such officers, employees and independent accountants to discuss with the Buyer the affairs of the Seller. Any audit provided for herein shall be conducted in accordance with Seller's rules respecting safety and security on its premises and without materially disrupting operations. (c) The Buyer shall have the right to do all such acts and things as it may deem reasonably necessary to protect its interests hereunder, including, without limitation, confirmation and verification of the existence, amount and status of the Receivables. SECTION 2.5. Mandatory Repurchase Under Certain Circumstances. The ------------------------------------------------ Seller shall repurchase from the Buyer any Receivable constituting a Purchased Asset if at any time the Buyer or its assignee shall cease to have a perfected ownership interest or first priority perfected security interest in such Receivable, free and clear of any Lien. SECTION 2.6. Deemed Collections. ------------------ (a) If on any day the Outstanding Balance of a Receivable is (w) reduced or canceled as a result of any defective or rejected goods or services, any cash discount or any adjustment by the Seller, or (x) reduced or canceled as a result of a set-off in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (y) reduced or canceled as a result of any forgiveness of the obligation or of any adjustment by the Seller, or (z) otherwise reduced or canceled as a result of any Dilution Factor with respect to such Receivable, the Seller shall be deemed to have received on such day a Collection of such Receivable in the amount of such reduction or cancellation. If on any day any of the representations or warranties in Sections 3.1 or 3.2 hereof are no longer true or were not true when made with respect to a Receivable, the Seller shall be deemed to have received on such day a Collection of such Receivable in full. If, on any day, the Seller becomes aware that any Receivable was, on the date such Receivable was purchased, subject to a Dispute or other offsets, counterclaims or defenses, the Seller shall be deemed to have received a Collection of such Receivable in full on the date of discovery of such Dispute, offset, counterclaim or defense. (b) If the Buyer determines that any Receivable, on the date of its Purchase was not an Eligible Receivable, the Seller shall, on the date of discovery by or notice to the Seller of such fact, be deemed to have received on such day a Collection of such Receivable in full. (c) Any Collections deemed to be received by the Seller pursuant to Section 2.6(a) or 2.6(b) hereof shall be held and distributed as provided in Section 2.9 hereof, and shall 13 be used to make calculations and determinations hereunder, to the same extent as if such Collections had actually been received. So long as the Seller shall hold any Collections or deemed Collections required to be paid to the Buyer or its agent, it shall hold such Collections in trust for such Person. SECTION 2.7. Transfers by Buyer. The Seller acknowledges and ------------------ agrees that (a) the Buyer may, pursuant to the Receivables Purchase Agreement, sell the Purchased Assets and assign its rights under this Agreement to the Administrative Agent (for the benefit of the Owners described in the Receivables Purchase Agreement) and (b) the representations, warranties and covenants contained in this Agreement and the rights of the Buyer under this Agreement are intended to benefit the Administrative Agent (for the benefit of the Owners described in the Receivables Purchase Agreement). The Seller hereby consents to all such sales and assignments. SECTION 2.8. Payment of Collections and Deemed Collections. If the --------------------------------------------- Seller shall receive any Collections with respect to Receivables which have been sold to the Buyer pursuant to this Agreement, the Seller shall hold such Collections in trust for the Buyer and shall pay such amounts to the Buyer as soon as practicable, but in no event more than one Business Day after receipt thereof. Any Collections deemed to be received by the Seller pursuant to Section 2.6 hereof shall be paid by the Seller to the Buyer no later than the first Business Day following the Monthly Report Date for the month in which such Collections are deemed to have been received hereunder. The Servicer shall hold or distribute all Collections deemed received pursuant to Section 2.6 hereof in accordance with the provisions of the Receivables Purchase Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of Seller. The Seller in ---------------------------------------- addition to the other representations and warranties contained herein or made pursuant hereto, hereby represents and warrants to the Buyer on and as of the Closing Date and on as of the date of each Purchase hereunder that: (a) Organization and Qualification. The Seller is a corporation duly ------------------------------ organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation. The Seller is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which the ownership of its properties or the nature of its activities (including transactions giving rise to Receivables), or both, requires it to be so qualified or, if not so qualified, the failure to so qualify would not have a material adverse effect on its financial condition or results of operations or any Receivables. (b) Authority. The Seller has the legal power and authority to --------- execute and deliver this Agreement and each other Facility Document, to make the sales provided for herein and to perform its obligations under this Agreement and the other Facility Documents. 14 (c) Execution and Binding Effect. Each of this Agreement and the ---------------------------- other Facility Documents to which the Seller is a party has been duly executed and delivered by the Seller and (assuming the due and valid execution and delivery thereof by the other parties thereto), constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar Laws of general application relating to or affecting the enforcement of creditors' rights generally or by general principles of equity and will vest absolutely and unconditionally in the Buyer, a valid undivided ownership interest in the Purchased Assets purported to be assigned thereby, subject to no Liens whatsoever. Upon the filing of the necessary financing statements under the UCC as in effect in the jurisdiction whose Law governs the perfection of the Buyer's ownership interests in the Purchased Assets, the Buyer's ownership interests in the Purchased Assets will be perfected under Article Nine of such UCC, prior to and enforceable against all creditors of and purchasers from the Seller and all other Persons whatsoever (other than the Buyer and its successors and assigns). (d) Authorizations and Filings. No authorization, consent, approval, -------------------------- license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Official Body is or will be necessary or, in the opinion of the Seller, advisable in connection with the execution and delivery by the Seller of this Agreement and each of the other Facility Documents to which the Seller is a party, the consummation by the Seller of the transactions herein or therein contemplated or the performance by the Seller of or the compliance by the Seller with the terms and conditions hereof or thereof, to ensure the legality, validity or enforceability hereof or thereof, or to ensure that the Buyer will have a valid undivided ownership interest in and to the Receivables which is perfected and prior to all other Liens (including competing ownership interests), other than the filing of financing statements under the UCC in the jurisdiction of the Seller's Chief Executive Office. (e) Absence of Conflicts. Neither the execution and delivery by the -------------------- Seller of this Agreement and each of the Facility Documents to which it is a party, nor the consummation by the Seller of the transactions herein or therein contemplated, nor the performance by the Seller of or the compliance by the Seller with the terms and conditions hereof or thereof, will (i) violate any Law or (ii) conflict with or result in a breach of or a default under (A) the Certificate of Incorporation or By-laws of the Seller or (B) any agreement or instrument, including, without limitation, any and all indentures, debentures, loans or other agreements to which the Seller is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound, which would have a material adverse effect on the financial position or results of operations of the Seller or result in rendering any debt evidenced thereby due and payable prior to its maturity or result in the creation or imposition of any Lien pursuant to the terms of any such instrument or agreement upon any property (now owned or hereafter acquired) of the Seller. The Seller has not entered into any agreement with any Obligor prohibiting, restricting or conditioning the assignment of any portion of the Receivables. (f) Location of Chief Executive Office, etc. As of the date hereof: --------------------------------------- (i) the Seller's Chief Executive Office is located at the address for notices set forth in Section 8.3 15 hereof; (ii) the Seller has only the Subsidiaries and divisions listed on Exhibit E hereto; (iii) the offices where the Seller keeps all of its Records with respect to any Receivables are listed on Exhibit F hereto; and (iv) the Seller has, within the last 5 years, operated only under the trade names identified in Exhibit E hereto, and, within the last 5 years, has not changed its name, merged or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit E hereto. (g) Accurate and Complete Disclosure. No information furnished in -------------------------------- writing by a Responsible Officer of the Seller pursuant to or in connection with this Agreement or any transaction contemplated hereby is false or misleading in any material respect as of the date of which such information was furnished (including by omission of material information necessary to make such information not misleading). (h) No Proceedings. Except as set forth in Exhibit G, there are no -------------- actions, suits, investigations or proceedings pending, or to the knowledge of the Seller, threatened, against or affecting the Seller or its properties in or before any Official Body which (i) seeks any determination or ruling that might materially adversely affect (A) the performance by the Seller of its obligations under this Agreement or the Facility Documents or (B) the validity or enforceability of this Agreement, the Facility Documents, the Contracts or any material amount of the Receivables, (ii) asserts the invalidity of this Agreement or any of the other Facility Documents, or (iii) seeks to prevent the consummation of the transactions contemplated hereby or thereby. (i) Bulk Sales Act. No transaction contemplated hereby requires -------------- compliance with any bulk sales act or similar law. (j) Litigation. No injunction, decree or other decision has been ---------- issued or made by any Official Body that prevents, and to the knowledge of the Seller, no threat by any Person has been made to attempt to obtain any such decision that would have a material adverse impact on, the conduct by the Seller of a significant portion of the Seller's business operations or any portion of its business operations affecting the Receivables, and no litigation, investigation or proceeding of the type referred to in Section 5.1(g) hereof exists except as set forth on Exhibit G hereto. The Seller has paid on a timely basis all of its obligations arising out of judgments, proceedings or investigations except those which it is appealing in good faith. (k) Margin Regulations. The use of all funds acquired by the Seller ------------------ under this Agreement will not conflict with or contravene any of Regulations T, U or X promulgated by the Board of Governors of the Federal Reserve System as the same may be amended, supplemented or otherwise modified from time to time. (l) Taxes. The Seller has timely filed all United States federal ----- income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns and paid or contested any assessment received by the Seller related to such returns. 16 (m) Books and Records. The Seller has indicated on its books and ----------------- records (including any computer files) that the Purchased Assets are the property of the Buyer. The Seller maintains at, or shall cause the Servicer to maintain at, one or more of their respective offices listed on Exhibit F hereto the complete records for the Receivables. (n) Creditor Approval. The Seller has obtained from its creditors (i) ----------------- all approvals necessary to sell and assign the Receivables and (ii) releases of any security interests in the Receivables. (o) Financial Condition. (x) The consolidated balance sheet of the ------------------- Seller and its Consolidated Subsidiaries as at September 30, 1998 and the related statements of income and cash flows of the Seller and its Consolidated Subsidiaries for the fiscal year then ended, certified by Ernst & Young LLP, independent accountants, or another nationally recognized firm of independent accountants, copies of which have been furnished to the Buyer, fairly present the consolidated financial position of the Seller and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of and changes in consolidated cash flows of the Seller and its Consolidated Subsidiaries for the period ended on such date, all in accordance with GAAP, and (y) the unaudited consolidated balance sheet of the Seller and its Consolidated Subsidiaries as at December 31, 1998 and the related unaudited statements of income and cash flows of the Seller and its Consolidated Subsidiaries for the periods then ended, copies of which have been furnished to Buyer, fairly present the consolidated financial position of the Seller and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of and changes in consolidated cash flows of the Seller and its Consolidated Subsidiaries for the periods ended on such date, all in accordance with GAAP and (z) since December 31, 1998, there has been no material adverse change in any such financial condition or results of operations or in the Seller's ability to perform its obligations under this Agreement. (p) Investment Company. The Seller is not an "investment company" or ------------------ a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (q) ERISA. No event or condition is occurring or exists with respect ----- to any Plan or Multiemployer Plan concerning which the Seller would be under an obligation to furnish a report to the Buyer or the Administrative Agent in accordance with Section 5.1(r) hereof. (r) Separate Corporate Existence. The Seller is entering into the ---------------------------- transactions contemplated by this Agreement in reliance on the Buyer's identity as a separate legal entity from the Seller and each of its Affiliates, and acknowledges that the Buyer and the other parties to the Facility Documents are similarly entering into the transactions contemplated by the other Facility Documents in reliance on the Buyer's identity as a separate legal entity from the Seller and each such other Affiliate. (s) No Fraudulent Conveyance. The transactions contemplated by this ------------------------ Agreement and by each of the Facility Documents are being consummated by the Seller in furtherance of the Seller's ordinary business, with no contemplation of insolvency and with no intent to hinder, delay or defraud any of its present or future creditors. By its receipt of the 17 Purchase Price hereunder and its ownership of the capital stock of the Buyer, the Seller shall have received reasonably equivalent value for the Purchased Assets sold or otherwise conveyed to the Buyer under this Agreement. SECTION 3.2. Representations and Warranties of the Seller With ------------------------------------------------- Respect to Each Sale of Receivables. By selling Receivables to the Buyer on - ----------------------------------- each Purchase Date, the Seller represents and warrants to the Buyer as of each such Purchase Date and only as to Receivables sold by the Seller to the Buyer hereunder on such Purchase Date (in addition to its other representations and warranties contained herein or made pursuant hereto) that: (a) Assignment. This Agreement vests in the Buyer all the right, ---------- title and interest of the Seller in and to the Purchased Assets, and constitutes a valid sale of the Purchased Assets, enforceable against, and creating an interest prior in right to, all creditors of and purchasers from such Seller. (b) No Liens. Each Receivable, together with the related Contract and -------- all purchase orders and other agreements related to such Receivable, is owned by the Seller free and clear of any Lien. When the Buyer makes a purchase of a Receivable it shall have acquired and shall continue to have maintained an undivided percentage ownership interest in such Receivable and in the Related Security and the Collections with respect thereto free and clear of any Lien (other than the Lien arising in connection with this Agreement). The Seller has not and will not prior to the time of the sale of any such interest to the Seller have sold, pledged, assigned, transferred or subjected to a Lien any of the Receivables, other than in accordance with the terms of this Agreement. (c) Filings. On or prior to each Purchase Date, all financing ------- statements and other documents required to be recorded or filed in order to perfect and protect the Purchased Assets against all creditors of and purchasers from the Seller and all other Persons whatsoever have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings have been paid in full. (d) Credit and Collection Policy. The Credit and Collection Policy ---------------------------- has been complied with in all material respects in regard to each Receivable and related Contract. The Seller has not extended or modified the terms of any Receivable or the related Contract except in accordance with the Credit and Collection Policy. (e) Nature of Receivables. Each Receivable is, or will be, an --------------------- eligible asset within the meaning of Rule 3a-7 promulgated under the Investment Company Act of 1940, as amended from time to time. (f) Bona Fide Receivables. Each Receivable is an obligation of an --------------------- Obligor arising out of a past, current or future sale or performance by the Seller, in accordance with the terms of the Contract giving rise to such Receivable. The Seller has no knowledge of any fact that should have led it to expect at the time of the initial creation of an interest in any Receivable hereunder that such Receivable would not be paid in full when due except with respect to any Dilution Factor. Each Receivable classified as an "Eligible Receivable" by the Seller in any 18 document or report delivered hereunder satisfies the requirements of eligibility contained in the definition of Eligible Receivable at the time such document or report was delivered. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing. On or prior to the Closing Date, --------------------- theSeller shall deliver to the Buyer the following documents and instruments, all of which shall be in form and substance acceptable to the Buyer: (a) A certificate of the secretary or assistant secretary of the Seller certifying (i) the names and signatures of the officers authorized on its behalf to execute this Agreement and any other documents to be delivered by it hereunder (on which certificate the Buyer may conclusively rely until such time as the Buyer shall receive a revised certificate meeting the requirements of this clause (a)(i)), (ii) a copy of the Seller's by-laws, as amended and (iii) a copy of the resolutions of the Board of Directors (or any executive committee designated by the Board of Directors) of the Seller approving the transactions contemplated hereby; (b) The certificate of incorporation of the Seller certified as of the date reasonably near the date hereof by the Secretary of State of the Seller's jurisdiction of incorporation; (c) A good standing certificate for the Seller issued by the Secretary of State of the Seller's jurisdiction of incorporation dated a date reasonably near the date hereof; (d) A certificate of the Seller dated the date hereof, executed by a Responsible Officer of the Seller, setting forth each jurisdiction in which the Seller is qualified to do business as a foreign; (e) Acknowledgment copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date hereof naming the Seller as the transferor (debtor) of the Purchased Assets and the Buyer as transferee (secured party) and other similar instruments or documents as may be necessary or in the opinion of the Buyer desirable under the Relevant UCC or any comparable law to perfect the Buyer's undivided ownership interest in the Purchased Assets; (f) Acknowledgment copies of proper financing statements (Form UCC-3), if any, necessary to release all security interests and other rights of any Person, that were previously granted by the Seller, in and to the Purchased Assets and all other Receivables, Related Security and Collections; (g) Certified copies of requests for information or copies (Form UCC- 11) (or a similar search report certified by parties acceptable to the Buyer) dated a date reasonably near the date hereof listing all effective financing statements which name the Seller (under its present 19 name or any previous or "doing business" name) as transferor or debtor and which are filed in jurisdictions in which the filings were made pursuant to item (c) above together with copies of such financing statements (none of which shall cover any Receivables or related Contracts); (h) A favorable opinion or opinions of counsel for the Seller, dated the date hereof, relating to corporate matters, legality, validity and enforceability of this Agreement and the other Facility Documents to which the Seller is a party, perfection of the Seller's ownership interest in the Purchased Assets, true sale and non-consolidation and other matters, in form and substance reasonably acceptable to the Buyer; (i) An executed copy of the Subordinated Note; (j) An officer's certificate of the Seller dated the date hereof, executed by a Responsible Officer of the Seller, in form and substance acceptable to the Buyer; and (k) Such other documents as the Buyer may reasonably request. On or prior to the initial purchase hereunder, the Seller shall deliver to the Buyer evidence reasonably satisfactory to the Buyer of filing of financing statements described in clauses (b) and (c) above. SECTION 4.2. Conditions to Purchases. The Buyer's obligation to make ----------------------- a Purchase on any Purchase Date shall be subject to satisfaction of the following applicable conditions precedent: (a) the truth and correctness of the representations and warranties in Sections 3.1 and 3.2 hereof as of such Purchase Date, as though made on and as of such date; (b) the Seller shall have taken all actions necessary or advisable to maintain a perfected first priority security interest of the Buyer in and to the Purchased Assets (including in and to the Receivables purchased on such Purchase Date); (c) the satisfactory completion by the Buyer of any due diligence determined necessary by the Buyer with respect to the Receivables and the related Obligors and Contracts being Purchased on such date; (d) Either (i) undated duly executed lockbox transfer letters substantially in the form of Exhibits G-1 or G-2 to the Receivables Purchase Agreement or (ii) an executed lockbox letter agreement substantially in the form of Exhibits G-3 or G-4 to the Receivables Purchase Agreement addressed to or from, as applicable, each Permitted Lockbox Bank or Permitted Concentration Account Bank; (e) The Seller shall have delivered or caused to be delivered to the Buyer a computer file or tape containing a true and complete list of all Receivables, identified by account number, account name and by aggregate Outstanding Balance of each Receivable as of May 14, 1999; and 20 (f) the receipt by the Buyer of all approvals, opinions or other documents as the Buyer shall have reasonably requested. ARTICLE V COVENANTS SECTION 5.1. Covenants of the Seller. At all times during the term ----------------------- of this Agreement, unless the Buyer shall otherwise consent in writing: (a) Notice of Material Adverse Change. Promptly upon becoming aware --------------------------------- thereof, the Seller shall give the Buyer notice of any material adverse change in the business, operations, or financial condition of the Seller which reasonably could affect adversely the collectibility of the Receivables. (b) Preservation of Corporate Existence. The Seller shall preserve ----------------------------------- and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would materially adversely affect (i) the interests of the Buyer hereunder or (ii) the ability of the Seller to perform its obligations under the Facility Documents. (c) Compliance with Laws. The Seller shall comply in all material -------------------- respects with all Laws applicable to the Seller, its business and properties, and all Receivables. (d) Enforceability of Obligations. The Seller shall take such actions ----------------------------- as are reasonable and within its power to ensure that, with respect to each Receivable, the obligation of any related Obligor to pay the unpaid balance of such Receivable in accordance with the terms of the related Contract remains legal, valid, binding and enforceable against such Obligor. (e) Books and Records. The Seller shall, to the extent practicable, ----------------- maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain or obtain, as and when required, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of all Collections of and adjustments to each existing Receivable). (f) Customer List. The Seller shall at all times maintain a current ------------- list (which may be stored on magnetic tapes or disks) of all Obligors under Contracts related to Receivables, including the name, address and account number of each such Obligor. 21 (g) Litigation. As soon as possible, and in any event within ten ---------- Business Days of Seller's knowledge thereof, the Seller shall give the Buyer notice of (i) any litigation, investigation or proceeding against the Seller which may exist at any time which could have a material adverse effect on the financial condition or results of operations of the Seller, materially impair the ability of the Seller to perform its obligations under this Agreement, or materially adversely affect the collectibility of the Receivables, and (ii) any material adverse development in any such previously disclosed litigation. (h) Notice of Relocation. The Seller shall give the Buyer and -------------------- Administrative Agent 45 days' prior written notice of any relocation of its Chief Executive Office if, as a result of such relocation, the applicable provisions of the UCC of any applicable jurisdiction or other applicable Laws would require the filing of any amendment of any previously filed financing statement or continuation statement or of any new financing statement. The Seller will at all times maintain its Chief Executive Office within a jurisdiction in the United States in which Article Nine of the UCC (1972 or later revision) is in effect as of the date hereof or the date of any such relocation. (i) Further Information. The Seller shall furnish or cause to be ------------------- furnished to the Buyer such other information as promptly as practicable, and in such form and detail, as the Buyer may reasonably request. (j) Fees, Taxes and Expenses. The Seller shall pay all filing fees, ------------------------ stamp taxes, other taxes (other than taxes imposed directly on the overall net income of the Buyer) and expenses, including the fees and expenses set forth in Section 2.8 hereof, if any, which are incurred or assessed on account of or arise out of this Agreement and the documents and transactions entered into pursuant to this Agreement. (k) Subordinated Note. The Seller shall not transfer the Subordinated ----------------- Note to any Person. (l) Fulfillment of Obligations. The Seller shall duly observe and -------------------------- perform, or cause to be observed or performed, all material obligations and undertakings on its part to be observed and performed under or in connection with this Agreement and the Receivables, shall duly observe and perform all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, shall do nothing to materially impair the rights, title and interest of the Buyer in and to the Purchased Assets, and shall pay when due (or contest in good faith) any taxes, including without limitation any sales tax, excise tax or other similar tax or charge, payable in connection with the Receivables and their creation and satisfaction. (m) Copies of Reports, Filings, Etc. The Seller shall furnish to the -------------------------------- Buyer, upon written request, as soon as practicable after the issuance, sending or filing thereof, copies of all proxy statements, financial statements, reports and other communications which the Seller sends to its security holders generally, and, if the Seller is required to file reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, copies of all regular, periodic and special reports which the Seller files with the Securities and Exchange 22 Commission or with any securities exchange on Forms 10-K, 10-Q, 8-K or any successor forms thereto. The Seller agrees that the Buyer may furnish any such reports to the Administrative Agent and the Buyer agrees that it shall, promptly upon receipt of such reports, deliver such reports to the Administrative Agent (n) Compliance with Credit and Collection Policy. The Credit and -------------------------------------------- Collection Policy shall be complied with in all material respects with respect to each Receivable and related Contract. (o) Insurance. The Seller shall keep insured all property of a --------- character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. (p) Audits. At any reasonable time, and from time to time at the ------ Buyer's reasonable request upon notice the Seller shall permit the Buyer, or its agents or representatives, (i) to examine and make copies of and extracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of the Seller relating to the Receivables, including, without limitation, the related Contracts and Related Security, and (ii) to visit the offices and properties of the Seller for the purpose of examining the materials described in clause (i) above, and to discuss matters relating to the Receivables, and the Seller's performance under this Agreement with any of the officers, employees, or independent accountants of the Seller having knowledge of such matters. Following the occurrence of a Termination Event (as defined in the Receivables Purchase Agreement), the Seller shall reimburse the Buyer for all reasonable fees, costs and out-of-pocket expenses incurred by or on behalf of the Buyer promptly upon receipt of a written notice therefor. (q) ERISA Events. ------------- (i) Promptly upon becoming aware of the occurrence of any Event of Termination which together with all other Events of Termination occurring within the prior 12 months involve a payment of money by or a potential aggregate liability of the Seller or any ERISA Affiliate or any combination of such entities in excess of $10,000,000, the Seller shall give the Buyer a written notice specifying the nature thereof, what action the Seller or any ERISA Affiliate has taken and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto. (ii) Promptly upon receipt thereof, the Seller shall furnish to the Buyer copies of (i) all notices received by the Seller or any ERISA Affiliate of the PBGC's intent to terminate any Plan or to have a trustee appointed to administer any Plan; (ii) all notices received by the Seller or any ERISA Affiliate from the sponsor of a Multiemployer Plan pursuant to Section 4202 of ERISA involving a withdrawal liability in excess of $10,000,000; and (iii) all funding waiver requests filed by the Seller or any ERISA Affiliate with the Internal Revenue Service with respect to any Plan, the accrued 23 benefits of which exceed the present value of the plan assets as of the date the waiver request is filed by more than $10,000,000, and all communications received by the Seller or any ERISA Affiliate from the Internal Revenue Service with respect to any such funding waiver request. (r) Separate Identity. The Seller shall take all actions required to ----------------- maintain the Buyer's status as a separate legal entity, including, without limitation, (i) not holding the Buyer out to third parties as other than an entity with assets and liabilities distinct from the Seller and the Seller's Affiliates; (ii) not holding itself out to be responsible for the debts of the Buyer or, other than by reason of owning ownership interests in the Buyer, for any decisions or actions relating to the Buyer; (iii) if requested by the Administrative Agent following a Termination Event or Potential Termination Event, preparation of separate financial statements for the Buyer (which shall be audited by independent accountants if reasonably requested by the Administrative Agent); (iv) taking such other actions as are necessary on its part to ensure that all governance procedures required by its certificate of incorporation and by-laws are duly and validly taken; (v) keeping correct and complete records and books of account and minutes; and (vi) not acting in any other manner that could foreseeably mislead others with respect to the Buyer's separate identity. (s) Software. The Seller shall use its reasonable efforts to enable -------- each of the Buyer, any agent of the Buyer and the Servicer (whether by license, sublicense, assignment or otherwise) to use all of the computer software used to account for the Receivables to the extent necessary to administer the Receivables. SECTION 5.2. Negative Covenants of the Seller. During the term of this -------------------------------- Agreement, unless the Buyer shall otherwise consent in writing: (a) Statement for and Treatment of Sales. The Seller shall not ------------------------------------ prepare any financial statements for financial accounting or reporting purposes which shall account for the transactions contemplated herein in any manner other than as a sale of the Purchased Assets to the Buyer. (b) No Rescissions or Modifications. The Seller shall not rescind or ------------------------------- cancel any Receivable or related Contract or modify any terms or provisions thereof, or grant any Dilution Factor to an Obligor except in accordance with the Credit and Collection Policy, unless such Receivable has been deemed collected pursuant to Section 2.6 or repurchased pursuant to Section 2.5. (c) Name Change, Offices, Records and Books of Accounts. The Seller --------------------------------------------------- shall not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of the Relevant UCC) nor relocate its Chief Executive Office or any office where Records are kept unless it shall have: (i) given the Buyer at least fifteen (15) days prior written notice thereof and (ii) delivered to the Buyer all financing statements, instruments and other documents requested by the Buyer in connection with such change or relocation. The Seller shall at all times maintain its Chief Executive Office within a jurisdiction in the United States and in which Article 9 of the Relevant UCC is in effect and in the event it moves its Chief Executive Office to a location 24 which may charge taxes, fees, costs, expenses or other charges to perfect the interests of the Buyer in the Receivables, it shall pay all taxes, fees, costs, expenses and other charges associated with perfecting interests of the Buyer in the Receivables and any other costs and expenses incurred in order to maintain the enforceability of this Agreement and the interest of the Buyer in the Receivables. (d) No Liens. The Seller shall not cause any of the Receivables or -------- related Contracts, or any inventory or goods the sale of which may give rise to a Receivable, or any Permitted Lockbox and related Lockbox Account or the Concentration Account or any right to receive any payments received therein or deposited thereto, to be sold, pledged, assigned or transferred or to be subject to a Lien, other than the sale and assignment of the Purchased Assets to the Buyer and the Liens created in connection with the transactions contemplated by this Agreement. (e) Liens on Inventory. The Seller shall not cause or permit any Lien ------------------ to be placed upon inventory or goods the sale of which may give rise to a Receivable unless (x) (i) any related security agreement, financing statements and any other related documents specifically exclude from such Lien the proceeds of the sale of such inventory or goods and (ii) the Buyer or any assignee or transferee thereof has reviewed such security agreement, financing statements and related documents or (y) the entity for whose benefit such Lien is granted or arises releases or has released the Lien at or prior to the time an invoice is sent for payment upon the sale of such inventory or goods. (f) Consolidations, Mergers and Sales of Assets. The Seller shall not ------------------------------------------- (i) consolidate or merge with or into any other Person, or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person; provided that the Seller may merge or consolidate with another Person if the Seller is the corporation surviving such merger. (g) No Changes. The Seller shall not make any material adverse change ---------- in its Credit and Collection Policy or in its current payment terms with respect to Receivables without prior written notification to and consent of the Buyer and the Seller shall not change its name, identity or corporate structure in any manner which would make any financing statement or continuation statement filed in connection with this Agreement or the transactions contemplated hereby seriously misleading within the meaning of Section 9-402(7) of the UCC of any applicable jurisdiction or other applicable Laws unless it shall have given the Buyer at least 45 days' prior written notice thereof and unless prior thereto it shall have caused such financing statement or continuation statement to be amended or a new financing statement to be filed such that such financing statement or continuation statement would not be seriously misleading. (h) Change in Payment Instructions to Obligors. The Seller shall not ------------------------------------------ make any change in its instructions to Obligors regarding payments to be made with respect to the Receivables (other than changes with respect to the mailing addresses for remittances) unless the Buyer shall have received, at least ten (10) Business Days before the proposed effective date therefor, written notice of such change. 25 (i) ERISA Matters. The Seller shall not permit any event or condition ------------- which is described in any of clauses (i) through (vi), clause (viii) or clause (x) of the definition of "Event of Termination" to occur or exist with respect to any Plan or Multiemployer Plan if such event or condition, together with all other events or conditions described in the definition of Event of Termination occurring within the prior 12 months, involves the payment of money by or an incurrence of liability of the Seller or any ERISA Affiliate, or any combination of such entities in an amount in excess of $10,000,000. ARTICLE VI TERMINATION SECTION 6.1. Term. This Agreement shall commence as of the date of execution ---- and delivery hereof and shall continue in full force and effect until the earlier of (a) the termination of the Receivables Purchase Agreement unless extended by the Seller in its sole discretion and (b) upon the occurrence of any of the following events: the Buyer or the Seller shall (i) become insolvent or experience an Event of Bankruptcy, or (ii) become unable for any reason to convey or reconvey Receivables in accordance with the provisions of this Agreement; provided, however, that (A) the termination of this Agreement -------- ------- pursuant to this Section 6.1 shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to repurchase Receivables sold prior to such termination pursuant to Section 2.5 hereof and (B) the indemnification and payment provisions set forth in Article VII hereof and the provisions and agreement set forth in Section 8.10 hereof shall be continuing and shall survive termination of this Agreement. Neither the Seller nor the Buyer will extend the term of this Agreement with an intent to mitigate losses on the Receivables previously sold by the Seller to the Buyer hereunder. SECTION 6.2. Effect of Termination. No termination or rejection or failure --------------------- to assume the executory obligations of this Agreement in the Event of Bankruptcy of the Seller or the Buyer shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including, without limitation, pretermination breaches of representations and warranties by the Seller or the Buyer. ARTICLE VII INDEMNIFICATION SECTION 7.1. Expenses. The Seller agrees, upon receipt of a written invoice, -------- to pay or cause to be paid, and to save the Buyer harmless against liability for the payment of, all reasonable out-of-pocket expenses (including, without limitation, attorneys', accountant's and other third parties' fees and expenses, any filing fees and expenses incurred by officers or employees of the Buyer, but excluding salaries and similar overhead costs of the Buyer) incurred by or on behalf of the Buyer (i) in connection with the negotiation, execution, delivery and preparation of the Facility Documents and the transactions contemplated by or undertaken 26 pursuant to or in connection herewith or therewith (including, without limitation, the perfection or protection of the Buyer's interest in the Purchased Assets) and (ii) from time to time (a) relating to any requested amendments, waivers or consents under the Facility Documents, (b) arising in connection with the Buyer's enforcement or preservation of its rights (including, without limitation, the perfection and protection of its interest in the Receivables) under the Facility Documents, or (c) arising in connection with any dispute, disagreement, litigation or preparation for litigation involving the Facility Documents. SECTION 7.2. Indemnity for Taxes, Reserves and Expenses.. ------------------------------------------- (a) If after the date hereof, the adoption of any Law or bank regulatory guideline or any amendment or change in the interpretation of any existing or future Law or bank regulatory guideline by any Official Body charged with the administration, interpretation or application thereof, or the compliance with any directive of any Official Body (in the case of any bank regulatory guideline, whether or not having the force of Law): (i) shall subject the Buyer and any permitted assigns (collectively, the "Indemnified Parties") to any tax, duty or other charge ------------------- with respect to the Facility Documents, the Purchased Assets, or payments of amounts due thereunder, or shall change the basis of taxation of payments to any Indemnified Party of amounts payable in respect of the Facility Documents or the Purchased Assets or payments of amounts due thereunder or its obligation to advance funds in respect of the Facility Documents or the Purchased Assets (except for changes in the rate of general corporate, franchise, net income or other income tax imposed on such Indemnified Party); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System) against assets of, deposits with or for the account of, or credit extended by, any Indemnified Party or shall impose on any Indemnified Party or on the United States market for certificates of deposit or the London interbank market any other condition affecting the Facility Documents, the Purchased Assets, or payments of amounts due thereunder or its obligation to advance funds in respect of the Facility Documents or the Purchased Assets; or (iii) imposes upon any Indemnified Party any other expense (including, without limitation, reasonable attorneys' fees and expenses, and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to the Facility Documents, the Purchased Assets or payments of amounts due thereunder or its obligation to advance funds in respect of the Facility Documents or the Purchased Assets; and the result of any of the foregoing is to increase the cost to such Indemnified Party with respect to the Facility Documents, the Purchased Assets, the obligations thereunder, the funding of any purchases thereunder, by an amount deemed by such Indemnified Party to be material, then, within 10 days after demand by the Indemnified Party (or the Buyer on behalf of the 27 Indemnified Party), the Seller shall pay to the Indemnified Party such additional amount or amounts as will compensate such Indemnified Party for such increased cost. (b) If any Indemnified Party shall have determined that, after the date hereof, the adoption of any applicable Law or bank regulatory guideline regarding capital adequacy, or any change therein, or any change in the interpretation thereof by any Official Body, or any directive regarding capital adequacy (in the case of any bank regulatory guideline, whether or not having the force of Law) of any such Official Body, has or would have the effect of reducing the rate of return on capital of such Indemnified Party (or its parent) as a consequence of such Indemnified Party's obligations under or with respect to the Facility Documents to a level below that which such Indemnified Party (or its parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Indemnified Party to be material, then from time to time, within 10 days after demand by the Indemnified Party (or the Buyer on behalf of the Indemnified Party), the Seller shall pay to such Indemnified Party such additional amount or amounts as will compensate such Indemnified Party (or its parent) for such reduction. (c) The Indemnified Party (or the Buyer on behalf of the Indemnified Party) will promptly notify the Seller of any event of which it has knowledge, occurring after the date hereof, which will entitle an Indemnified Party to compensation pursuant to this Section 7.2. A notice by the Indemnified Party (or the Buyer on behalf of the Indemnified Party), claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Indemnified Party (or the Buyer on behalf of the Indemnified Party) may use any reasonable averaging and attributing methods. Payment of any indemnification amount under this Section 7.2 shall be contingent on delivery of a certificate by the Buyer (on behalf of the relevant Indemnified Party) to the Seller setting forth in reasonable detail the calculation employed by such Indemnified Party in determining the amount of such compensation claim. (d) Each Indemnified Party agrees that it will use reasonable efforts to reduce or eliminate any claim for indemnity pursuant to this Section 7.2 including, subject to applicable Law, a change in the funding office of such Indemnified Party; provided, however, that nothing contained herein shall -------- ------- obligate any Indemnified Party to take any action that imposes on such Indemnified Party any additional costs or legal or regulatory burdens which such Indemnified Party reasonably considers material, nor which, in such Indemnified Party's reasonable opinion, would have an adverse effect on its business, operations or financial condition. SECTION 7.3. Indemnity. --------- (a) The Seller agrees to indemnify, defend and save harmless each Indemnified Party, other than for the indemnitee's own gross negligence or willful misconduct, forthwith on demand, from and against any and all losses, claims, damages, liabilities, costs and expenses (including, without limitation, all reasonable attorneys' fees and expenses, expenses incurred by their respective credit recovery groups (or any successors thereto) and expenses of settlement, litigation or preparation therefor) which any Indemnified Party may incur or which may be asserted against any Indemnified Party by any Person (including, without limitation, any Obligor 28 or any other Person whether on its own behalf or derivatively on behalf of the Seller) arising from or incurred in connection with (i) any breach of a representation, warranty or covenant by the Seller made or deemed made hereunder or in connection herewith or the transactions contemplated hereby or any statements made by any Responsible Officer of the Seller in connection herewith or the transactions contemplated hereby which shall have been incorrect in any material respect when made, (ii) any action taken or, if the Seller is otherwise obligated to take action, failed to be taken, by the Seller with respect to the Purchased Assets or any of its obligations hereunder including, without limitation, the Seller's failure to comply with an applicable Law or regulation, (iii) any failure to vest and maintain vested in the Buyer the ownership of the Purchased Assets, free and clear of any Lien or other adverse claim, whether existing at the time of Purchase of such Receivables or at any time thereafter, (iv) any failure to pay when due any taxes, including without limitation any sales tax, excise tax or other similar tax or charge payable in connection with the Receivables and their creation or satisfaction, (v) any products liability claim arising out of or which relates to the Purchased Assets or the Receivables or the related Contracts, or (vi) any dispute, suit, action, claim, proceeding or governmental investigation, pending or threatened, whether based on statute, regulation or order, on tort, on contract or otherwise, before any Official Body which arises out of or relates to the Facility Documents, the Purchased Assets or the Receivables or the related Contracts, or the use of the proceeds of the sale of the Purchased Assets or the Receivables pursuant hereto; provided that -------- nothing in this Section 7.3(a) shall be deemed to provide indemnity (i) to the Indemnified Parties for credit losses due to Defaulted Receivables or (ii) to the Indemnified Parties for matters covered pursuant to Section 7.2 hereof. (b) Promptly upon receipt by any Indemnified Party under this Section 7.3 of notice of the commencement of any suit, action, claim, proceeding or governmental investigation against such Indemnified Party, such Indemnified Party shall, if a claim in respect thereof is to be made against the Seller hereunder, notify the Seller in writing of the commencement thereof. The Seller may participate in and assume the defense of any such suit, action, claim, proceeding or investigation at its expense, and no settlement thereof shall be made without the approval of the Seller and the Indemnified Party. The approval of the Seller will not be unreasonably withheld or delayed. After notice from the Seller to the indemnified party of its intention to assume the defense thereof with counsel reasonably satisfactory to the Buyer and so long as the Seller so assumes the defense thereof in a commercially reasonably manner, the Seller shall not be liable for any legal expenses of counsel unless there shall be a conflict between the interests of the Seller and the Indemnified Party. (c) Each Indemnified Party shall use its good faith efforts to mitigate, reduce or eliminate any losses, expenses or claims for indemnification. ARTICLE VIII MISCELLANEOUS SECTION 8.1. Survival. The indemnification and payment provisions -------- of Article VII shall be continuing and shall survive any termination of this Agreement, subject to 29 applicable statutes of limitation; provided, however, that any such -------- ------- indemnification or payment claim must be presented to the Seller within ten (10) Business Days after the Buyer receives notice or otherwise becomes aware of such claim. SECTION 8.2. Waivers; Amendments. No failure or delay on the part of the ------------------- Buyer in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by Law. Any provision of this Agreement may be waived or amended in writing by the parties hereto, with the consent of the Administrative Agent. SECTION 8.3. Notices. Except as provided below, all communications and ------- notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth hereunder or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section 8.3 and the appropriate written confirmation is received or, if given by any other means, when received at the address specified in this Section 8.3. The Seller further agrees to deliver promptly to the Buyer a written confirmation of each telephonic notice signed by an authorized officer of the Seller. However, the absence of such confirmation shall not affect the validity of such notice. If to the Buyer: --------------- AmeriSource Receivables Financial Corporation 300 Chester Field Parkway Malvern, PA 19355 Telephone: (610) 993-3424 Telecopy: (610) 993-9085 Attention: John Aberant If to the Seller: ---------------- AmeriSource Corporation 300 Chester Field Parkway Malvern, PA 19355 Telephone: (610) 993-3424 Telecopy: (610) 993-9085 Attention: John Aberant SECTION 8.4. Governing Law; Submission to Jurisdiction; Integration. THIS ------------------------------------------------------ AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. The Seller hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any 30 New York State Court sitting in New York, New York for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Seller and the Buyer hereby irrevocably waive, to the fullest extent they may effectively do so, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 8.4 shall affect the right of the Buyer to bring any action or proceeding against the Seller or its properties in the courts of other jurisdictions. SECTION 8.5. Records. All amounts calculated or due hereunder shall be ------- determined from the records of the Buyer, which determinations shall be conclusive absent manifest error. SECTION 8.6. No Implied Waiver; Cumulative Remedies. No course of dealing -------------------------------------- and no delay or failure of the Buyer in exercising any right, power or privilege under the Facility Documents shall affect any other or future exercise thereof or the exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. The rights and remedies of the Buyer under the Facility Documents are cumulative and not exclusive of any rights or remedies which the Buyer would otherwise have. SECTION 8.7. No Discharge. The obligations of the Seller under this ------------ Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by (a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of this Agreement or applicable Law, including, without limitation, any failure to set-off or release in whole or in part by the Buyer of any balance of any deposit account or credit on its books in favor of the Buyer or any waiver, consent, extension, indulgence or other action or inaction in respect of any thereof, or (b) any other act or thing or omission or delay to do any other act or thing which would operate as a discharge of the Buyer as a matter of law. SECTION 8.8. Prior Understandings. This Agreement sets forth the entire -------------------- understanding of the parties relating to the subject matter hereof, and supersedes all prior understandings and agreements, whether written or oral. SECTION 8.9. Successors and Assigns. This Agreement shall be binding on the ---------------------- parties hereto and their respective successors and assigns; provided, however, -------- ------- that the Seller may not assign any of its rights or delegate any of its duties hereunder without the prior written consent of the Buyer and the Administrative Agent. No provision of this Agreement shall in any manner restrict the ability of the Buyer to assign, participate, grant security interests in, or otherwise transfer any portion of the Purchased Assets owned by the Buyer. The Seller hereby agrees and consents to the complete assignment by the Buyer of all of its rights under, interest in, title to and obligations under this Agreement to the Administrative Agent (for the benefit of the Owners as described in the Receivables Purchase Agreement). 31 SECTION 8.10. No Petition. The Seller agrees that, prior to the date which ----------- is one year and one day after the date upon which all obligations of the Buyer to the Seller hereunder and under the Subordinated Note are paid in full and all other indebtedness of the Buyer are paid in full, it will not institute against, or join any other Person in instituting against, the Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other similar proceeding under the Laws of the United States or any state of the United States. SECTION 8.11. No Recourse. The obligations of the Seller and the Buyer under ----------- this Agreement are solely the obligations of the Seller and the Buyer and shall be without recourse to any Affiliate of the Seller. SECTION 8.12. Severability; Counterparts, Waiver of Setoff. This Agreement -------------------------------------------- may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable any other provision in such jurisdiction or such provision in any other jurisdiction. The Seller hereby agrees to waive any right of setoff which it may have or to which it may be entitled against the Buyer and its assets. SECTION 8.13. Confidentiality. The Buyer and the Seller shall hold all non- --------------- public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith in accordance with customary procedures for handling confidential information of this nature and in any event may make disclosure (a) reasonably required by a bona fide transferee, (b) necessary in order to obtain any consents, approvals, waivers or other arrangements required to permit the execution, delivery and performance by the Seller of this Agreement, or (c) as required or requested by any governmental body, agency or instrumentality, regulatory authority, court, tribunal or arbitrator or pursuant to legal process or required by applicable Law. SECTION 8.14. Third Party Beneficiary. The parties hereto agree that the ----------------------- Administrative Agent shall be the third-party beneficiary of this Agreement and shall have full right, power and authority to enforce the Buyer's obligations and the obligations of the Seller under this Agreement. 32 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above set forth. AMERISOURCE RECEIVABLES FINANCIAL CORPORATION, as Buyer By: ---------------------------------- Name: Title: AMERISOURCE CORPORATION, as Seller By: ---------------------------------- Name: Title: [Signature Page to the Purchase Agreement] 33 EX-10.15 4 FORM OF VOTING/SUPPORT AGREEMENT Exhibit 10.15 EXHIBIT A --------- FORM OF VOTING/SUPPORT AGREEMENT AGREEMENT, dated as of April 28, 1999 (this "Agreement"), among AmeriSource Health Corporation, a Delaware corporation ("Parent"), Hawk Acquisition Corp., a Missouri corporation ("Merger Sub"), and _______________ (the "Stockholder"), as amended and restated as of May __, 1999. WHEREAS, the Board of Directors of Parent and the Board of Directors of C.D. Smith Healthcare, Inc., a Missouri corporation ("C.D. Smith") (capitalized terms used but not defined herein having the respective meanings given to them in the Merger Agreement) have approved an Agreement and Plan of Reorganization, amended and restated as of even date herewith (the "Merger Agreement"), providing for the merger of a wholly owned subsidiary of Parent with and into C.D. Smith; WHEREAS, the Stockholder is the record and beneficial owner of shares of C.D. Smith common stock, par value $0.01 per share ("C.D. Smith Common Stock"), Company Options, Company Warrants and/or interests in C.D. Smith Common Stock through the ESOP, in the amounts and of the types set forth opposite the Stockholder's name on Annex A hereto (the "Shares"); WHEREAS, as a condition to Parent's entering into the Merger Agreement, Parent has required that the Stockholder agree, and the Stockholder has agreed, to enter into this Agreement. NOW, THEREFORE, to induce Parent to enter into the Merger Agreement and in consideration of the premises herein contained, the parties agree as follows: 1. Grant of Irrevocable Proxy. (a) Until this Agreement is terminated, the Stockholder hereby irrevocably appoints Merger Sub, its officers, agents and nominees, with full power of substitution, as proxy for and attorney in fact of the Stockholder to act with respect to and vote the Shares, if any, owned by the Stockholder for and in the name, place and stead of the Stockholder at any annual, special or other meeting of the holders of shares of the C.D. Smith Common Stock and at any adjournment or postponement thereof or pursuant to any written consent in lieu of a meeting, to the fullest extent that the Shares are entitled to be voted on any matter which may come before such meeting or which may be the subject of such written consent, in favor of the Merger, the Merger Agreement and the transactions contemplated thereby. In all other matters, the Shares shall be voted by and in the manner determined by the Stockholder upon written notice to Merger Sub. The Stockholder hereby represents that he has not heretofore granted any irrevocable proxy with respect to the Shares and hereby revokes any and all proxies which may heretofore have been granted with respect to the Shares. (b) The Stockholder understands and acknowledges that Parent is entering into the Merger Agreement in reliance upon the Stockholder's execution and delivery of this Agreement. The Stockholder hereby affirms that the irrevocable proxy set forth in this Section 1 is given in connection with and as an inducement for the execution by Parent of the Merger Agreement and to secure the performance of the duties of the Stockholder under this Agreement. The Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may not be revoked. The Stockholder hereby ratifies and confirms all that such proxy may lawfully do or cause to be done by virtue hereof. This proxy is executed and intended to be irrevocable in accordance with the provisions of the MGBCL. 2. Agreement Not to Transfer. The Stockholder agrees that, without the prior written consent of Parent, such Stockholder will not at any time during the term of this Agreement sell, transfer, assign or otherwise dispose of ("Transfer") or pledge or otherwise encumber, or enter into any contract, option or other arrangement with respect to the Transfer, pledge or encumbrance of, any of the Shares, or grant or purport to grant to any person any proxy or voting right or any right to acquire any of the Shares, or enter into any voting agreement with any person with respect to any of the Shares, or deposit any of the Shares into a voting trust, provided that the foregoing shall not prohibit the Stockholder from incurring a margin loan from a bank or brokerage firm. The foregoing is in addition to the Stockholder's obligations under Section 3(c). 3. Additional Covenants of the Stockholder. The Stockholder hereby covenants and agrees with Parent and Merger Sub that, until this Agreement terminates: (a) The Stockholder shall take all actions necessary to call, or cause C.D. Smith to call, the Company Stockholders Meeting, in accordance with the provisions of the Merger Agreement, and shall use such Stockholders' best efforts to cause such meeting to be held and completed on the date scheduled for such meeting. (b) The Stockholder will not, during the 30 days prior to the Effective Time, sell, transfer or otherwise dispose of or reduce such Stockholder's risk (as contemplated by the SEC Accounting Series Release No. 135) with respect to the Shares or shares of Parent Common Stock that Stockholder may hold. The Stockholder will not sell, transfer or otherwise dispose of or reduce his risk (as contemplated by SEC Accounting Series Release No. 135) with respect to any Parent Common Stock received by him in the Merger or any other shares of Parent Common Stock until after such time as combined financial results (including combined sales and net income) covering at least 30 days of combined operations of C.D. Smith and Parent have been published by Parent, in the form of a quarterly earnings report, an effective registration statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing or announcement which includes such combined results of operations. (c) The Stockholder will deliver to Parent at Parent's request (i) a written representation confirming, as of immediately prior to the Effective Time, the accuracy of the representations and warranties contained in Section 4, and (ii) such additional written representations as may be reasonably requested by Dechert Price & Rhoads or Blackwell Sanders Peper Martin LLP. -2- (d) The Stockholder will not take any action that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368 of the Code. (e) The Stockholder will execute the Company Affiliate Agreement promptly upon request therefor, which letter shall be in the form attached as an exhibit to the Merger Agreement. (f) The Stockholder represents and warrants that, to the knowledge of the Stockholder, the Company has not fraudulently breached in any material respect any of the representations and warranties of the Company contained in the Merger Agreement. 4. Representations and Warranties of the Stockholder. The Stockholder hereby represents and warrants to Parent and Merger Sub that: (a) (i) The Shares listed on Annex A opposite the Stockholder's name are ------- the only shares of C.D. Smith capital stock, securities convertible into C.D. Smith capital stock, or other rights in respect of C.D. Smith capital stock (collectively, "C.D. Smith Securities") owned of record or beneficially by the Stockholder or in which the Stockholder has any interest; (ii) such Shares are now and at all times during the term of this Agreement will be owned by the Stockholder, free and clear of all liens, claim, charges and encumbrances of any kind whatsoever except for liens, claims or charges arising from margin loans from a bank or brokerage firm and except as contemplated by this Agreement, and none of such Shares is subject to any voting trust or other agreement or arrangement (except as created by this Agreement) with respect to the voting of such Shares; and (iii) the Stockholder does not presently own any options to purchase or rights to subscribe for or otherwise acquire any other shares of C.D. Smith Common Stock except as set forth in Annex A. ------- (b) The Stockholder has full right, power and authority to execute and deliver this Agreement and to perform all of such Stockholders' obligations hereunder, and such execution, delivery and performance have been duly authorized by all requisite action of the Stockholder and no other legal proceedings are necessary therefor. (c) This Agreement has been duly and validly executed and delivered by the Stockholder and represents a valid and legally binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms. (d) Except as noted on Annex A, the execution, delivery and performance ------- of this Agreement by the Stockholder will not constitute a violation of, conflict with or result in a default under (i) any contract, understanding or arrangement to which the Stockholder is a party or by which the Stockholder is bound or require the consent of any other person or any party pursuant thereto, (ii) any judgment, decree or order applicable to the Stockholder, or (iii) any applicable law, statute, rule or regulation. 5. Representations, Warranties and Covenants of Parent and Merger Sub. Parent and Merger Sub hereby represent and warrant to the Stockholder that (i) Parent and Merger Sub each have full corporate right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder, (ii) such execution, delivery and performance have been duly -3- authorized by all requisite corporate action by Parent and Merger Sub, and no other corporate proceedings are necessary therefor, (iii) this Agreement has been duly and validly executed and delivered by Parent and Merger Sub and represents a valid and legally binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms; and (iv) the execution, delivery and performance of this Agreement by Parent and Merger Sub will not constitute a violation of, conflict with or result in a default under (A) any contract, understanding or arrangement to which either Parent or Merger Sub is a party or by which either is bound or require the consent of any other person or any party pursuant thereto, (B) any judgment, decree or order applicable to Parent or Merger Sub, or (C) any applicable law, statute, rule or regulation. 6. Termination. (a) This Agreement, other than the obligations set forth in Sections 3(b), 3(d), 3(e), 3(f), 6 and 8, shall terminate at the Effective Time. (b) This Agreement shall terminate six (6) months after termination of the Merger Agreement pursuant to its terms. 7. Severability. Any term, provision, covenant or restriction contained in this Agreement held by a court or other Governmental Entity of competent jurisdiction to be invalid, void or unenforceable shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 8. Expenses. Each of the parties hereto shall pay all costs and expenses incurred by such person or on such person's behalf in connection with the transactions contemplated hereunder, including fees and expenses of such person's own financial consultants, investment bankers, accountants and counsel, except as otherwise provided herein. 9. Entire Agreement. This Agreement (including the documents and the instruments referred to therein) constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, agreements or representations by or between the parties, written and oral, with respect to the subject matter hereof and thereof. 10. Successors; No Third Party Beneficiaries. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or dispatched by a nationally recognized overnight courier service to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): -4- (i) if to Parent or Merger Sub, to AmeriSource Health Corporation 300 Chester Field Parkway Malvern, PA 19355 Attention: President Facsimile No: (610) 993-9085 with a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attention: Craig L. Godshall, Esquire Facsimile No.: (215) 994-2222 (ii) if to the Stockholder, to the address set forth opposite his name on Annex A. ------- with a copy to Blackwell Sanders Peper Martin 2300 Main Street, Suite 1100 Kansas City, MO 64108 Attention: Jim Ash, Esq. Facsimile No: (816) 983-9083 12. Counterparts. This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but both such counterparts together shall constitute but one agreement. 13. Specific Performance. The parties hereto agree that if for any reason Parent or the Stockholder shall have failed to perform their obligations under this Agreement, then the party hereto seeking to enforce this Agreement against such non-performing party shall be entitled to specific performance and injunctive and other equitable relief, and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. This provision is without prejudice to any other rights that any party hereto may have against any other party hereto for any failure to perform its obligations under this Agreement. 14. Governing Law. This Agreement shall be governed by the laws of the State of Missouri, without giving effect to the conflict of laws principles thereof. -5- 15. Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. 16. Duties. Parent and Merger Sub acknowledge and agree that the Stockholder has entered into this Agreement in his capacity as a stockholder of C.D. Smith and that this Agreement shall in no way restrict the Stockholder in such Stockholder's capacity as an officer of C.D. Smith and the performance of such person's duties to C.D. Smith and its stockholders. 17. Additional Shares. Notwithstanding the provisions of Section 15, in the event that the Stockholder acquires any additional C.D. Smith Securities, such securities shall, without further action of the parties, be subject to the provisions of this Agreement, and Annex A will be deemed amended accordingly. If ------- the Stockholder acquires additional C.D. Smith Securities, such Stockholder shall promptly notify Parent in writing of such acquisition. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. PARENT CORPORATION By: ------------------------ Name: Title: HAWK ACQUISITION CORP. By: ------------------------ Name: Title: STOCKHOLDER: By: ------------------------ -6- ANNEX A Securities (in number of shares) ----------------------------------------------- Common- Common - Common - Direct By Warrant By ESOP --------------- --------------- ------------- Record and Beneficial Owner - --------------------------- - ---------------------------------------- Total EX-10.16 5 FORM OF VOTING/SUPPORT AGREEMENT Exhibit 10.16 FORM OF VOTING/SUPPORT AGREEMENT AGREEMENT, dated as of April 28, 1999 (this "Agreement"), among AmeriSource Health Corporation, a Delaware corporation ("Parent"), Hawk Acquisition Corp., a Missouri corporation ("Merger Sub"), and Churchill ESOP Capital Partners, A Minnesota Limited Partnership (the "Stockholder"), as amended and restated as of May __, 1999. WHEREAS, the Board of Directors of Parent and the Board of Directors of C.D. Smith Healthcare, Inc., a Missouri corporation ("C.D. Smith") (capitalized terms used but not defined herein having the respective meanings given to them in the Merger Agreement) have approved an Agreement and Plan of Reorganization, amended and restated as of even date herewith (the "Merger Agreement"), providing for the merger of a wholly owned subsidiary of Parent with and into C.D. Smith; WHEREAS, the Stockholder is the record and beneficial owner of shares of C.D. Smith common stock, par value $0.01 per share ("C.D. Smith Common Stock"), Company Options, Company Warrants and/or interests in C.D. Smith Common Stock through the ESOP, in the amounts and of the types set forth opposite the Stockholder's name on Annex A hereto (the "Shares"); WHEREAS, as a condition to Parent's entering into the Merger Agreement, Parent has required that the Stockholder agree, and the Stockholder has agreed, to enter into this Agreement. NOW, THEREFORE, to induce Parent to enter into the Merger Agreement and in consideration of the premises herein contained, the parties agree as follows: 1. Grant of Irrevocable Proxy. (a) Until this Agreement is terminated, the Stockholder hereby irrevocably appoints Merger Sub, its officers, agents and nominees, with full power of substitution, as proxy for and attorney in fact of the Stockholder to act with respect to and vote the Shares, if any, owned by the Stockholder for and in the name, place and stead of the Stockholder at any annual, special or other meeting of the holders of shares of the C.D. Smith Common Stock and at any adjournment or postponement thereof or pursuant to any written consent in lieu of a meeting, to the fullest extent that the Shares are entitled to be voted on any matter which may come before such meeting or which may be the subject of such written consent, in favor of the Merger, the Merger Agreement and the transactions contemplated thereby. In all other matters, the Shares shall be voted by and in the manner determined by the Stockholder upon written notice to Merger Sub. The Stockholder hereby represents that he has not heretofore granted any irrevocable proxy with respect to the Shares and hereby revokes any and all proxies which may heretofore have been granted with respect to the Shares. (b) The Stockholder understands and acknowledges that Parent is entering into the Merger Agreement in reliance upon the Stockholder's execution and delivery of this Agreement. The Stockholder hereby affirms that the irrevocable proxy set forth in this Section 1 is given in connection with and as an inducement for the execution by Parent of the Merger Agreement and to secure the performance of the duties of the Stockholder under this Agreement. The Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may not be revoked. The Stockholder hereby ratifies and confirms all that such proxy may lawfully do or cause to be done by virtue hereof. This proxy is executed and intended to be irrevocable in accordance with the provisions of the MGBCL. 2. Agreement Not to Transfer. The Stockholder agrees that, without the prior written consent of Parent, such Stockholder will not at any time during the term of this Agreement sell, transfer, assign or otherwise dispose of ("Transfer") or pledge or otherwise encumber, or enter into any contract, option or other arrangement with respect to the Transfer, pledge or encumbrance of, any of the Shares, or grant or purport to grant to any person any proxy or voting right or any right to acquire any of the Shares, or enter into any voting agreement with any person with respect to any of the Shares, or deposit any of the Shares into a voting trust, provided that the foregoing shall not prohibit the Stockholder from incurring a margin loan from a bank or brokerage firm. The foregoing is in addition to the Stockholder's obligations under Section 3(c). 3. Additional Covenants of the Stockholder. The Stockholder hereby covenants and agrees with Parent and Merger Sub that, until this Agreement terminates: (a) Until the earlier of (i) the Effective Time, (ii) September 1, 1999, or (iii) the date of termination of the Merger Agreement pursuant to the provisions of Section 8.1 thereof, the Stockholder will not directly or indirectly, take any of the following actions with any party other than Parent and its designees: (a) solicit, encourage, initiate or participate in any negotiations or discussions with respect to, any offer or proposal to acquire all, substantially all or a significant portion of the Company's business, properties or technologies or any portion of the Company Capital Stock (whether or not outstanding) whether by merger, purchase of assets, or otherwise, or effect any such transaction, (b) disclose any information not customarily disclosed to any person concerning the Company's business, technologies or properties or afford to any person or entity access to its properties, technologies, books or records, (c) assist or cooperate with any person to make any proposal to purchase all or any part of the Company Capital Stock or assets, or (d) enter into any agreement with any person providing for the acquisition of all or any significant portion of the Company (whether by way of merger, purchase of assets, tender offer or otherwise). In addition to the foregoing, if the Stockholder receives, prior to the Effective Time or the termination of the Merger Agreement, any offer, proposal, or request relating to any of the above, the Stockholder shall immediately notify Parent thereof, including information as to the identity of the offer or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Parent may reasonably request. (b) The Stockholder will not, during the 30 days prior to the Effective Time, sell, transfer or otherwise dispose of or reduce such Stockholder's risk (as contemplated by the SEC Accounting Series Release No. 135) with respect to the Shares or shares of Parent Common Stock that Stockholder may hold. The Stockholder will not sell, transfer or otherwise dispose of or reduce his risk (as contemplated by SEC Accounting Series Release No. 135) with respect to any Parent Common Stock received by him in the Merger or any other shares of Parent Common Stock until after such time as combined financial results (including combined sales and net -2- income) covering at least 30 days of combined operations of C.D. Smith and Parent have been published by Parent, in the form of a quarterly earnings report, an effective registration statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing or announcement which includes such combined results of operations. (c) The Stockholder will deliver to Parent at Parent's request (i) a written representation confirming, as of immediately prior to the Effective Time, the accuracy of the representations and warranties contained in Section 4, and (ii) such additional written representations as may be reasonably requested by Dechert Price & Rhoads or Blackwell Sanders Peper Martin LLP. (d) The Stockholder will not take any action that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368 of the Code. (e) The Stockholder will execute the Company Affiliate Agreement promptly upon request therefor, which letter shall be in the form attached as an exhibit to the Merger Agreement. (f) Immediately prior to the Effective Time, the Stockholder shall exercise any and all Company Warrants held or controlled by the Stockholder. 4. Representations and Warranties of the Stockholder. The Stockholder hereby represents and warrants to Parent and Merger Sub that: (a) (i) The Shares listed on Annex A opposite the Stockholder's name are ------- the only shares of C.D. Smith capital stock, securities convertible into C.D. Smith capital stock, or other rights in respect of C.D. Smith capital stock (collectively, "C.D. Smith Securities") owned of record or beneficially by the Stockholder or in which the Stockholder has any interest; (ii) such Shares are now and at all times during the term of this Agreement will be owned by the Stockholder, free and clear of all liens, claim, charges and encumbrances of any kind whatsoever except for liens, claims or charges arising from margin loans from a bank or brokerage firm and except as contemplated by this Agreement, and none of such Shares is subject to any voting trust or other agreement or arrangement (except as created by this Agreement) with respect to the voting of such Shares; and (iii) the Stockholder does not presently own any options to purchase or rights to subscribe for or otherwise acquire any other shares of C.D. Smith Common Stock except as set forth in Annex A. ------- (b) The Stockholder has full right, power and authority to execute and deliver this Agreement and to perform all of such Stockholders' obligations hereunder, and such execution, delivery and performance have been duly authorized by all requisite action of the Stockholder and no other legal proceedings are necessary therefor. (c) This Agreement has been duly and validly executed and delivered by the Stockholder and represents a valid and legally binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms. -3- (d) Except as noted on Annex A, the execution, delivery and performance of ------- this Agreement by the Stockholder will not constitute a violation of, conflict with or result in a default under (i) any contract, understanding or arrangement to which the Stockholder is a party or by which the Stockholder is bound or require the consent of any other person or any party pursuant thereto, (ii) any judgment, decree or order applicable to the Stockholder, or (iii) any applicable law, statute, rule or regulation. (e) The Company's indebtedness to Stockholder under the Note Purchase Agreement dated October 3, 1997 outstanding on the date hereof is $12,000,000, plus accrued interest thereon and professional cost incurred. 5. Representations, Warranties and Covenants of Parent and Merger Sub. (a) Parent and Merger Sub hereby represent and warrant to the Stockholder that (i) Parent and Merger Sub each have full corporate right, power and authority to execute and deliver this Agreement and to perform its obligations hereunder, (ii) such execution, delivery and performance have been duly authorized by all requisite corporate action by Parent and Merger Sub, and no other corporate proceedings are necessary therefor, (iii) this Agreement has been duly and validly executed and delivered by Parent and Merger Sub and represents a valid and legally binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms; and (iv) the execution, delivery and performance of this Agreement by Parent and Merger Sub will not constitute a violation of, conflict with or result in a default under (A) any contract, understanding or arrangement to which either Parent or Merger Sub is a party or by which either is bound or require the consent of any other person or any party pursuant thereto, (B) any judgment, decree or order applicable to Parent or Merger Sub, or (C) any applicable law, statute, rule or regulation. (b) At the Effective Time, parent shall pay or cause to be paid all of the Company's indebtedness to Stockholder under the Note Purchase Agreement dated October 3, 1997.Termination. (a) This Agreement, other than the obligations set forth in Sections 3(b), 3(d), 3(e), 3(f), 6 and 8, shall terminate at the Effective Time. (b) This Agreement shall terminate six (6) months after termination of the Merger Agreement pursuant to its terms. 7. Severability. Any term, provision, covenant or restriction contained in this Agreement held by a court or other Governmental Entity of competent jurisdiction to be invalid, void or unenforceable shall be ineffective to the extent of such invalidity, voidness or unenforceability, but neither the remaining terms, provisions, covenants or restrictions contained in this Agreement nor the validity or enforceability thereof in any other jurisdiction shall be affected or impaired thereby. Any term, provision, covenant or restriction contained in this Agreement that is so found to be so broad as to be unenforceable shall be interpreted to be as broad as is enforceable. 8. Expenses. The Company shall pay all costs and expenses incurred by such person or on such person's behalf in connection with the transactions contemplated hereunder, including -4- fees and expenses of such person's own financial consultants, investment bankers, accountants and counsel, except as otherwise provided herein. 9. Entire Agreement. This Agreement (including the documents and the instruments referred to therein) constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, agreements or representations by or between the parties, written and oral, with respect to the subject matter hereof and thereof. 10. Successors; No Third Party Beneficiaries. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein. 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or dispatched by a nationally recognized overnight courier service to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Merger Sub, to AmeriSource Health Corporation 300 Chester Field Parkway Malvern, PA 19355 Attention: President Facsimile No.: (610) 993-9085 with a copy to: Dechert Price & Rhoads 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 Attention: Craig L. Godshall, Esquire Facsimile No.: (215) 994-2222 (ii) if to the Stockholder, to the address set forth opposite his name on Annex A. ------- -5- with a copy to Linquist & Vennum P.L.L.P 4200 IDS Center Minneapolis, MN 55402 Attention: Richard D. McNeil, Esq. Facsimile No: (612) 371-3207 12. Counterparts. This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original instrument, but both such counterparts together shall constitute but one agreement. 13. Specific Performance. The parties hereto agree that if for any reason Parent or the Stockholder shall have failed to perform their obligations under this Agreement, then the party hereto seeking to enforce this Agreement against such non-performing party shall be entitled to specific performance and injunctive and other equitable relief, and the parties hereto further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. This provision is without prejudice to any other rights that any party hereto may have against any other party hereto for any failure to perform its obligations under this Agreement. 14. Governing Law. This Agreement shall be governed by the laws of the State of Missouri, without giving effect to the conflict of laws principles thereof. 15. Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. 16. Additional Shares. Notwithstanding the provisions of Section 15, in the event that the Stockholder acquires any additional C.D. Smith Securities, such securities shall, without further action of the parties, be subject to the provisions of this Agreement, and Annex A will be deemed amended accordingly. If ------- the Stockholder acquires additional C.D. Smith Securities, such Stockholder shall promptly notify Parent in writing of such acquisition. -6- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. AMERISOURCE HEALTH CORPORATION By: ------------------------------- Name: Title: HAWK ACQUISITION CORP. By: ------------------------------- Name: Title: STOCKHOLDER: CHURCHILL ESOP CAPITAL PARTNERS, A MINNESOTA LIMITED PARTNERSHIP By: Churchill Capital Investment Partners, A Minnesota Limited Partnership Its: General Partner By: Churchill Capital, Inc. Its: General Partner ---------------------------- A Principal -7- ANNEX A Securities (in number of shares) ----------------------------------------------- Common - Common - Common - Direct By Warrant By ESOP --------------- --------------- ------------- Record and Beneficial Owner - --------------------------- Churchill ESOP Capital Partners, A Minnesota Limited 24,260* Partnership 2400 Metropolitan Centre 333 South Seventh Street Minneapolis, MN 55402 - ------------------------------------------- Total 24,260 * Subject to anti-dilution adjustments, if any, for events subsequent to October 3, 1997 in accordance with the Warrant Agreement dated October 3, 1997. -8- EX-10.17 6 C.D. SMITH HEALTHCARE, INC E.S.O.P. Exhibit 10.17 ------------- C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN TABLE OF CONTENTS
ARTICLE I - DEFINITIONS................................................................................... 1.1 1.01 "Plan"................................................................................. 1.1 1.02 "Employer"............................................................................. 1.1 1.03 "Trustee".............................................................................. 1.1 1.04 "Plan Administrator"................................................................... 1.1 1.05 "Advisory Committee"................................................................... 1.1 1.06 "Employee"............................................................................. 1.1 1.07 "Highly Compensated Employee".......................................................... 1.1 1.08 "Participant".......................................................................... 1.2 1.09 "Beneficiary".......................................................................... 1.3 1.10 "Compensation"......................................................................... 1.3 1.11 "Account".............................................................................. 1.4 1.12 "Accrued Benefit"...................................................................... 1.4 1.13 "Nonforfeitable"....................................................................... 1.4 1.14 "Plan Year"............................................................................ 1.4 1.15 "Effective Date"....................................................................... 1.4 1.16 "Plan Entry Date"...................................................................... 1.4 1.17 "Accounting Date"...................................................................... 1.4 1.18 "Trust"................................................................................ 1.4 1.19 "Trust Fund"........................................................................... 1.4 1.20 "Nontransferable Annuity".............................................................. 1.5 1.21 "ERISA"................................................................................ 1.5 1.22 "Code"................................................................................. 1.5 1.23 "Service".............................................................................. 1.5 1.24 "Hour of Service"...................................................................... 1.5 1.25 "Disability"........................................................................... 1.6 1.26 Service for Predecessor Employer....................................................... 1.6 1.27 Related Employers...................................................................... 1.6 1.28 Leased Employees....................................................................... 1.7 1.29 Determination of Top Heavy Status...................................................... 1.7 1.30 Plan Maintained by More Than One Employer.............................................. 1.9 1.31 "Disqualified Person".................................................................. 1.9 1.32 "Employer Securities".................................................................. 1.9 1.33 "Exempt Loan".......................................................................... 1.9 1.34 "Leveraged Employer Securities"........................................................ 1.9 ARTICLE II - EMPLOYEE PARTICIPANTS........................................................................ 2.1 2.01 Eligibility............................................................................ 2.1 2.02 Year of Service Participation.......................................................... 2.1 2.03 Break in Service - Participation....................................................... 2.2 2.04 Participation upon Re-employment....................................................... 2.2 ARTICLE III - EMPLOYER CONTRIBUTIONS AND FORFEITURES...................................................... 3.1 3.01 Amount................................................................................. 3.1 3.02 Determination of Contribution.......................................................... 3.2 3.03 Time of Payment of Contribution........................................................ 3.2
i
3.04 Contribution Allocation................................................................. 3.2 3.05 Forfeiture Allocation................................................................... 3.3 3.06 Accrual of Benefit...................................................................... 3.4 3.07 Limitations on Allocations to Participants' Accounts.................................... 3.5 3.08 Definitions - Article III............................................................... 3.6 ARTICLE IV - PARTICIPANT CONTRIBUTIONS........................................................................ 4.1 4.01 Participant Voluntary Contributions..................................................... 4.1 4.02 Participant Rollover Contributions...................................................... 4.1 ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING...................................................... 5.1 5.01 Normal Retirement Age................................................................... 5.1 5.02 Participant Disability or Death; Plant Shutdown or Sale or a Substantial Reduction in Workforce................................................................ 5.1 5.03 Vesting Schedule........................................................................ 5.1 5.04 Cash-Out Distributions to Partially-Vested Participants/Restoration of Forfeited Accrued Benefit....................................................................... 5.1 5.05 Segregated Account for Repaid Amount.................................................... 5.3 5.06 Year of Service - Vesting............................................................... 5.3 5.07 Break In Service - Vesting.............................................................. 5.3 5.08 Included Years of Service - Vesting..................................................... 5.3 5.09 Forfeiture Occurs....................................................................... 5.4 ARTICLE VI - TIME AND METHOD OF PAYMENT OF BENEFITS........................................................... 6.1 6.01 Time of Payment of Accrued Benefit...................................................... 6.1 6.02 Method of Payment of Accrued Benefit.................................................... 6.3 6.03 Benefit Payment Elections............................................................... 6.5 6.04 Annuity Distributions to Participants and Surviving Spouses............................. 6.6 6.05 Special Distribution and Payment Requirements........................................... 6.6 6.06 [Reserved].............................................................................. 6.7 6.07 Distributions under Domestic Relations Orders........................................... 6.7 ARTICLE VII - EMPLOYER ADMINISTRATIVE PROVISIONS.............................................................. 7.1 7.01 Information to Advisory Committee....................................................... 7.1 7.02 No Liability............................................................................ 7.1 7.03 Indemnity of Certain Fiduciaries........................................................ 7.1 7.04 Employer Direction of Investment........................................................ 7.1 7.05 Amendment to Vesting Schedule........................................................... 7.1 ARTICLE VIII - PARTICIPANT ADMINISTRATIVE PROVISIONS.......................................................... 8.1 8.01 Beneficiary Designation................................................................. 8.1 8.02 No Beneficiary Designation/Death of Beneficiary......................................... 8.1 8.03 Personal Data to Advisory Committee..................................................... 8.1 8.04 Address for Notification................................................................ 8.2 8.05 Assignment or Alienation................................................................ 8.2 8.06 Notice of Change in Terms............................................................... 8.2 8.07 Litigation against the Trust............................................................ 8.2 8.08 Information Available................................................................... 8.2
ii
8.09 Appeal Procedure for Denial of Benefits................................................ 8.2 8.10 Account Diversification................................................................ 8.3 ARTICLE IX - ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS............................ 9.1 9.01 Members' Compensation, Expenses........................................................ 9.1 9.02 Term................................................................................... 9.1 9.03 Powers................................................................................. 9.1 9.04 General................................................................................ 9.1 9.05 Funding Policy......................................................................... 9.2 9.06 Manner of Action....................................................................... 9.2 9.07 Authorized Representative.............................................................. 9.2 9.08 Interested Member...................................................................... 9.2 9.09 Individual Accounts.................................................................... 9.2 9.10 Value of Participant's Accrued Benefit................................................. 9.3 9.11 Allocation and Distribution of Net Income Gain or Loss................................. 9.3 9.12 Individual Statement................................................................... 9.4 9.13 Account Charged........................................................................ 9.5 9.14 Unclaimed Account Procedure............................................................ 9.5 ARTICLE X - CUSTODIAN/TRUSTEE, POWERS AND DUTIES........................................................... 10.1 10.01 Acceptance............................................................................ 10.1 10.02 Receipt of Contributions.............................................................. 10.1 10.03 Investment Powers..................................................................... 10.1 10.04 Records and Statements................................................................ 10.6 10.05 Fees and Expenses from Fund........................................................... 10.6 10.06 Parties to Litigation................................................................. 10.6 10.07 Professional Agents................................................................... 10.6 10.08 Distribution of Trust Fund; Valuation of Employer Securities.......................... 10.7 10.09 Distribution Directions............................................................... 10.7 10.10 Third Party/Multiple Trustees......................................................... 10.7 10.11 Resignation........................................................................... 10.7 10.12 Removal............................................................................... 10.7 10.13 Interim Duties and Successor Trustee.................................................. 10.8 10.14 Valuation of Trust.................................................................... 10.8 10.15 Participant Voting Direction Rights - Employer Securities............................. 10.8 10.16 Investment in Group Trust Fund........................................................ 10.8 10.17 Limitation on Liability - If Investment Manager Appointed............................. 10.8 ARTICLE XI - REPURCHASE OF EMPLOYER SECURITIES............................................................. 11.1 11.01 Put Option............................................................................ 11.1 11.02 Restriction on Employer Securities.................................................... 11.1 11.03 Lifetime Transfer/Right First Refusal................................................. 11.1
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11.04 Payment of Purchase Price............................................................. 11.1 11.05 Notice................................................................................ 11.2 11.06 Terms and Definitions................................................................. 11.2 ARTICLE XII - MISCELLANEOUS........................................................................... 12.1 12.01 Evidence.............................................................................. 12.1 12.02 No Responsibility for Employer Action................................................. 12.1 12.03 Fiduciaries not Insurers.............................................................. 12.1 12.04 Waiver of Notice...................................................................... 12.1 12.05 Successors............................................................................ 12.1 12.06 Word Usage............................................................................ 12.1 12.07 State Law............................................................................. 12.1 12.08 Employment Not Guaranteed............................................................. 12.1 ARTICLE XIII -EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION............................................... 13.1 13.01 Exclusive Benefit..................................................................... 13.1 13.02 Amendment by Employer................................................................. 13.1 13.03 Discontinuance........................................................................ 13.1 13.04 Full Vesting on Termination........................................................... 13.2 13.05 Merger/Direct Transfer................................................................ 13.2 13.06 Termination........................................................................... 13.3
iv C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN C.D. SMITH DRUG COMPANY, a corporation organized under the laws of the State of Missouri, makes this Agreement with BOATMEN'S TRUST COMPANY OF KANSAS CITY, as Trustee. WITNESSETH: C.D. SMITH DRUG COMPANY continues, within this Trust Agreement, a Plan for the administration and distribution of contributions made by the Employer for the purpose of providing retirement benefits for eligible Employees. This Plan is an amended plan, in restated form, the original plan being established on January 1, 1989 as a 401(k) plan. The provisions of this Plan, as amended, apply solely to an Employee whose employment with the Employer terminates on or after the restated Effective Date of the Employer's Plan. If an Employee's employment with the Employer terminates prior to the restated Effective Date, that Employee is entitled to benefits under the Plan as the Plan existed on the date of the Employee's termination of employment. Now, therefore, in consideration of their mutual covenants, the Employer and the Trustee agree as follows: ARTICLE I - DEFINITIONS 1.01 "Plan" means the retirement plan established and continued by the Employer in the form of this Agreement, designated as the C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN. The Employer has designed this Plan to invest primarily in Employer Securities. 1.02 "Employer" means C.D. SMITH DRUG COMPANY. 1.03 "Trustee" means BOATMEN'S TRUST COMPANY OF KANSAS CITY, or any successor in office who in writing accepts the position of Trustee. 1.04 "Plan Administrator" is the Employer unless the Employer designates another person to hold the position of Plan Administrator. In addition to his other duties, the Plan Administrator has full responsibility for compliance with the reporting and disclosure rules under ERISA as respects this Agreement. 1.05 "Advisory Committee" means the Employer's Advisory Committee as from time to time constituted. 1.06 "Employee" means any employee of the Employer. 1.07 "Highly Compensated Employee" means an Employee who, during the Plan Year or during the preceding 12-month period; (a) is a more than 5% owner of the Employer (applying the constructive ownership rules of Code (S)318, and applying the principles of Code (S)318, for an unincorporated entity); 1.1 (b) has Compensation in excess of $75,000 (as adjusted by the Commissioner of Internal Revenue for the relevant year); (c) has Compensation in excess of $50,000 (as adjusted by the Commissioner of Internal Revenue for the relevant year) and is part of the top-paid 20% group of employees (based on Compensation for the relevant year); or (d) has Compensation in excess of 50% of the dollar amount prescribed in Code (S)415(b)(1)(A) (relating to defined benefit plans) and is an officer of the Employer. If the Employee satisfies the definition in clause (b), (c) or (d) in the Plan Year but does not satisfy clause (b), (c) or (d) during the preceding 12- month period and does not satisfy clause (a) in either period, the Employee is a Highly Compensated Employee only if he is one of the 100 most highly compensated Employees for the Plan Year. The number of officers taken into account under clause (d) will not exceed the greater of 3 or 10% of the total number (after application of the Code (S)414(q) exclusions) of Employees, but no more than 50 officers. If no Employee satisfies the Compensation requirement in clause (d) for the relevant year, the Advisory Committee will treat the highest paid officer as satisfying clause (d) for that year. For purposes of this Section 1.07, "Compensation" means Compensation as defined in Section 1.10, except The Advisory Committee must make the determination of who is a Highly Compensated Employee, including the determinations of the number and identity of the top paid 20% group, the top 100 paid Employees, the number of officers includible in clause (d) and the relevant Compensation, consistent with Code (S)414(q) and regulations issued under that Code section. The Employer may make a calendar year election to determine the Highly Compensated Employees for the Plan Year, as prescribed by Treasury regulations. A calendar year election must apply to all plans and arrangements of the Employer. For purposes of applying any nondiscrimination test required under the Plan or under the Code, in a manner consistent with applicable Treasury regulations, the Advisory Committee will treat a Highly Compensated Employee and all family members (a spouse, a lineal ascendant or descendant, or a spouse of a lineal ascendant or descendant) as a single Highly Compensated Employee, but only if the Highly Compensated Employee is a more than 5% owner or is one of the 10 Highly Compensated Employees with the greatest Compensation for the Plan Year. This aggregation rule applies to a family member even if that family member is a Highly Compensated Employee without family aggregation. The term "Highly Compensated Employee" also includes any former Employee who separated from Service (or has a deemed Separation from Service, as determined under Treasury regulations) prior to the Plan Year, performs no Service for the Employer during the Plan Year, and was a Highly Compensated Employee either for the separation year or any Plan Year ending on or after his 55th birthday. If the former Employee's Separation from Service occurred prior to January 1, 1987, he is a Highly Compensated Employee only if he satisfied clause (a) of this Section 1.07 or received Compensation in excess of $50,000 during: (1) the year of his Separation from Service (or the prior year); or (2) any year ending after his 54th birthday. 1.08 "Participant" is an Employee who is eligible to be and becomes a Participant in accordance with the provisions of Section 2.01. 1.2 1.09 "Beneficiary" is a person designated by a Participant who is or may become entitled to a benefit under the Plan. A Beneficiary who becomes entitled to a benefit under the Plan remains a Beneficiary under the Plan until the Trustee has fully distributed his benefit to him. A Beneficiary's right to (and the Plan Administrator's, the Advisory Committee's or a Trustee's duty to provide to the Beneficiary) information or data concerning the Plan does not arise until he first becomes entitled to receive a benefit under the Plan. 1.10 "Compensation". As long as the instructions to Form W-2, Box 10, are consistent with the instructions for the 1991 Form W-2, the Employer may treat the amount reported in Box 10 of the Form W-2, as issued by the Employer, as satisfying the following definition of Compensation. If Form W-2 is revised in the future resulting in the renumbering of the boxes, the box number which contains Compensation reported in Box 10 of the 1991 Form W-2 shall be substituted for any reference to Box 10 in this definition. Compensation also includes all other payments to an Employee in the course of the Employer's trade or business, for which the Employer must furnish the Employee a written statement under Code (S)(S)6041(d) and 6051(a)(3). Compensation also includes elective contributions made by the Employer on the Employee's behalf. "Elective contributions" are amounts excludible from the Employee's gross income under Code (S)(S)125, 402(a)(8), 402(h) or 403(b), and contributed by the Employer, at the Employee's election, to a Code (S)401(k) arrangement, a Simplified Employee Pension, cafeteria plan or tax sheltered annuity. A Compensation payment includes Compensation by the Employer through another person under the common paymaster provisions in Code (S)(S)3121(s) and 3306(p). Any reference in this Plan to Compensation is a reference to the definition in this Section 1.10, unless the Plan reference specifies a modification to this definition. The Advisory Committee will take into account only Compensation actually paid for the relevant period. (A) Limitations on Compensation. (1) Compensation dollar limitation. For any Plan Year beginning after December 31, 1988, the Advisory Committee must take into account only the first $200,000 (or beginning January 1, 1990, such larger amount as the Commissioner of Internal Revenue may prescribe) of any Participant's Compensation. (2) Application of compensation limitation to certain family members. The $200,000 Compensation limitation applies to the combined Compensation of the Employee and of any family member aggregated with the Employee under Section 1.07 who is either (i) the Employee's spouse; or (ii) the Employee's lineal descendant under the age of 19. If, for a Plan Year, the combined Compensation of the Employee and such family members who are Participants entitled to an allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation, "Compensation" for each such Participant, for purposes of the contribution and allocation provisions of Article III means his Adjusted Compensation. Adjusted Compensation is the amount which bears the same ratio to the $200,000 (or adjusted) limitation as the affected Participant's Compensation (without regard to the $200,000 Compensation limitation) bears to the combined Compensation of all the affected Participants in the family unit. If the Plan uses permitted disparity, the Advisory Committee must determine the integration level of each affected family member Participant prior to the proration of the $200,000 Compensation limitation, but the combined integration level of the affected Participants may not exceed $200,000 (or the adjusted limitation). The combined Excess Compensation of the affected Participants in the family unit may not exceed $200,000 (or the adjusted limitation) minus 1.3 the affected Participants' combined integration level (as determined under the preceding sentence). If the combined Excess Compensation exceeds this limitation, the Advisory Committee will prorate the Excess Compensation limitation among the affected Participants in the family unit in proportion to each such individual's Adjusted Compensation minus his integration level. (B) Nondiscrimination. For purposes of determining whether the Plan discriminates in favor of Highly Compensated Employees, Compensation means Compensation as defined in this Section 1.10 except any exclusions from Compensation, other than the exclusions described in paragraphs (a), (b), (c) and (d), do not apply. The Employer may also elect to use an alternate nondiscriminatory definition, in accordance with the requirements of Code (S)414(s) and the regulations issued under that Code section. In determining Compensation under this Section 1.10(B), the Employer may elect to include all elective contributions made by the Employer on behalf of the Employees. The Employer's election to include elective contributions must be consistent and uniform with respect to Employees. The Employer may make this election to include elective contributions for nondiscrimination testing purposes, irrespective of whether this Section 1.10 includes elective contributions in the general Compensation definition applicable to this Plan. 1.11 "Account" means the separate account(s) which the Advisory Committee or the Trustee maintains for a Participant under the Plan. 1.12 "Accrued Benefit" means the amount standing in a Participant's Account(s) as of any date derived from both Employer contributions and Employee contributions, if any. 1.13 "Nonforfeitable" means a Participant's or Beneficiary's unconditional claim, legally enforceable against the Plan, to the Participant's Accrued Benefit. 1.14 "Plan Year" means the fiscal year of the Plan, a 12 consecutive month period ending every December 31. 1.15 "Effective Date" of this Plan, as restated, is December 31, 1991; however, no Employer contributions for the Employee Stock Ownership provisions under Section 3.01 shall be made until the Plan Year commencing January 1, 1992. The Plan as originally adopted was a 401(k) Plan. With this restatement, the 401(k) provisions have been removed and no further 401(k) contributions shall be made to the Plan after December 31, 1991. Assets accumulated in the Plan prior to January 1, 1992 shall be segregated and separately accounted for and shall not be commingled with contributions made under this Employee Stock Ownership Plan. 1.16 "Plan Entry Date" means the date(s) prescribed by Section 2.01. 1.17 "Accounting Date" is the last day of the Plan Year. Unless otherwise specified in the Plan, the Advisory Committee will make all Plan allocations for a particular Plan Year as of the Accounting Date of that Plan Year. 1.18 "Trust" means the separate Trust created under the Plan. 1.19 "Trust Fund" means all property of every kind held or acquired by the Employer's Plan, other than incidental benefit insurance contracts. This Plan creates a single Trust for all Employers participating under the C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN. However, the Trustee will maintain separate records of account in order to reflect properly each Participant's Accrued Benefit derived from each participating Employer. 1.4 1.20 "Nontransferable Annuity" means an annuity which by its terms provides that it may not be sold, assigned, discounted, pledged as collateral for a loan or security for the performance of an obligation or for any purpose to any person other than the insurance company. If the Plan distributes an annuity contract, the contract must be a Nontransferable Annuity. 1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 1.22 "Code" means the internal Revenue Code of 1986, as amended. 1.23 "Service" means any period of time the Employee is in the employ of the Employer, including any period the Employee is on an unpaid leave of absence authorized by the Employer under a uniform, nondiscriminatory policy applicable to all Employees. "Separation from Service" means the Employee no longer has an employment relationship with the Employer maintaining this Plan. 1.24 "Hour of Service" means: (a) Each Hour of Service for which the Employer, either directly or indirectly, pays an Employee, or for which the Employee is entitled to payment, for the performance of duties. The Advisory Committee credits Hours of Service under this paragraph (a) to the Employee for the computation period in which the Employee performs the duties, irrespective of when paid; (b) Each Hour of Service for back pay, irrespective of mitigation of damages, to which the Employer has agreed or for which the Employee has received an award. The Advisory Committee credits Hours of Service under this paragraph (b) to the Employee for the computation period(s) to which the award or the agreement pertains rather than for the computation period in which the award, agreement or payment is made; and (c) Each Hour of Service for which the Employer, either directly or indirectly, pays an Employee, or for which the Employee is entitled to payment (irrespective of whether the employment relationship is terminated), for reasons other than for the performance of duties during a computation period, such as leave of absence, vacation, holiday, sick leave, illness, incapacity (including disability), layoff, jury duty or military duty. The Advisory Committee will credit no more than 501 Hours of Service under this paragraph (c) to an Employee on account of any single continuous period during which the Employee does not perform any duties (whether or not such period occurs during a single computation period). The Advisory Committee credits Hours of Service under this paragraph (c) in accordance with the rules of paragraphs (b) and (c) of Labor Reg. (S)2530.200b-2, which the Plan, by this reference, specifically incorporates in full within this paragraph (c). The Advisory Committee will not credit an Hour of Service under more than one of the above paragraphs. A computation period for purposes of this Section 1.24 is the Plan Year, Year of Service period, Break in Service period or other period, as determined under the Plan provision for which the Advisory Committee is measuring an Employee's Hours of Service. The Advisory Committee will resolve any ambiguity with respect to the crediting of an Hour of Service in favor of the Employee. (A) Method of crediting Hours of Service. The Employer will credit every Employee with Hours of Service on the basis of the "actual" method. For purposes of the Plan, "actual" method means the 1.5 determination of Hours of Service from records of hours worked and hours for which the Employer makes payment or for which payment is due from the Employer. (B) Maternity/paternity leave. Solely for purposes of determining whether the Employee incurs a Break in Service under any provision of this Plan, the Advisory Committee must credit Hours of Service during an Employee's unpaid absence period due to maternity or paternity leave. The Advisory Committee considers an Employee on maternity or paternity leave if the Employee's absence is due to the Employee's pregnancy, the birth of the Employee's child, the placement with the Employee of an adopted child, or the care of the Employee's child immediately following the child's birth or placement. The Advisory Committee credits Hours of Service under this paragraph on the basis of the number of Hours of Service the Employee would receive if he were paid during the absence period or, if the Advisory Committee cannot determine the number of Hours of Service the Employee would receive, on the basis of 8 hours per day during the absence period. The Advisory Committee will credit only the number (not exceeding 501) of Hours of Service necessary to prevent an Employee's Break in Service. The Advisory Committee credits all Hours of Service described in this paragraph to the computation period in which the absence period begins or, if the Employee does not need these Hours of Service to prevent a Break in Service in the computation period in which his absence period begins, the Advisory Committee credits these Hours of Service to the immediately following computation period. 1.25 "Disability" means the Participant, because of a physical or mental disability, will be unable to perform the duties of his customary position of employment (or is unable to engage in any substantial gainful activity) for an indefinite period which the Advisory Committee considers will be of long continued duration. A Participant also is disabled if he incurs the permanent loss or loss of use of a member or function of the body, or is permanently disfigured, and incurs a Separation from Service. The Plan considers a Participant disabled on the date the Advisory Committee determines the Participant satisfies the definition of disability. The Advisory Committee may require a Participant to submit to a physical examination in order to confirm disability. The Advisory Committee will apply the provisions of this Section 1.25 in a nondiscriminatory, consistent and uniform manner. 1.26 Service for Predecessor Employer. If the Employer maintains the plan of a predecessor employer, the Plan treats service of the Employee with the predecessor employer as service with the Employer. 1.27 Related Employers. A related group is a controlled group of corporations (as defined in Code (S)414(b)), trades or businesses (whether or not incorporated) which are under common control (as defined in Code (S)414(c)) or an affiliated service group (as defined in Code (S)414(m) or in Code (S)414(o)). If the Employer is a member of a related group, the term "Employer" includes the related group members for purposes of crediting Hours of Service, determining Years of Service and Breaks in Service under Articles II and V, applying the Participation Test and the Coverage Test under Section 3.06(D), applying the limitations on allocations in Part 2 of Article III, applying the top heavy rules and the minimum allocation requirements of Article III, the definitions of Employee, Highly Compensated Employee, Compensation and Leased Employee, and for any other purpose required by the applicable Code section or by a Plan provision. However, only an Employer described in Section 1.02 may contribute to the Plan and only an Employee employed by an Employer described in Section 1.02 is eligible to participate in this Plan. 1.6 1.28 Leased Employees. The Plan treats a Leased Employee as an Employee of the Employer. A Leased Employee is an individual (who otherwise is not an Employee of the Employer) who, pursuant to a leasing agreement between the Employer and any other person, has performed services for the Employer (or for the Employer and any persons related to the Employer within the meaning of Code (S)144(a)(3)) on a substantially full time basis for at least one year and who performs services historically performed by employees in the Employer's business field. If a Leased Employee is treated as an Employee by reason of this Section 1.25 of the Plan, "Compensation" includes Compensation from the leasing organization which is attributable to services performed for the Employer. (A) Safe harbor plan exception. The Plan does not treat a Leased Employee as an Employee if the leasing organization covers the employee in a safe harbor plan and, prior to application of this safe harbor plan exception, 20% or less of the Employer's Employees (other than Highly Compensated Employees) are Leased Employees. A safe harbor plan is a money purchase pension plan providing immediate participation, full and immediate vesting, and a nonintegrated contribution formula equal to at least 10% of the employee's compensation without regard to employment by the leasing organization on a specified date. The safe harbor plan must determine the 10% contribution on the basis of compensation as defined in Code (S)415(c)(3) plus elective contributions (as defined in Section 1.10). (B) Other requirements. The Advisory Committee must apply this Section 1.28 in a manner consistent with Code (S)(S)414(n) and 414(o) and the regulations issued under those Code sections. The Advisory Committee will reduce a Leased Employee's allocation of Employer contributions under this Plan by the Leased Employee's allocation under the leasing organization's plan, but only to the extent that allocation is attributable to the Leased Employee's service provided to the Employer. 1.29 Determination of Top Heavy Status. If this Plan is the only qualified plan maintained by the Employer, the Plan is top heavy for a Plan Year if the top heavy ratio as of the Determination Date exceeds 60%. The Top Heavy Ratio is a fraction, the numerator of which is the sum of the present value of Accrued Benefits of all Key Employees as of the Determination Date and the denominator of which is a similar sum determined for all Employees. The Advisory Committee must include in the top heavy ratio, as part of the present value of Accrued Benefits, any contribution not made as of the Determination Date but includible under Code (S)416 and the applicable Treasury regulations, and distributions made within the Determination Period. The Advisory Committee must calculate the top heavy ratio by disregarding the Accrued Benefit (and distributions, if any, of the Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee, and by disregarding the Accrued Benefit (including distributions, if any, of the Accrued Benefit) of an individual who has not received credit for at least one Hour of Service with the Employer during the Determination Period. The Advisory Committee must calculate the top heavy ratio, including the extent to which it must take into account distributions, rollovers and transfers, in accordance with Code (S)416 and the regulations under that Code section. If the Employer maintains other qualified plans (including a simplified employee pension plan), or maintained another such plan which now is terminated, this Plan is top heavy only if it is part of the Required Aggregation Group, and the top heavy ratio for the Required Aggregation Group and for the Permissive Aggregation Group, if any, each exceeds 60%. The Advisory Committee will calculate the top heavy ratio in the same manner as required by the first paragraph of this Section 1.29, taking into account all plans within the Aggregation Group. To the extent the 1.7 Advisory Committee must take into account distributions to a Participant, the Advisory Committee must include distributions from a terminated plan which would have been part of the Required Aggregation Group if it were in existence on the Determination Date. The Advisory Committee will calculate the present value of accrued benefits under defined benefit plans or simplified employee pension plans included within the group in accordance with the terms of those plans, Code (S)416 and the regulations under that Code section. If a Participant in a defined benefit plan is a Non-Key Employee, the Advisory Committee will determine his accrued benefit under the accrual method, if any, which is applicable uniformly to all defined benefit plans maintained by the Employer or, if there is no uniform method, in accordance with the slowest accrual rate permitted under the fractional rule accrual method described in Code (S)411(b)(1)(C). To calculate the present value of benefits from a defined benefit plan, the Advisory Committee will use the actuarial assumptions (interest and mortality only) prescribed by the defined benefit plan(s) to value benefits for top heavy purposes. If an accredited plan does not have a valuation date coinciding with the Determination Date, the Advisory Committee must value the Accrued Benefits in the aggregated plan as of the most recent valuation date falling within the twelve-month period ending on the Determination Date, except as Code (S)416 and applicable Treasury regulations require for the first and second plan year of a defined benefit plan. The Advisory Committee will calculate the top heavy ratio with reference to the Determination Dates that fall within the same calendar year. Definitions. For purposes of applying the provisions of this Section 1.29: (a) "Key Employee" means, as of any Determination Date, any Employee or former Employee (or Beneficiary of such Employee) who, for any Plan Year in the Determination Period: (i) has Compensation in excess of 50% of the dollar amount prescribed in Code (S)415(b)(1)(A) (relating to defined benefit plans) and is an officer of the Employer; (ii) has Compensation in excess of the dollar amount prescribed in Code (S)415(c)(1)(A) (relating to defined contribution plans) and is one of the Employees owning the ten largest interests in the Employer; (iii) is a more than 5% owner of the Employer; or (iv) is a more than 1% owner of the Employer and has Compensation of more than $150,000. The constructive ownership rules of Code (S)318 (or the principles of that section, in the case of an unincorporated Employer,) will apply to determine ownership in the Employer. The number of officers taken into account under clause (i) will not exceed the greater of 3 or 10% of the total number (after application of the Code (S)414(q) exclusions) of Employees, but no more than 50 officers. The Advisory Committee will make the determination of who is a Key Employee in accordance with Code (S)416(i)(1) and the regulations under that Code section. (b) "Non-Key Employee" is an employee who does not meet the definition of Key Employee. (c) "Compensation" means Compensation as determined under Section 1.07 for purposes of identifying Highly Compensated Employees. (d) "Required Aggregation Group" means: (1) each qualified plan of the Employer in which at least one Key Employee participates at any time during the Determination Period; and (2) any other qualified plan of the Employer which enables a plan described in clause (1) to meet the requirements of Code (S)401(a)(4) or of Code (S)410. 1.8 (e) "Permissive Aggregation Group" is the Required Aggregation Group plus any other qualified plans maintained by the Employer, but only if such group would satisfy in the aggregate the requirements of Code (S)401(a)(4) and of Code (S)410. The Advisory Committee will determine the Permissive Aggregation Group. (f) "Employer" means the Employer that adopts this Plan and any related employers described in Section 1.27. (g) "Determination Date" for any Plan Year is the Accounting Date of the preceding Plan Year or, in the case of the first Plan Year of the Plan, the Accounting Date of that Plan Year. The "Determination Period" is the 5 year period ending on the Determination Date. 1.30 Plan Maintained by More Than One Employer. (a) Treatment of Employers. If more than one employer maintains this Plan, then for purposes of determining Service and Hours of Service, the Plan Administrator will treat all Employers maintaining this Plan as a single employer. (b) Plan Allocations. The Plan Administrator must allocate all Employer contributions and forfeitures to each Participant in the Plan, in accordance with Article III, without regard to which contributing Employer employs the Participant. A Participant's Compensation includes Compensation from all participating Employers, irrespective of which Employers are contributing to the Plan. 1.31 "Disqualified Person" shall have the meaning ascribed to that term under Code (S)4975(e)(2). 1.32 "Employer Securities" means common stock issued by the Employer, or by a corporation which is a member of the same controlled group of corporations. 1.33 "Exempt Loan" means a loan made to this Plan by a Disqualified Person, or a loan to this Plan which a Disqualified Person guarantees, provided the loan satisfies the requirements of Treas. Reg. (S)54.4975-7(b). 1.34 "Leveraged Employer Securities" means Employer Securities acquired by the Trust with the proceeds of an Exempt Loan and which satisfy the definition of "qualifying employer securities" under Code (S)4975(e)(8). * * * * * * * * * * * * * * * * * * * 1.9 ARTICLE II - EMPLOYEE PARTICIPANTS 2.01 Eligibility. Each Employee (other than an Excluded Employee) becomes a Participant in the Plan on the Plan Entry Date (if employed on that date) immediately following the later of the date on which he completes one Year of Service or attains age 21. "Plan Entry Date" means the Effective Date and each January 1 and July 1. Each Employee who was a Participant in the Plan on the day before the Effective Date of this restated Plan will not continue as a Participant unless he has completed the conditions of this Section 2.01. An Employee is an Excluded Employee if he is: A member of a collective bargaining unit, unless the collective bargaining agreement provides otherwise. An Employee is a member of a collective bargaining unit if he is included with a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers. The term "employee representatives" does not include an organization more than one half of the members of which are owners, officers or executives of the Employer. A nonresident alien who does not receive any earned income (as defined in Code (S)911(d)(2)) from the Employer which constitutes United States source income (as defined in Code (S)861(a)(31)). Certain Employees (including any 25% or more shareholders and any Employee who sells Employer stock in a Section 1042 sale) shall be excluded during the nonallocation period as further described in Section 10.03(A)(1) hereafter. If a Participant has not incurred a Separation from Service but becomes an Excluded Employee, then during the period such a Participant is an Excluded Employee, the Advisory Committee will limit that Participant's sharing in the allocation of Employer contributions and Participant forfeitures, if any, under the Plan by disregarding his Compensation paid by the Employer for services rendered in his capacity as an Excluded Employee. However, during such period of exclusion, the Participant, without regard to employment classification, continues to receive credit for vesting under Article V for each included Year of Service and the Participant's Account continues to share fully in Trust Fund allocations under Section 9.11. If an Excluded Employee who is not a Participant becomes eligible to participate in the Plan by reason of a change in employment classification, he will participate in the Plan immediately if he has satisfied the eligibility conditions of Section 2.01 and would have been a Participant had he not been an Excluded Employee during his period of Service. Furthermore, the Plan takes into account all of the Participant's included Years of Service with the Employer as an Excluded Employee for purposes of vesting credit under Article V. 2.02 Year of Service - Participation. For purposes of an Employee's participation in the Plan under Section 2.01, the Plan takes into account all of his Years of Service with the Employer, except as provided in Section 2.03. "Year of Service" means an eligibility computation period during 2.1 which the Employee completes not less than 1000 Hours of Service. The initial eligibility computation period is the first 12 consecutive month period measured from the Employment Commencement Date. The Plan measures subsequent periods by reference to the Plan Year, beginning with the Plan Year which includes the first anniversary of the Employee's Employment Commencement Date. "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service for the Employer. 2.03 Break in Service - Participation. For purposes of participation in the Plan, the Plan does not apply any Break in Service rule. 2.04 Participation upon Re-employment. A Participant whose employment with the Employer terminates will re-enter the Plan as a Participant on the date of his reemployment. An Employee who satisfies the Plan's eligibility conditions but who terminates employment with the Employer prior to becoming a Participant will become a Participant on the later of the Plan Entry Date on which he would have entered the Plan had he not terminated employment or the date of his reemployment. Any Employee who terminates employment prior to satisfying the Plan's eligibility conditions becomes a Participant in accordance with the provisions of Section 2.01. * * * * * * * * * * * * * * * 2.2 ARTICLE III - EMPLOYER CONTRIBUTIONS AND FORFEITURES Part 1. Amount of Employer Contributions and Plan Allocations: Sections 3.01 through 3.06 3.01 Amount. For each Plan Year, the Employer will contribute to the Trust the amount which the Employer may from time to time deem advisable. The Employer may contribute to this Plan irrespective of whether it has net profits. The Employer intends the Plan to be an employee stock ownership plan for all purposes of the Code. The Employer may not make a contribution to the Trust for any Plan Year to the extent the contribution would exceed the Participants' Maximum Permissible Amounts. See Part 2 of this Article III. The Employer contributes to this Plan on the condition its contribution is not due to a mistake of fact and the Revenue Service will not disallow the deduction for its contribution. The Trustee, upon written request from the Employer, must return to the Employer the amount of the Employer's contribution made by the Employer by mistake of fact or the amount of the Employer's contribution disallowed as a deduction under Code (S)404. The Trustee will not return any portion of the Employer's contribution under the provisions of this paragraph more than one year after: (a) The Employer made the contribution by mistake of fact; or (b) The disallowance of the contribution as a deduction, and then, only to the extent of the disallowance. Omission of Eligible Employee: If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after the close of the year has occurred, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount of the allocation which would have occurred on account of forfeitures or by the amount which the Employer would have contributed had the Participant not been omitted, or both. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. Inclusion of Ineligible Employee: If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute an allocable amount in the Plan Year in which the discovery is made. It shall then be allocated to the eligible Participants' accounts, or, if such allocation cannot be made, then to a suspense account for future allocation to Participants. The Trustee will not increase the amount of the Employer contribution returnable under this Section 3.01 for any earnings attributable to the contribution, but the Trustee will decrease the Employer contribution returnable for any losses attributable to it. The Trustee may require the Employer to furnish it whatever evidence the Trustee deems necessary to enable the Trustee to confirm the amount the Employer has requested be returned is properly returnable under ERISA. 3.1 The Employer may make its contribution in cash or in Employer Securities (valued at fair market value on the date of contribution) as the Employer from time to time may determine. Subject to the consent of the Trustee, the Employer may make its contribution in property rather than in cash or in Employer Securities, provided the contribution of property is not a prohibited transaction under the Code or under ERISA. 3.02 Determination of Contribution. The Employer, from its records, determines the amount of any contributions to be made by it to the Trust under the terms of the Plan. 3.03 Time of Payment of Contribution. The Employer may pay its contribution for each Plan Year in one or more installments without interest. The Employer must make its contribution to the Plan within the time prescribed by the Code or applicable Treasury regulations. 3.04 Contribution Allocation. (A) Method of Allocation. Subject to any restoration required under Section 5.04, the Advisory Committee will allocate and credit each annual Employer contribution (and Participant forfeitures, if any) to the Account of each Participant who satisfies the conditions of Section 3.06. The Advisory Committee will make this allocation in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. For purposes of this Section 3.04(A), "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation will not exceed 3% of his Compensation for the Plan Year. (B) Top Heavy Minimum Allocation. (1) Minimum Allocation. If the Plan is top heavy in any Plan Year: (a) Each Non-Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year will receive a top heavy minimum allocation for that Plan Year, irrespective of whether he satisfies the Hours of Service condition under Section 3.06; and (b) The top heavy minimum allocation is the lesser of 3% of the Non-Key Employee's Compensation for the Plan Year or the highest contribution rate for the Plan Year made on behalf of any Key Employee. However, if a defined benefit plan maintained by the Employer which benefits a Key Employee depends on this Plan to satisfy the antidiscrimination rules of Code (S)401(a)(4) or the coverage rules of Code (S)410 (or another plan benefiting the Key Employee so depends on such defined benefit plan), the top heavy minimum allocation is 3% of the Non-Key Employee's Compensation regardless of the contribution rate for the Key Employees. (2) Special Definitions. For purposes of this Section 3.04(B), the term "Participant" includes any Employee otherwise eligible to participate in the Plan but who is not a Participant because of his failure to make elective deferrals under a Code (S)401(k) 3.2 arrangement or because of his failure to make mandatory employee contributions. For purposes of clause (b), "Compensation" means Compensation as defined in Section 1.10, except: (i) Compensation does not include elective contributions; (ii) any exclusions from Compensation (other than the exclusion of elective contributions) do not apply; and (iii) any modification to the definition of Compensation in Section 3.06 does not apply. (3) Determining Contribution Rates. For purposes of this Section 3.04(B), a Participant's contribution rate is the sum of Employer contributions (not including Employer contributions to Social Security) and forfeitures allocated to the Participant's Account for the Plan Year divided by his Compensation for the entire Plan Year. However, for purposes of satisfying a Participant's top heavy minimum allocation in Plan Years beginning after December 31, 1988, a Participant's contribution rate does not include any elective contributions under a Code (S)401(k) arrangement nor any Employer matching contributions necessary to satisfy nondiscrimination requirements of Code (S)401(k) or of Code (S)401(m). To determine a Participant's contribution rate, the Advisory Committee must treat all qualified top heavy defined contribution plans maintained by the Employer (or by any related Employers described in Section 1.27) as a single plan. (4) No Allocations. If, for a Plan Year, there are no allocations of Employer contributions or forfeitures for any Key Employee, the Plan does not require any top heavy minimum allocation for the Plan Year, unless a top heavy minimum allocation applies because of the maintenance by the Employer of more than one plan. (5) Method of Compliance. The Plan will satisfy the top heavy minimum allocation in accordance with this Section 3.04(B)(5). The Advisory Committee first will allocate the Employer contributions (and Participant forfeitures, if any) for the Plan Year in accordance with the allocation formula under Section 3.04(A). The Employer then will contribute an additional amount for the Account of any Participant entitled under this Section 3.04(B) to a top heavy minimum allocation and whose contribution rate for the Plan Year, under this Plan and any other plan aggregated under paragraph (3), is less than the top heavy minimum allocation. The additional amount is the amount necessary to increase the Participant's contribution rate to the top heavy minimum allocation. The Advisory Committee will allocate the additional contribution to the Account of the Participant on whose behalf the Employer makes the contribution. 3.05 Forfeiture Allocation. The amount of a Participant's Accrued Benefit forfeited under the Plan is a Participant forfeiture. Subject to any restoration allocation required under Section 9.14, the Advisory Committee will allocate a Participant forfeiture in accordance with Section 3.04, as an Employer contribution for the Plan Year in which the forfeiture occurs, as if the Participant forfeiture were an additional Employer contribution for that Plan Year. The Advisory Committee will continue to hold the undistributed, non-vested portion of a terminated Participant's Accrued Benefit in his Account solely for his benefit until a forfeiture occurs at the specified in Section 5.09, or, if applicable, until the time specified in Section 9.14. Except as provided under Section 5.04, a Participant will not share in the allocation of a forfeiture of any portion of his Accrued Benefit. In making a forfeiture allocation under this Section 3.05, the Advisory Committee, must base forfeitures of Employer Securities upon the fair market value of the Employer Securities as of the Accounting Date of the forfeitures. 3.3 3.06 Accrual of Benefit. The Advisory Committee will determine the accrual of benefit (Employer Contributions and Participant forfeitures) on the basis of the Plan Year. (A) Compensation Taken Into Account. In allocation an Employer contribution to a Participant's Account, the Advisory Committee, except for purposes of determining the top heavy minimum contribution under Section 3.04(B), will take into account only the Compensation determined for the portion of the Plan Year in which the Employee actually is a Participant. (B) Hours of Service Requirement. Subject to the top heavy minimum allocation requirement of Section 3.04(B), the Advisory Committee will not allocate any portion of an Employer contribution for a Plan Year to any Participant's Account if the Participant does not complete a minimum of 1000 Hours of Service during the Plan Year, unless the Participant terminates employment during the Plan Year because of death or disability or because of the attainment of Normal Retirement Age in the current Plan Year or in a prior Plan Year. (C) Employment Requirement. A Participant who, during a particular Plan Year, completes the Hours of Service requirement under Section 3.06(B) will share in the allocation of Employer contributions and Participant forfeitures, if any, for that Plan Year without regard to whether he is employed by the Employer on the Accounting Date of that Plan Year. (D) Suspension of Accrual Requirements. The Plan suspends the accrual requirements under Sections 3.06(B) and (C) if, for any Plan Year beginning after December 31, 1989, the Plan fails to satisfy the Participation Test or the Coverage Test. A Plan satisfies the Participation Test if, on each day of the Plan Year, the number of Employees who benefit under the Plan is at least equal to the lesser of 50 or 40% of the total number of Includible Employees as of such day. A Plan satisfies the Coverage Test if, on the last day of each quarter of the Plan Year, the number of Nonhighly Compensated Employees who benefit under the Plan is at least equal to 70% of the total number of Includible Nonhighly Compensated Employees as of such day. "Includible" Employees are all Employees other than: (1) those Employees excluded from participating in the Plan for the entire Plan Year by reason of the collective bargaining unit exclusion or the nonresident alien exclusion described in the Code or by reason of the age and service requirements of Article II; and (2) any Employee who incurs a Separation from Service during the Plan Year and fails to complete at least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee" is an Employee who is not a Highly Compensated Employee and who is not a family member aggregated with a Highly Compensated Employee pursuant to Section 1.07 of the Plan. For purposes of the Participation Test and the Coverage Test, an Employee is benefiting under the Plan on a particular date if, under Section 3.04, he is entitled to an allocation for the Plan Year. If this Section 3.06((D)) applies for a Plan Year, the Advisory Committee will suspend the accrual requirements for the Includible Employees who are Participants, beginning first with the Includible Employee(s) employed with the Employer on the last day of the Plan Year, then the Includible Employee(s) who have the latest Separation from Service during the Plan Year, and continuing to suspend in descending order the accrual requirements for each Includible Employee who incurred an earlier Separation from Service, from the latest to the earliest Separation from Service date, until the Plan satisfies both the Participation Test and the Coverage Test for the Plan Year. If two or more Includible Employees have a Separation from Service on the same day, the Advisory Committee will suspend the accrual requirements for all such Includible Employees, irrespective of whether the plan can satisfy the Participation Test and the Coverage Test by accruing 3.4 benefits for fewer than all such Includible Employees. If the Plan suspends the accrual requirements for an Includible Employee, that Employee will share in the allocation of Employer contributions and Participant forfeitures, if any, without regarding to the number of Hours of Service he has earned for the Plan Year and without regard to whether he is employed by the Employer on the last day of the Plan Year. Part 2. Limitations on Allocations: Sections 3.07 and 3.08 3.07 Limitations on Allocations to Participants' Accounts. The amount of Annual Additions which the Advisory Committee may allocate under this Plan on a Participant's behalf for a Limitation Year may not exceed the Maximum Permissible Amount. If the amount the Employer otherwise would contribute to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the Employer will reduce the amount of its contribution so the Annual Additions for the Limitation Year will equal the Maximum Permissible Amount. If an allocation of Employer contributions pursuant to Section 3.04, would result in an Excess Amount (other than an Excess Amount resulting from the circumstances described in Section 3.07(B) ) to the Participant's Account, the Advisory Committee will reallocate the Excess Amount to the remaining Participants who are eligible for an allocation of Employer contributions for the Plan Year in which the Limitation Year ends. The Advisory Committee will make this reallocation on the basis of the allocation method under the Plan as if the Participant whose Account otherwise would receive the Excess Amount is not eligible for an allocation of Employer contributions. (A) Estimation of Compensation. Prior to the determination of the Participant's actual Compensation for a Limitation Year, the Advisory Committee may determine the Maximum Permissible Amount on the basis of the Participant's estimated annual Compensation for such Limitation Year. The Advisory Committee must make this determination on a reasonable and uniform basis for all Participants similarly situated. The Advisory Committee must reduce any Employer contributions (including any allocation of forfeitures) based on estimated annual Compensation by any Excess Amounts carried over from prior years. As soon as is administratively feasible after the end of the Limitation Year, the Advisory Committee will determine the Maximum Permissible Amount for such Limitation Year on the basis of the Participant's actual Compensation for such Limitation Year. (B) Disposition of Excess Amount. If, pursuant to Section 3.07(A), or because of the allocation of forfeitures, there is an Excess Amount with respect to a Participant for a Limitation Year, the Advisory Committee will dispose of such Excess Amount as follows: (a) The Advisory Committee will return any nondeductible voluntary Employee contributions to the Participant to the extent the return would reduce the Excess Amount. (b) If, after the application of paragraph (a), an Excess Amount still exists, and the Plan covers the Participant at the end of the Limitation Year, then the Advisory Committee will use the Excess Amount(s) to reduce future Employer contributions (including any allocation of forfeitures) under the Plan for the next Limitation Year and for each succeeding Limitation Year, as is necessary, for the Participant. The Participant may elect to limit his Compensation for allocation purposes to the extent necessary to reduce his allocation for the Limitation Year to the Maximum Permissible Amount and eliminate the Excess Amount. 3.5 (c) If, after the application of paragraph (a), an Excess Amount still exists, and the Plan does not cover the Participant at the end of the Limitation Year, then the Advisory Committee will hold the Excess Amount unallocated in a suspense account. The Advisory Committee will apply the suspense account to reduce Employer Contributions (including allocation of forfeitures) for all remaining Participants in the next Limitation Year, and in each succeeding Limitation Year if necessary. Neither the Employer nor any Employee may contribute to the Plan for any Limitation Year in which the Plan is unable to allocate fully a suspense account maintained pursuant to this paragraph (c). (d) The Advisory Committee will not distribute any Excess Amount(s) to Participants or to former Participants. (C) Defined Benefit Plan Limitation. If the Participant presently participates, or has ever participated under a defined benefit plan maintained by the Employer, then the sum of the defined benefit plan fraction and the defined contribution plan fraction for the Participant for that Limitation Year must not exceed 1.0. To the extent necessary to satisfy this limitation, the Employer will reduce its contribution or allocation on behalf of the Participant to the defined contribution plan under which the Participant participates and then, if necessary, the Participant's projected annual benefit under the defined benefit plan under which the Participant participates. 3.08 Definitions - Article III. For purposes of Article III, the following terms mean: (a) "Annual Addition" - The sum of the following amounts allocated on behalf of a Participant for a Limitation Year, of (i) all Employer contributions; (ii) all forfeitures; and (iii) all Employee contributions. Except to the extent provided in Treasury regulations, Annual Additions include excess contributions described in Code (S)401(k), excess aggregate contributions described in Code (S)401(m) and excess deferrals described in Code (S)402(g), irrespective of whether the plan distributes or forfeits such excess amounts. Annual Additions also include Excess Amounts reapplied to reduce Employer contributions under Section 3.07. Amounts allocated after March 31, 1984, to an individual medical account (as defined in Code (S)415(l)(2)) included as part of a defined benefit plan maintained by the Employer are Annual Additions. Furthermore, Annual Additions include contributions paid or accrued after December 31, 1985, for taxable years ending after December 31, 1985, attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code (S)419A(d)(3)) under a welfare benefit fund (as defined in Code (S)419(e)) maintained by the Employer, but only for purposes of the dollar limitation applicable to the Maximum Permissible Amount. "Annual Additions" do not include any Employer contributions applied by the Advisory Committee (not later than the due date, including extensions, for filing the Employer's Federal income tax return for the Plan Year) to pay interest (charged to a Participant's Account) on an Exempt Loan, and any Leveraged Employer Securities the Advisory Committee allocates as forfeitures; provided however, the provisions of this sentence do not apply in a Limitation Year for which the Advisory Committee allocates more than one-third (1/3) of the Employer contributions applied to pay principal and interest on an Exempt Loan to Highly Compensated Employee-Participants. The Advisory Committee may reallocate the Employer contributions in accordance with Section 3.04 to the Accounts of non-Highly 3.6 Compensated Employee-Participants to the extent necessary in order to satisfy this special limitation. (b) "Compensation" - For purposes of applying the limitations of Part 2 of this Article III, "Compensation" means Compensation as defined in Section 1.10, except Compensation does not include elective contributions and any exclusion from Compensation (other than the exclusion of elective contributions) does not apply. (c) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if greater, one-fourth of the defined benefit dollar limitation under Code (S)415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the Limitation Year. [The dollar amount of clause (i) will increase by the lesser of (1) 100% of the dollar amount in effect for the Limitation Year; or (2) the amount of the Employer Securities allocated to the Participant's Employer Securities Account as an Employer contribution for the Limitation Year. The immediately preceding sentence does not apply for any Limitation Year for which the Advisory Committee allocates more than one-third (1/3) of Employer contribution to Highly Compensated Employee Participants, nor to Limitation Years commencing after July 12, 1989.] If there is a short Limitation Year because of a change in Limitation Year, the Advisory Committee will multiply the $30,000 limitation (or larger limitation) by the following fraction: Number of months in the short Limitation Year --------------------------------------------- 12 (d) "Employer" - The Employer that adopts this Plan and any related employers described in Section 1.27. Solely for purposes of applying the limitations of Part 2 of this Article III, the Advisory Committee will determine related employers described in Section 1.27 by modifying Code (S)414(b) and (c) in accordance with Code (S)415(h). (e) "Excess Amount" - The excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. (f) "Limitation Year" - The Plan Year. If the Employer amends the Limitation Year to a different 12 consecutive month period, the new Limitation Year must begin on a date within the Limitation Year for which the Employer makes the amendment, creating a short Limitation Year. (g) "Defined contribution plan" - A retirement plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which the plan may allocate to such participant's account. The Advisory Committee must treat all defined contribution plans (whether or not terminated) maintained by the Employer as a single plan. Solely for purposes of the limitations of Part 2 of this Article III, the Advisory Committee will treat employee contributions made to a defined benefit plan maintained by the Employer as a separate defined contribution plan. The Advisory Committee also will treat as a defined contribution plan an individual medical account (as defined in Code (S)415(l)(2)) included as part of a defined benefit plan maintained 3.7 by the Employer and, for taxable years ending after December 31, 1985, a welfare benefit fund under Code (S)419(e) maintained by the Employer to the extent there are post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code (S)419A(d)(3)). (h) "Defined benefit plan" - A retirement plan which does not provide for individual accounts for Employer contributions. The Advisory Committee must treat all defined benefit plans (whether or not terminated) maintained by the Employer as a single plan. (i) "Defined benefit plan fraction" - Projected annual benefit of the Participant under the defined benefit plan(s) ----------------------------------------------------------------------------- The lesser of (i) 125% (subject to the "100% limitation" in paragraph (1)) of dollar limitation in effect under Code (S) 415(b)(1)(A) for the Limitation Year, or (ii) 140% of the Participant's average Compensation for his high three (3) consecutive Years of Service To determine the denominator of this fraction, the Advisory Committee will make any adjustment required under Code (S)415(b) and will determine a Year of Service as a Plan Year in which the Employee completed at least 1,000 Hours of Service. The "projected annual benefit" is the annual retirement benefit (adjusted to an actuarially equivalent straight life annuity if the plan expresses such benefit in a form other than a straight life annuity or qualified joint and survivor annuity) of the Participant under the terms of the defined benefit plan on the assumptions he continues employment until his normal retirement age (or current age, if later) as stated in the defined benefit plan, his compensation continues at the same rate as in effect in the Limitation Year under consideration until the date of his normal retirement age and all other relevant factors used to determine benefits under the defined benefit plan remain constant as of the current Limitation Year for all future Limitation Years. Current Accrued Benefit. If the Participant accrued benefits in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the dollar limitation used in the denominator of this fraction will not be less than the Participant's Current Accrued Benefit. A Participant's Current Accrued Benefit is the sum of the annual benefits under such defined benefit plans which the Participant had accrued as of the end of the 1986 Limitation Year (the last Limitation Year beginning before January 1, 1987), determined without regard to any change in the terms or conditions of the Plan made after May 5, 1986, and without regard to any cost of living adjustment occurring after May 5, 1986. This Current Accrued Benefit rule applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code (S)415 as in effect at the end of the 1986 Limitation Year. (j) "Defined contribution plan fraction" - The sum, as of the close of the Limitation Year, of the Annual Additions to the Participant's Account under the defined contribution plan(s) ------------------------------------------------------------------ The sum of the lesser of the following amounts determined for the Limitation Year and for each prior Year of Service with the Employer: (i) 125% 3.8 (subject to the "100% limitation" in paragraph (1)) of the dollar limitation in effect under Code (S)415(c)(1)(A) for the Limitation Year (determined without regard to the special dollar Limitations for employee stock ownership plans), or (ii) 35% of the Participant's Compensation for the Limitation Year For purposes of determining the defined contribution fraction, the Advisory Committee will not recompute Annual Additions in Limitation Years beginning prior to January 1, 1987, to treat all Employee contributions as Annual Additions. If the Plan satisfied Code (S)415 for Limitation Years beginning prior to January 1, 1987, the Advisory Committee will redetermine the defined contribution plan fraction and the defined benefit plan fraction as of the end of the 1986 Limitation Year, in accordance with this Section 3.19. If the sum of the redetermined fractions exceeds 1.0, the Advisory Committee will subtract permanently from the numerator of the defined contribution plan fraction an amount equal to the product of (1) the excess of the sum of the fractions over 1.0, times (2) the denominator of the defined contribution plan fraction. In making the adjustment, the Advisory Committee must disregard any accrued benefit under the defined benefit plan which is in excess of the Current Accrued Benefit. This Plan continues any transitional rules applicable to the determination of the defined contribution plan fraction under the Employer's Plan as of the end of the 1986 Limitation Year. (k) "100% Limitation." If the 100% limitation applies, the Advisory Committee must determine the denominator of the defined benefit plan fraction and the denominator of the defined contribution plan fraction by substituting 100% for 125%. The 100% limitation applies only if: (i) the Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is greater than 60%, and the Employer does not provide extra minimum benefits which satisfy Code (S)416(h)(2). * * * * * * * * * * 3.9 ARTICLE IV - PARTICIPANT CONTRIBUTIONS 4.01 Participant Voluntary Contributions. The Plan does not permit nor require Participant voluntary contributions. 4.02 Participant Rollover Contributions. The Plan does not permit Participant rollover contributions. 4.1 ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING 5.01 Normal Retirement Age. A Participant's Normal Retirement Age is 65 years of age. A Participant's Accrued Benefit derived from Employer contributions is 100% Nonforfeitable upon and after his attaining Normal Retirement Age (if employed by the Employer on or after that date). 5.02 Participant Disability or Death; Plant Shutdown or Sale or a Substantial Reduction in Workforce. If a Participant's employment with the Employer terminates as a result of death or disability, the Participant's Accrued Benefit derived from Employer contributions will be 100% Nonforfeitable. Additionally, if and to the extent that the Employer so determines in its sole discretion, a Participant's interest in his Employer Contributions Account may become 100% Nonforfeitable in the event that the Participant's employment is terminated due to a plant shutdown or sale or in the event of a substantial reduction in the workforce of the Employer. 5.03 Vesting Schedule. Except as provided in Sections 5.01 and 5.02, for each Year of Service, a Participant's Nonforfeitable percentage of his Accrued Benefit derived from Employer contributions equals the percentage in the following vesting schedule: Percent of Years of Service Nonforfeitable Interest ---------------- ----------------------- Less than 5............ 0% 5 or more ............. 100% With respect to Plan Years for which the Plan is top heavy, the Advisory Committee will calculate a Participant's Nonforfeitable Percentage under the following schedule: TOP HEAVY VESTING SCHEDULE -------------------------- Percent of Years of Service Nonforfeitable Interest ---------------- ----------------------- Less than 2 ........... 0% 2 ..................... 20% 3 ..................... 40% 4 ..................... 60% 5 ..................... 80% 6 or more.............. 100% A Participant's Nonforfeitable Accrued Benefit will never be less than the lesser of $25.00 or his entire Accrued Benefit, even if the application of the vesting schedule would result in a smaller Nonforfeitable Accrued Benefit. 5.04 Cash-Out Distributions to Partially-Vested Participants/ Restoration of Forfeited Accrued Benefit. If, pursuant to Article VI, a partially-vested Participant receives a cash-out 5.1 distribution before he incurs a Forfeiture Break in Service (as defined in Section 5.08), the cash-out distribution will result in an immediate forfeiture of the nonvested portion of the Participant's Accrued Benefit derived from Employer contributions. See Section 5.09. A partially-vested Participant is a Participant whose Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A cash-out distribution is a distribution of the entire present value of the Participant's Nonforfeitable Accrued Benefit. (A) Restoration and Conditions upon Restoration. A partially-vested Participant who is re-employed by the Employer after receiving a cash-out distribution of the Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the amount of the cash-out distribution attributable to Employer contributions, unless the Participant no longer has a right to restoration by reason of the conditions of this Section 5.04(A). If a partially-vested Participant makes the cash-out distribution repayment, the Advisory Committee, subject to the conditions of this Section 5.04(A), must restore his Accrued Benefit attributable to Employer contributions to the same dollar amount as the dollar amount of his Accrued Benefit on the Accounting Date, or other valuation date, immediately preceding the date of the cash-out distribution, unadjusted for any gains or losses occurring subsequent to that Accounting Date, or other valuation date. Restoration of the Participant's Accrued Benefit includes restoration of all Code (S)411(d)(6) protected benefits with respect to that restored Accrued Benefit, in accordance with applicable Treasury regulations. The Advisory Committee will not restore a re-employed Participant's Accrued Benefit under this paragraph if: (1) 5 years have elapsed since the Participant's first re-employment date with the Employer following the cash-out distribution; or (2) The Participant incurred a Forfeiture Break in Service (as defined in Section 5.08). This condition also applies if the Participant makes repayment within the Plan Year in which he incurs the Forfeiture Break in Service and that Forfeiture Break in Service would result in a complete forfeiture of the amount the Advisory Committee otherwise would restore. (B) Time and Method of Restoration. If neither of the two conditions preventing restoration of the Participant's Accrued Benefit applies, the Advisory Committee will restore the Participant's Accrued Benefit as of the Plan Year Accounting Date coincident with or immediately following the repayment. To restore the Participant's Accrued Benefit, the Advisory Committee, to the extent necessary, will allocate to the Participant's Account: (1) First, the amount, if any, of Participant forfeitures the Advisory Committee would otherwise allocate under Section 3.05; (2) Second, the amount, if any, of the Trust Fund net income or gain for the Plan Year; and (3) Third, the Employer contribution for the Plan Year to the extent made under a discretionary formula. To the extent the amounts described in clauses (1), (2) and (3) are insufficient to enable the Advisory Committee to make the required restoration, the Employer must contribute, without regard to any requirement or condition of Section 3.01, the additional amount necessary to enable the Advisory Committee to make the required restoration. If, for a particular Plan Year, the Advisory 5.2 Committee must restore the Accrued Benefit of more than one re-employed Participant, then the Advisory Committee will make the restoration allocations to each such Participant's Account in the same proportion that a Participant's restored amount for the Plan Year bears to the restored amount for the Plan Year of all re-employed Participants. The Advisory Committee will not take into account any allocation under this Section 5.04 in applying the limitation on allocations under Part 2 of Article III. (C) 0% Vested Participant. The deemed cash-out rule applies to a 0% vested Participant. A 0% vested Participant is a Participant whose Accrued Benefit derived from Employer contributions is entirely forfeitable at the time of his Separation from Service. Under the deemed cash-out rule, the Advisory Committee will treat the 0% vested Participant as having received a cash-out distribution on the date of the Participant's Separation from Service or, if the Participant's Account is entitled to an allocation of Employer contributions for the Plan Year in which he separates from Service, on the last day of that Plan Year. For purposes of applying the restoration provisions of this Section 5.04, the Advisory Committee will treat the 0% vested Participant as repaying his cash-out "distribution" on the first date of his re-employment with the Employer. 5.05 Segregated Account for Repaid Amount. Until the Advisory Committee restores the Participant's Accrued Benefit, as described in Section 5.04, the Trustee will invest the cash-out amount the Participant has repaid in a segregated Account maintained solely for that Participant. The Trustee must invest the amount in the Participant's segregated Account in Federally insured interest bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investments. Until commingled with the balance of the Trust Fund on the date the Advisory Committee restores the Participant's Accrued Benefit, the Participant's segregated Account remains a part of the Trust, but it alone shares in any income it earns and it alone bears any expense or loss it incurs. Unless the repayment qualifies as a rollover contribution, the Advisory Committee will direct the Trustee to repay to the Participant as soon as is administratively practicable the full amount of the Participant's segregated Account if the Advisory Committee determines either of the conditions of Section 5.04(A) prevents restoration as of the applicable Accounting Date, notwithstanding the Participant's repayment. 5.06 Year of Service - Vesting. For purposes of vesting under Section 5.03, Year of Service means any Plan Year during which an Employee completes not less than 1,000 Hours of Service with the Employer. 5.07 Break In Service - Vesting. For purposes of this Article V, a Participant incurs a "Break in Service" if during any Plan Year he does not complete more than 500 Hours of Service with the Employer. 5.08 Included Years of Service - Vesting. (A) Included Years of Service. For purposes of determining "Years of Service" under Section 5.06, the Plan takes into account all Years of Service an Employee completes with the Employer, except: (1) Any Year of Service during the period the Employer did not maintain this Plan or a predecessor plan. 5.3 (2) Any Year of Service before a Break in Service if the number of consecutive Breaks in Service equals or exceeds the greater of 5 or the aggregate number of the Years of Service prior to the Break. This exception applies only if the Participant is 0% vested in his Accrued Benefit derived from Employer contributions at the time he has a Break in Service. Furthermore, the aggregate number of Years of Service before a Break in Service does not include any Years of Service not required to be taken into account under this exception by reason of any prior Break in Service. (3) Any Year of Service earned prior to the effective date of ERISA if the Plan would have disregarded that Year of Service on account of an Employee's Separation from Service under a Plan provision adopted and in effect before January 1, 1974. (B) Forfeiture Break in Service. For the sole purpose of determining a Participant's Nonforfeitable percentage of his Accrued Benefit derived from Employer contributions which accrued for his benefit prior to a Forfeiture Break in Service, the Plan disregards any Year of Service after the Participant first incurs a Forfeiture Break in Service. The Participant incurs a Forfeiture Break in Service when he incurs 5 consecutive Breaks in Service. 5.09 Forfeiture Occurs. A Participant's forfeiture, if any, of his Accrued Benefit derived from Employer contributions occurs under the Plan on the earlier of: (a) The last day of the vesting computation period in which the Participant first incurs a Forfeiture Break in Service; or (b) The date the Participant receives a cash-out distribution. The Advisory Committee determines the percentage of a Participant's Accrued Benefit forfeiture, if any, under this Section 5.09 solely by reference to the vesting schedule of Section 5.03. A Participant will not forfeit any portion of his Accrued Benefit for any other reason or cause except as expressly provided by this Section 5.09 or as provided under Section 9.14. * * * * * * * * * * 5.4 ARTICLE VI - TIME AND METHOD OF PAYMENT OF BENEFITS 6.01 Time of Payment of Accrued Benefit. Unless, pursuant to Section 6.03, the Participant or the Beneficiary elects in writing to a different time or method of payment, the Advisory Committee will direct the Trustee to commence distribution of a Participant's Nonforfeitable Accrued Benefit in accordance with this Section 6.01. A Participant must consent, in writing, to any distribution required under this Section 6.01 if the present value of the Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to the Participant, exceeds $3,500 and the Participant has not attained the later of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also must consent, in writing, to any distribution, for which Section 6.04 requires the spouse's consent. For all purposes of this Article VI, the term "Annuity Starting Date" means the first day of the first period for which the Plan pays an amount as an annuity or in any other form. A Distribution Date under this Article VI, unless otherwise specified within the Plan, is the 60th day of the Plan Year, or as soon as administratively practicable following a distribution date. For purposes of the consent requirements under this Article VI, if the present value of the Participant's Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500, the Advisory Committee must treat that present value as exceeding $3,500 for purposes of all subsequent Plan distributions to the Participant. (A) Separation from Service For a Reason Other Than Death. (1) Participant's Nonforfeitable Accrued Benefit Not Exceeding $3,500. If the Participant's Separation from Service is for any reason other than death, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in a lump sum as soon as administratively practicable following the close of the Plan Year in which the Participant's Separation from Service occurs, but in no event later than the 60th day following the close of the Plan Year in which the Participant attains Normal Retirement Age. If the Participant is partially vested in his Accrued Benefit, the distribution described in the preceding sentence may not occur earlier than the date the Participant incurs a Forfeiture Break in Service, subject to the requirement to make distribution no later than the 60th day following the Participant's attainment of Normal Retirement Age. (2) Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. If the Participant's Separation from Service is for any reason other than death, the Advisory Committee will direct the Trustee to commence distribution of the Participant's Nonforfeitable Accrued Benefit in a form and at the time elected by the Participant, pursuant to Section 6.03 and Section 6.05 (as to distributions of Employer Securities). In the absence of an election by the Participant, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if applicable, the normal annuity form of distribution required under Section 6.04), on the 60th day following the close of the Plan Year in which the latest of the following events occurs: (a) the Participant attains Normal Retirement Age; (b) the Participant attains age 62; or (c) the Participant's Separation from Service. (3) Disability. If the Participant's Separation from Service is because of his disability, the Advisory Committee will direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in lump sum, as soon as administratively feasible after the Participant's Separation from Service, subject to the notice and consent requirements of this Article VI and to the applicable mandatory commencement dates described in Paragraph (1) or in Paragraph (2). 6.1 (B) Required Beginning Date. If any distribution commencement date described under Paragraph (A) of this Section 6.01, either by Plan provision or by Participant election (or nonelection), is later than the Participant's Required Beginning Date, the Advisory Committee instead must direct the Trustee to make distribution on the Participant's Required Beginning Date. A Participant's Required Beginning Date is the April 1 following the close of the calendar year in which the Participant attain age 70 1/2. However, if the Participant, prior to incurring a Separation from Service, attained age 70 1/2 by January 1, 1988, and, for the five Plan Year period ending in the calendar year in which he attained age 70 1/2, and for all subsequent years, the Participant was not a more than 5% owner, the Required Beginning Date is the April 1 following the close of the calendar year in which the Participant separates from Service or, if earlier, the April 1 following the close of the calendar year in which the Participant becomes a more than 5% owner. Furthermore, if a Participant who was not a more than 5% owner attained age 70 1/2 during 1988 and did not incur a Separation from Service prior to January 1, 1989, his Required Beginning Date is April 1, 1990. A mandatory distribution at the Participant's Required Beginning Date will be in lump sum (or, if applicable, the normal annuity form of distribution required under Section 6.04) unless the Participant, pursuant to the provisions of this Article VI, makes a valid election to receive an alternative form of payment. (C) Death of the Participant. The Advisory Committee will direct the Trustee, in accordance with this Section 6.01(C), to distribute to the Participant's Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the Trust at the time of the Participant's death. Subject to the requirements of Section 6.04, the Advisory Committee will determine the death benefit by reducing the Participant's Nonforfeitable Accrued Benefit by any security interest the Plan has against that Nonforfeitable Accrued Benefit by reason of an outstanding Participant loan. (1) Deceased Participant's Nonforfeitable Accrued Benefit Does Not Exceed $3,500. The Advisory Committee, subject to the requirements of Section 6.04, must direct the Trustee to distribute the deceased Participant's Nonforfeitable Accrued Benefit in a single cash sum, as soon as administratively practicable following the Participant's death or, if later, the date on which the Advisory Committee receives notification of or otherwise confirms the Participant's death. (2) Deceased Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. The Advisory Committee will direct the Trustee to distribute the deceased Participant's Nonforfeitable Accrued Benefit at the time and in the form elected by the Participant or, if applicable by the Beneficiary, as permitted under this Article VI. In the absence of an election, subject to the requirements of Section 6.04, the Advisory Committee will direct the Trustee to distribute the Participant's undistributed Nonforfeitable Accrued Benefit in a lump sum on the first distribution date following the close of the Plan Year in which the Participant's death occurs or, if later, the first distribution date following the date the Advisory Committee receives notification of or otherwise confirms the Participant's death. If the death benefit is payable in full to the Participant's surviving spouse, the surviving spouse, in addition to the distribution options provided in this Section 6.01(C), may elect distribution at any time or in any form (other than a joint and survivor annuity) this Article VI would permit for a Participant. (D) Default on a Loan. If a Participant or Beneficiary defaults on a loan made pursuant to a loan policy adopted by the Advisory Committee pursuant to Section 9.04, the Plan treats the default as a distributable event. The Trustee, at the time of the default, will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. 6.2 6.02 Method of Payment of Accrued Benefit. Subject to the annuity distribution requirements, if any, prescribed by Section 6.04, and any restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect distribution as follows, subject to Section 10.08, and the other applicable rules herein: (i) If the Participant's benefit is $3,500 or less, the Trustee will pay the entire benefit in cash in one lump sum payment as soon as administratively practicable after the first day of the third month of the Plan Year following the Plan Year in which the Participant separates from service. (ii) If the Participant's benefit is greater than $3,500, upon the Participant's written consent, the Trustee will pay the benefit in five substantially equal annual installments beginning as soon as administratively practicable after the first day of the sixth Plan Year following the Plan Year in which the Participant separates from service, pursuant to Section 6.05. Special Option For Participants Employed Prior to January 1, 1994: Each Participant whose original date of employment was prior to January 1, 1994, and whose Nonforfeitable Accrued Benefit exceeds $3,500, may elect to have the Trustee distribute his entire benefit, in one cash payment, as soon as administratively feasible following his Separation from Service. Any Participant who elects this special option and whose account receives an allocation of the Employer's contribution for the plan year in which he separates from service, shall receive an additional distribution of such additional allocation in the first plan year following his separation from service. If this special option is not elected, distribution to such Participant shall be paid pursuant to Section 6.05. The Employer retains the discretion to eliminate, with respect to all participants, either the lump sum or installment distribution options provided in this Section 6.02. The distribution options permitted under this Section 6.02 are available only if the present value of the Participant Nonforfeitable Accrued Benefit, at the time of the distribution to the Participant, exceeds $3,500. To facilitate installment payments under this Article VI, the Advisory Committee may direct the Trustee to segregate all or any part of the Participant's Accrued Benefit in a separate Account. The Trustee will invest the Participant's segregated Account in Federally insured interest bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investments. A segregated Account remains a part of the Trust, but it alone shares in any income it earns, and it alone bears any expense or loss it incurs. A Participant or Beneficiary may elect to receive an installment distribution in the form of a Nontransferable Annuity Contract. Under an installment distribution, the Participant or Beneficiary, at any time, may elect to accelerate the payment of all, or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit, subject to the requirements of Section 6.04. (A) Minimum Distribution Requirements for Participants. The Advisory Committee may not direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit, nor may the Participant elect to have the Trustee distribute his Nonforfeitable Accrued Benefit, under a method of payment which, as of the Required Beginning Date, does not satisfy the minimum distribution requirements under Code (S)401(a)(9) and the applicable Treasury regulations. The minimum distribution for a calendar year equals the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date preceding the beginning of the calendar year divided by the Participant's life 6.3 expectancy or, if applicable, the joint and last survivor expectancy of the Participant and his designated Beneficiary (as determined under Article VIII, subject to the requirements of the Code (S)401(a)(9) regulations). The Advisory Committee will increase the Participant's Nonforfeitable Accrued Benefit, as determined on the relevant valuation date, for contributions or forfeitures allocated after the valuation date and by December 31 of the valuation calendar year, and will decrease the valuation by distributions made after the valuation date and by December 31 of the valuation calendar year. For purposes of this valuation, the Advisory Committee will treat any portion of the minimum distribution for the first distribution calendar year made after the close of that year as a distribution occurring in that first distribution calendar year. In computing a minimum distribution, the Advisory Committee must use the unisex life expectancy multiples under Treas. Reg. (S)1.72-9. The Advisory Committee, only upon the Participant's written request, will compute the minimum distribution for a calendar year subsequent to the first calendar year for which the Plan requires a minimum distribution by redetermining the applicable life expectancy. However, the Advisory Committee may not redetermine the joint life and last survivor expectancy of the Participant and a nonspouse designated Beneficiary in a manner which takes into account any adjustment to a life expectancy other than the Participant's life expectancy. If the Participant's spouse is not his designated Beneficiary, a method of payment to the Participant (whether by Participant election or by Advisory Committee direction) may not provide more than incidental benefits to the Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must satisfy the Minimum Distribution Incidental Benefit ("MDIB") requirement in the Treasury regulations issued under Code (S)401 (a)(9) for distributions made on or after the Participant's Required Beginning Date and before the Participant's death. To satisfy the MDIB requirement, the Advisory Committee will compute the minimum distribution required by this Section 6.02(A) by substituting the applicable MDIB divisor for the applicable life expectancy factor, if the MDIB divisor is a lesser number. Following the Participant's death, the Advisory Committee will compute the minimum distribution required by this Section 6.02(A) solely on the basis of the applicable life expectancy factor and will disregard the MDIB; factor. For Plan Years beginning prior to January 1, 1989, the Plan satisfies the incidental benefits requirement if the distributions to the Participant satisfied the MDIB requirement or if the present value of the retirement benefits payable solely to the Participant is greater than 50% of the present value of the total benefits payable to the Participant and his Beneficiaries. The Advisory Committee must determine whether benefits to the Beneficiary are incidental as of the date the Trustee is to commence payment of the retirement benefits to the Participant, or as of any date the Trustee redetermines the payment period to the Participant. The minimum distribution for the first distribution calendar year is due by the Participant's Required Beginning Date. The minimum distribution for each subsequent distribution calendar year, including the calendar year in which the Participant's Required Beginning Date occurs, is due by December 31 of that year. If the Participant receives distribution in the form of a Nontransferable Annuity Contract, the distribution satisfies this Section 6.02(A) if the contract complies with the requirements of Code (S)401(a)(9) and the applicable Treasury regulations. (B) Minimum Distribution Requirements for Beneficiaries. The method of distribution to the Participant's Beneficiary must satisfy Code (S)401(a)(9) and the applicable Treasury regulations. If the Participant's death occurs after his Required Beginning Date or, if earlier, the date the Participant commences an irrevocable annuity pursuant to Section 6.04, the method of payment to the Beneficiary must provide for completion of payment over a period which does not exceed the payment period which had commenced for the Participant. If the Participant's death occurs prior to his Required Beginning Date and the Participant had not commenced an irrevocable annuity 6.4 pursuant to Section 6.04, the method of payment to the Beneficiary, subject to Section 6.04, must provide for completion of payment to the Beneficiary over a period not exceeding: (i)5 years after the date of the Participant's death; or (ii) if the Beneficiary is a designated Beneficiary, the designated Beneficiary's life expectancy. The Advisory Committee may not direct payment of the Participant's Nonforfeitable Accrued Benefit over a period described in clause (ii) unless the Trustee will commence payment to the designated Beneficiary no later than the December 31 following the close of the calendar year in which the Participant's death occurred or, if later, and the designated Beneficiary is the Participant's surviving spouse, December 31 of the calendar year in which the Participant would have attained age 70 1/2. If the Trustee will make distribution in accordance with clause (ii), the minimum distribution for a calendar year equals the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date preceding the beginning of the calendar year divided by the designated Beneficiary's life expectancy. The Advisory Committee must use the unisex life expectancy multiples under Treas. Reg. (S)1.72-9 for purposes of applying this paragraph. The Advisory Committee, only upon the written request of the Participant or of the Participant's surviving spouse, will recalculate the life expectancy of the Participant's surviving spouse not more frequently than annually, but may not recalculate the life expectancy of a nonspouse designated Beneficiary after the Trustee commences payment to the designated Beneficiary. The Advisory Committee will apply this paragraph by treating any amount paid to the Participant's child, which becomes payable to the Participant's surviving spouse upon the child's attaining the age of majority, as paid to the Participant's surviving spouse. Upon the Beneficiary's written request, the Advisory Committee must direct the Trustee to accelerate payment of all, or any portion, of the Participant's unpaid Accrued Benefit, as soon as administratively practicable following the effective date of that request. 6.03 Benefit Payment Elections. Not earlier than 90 days, but not later than 30 days, before the Participant's annuity starting date, the Advisory Committee must provide a benefit notice to a Participant who is eligible to make an election under this Section 6.03. The benefit notice must explain the optional forms of benefit in the Plan, including the material features and relative values of those options, and the Participant's right to defer distribution until he attains the later of Normal Retirement Age or age 62. If a Participant or Beneficiary makes an election prescribed by this Section 6.03, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit in accordance with that election. Any election under this Section 6.03 is subject to the requirements of Section 6.02 and of Section 6.04. The Participant or Beneficiary must make an election under this Section 6.03 by filing his election with the Advisory Committee at any time before the Trustee otherwise would commence to pay a Participant's Accrued Benefit in accordance with the requirements of Article VI. (A) Participant Elections After Separation from Service. Distributions of Employer Securities shall be made pursuant to Sections 6.02 and 6.05 and the other applicable rules herein. In addition, the Participant may elect to have the Trustee commence distribution as of any distribution date following his attainment of the normal retirement age of 65. The Participant may reconsider an election at any time prior to the annuity starting date and elect to commence distribution as of any other distribution date, but not earlier than the date described in the first sentence of this Paragraph (A). Following his attainment of Normal Retirement Age, a Participant who has separated from Service may elect distribution as of any distribution date, irrespective of the restrictions otherwise applicable under this Section 6.03(A). If the Participant is partially-vested in his Accrued Benefit, the Participant's earliest distribution date under this Paragraph (A) is the first distribution date after the Participant incurs a Forfeiture Break in Service (as defined in Section 5.08). 6.5 (B) Participant Elections Prior to Separation from Service. During his employment with the Employer, the Participant does not have any right to commence distribution of his Nonforfeitable Accrued Benefit for any reason, unless required by Section 6.01(B). (C) Death Benefit Elections. If the present value of the deceased Participant's Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may elect to have the Trustee distribute the Participant's Nonforfeitable Accrued Benefit in a form and within a period permitted under Section 6.02. The Beneficiary's election is subject to any restrictions designated in writing by the Participant and not revoked as of his date of death. 6.04 Annuity Distributions to Participants and Surviving Spouses. The joint and survivor annuity requirements of the Code do not apply to this Plan. The Plan does not provide any life annuity distributions to Participants. A transfer agreement described in Section 13.05 may not permit a plan which is subject to the provisions of Code (S)417 to transfer assets to this Plan. 6.05 Special Distribution and Payment Requirements. Unless the Participant elects in writing to have the Trustee apply other distribution provisions of the Plan, or unless other distribution provisions of the Plan require earlier distribution of the Participant's Accrued Benefit, the Trustee must distribute the portion of the Participant's Accrued Benefit attributable to Employer Securities (the "Eligible Portion") no later than the time prescribed by this Section 6.05, irrespective of any other provision of the Plan. The distribution provisions of this Section 6.05 are subject to the consent and other requirements of Articles V and VI of the Plan. But, for purposes of this Section 6.05, Employer Securities do not include any Employer Securities acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which the borrower repays the Exempt Loan in full. (a) If the Participant separates from Service by reason of the attainment of Normal Retirement Age, death, or disability, the Advisory Committee will direct the Trustee to commence distribution of the Eligible Portion not later than one year after the close of the Plan Year in which the applicable event occurs. (b) If the Participant separates from Service for any reason other than by reason of the attainment of Normal Retirement Age, death or disability, the Advisory Committee will direct the Trustee to commence distribution of the Eligible Portion not later than one year after the close of the fifth Plan Year following the Plan Year in which the Participant separated from Service. If the Participant resumes employment with the Employer on or before the last day of the fifth Plan Year following the Plan Year of his separation from Service, the mandatory distribution provisions of this paragraph (b) do not apply. (c) The Advisory Committee will direct the Trustee to make distributions required under this Section 6.05 over a period not exceeding five years. If a Participant's Eligible Portion exceeds $500,000, the maximum payment period, subject to a contrary election by the Participant for a longer payment period, is five years plus one additional year (but no more than five additional years) for each $100,000 (or fraction of $100,000) by which the Eligible Portion exceeds $500,000, as indexed by the applicable cost of living adjustment. The Advisory Committee will apply this Section 6.05 by adjusting the $500,000 and $100,000 limitations by the adjustment factor prescribed by the Secretary of the Treasury under Code (S)415(d). In no event will the distribution period exceed the period permitted under Section 6.02 of the Plan. 6.06 [Reserved]. 6.6 6.07 Distributions under Domestic Relations Orders. Nothing contained in this Plan prevents the Trustee, in accordance with the direction of the Advisory Committee, from complying with the provisions of a Qualified Domestic Relations Order (as defined in Code (S)414(p)). The Plan specifically does not permit distribution to an alternate payee under a qualified domestic relations order prior to the Participant's attainment of earliest retirement age (as defined under Code (S)414(p)) under the Plan. Nothing in this Section 6.07 gives a Participant a right to receive distribution at a time otherwise not permitted under the Plan nor does it permit the alternate payee to receive a form of payment not otherwise permitted under the Plan. The Advisory Committee must establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Advisory Committee promptly will notify the Participant and any alternate payee named in the order, in writing, of the receipt of the order and the Plan's procedures for determining the qualified status of the order. Within a reasonable period of time after receiving the domestic relations order, the Advisory Committee must determine the qualified status of the order and must notify the Participant and each alternate payee, in writing, of its determination. The Advisory Committee must provide notice under this paragraph by mailing to the individual's address specified in the domestic relations order, or in a manner consistent with Department of Labor regulations. If any portion of the Participant's Nonforfeitable Accrued Benefit is payable during the period the Advisory Committee is making its determination of the qualified status of the domestic relations order, the Advisory Committee must make a separate accounting of the amounts payable. If the Advisory Committee determines the order is a qualified domestic relations order within 18 months of the date amounts first are payable following receipt of the order, the Advisory Committee will direct the Trustee to distribute the payable amounts in accordance with the order. If the Advisory Committee does not make its determination of the qualified status of the order within the 18-month determination period, the Advisory Committee will direct the Trustee to distribute the payable amounts in the manner the Plan would distribute if the order did not exist and will apply the order prospectively if the Advisory Committee later determines the order is a qualified domestic relations order. To the extent it is not inconsistent with the provisions of the qualified domestic relations order, the Advisory Committee may direct the Trustee to invest any partitioned amount in a segregated subaccount or separate account and to invest the account in Federally insured, interest-bearing savings account(s) or time deposit(s) (or a combination of both), or in other fixed income investments. A segregated subaccount remains a part of the Trust, but it alone shares in any income it earns, and it alone bears any expense or loss it incurs. The Trustee will make any payments or distributions required under this Section 6.07 by separate benefit checks or other separate distribution to the alternate payee(s). * * * * * * * * * * 6.7 ARTICLE VII - EMPLOYER ADMINISTRATIVE PROVISIONS 7.01 Information to Advisory Committee. The Employer must supply current information to the Advisory Committee as to the name, date of birth, date of employment, annual compensation, leaves of absence, Years of Service and date of termination of employment of each Employee who is, or who will be eligible to become, a Participant under the Plan, together with any other information which the Advisory Committee considers necessary. The Employer's records as to the current information the Employer furnishes to the Advisory Committee are conclusive as to all persons. 7.02 No Liability. The Employer assumes no obligation or responsibility to any of its Employees, Participants or Beneficiaries for any act of, or failure to act, on the part of its Advisory Committee (unless the Employer is the Advisory Committee). 7.03 Indemnity of Certain Fiduciaries. The Employer indemnifies and saves harmless the Plan Administrator and the members of the Advisory Committee, and each of them, from and against any and all loss resulting from liability to which the Plan Administrator and the Advisory Committee, or the members of the Advisory Committee, may be subjected by reason of any act or conduct (except willful misconduct or gross negligence) in their official capacities in the administration of this Trust or Plan or both, including all expenses reasonably incurred in their defense, in case the Employer fails to provide such defense. The indemnification provisions of this Section 7.03 do not relieve the Plan Administrator or any Advisory Committee member from any liability he may have under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator and the Advisory Committee members and the Employer may execute a letter agreement further delineating the indemnification agreement of this Section 7.03, provided the letter agreement must be consistent with and does not violate ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee (or to a Custodian, if any) solely to the extent provided by a letter agreement executed by the Trustee (or Custodian) and the Employer. 7.04 Employer Direction of Investment. The Employer has the right to direct the Trustee with respect to the investment and reinvestment of assets comprising the Trust Fund only if the Trustee consents in writing to permit such direction. If the Trustee consents to Employer direction of investment, the Trustee and the Employer must execute a letter agreement as a part of this Plan containing such conditions, limitations and other provisions they deem appropriate before the Trustee will follow any Employer direction as respects the investment or re-investment of any part of the Trust Fund. 7.05 Amendment to Vesting Schedule. Though the Employer reserves the right to amend the vesting schedule at any time, the Advisory Committee will not apply the amended vesting schedule to reduce the Nonforfeitable percentage of any Participant's Accrued Benefit derived from Employer contributions (determined as of the later of the date the Employer adopts the amendment, or the date the amendment becomes effective) to a percentage less than the Nonforfeitable percentage computed under the Plan without regard to the amendment. An amended vesting schedule will apply to a Participant only if the Participant receives credit for at least one Hour of Service after the new schedule becomes effective. 7.1 If the Employer makes a permissible amendment to the vesting schedule, each Participant having at least 3 Years of Service with the Employer may elect to have the percentage of his Nonforfeitable Accrued Benefit computed under the Plan without regard to the amendment. For Plan Years beginning prior to January 1, 1989, the election described in the preceding sentence applies only to Participants having at least 5 Years of Service with the Employer. The Participant must file his election with the Advisory Committee within 60 days of the latest of (a) the Employer's adoption of the amendment; (b) the effective date of the amendment; or (c) his receipt of a copy of the amendment. The Advisory Committee, as soon as practicable, must forward a true copy of any amendment to the vesting schedule to each affected Participant, together with an explanation of the effect of the amendment, the appropriate form upon which the Participant may make an election to remain under the vesting schedule provided under the Plan prior to the amendment and notice of the time within which the Participant must make an election to remain under the prior vesting schedule. The election described in this Section 7.05 does not apply to a Participant if the amended vesting schedule provides for vesting at least as rapid at all times as the vesting schedule in effect prior to the amendment. For purposes of this Section 7.05, an amendment to the vesting schedule includes any Plan amendment which directly or indirectly affects the computation of the Nonforfeitable percentage of an Employee's rights to his Employer derived Accrued Benefit. * * * * * * * * * * 7.2 ARTICLE VIII - PARTICIPANT ADMINISTRATIVE PROVISIONS 8.01 Beneficiary Designation. Any Participant may from time to time designate, in writing, any person or persons, contingently or successively, to whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life insurance proceeds payable to the Participant's Account) in the event of his death and the Participant may designate the form and method of payment. The Advisory Committee will prescribe the form for the written designation of Beneficiary and, upon the Participant's filing the form with the Advisory Committee, the form effectively revokes all designations filed prior to that date by the same Participant. A married Participant's Beneficiary designation is not valid unless the Participant's spouse consents, in writing, to the Beneficiary designation. The spouse's consent must acknowledge the effect of that consent and a notary public or the Plan Administrator (or his representative) must witness that consent. The spousal consent requirements of this paragraph do not apply if: (1) the Participant and his spouse are not married throughout the one year period ending on the date of the Participant's death; (2) the Participant's spouse is the Participant's sole primary beneficiary; (3) the Plan Administrator is not able to locate the Participant's spouse; (4) the Participant is legally separated or has been abandoned (within the meaning of State law) and the Participant has a court order to that effect; or (5) other circumstances exist under which the Secretary of the Treasury will excuse the consent requirement. If the Participant's spouse is legally incompetent to give consent, the spouse's legal guardian (even if the guardian is the Participant) may give consent. 8.02 No Beneficiary Designation/Death of Beneficiary. If a Participant fails to name a Beneficiary in accordance with Section 8.01, or if the Beneficiary named by a Participant predeceases him, then the Trustee will pay the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02 in the following order of priority to: (a) The Participant's surviving spouse; (b) The Participant's surviving children, including adopted children, in equal shares; (c) The Participant's surviving parents, in equal shares; or (d) The Participant's estate. If the Beneficiary does not predecease the Participant, but dies prior to distribution of the Participant's entire Nonforfeitable Accrued Benefit, the Trustee will pay the remaining Nonforfeitable Accrued Benefit to the Beneficiary's estate unless the Participant's Beneficiary designation provides otherwise. The Advisory Committee will direct the Trustee as to the method and to whom the Trustee will make payment under this Section 8.02. 8.03 Personal Data to Advisory Committee. Each Participant and each Beneficiary of a deceased Participant must furnish to the Advisory Committee such evidence, data or information as the Advisory Committee considers necessary or desirable for the purpose of administering the Plan. The provisions of this Plan are effective for the benefit of each Participant upon the condition precedent that each Participant will furnish promptly full, true and complete evidence, data and 8.1 information when requested by the Advisory Committee, provided the Advisory Committee advises each Participant of the effect of his failure to comply with its request. 8.04 Address for Notification. Each Participant and each Beneficiary of a deceased Participant must file with the Advisory Committee from time to time, in writing, his post office address and any change of post office address. Any communication, statement or notice addressed to a Participant, or Beneficiary, at his last post office address filed with the Advisory Committee, or as shown on the records of the Employer, binds the Participant, or Beneficiary, for all purposes of this Plan. 8.05 Assignment or Alienation. Subject to Code (S)414(p) relating to qualified domestic relations orders, neither a Participant nor a Beneficiary may anticipate, assign or alienate (either at law or in equity) any benefit provided under the Plan, and the Trustee will not recognize any such anticipation, assignment or alienation. Furthermore, a benefit under the Plan is not subject to attachment, garnishment, levy, execution or other legal or equitable process. 8.06 Notice of Change in Terms. The Plan Administrator, within the time prescribed by ERISA and the applicable regulations, must furnish all Participants and Beneficiaries a summary description of any material amendment to the Plan or notice of discontinuance of the Plan and all other information required by ERISA to be furnished without charge. 8.07 Litigation against the Trust. A court of competent jurisdiction may authorize any appropriate equitable relief to redress violations of ERISA or to enforce any provisions of ERISA or the terms of the Plan. A fiduciary may receive reimbursement of expenses properly and actually incurred in the performance of his duties with the Plan. 8.08 Information Available. Any Participant in the Plan or any Beneficiary may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan and Trust, contract or any other instrument under which the Plan was established or is operated. The Plan Administrator will maintain all of the items listed in this Section 8.08 in his office, or in such other place or places as he may designate from time to time in order to comply with the regulations issued under ERISA, for examination during reasonable business hours. Upon the written request of a Participant or Beneficiary the Plan Administrator must furnish him with a copy of any item listed in this Section 8.08. The Plan Administrator may make a reasonable charge to the requesting person for the copy so furnished. 8.09 Appeal Procedure for Denial of Benefits. A Participant or a Beneficiary ("Claimant") may file with the Advisory Committee a written claim for benefits, if the Participant or Beneficiary determines the distribution procedures of the Plan have not provided him his proper Nonforfeitable Accrued Benefit. The Advisory Committee must render a decision on the claim within 60 days of the Claimant's written claim for benefits. The Plan Administrator must provide adequate notice in writing to the Claimant whose claim for benefits under the Plan the Advisory Committee has denied. The Plan Administrator's notice to the Claimant must set forth: (a) The specific reason for the denial; (b) Specific references to pertinent Plan provisions on which the Advisory Committee based its denial; 8.2 (c) A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed: and (d) That any appeal the Claimant wishes to make of the adverse determination must be in writing to the Advisory Committee within 75 days after receipt of the Plan Administrator's notice of denial of benefits. The Plan Administrator's notice must further advise the Claimant that his failure to appeal the action to the Advisory Committee in writing within the 75-day period will render the Advisory Committee's determination final, binding and conclusive. If the Claimant should appeal to the Advisory Committee, he, or his duly authorized representative, may submit, in writing, whatever issues and comments he, or his duly authorized representative, feels are pertinent. The Claimant, or his duly authorized representative, may review pertinent Plan documents. The Advisory Committee will re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Advisory Committee must advise the Claimant of its decision within 60 days of the Claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the 60-day limit unfeasible, but in no event may the Advisory Committee render a decision respecting a denial for a claim for benefits later than 120 days after its receipt of a request for review. The Plan Administrator's notice of denial of benefits must identify the name of each member of the Advisory Committee and the name and address of the person to whom the Claimant may forward his appeal. 8.1 Account Diversification. Except as provided in this Section 8.10, a Participant does not have the right to direct the Trustee with respect to the investment or re-investment of the assets comprising the Participant's individual Account. Each Qualified Participant may direct the Trustee as to the investment of 25% of the value of the Participant's Accrued Benefit attributable to Employer Securities (the "Eligible Accrued Benefit") within 90 days after the Accounting Date of each Plan Year (to the extent a direction amount exceeds the amount to which a prior direction under this Section 8.10 applies) during the Participant's Qualified Election Period. For the last Plan Year in the Participant's Qualified Election Period, the Trustee will substitute "50%" for "25%" in the immediately preceding sentence. The Qualified Participant must make his direction to the Trustee in writing, the direction may be effective no later than 180 days after the close of the Plan Year to which the direction applies, and the direction must specify which, if any, of the investment options the Participant selects. A Qualified Participant may choose one of the following investment options: (a) The distribution of the portion of his Eligible Accrued Benefit covered by the election. The Trustee will make the distribution within 90 days after the last day of the period during which the Qualified Participant may make the election. The provisions of this Plan applicable to a distribution of Employer Securities, including the put option requirements of Article XI, apply to this investment option. (b) The direct transfer of the portion of his Eligible Accrued Benefit covered by the election to another qualified plan of the Employer which accepts such transfers, but only if the transferee plan permits employee- directed investment and does not invest in Employer 8.3 Securities to a substantial degree. The Trustee will make the direct transfer no later than 90 days after the last day of the period during which the Qualified Participant may make the election. For purposes of this Section 8.10, the following definitions apply: (i) "Qualified Participant" means a Participant who has attained age 55 and who has completed at least 10 years of participation in the Plan. A"year of participation" means a Plan Year in which the Participant was eligible for an allocation of Employer contributions, irrespective of whether the Employer actually contributed to the Plan for that Plan Year. (ii) "Qualified Election Period" means the 6-Plan-Year period beginning with the Plan Year in which the Participant and becomes a Qualified Participant. A Participant's right under this Section 8.10 to direct the investment of his Account applies solely to Employer Securities acquired by the Plan after December 31, 1986. ********** 8.4 ARTICLE IX - ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS 9.01 Members' Compensation, Expenses. The Employer must appoint an Advisory Committee to administer the Plan, the members of which may or may not be Participants in the Plan, or which may be the Plan Administrator acting alone. In the absence of an Advisory Committee appointment, the Plan Administrator assumes the powers, duties and responsibilities of the Advisory Committee. The members of the Advisory Committee will serve without compensation for services as such, but the Employer will pay all expenses of the Advisory Committee, except to the extent the Trust properly pays for such expenses, pursuant to Article X. 9.02 Term. Each member of the Advisory Committee serves until the appointment of his successor. 9.03 Powers. In case of a vacancy in the membership of the Advisory Committee, the remaining members of the Advisory Committee may exercise any and all of the powers, authority, duties and discretion conferred upon the Advisory Committee pending the filing of the vacancy. 9.04 General. The Advisory Committee has the following, powers and duties: (a) To select a Secretary, who need not be a member of the Advisory Committee; (b) To determine the rights of eligibility of an Employee to participate in the Plan, the value of a Participant's Accrued Benefit and the Nonforfeitable percentage of each Participant's Accrued Benefit; (c) To adopt rules of procedure and regulations necessary for the proper and efficient administration of the Plan provided the rules are not inconsistent with the terms of this Agreement; (d) To construe and enforce the terms of the Plan and the rules and regulations it adopts, including interpretation of the Plan documents and documents related to the Plan's operation; (e) To direct the Trustee as respects the crediting and distribution of the Trust; (f) To review and render decisions respecting a claim for (or denial of a claim for) a benefit under the Plan; (g) To furnish the Employer with information which the Employer may require for tax or other purposes; (h) To engage the service of agents whom it may deem advisable to assist it with the performance of its duties; (i) To engage the services of an Investment Manager or Managers (as defined in ERISA (S)3(38)), each of whom will have full power and authority to manage, acquire or dispose (or direct the Trustee with respect to acquisition or disposition) of any Plan asset under its control; 9.1 (j) To establish and maintain a funding standard account and to make credits and charges to the account to the extent required by and in accordance with the provisions of the Code; (k) To prepare or to assist the Trustee with the preparation of such Direction Statements, disclosure statements or other materials as may be necessary or appropriate in connection with the exercise by Participants of the voting rights described in Section 10.15 hereof; and (l) To direct the Trustee with respect to the purchase and sale of Employer Securities, as more fully described in Section 10.03[A](1). The Advisory Committee must exercise all of its powers, duties and discretion under the Plan in a uniform and nondiscriminatory manner. 9.05 Funding Policy. The Advisory Committee will review, not less often than annually, all pertinent Employee information and Plan data in order to establish the funding policy of the Plan and to determine the appropriate methods of carrying out the Plan's objectives. The Advisory Committee must communicate periodically, as it deems appropriate, to the Trustee and to any Plan Investment Manager the Plan's short-term and long-term financial needs so investment policy can be coordinated with Plan financial requirements. 9.06 Manner of Action. The decision of a majority of the members appointed and qualified controls. 9.07 Authorized Representative. The Advisory Committee may authorize any one of its members, or its Secretary, to sign on its behalf any notices, directions, applications, certificates, consents, approvals, waivers, letters or other documents. The Advisory Committee must evidence this authority by an instrument signed by all members and filed with the Trustee. 9.08 Interested Member. No member of the Advisory Committee may decide or determine any matter concerning the distribution, nature or method of settlement of his own benefits under the Plan, except in exercising an election available to that member in his capacity as a Participant, unless the Plan Administrator is acting alone in the capacity of the Advisory Committee. 9.09 Individual Accounts. The Advisory Committee will maintain, or direct the Trustee to maintain, a separate Account, or multiple separate Accounts; in the name of each Participant to reflect the Participant's Accrued Benefit under the Plan. The Advisory Committee must maintain one Account designated as the Employer Securities Account to reflect a Participant's interest in Employer Securities held by the Trust and another Account designated as the General Investments Account to reflect the Participant's interest in the Trust Fund attributable to assets other than Employer Securities. If a Participant re- enters the Plan subsequent to his having a Forfeiture Break in Service (as defined in Section 5.08(B)), the Advisory Committee, or the Trustee, must maintain a separate Account for the Participant's pre-Forfeiture Break in Service Accrued Benefit and a separate Account for his post-Forfeiture Break in Service Accrued Benefit unless the Participant's entire Accrued Benefit under the Plan is 100% Nonforfeitable. The Advisory Committee will make its allocations, or request the Trustee to make its allocations, to the Accounts of the Participants in accordance with the provisions of Section 9.11. The Advisory Committee may direct the Trustee to maintain a temporary segregated investment Account 9.2 in the name of a Participant to prevent a distortion of income, gain or loss allocations under Section 9.11. The Advisory Committee shall maintain records of its activities. 9.10 Value of Participant's Accrued Benefit. The value of each Participant's Accrued Benefit consists of that proportion of the net worth (at fair market value) of the Employer's Trust Fund which the net credit balance in his Account bears to the total net credit balance in the Accounts of all Participants. For purposes of a distribution under the Plan, the value of a Participant's Accrued Benefit is its value as of the Accounting Date immediately preceding the date of the distribution; provided, however, that if there has been a special valuation of Employer Securities between an Accounting Date and a distribution date, the value of Employer Securities for distribution purposes shall be the value as of the date of such valuation. A special valuation of Employer Securities shall not be treated as a "valuation date" for purposes of Section 9.11. 9.11 Allocation and Distribution of Net Income Gain or Loss. A "valuation date" under this Plan is each Accounting Date and each interim valuation date determined under Section 10.14. As of each valuation date, the Advisory Committee must adjust General Investment Accounts to reflect net income, gain or loss since the last valuation date. The valuation period is the period beginning the day after the last valuation date and ending on the current valuation date. [A]. Employer Securities Account. As of the Accounting Date of each Plan Year, the Advisory Committee first will reduce Employer Securities Accounts for any forfeitures arising under Section 5.09 and then will credit the Employer Securities Account maintained for each Participant with the Participant's allocable share of Employer Securities (including fractional shares) purchased and paid for by the Trust or contributed in kind to the Trust, with any forfeitures of Employer Securities and with any stock dividends on Employer Securities allocated to his Employer Securities Account. The Advisory Committee will allocate Employer Securities acquired with an Exempt Loan under Section 10.03[C] in accordance with that Section, subject, however, to the provisions of paragraph [C] of this section 9.11. Except as otherwise specifically provided in Section 10.03[C], the Advisory Committee will base allocations to the Participants' Accounts on dollar values expressed as shares of Employer Securities or on the basis of actual shares where there is a single class of Employer Securities. In making a forfeiture reduction under this Section 9.11, the Advisory Committee, to the extent possible, first must forfeit from a Participant's General Investments Account before making a forfeiture from his Employer Securities Account. [B]. General Investments Account. The allocation provisions of this paragraph apply to all Participant General Investment Accounts other than segregated investment Accounts. The Advisory Committee First will adjust the Participant General Investment Accounts, as those Accounts stood at the beginning of the current valuation period, by reducing the Accounts for any forfeitures arising under Section 5.09 or under Section 9.14, for amounts charged during the valuation period to the Accounts in accordance with Section 9.13 (relating to distributions) and for the amount of any General Investment Account which the Trustee has fully distributed since the immediately preceding valuation date. The Advisory Committee then, subject to the restoration allocation requirements of Section 5.04 or Section 9.14, will allocate the net income, gain or loss pro rata to the adjusted Participant General Investment Accounts. The allocable net income, gain or loss, is the net income (or net loss), including the increase or decrease in the fair market value of assets, since the last valuation date. In making its allocations under this Section 9.11[B], the Advisory Committee will exclude Employer Securities allocated to Employer Securities Accounts, Employer Securities held in a Suspense Account, stock dividends on allocated 9.3 Employer Securities and interest paid by the Trust on an Exempt Loan. The Advisory Committee will include as income (available for payment on an Exempt Loan) any cash dividends on Employer Securities except cash dividends which the Advisory Committee has directed the Trustee to distribute in accordance with Section 10.08 and cash dividends applied by the Trustee toward the payment of an Exempt Loan. [C] Dividends on Employer Securities. The Advisory Committee will allocate any cash dividends the Employer pays with respect to Employer Securities to the General Investments Accounts of Participants in the same ratio, determined on the dividend declaration date, that the Employer Securities allocated to a Participant's Employer Securities Account bear to the Employer Securities allocated to all Employer Securities Accounts. Notwithstanding the foregoing, the Advisory Committee will not allocate to the General Investments Accounts any cash dividends the Employer directs the Trustee to apply to the payment of an Exempt Loan nor any cash dividends the Advisory Committee directs the Trustee to distribute in accordance with Section 10.08. If the Employer directs the Trustee to apply cash dividends on Employer Securities to the payment of principal or interest on an Exempt Loan, then, to the extent the dividend is payable with respect to Employer Securities which are allocated to a Participant's Employer Securities Account, the Advisory Committee shall allocate to the Employer Securities Account of each such Participant, Employer Securities with a fair market value of not less than the amount of the dividends which were attributable to the Employer Securities allocated to the Employer Securities Account of such Participant. [D] Segregated Investment Accounts. A segregated investment Account receives all income it earns and bears all expense or loss it incurs. As of the valuation date, the Advisory Committee must reduce a segregated Account for any forfeiture arising under Section 5.09 after the Advisory Committee has made all other allocations, changes or adjustments to the Account for the Plan Year. [E] Sale of Employer Securities. In the event the Trustee shall sell or otherwise dispose of Employer Securities held in the trust, then (i) any income, gain or loss realized with respect to Employer Securities which are allocated to Participant's Employer Securities Accounts shall be allocated as trust income, gain or loss to each Participant pro rata in accordance with such Participants' Employer Securities Accounts as of the last day of the calendar month preceding the month in which the sale or other disposition occurred; and (ii) any income, gain or loss realized with respect to Employer Securities held in the Suspense Account shall be treated as trust income, gain or loss and, after the payment of any Exempt Loans [and any expenses eases described in Section 10.05], shall be allocated among Participants pro rata in the proportion that each Participant's Account bears to the total of all Participants' Accounts as of the last day of the calendar month preceding the month in which the sale or other disposition occurred. [F] Additional Rules. An Excess Amount or suspense account described in Part 2 of Article III does not share in the allocation of net income, gain or loss described in this Section 9.11. This Section 9.11 applies solely to the allocation of net income, gain or loss of the Trust. The Advisory Committee will allocate the Employer contributions and Participant forfeitures, if any, in accordance with Article III. 9.12 Individual Statement. As soon as practicable after the Accounting Date of each Plan Year, but within the time prescribed by ERISA and the regulations under ERISA, the Plan Administrator will deliver to each Participant (and to each Beneficiary) a statement reflecting the condition of his Accrued Benefit in the Trust as of that date and such other information ERISA 9.4 requires be furnished the Participant or Beneficiary. No Participant, except a member of the Advisory Committee, has the right to inspect the records reflecting the Account of any other Participant. 9.13 Account Charged. The Advisory Committee will charge a Participant's Account for all distributions made from that Account to the Participant, to his Beneficiary or to an alternate payee. The Advisory Committee also will charge a Participant's Account for any administrative expenses incurred by the Plan directly related to that Account. 9.14 Unclaimed Account Procedure. The Plan does not require either the Trustee or the Advisory Committee to search for, or to ascertain the whereabouts of, any Participant or Beneficiary. At the time the Participant's or Beneficiary's benefit becomes distributable under Article VI, the Advisory Committee, by certified or registered mail addressed to his last known address of record with the Advisory Committee or the Employer, must notify any Participant, or Beneficiary, that he is entitled to a distribution under this Plan. The notice must quote the provisions of this Section 9.14 and otherwise must comply with the notice requirements of Article VI. If the Participant, or Beneficiary, fails to claim his distributive share or make his whereabouts known in writing to the Advisory Committee within 6 months from the date of mailing of the notice, the Advisory Committee will treat the Participant's or Beneficiary's unclaimed payable Accrued Benefit as forfeited and will reallocate the unclaimed payable Accrued Benefit in accordance with Section 3.05. A forfeiture under this paragraph will occur at the end of the notice period or, if later, the earliest date applicable Treasury regulations would permit the forfeiture. Pending forfeiture, the Advisory Committee, following the expiration of the notice period, may direct the Trustee to segregate the Nonforfeitable Accrued Benefit in a segregated Account and to invest that segregated Account in Federally insured interest beaming savings accounts or time deposits (or in a combination of both), or in other fixed income investments. If a Participant or Beneficiary who has incurred a forfeiture of his Accrued Benefit under the provisions of the first paragraph of this Section 9.14 makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory Committee must restore the Participant's or Beneficiary's forfeited Accrued Benefit to the same dollar amount as the dollar amount of the Accrued Benefit forfeited, unadjusted for any gains or losses occurring subsequent to the date of the forfeiture. The Advisory Committee will make the restoration during the Plan Year in which the Participant or Beneficiary makes the claim, first from the amount, if any, of Participant forfeitures the Advisory Committee otherwise would allocate for the Plan Year, then from the amount, if any, of the Trust Fund net income or gain for the Plan Year and then from the amount, or additional amount, the Employer contributes to enable the Advisory Committee to make the required restoration. The Advisory Committee must direct the Trustee to distribute the Participant's or Beneficiary's restored Accrued Benefit to him not later than 60 days after the close of the Plan Year in which the Advisory Committee restores the forfeited Accrued Benefit. The forfeiture revisions of this Section 9.14 apply solely to the Participant's or to the Beneficiary's Accrued Benefit derived from Employer contributions. * * * * * * * * * * 9.5 ARTICLE X - CUSTODIAN/TRUSTEE, POWERS AND DUTIES 10.01 Acceptance. The Trustee accepts the Trust created under the Plan and agrees to perform the obligations imposed. The Trustee must provide bond for the faithful performance of its duties under the Trust to the extent required by ERISA. 10.02 Receipt of Contributions. The Trustee is accountable to the Employer for the funds contributed to it by the Employer, but does not have any duty to see that the contributions received comply with the provisions of the Plan. The Trustee is not obliged to collect any contributions from the Employer, nor is obliged to see that funds deposited with it are deposited according to the provisions of the Plan. 10.03 Investment Powers. (A) Trustee Powers. The Trustee has full discretion and authority with regard to the investment of the Trust Fund, except with respect to a Plan asset under the control or direction of a properly appointed Investment Manager or with respect to a Plan asset subject to Employer, Participant or Advisory Committee direction of investment. The Trustee must coordinate its investment policy with Plan financial needs as communicated to it by the Advisory Committee. The Trustee is authorized and empowered, but not by way of limitation, with the following powers, rights and duties: (1) To invest the Trust Fund primarily in Employer Securities ("primarily" meaning the authority to hold and to acquire up to but not more than 100% of the Trust Fund in Employer Securities) and to invest any part or all of the Trust Fund in any common or preferred stocks open-end or closed-end mutual funds, put and call options traded on a national exchange, United States retirement plan bonds, corporate bonds, debentures, convertible debentures, commercial paper, U.S. Treasury bills, U.S. Treasury notes and other direct or indirect obligations of the United States Government or its agencies, improved or unimproved real estate situated in the United States, limited partnerships, insurance contracts of any type, mortgages, notes or other property of any kind, real or personal, and to buy or sell options on common stock on a nationally recognized exchange with or without holding the underlying common stock, and to make any other investments the Trustee deems appropriate, as a prudent man would do under like circumstances with due regard for the purposes of this Plan. Any investment made or retained by the Trustee in good faith is proper but must be of a kind (with the exception of Employer Securities) constituting a diversification considered by law suitable for trust investments. Notwithstanding the foregoing, the Plan Administrator, or the Advisory Committee, if such responsibility shall have been delegated to the Plan Administrative Committee, shall assume the responsibility for the prudence in investments in Employer Securities directed by it, and the Plan Administrator or the Advisory Committee, as the case may be, shall have the full power to direct the Trustee to invest up to 100% of the assets of the Plan in Employer Securities (except with respect to assets transferred to the Plan as described in Section 4.03(i) hereof). If the Plan Administrator or the Advisory Committee, as the case may be, shall direct the Trustee to dispose of any Employer Securities under circumstances which require registration and/or qualification of such securities under applicable federal or state securities laws, then the Employer, at its own expense, shall take, 10.1 or cause to be taken, any and all such actions as may be necessary or appropriate in order to effect such registration and/or qualification. In the event an offer shall be received by the Trustee for the sale or other disposition of Employer Securities owned by the Trust, whether such offer shall be in the form of cash in exchange for such Employer Securities pursuant to a proposed purchase and sale, or for cash and/or other property pursuant to a proposed transfer, exchange, merger, consolidation or otherwise, the Advisory Committee shall direct the Trustee with respect to whether or not to accept such offer and to engage in such sale or other disposition of Employer Securities, provided that the consideration to be received by the Trust as a result of such sale or other disposition must be at least equal to the fair market value of such Employer Securities, as determined by an independent appraiser so long as such securities are not readily tradable on an established securities market, as of the date of such sale or other disposition (as determined in good faith by the Advisory Committee) and the direction of the Advisory Committee must be approved by the Board of Directors of the Employer. In the event that the Trustee is unable to make payments of principal and/or interest on an Exempt Loan when due, the Advisory Committee, with the approval of the board of directors of the Employer, may direct the Trustee to sell any Leveraged Securities that have not yet been allocated to Participants' Employer Securities Accounts or to obtain another Exempt Loan in an amount sufficient to make such payments. To the extent the Plan acquires Employer Securities in a sale to which Section 1042 of the Code applies, no portion of the assets of the Plan attributable to (or allocable in lieu of) such Employer Securities may accrue (or be allocated directly or indirectly) under any plan of the Employer meeting the requirements of Section 401(a) during the "non- allocation period" for the benefit of: (i) Any taxpayer who makes an election under Section 1042(a) with respect to Employer Securities; (ii) Any individual who is related to such a taxpayer (within the meaning of Section 267(b) of the Code); or (iii) Any other person who owns (after application of Section 318(a)) more than 25% of any class of outstanding stock of the Employer or of any corporation which is a member of the same controlled group of corporations, or the total value of any class of any outstanding stock of any such corporation. For purposes of this paragraph, the term "non-allocation period" means the period beginning on the date of the Section 1042 transaction and ending on the later of the date which is 10 years after such transaction or the date of the plan allocation attributable to the final payment of the acquisition indebtedness occurred in connection therewith. (2) To retain in cash so much of the Trust Fund as it may deem advisable to satisfy liquidity needs of the Plan and to deposit any cash held in the Trust Fund in a bank account at reasonable interest. (3) To invest, if the Trustee is a bank or similar financial institution supervised by the United States or by a State, in any type of deposit of the Trustee (or of a 10.2 bank related to the Trustee within the meaning of Code (S) 414(b)) at a reasonable rate of interest or in a common trust fund, as described in Code (S) 584, or in a collective investment fund, the provisions of which govern the investment of such assets and which the Plan incorporates by this reference, which the Trustee (or its affiliate, as defined in Code (S) 1504) maintains exclusively for the collective investment of money contributed by the bank (or the affiliate) in its capacity as trustee and which conforms to the rules of the Comptroller of the Currency. (4) Subject to the provisions of paragraph (1) of this Section 10.03(A) relating to Employer Securities, to purchase, manage, sell, convey, exchange, transfer, contract to sell, convey, exchange or transfer (whether pursuant to sale, exchange, merger, reorganization or otherwise), abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, in such manner, for such consideration and on such terms and conditions as the Trustee decides. (5) Subject to the provisions of paragraph (l) of this Section 10.03(A) with respect to Employer Securities, to enter into any contract for the sale or other disposition of property held by the Trust, including Employer Securities, and to enter into any contract pursuant to which the Employer would be reorganized, recapitalized, consolidated with or merged with or into another entity, and to do and perform any and all acts and to execute any necessary documents associated therewith. (6) To credit and distribute the Trust as directed by the Advisory Committee. The Trustee is not obliged to inquire as to whether any payee or distributee is entitled to any payment or whether the distribution is proper or within the terms of the Plan, or as to the manner of making any payment or distribution. The Trustee is accountable only to the Advisory Committee for any payment or distribution made by it in a good faith on the order or direction of the Advisory Committee. (7) To borrow money, to assume indebtedness, extend mortgages and encumber by mortgage or pledge. (8) To compromise, contest, arbitrate or abandon claims and demands, in its discretion. (9) Subject to the provisions of Section 10.15, to have with respect to the Trust all of the rights of an individual owner, including the power to give proxies, to participate in any voting trusts, mergers, consolidations or liquidations, and to exercise or sell stock subscriptions or conversion rights. (10) To lease for oil, gas and other mineral purposes and to create mineral severances by grant or reservation; to pool or unitize interests in oil, gas and other minerals; and to enter into operating agreements and to execute division and transfer orders. (11) To hold any securities or other property in the name of the Trustee or its nominee, with depositories or agent depositories or in another form as it may deem best, with or without disclosing the trust relationship. 10.3 (12) To perform any and all other acts in its judgment necessary or appropriate for the proper and advantageous management, investment and distribution of the Trust. (13) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery of the funds or property until final adjudication is made by a court of competent jurisdiction. (14) To file all tax returns required of the Trustee. (15) To furnish to the Employer, the Plan Administrator and the Advisory Committee an annual statement of account showing the condition of the Trust Fund and all investments, receipts, disbursements and other transactions effected by the Trustee during the Plan Year covered by the statement and also stating the assets of the Trust held at the end of the Plan Year, which accounts are conclusive on all persons, including the Employer, the Plan Administrator and the Advisory Committee, except as to any act or transaction concerning which the Employer, the Plan Administrator or the Advisory Committee files with the Trustee written exceptions or objections within 90 days after the receipt of the accounts or for which ERISA authorizes a longer period within which to object. (16) To begin, maintain or defend any litigation necessary in connection with the administration of the Plan, except that the Trustee is not obliged or required to do so unless indemnified to its satisfaction. (17) Subject to the provisions of Section 10.15, to vote all voting stock held by the Trust Fund as the Advisory Committee shall direct. (18) At the direction of the Employer, to apply any cash dividends with respect to Employer Securities toward the payment of an Exempt Loan, and at the direction of the Advisory Committee, to distribute cash dividends with respect to Employer Securities in accordance with Section 10.08. (19) To invest in key person life insurance on the life of any Participant(s) in the Plan. (B) Participant Loans. This (S) 10.03[B] specifically authorizes the Trustee to make loans on a nondiscriminatory basis to a Participant but only if the Advisory Committee so provides in a separate writing, and in accordance with the loan policy established by the Advisory Committee, provided: (1) the loan policy satisfies the requirements of (S) 9.04; (2) any loan is adequately secured and bears a reasonable rate of interest; (3) the loan provides for repayment within a specified time; (4) the default provisions of the note prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the time the Trustee otherwise would distribute the Participant's Nonforfeitable Accrued Benefit; (5) the amount of the loan does not exceed (at the time the Plan extends the loan) the present value of the Participant's Nonforfeitable Accrued Benefit; and (6) the loan otherwise conforms to the exemption provided by Code (S) 4975(d)(1). (C) Exempt Loan. This (S) 10.03(C) specifically authorizes the Trustee to enter into an Exempt Loan transaction. The following terms and conditions will apply to any Exempt Loan. 10.4 (1) The Trustee will use the proceeds of the loan within a reasonable time after receipt only for any or all of the following purposes: (i) to acquire employer Securities, (ii) to repay such loan, or (iii) to repay a prior Exempt Loan. Except as provided under Article XI, no Employer Security acquired with the proceeds of an Exempt Loan may be subject to a put, call or other option, or buy-sell or similar arrangement while held by and when distributed from this Plan, whether or not this Plan is then an employee stock ownership plan. (2) The interest rate of the loan may not be more than a reasonable rate of interest, as determined by the Advisory Committee. (3) Any collateral the Trustee pledges to the creditor must consist only of the assets purchased by the borrowed funds and those assets the Trust used as collateral on the prior Exempt Loan repaid with the proceeds of the current Exempt Loan. (4) The creditor may have no recourse against the Trust under the loan except with respect to such collateral given for the loan, contributions (other than contributions of Employer Securities) that the Employer makes to the Trust to meet its obligations under the loan, and earnings attributable to such collateral and the investment of such contributions. The payment made with respect to an Exempt Loan by the Plan during a Plan Year must not exceed an amount equal to the sum of such contributions and earnings (including earnings on the sale of allocated Employer Securities and also of those in any Suspense Account) received during or prior to the year less such payments in prior years. The Advisory Committee and the Trustee must account separately for such contributions and earnings in the books of account of the Plan until the Trust repays the loan. (5) In the event of default upon the loan, the value of Plan assets transferred in satisfaction of the loan must not exceed the amount of the default, and if the lender is a Disqualified Person, the loan must provide for transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the payment scheduled of the loan. (6) The Trustee must add and maintain all assets acquired with the proceeds of an Exempt Loan in a suspense Account. In withdrawing assets from the suspense Account, the Trustee will apply the provisions of Treas. Reg. (S)(S) 54.4975- 7(b)(8) and (15) as if all securities in the suspense Account were encumbered. Upon the payment of any portion of the loan, the Trustee will effect the release of assets in the suspense Account from encumbrances. For each Plan Year during the duration of the loan, the number of Employer Securities released must equal the number of encumbered Employer Securities held immediately before release for the current Plan Year multiplied by a fraction. The numerator of the fraction is the amount of principal and interest paid for the Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and interest to be paid for all future Plan Years. The number of future Plan Years under the loan must be definitely ascertainable and must be determined without taking into account any possible extension or renewal periods. If the interest rate under the loan is variable, the interest to be paid in future Plan Years must be computed by using the interest rate applicable as of the end of the Plan Year. If collateral includes more than one class of Employer Securities, the number of Employer Securities of each class to be released for a Plan Year must be 10.5 determined by applying the same fraction to each such class. The Advisory Committee will allocate assets withdrawn from the suspense Account to the Accounts of Participants who otherwise share in the allocation of the Employer's contribution for the Plan Year for which the Trustee has paid the portion of the loan resulting in the release of the assets. The Advisory Committee consistently will make this allocation as of each Accounting Date on the basis of non- monetary units, taking into account the relative Compensation of all such Participants for such Plan Year. (7) The loan must be for a specific term and may not be payable at the demand of any person except in the case of default. (8) Notwithstanding the fact this Plan ceases to be an employee stock ownership plan, Employer Securities acquired with the proceeds of an exempt loan will continue after the Trustee repays the loan to be subject to the provisions of Treas. Reg. (S)(S) 54.4975-7(b)(4), (10), (11) and (12) relating to put, call or other options and to buy-sell or similar arrangements, except to the extent these regulations are inconsistent with Code (S) 409(h). 10.04 Records and Statements. The records of the Trustee pertaining to the Plan must be open to the inspection of the Plan Administrator, Advisory Committee and the Employer at all reasonable times and may be audited from time to time by any person or persons as the Employer, Plan Administrator or Advisory Committee may specify in writing. The Trustee must furnish the Plan Administrator or Advisory Committee with whatever information relating to the Trust Fund the Plan Administrator or Advisory Committee considers necessary. 10.05 Fees and Expenses from Fund. The Trustee will receive reasonable annual compensation as may be agreed upon from time to time between the Employer and the Trustee. No person who is receiving full pay from the Employer may receive compensation for services as Trustee. The Trustee will pay from the Trust Fund all fees and expenses reasonably incurred by the Plan, and the Trustee in connection with the Plan (including but not limited to litigation expenses) to the extent such fees and expenses are for the ordinary and necessary administration and operation of the Plan, unless the Employer pays such fees and expenses. Any fee or expense paid, directly or indirectly, by the Employer is not an Employer contribution to the Plan, provided the fee or expense relates to the ordinary and necessary administration of the Fund. 10.06 Parties to Litigation. Except as otherwise provided by ERISA, no Participant or Beneficiary is a necessary party or is required to receive notice of process in any court proceeding involving the Plan, the Trust Fund or any fiduciary of the Plan. Any final judgment entered in any proceeding will be conclusive upon the Employer, the Plan Administrator, the Advisory Committee, the Trustee, Custodian, Participants and Beneficiaries. 10.07 Professional Agents. The Trustee may employ and pay from the Trust Fund reasonable compensation to agents, attorneys, accountants and other persons to advise the Trustee as in its opinion may be necessary. The Trustee may delegate to any agent, attorney, accountant or other person selected by it any non-Trustee power or duty vested in it by the Plan, and the Trustee may act or refrain from acting on the advice or opinion of any agent, attorney, accountant or other person so selected. 10.6 10.08 Distribution of Trust Fund; Valuation of Employer Securities. The Trustee will make all distributions of benefits under the Plan in Employer Securities valued at fair market value at the time of distribution as of the last Accounting Date unless a special valuation is required. The Trustee will pay in cash any fractional security share to which a Participant or his Beneficiary is entitled. In the event the Trustee is to make a distribution in shares of Employer Securities, the Trustee may apply any balance in a Participant's General Investments Account to provide whole shares of Employer Securities for distribution at the then fair market value. If the Employer's charter or bylaws restrict ownership of substantially all shares of Employer Securities to Employees and the Trust, as described in Code (S) 409(h)(2), the Trustee will make the distribution of a Participant's Accrued Benefit entirely in cash. Notwithstanding the preceding provisions of this (S) 10.08, the Trustee, if directed in writing by the Advisory Committee, will pay, in cash, any cash dividends on Employer Securities allocated, or allocable to Participants Employer Securities Accounts, irrespective of whether a Participant is fully vested in his Employer Securities Account. The Advisory Committee's direction must state whether the Trustee is to pay the cash dividend distributions currently, or within the 90 day period following the close of the Plan Year in which the Employer pays the dividends to the Trust. The Advisory Committee may request the Employer to pay dividends on Employer Securities directly to Participants. 10.09 Distribution Directions. If no one claims a payment or distribution made from the Trust, the Trustee must promptly notify the Advisory Committee and then dispose of the payment in accordance with the subsequent direction of the Advisory Committee. 10.10 Third Party/Multiple Trustees. No person dealing with the Trustee is obligated to see to the proper application of any money paid or property delivered to the Trustee, or to inquire whether the Trustee has acted pursuant to any of the terms of the Plan. Each person dealing with the Trustee may act upon any notice, request or representation in writing by the Trustee, or by the Trustee's duly authorized agent, and is not liable to any person in so acting. The certificate of the Trustee that it is acting in accordance with the Plan will be conclusive in favor of any person relying on the certificate. If more than two persons act as Trustee, a decision of the majority of such persons controls with respect to any decision regarding the administration or investment of the Trust Fund or of any portion of the Trust Fund with respect to which such persons act as Trustee. However, the signature of only one Trustee is necessary to effect any transaction on behalf of the Trust. 10.11 Resignation. The Trustee may resign its position at any time by giving 30 days' written notice in advance to the Employer and to the Advisory Committee. If the Employer fails to appoint a successor Trustee within 60 days of its receipt of the Trustee's written notice of resignation, the Trustee will treat the Employer as having appointed itself as Trustee and as having filed its acceptance of appointment with the former Trustee. 10.12 Removal. The Employer, by giving 30 days' written notice in advance to the Trustee, may remove any Trustee. In the event of the resignation or removal of a Trustee, the Employer must appoint a successor Trustee if it intends to continue the Plan. If two or more persons hold the position of Trustee, in the event of the removal of one such person, during any period the selection of a replacement is pending, or during any period such person is unable to serve for any reason, the remaining person or persons will act as the Trustee. 10.7 10.13 Interim Duties and Successor Trustee. Each successor Trustee succeeds to the title to the Trust vested in his predecessor by accepting in writing his appointment as successor Trustee and by filing the acceptance with the former Trustee and the Advisory Committee without the signing or filing of any further statement. The resigning or removed Trustee, upon receipt of acceptance in writing of the Trust by the successor Trustee, must execute all documents and do all acts necessary to vest the title of record in any successor Trustee. Each successor Trustee has and enjoys all of the powers, both discretionary and ministerial, conferred under this Agreement upon his predecessor. A successor Trustee is not personally liable for any act or failure to act of any predecessor Trustee, except as required under ERISA. With the approval of the Employer and the Advisory Committee, a successor Trustee, with respect to the Plan, may accept the account rendered and the property delivered to it by a predecessor Trustee without incurring any liability or responsibility for so doing. 10.14 Valuation of Trust. The Trustee must value the Trust Fund as of each Accounting Date to determine the fair market value of each Participant's Accrued Benefit in the Trust, and the Trustee also must value the Trust Fund on such other dates, as directed by the Advisory Committee. With respect to activities carried on by the Plan, an independent appraiser meeting requirements similar to those prescribed by Treasury regulations under Code (S) 170(a)(1) must perform all valuations of Employer Securities which are not readily tradeable on an established securities market. 10.15 Participant Voting Direction Rights - Employer Securities. With respect to the voting of Employer Securities which are not part of a registration-type class of securities (as defined in Code (S) 409(e)(4)), a Participant has the right to direct the Trustee regarding the voting of such Employer Securities allocated to his Employer Securities Account with respect to any corporate matter which involves the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as the Treasury may prescribe in regulations. As to any Employer Securities allocated to the Participant's Employer Securities Account which are part of a registration-type class of securities or any Employer Securities which were acquired with the proceeds of a securities acquisition loan (as defined in Section 133(b) of the Code) made after July 10, 1989, the voting direction rights provided in this Section 10.15 extend to all corporate matters requiring a vote of stockholders. The Advisory Committee shall direct the Trustee with respect to the voting of Employer Securities which are not part of a registration-type class of securities and which are held by the suspense account (and not allocated to individual Participant Employer Securities Accounts) or which are so allocated but which are not directed as to voting by the respective Participant(s). 10.16 Investment in Group Trust Fund. The Trustee, for collective investment purposes, may combine into one trust fund the Trust created under this Plan with the Trust created under any other qualified retirement plan the Employer maintains. However, the Trustee must maintain separate records of account for the assets of each Trust in order to reflect properly each Participant's Accrued Benefit under the plan(s) in which he is a Participant. 10.17 Limitation on Liability - If Investment Manager Appointed. The Trustee is not liable for the acts or omissions of any Investment Manager or Managers the Advisory Committee may appoint, nor is the Trustee under any obligation to invest or otherwise manage any asset of the Plan which is subject to the management of a properly appointed Investment Manager. The Advisory Committee, the Trustee and any properly appointed Investment Manager may execute a letter agreement as a part of this Plan delineating the duties, responsibilities and liabilities of the Investment Manager with respect to any part of the Trust Fund under the control of the Investment Manager. * * * * * * * * * * * * * 10.8 ARTICLE XI - REPURCHASE OF EMPLOYER SECURITIES 11.01 Put Option. The Employer will issue a "put option" to each Participant receiving a distribution of Employer Securities from the Trust. The put option will permit the Participant to sell the Employer Securities to the Employer, at any time during two option periods, at the current fair market value. The first put option period runs for a period of at least 60 days commencing on the date of distribution of Employer Securities to the Participant. The second put option period runs for a period of at least 60 days commencing after the new determination of the fair market value of Employer Securities by the Advisory Committee and notice to the Participant of the new fair market value. If a Participant (Beneficiary) exercises his put option, the Employer must purchase the Employer Securities at fair market value upon the terms provided under Section 11.04. The Employer may grant the Trust an option to assume the Employer's rights and obligations at the time a Participant exercises an option under this Section 11.01. 11.02 Restriction on Employer Securities. Except upon the prior written consent of the employer, no Participant (or Beneficiary) may sell, assign, give, pledge, encumber, transfer or otherwise dispose of any Employer Securities now owned or subsequently acquired by him without complying with the terms of this Article XI. If a Participant (or Beneficiary) pledges or encumbers any Employer Securities with the required prior written consent, any security holder's rights with respect to such Employer Securities are subordinate and subject to the rights of the Employer. 11.03 Lifetime Transfer/Right of First Refusal. If any Participant (or Beneficiary) who receives Employer Securities under this Plan desires to dispose of any of his Employer Securities for any reason during his lifetime (whether by sale, assignment, gift or any other method of transfer), he first must offer the Employer Securities for sale to the Employer. The Advisory Committee may require a Participant (or Beneficiary) entitled to a distribution of Employer Securities to execute an appropriate stock transfer agreement (evidencing the right of first refusal) prior to receiving a certificate for Employer Securities. In the case of an offer by a third party, the offer to the Employer is subject to all the terms and conditions set forth in Section 11.04 based on the price equal to the fair market value per share and payable in accordance with the terms of (S) 11.04 unless the selling price and terms offered to the Participant by the third party are more favorable to the Participant than the selling price and terms of Section 11.04, in the event the selling price and terms of the offer of the third party apply. The Employer must give written notice to the offering Participant of its acceptance of the Participant's offer within 14 days after the Participant has given written notice to the Employer or the Employer's rights under this Section 11.03 will lapse. The Employer may grant the Trust the option to assume the Employer's rights and obligations with respect to all or any part of the Employer Securities offered to the Employer under this (S) 11.03. 11.04 Payment of Purchase Price. If the Employer (or the Trustee, at the direction of the Advisory Committee) exercises an option to purchase a Participant's Employer Securities pursuant to an offer given under Section 11.03, the purchaser(s) must make payment in lump sum or, if the distribution to the Participant (or to his Beneficiary) constitutes a Total Distribution, in substantially equal installments over a period not exceeding 5 years. A "Total Distribution" to a Participant (or to a Beneficiary) is the distribution, within one taxable year of the recipient, of the entire balance to the Participant's credit under the Plan. In the case of a distribution which is not a Total Distribution or which is a Total Distribution with respect to which the purchaser(s) will make payment in lump 11.1 sum, the purchaser(s) must pay the Participant (or Beneficiary) the fair market value of the Employer Securities repurchased no later than 30 days after the date the Participant (or Beneficiary) exercises the option. In the case of a Total Distribution with respect to which the purchaser(s) will make installment payments, the purchaser(s) must make the first installment payment no later than 30 days after the Participant (or Beneficiary) exercises the put option. For installment amounts no paid within 30 days of the exercise of the put option, the purchaser(s) must evidence the balance of the purchase price by executing a promissory note, delivered to the selling Participant at the Closing. The note delivered at Closing must bear a reasonable rate of interest, determined as of the Closing Date, and the purchaser(s) must provide adequate security. The note must provide for equal annual installments with interest payable with each installment, the first installment being due and payable one year after the Closing Date. The note further must provide for acceleration in the event of 30 days' default of the payment on interest or principal and must grant to the maker of the note the right to repay the note in whole or in part at any time or times without penalty; provided however, the purchaser(s) may not have the right to make any prepayment during the calendar year or fiscal year of the Participant (Beneficiary) in which the Closing Date occurs. 11.05 Notice. A person has given Notice permitted or required under this Article XI when the person deposits the Notice in the United States mail, first class, postage prepaid, addressed to the person entitled to the Notice at the address currently listed for him in the records of the Advisory Committee. Any person affected by this Article XI has the obligation of notifying the Advisory Committee of any change of address. 11.06 Terms and Definitions. For purposes of this Article XI: (a) "Fair market value" means the value of the Employer Securities (i) determined as of the date of the exercise of an option if the exercise is by a Disqualified Person, or (ii) in all other cases, determined as of the most recent Accounting Date. The Advisory Committee must determine fair market value of Employer Securities for all purposes of the Plan by engaging the services of an independent appraiser. See (S) 10.14. (b) "Notice" means any offer, acceptance of an offer, payment or any other communication. (c) "Beneficiary" includes the legal representative of a deceased Participant. (d) "Closing" means the place, date and time ("Closing Date") to which the selling Participant (or his Beneficiary) and purchaser may agree for purposes of a sale and purchase under this Article XI, provided Closing must take place not later than 30 days after the exercise of an offer under (S) 11.01. * * * * * * * * * * * * * 11.2 ARTICLE XII - MISCELLANEOUS 12.01 Evidence. Anyone required to give evidence under the terms of the Plan may do so by certificate, affidavit, document or other information which the person to act in reliance may consider pertinent, reliable and genuine, and to have been signed, made or presented by the proper party or parties. The Advisory Committee and the Trustee are fully protected in acting and relying upon any evidence described under the immediately preceding sentence. 12.02 No Responsibility for Employer Action. Neither the Trustee nor the Advisory Committee has any obligation or responsibility with respect to any action required by the Plan to be taken by the Employer, any Participant or eligible Employee, or for the failure of any of the above persons to act or make any payment or contribution, or to otherwise provide any benefit contemplated under this Plan. Furthermore, the Plan does not require the Trustee or the Advisory Committee to collect any contribution required under the Plan, or to determine the correctness of the amount of any Employer contribution. Neither the Trustee nor the Advisory Committee need inquire into or be responsible for any action or failure to act on the part of the others, or on the part of any other person who has any responsibility regarding the management, administration or operation of the Plan, whether by the express terms of the Plan or by a separate agreement authorized by the Plan or by the applicable provisions of ERISA. Any action required of a corporate Employer must be by its Board of Directors or its designate. 12.03 Fiduciaries not Insurers. The Trustee, the Advisory Committee, the Plan Administrator and the Employer in no way guarantee the Trust Fund from loss or depreciation. The Employer does not guarantee the payment of any money which may be or becomes due to any person from the Trust Fund. The liability of the Advisory Committee and the Trustee to make any payment from the Trust Fund at any time and all times is limited to the then available assets of the Trust. 12.04 Waiver of Notice. Any person entitled to notice under the Plan may waive the notice, unless the Code or Treasury regulations prescribe the notice or ERISA specifically or impliedly prohibits such a waiver. 12.05 Successors. The Plan is binding upon all persons entitled to benefits under the Plan, their respective heirs and legal representatives, upon the Employer, its successors and assigns, and upon the Trustee, the Advisory Committee, the Plan Administrator and their successors. 12.06 Word Usage. Words used in the masculine also apply to the feminine where applicable, and wherever the context of the Employer's Plan dictates, the plural includes the singular and the singular includes the plural. 12.07 State Law. MISSOURI law will determine all questions arising with respect to the provisions of this Agreement except to the extent superseded by Federal law. 12.08 Employment Not Guaranteed. Nothing contained in this Plan, or with respect to the establishment of the Trust, or any modification or amendment to the Plan or Trust, or in the creation of any Account, or the payment of any benefit, gives any Employee, Employee-Participant or any Beneficiary any right to continue employment, any legal or equitable right against the Employer, or Employee of the Employer, or against the Trustee, or its agents or employees, or against the Plan 12.1 Administrator, except as expressly provided by the Plan, the Trust, ERISA or by a separate agreement. * * * * * * * * * * * * * * 12.2 ARTICLE XIII - EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION 13.01 Exclusive Benefit. Except as provided under Article III, the Employer has no beneficial interest in any asset of the Trust and no part of any asset in the Trust may ever revert to or be repaid to an Employer, either directly or indirectly; nor, prior to the satisfaction of all liabilities with respect to the Participants and their Beneficiaries under the Plan, may any part of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any time) used for, or diverted to, purposes other than the exclusive benefit of the Participants or their Beneficiaries. 13.02 Amendment by Employer. The Employer has the right at any time and from time to time: (a) To amend this Agreement in any manner it deems necessary or advisable in order to qualify (or maintain qualification of) this Plan and the Trust created under it under the provisions of Code (S)401(a); (b) To amend the Plan to allow the Plan to operate under a waiver of the minimum funding requirement; and (c) To amend this Agreement in any other manner. No amendment may authorize or permit any of the Trust Fund (other than the part which is required to pay taxes and administration expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their Beneficiaries or estates. No amendment may cause or permit any portion of the Trust Fund to revert to or become a property of the Employer. The Employer also may not make any amendment which affects the rights, duties or responsibilities of the Trustee, the Plan Administrator or the Advisory Committee without the written consent of the affected Trustee, the Plan Administrator or the affected member of the Advisory Committee. The Employer must make all amendments in writing. Each amendment must state the date to which it is either retroactively or prospectively effective. (A) Code (S)411(d)(6) Protected Benefits. An amendment (including the adoption of this Plan as a restatement of an existing plan) may not decrease a Participant's Accrued Benefit, except to the extent permitted under Code (S)412(c)(8), and may not reduce or eliminate Code (S)411(d)(6) protected benefits determined immediately prior to the adoption date (or, if later, the effective date) of the amendment. An amendment reduces or eliminates Code (S)411(d)(6) protected benefits if the amendment has the effect of either (1) eliminating or reducing an early retirement benefit or a retirement-type subsidy (as defined in Treasury regulations), or (2) except as provided by Treasury regulations, eliminating an optional form of benefit. The Advisory Committee must disregard an amendment to the extent application of the amendment would fail to satisfy this paragraph. If the Advisory Committee must disregard an amendment because the amendment would violate clause (1) or clause (2), the Advisory Committee must maintain a schedule of the early retirement option or other optional forms of benefit the Plan must continue for the affected Participants. 13.03 Discontinuance. The Employer has the right, at any time, to suspend or discontinue its contributions under the Plan, and to terminate, at any time, this Plan and the Trust created under this Agreement. The Plan will terminate upon the first to occur of the following: 13.1 (a) The date terminated by action of the Employer; (b) The dissolution or merger of the Employer, unless the successor makes provision to continue the Plan, in which event the successor must substitute itself as the Employer under this Plan. Any termination of the Plan resulting from this paragraph (b) is not effective until compliance with any applicable notice requirements under ERISA. 13.04 Full Vesting on Termination. Upon either full or partial termination of the Plan, or, if applicable, upon complete discontinuance of contributions to the Plan, an affected Participant's right to his Accrued Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage which otherwise would apply under Article V. 13.05 Merger/Direct Transfer. The Trustee may not consent to, or be a party to, any merger or consolidation with another plan, or to a transfer of assets or liabilities to another plan, unless immediately after the merger, consolidation or transfer, the surviving Plan provides each Participant a benefit equal to or greater than the benefit each Participant would have received had the Plan terminated immediately before the merger or consolidation or transfer. The Trustee possesses the specific authority to enter into merger agreements or direct transfer of assets agreements with the trustees of other retirement plans described in Code (S)401(a), including an elective transfer, and to accept the direct transfer of plan assets, or to transfer plan assets, as a party to any such agreement. The Trustee may accept a direct transfer of plan assets on behalf of an Employee prior to the date the Employee satisfies the Plan's eligibility conditions. If the Trustee accepts such a direct transfer of plan assets, the Advisory Committee and Trustee must treat the Employee as a Participant for all purposes of the Plan except the Employee is not a Participant for purposes of sharing in Employer contributions or Participant forfeitures under the Plan until he actually becomes a Participant in the Plan. (A) Elective Transfers. The Trustee, after August 9, 1988, may not consent to, or be a party to a merger, consolidation or transfer of assets with a defined benefit plan, except with respect to an elective transfer, or unless the transferred benefits are in the form of paid-up individual annuity contracts guaranteeing the payment of the transferred benefits in accordance with the terms of the transferor plan and in a manner consistent with the Code and with ERISA. The Trustee will hold, administer and distribute the transferred assets as a part of the Trust Fund and the Trustee must maintain a separate Employer contribution Account for the benefit of the Employee on whose behalf the Trustee accepted the transfer in order to reflect the value of the transferred assets. Unless a transfer of assets to this Plan is an elective transfer, the Plan will preserve all Code (S)411(d)(6) protected benefits with respect to those transferred assets, in the manner described in Section 13.02. A transfer is an elective transfer if: (1) the transfer satisfies the first paragraph of this Section 13.06; (2) the transfer is voluntary, under a fully informed election by the Participant; (3) the Participant has an alternative that retains his Code (S)411(d)(6) protected benefits (including an option to leave his benefit in the transferor plan, if that plan is not terminating); (4) the transfer satisfies the applicable spousal consent requirements of the Code; (5) the transferor plan satisfies the joint and survivor notice requirements of the Code, if the Participant's transferred benefit is subject to those requirements; (6) the Participant has a right to immediate distribution from the transferor plan, in lieu of the elective transfer; (7) the transferred benefit is at least the greater of the single sum distribution provided by the transferor plan for which the Participant is eligible or the present value 13.2 of the Participant's accrued benefit under the transferor plan payable at that plan's normal retirement age; (8) the Participant has a 100% Nonforfeitable interest in the transferred benefit; and (9) the transfer otherwise satisfies applicable Treasury regulations. An elective transfer may occur between qualified plans of any type. (B) Distribution restrictions under Code (S)401(k). If the Plan receives a direct transfer (by merger or otherwise) of elective contributions (or amounts treated as elective contributions) under a Plan with a Code (S)401(k) arrangement, the distribution restrictions of Code (S)(S)401(k)(2) and (10) continue to apply to those transferred elective contributions. 13.06 Termination. Upon termination of the Plan, the distribution provisions of Article VI remain operative, with the following exceptions: (1) if the present value of the Participant's Nonforfeitable Accrued Benefit does not exceed $3,500, the Advisory Committee will direct the Trustee to distribute the Participant's Nonforfeitable Accrued Benefit to him in lump sum as soon as administratively practicable after the Plan terminates; and (2) if the present value of the Participant's Nonforfeitable Accrued Benefit exceeds $3,500, the Participant or the Beneficiary, in addition to the distribution events permitted under Article VI, may elect to have the Trustee commence distribution of his Nonforfeitable Accrued Benefit as soon as administratively practicable after the Plan terminates. To liquidate the Trust, the Advisory Committee will purchase a deferred annuity contract for each Participant which protects the Participant's distribution rights under the Plan, if the Participant's Nonforfeitable Accrued Benefit exceeds $3,500 and the Participant does not elect an immediate distribution pursuant to Paragraph (2). If this paragraph applies, in lieu of the preceding provisions of this Section 13.06 and the distribution provisions of Article VI, the Advisory Committee will direct the Trustee to distribute each Participant's Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively practicable after the termination of the Plan, irrespective of the present value of the Participant's Nonforfeitable Accrued Benefit and whether the Participant consents to that distribution. This paragraph applies only if: (1) the Plan does not provide an annuity option; (2) the Plan is a profit sharing plan at the time of its termination date; and (3) as of the period between the Plan termination date and the final distribution of assets, the Employer does not maintain any other defined contribution plan (other than an ESOP). The Trust will continue until the Trustee in accordance with the direction of the Advisory Committee has distributed all of the benefits under the Plan. On each valuation date, the Advisory Committee will credit any part of a Participant's Accrued Benefit retained in the Trust with its proportionate share of the Trust's income, expenses, gains and losses, both realized and unrealized. Upon termination of the Plan, the amount, if any, in a suspense account under Article III will revert to the Employer, subject to the conditions of the Treasury regulations permitting such a reversion. A resolution or amendment to freeze all future benefit accrual but otherwise to continue maintenance of this Plan, is not a termination for purposes of this Section 13.06. 13.3 IN WITNESS WHEREOF, the Employer and the Trustee have executed this Plan and Trust in ST. JOSEPH, MISSOURI this 10th day of December, 1991. C.D. SMITH DRUG COMPANY By: /s/ John T. Smith, Jr. ------------------------------------ John T. Smith, Jr. "EMPLOYER" 13.4 /s/ John A. Ovel 12/32/91 -------------------------------------- BOATMEN'S TRUST COMPANY OF KANSAS CITY "TRUSTEE" 13.5 ALPHABETICAL LISTING OF DEFINITIONS
Account.......................................... 1.4 Accounting Date.................................. 1.4 Accrued Benefit.................................. 1.4 Advisory Committee............................... 1.1 Annual Addition.................................. 3.6 Annuity Starting Date............................ 6.1 Beneficiary...................................... 1.3 Break in Service................................. 2.2 Cash-Out Distribution............................ 5.1 Code............................................. 1.5 Code (S)411(d)(6) Protected Benefits............. 13.1 Compensation.............................. 1.3,1.8,3.7 Defined benefit plan............................. 3.8 Defined contribution plan........................ 3.7 Determination Date............................... 1.9 Disability....................................... 1.6 Disqualified Person.............................. 1.9 Distribution Date................................ 6.1 Effective Date................................... 1.4 Elective contributions........................... 1.3 Elective Transfer................................ 13.2 Employee......................................... 1.1 Employer.................................. 1.1,1.9,3.7 Employer Securities.............................. 1.9 ERISA............................................ 1.5 Excess Amount.................................... 3.7 Exempt Loan...................................... 1.9 Forfeiture Break in Service...................... 5.4 Highly Compensated Employee...................... 1.1 Hour of Service.................................. 1.5 Key Employee..................................... 1.8 Leased Employees................................. 1.7 Leveraged Employer Securities.................... 1.9 Limitation Year.................................. 3.7 Maximum Permissible Amount....................... 3.7 Minimum Distribution Incidental Benefit.......... 6.4 Non-Key Employee................................. 1.8 Nonforfeitable................................... 1.4 Nontransferable Annuity.......................... 1.5 Normal Retirement Age............................ 5.1 Participant...................................... 1.2 Permissive Aggregation Group..................... 1.9 Plan............................................. 1.1 Plan Administrator............................... 1.1 Plan Entry Date.................................. 1.4 Plan Year........................................ 1.4 Predecessor Employer............................. 1.6 Qualified Domestic Relations Order............... 6.7 Related Employers................................ 1.6 Required Aggregation Group....................... 1.8 Required Beginning Date.......................... 6.2 Service.......................................... 1.5 Top Heavy Minimum Allocation..................... 3.2 Top Heavy Ratio.................................. 1.7 Trust............................................ 1.4 Trust Fund....................................... 1.4 Trustee.......................................... 1.1 Year of Service.................................. 2.1
13.6 PARTICIPATION AGREEMENT ----------------------- The undersigned Employer, by executing this Participant Agreement, elects to continue as a Participating Employer in the Plan which has been restated as the C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN, as if the Participating Employer were an Adopting Employer under that Plan. The Participating Employer accepts, and agrees to be bound by, all of the provisions of the Plan as maintained by C.D. Smith Drug Company. This is an adoption of the restatement of the above Plan, effective as of December 31, 1991. The original effective date of the participation of the undersigned Employer in this Plan, prior to its restatement, is January 1, 1989. Dated as of the 31st day of December 1992. Name of Participating Employer: C.D.S. TRANSPORTATION, INC. By: /s/ Robert C. Farley -------------------------------------- Robert Farley, President EIN: 43-1462539 The Adopting Employer, C.D. Smith Drug Company, in witness of its acceptance executes this Participation Agreement on the date signed above. C.D. SMITH DRUG COMPANY By: /s/ Robert C. Farley --------------------------------------- Robert Farley, President 13.7 PARTICIPATION AGREEMENT ----------------------- The undersigned Employer, by executing this Participant Agreement, Elects to be a Participating Employer in the Plan which is known as the C.D. Smith Drug Company Profit Sharing 401(k) Plan, as if the Participating Employer were an Adopting Employer under that Plan. The Participating Employer accepts, agrees to be bound by, all of the provisions of the Plan as maintained by C.D. Smith Drug Company. This is an adoption of the above Plan, effective as of January 1, 1989. Dated as of the 31st day of December 1989. Name of Participating Employer: C.D.S. TRANSPORTATION, INC. By: /s/ Robert C. Farley ---------------------------------- The Adopting Employer, C.D. Smith Drug Company, in witness of its acceptance executes this Participation Agreement on the date signed above. C.D. SMITH DRUG COMPANY By: /s/ Robert C. Farley ------------------------------------ 13.7 C. D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN ARTICLE A APPENDIX TO PLAN AND TRUST AGREEMENT This article is necessary to comply with the Unemployment Compensation Amendments Act of 1992 and is an integral part of the plan and trust agreement. Section 13.02 applies to any modification or amendment of this Article. A-1. APPLICATIONS. This Article applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. A-2. DEFINITIONS. (a) "Eligible rollover distribution." An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion of net unrealized appreciation with respect to employer securities). (b) "Eligible retirement plan." An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) "Distributee." A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (d) "Direct rollover." A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. ARTICLE B APPENDIX TO PLAN AND TRUST AGREEMENT SECTION 401(a)(17) AMENDMENT In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For plan years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If compensation for any prior determination period is taken into account in determining an employee's benefits accruing in the current plan year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first plan year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. STATEMENT OF UNANIMOUS CONSENT TO ACTION TAKEN IN LIEU OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS OF C.D. SMITH DRUG COMPANY In lieu of a special meeting of the board of directors of C. D. Smith Drug Company (the "Corporation"), the undersigned, being all of the directors of said Corporation entitled to vote on the resolutions set forth below, do hereby consent to the adoption of, and do hereby adopt, the following resolutions and declare them to be in full force and effect as if they had been duly adopted at a meeting of the directors of the Corporation, duly called, noticed and held: WHEREAS, the Corporation has accepted the resignation, effective as of December 31, 1 995, of Boatmen's Trust Company of Kansas City as trustee of the C.D. Smith Drug Company Employee Stock Ownership Plan (the "Plan"); and WHEREAS, the Corporation, pursuant to Section 10.12 of the Plan, desires to appoint a successor trustee. NOW, THEREFORE, RESOLVED, that effective January 1, 1996, the trustee of the Plan shall be George K. Baum Trust Company. FURTHER RESOLVED, that the officers of this Corporation are hereby authorized and directed to execute all documents, file all papers, and take such further action as they deem necessary or desirable in order to fully perform and carry out the action authorized in the foregoing resolution. Dated: February 5, 1996. /s/ Robert Farley --------------------- Robert Farley /s/ Richard Meehan --------------------- Richard Meehan /s/ Robert B. Orr --------------------- Robert Orr /s/ Jeanne Mathiesen --------------------- Jeanne Mathiesen /s/ Delora Jamison --------------------- Delora Jamison EX-10.18 7 AMENDMENT DATED 10/01/92 E.S.O.P. Exhibit 10.18 ------------- C. D. SMITH DRUG COMPANY ------------------------ EMPLOYEE STOCK OWNERSHIP PLAN ----------------------------- AMENDMENT DATED OCTOBER 1, 1992 ------------------------------- THIS AGREEMENT, made and entered into as of October 1, 1992, by and between C. D. SMITH DRUG COMPANY, (hereinafter called the "Company"), and BOATMEN'S TRUST COMPANY, (hereinafter called the "Trustee"): WITNESSETH: WHEREAS, the Company and Trustee heretofore entered into an employees stock ownership plan, it is desirable to amend the plan in certain respects. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements herein contained, it is hereby agreed by and between the parties as follows: Section 1: The first sentence of Section 8.10 of the plan is amended to read as follows: 8.10 Account Diversification. Except as provided in this Section 8.10 and in Section 8.11, a Participant does not have the right to direct the Trustee with respect to the investment or re-investment of the assets comprising the Participant's individual Account. Section 2: A new Section 8.11 shall be added as follows: 8.11 Accounts Attributable to Plan Allocations While Plan Contained Internal Revenue Code Section 401(k) Provisions -- Participant Direction of Investment. A Participant has the right to direct the investment or re- investment of the assets of his Account attributable to allocations to this Plan during the period of time the Plan contained 401(k) provisions. The Trustee will accept Participant directions from the Advisory Committee, or, if consented to by the Trustee, from each Participant, on a written election form (or other written agreement), as a part of this Plan, containing such conditions, limitations and other provisions the Trustee and the Advisory Committee deem appropriate. The Trustee or, with the Trustee's consent, the Advisory Committee may establish written procedures, incorporated specifically as part of this Plan, relating to Participant direction of investment under this Section 8.11. The Trustee will maintain a segregated investment Account to the extent a Participant's Account is subject to Participant self-direction. The Trustee is not liable for any loss, cost, damage or expense, nor is the Trustee liable for any breach, resulting from or arising out of a Participant's direction of the investment of any part of his directed Account, and the Trustee shall be fully protected for acting in accordance with, or refraining from acting in the absence of any such direction. The Company shall indemnify the Trustee for any loss, cost, damage or expense arising out of any alleged or actual act, or failure to act, on the part of the Company, the Advisory Committee or any Participant in connection with any Participant directed investment provided under this Plan. If the Participant directs the investment of his Account, the Plan shall treat any post-December 31, 1981, investment by a Participant's directed Account in collectibles (as defined by Code (S)408(m)) as a deemed distribution to the Participant for Federal income tax purposes. Section 3: The amendment to the adoption agreement embodied herein shall be effective as of October 1, 1992. The Company and the Trustee hereby agree to the provisions of this amendment and, in witness of their agreement, the Company and the Trustee have signified their acceptance, as of October 1, 1992. C.D. SMITH DRUG COMPANY By: --------------------------------------------- "EMPLOYER" BOATMEN'S TRUST COMPANY OF KANSAS CITY By: --------------------------------------------- "TRUSTEE" EX-23.1 8 CONSENT OF ERNST & YOUNG LLP DATED 05/25/99 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-4, No. ) and related Prospectus of AmeriSource Health Corporation for the registration of 2,690,000 shares of its common stock and to the incorporation by reference therein of our report dated November 3, 1998 (except for Note 13, as to which the date is December 8, 1998), with respect to the consolidated financial statements and schedules of AmeriSource Health Corporation included in its Annual Report (Form 10-K) for the year ended September 30, 1998, filed with the Securities and Exchange Commission. Ernst & Young, LLP Philadelphia, Pennsylvania May 25, 1999 EX-23.2 9 CONSENT OF ERNST & YOUNG LLP DATED 05/27/99 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated April 23, 1999, with respect to the financial statements of C.D. Smith Healthcare, Inc. and Subsidiaries included in the Registration Statement (Form S-4, No. ) and related Prospectus of AmeriSource Health Corporation for the registration of 2,690,000 shares of its common stock. Ernst & Young, LLP Kansas City, Missouri May 27, 1999 EX-99.1 10 C.D. SMITH PROXY CARD Exhibit 99.1 PROXY I, _____________, hereby constitute and appoint __________ my true and lawful attorney and proxy for me in my name and stead to vote the shares of stock owned by me in C.D. Smith Healthcare, Inc. at the Special Meeting of the Shareholders of C.D. Smith Healthcare, Inc. to be held ________, 1999 at ______ __.m. at ______________________________________, and thereafter as it may from time to time be adjourned, for the purpose set forth below. 1. To consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Reorganization, dated as of April 28, 1999, as amended and restated as of May 27, 1999, by and among AmeriSource Health Corporation, Hawk Acquisition Corp., the Corporation and a Person to be designated Escrow Agent, and the merger of Hawk Acquisition Corp. into the Corporation. _______ ______ _______ YES NO ABSTAIN 2. To consider and act upon such other business as may properly come before the special meeting or any adjournment or postponement thereof. Witness my hand by this ____ day of ________, 1999. ________________________________ Shareholder ________________________________ Witness EX-99.2 11 C.D. SMITH ESOP DIRECTION FORM Exhibit 99.2 DIRECTION FORM NAME: _________________ ALLOCATED SHARES TO VOTE: ___________SHARES (1998 SHARES ARE ESTIMATED AND INCLUDED) NOTICE IS HEREBY GIVEN to all C.D. Smith ESOP shareholder participates as of ________________. The special meeting of shareholders of C.D. Smith Healthcare, Inc. will be held _______ at ________ at ___________________________ ____________________________________________________ and thereafter as it may from time to time be adjourned, for the purposes set forth below. You have the right to vote your C.D. Smith Healthcare, Inc. allocated shares in order to direct George K. Baum Trust Company (the "Plan Trustee") how to vote the block of C.D. Smith shares. If you wish to change the instructions on this direction form, please contact the Plan Trustee. Prior to and at the special meeting, our accounting firm Ernst and Young will be counting the ballots. Please complete, date, sign and return this form in the enclosed envelope as promptly as possible, but in no event later than _______________, 1999, in order to ensure the direction of your vote. Please direct your vote by marking where indicated below for the following proposal: 1. To consider and vote upon a proposal to approve the Amended and Restated Agreement and Plan of Reorganization, dated as of April 28, 1999, as amended and restated as of May 27, 1999, by and among AmeriSource Health Corporation, Hawk Acquisition Corp., the Corporation and a Person to be designated Escrow Agent, and the merger of Hawk Acquisition Corp. into the Corporation. _____ _____ _____ YES NO ABSTAIN 2. To consider and act upon such other business as may properly come before the special meeting or any adjournment or postponement thereof. Date:__________________________ ________________________________ Participant Signature EX-99.3 12 CONSENT OF B.T. ALEX BROWN INCORPORATED Exhibit 99.3 [LETTERHEAD OF BT ALEX. BROWN INCORPORATED] May 28, 1999 The Board of Directors C.D. Smith Healthcare, Inc. 3907 South 48th Terrace St. Joseph, Missouri 64502 Members of the Board: We hereby consent to the inclusion of our opinion letter to the Board of Directors of C.D. Smith Healthcare, Inc. ("C.D. Smith") as Annex B to the Proxy Statement/Prospectus of C.D. Smith and AmeriSource Health Corporation ("AmeriSource") relating to the proposed merger transaction involving C.D. Smith and AmeriSource. In giving such consent, we do not admit that we come within the category of persons whose consent is required under, and we do not admit that we are "experts" for purposes of, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. By: /s/ BT Alex. Brown Incorporated ------------------------------------------ BT ALEX. BROWN INCORPORATED -----END PRIVACY-ENHANCED MESSAGE-----