As filed with the Securities and Exchange Commission on May 28, 1999

Registration No. 333-

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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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)

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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)

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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)

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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

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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. [_]

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CALCULATION OF REGISTRATION FEE

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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
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Class A Common Stock,
par value $0.01 per
share................. 2,690,000 N/A $129,962 $36.13
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(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.

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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.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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

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TABLE OF CONTENTS

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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

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

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:

. 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

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%.

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,

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

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

. 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.

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)

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.

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.

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.

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.

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

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.

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.

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

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

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.

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.

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

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.

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.

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.

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 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.

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.

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.

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;

. 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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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;

. 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;

. 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;

. 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.

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.

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.

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.

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.

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

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

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

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

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.

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.

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.

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.

(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.

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.

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.

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.

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.

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

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.

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.

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

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

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.

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

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.

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.

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.

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.

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

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

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).

"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

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

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

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

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.

(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

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.

(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

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

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

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;

(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,

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

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.

(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.

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.

(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,

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").

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.

(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.

(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

(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

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

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

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

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

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

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.

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;

(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;

(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

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.

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.

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

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

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

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.

(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.

(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.

(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,

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

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

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

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.

(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

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

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)

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

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

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

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

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]

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
_____________________________________

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.

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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).

II-1

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).

II-3

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