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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>/in/edgar/work/20000906/0000950152-00-006483/0000950152-00-006483.txt : 20000922
<SEC-HEADER>0000950152-00-006483.hdr.sgml : 20000922
ACCESSION NUMBER: 0000950152-00-006483
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 16
CONFORMED PERIOD OF REPORT: 20000630
FILED AS OF DATE: 20000906
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CARDINAL HEALTH INC
CENTRAL INDEX KEY: 0000721371
STANDARD INDUSTRIAL CLASSIFICATION: [5122
] IRS NUMBER: 310958666
STATE OF INCORPORATION: OH
FISCAL YEAR END: 0630
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-11373
FILM NUMBER: 717486
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 5555 GLENDON COURT
CITY: DUBLIN
STATE: OH
ZIP: 43016
BUSINESS PHONE: 6147175000
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 5555 GLEDNON COURT
CITY: DUBLIN
STATE: OH
ZIP: 43016
</MAIL-ADDRESS>
FORMER COMPANY:
FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC
DATE OF NAME CHANGE: 19920703
</FORMER-COMPANY>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>l83475ae10-k.txt
<DESCRIPTION>CARDINAL HEALTH, INC. FORM 10-K
<TEXT>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-12591
CARDINAL HEALTH, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 31-0958666
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
7000 CARDINAL PLACE, DUBLIN, OHIO 43017
(Address of principal executive offices) (Zip Code)
</TABLE>
(614) 757-5000
Registrant's telephone number, including area code
Securities Registered Pursuant to Section 12(b) of the Act:
COMMON SHARES (WITHOUT PAR VALUE) NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which registered)
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of September 1, 2000 was approximately $22,899,156,785.
The number of Registrant's Common Shares outstanding as of September 1,
2000, was as follows: Common shares, without par value: 277,899,377.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Definitive Proxy Statement to be filed for its
2000 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Annual Report on Form 10-K.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Information Regarding Forward-Looking Statements..................................... 3
PART I
1. Business............................................................................. 3
2. Properties........................................................................... 7
3. Legal Proceedings.................................................................... 8
4. Submission of Matters to a Vote of Security Holders.................................. 8
Senior Officers of the Company....................................................... 9
PART II
5. Market for the Registrant's Common Shares and Related Shareholder Matters............ 12
6. Selected Financial Data.............................................................. 12
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
7a. Quantitative and Qualitative Disclosures About Market Risk........................... 19
8. Financial Statements and Supplementary Data.......................................... 20
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50
PART III
10. Directors and Executive Officers of the Registrant................................... 50
11. Executive Compensation............................................................... 50
12. Security Ownership of Certain Beneficial Owners and Management....................... 50
13. Certain Relationships and Related Transactions....................................... 51
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 51
Signatures............................................................................ 56
</TABLE>
2
<PAGE> 3
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Annual Report on Form 10-K (including information
incorporated by reference) include "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The words
"believe", "expect", "anticipate", "project", and similar expressions, among
others, identify "forward looking statements", which speak only as of the date
the statement was made. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to materially
differ from those projected, anticipated or implied. The most significant of
such risks, uncertainties and other factors are described in this Form 10-K and
in Exhibit 99.01 to this Form 10-K. The Company undertakes no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
PART I
ITEM 1: BUSINESS
GENERAL
Cardinal Health, Inc., an Ohio corporation formed in 1979, is structured as
a holding company conducting business through a number of separate operating
subsidiaries. As used in this report, the "Registrant" and the "Company" refer
to Cardinal Health, Inc. and its subsidiaries, unless the context requires
otherwise. Except as otherwise specified, information in this report is provided
as of June 30, 2000. The Company is a leading provider of products and services
to healthcare providers and manufacturers to help them improve the efficiency
and quality of healthcare. These services and products include Pharmaceutical
Distribution and Provider Services, Medical-Surgical Products and Services,
Pharmaceutical Technologies and Services and Automation and Information
Services.
BUSINESS SEGMENTS
A description of the Company's reporting industry segments, which have been
expanded from those previously reported, is as follows(1):
PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES
Through its Pharmaceutical Distribution and Provider Services segment, the
Company distributes a broad line of pharmaceutical and other healthcare
products and provides pharmacy management and related consulting services to
hospital, retail and alternate-site pharmacies. Cardinal Distribution, the
Company's pharmaceutical distribution business, is one of the country's leading
wholesale distributors of pharmaceutical and related healthcare products to
independent and chain drugstores, hospitals, alternate care centers and the
pharmacy departments of supermarkets and mass merchandisers located throughout
the continental United States. As a full-service wholesale distributor, Cardinal
Distribution complements its distribution activities by offering a broad range
of value-added support services to assist the Company's customers and suppliers
in maintaining and improving their sales volumes. These support services include
online procurement, fulfillment and information through cardinal.com,
computerized order entry and order confirmation systems, generic sourcing
programs, product movement and management reports, consultation on store
operation and merchandising, and customer training. The Company's proprietary
software systems feature customized databases specially designed to help its
distribution customers order more efficiently, contain costs, and monitor their
purchases.
The Company also operates several specialty healthcare distribution
businesses which offer value-added services to the Company's customers and
suppliers while providing the Company with additional opportunities for growth
and profitability. For example, the Company operates a pharmaceutical
repackaging and distribution program for both independent and chain drugstore
customers. In addition, the Company serves as a distributor of therapeutic
plasma products, oncology products and other specialty pharmaceuticals to
hospitals, clinics and other managed-care facilities on a nationwide basis
through the utilization of telemarketing and direct mail programs. The Company
also operates a third party logistics company that distributes and tracks
products for pharmaceutical and bio-technology manufacturers.
Also within this segment, the Company provides services to healthcare
providers through integrated pharmacy management and consulting, as well as
operating as a franchisor of apothecary-style retail pharmacies. The Company
also provides temporary staffing and related services, in a collaborative
relationship with hospital pharmacy and administration.
- --------
(1) For additional information concerning the Company's industry segments, see
Note 12 of "Notes to Consolidated Financial Statements".
3
<PAGE> 4
MEDICAL-SURGICAL PRODUCTS AND SERVICES
The Company's subsidiary, Allegiance Corporation ("Allegiance"), is a
provider of non-pharmaceutical healthcare products and cost-saving services for
hospitals and other healthcare providers. Allegiance offers a broad range of
medical and laboratory products, representing more than 2,600 suppliers in
addition to its own line of surgical and respiratory therapy products. It also
manufactures sterile and non-sterile procedure kits, single-use surgical drapes,
gowns and apparel, medical and surgical gloves, fluid suction and collection
systems, respiratory therapy products, surgical instruments, instrument
reprocessing products, special procedure products and other products. Allegiance
assists its customers in reducing costs while improving the quality of patient
care in a variety of ways, including online procurement, fulfillment and
information through cardinal.com, supply-chain management, instrument repair and
other professional consulting services.
PHARMACEUTICAL TECHNOLOGIES AND SERVICES
Through its Pharmaceutical Technologies and Services segment, the Company
provides services to the pharmaceutical manufacturing industry through a broad
spectrum of complementary services. The Company provides manufacturers with
unique drug delivery systems and related manufacturing capabilities. It is also
a leading provider of diversified custom packaging services both in the United
States and Europe. The Company is a leading provider of contract manufacturing
and packaging of sterile liquid pharmaceuticals and other healthcare products in
topical, oral, inhaled and ophthalmic formulations, and also provides contract
manufacturing services to pharmaceutical companies. The Company's contract sales
organization assists healthcare companies in launching and marketing products by
providing strategic planning, product management, vendor evaluation and related
services. The Company also operates a reimbursement consulting firm, which helps
manufacturers obtain insurance coverage and payment for new drugs.
AUTOMATION AND INFORMATION SERVICES
The Company, within its Automation and Information Services segment,
operates businesses focusing on meeting customer needs through unique and
proprietary automation and information products and services, including Pyxis
Corporation ("Pyxis"), which develops, manufactures, leases, sells and services
point-of-use pharmacy systems which automate the distribution and management of
medications and supplies in hospitals and other healthcare facilities. Through
its Cardinal Information group of companies, the Company provides information
systems that analyze clinical outcomes and assist pharmacies in obtaining
reimbursement from third party payors.
ACQUISITIONS
Over the last five years, the Company has completed the following business
combinations. On November 13, 1995, the Company completed a merger transaction
with Medicine Shoppe International, Inc. ("Medicine Shoppe"), a St. Louis,
Missouri-based franchisor of independent, apothecary-style retail pharmacies in
the United States and abroad. The Company issued approximately 14.4 million(2)
Common Shares to Medicine Shoppe shareholders in the transaction. On May 7,
1996, the Company completed a merger transaction with Pyxis, a San Diego,
California-based developer, manufacturer, marketer and servicer of unique
point-of-use systems which automate the distribution, management and control of
medications and supplies in hospitals and other healthcare facilities. The
Company issued approximately 33.9 million Common Shares to Pyxis shareholders in
the transaction. On October 11, 1996, the Company completed a merger transaction
with PCI Services, Inc. ("PCI"), a Philadelphia, Pennsylvania-based provider of
diversified packaging services to the pharmaceutical industry in the United
States and abroad. The Company issued approximately 4.7 million Common Shares to
PCI shareholders in the transaction. On March 18, 1997, the Company completed a
merger transaction with Owen Healthcare, Inc. ("Owen"), a Houston, Texas-based
provider of pharmacy management and information services to hospitals. The
Company issued approximately 11.6 million Common Shares to Owen shareholders in
the transaction. On February 18, 1998, the Company completed a merger
transaction with MediQual Systems, Inc. ("MediQual"), a Westborough,
Massachusetts-based supplier of clinical information management systems and
services to the healthcare industry. On August 7, 1998, the Company completed a
merger transaction with R.P. Scherer Corporation ("Scherer"), an international
developer and manufacturer of drug delivery systems. On February 3, 1999, the
Company completed a merger transaction with Allegiance, a McGaw Park,
Illinois-based distributor and manufacturer of medical, surgical and laboratory
products and a provider of cost-saving services. On September 10, 1999 the
Company completed a merger transaction with Automatic Liquid Packaging, Inc.
("ALP"), a Woodstock, Illinois-based custom manufacturer of sterile liquid
pharmaceuticals and other healthcare products. The Company has also completed a
number of smaller acquisition transactions during the last five years, including
the acquisitions of Comprehensive Reimbursement Consultants, Inc.; Pharmacists:
prn, Inc.; The Enright Group, Inc.; Pharmaceutical Packaging Specialties, Inc.;
Pacific Surgical Innovations, Inc.; Herd Mundy Richardson Limited; TriMaras
Printing Company, Inc.; Helpmate Robotics, Inc.; and Contract Health
Professionals, Inc.
- ------------
(2) All share references in this paragraph are adjusted to reflect all stock
splits and stock dividends effected since the time of the applicable
acquisition.
4
<PAGE> 5
The Company continually evaluates possible candidates for merger or
acquisition and intends to continue to seek opportunities to expand its
healthcare operations and services in all reporting industry segments. For
additional information concerning the transactions described above, see Notes 1,
2, and 16 of "Notes to Consolidated Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMERS AND SUPPLIERS
The Company distributes pharmaceuticals, healthcare and beautycare
products, and related products and services to hospitals, independent and chain
drugstores, alternate care centers and the pharmacy departments of supermarkets
and mass merchandisers located throughout the United States. Through Medicine
Shoppe, the Company franchises retail pharmacies in the United States and
abroad. Owen provides pharmacy management and information services to hospitals
throughout the United States. The Company also provides consulting services and
resources to hospitals in the areas of pharmaceutical and clinical operations,
and temporary staffing. The Company provides services to pharmaceutical
manufacturing customers in the United States and abroad through Scherer, which
provides unique drug delivery systems to such customers, and PCI and ALP, which
provide integrated packaging services to such customers. The Company markets
Pyxis' automated dispensing systems to hospitals and alternate care centers in
the United States and abroad. Allegiance distributes non-pharmaceutical
healthcare products and provides cost-saving services to hospitals and other
healthcare providers in the United States and abroad.
The Company's largest retail distribution customer in its Pharmaceutical
Distribution and Provider Services segment accounted for approximately 8% of the
Company's operating revenues (by dollar volume) for fiscal year 2000. This
segment could be adversely affected if the business of this customer were lost.
The largest retail bulk distribution customer in the Pharmaceutical Distribution
and Provider Services segment accounted for approximately 52% of all bulk
deliveries. Due to the lack of margin generated through bulk deliveries,
fluctuations in their amount would have no significant impact on the segment's
earnings. The members of the two largest group purchasing organizations (each, a
"GPO") having business arrangements with the Company accounted for approximately
14%, and 12%, respectively, of the Company's operating revenues (by dollar
volume) in fiscal 2000 through the Company's Pharmaceutical Distribution and
Provider Services and Medical-Surgical Products and Services segments. Each of
these two segments could be adversely affected if the business arrangements with
either of such GPO customers were lost, although the loss of the business
arrangement with either such GPO would not necessarily mean the loss of sales
from all members of the GPO.
Effective August 10, 2000, the Company renewed and expanded its
pharmaceutical distribution relationship with CVS, one of the largest retail
pharmacy chains in the United States, by executing a five-year wholesale supply
agreement with CVS. The agreement represents a significant expansion of the
Company's bulk deliveries and direct-to-store distribution business with CVS.
The Company obtains its products from many different suppliers, the largest
of which accounted for approximately 2.1% (by dollar volume) of its operating
revenue in fiscal 2000. The Company's five largest suppliers accounted for
approximately 7.3% (by dollar volume) of its operating revenue during fiscal
2000 and the Company's relationships with its suppliers are generally very good.
The Company's arrangements with its pharmaceutical suppliers typically may be
canceled by either the Company or the supplier upon 30 to 90 days prior notice,
although many of these arrangements are not governed by formal agreements. The
loss of certain suppliers could adversely affect the Company's business if
alternative sources of supply were unavailable.
While the Company's operations may show quarterly fluctuations, the Company
does not consider its business to be seasonal in nature on a consolidated basis.
COMPETITION
The markets in which the Company operates are highly competitive. As a
pharmaceutical wholesale distributor, the Company competes directly with
numerous other national and regional wholesale distributors, direct selling
manufacturers, self-warehousing chains, and specialty distributors on the basis
of price, breadth of product lines, marketing programs, and support services.
The Company's pharmaceutical wholesale distribution operations have narrow
profit margins and, accordingly, the Company's earnings depend significantly on
its ability to distribute a large volume and variety of products efficiently and
to provide quality support services. Several smaller franchisors compete with
Medicine Shoppe in the franchising of pharmacies, with competition being based
primarily upon price, benefits offered to both the pharmacist and the customer,
access to third party programs, and the reputation of the franchise. Medicine
Shoppe also needs to be competitive with a pharmacist's ongoing option to remain
self-employed at his or her current position rather than becoming a franchisee.
Medicine Shoppe's Managed Pharmacy Benefits subsidiary also faces competition
from other pharmacy benefit management companies. With its Owen subsidiary, the
Company competes with both national and regional hospital pharmacy management
firms, and self-managed hospitals and hospital
5
<PAGE> 6
systems on the basis of price and services offered, its established base of
business, the effective use of information systems, the development of clinical
programs, and the quality of the services it provides to its customers. Through
Scherer, the Company's drug delivery technologies compete with a growing number
of new drug delivery technologies and with continued refinements to existing
delivery technologies of both pharmaceutical companies and companies formed to
develop new technologies. Through PCI and ALP, the Company competes with
companies that provide many types of packaging services and those that provide
one or a few types of packaging services, based primarily upon quality, variety
of available packaging services, customer service, responsiveness and price. As
a marketer of automated pharmaceutical dispensing and supply systems through
Pyxis, the Company competes based upon price, its installed base of systems,
relationships with customers, customer service and support capabilities, patents
and other intellectual property, and its ability to interface with customer
information systems. Actual and potential competitors to the Pyxis system
include both existing domestic and foreign companies, as well as emerging
companies that supply products for specialized markets and other outside service
providers. Through Allegiance, the Company has substantial competition in all of
its non-pharmaceutical healthcare product and service markets, with competition
focusing primarily on product performance, service levels and price.
EMPLOYEES
As of September 1, 2000, the Company had approximately 42,200 employees in
the U.S. and abroad, of which approximately 1,300 are subject to collective
bargaining agreements. Overall, the Company considers its employee relations to
be good.
INTELLECTUAL PROPERTY
The Company has applied in the United States and certain foreign countries
for registration of a number of trademarks and service marks, certain of which
have been registered, and also holds common law rights in various trademarks and
service marks. There can be no assurance that the Company will obtain the
registrations for trademarks and service marks for which it has applied.
The Company holds patents relating to certain aspects of its automated
pharmaceutical dispensing systems, automated medication management systems,
medication packaging, medical devices, processes, products, drug delivery
systems and sterile liquid packaging. The Company has a number of pending patent
applications in the United States and certain foreign countries, and intends to
pursue additional patents as appropriate.
The Company also owns certain software, including software used for
pharmaceutical purchasing and inventory control, which is copyrighted and
subject to the protection of applicable copyright laws.
No assurances can be given that any intellectual property rights of the
Company will provide meaningful protection against competitive products or
otherwise be commercially valuable or that the Company will be successful in
obtaining additional patents or enforcing its proprietary rights against others.
REGULATORY MATTERS
The Company, as a distributor of prescription pharmaceuticals (including
certain controlled substances), a manager of pharmacy operations, a
pharmaceutical packager, a contract pharmaceutical manufacturer, and a
manufacturer of drug delivery systems and surgical and respiratory care
products, is required to register for permits and/or licenses with, and comply
with operating and security standards of, the United States Drug Enforcement
Administration, the Food and Drug Administration (the "FDA") and various state
boards of pharmacy or comparable agencies, as well as foreign agencies depending
upon the type of operations and location of product distribution and sale. In
addition, the Company is subject to requirements of the Controlled Substances
Act and the Prescription Drug Marketing Act of 1987, which requires each state
to regulate the purchase and distribution of prescription drugs under prescribed
minimum standards. The Company is not currently required to register or submit
pre-market notifications to the FDA for its automated pharmaceutical dispensing
systems. There can be no assurance, however, that FDA policy in this regard will
not change. In its capacity as a distributor of prescription pharmaceuticals,
the Company is also subject to Medicare, Medicaid and state healthcare fraud
and abuse and anti-kickback laws and regulations.
Through its Medicine Shoppe subsidiary, the Company is subject to laws
adopted by certain states which regulate franchise operations and the
franchisor-franchisee relationship, and similar legislation is proposed or
pending in additional states. The most common provisions of such laws establish
restrictions on the ability of franchisors to terminate or to refuse to renew
franchise agreements. Federal Trade Commission rules also require franchisors to
make certain disclosures to prospective franchisees prior to the offer or sale
of franchises.
Owen's pharmacy operations and its pharmacies are subject to comprehensive
regulation by state and federal authorities, including state boards of pharmacy
and federal authorities with responsibility for monitoring the storage,
handling, and dispensing
6
<PAGE> 7
of narcotics and other controlled substances. Owen's contractual arrangements
with pharmaceutical manufacturers and healthcare providers also subject it to
certain provisions of the federal Social Security Act which (a) prohibit
financial arrangements between providers of healthcare services to government
healthcare program (including Medicare and Medicaid) beneficiaries and
potential referral sources that are designed to induce patient referrals or the
purchasing, leasing, ordering or arranging for any good, service or item paid
for by such government programs, and (b) impose a number of restrictions upon
referring physicians and providers of designated health services under Medicare
and Medicaid programs.
Services and products provided by the Company's information businesses
include healthcare data and other drug-related information gathered and assessed
for the benefit of healthcare clients. Greater scrutiny is being placed on a
federal and state level regarding how such information should be handled and
identifying the appropriate parties to do so. Future changes in regulations
and/or legislation may affect how some of these information services or products
are provided.
In the United States, products manufactured or sold by the Company's
Allegiance, Scherer, PCI, ALP and National PharmPak Services, Inc. operations
are subject to regulation by the FDA, as well as by other federal and state
agencies, including those governing Medicare and Medicaid issues. The FDA
regulates the introduction and advertising of new medical products and related
manufacturing procedures, labeling, and record keeping. Product regulatory laws
also exist in most other countries where PCI, Allegiance and Scherer conduct
business. In addition, the Company's PCI and Scherer operations in the United
Kingdom, France, Italy and Germany are subject to state and local certification
requirements, including compliance with the Good Manufacturing Practices adopted
by the European Community.
The Company is also subject to various federal, state and local laws,
regulations and recommendations, both in the United States and abroad, relating
to safe working conditions, laboratory and manufacturing practices, and the use
and disposal of hazardous or potentially hazardous substances. The Company's
environmental policies mandate compliance with all applicable regulatory
requirements concerning environmental quality and contemplate, among other
things, appropriate capital expenditures for environmental protection for each
of its businesses. In addition, U.S. and international import and export laws
and regulations require that the Company abide by certain standards relating to
the importation and exportation of finished goods, raw materials and supplies.
ITEM 2: PROPERTIES
In the United States, the Company has 25 principal pharmaceutical
distribution facilities and two specialty distribution facilities utilized by
the Pharmaceutical Distribution and Provider Services segment. In the U.S., the
Company has five PCI packaging facilities (one of which is located in Puerto
Rico), four PCI printing facilities (two of which are located in Puerto Rico),
three Scherer manufacturing facilities and one ALP manufacturing facility in its
Pharmaceutical Technologies and Services segment. In addition, the Company has
two Pyxis assembly operations in its Automation and Information Services
segment. Domestically, the Company also has 48 medical-surgical distribution
facilities and 18 medical-surgical manufacturing facilities utilized by the
Medical-Surgical Products and Services segment. The Company's domestic
facilities are located in a total of 37 states and Puerto Rico.
Internationally, the Company owns, leases or operates through its
Pharmaceutical Technologies and Services segment, 12 Scherer manufacturing
facilities which are located in the United Kingdom, France, Germany, Italy,
Australia, Japan, Argentina, Brazil and Canada. Within this segment the Company
also has three PCI packaging facilities and one analytical services facility
which are located in the United Kingdom and Germany. The Company owns, leases or
operates through its Medical-Surgical Products and Services segment 13
medical-surgical distribution facilities located in Canada and the Netherlands,
and 12 medical-surgical manufacturing facilities located in the Netherlands,
Malaysia, Thailand, Malta, Mexico, the Dominican Republic, Germany and France.
The Company's international facilities are located in a total of 16 countries.
The Company owns 67 of the domestic and international facilities described
above, and the balance are leased. The Company's principal executive offices are
located in a leased four-story building located at 7000 Cardinal Place in
Dublin, Ohio.
The Company considers its operating properties to be in satisfactory
condition and adequate to meet its present needs. However, the Company expects
to make further additions, improvements, and consolidations of its properties as
the Company's business continues to expand.
For certain financial information regarding the Company's facilities, see
Notes 4 and 8 of "Notes to Consolidated Financial Statements".
7
<PAGE> 8
ITEM 3: LEGAL PROCEEDINGS
The Company and Whitmire Distribution Corporation ("Whitmire"), one of
the Company's wholly-owned subsidiaries, as well as other pharmaceutical
wholesalers, were named as defendants in a series of purported class action
lawsuits regarding the sale of brand name prescription drugs which were later
consolidated and transferred by the Judicial Panel for Multi-District Litigation
to the United States District Court for the Northern District of Illinois. On
November 30, 1998, the Court ordered judgment as a matter of law in favor of the
defendants. On February 22, 2000, the United States Supreme Court denied the
plaintiffs' final attempt to appeal the ruling, refusing to grant the
plaintiffs' Petition for Writ of Certiorari. The wholesaler defendants,
including the Company and Whitmire, entered into a Judgment Sharing Agreement
whereby the total exposure for the Company and its subsidiaries is limited to
the lesser of $1 million or 1% of any judgment against the wholesalers and the
manufacturers and provides for a reimbursement mechanism for legal fees and
expenses. The Company and Whitmire have also been named as defendants in a
series of related antitrust lawsuits brought by chain drug stores and
independent pharmacies who opted out of the federal class action lawsuits, and
in a series of state court cases alleging similar claims under various state
laws regarding the sale of brand name prescription drugs. The Judgment Sharing
Agreement applies to these related cases as well.
On September 30, 1996, Baxter International, Inc. ("Baxter") and its
subsidiaries transferred to Allegiance and its subsidiaries their U.S.
healthcare distribution business, surgical and respiratory therapy business and
healthcare cost-saving business, as well as certain foreign operations (the
"Allegiance Business") in connection with a spin-off of the Allegiance Business
by Baxter. In connection with this spin-off, Allegiance, which was acquired by
the Company on February 3, 1999, assumed the defense of litigation involving
claims related to the Allegiance Business from Baxter Healthcare Corporation
("BHC"), including certain claims of alleged personal injuries as a result of
exposure to natural rubber latex gloves. Allegiance will be defending and
indemnifying BHC, as contemplated by the agreements between Baxter and
Allegiance, for all expenses and potential liabilities associated with claims
pertaining to the litigation assumed by Allegiance. As of June 30, 2000, there
were approximately 533 lawsuits involving BHC and/or Allegiance containing
allegations of sensitization to natural rubber latex products. Some of these
cases are now beginning to proceed to trial. Because of the increase in claims
filed and the ongoing defense costs that will be incurred, the Company believes
it is probable that it will continue to incur significant expenses related to
the defense of cases involving natural rubber latex gloves. At this time, the
Company is unable to evaluate the extent of total potential liability, and
unable to estimate total potential loss. The Company believes that a substantial
portion of any liability will be covered by insurance, subject to self-insurance
retentions, exclusions, conditions, coverage gaps, policy limits and insurer
solvency.
The Company also becomes involved from time-to-time in other litigation
incidental to its business, including without limitation inclusion of certain of
its subsidiaries as a potentially responsible party for environmental cleanup
costs. Although the ultimate resolution of the litigation referenced in this
Item 3 cannot be forecast with certainty, the Company intends to vigorously
defend itself and does not believe that the outcome of these lawsuits will have
a material adverse effect on the Company's consolidated financial statements.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fiscal quarter ended June 30, 2000.
8
<PAGE> 9
SENIOR OFFICERS OF THE COMPANY
The following is a list of certain elected senior officers of the Company. The
list includes all, but is not limited to, the executive officers of the Company
(information provided as of September 6, 2000):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert D. Walter 55 Chairman and Chief Executive Officer
John C. Kane 60 Vice Chairman, President and Chief Operating Officer
Joseph F. Damico 46 Executive Vice President; Group President -
Medical-Surgical Products and Services
George L. Fotiades 46 Executive Vice President; Group President -
Pharmaceutical Technologies and Services
James F. Millar 52 Executive Vice President; Group President -
Pharmaceutical Distribution and Provider Services
Stephen S. Thomas 45 Executive Vice President; Group President -
Automation and Information Services
Steven Alan Bennett 47 Executive Vice President, Chief Legal Officer and
Secretary
Brendan A. Ford 42 Executive Vice President - Corporate Development
Richard J. Miller 43 Executive Vice President and Chief Financial Officer
Anthony J. Rucci 49 Executive Vice President and Chief Administrative
Officer
Kathy Brittain White 51 Executive Vice President and Chief Information Officer
Michael E. Beaulieu 42 Senior Vice President, Controller and Principal Accounting
Officer
Donna Brandin 43 Senior Vice President and Treasurer
Donald V. Freiert, Jr. 53 Senior Vice President - Enterprise Services
Gary S. Jensen 46 Senior Vice President - Audit and Financial Services
Bruce D. McWhinney 55 Senior Vice President - Quality and Clinical Affairs
James M. Simon 49 Senior Vice President and Chief Communications Officer
Stephanie A. Wagoner 41 Senior Vice President; President - Cardinal Health Capital
Corporation
Carole S. Watkins 40 Senior Vice President - Human Resources
Connie R. Woodburn 45 Senior Vice President - Professional and Government Relations
</TABLE>
Unless indicated to the contrary, the business experience summaries
provided below for the Company's senior officers describe positions held by the
named individuals during the last five years but exclude other positions held
with subsidiaries of the Company.
9
<PAGE> 10
ROBERT D. WALTER has been a Director, Chairman of the Board and Chief
Executive Officer of the Company since its formation in 1979. Mr. Walter also
serves as a director of Bank One Corporation, Infinity Broadcasting Corporation
and Viacom, Inc.
JOHN C. KANE has been a Director of the Company since August 1993 and has
been the Company's President and Chief Operating Officer since joining the
Company in February 1993. Mr. Kane was elected Vice Chairman of the Company in
February 2000. Mr. Kane also serves as a director of Connetics Corporation and
Greif Bros. Corporation.
JOSEPH F. DAMICO has been an Executive Vice President and Group President -
Medical-Surgical Products and Services of the Company since September 2000.
Prior to that, he was an Executive Vice President and Group President-Allegiance
Corporation since February 1999 and President of Allegiance since June 1996.
From 1992 to September 1996, he was a Corporate Vice President of Baxter.
GEORGE L. FOTIADES has been an Executive Vice President and Group President
- - Pharmaceutical Technologies and Services of the Company since September 2000.
Prior to that, he was an Executive Vice President and Group President - R.P.
Scherer Corporation since August 1998 and President of Scherer since January
1998. Previously, Mr. Fotiades served as Group President, Americas and Asia
Pacific, of Scherer from June 1996 to January 1998. Prior to that, Mr. Fotiades
was employed by Warner-Lambert Company (a pharmaceutical and consumer health
products manufacturer), where he served most recently as President, Warner
Wellcome Consumer Healthcare division.
JAMES F. MILLAR has been an Executive Vice President of the Company since
February 1994. He was named as Group President of the Company's Cardinal
Distribution business in June 1996, and was named as Group President -
Pharmaceutical Distribution and Provider Services in February 2000. Prior to
1994, Mr. Millar served in various positions of increasing responsibility within
the Company's pharmaceutical distribution business.
STEPHEN S. THOMAS has been an Executive Vice President and Group President
- - Automation and Information Services since September 2000. Prior to that, he
was an Executive Vice President and Group President - Pharmacy Automation,
Information Systems and International Operations of the Company since July 1999.
Mr. Thomas joined the Company in October 1997, as an Executive Vice President
and President of Pyxis. Prior to that, Mr. Thomas served as President of Datapro
Information Services Group, a provider of global information services, and a
division of McGraw-Hill Companies.
STEVEN ALAN BENNETT joined the Company in January 1999, as Executive Vice
President, Chief Legal Officer and Secretary. Previously, Mr. Bennett served as
Senior Vice President and General Counsel of Banc One Corporation, since August
1994.
BRENDAN A. FORD has been the Company's Executive Vice President - Corporate
Development since November 1999. Previously, Mr. Ford served as Senior Vice
President - Corporate Development from February 1996 to November 1999, and as
Vice President - Corporate Development from July 1993 to February 1996.
RICHARD J. MILLER has been the Company's Chief Financial Officer since
March 1999. Mr. Miller served as the Company's Acting Chief Financial Officer
from August 1998 to March 1999. Mr. Miller was named an Executive Vice President
of the Company in November 1999. Prior to that, he held the title of Corporate
Vice President since April 1999. From August 1995 through March 1999, Mr. Miller
served as the Company's Vice President and Controller. Upon joining the Company
in July 1994, and until August 1995, he served as Vice President, Auditing.
ANTHONY J. RUCCI joined the Company in November 1999, as Executive Vice
President - Human Resources. In January 2000, Mr. Rucci was named Executive Vice
President and Chief Administrative Officer of the Company. Prior to joining the
Company, Mr. Rucci served as Dean of the University of Illinois at Chicago's
College of Business Administration, since 1998. From 1993 to 1998, Mr. Rucci was
Executive Vice President for Administration of Sears, Roebuck & Co., a
multi-line retailer of merchandise, and Chairman of the Board of Sears de Mexico
from 1995 to 1997.
KATHY BRITTAIN WHITE has been the Company's Executive Vice President and
Chief Information Officer since February 1999. Previously, Ms. White served as
Executive Vice President and Chief Information Officer for Allegiance
Corporation from 1996 until Allegiance merged with the Company in February 1999.
From 1995 to 1996, Ms. White served as Chief Information Officer of Baxter.
MICHAEL E. BEAULIEU has been the Company's Senior Vice President and
Controller since April 1999. From August 1996 through April 1999 Mr. Beaulieu
served as Senior Vice President - Finance of Cardinal Distribution. Prior to
that, Mr. Beaulieu served as Vice President - Accounting of Cardinal
Distribution, since August 1994.
DONNA BRANDIN joined the Company in June 2000 as Senior Vice President and
Treasurer. Previously, Ms. Brandin served as Assistant Treasurer of The Campbell
Soup Company from November 1997 until May 2000. Prior to that, Ms. Brandin
served as Assistant Treasurer of Emerson Electric Company from 1989 until
November 1997.
10
<PAGE> 11
DONALD V. FREIERT, JR. joined the Company in November 1999 as Senior Vice
President - Enterprise Services. From September 1996 until October 1999 Mr.
Freiert served as Senior Vice President of Corporate Real Estate Services at
Bank One Corporation. From September 1994 through September 1996, Mr. Freiert
served as Senior Vice President of National Real Estate Services at Nations
Bank.
GARY S. JENSEN has been the Company's Senior Vice President, Audit and
Financial Services, since March 2000. Mr. Jensen previously served as the
Company's Vice President of Corporate Audit from February 1999, when Allegiance
merged with the Company, until March 2000. Prior to that, Mr. Jensen was Vice
President of Corporate Audit at Allegiance Corporation since September 1996.
Previously, Mr. Jensen served as Director, Financial Best Practices of Cummins
Engine Company from 1988 to September 1996.
BRUCE D. MCWHINNEY, PHARM. D., has been the Company's Senior Vice President
- - Quality and Clinical Affairs since May 1997. From September 1996 to May 1997,
he served as President of Allied Healthcare, Inc., a former subsidiary of the
Company which is now a part of Owen. From September 1994 to September 1996, Mr.
McWhinney served as Director of Pharmacy of The Cleveland Clinic Foundation, a
multi-specialty academic medical center.
JAMES M. SIMON joined the Company in August 2000 as Senior Vice President
and Chief Communications Officer. From August 1998 to July 2000, Mr. Simon
served as Partner & Executive Director of Communications for KPMG LLP, an
accounting and consulting firm. From February 1997 to August 1998 Mr. Simon was
self-employed as an investor and public relations consultant. Prior to that, Mr.
Simon served as Executive Vice President - External Affairs of National
Westminster Bancorp in its Fleet Financial Group, since January 1995.
STEPHANIE A. WAGONER has been the Company's Senior Vice President and
President - Cardinal Health Capital Corporation, since April 1999. From October
1997 to April 1999, Ms. Wagoner served as the Company's Vice President and
Treasurer. From January 1995 to October 1997, Ms. Wagoner served as Vice
President and Treasurer of Avnet, Inc., a distributor of electronic components.
CAROLE S. WATKINS was named Senior Vice President - Human Resources of the
Company in August 2000. From February 2000 until August 2000, Ms. Watkins served
as the Company's Senior Vice President, Human Resources - Pharmaceutical
Distribution and Provider Services. Ms. Watkins was Vice President - Human
Resources - Cardinal Distribution, from November 1996 to February 2000. Prior to
that, since 1989, Ms. Watkins was employed by The Limited, Inc., a retailer of
apparel, where she held various human resources positions.
CONNIE R. WOODBURN has served as the Company's Senior Vice President -
Professional and Government Relations, since April 1999. Prior to that, Ms.
Woodburn served as Senior Vice President - Corporate Sales since joining the
Company in March 1997. Previously, Ms. Woodburn served as Executive Vice
President of Premier, Inc. a healthcare provider network, since 1987.
11
<PAGE> 12
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER
MATTERS
The Common Shares are quoted on the New York Stock Exchange under the
symbol "CAH." The following table reflects the range of the reported high and
low last sale prices of the Common Shares as reported on the New York Stock
Exchange Composite Tape and the per share dividends declared thereon for the
fiscal years ended June 30, 2000 and 1999. The information in the table has been
adjusted to reflect retroactively all prior stock splits.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------------ ----------- -----------
<S> <C> <C> <C>
Fiscal 1999:
Quarter Ended
September 30, 1998 $ 71.00 $ 55.67 $ 0.0250
December 31, 1998 75.88 54.83 0.0250
March 31, 1999 80.50 66.00 0.0250
June 30, 1999 71.88 56.88 0.0250
Fiscal 2000:
Quarter Ended
September 30, 1999 $ 69.94 $ 52.00 $ 0.0250
December 31, 1999 56.38 37.50 0.0250
March 31, 2000 59.38 37.19 0.0250
June 30, 2000 74.00 45.88 0.0300
Through September 1, 2000 $ 84.22 $ 67.91 $ 0.0300
</TABLE>
As of September 1, 2000, there were approximately 21,800 shareholders of
record of the Company's Common Shares.
The Company anticipates that it will continue to pay quarterly cash
dividends in the future. However, the payment and amount of future dividends
remain within the discretion of the Company's Board of Directors and will depend
upon the Company's future earnings, financial condition, capital requirements
and other factors.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company was
prepared giving retroactive effect to the business combinations with Medicine
Shoppe International, Inc. on November 13, 1995; Pyxis Corporation on May 7,
1996; PCI Services, Inc. ("PCI") on October 11, 1996; Owen Healthcare, Inc.
("Owen") on March 18, 1997; MediQual Systems, Inc. ("MediQual") on February 18,
1998; R.P. Scherer Corporation ("Scherer") on August 7, 1998; Allegiance
Corporation ("Allegiance") on February 3, 1999; Pacific Surgical Innovations,
Inc. ("PSI") on May 21, 1999; and Automatic Liquid Packaging, Inc. ("ALP") on
September 10, 1999, all of which were accounted for as pooling-of-interests
transactions (see Note 2 of "Notes to Consolidated Financial Statements"). The
consolidated financial data includes all purchase transactions that occurred
during these periods.
For the fiscal year ended June 30, 1996, the information presented is
derived from consolidated financial statements which combine data from Cardinal
for the fiscal year ended June 30, 1996 with data from PCI for the fiscal year
ended September 30, 1996, Owen for the fiscal year ended November 30, 1995,
MediQual for the fiscal year ended December 31, 1995, Scherer for the fiscal
year ended March 31, 1996, Allegiance for the fiscal year ended December 31,
1996, PSI for the fiscal year ended September 30, 1996 and ALP for the fiscal
year ended March 31, 1996.
For the fiscal year ended June 30, 1997, the information presented is
derived from the consolidated financial statements which combine Cardinal for
the fiscal year ended June 30, 1997 with PCI's financial results for the nine
months ended June 30, 1997, Owen's financial results for the period of June 1,
1996 to June 30, 1997 (excluding Owen's financial results for December 1996 in
order to change Owen's November 30 fiscal year end to June 30), MediQual's
financial results for the fiscal year ended December 31, 1996, Scherer's
financial results for the fiscal year ended March 31, 1997, Allegiance's
financial results for the fiscal year ended December 31, 1997, and PSI's
financial results for the fiscal year ended September 30, 1997.
12
<PAGE> 13
For the fiscal year ended June 30, 1998, the information presented is
derived from the consolidated financial statements which combine Cardinal for
the fiscal year ended June 30, 1998 with Scherer's financial results for the
fiscal year ended March 31, 1998 and PSI's financial results for the fiscal year
ended September 30, 1998.
The selected consolidated financial data below should be read in
conjunction with the Company's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
At or For the Fiscal Year Ended
June 30, (1)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
2000 1999 (2) 1998 (2) 1997 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS DATA:
Revenue:
Operating revenue $ 25,246.9 $ 21,558.5 $ 18,084.6 $ 15,995.9 $ 14,449.6
Bulk deliveries to
customer warehouses 4,623.7 3,553.0 2,991.4 2,469.1 2,178.5
---------------------------------------------------------------------------
Total revenue $ 29,870.6 $ 25,111.5 $ 21,076.0 $ 18,465.0 $ 16,628.1
Net earnings (loss) $ 679.7 $ 481.0 $ 448.5 $ 351.0 $ (310.2)
Earnings (loss) per
Common Share: (3)
Basic $ 2.44 $ 1.73 $ 1.61 $ 1.29 $ (1.17)
Diluted $ 2.39 $ 1.68 $ 1.58 $ 1.26 $ (1.17)
Cash dividends declared
per Common Share (3) $ 0.105 $ 0.100 $ 0.073 $ 0.063 $ 0.053
BALANCE SHEET DATA:
Total assets $ 10,264.9 $ 8,404.5 $ 7,596.6 $ 6,636.9 $ 6,555.7
Long-term obligations,
less current portion $ 1,485.8 $ 1,223.9 $ 1,330.0 $ 1,321.0 $ 1,593.3
Shareholders' equity $ 3,981.2 $ 3,569.6 $ 3,055.1 $ 2,717.9 $ 2,294.2
</TABLE>
(1) Amounts reflect business combinations in all periods presented. Fiscal
2000, 1999, 1998, 1997 and 1996 amounts reflect the impact of
merger-related costs and other special charges. See Note 2 of "Notes to
Consolidated Financial Statements" for a further discussion of
merger-related costs and other special charges affecting fiscal 2000, 1999,
and 1998. Fiscal 1997 amounts reflect the impact of merger-related charges
of $50.9 million ($36.6 million, net of tax). Fiscal 1996 amounts reflect
the impact of the write-down of goodwill of $550.0 million ($550.0 million,
net of tax) due to the change by Allegiance in its method of assessing
goodwill. In addition, fiscal 1996 amounts reflect the impact of
merger-related charges and facility rationalizations of $178.5 million
($122.8 million, net of tax).
(2) Amounts above do not reflect the impact of pro forma adjustments related to
ALP taxes (see Notes 1 and 2 of "Notes to Consolidated Financial
Statements"). For the fiscal years ended June 30, 1999 and 1998, the pro
forma adjustment for ALP taxes would have reduced net earnings by $9.3
million and $4.6 million, respectively. The pro forma adjustment would have
decreased diluted earnings per Common Share by $0.03 to $1.65 for fiscal
year 1999 and by $0.02 to $1.56 for fiscal year 1998.
(3) Net earnings and cash dividends per Common Share have been adjusted to
retroactively reflect all stock dividends and stock splits through June 30,
2000.
13
<PAGE> 14
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis has been prepared giving retroactive
effect to the pooling-of-interests business combinations with MediQual Systems,
Inc. ("MediQual") on February 18, 1998, R.P. Scherer Corporation ("Scherer") on
August 7, 1998, Allegiance Corporation ("Allegiance") on February 3, 1999,
Pacific Surgical Innovations, Inc. ("PSI") on May 21, 1999 and Automatic Liquid
Packaging, Inc. ("ALP") on September 10, 1999.
The discussion and analysis presented below should be read in conjunction
with the consolidated financial statements and related notes appearing elsewhere
in this Form 10-K. See "Information Regarding Forward-Looking Statements".
GENERAL
- -------
The Company operates within four operating business segments:
Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and
Services, Pharmaceutical Technologies and Services and Automation and Informa-
tion Services. See Note 12 of "Notes to Consolidated Financial Statements" for a
description of these segments and a discussion of the Company's change in
operating segments.
RESULTS OF OPERATIONS
- ---------------------
OPERATING REVENUE
<TABLE>
<CAPTION>
Percent of Total
Growth (1) Operating Revenues
Years ended June 30 2000 1999 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pharmaceutical Distribution and Provider Services 22% 24% 75% 72% 69%
Medical-Surgical Products and Services 5% 6% 19% 22% 24%
Pharmaceutical Technologies and Services 15% 6% 4% 4% 5%
Automation and Information Services (2)% 52% 2% 2% 2%
Total Company 17% 19% 100% 100% 100%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The growth rate applies to the respective fiscal year as compared
to the prior fiscal year.
The majority of the Company's overall operating revenue increase of 17%
came from existing customers in the form of increased volume and pharmaceutical
price increases. The remainder of the growth came from the addition of new
customers, some of which was a result of cross selling opportunities amongst the
various businesses.
The Pharmaceutical Distribution and Provider Services segment's operating
revenue growth in 2000 and 1999 was primarily due to strong sales to pharmacy
chain stores and through the Company's specialty distribution businesses. All
operating revenue growth for this segment was internal. In addition, several new
contracts involving multiple operating segments have boosted revenues.
Offsetting the growth in 2000 was the impact of the pharmacy management business
continuing to exit unprofitable accounts, an initiative that began in late
fiscal 1999.
The increase in the Medical-Surgical Products and Services segment's
operating revenue in 2000 was due to an increase in sales across virtually all
product lines. In addition, revenue growth was further enhanced by an increase
in international demand over fiscal 1999. The increase in operating revenues for
this segment in 1999 was due to strong sales of self-manufactured products and
higher margin distributed products.
The growth in the Pharmaceutical Technologies and Services segment in 2000
and in 1999 was primarily the result of strong sales volume in the
pharmaceutical-packaging and liquid fill contract manufacturing businesses
within this segment. The pharmaceutical packaging business' growth was
attributable to a mix of new customers and increased volume from existing
customers. The liquid fill contract manufacturing business' revenue growth was a
result of increased volume. An increase in the drug delivery system business'
sales volume in North America and the health and nutrition market also
contributed to the revenue growth for fiscal 2000. In addition, cross-selling
opportunities amongst the businesses within this segment has contributed to an
increase in operating revenues.
The slight decrease in the operating revenues for the Automation and
Information Services segment in fiscal 2000 as compared to 1999 was primarily
due to timing of customers' purchases related to the Year 2000. Fiscal 1999
operating revenue growth was a result of general increases in customer demand as
well as customers purchasing products early in anticipation of the Year 2000.
14
<PAGE> 15
This segment continues to have strong demand for its new pharmacy automation
products from the domestic hospital sector and non-acute care customers.
BULK DELIVERIES TO CUSTOMER WAREHOUSES. The Company reports as revenue bulk
deliveries made to customers' warehouses, whereby the Company acts as an
intermediary in the ordering and subsequent delivery of pharmaceutical products.
Fluctuations in bulk deliveries result largely from circumstances that are
beyond the control of the Company, including consolidation within the customers'
industries, decisions by customers to either begin or discontinue warehousing
activities, and changes in policies by manufacturers related to selling directly
to customers. Due to the lack of margin generated through bulk deliveries,
fluctuations in their amount have no significant impact on the Company's
earnings.
GROSS MARGIN
<TABLE>
<CAPTION>
( as a percentage of operating revenue)
Years ended June 30 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pharmaceutical Distribution and Provider Services 5.9% 6.0% 6.4%
Medical-Surgical Products and Services 23.2% 23.4% 21.7%
Pharmaceutical Technologies and Services 33.1% 33.0% 34.0%
Automation and Information Services 69.2% 68.5% 69.6%
Total Company 11.4% 12.2% 12.5%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The overall decrease in gross margin in 2000 and 1999 was due primarily to
a greater mix of lower margin pharmaceutical distribution in 2000 and 1999 as
compared to the prior years. The Pharmaceutical Distribution and Provider
Services segment represented 75% of 2000 operating revenues, up from 72% and 69%
of 1999 and 1998 operating revenues, respectively.
The decrease in the gross margin of the Pharmaceutical Distribution and
Provider Services segment in 2000 and 1999 was primarily due to the impact of
lower selling margins, as a result of a highly competitive market and greater
mix of high volume customers where a lower cost of distribution and better asset
management enabled the Company to offer lower selling margins to its customers.
Offsetting this decrease was an increase in vendor incentives and a positive
impact related to the rationalization program for the pharmacy management
business (see discussion in "Operating Revenues").
The decrease in the Medical-Surgical Products and Services segment's gross
margin in 2000 was due to increased pricing pressures in certain
self-manufactured product lines, including the exam glove business, as well as a
slight shift in revenue growth towards lower margin distributed products. In
1999, the improvement in this segment's gross margin was primarily the result of
improvements in the segment's product mix, including the growth of
self-manufactured products sales in both domestic and international markets, as
well as the impact of manufacturing and other cost efficiencies.
The Pharmaceutical Technologies and Services segment's gross margin
increase in 2000 was a result of revenue growth in the higher margin liquid fill
contract manufacturing and drug delivery system businesses. The drug delivery
system business' shift to higher margin pharmaceutical products from lower
margin health and nutrition products has also contributed to the improvement in
gross margin. The decrease in gross margin in 1999 was a result of the business
mix within this segment.
The Automation and Information Services segment's gross margin increase in
2000 was mainly a result of price increases during the year and product mix. In
1999, the Automation and Information Services segment experienced a slight
decrease in gross margin mainly due to product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
( as a percentage of operating revenue)
Years ended June 30 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pharmaceutical Distribution and Provider Services 2.8% 3.0% 3.3%
Medical-Surgical Products and Services 15.8% 16.9% 16.2%
Pharmaceutical Technologies and Services 14.5% 15.9% 15.9%
Automation and Information Services 34.9% 34.2% 39.2%
Total Company 6.5% 7.3% 7.8%
- ----------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
The decline in selling, general and administrative expenses as a percentage
of operating revenue for fiscal years 2000 and 1999 reflects economies
associated with the Company's revenue growth, in addition to significant
productivity gains resulting from continued cost control efforts in all segments
and the continuation of consolidation and selective automation of operating
facilities in the Pharmaceutical Distribution and Provider Services and the
Pharmaceutical Technologies and Services segments. Offsetting the improvements
noted was an increase in selling, general and administrative expenses as a
percentage of operating revenue for the Automation and Information Services
segment for fiscal year 2000, primarily resulting from a slight decrease in
operating revenue from fiscal 1999 to fiscal 2000. In addition, the
Medical-Surgical Products and Services segment's selling, general and
administrative expenses as a percentage of operating revenues increased in
fiscal year 1999 as compared to fiscal year 1998. This increase was primarily
due to the acquisition of businesses during fiscal 1999, which were accounted
for under the purchase method of accounting. As such the historical financial
statements have not been restated for these acquisitions. These acquired
businesses have a higher selling, general and administrative expense rate than
the Medical-Surgical Products and Services segment's normal rate, resulting in
an increase during fiscal 1999 compared to 1998. The 3% and 13% overall growth
in selling, general and administrative expenses experienced in fiscal years 2000
and 1999, respectively, was due primarily to increases in personnel costs and
depreciation expense, and compares favorably to the 17% and 19% growth in
operating revenue for the same periods.
SPECIAL CHARGES
The following is a summary of the special charges for the fiscal years ended
June 30, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
-----------------------------------
(in millions, except per share amounts) 2000 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transaction and employee-related costs $ (3.8) $ (95.4) $ (35.7)
ALP transaction bonus (20.3) - -
Exit costs (11.7) (9.4) (3.8)
Scherer restructuring costs (9.6) (26.7) -
Inventory write-offs - (4.0) -
Owen Healthcare, Inc. employee-related costs - (1.1) -
Canceled merger transaction - 3.7 -
Other integration costs (19.3) (13.7) (9.7)
- -----------------------------------------------------------------------------------------
Total merger-related costs $ (64.7) $ (146.6) $ (49.2)
- -----------------------------------------------------------------------------------------
Other special charges:
Facilities closures $ - $ - $ (6.1)
Employee severance - - (2.5)
- -----------------------------------------------------------------------------------------
Total other special charges $ - $ - $ (8.6)
- -----------------------------------------------------------------------------------------
Total special charges $ (64.7) $ (146.6) $ (57.8)
Tax effect of special charges 14.9 29.0 22.0
Tax benefit for change in tax status - - 11.7
Pro forma ALP taxes - 9.3 4.6
- -----------------------------------------------------------------------------------------
Net effect of special charges $ (49.8) $ (108.3) $ (19.5)
=========================================================================================
Net effect on diluted earnings per share $ (0.18) $ (0.38) $ (0.06)
=========================================================================================
</TABLE>
Merger-Related Charges. Costs of effecting mergers and subsequently
integrating the operations of the various merged companies are recorded as
merger-related costs when incurred. The merger-related costs are primarily a
result of the merger transactions with ALP, Allegiance and Scherer.
During the fiscal years presented in the table herein, the Company incurred
direct transaction costs related to its merger transactions. These expenses
primarily include investment banking, legal, accounting and other professional
fees associated with the respective merger transactions. In addition, the
Company incurred employee-related costs, which consist primarily of severance
and transaction/stay bonuses as a result of the ALP, Allegiance and Scherer
merger transactions. Partially offsetting the transaction and employee-related
costs recorded during the fiscal year ended June 30, 2000 was a $10.3 million
credit to adjust the estimated transaction and employee-related costs previously
recorded in connection with the Allegiance merger transaction. Actual billings
and employee-related costs were less than the amounts originally anticipated,
resulting in a reduction of the merger-related costs. Exit costs relate
primarily to costs associated with lease terminations and moving expenses as a
direct result of the merger
16
<PAGE> 17
transactions with ALP, Allegiance and Scherer. Other integration costs include
charges related to integrating the operations of previous merger transactions.
The Company recorded charges of $9.6 million and $26.7 million during the
fiscal years ended June 30, 2000 and 1999, respectively, associated with the
business restructuring as a result of the Company's merger transaction with
Scherer. As part of the business restructuring, the Company is closing certain
facilities. In connection with such closings, the Company has incurred
employee-related costs, asset impairment charges and exit costs related to the
termination of contracts and lease agreements.
Charges of $4.0 million related to the write-down of impaired inventory
associated with the merger transaction with Owen Healthcare, Inc. ("Owen") were
recorded during the fiscal year ended June 30, 1999. Also, during fiscal 1999,
the Company recorded $1.1 million related to severance costs for a restructuring
associated with the change in management that resulted from the merger
transaction with Owen. Partially offsetting the total merger-related charges for
fiscal 1999 was a credit recorded to adjust the estimated transaction and
termination costs previously recorded in connection with the canceled merger
transaction with Bergen Brunswig Corporation ("Bergen") (see Note 15 of "Notes
to Consolidated Financial Statements"). The actual billings for services
provided by third parties engaged by the Company were less than the estimate,
resulting in a reduction of the merger-related costs.
Other Special Charges. During fiscal 1998, the Company recorded a special
charge of $8.6 million related to the rationalization of its pharmaceutical
distribution operations. Approximately $6.1 million related to asset impairments
and lease exit costs resulting primarily from the Company's decision to
accelerate the consolidation of a number of distribution facilities and the
relocation to more modern facilities for certain others. The remaining amount
related to employee severance costs, including approximately $2.0 million
incurred in connection with the settlement of a labor dispute with former
employees of the Company's Boston pharmaceutical distribution facility,
resulting in termination of the union relationship.
During fiscal 1998, Scherer, along with its joint venture partner,
converted the legal ownership structure of Scherer's 51% owned subsidiary in
Germany from a corporation to a partnership. As a result of this change in tax
status, the Company's tax basis in the German subsidiary was adjusted, resulting
in a one-time tax refund of approximately $4.6 million, as well as a reduction
in the cash taxes to be paid in the current and future years. Combined, these
factors reduced fiscal 1998 income tax expense by $11.7 million.
Pro Forma Impact. Since April 1998, ALP has been organized as an
S-Corporation for tax purposes. Accordingly, ALP was not subject to federal
income tax from April 1998 up to the date of the merger transaction. For the
fiscal years ended 1999 and 1998, net earnings would have been reduced by $9.3
million and $4.6 million, respectively, if ALP had been subject to federal
income taxes.
The effects of the merger-related costs and other special charges recorded,
as well as the pro forma adjustments related to ALP tax treatment was to reduce
net earnings by $49.8 million to $679.7 million in fiscal 2000, by $108.3
million to $481.0 million in fiscal 1999, and by $19.5 million to $448.5 million
in fiscal 1998. The effect of such charges reduced reported diluted earnings per
Common Share by $0.18 to $2.39 in fiscal 2000, by $0.38 to $1.68 in fiscal 1999
and by $0.06 to $1.58 in fiscal 1998.
The Company estimates that it will incur additional merger-related costs
associated with the various merger transactions it has completed to date
totaling approximately $69.4 million ($45.1 million, net of tax) in future
periods in order to properly integrate operations, of which a portion represents
facility rationalizations, and implement efficiencies with regard to, among
other things, information systems, customer systems, marketing programs and
administrative functions. Such amounts will be charged to expense when incurred.
The Company's trend with regard to acquisitions has been to expand its role
as a provider of services to the healthcare industry. This trend has resulted
in expansion into service areas which (a) complement the Company's core
pharmaceutical distribution business; (b) provide opportunities for the Company
to develop synergies with, and thus strengthen, the acquired business; and (c)
generally generate higher margins as a percentage of operating revenue than
pharmaceutical distribution. As the healthcare industry continues to change,
the Company continually evaluates possible candidates for merger or acquisition
and intends to continue to seek opportunities to expand its healthcare
operations and services in all reporting segments. There can be no assurance
that it will be able to successfully pursue any such opportunity or consummate
any such transaction, if pursued. If additional transactions are entered into or
consummated, the Company would incur additional merger-related costs.
INTEREST EXPENSE AND OTHER. The increase in interest expense and other of $3.0
million during fiscal 2000 compared to fiscal 1999 is attributable to the
combination of higher average interest rates on debt and higher average levels
of borrowing during fiscal 2000. Additional borrowings were used to fund working
capital needs as well as the Company's stock buyback program during fiscal 2000
(see Note 9 of the "Notes to Consolidated Financial Statements"). The increase
in interest expense and other of $5.3
17
<PAGE> 18
million during fiscal 1999 compared to fiscal 1998 is primarily due to the
Company's issuance of $150 million of 6.25% Notes due 2008, in a public offering
in July 1998 (see "Liquidity and Capital Resources"). The effect of the issuance
of the 6.25% Notes during fiscal 1999 was partially offset by a decrease in
other debt instruments with higher interest rates.
PROVISION FOR INCOME TAXES. The provisions for income taxes relative to pretax
earnings were 37% of pretax earnings in fiscal 2000 compared with 39% in fiscal
1999 and 35% for fiscal 1998. The fluctuation in the tax rate is primarily due
to the impact of recording certain non-deductible merger-related costs during
various periods and the change in ALP tax status, as well as fluctuating state
and foreign effective tax rates as a result of the Company's business mix for
all three fiscal years. In addition, a change in tax status of a 51% owned
German subsidiary resulted in a lower tax provision during fiscal 1998. The
provisions for income taxes excluding the impact of merger-related charges, the
tax status of the German subsidiary and including the pro forma impact of the
change in ALP tax status were 36%, 37%, and 38% for fiscal years 2000, 1999, and
1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $2.6 billion at June 30, 2000 from $2.3
billion at June 30, 1999. This increase resulted from additional investments in
inventories, trade receivables, and cash and equivalents of $925.3 million,
$74.9 million and $319.2 million, respectively. Offsetting the increases in
current assets was an increase in accounts payable and other accrued liabilities
of $667.0 million and $641.0 million, respectively. Increases in inventories
reflect the higher level of business volume in Pharmaceutical Distribution and
Provider Services' activities, especially in the fourth quarter of fiscal 2000
when operating revenue for this segment grew 24% over the same period in the
prior year. The increase in trade receivables is slightly lower than the
Company's revenue growth (see "Operating Revenue" above) due to effective asset
management resulting in the increase in cash and equivalents. The change in
accounts payable is due primarily to the timing of inventory purchases.
Property and equipment, at cost, increased by $138.9 million from June 30,
1999 to June 30, 2000. The increase was primarily due to ongoing plant expansion
and manufacturing equipment purchases in certain manufacturing businesses, as
well as additional investments made for management information systems and
upgrades to distribution facilities. The Company has several operating lease
agreements for the construction of new facilities. See further discussion in
Note 8 of "Notes to Consolidated Financial Statements."
Shareholders' equity increased to $4.0 billion from $3.6 billion at June
30, 1999, primarily due to net earnings of $679.7 million and the investment of
$133.1 million by employees of the Company through various stock incentive
plans, offset by treasury share repurchases of $333.9 million and dividends paid
of $28.0 million.
The Company has a commercial paper program, providing for the issuance of
up to $1.0 billion in aggregate maturity value of commercial paper. The Company
had $509.2 million outstanding under this program at June 30, 2000. The Company
also has uncommitted short-term credit facilities with various bank sources
aggregating $250.0 million. At June 30, 2000, $54.2 million was outstanding
related to these short-term credit facilities. The Company has an unsecured bank
credit facility which provides for up to an aggregate of $1.5 billion in
borrowings of which $750 million expires on March 31, 2001 and $750 million
expires on March 31, 2004. At expiration, these facilities can be extended upon
mutual consent of the Company and the lending institutions. This credit facility
exists largely to support issuances of commercial paper as well as other
short-term borrowings and remains unused at June 30, 2000. At June 30, 2000, the
commercial paper and other short-term borrowings of $563.4 million were
reclassified as long-term, reflecting the Company's intent and ability, through
the existence of the unused credit facility, to refinance these borrowings. The
Company also has line-of-credit agreements with various bank sources aggregating
$49.3 million, of which $19.1 million is outstanding as of June 30, 2000 (see
Note 4 of "Notes to Consolidated Financial Statements").
During fiscal 1999, the Company issued $150 million of 6.25% Notes due
2008, the proceeds of which were used for working capital needs due to growth in
the Company's business. The Company currently has the capacity to issue $250
million of additional debt securities pursuant to a shelf registration statement
filed with the Securities and Exchange Commission.
The Company believes that it has adequate capital resources at its disposal
to fund currently anticipated capital expenditures, business growth and
expansion, and current and projected debt service requirements, including those
related to business combinations.
See Notes 1 and 5 of the "Notes to Consolidated Financial Statements" for
information regarding the use of financial instruments and derivatives thereof,
including foreign currency hedging instruments. As a matter of policy, the
Company does not engage in "speculative" transactions involving derivative
financial instruments.
OTHER
- -----
SUBSEQUENT BUSINESS COMBINATIONS. On August 16, 2000, the Company completed the
purchase of Bergen Brunswig Medical Corporation for approximately $180 million,
subject to post-closing adjustments. On July 26, 2000, the Company completed the
18
<PAGE> 19
purchase of a manufacturing facility and the rights to two proprietary, topical
drug delivery technologies from Advanced Polymer Systems, Inc. for $25.0 million
at closing and contingent future payments totaling potentially an additional
$26.5 million. On July 19, 2000, the Company completed the purchase of Rexam
Healthcare Packaging's folding-carton manufacturing operations in Guaynabo,
Puerto Rico for $32.5 million, subject to post-closing adjustments. All three
acquisitions will be accounted for as purchase transactions for financial
reporting purposes.
TERMINATION AGREEMENT. On August 24, 1997, the Company and Bergen announced that
they had entered into a definitive merger agreement, as amended, pursuant to
which a wholly owned subsidiary of the Company would be merged with and into
Bergen (the "Bergen Merger Agreement"). On July 31, 1998, the United States
District Court for the District of Columbia granted the Federal Trade
Commission's request for a preliminary injunction to halt the proposed merger.
On August 7, 1998, the Company and Bergen jointly terminated the Bergen Merger
Agreement and, in accordance with the terms of the Bergen Merger Agreement, the
Company reimbursed Bergen for $7.0 million of transaction costs. Additionally,
the termination of the Bergen Merger Agreement caused the costs incurred by the
Company (that would not have been deductible had the merger been consummated) to
become tax deductible for federal income tax purposes, resulting in a tax
benefit of $12.2 million. The obligation to reimburse Bergen and the additional
tax benefit were recorded in the fourth quarter of the fiscal year ended June
30, 1998.
RECENTLY ADOPTED FINANCIAL ACCOUNTING STANDARDS. As of July 1, 1999, the Company
adopted the Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for costs of computer software developed or obtained for
internal use. The adoption of this statement did not have a material impact on
the Company's consolidated financial statements.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS. In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," as amended in June 2000 by
Statement of Financial Accounting Standards No. 138 ("SFAS 138"), "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," which
requires companies to recognize all derivatives as either assets or liabilities
in the balance sheet and measure such instruments at fair value. As amended by
Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133," the provisions of SFAS 133 will require
adoption no later than the beginning of the Company's fiscal year ending June
30, 2001. Adoption of SFAS 133, as amended by SFAS 138, is not expected to have
a material impact on the Company's consolidated financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements" which requires adoption
during the fourth quarter of fiscal 2001. At this time, the Company does not
anticipate that the adoption of SAB 101 will have a material impact on the
consolidated financial statements. The Company will continue to analyze the
impact of SAB 101, including any amendments or further interpretation, based
upon the relevant facts and circumstances at the time of adoption.
ITEM 7a: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S.
interest rates, changes in foreign currency exchange rates as measured against
the U.S. dollar and changes in commodity prices.
INTEREST RATES. The Company utilizes a mix of debt maturities along with both
fixed-rate and variable-rate debt to manage its exposures to changes in interest
rates. The Company does not expect changes in interest rates to have a material
effect on income or cash flows in fiscal 2001, although there can be no
assurances that interest rates will not significantly change.
As of June 30, 2000, the Company had total long-term obligations
outstanding of $1,495.1 million of which $895.3 million represented Notes and
Debentures with fixed interest rates and maturity dates beginning in fiscal
2004. As of June 30, 1999, the Company had total long-term obligations
outstanding of $1,235.5 million of which $1,008.0 million represented Notes and
Debentures with fixed interest rates and maturity dates beginning in fiscal
2004. The average interest rate related to these obligations was 6.7% and 6.8%
as of June 30, 2000 and 1999, respectively. The majority of the remaining
outstanding long-term obligations and credit facilities have variable interest
rates that fluctuate with the LIBOR or prime rates. As of June 30, 2000 and
1999, the fair value of the total long-term obligations was $1,455.9 million and
$1,233.3 million, respectively. Maturities of long-term obligations for future
fiscal years are: 2001 - $9.3 million; 2002 - $568.1 million; 2003 - $2.9
million; 2004 - $201.2 million; 2005 - $1.6 million and 2006 and thereafter -
$712.0 million.
The Company periodically enters into interest rate swap agreements when
existing conditions and market situations dictate. The Company does not enter
into interest rate swap agreements for trading or speculative purposes. The
impact of interest rate swaps is not significant. See Note 5 of "Notes to
Consolidated Financial Statements".
19
<PAGE> 20
FOREIGN EXCHANGE. The Company conducts business in several major international
currencies. The Company periodically uses financial instruments, principally
foreign currency options, to attempt to manage the impact of foreign exchange
rate changes on anticipated sales. In addition, the Company periodically enters
into forward foreign currency exchange contracts to hedge certain exposures
related to selected transactions that are relatively certain as to both timing
and amount. The purpose of entering into these hedge transactions is to minimize
the impact of foreign currency fluctuations on the results of operations and
cash flows. Gains and losses on the hedging activities are recognized
concurrently with the gains and losses from the underlying transactions. The
Company does not enter into forward exchange contracts or foreign currency
options for trading or speculative purposes.
In addition, the Company uses commodity contracts to hedge raw material
costs expected to be denominated in foreign currency. These contracts generally
cover a one-year period and all gains and losses are deferred and recognized in
cost of goods sold with the underlying product costs.
As of June 30, 2000, the notional amount of the forward exchange contracts
outstanding was $17.2 million and the related fair value gain on these contracts
was $0.1 million. As of June 30, 1999, the Company did not have any material
foreign currency options or forward exchange contracts outstanding. As of June
30, 2000 and 1999, the notional amounts of the commodity hedge contracts were
$3.9 million and $9.6 million and the fair value gain/(loss) on these contracts
were $0.1 million and $(0.3) million, respectively. The unrealized gains or
losses on these options or contracts represent hedges of foreign exchange gains
and losses on a portion of the Company's foreign earnings, cash flows and
selected transactions. As a result, the Company does not expect future gains and
losses on these contracts to have a material impact on the Company's
consolidated financial statements.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Reports
Financial Statements and Schedules
Consolidated Statements of Earnings for the Fiscal Years Ended June
30, 2000, 1999 and 1998
Consolidated Balance Sheets at June 30, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the Fiscal Years
Ended June 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
20
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Directors of Cardinal Health, Inc.:
We have audited the accompanying consolidated balance sheet of Cardinal Health,
Inc. and subsidiaries as of June 30, 2000 and the related consolidated
statements of earnings, shareholders' equity and cash flows for the year then
ended. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Cardinal Health, Inc. and subsidiaries as of June 30, 2000 and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of valuation allowances is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Columbus, Ohio
July 21, 2000
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of Cardinal Health, Inc.:
We have audited the accompanying consolidated balance sheet of Cardinal Health,
Inc. and subsidiaries as of June 30, 1999, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the two
years in the period ended June 30, 1999. Our audits also included the
consolidated financial statement schedule, as it relates to the years ended June
30, 1999 and 1998, listed in the Index at Item 14. These consolidated financial
statements and consolidated financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and consolidated financial statement
schedule based on our audits. We did not audit the financial statements of
Allegiance Corporation ("Allegiance"), a wholly owned subsidiary of Cardinal
Health, Inc., as of June 30, 1999, and for the years ended June 30, 1999 and
1998. We also did not audit the financial statements of R.P. Scherer Corporation
("Scherer"), a wholly owned subsidiary of Cardinal Health, Inc., as of June 30,
1999, and for years ended June 30, 1999 and March 31, 1998. The combined
financial statements of Allegiance and Scherer represent approximately 44% of
consolidated total assets at June 30, 1999, and represent combined revenues and
net income of approximately 25% and 28% and 35% and 39%, respectively, of
consolidated amounts for each of the two years in the period ended June 30,
1999. These statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Allegiance and Scherer, is based solely on the reports of such other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
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 and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cardinal Health, Inc. and
subsidiaries at June 30, 1999, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1999 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such consolidated financial statement schedule,
as it relates to the years ended June 30, 1999 and 1998, when considered in
relation to the basic fiscal 1999 and 1998 consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
August 10, 1999, except for the first paragraph of Note 2
as to which the date is May 26, 2000 and the fiscal 1999
and 1998 amounts in Note 12 as to which the date is
September 5, 2000.
22
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To R.P. Scherer Corporation:
We have audited the accompanying consolidated statement of financial position of
R.P. SCHERER CORPORATION (a Delaware corporation and a wholly-owned subsidiary
of Cardinal Health, Inc.) and subsidiaries as of June 30, 1999 and the related
consolidated statements of income, comprehensive income, cash flows and
shareholders' equity for the year ended June 30, 1999 and the year ended March
31, 1998 (not presented separately herein). These financial statements and the
schedule referred to below are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements and
this schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 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 financial position of R.P. Scherer Corporation and
subsidiaries as of June 30, 1999, and the results of their operations and their
cash flows for the year ended June 30, 1999 and for the year ended March 31,
1998, in conformity with accounting principles generally accepted in the United
States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation allowances is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements
(not presented separately herein). This schedule has been subjected to the
auditing procedures applied in our audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/Arthur Andersen LLP
Roseland, New Jersey
August 9, 1999
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders of Allegiance Corporation
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of cash flows and of equity of Allegiance Corporation
and its subsidiaries (not presented separately herein) present fairly, in all
material respects, the financial position of Allegiance Corporation, a
wholly-owned subsidiary of Cardinal Health Inc., and its subsidiaries at June
30, 1999, and the results of their operations and their cash flows for the years
ended June 30, 1999 and 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Allegiance
Corporation's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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 financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
July 29, 1999
24
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
-----------------------------------------------------------------
To the Stockholders of Allegiance Corporation
Our audits of the consolidated financial statements of Allegiance Corporation
and its subsidiaries referred to in our report dated July 29, 1999 appearing on
page 24 of the Cardinal Health, Inc. Annual Report on Form 10-K for the year
ended June 30, 2000 also included an audit of the Financial Statement Schedule
II - Valuation and Qualifying Accounts ("Financial Statement Schedule") of
Allegiance Corporation and its subsidiaries (not presented separately herein).
In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
July 29, 1999
25
<PAGE> 26
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------
2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
Revenue:
Operating revenue $ 25,246.9 $ 21,558.5 $ 18,084.6
Bulk deliveries to customer warehouses 4,623.7 3,553.0 2,991.4
---------- ---------- ----------
Total revenue 29,870.6 25,111.5 21,076.0
Cost of products sold:
Operating cost of products sold 22,360.1 18,931.5 15,823.5
Cost of products sold - bulk deliveries 4,623.4 3,553.0 2,991.4
Merger-related costs -- 4.0 --
---------- ---------- ----------
Total cost of products sold 26,983.5 22,488.5 18,814.9
Gross margin 2,887.1 2,623.0 2,261.1
Selling, general and administrative expenses 1,627.4 1,580.9 1,403.0
Special charges:
Merger-related costs 64.7 142.6 49.2
Other special charges -- -- 8.6
---------- ---------- ----------
Total special charges 64.7 142.6 57.8
Operating earnings 1,195.0 899.5 800.3
Interest expense and other (117.2) (114.2) (108.9)
---------- ---------- ----------
Earnings before income taxes 1,077.8 785.3 691.4
Provision for income taxes 398.1 304.3 242.9
---------- ---------- ----------
Net earnings $ 679.7 $ 481.0 $ 448.5
========== ========== ==========
Net earnings per Common Share:
Basic $ 2.44 $ 1.73 $ 1.61
Diluted $ 2.39 $ 1.68 $ 1.58
Weighted average number of Common Shares outstanding:
Basic 279.1 277.7 277.9
Diluted 284.4 285.2 284.6
Net earnings $ 679.7 $ 481.0 $ 448.5
Pro forma adjustment for income taxes (See Note 2) -- (9.3) (4.6)
---------- ---------- ----------
Pro forma net earnings $ 679.7 $ 471.7 $ 443.9
========== ========== ==========
Pro forma net earnings per Common Share:
Basic $ 2.44 $ 1.70 $ 1.60
Diluted $ 2.39 $ 1.65 $ 1.56
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
26
<PAGE> 27
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 504.6 $ 185.4
Trade receivables, net 1,677.0 1,602.1
Current portion of net investment in sales-type leases 187.7 152.5
Inventories 3,865.3 2,940.0
Prepaid expenses and other 636.0 358.8
--------- ---------
Total current assets 6,870.6 5,238.8
--------- ---------
Property and equipment, at cost:
Land, buildings and improvements 761.0 717.3
Machinery and equipment 2,068.7 1,999.8
Furniture and fixtures 108.1 81.8
--------- ---------
Total 2,937.8 2,798.9
Accumulated depreciation and amortization (1,310.9) (1,237.4)
--------- ---------
Property and equipment, net 1,626.9 1,561.5
Other assets:
Net investment in sales-type leases, less current portion 578.6 454.3
Goodwill and other intangibles, net 961.7 942.1
Other 227.1 207.8
--------- ---------
Total $10,264.9 $ 8,404.5
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 19.1 $ 28.6
Current portion of long-term obligations 9.3 11.6
Accounts payable 3,030.9 2,363.9
Other accrued liabilities 1,202.2 561.2
--------- ---------
Total current liabilities 4,261.5 2,965.3
--------- ---------
Long-term obligations, less current portion 1,485.8 1,223.9
Deferred income taxes and other liabilities 536.4 645.7
Shareholders' equity:
Common Shares, without par value 1,227.9 1,091.7
Retained earnings 3,173.4 2,544.0
Common Shares in treasury, at cost (329.1) (17.2)
Cumulative foreign currency adjustment (81.9) (44.0)
Other (9.1) (4.9)
--------- ---------
Total shareholders' equity 3,981.2 3,569.6
--------- ---------
Total $10,264.9 $ 8,404.5
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
27
<PAGE> 28
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
COMMON SHARES CUMULATIVE
--------------- TREASURY SHARES FOREIGN TOTAL
SHARES RETAINED --------------- CURRENCY SHAREHOLDERS'
ISSUED AMOUNT EARNINGS SHARES AMOUNT ADJUSTMENT OTHER EQUITY
------ ------ -------- ------ ------ ---------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997 175.3 $1,026.2 $1,741.1 (0.7) $ (31.6) $(12.5) $(5.3) $2,717.9
Comprehensive income:
Net earnings 448.5 448.5
Foreign currency translation adjustments (16.0) (16.0)
--------
Total comprehensive income 432.5
Employee stock plans activity,
including tax benefits of $35.2 million 2.0 64.9 (0.3) 29.0 (0.5) 93.4
Treasury shares acquired and shares retired (1.3) (25.7) (12.7) (0.8) (104.9) (143.3)
Dividends paid (35.7) (35.7)
Other adjustments (0.5) (0.5)
Adjustment for change in fiscal year
of an acquired subsidiary (see Note 1) (0.1) (0.8) (35.0) 0.4 25.2 0.6 0.8 (9.2)
----- -------- -------- ---- ------- ------ ----- --------
BALANCE, JUNE 30, 1998 175.9 $1,064.6 $2,106.2 (1.4) $ (82.3) $(27.9) $(5.5) $3,055.1
Comprehensive income:
Net earnings 481.0 481.0
Foreign currency translation adjustments (17.0) (17.0)
--------
Total comprehensive income 464.0
Employee stock plans activity,
including tax benefits of $55.8 million 2.7 100.5 (0.7) 34.8 (2.9) 132.4
Treasury shares acquired and shares retired (1.9) (73.8) (2.9) 1.7 30.3 3.5 (42.9)
Dividends paid (47.5) (47.5)
Stock split effected as a stock dividend and
cash paid in lieu of fractional shares 103.1 (0.3) (0.3)
Adjustment for change in fiscal year
of an acquired subsidiary (see Note 1) 0.1 0.5 8.6 0.9 10.0
Stock issued for acquisitions and other 0.2 (0.1) (1.1) (1.2)
----- -------- -------- ---- ------- ------ ----- --------
BALANCE, JUNE 30, 1999 280.1 $1,091.7 $2,544.0 (0.4) $ (17.2) $(44.0) $(4.9) $3,569.6
Comprehensive income:
Net earnings 679.7 679.7
Foreign currency translation adjustments (37.9) (37.9)
--------
Total comprehensive income 641.8
Employee stock plans activity,
including tax benefits of $42.4 million 4.0 137.5 (0.2) (4.2) 133.1
Treasury shares acquired and shares retired (22.2) (7.2) (311.7) (333.9)
Dividends paid (28.0) (28.0)
Stock issued for acquisitions and other (1.3) (0.1) (1.4)
----- -------- -------- ---- ------- ------ ----- --------
BALANCE, JUNE 30, 2000 284.1 $1,227.9 $3,173.4 (7.6) $(329.1) $(81.9) $(9.1) $3,981.2
===== ======== ======== ==== ======= ====== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
28
<PAGE> 29
CARDINAL HEALTH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
2000 1999 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 679.7 $ 481.0 $ 448.5
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization 245.9 238.2 218.4
Provision for deferred income taxes 127.6 132.4 90.1
Provision for bad debts 34.4 29.7 23.4
Change in operating assets and liabilities,
net of effects from acquisitions:
Increase in trade receivables (110.3) (214.5) (211.7)
Increase in inventories (926.3) (317.9) (474.3)
Increase in net investment in sales-type leases (159.5) (282.3) (103.3)
Increase in accounts payable 678.8 229.7 520.9
Other operating items, net 67.9 81.3 60.0
----------------- ------------------ ------------------
Net cash provided by operating activities 638.2 377.6 572.0
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/divestiture of subsidiaries, net of cash acquired (67.5) (147.5) (45.8)
Proceeds from sale of property and equipment 39.7 57.9 10.8
Additions to property and equipment (307.8) (326.0) (286.3)
Purchase of marketable securities available for sale (7.7) (15.6) (14.2)
Proceeds from sale of marketable securities available for sale 56.0 13.5 10.6
Other - - (4.7)
----------------- ------------------ ------------------
Net cash used in investing activities (287.3) (417.7) (329.6)
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in commercial paper and short-term debt 400.7 (207.4) (89.2)
Reduction of long-term obligations (157.9) (118.5) (49.1)
Proceeds from long-term obligations, net of issuance costs 0.5 223.7 111.4
Proceeds from issuance of Common Shares 87.2 62.1 59.2
Dividends on common shares, minority interests and
cash paid in lieu of fractional shares (28.0) (75.7) (52.3)
Purchase of treasury shares and other (334.2) (47.8) (155.0)
----------------- ------------------ ------------------
Net cash used in financing activities (31.7) (163.6) (175.0)
----------------- ------------------ ------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 319.2 (203.7) 67.4
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 185.4 389.1 321.7
----------------- ------------------ ------------------
CASH AND EQUIVALENTS AT END OF YEAR $ 504.6 $ 185.4 $ 389.1
================= ================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
29
<PAGE> 30
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Health, Inc., together with its subsidiaries (collectively the
"Company"), is a provider of services to the healthcare industry offering an
array of value-added pharmaceutical and other healthcare products distribution
services and pharmaceutical-related products and services to a broad base of
customers. The Company currently conducts its business within four business
segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical
Products and Services, Pharmaceutical Technologies and Services and Automation
and Information Services. See Note 12 for discussion related to the Company's
operating segments.
BASIS OF PRESENTATION. The consolidated financial statements of the Company
include the accounts of all majority-owned subsidiaries and all significant
intercompany accounts and transactions have been eliminated. In addition, the
consolidated financial statements give retroactive effect to the mergers with
MediQual Systems, Inc. ("MediQual") on February 18, 1998; R.P. Scherer
Corporation ("Scherer") on August 7, 1998; Allegiance Corporation ("Allegiance")
on February 3, 1999; Pacific Surgical Innovations, Inc. ("PSI") on May 21, 1999;
and Automatic Liquid Packaging, Inc. ("ALP") on September 10, 1999 (see Note 2).
Such business combinations were accounted for under the pooling-of-interests
method.
The Company's fiscal year end is June 30 and Scherer's and PSI's fiscal
year ends were March 31 and September 30, respectively. For the fiscal year
ended June 30, 1998, the consolidated financial statements combine the Company's
fiscal year ended June 30, 1998 with Scherer's fiscal year ended March 31, 1998
and PSI's fiscal year ended September 30, 1998.
Due to the change in Scherer's fiscal year end from March 31 to conform
with the Company's June 30 fiscal year end, Scherer's results of operations for
the three months ended June 30, 1998 are not included in the combined results of
operations but are reflected as an adjustment in the Consolidated Statements of
Shareholders' Equity. Scherer's net revenue and net earnings for this period
were $161.6 million and $8.6 million, respectively. Scherer's cash flows from
operating and financing activities for this period were $12.6 million and $32.6
million, respectively, while cash flows used in investing activities were $12.2
million. As a result of changing Allegiance's fiscal year end from December 31
to June 30, the results of operations for the six months ended December 31, 1997
are included in the combined results of operations for both the fiscal years
ended June 30, 1997 and 1998 and are reflected as an adjustment in the
Consolidated Statements of Shareholders' Equity. Allegiance's total revenue and
net earnings for this period were $2.2 billion and $47.9 million, respectively.
Allegiance's cash flows from operating activities for this period were $147.2
million, while cash flows used in investing and financing activities were $63.7
million and $83.8 million, respectively.
In addition, the Company completed several individually immaterial
acquisitions during fiscal 2000, 1999 and 1998, which were accounted for under
the purchase method of accounting. The consolidated financial statements include
the results of operations from each of these business combinations as of the
date of acquisition.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts may differ from these estimated amounts.
CASH EQUIVALENTS. The Company considers all liquid investments purchased with a
maturity of three months or less to be cash equivalents. The carrying value of
cash equivalents approximates their fair value. Cash payments for interest were
$113.5 million, $105.5 million, and $97.4 million and cash payments for income
taxes were $106.4 million, $80.0 million, and $157.9 million for fiscal 2000,
1999, and 1998, respectively. See Notes 2 and 4 for additional information
regarding non-cash investing and financing activities.
RECEIVABLES. Trade receivables are primarily comprised of amounts owed to the
Company through its pharmaceutical and other healthcare distribution activities
and are presented net of an allowance for doubtful accounts of $61.6 million and
$53.9 million at June 30, 2000 and 1999, respectively.
The Company provides financing to various customers. Such financing
arrangements range from one year to ten years, at interest rates that generally
fluctuate with the prime rate. The financings may be collateralized, guaranteed
by third parties or unsecured. Finance notes and accrued interest receivable are
$24.0 million and $19.8 million at June 30, 2000 and 1999, respectively (the
current portions are $9.3 million and $9.2 million, respectively), and are
included in other assets. These amounts are reported net of an allowance for
doubtful accounts of $4.6 million and $4.9 million at June 30, 2000 and 1999,
respectively.
30
<PAGE> 31
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has formed Medicine Shoppe Capital Corporation ("MSCC"), Pyxis
Capital Corporation ("PCC") and Cardinal Health Funding LLC ("CHF") as wholly
owned subsidiaries of Medicine Shoppe, Pyxis and Griffin Capital Corporation
("Griffin"), respectively. MSCC, PCC and CHF were organized for the sole purpose
of buying receivables and selling those receivables to certain financial
institutions or to other investors. They are designed to be special purpose,
bankruptcy remote entities. Although consolidated to the extent required by
generally accepted accounting principles, MSCC, PCC and CHF are separate legal
entities from the Company, Medicine Shoppe, Pyxis and Griffin; they each
maintain separate financial statements; and their assets will be available first
and foremost to satisfy the claims of their creditors.
INVENTORIES. A majority of inventories (approximately 63% in 2000 and 59% in
1999) are stated at lower of cost, using the last-in, first-out ("LIFO") method,
or market and are primarily merchandise inventories. The remaining inventory is
primarily stated at the lower of cost using the first-in, first-out ("FIFO")
method or market. If the Company had used the FIFO method of inventory
valuation, which approximates current replacement cost, inventories would have
been higher than the LIFO method reported at June 30, 2000 and 1999 by $46.0
million and $50.4 million, respectively.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation
and amortization for financial reporting purposes are primarily computed using
the straight-line method over the estimated useful lives of the assets which
range from one to fifty years, including capital lease assets which are
amortized over the terms of their respective leases. Amortization of capital
lease assets is included in depreciation and amortization expense. At each
balance sheet date, the Company assesses the recoverability of its long-lived
property, based on a review of projected undiscounted cash flows associated with
these assets.
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles primarily
represent intangible assets related to the excess of cost over net assets of
subsidiaries acquired. Intangible assets are being amortized using the
straight-line method over lives that range from ten to forty years. Accumulated
amortization was $637.2 million and $599.9 million at June 30, 2000 and 1999,
respectively. At each balance sheet date, a determination is made by management
to ascertain whether there is an indication that the intangible assets may have
been impaired based primarily on a review of projected undiscounted operating
cash flows for each subsidiary.
REVENUE RECOGNITION. The Company records distribution revenue when merchandise
is shipped to its customers and the Company has no further obligation to provide
services related to such merchandise. The Company also acts as an intermediary
in the ordering and subsequent delivery of bulk shipments of pharmaceutical
products, which are classified as bulk deliveries to customer warehouses and are
included in total revenue.
The Company earns franchise and origination fees from its apothecary-style
pharmacy franchisees. Franchise fees represent monthly fees based upon
franchisees' sales and are recognized as revenue when they are earned.
Origination fees from signing new franchise agreements are recognized as revenue
when the new franchise store is opened.
Pharmacy management and other service revenues are recognized as the
related services are rendered according to the contracts established. A fee is
charged under such contracts through a capitated fee, a dispensing fee, a
monthly management fee, or an actual costs-incurred arrangement. Under certain
contracts, fees for services are guaranteed by the Company not to exceed
stipulated amounts or have other risk-sharing provisions. Revenue is adjusted to
reflect the estimated effects of such contractual guarantees and risk-sharing
provisions.
Packaging and liquid fill contract manufacturing revenues are recognized
from services provided upon the completion of such services.
Drug delivery system revenue is recognized upon shipment of products to the
customer. Non-product revenue related to option, milestone and exclusivity fees
are recognized when earned and all obligations of performance have been
completed.
Revenue is recognized from sales-type leases of point-of-use pharmacy
systems when the systems are delivered, the customer accepts the system, and the
lease becomes noncancellable. Unearned income on sales-type leases is recognized
using the interest method. Sales of point-of-use pharmacy systems are recognized
upon delivery and customer acceptance. Revenue for systems installed under
operating lease arrangements is recognized over the lease term as such amounts
become receivable according to the provisions of the lease.
31
<PAGE> 32
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Clinical information system license revenue is recognized upon delivery
of the software to the customer and the completion of implementation/set up
training necessary to operate the software. The portion of the license fee
related to system support is deferred and recognized over the annual license
period.
TRANSLATION OF FOREIGN CURRENCIES. The financial position and the results of
operations of the Company's foreign operations, excluding the Company's
Malaysian and Mexican manufacturing operations which are denominated in U.S.
dollars, are measured using the local currencies of the countries in which they
operate and are translated into U.S. dollars. Although the effects of foreign
currency fluctuations are mitigated by the fact that expenses of foreign
subsidiaries are generally incurred in the same currencies in which sales are
generated, the reported results of operations of the Company's foreign
subsidiaries are affected by changes in foreign currency exchange rates and, as
compared to prior periods, will be higher or lower depending upon a weakening or
strengthening of the U.S. dollar. In addition, the net assets of foreign
subsidiaries are translated into U.S. dollars at the foreign currency exchange
rates in effect at the end of each period. Accordingly, the Company's
consolidated shareholders' equity will fluctuate depending upon the relative
strengthening or weakening of the U.S. dollar versus relevant foreign
currencies.
DERIVATIVE FINANCIAL INSTRUMENT RISK. The Company uses derivative financial
instruments to minimize the impact of foreign exchange rate changes on earnings
and cash flows. The Company also periodically enters into foreign currency
exchange contracts to hedge certain exposures related to selected transactions
that are relatively certain as to both timing and amount. The Company does not
use derivative financial instruments for trading or speculative purposes (see
Note 5 for further discussion).
RESEARCH AND DEVELOPMENT COSTS. Costs incurred in connection with the
development of new products and manufacturing methods are charged to expense as
incurred. Research and development expenses, net of customer reimbursements,
were $48.5 million, $49.7 million, and $45.7 million in fiscal 2000, 1999, and
1998, respectively. Customer reimbursements in the amount of $10.4 million,
$11.8 million, and $13.0 million were received for the fiscal years ended June
30, 2000, 1999, and 1998, respectively.
INCOME TAXES. No provision is made for U.S. income taxes on earnings of foreign
subsidiary companies which the Company controls but does not include in the
consolidated federal income tax return since it is management's practice and
intent to permanently reinvest the earnings.
PRO FORMA ADJUSTMENT FOR INCOME TAXES. On September 10, 1999, the Company
completed a merger transaction with ALP (the "ALP Merger"). As of April 1998,
ALP had elected S-Corporation status for income tax purposes. As a result of the
merger, ALP terminated its S-Corporation election. The pro forma adjustment for
income taxes presents the pro forma tax expense of ALP as if ALP had been
subject to federal income taxes during the periods presented (see Note 2).
EARNINGS PER COMMON SHARE. Basic earnings per Common Share ("Basic") is computed
by dividing net earnings (the numerator) by the weighted average number of
Common Shares outstanding during each period (the denominator). Diluted earnings
per Common Share is similar to the computation for Basic, except that the
denominator is increased by the dilutive effect of stock options outstanding,
computed using the treasury stock method.
Excluding dividends paid by all entities with which the Company has merged,
the Company paid cash dividends per Common Share of $0.100, $0.095, and $0.070
for the fiscal years ended June 30, 2000, 1999, and 1998, respectively.
STOCK SPLITS. On August 12, 1998, the Company declared a three-for-two stock
split which was effected as a stock dividend and distributed on October 30, 1998
to shareholders of record on October 9, 1998. All share and per share amounts
included in the consolidated financial statements, except the Consolidated
Statements of Shareholders' Equity, have been adjusted to retroactively reflect
these stock splits.
NEW ACCOUNTING PRONOUNCEMENT. As of July 1, 1999, the Company adopted the
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for costs of computer software developed or obtained for internal
use. The adoption of this statement did not have a material impact on the
Company's consolidated financial statements.
32
<PAGE> 33
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS, MERGER-RELATED COSTS AND OTHER SPECIAL ITEMS
BUSINESS COMBINATIONS. On September 10, 1999, the Company completed the ALP
Merger, which was accounted for as a pooling-of-interests. In the ALP Merger,
the Company issued approximately 5.8 million Common Shares to ALP stockholders.
On May 21, 1999, the Company completed a merger transaction with PSI. The
Company issued approximately 233,000 Common Shares to PSI shareholders and has
accounted for the merger transaction as a pooling-of-interests in the
accompanying financial statements.
In addition to the merger transactions described above, during fiscal 2000,
the Company completed several individually immaterial acquisitions, which were
accounted for under the purchase method of accounting. These business
combinations were primarily related to the Company's medical-surgical
distribution, point-of-use pharmacy systems and pharmaceutical-packaging
services. The aggregate purchase price, which was paid primarily in cash,
including fees and expenses, was approximately $63.5 million. Liabilities of the
operations assumed were approximately $7.0 million, including debt of $4.0
million. Had the acquisitions taken place July 1, 1999, consolidated results
would not have been materially different from reported results.
On February 3, 1999, the Company completed a merger transaction with
Allegiance that was accounted for as a pooling-of-interests transaction. The
Company issued approximately 70.7 million Common Shares to Allegiance
stockholders and Allegiance's outstanding stock options were converted into
options to purchase approximately 10.3 million Common Shares. In addition, on
August 7, 1998, the Company completed a merger transaction with Scherer that was
accounted for as a pooling-of-interests. The Company issued approximately 34.2
million Common Shares to Scherer stockholders and Scherer's outstanding stock
options were converted into options to purchase approximately 3.5 million Common
Shares. The Company recorded a merger-related charge to reflect transaction and
other costs incurred as a result of these merger transactions in fiscal 1999.
Additional merger-related costs associated with integrating the separate
companies and instituting efficiencies are charged to expense in subsequent
periods when incurred.
In addition to the merger transactions described above, during fiscal 1999,
the Company completed several individually immaterial acquisitions, which were
accounted for under the purchase method of accounting. These business
combinations were primarily related to the Company's medical-surgical
distribution, point-of-use pharmacy systems and pharmaceutical-packaging
services. The aggregate purchase price, which was paid primarily in cash,
including fees and expenses, was approximately $160.8 million. Liabilities of
the operations assumed were approximately $18.9 million, including debt of $3.2
million. Had the acquisitions taken place July 1, 1998, consolidated results
would not have been materially different from reported results.
On February 18, 1998, the Company completed a merger transaction with
MediQual (the "MediQual Merger") which was accounted for as a
pooling-of-interests. The Company issued approximately 860,000 Common Shares to
MediQual shareholders and MediQual's outstanding stock options were converted
into options to purchase approximately 36,000 Common Shares of the Company.
During fiscal 1998, the Company made a number of individually immaterial
acquisitions for an aggregate purchase price of $47.8 million and exchanged
non-monetary assets with a value of approximately $10.5 million to acquire an
interest in Source Medical Corporation, a new venture in Canada. All of these
acquisitions were accounted for as purchase transactions. Had the acquisitions
taken place July 1, 1997, consolidated results would not have been materially
different from reported results.
33
<PAGE> 34
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPECIAL CHARGES
The following is a summary of the special charges for the fiscal years ended
June 30, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
-----------------------------------
(in millions, except per share amounts) 2000 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transaction and employee-related costs $ (3.8) $ (95.4) $ (35.7)
ALP transaction bonus (20.3) - -
Exit costs (11.7) (9.4) (3.8)
Scherer restructuring costs (9.6) (26.7) -
Inventory write-offs - (4.0) -
Owen Healthcare, Inc. employee-related costs - (1.1) -
Canceled merger transaction - 3.7 -
Other integration costs (19.3) (13.7) (9.7)
- -----------------------------------------------------------------------------------------
Total merger-related costs $ (64.7) $ (146.6) $ (49.2)
- -----------------------------------------------------------------------------------------
Other special charges:
Facilities closures $ - $ - $ (6.1)
Employee severance - - (2.5)
- -----------------------------------------------------------------------------------------
Total other special charges $ - $ - $ (8.6)
- -----------------------------------------------------------------------------------------
Total special charges $ (64.7) $ (146.6) $ (57.8)
Tax effect of special charges 14.9 29.0 22.0
Tax benefit for change in tax status - - 11.7
Pro forma ALP taxes - 9.3 4.6
- -----------------------------------------------------------------------------------------
Net effect of special charges $ (49.8) $ (108.3) $ (19.5)
=========================================================================================
Net effect on diluted earnings per share $ (0.18) $ (0.38) $ (0.06)
=========================================================================================
</TABLE>
Merger-Related Charges. Costs of effecting mergers and subsequently
integrating the operations of the various merged companies are recorded as
merger-related costs when incurred. The merger-related costs are primarily a
result of the merger transactions with ALP, Allegiance and Scherer.
During the fiscal years presented in the table herein, the Company incurred
direct transaction costs related to its merger transactions. These expenses
primarily include investment banking, legal, accounting and other professional
fees associated with the respective merger transactions. In addition, the
Company incurred employee-related costs, which consist primarily of severance
and transaction/stay bonuses as a result of the ALP, Allegiance and Scherer
merger transactions. Partially offsetting the transaction and employee-related
costs recorded during the fiscal year ended June 30, 2000 was a $10.3 million
credit to adjust the estimated transaction and employee-related costs previously
recorded in connection with the Allegiance merger transaction. Actual billings
and employee-related costs were less than the amounts originally anticipated,
resulting in a reduction of the merger-related costs. Exit costs relate
primarily to costs associated with lease terminations and moving expenses as a
direct result of the merger transactions with ALP, Allegiance and Scherer. Other
integration costs include charges related to integrating the operations of
previous merger transactions.
The Company recorded charges of $9.6 million and $26.7 million during the
fiscal years ended June 30, 2000 and 1999, respectively, associated with the
business restructuring as a result of the Company's merger transaction with
Scherer. As part of the business restructuring, the Company is closing certain
facilities. In connection with such closings, the Company has incurred
employee-related costs, asset impairment charges and exit costs related to the
termination of contracts and lease agreements.
Charges of $4.0 million related to the write-down of impaired
inventory associated with the merger transaction with Owen Healthcare, Inc.
("Owen") were recorded during the fiscal year ended June 30, 1999. Also, during
fiscal 1999, the
34
<PAGE> 35
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company recorded $1.1 million related to severance costs for a restructuring
associated with the change in management that resulted from the merger
transaction with Owen. Partially offsetting the total merger-related charges for
fiscal 1999 was a credit recorded to adjust the estimated transaction and
termination costs previously recorded in connection with the canceled merger
transaction with Bergen Brunswig Corporation ("Bergen") (see Note 15). The
actual billings for services provided by third parties engaged by the Company
were less than the estimate, resulting in a reduction of the merger-related
costs.
Other Special Items. During fiscal 1998, the Company recorded a special
charge of $8.6 million ($5.2 million, net of tax) related to the rationalization
of its pharmaceutical distribution operations. Approximately $6.1 million
related to asset impairments and lease exit costs resulting primarily from the
Company's decision to accelerate the consolidation of a number of distribution
facilities and the relocation to more modern facilities for certain others. The
remaining amount related to employee severance costs, including approximately
$2.0 million incurred in connection with the final settlement of a labor dispute
with former employees of the Company's Boston pharmaceutical distribution
facility, resulting in termination of the union relationship.
During fiscal 1998, Scherer finalized part of its long-term tax planning
strategy by converting, with its joint venture partner, the legal ownership
structure of Scherer's 51% owned subsidiary in Germany from a corporation to a
partnership. As a result of this change in tax status, the Company's tax basis
in the German subsidiary was adjusted, resulting in a one-time tax refund of
approximately $4.6 million, as well as a reduction in cash taxes to be paid in
the current and future years. Combined, these factors resulted in a one-time
reduction of fiscal 1998 income tax expense by approximately $11.7 million.
Pro Forma Impact. Since April 1998, ALP has been organized as an
S-Corporation for tax purposes. Accordingly, ALP was not subject to federal
income tax from April 1998 up to the date of the merger transaction. For the
fiscal years ended 1999 and 1998, net earnings would have been reduced by $9.3
million and $4.6 million, respectively, if ALP had been subject to federal
income taxes.
In fiscal 2000, the net effect of various merger-related charges reduced
reported net earnings by $49.8 million to $679.7 million and reduced reported
diluted earnings per Common Share by $0.18 per share to $2.39 per share. The net
of tax effect of the various merger-related costs recorded and pro forma
adjustments related to ALP taxes during fiscal 1999 was to reduce reported net
earnings by $108.3 million to $481.0 million and to reduce reported diluted
earnings per Common Share by $0.38 per share to $1.68 per share. The fiscal 1998
effect of various merger-related charges and other special items recorded and
pro forma adjustments related to ALP taxes during fiscal 1998 was to reduce
reported net earnings by $19.5 million to $448.5 million and to reduce reported
diluted earnings per Common Share by $0.06 per share to $1.58 per share.
Certain merger-related costs are based upon estimates, and actual amounts
paid may ultimately differ from these estimates. If additional costs are
incurred, such items will be expensed as incurred.
3. LEASES
SALES-TYPE LEASES. The Company's sales-type leases are for terms generally
ranging up to five years. Lease receivables are generally collateralized by the
underlying equipment. The components of the Company's net investment in
sales-type leases are as follows (in millions):
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
------------- ---------------
<S> <C> <C>
Future minimum lease payments receivable $ 890.3 $ 717.7
Unguaranteed residual values 11.1 1.0
Unearned income (120.1) (100.1)
Allowance for uncollectible minimum lease payments
receivable (15.0) (11.8)
------------- --------------
Net investment in sales-type leases 766.3 606.8
Less: current portion 187.7 152.5
------------- --------------
Net investment in sales-type leases, less current
portion $ 578.6 $ 454.3
============= ==============
</TABLE>
35
<PAGE> 36
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments to be received pursuant to sales-type leases
during the next five years are: 2001 - $219.9 million; 2002 - $214.4 million;
2003 - $200.6 million; 2004 - $157.9 million; 2005 - $85.6 million and 2006 and
thereafter - $11.9 million.
LEASE RELATED FINANCING ARRANGEMENTS. Pyxis has previously financed its working
capital needs through the sale of certain lease receivables to a non-bank
financing company. As of June 30, 2000, $22.5 million of lease receivables were
owned by the financing company. The agreement with the financing company was
amended to terminate Pyxis' obligation to sell lease receivables to the
financing company. Due to Pyxis customers upgrading the Pyxis machines or
expanding the number of units being leased under the original lease agreements
that have been sold to the financing company, Pyxis has been converting the
original lease agreements with customers to updated lease agreements. Pyxis has
been maintaining these revised leases and not selling them to the financing
company to replace the original lease receivables. As a result, Pyxis entered
into an agreement with the financing company to pay the financing company the
remaining portion of the original lease receivables outstanding at the time of
revision over the original terms. The future minimum payments for these notes at
June 30, 2000 are: 2001 - $36.2 million; 2002 - $20.1 million and 2003 - $5.4
million, which are classified as part of other liabilities.
4. SHORT-TERM BORROWINGS AND LONG-TERM OBLIGATIONS
NOTES PAYABLE, BANKS. The Company has entered into various unsecured,
uncommitted line-of-credit arrangements that allow for borrowings up to $49.3
million at June 30, 2000, at various money market rates. At June 30, 2000, $19.1
million, at a weighted average interest rate of 7.4%, was outstanding under such
arrangements and $28.6 million, at a weighted average interest rate of 6.4%, was
outstanding at June 30, 1999. The total available but unused lines of credit at
June 30, 2000 was $30.2 million.
LONG-TERM OBLIGATIONS. Long-term obligations consist of the following (in
millions):
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
-------------- --------------
<S> <C> <C>
6.0% Notes due 2006 $ 150.0 $ 150.0
6.25% Notes due 2008 150.0 150.0
6.5% Notes due 2004 100.0 100.0
6.75% Notes due 2004 99.7 99.7
7.3% Notes due 2006 127.9 183.2
7.8% Debentures due 2016 75.7 125.2
7.0% Debentures due 2026 (7 year put option in 2003) 192.0 199.9
Commercial paper 509.2 49.2
Short-term borrowings, reclassified 54.2 35.3
Borrowings under credit agreement; interest averaging
6.8% in 1999 - 96.9
Other obligations; interest averaging 4.0% in 2000 and
6.7% in 1999, due in varying installments
through 2020 36.4 46.1
------------ ------------
Total 1,495.1 1,235.5
Less: current portion 9.3 11.6
------------ ------------
Long-term obligations, less current portion $ 1,485.8 $ 1,223.9
============ ============
</TABLE>
The 6.0%, 6.25% and 6.5% Notes represent unsecured obligations of the
Company, and the 6.75% Notes represent unsecured obligations of Scherer, which
are guaranteed by the Company. The 7.3% Notes and the 7.8% and 7.0% Debentures
represent unsecured obligations of Allegiance, which are guaranteed by the
Company. These obligations are not redeemable prior to maturity and are not
subject to a sinking fund.
The Company has a commercial paper program, providing for the issuance of
up to $1.0 billion in aggregate maturity value of commercial paper. The Company
had $509.2 million outstanding under this program at June 30, 2000 with a market
interest rate based upon LIBOR. The Company also maintains other short-term
credit facilities that allow for borrowings up to $250.0 million. At June 30,
2000 and 1999, $54.2 million and $35.3 million were outstanding under these
36
<PAGE> 37
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
uncommitted facilities. The effective interest rate as of June 30, 2000 and 1999
was 6.3% and 6.0%, respectively. The Company also has an unsecured bank credit
facility, which provides for up to an aggregate of $1.5 billion in borrowings of
which $750 million expires on March 31, 2001 and $750 million expires on March
31, 2004. At expiration, these facilities can be extended upon mutual consent of
the Company and the lending institutions. This credit facility exists largely to
support issuances of commercial paper as well as other short-term borrowings and
remains unused at June 30, 2000. At June 30, 2000 and 1999, the commercial paper
and other short-term borrowings totaling $563.4 million and $84.5 million,
respectively, were reclassified as long-term, reflecting the Company's intent
and ability, through the existence of the unused credit facility, to refinance
these borrowings.
During fiscal 1999, the Company issued $150 million of 6.25% Notes due
2008, the proceeds of which were used for working capital needs due to growth in
the Company's business. At June 30, 2000, the Company currently has the capacity
to issue $250 million of additional debt securities pursuant to a shelf
registration statement filed with the Securities and Exchange Commission.
Certain long-term obligations are collateralized by property and equipment
of the Company with an aggregate book value of approximately $27.5 million at
June 30, 2000. Maturities of long-term obligations for future fiscal years are
2001 - $9.3 million; 2002 - $568.1 million; 2003 - $2.9 million; 2004 - $201.2
million; 2005 - $1.6 million and 2006 and thereafter - $712.0 million.
5. FINANCIAL INSTRUMENTS
INTEREST RATE MANAGEMENT. The Company has entered into an interest rate swap
agreement with a notional amount of $20.0 million that matures November 2002 to
hedge against variable interest rates. The Company exchanged its variable rate
position related to a lease agreement for a fixed rate of 7.08%. The Company
recognizes in income the periodic net cash settlements under the swap agreement
as it accrues.
FOREIGN EXCHANGE RISK MANAGEMENT. In the normal course of business, operations
of the Company are exposed to fluctuations in foreign exchange rates. In order
to reduce the uncertainty of the impact of foreign exchange rate movements on
operations, the Company periodically enters into foreign currency options and
forward contracts (principally European currencies and Japanese yen) to hedge
certain anticipated sales and firm commitments denominated in foreign
currencies. These option and forward contracts typically mature within one year.
The Company's forward contracts do not subject it to material risks due to the
exchange rate movements because gains and losses on these contracts offset
losses and gains and the assets, liabilities, and transactions being hedged. The
risk of loss associated with the foreign currency option contracts is limited to
the premium paid for the option contracts. Gains and losses on the forward and
option contracts are recognized concurrently with the gains and losses from the
underlying transactions. Premiums paid on the option contract are amortized in
other income/expense over the life of the underlying hedged transactions.
The Company also uses commodity contracts to hedge raw material costs
expected to be denominated in foreign currency. These contracts generally cover
a one-year period and all gains and losses are deferred and recognized in cost
of goods sold with the underlying product costs. The contracts qualify as hedges
for accounting purposes in accordance with the criteria established in SFAS No.
80 "Accounting for Futures Contracts." Cash flows resulting from these commodity
contracts are classified in the same category as the items being hedged.
The counterparties to these contracts are major financial institutions and
the Company does not have significant exposure to any one counterparty.
Management believes the risk of loss is remote and in any event would not be
material.
37
<PAGE> 38
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of cash and
equivalents, trade receivables, accounts payables, notes payable-banks and other
accrued liabilities at June 30, 2000 and 1999, approximate their fair value
because of the short-term maturities of these items.
The estimated fair value of the Company's long-term obligations was
$1,455.9 million and $1,233.3 million as compared to the carrying amounts of
$1,495.1 million and $1,235.5 million at June 30, 2000 and 1999, respectively.
The fair value of the Company's long-term obligations is estimated based on
either the quoted market prices for the same or similar issues and the current
interest rates offered for debt of the same remaining maturities or estimated
discounted cash flows. The following is a summary of the fair value gain/(loss)
of the Company's derivative instruments, based upon the estimated amount that
the Company would receive (or pay) to terminate the contracts at the reporting
date. The fair values are based on quoted market prices for the same or similar
instruments.
(in millions)
<TABLE>
<CAPTION>
2000 1999
-------------------------- ----------------------------
Notional Fair Value Notional Fair Value
Amount Gain/(Loss) Amount Gain/(Loss)
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Foreign currency forward contracts $ 17.2 $0.1 $ - $ -
Commodity contracts $ 3.9 $0.1 $ 9.6 $(0.3)
Interest Rate Swaps $ 20.0 $ - $ 20.0 $(0.7)
</TABLE>
6. INCOME TAXES
Consolidated U.S. income before taxes (in millions)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-----------------------------------------
2000 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
U.S. Based Operations $ 952.3 $ 710.9 $ 582.3
Non-U.S. Based Operations 125.5 74.4 109.1
------------- ------------ ------------
$ 1,077.8 $ 785.3 $ 691.4
============= ============ ============
</TABLE>
The provision for income taxes consists of the following (in millions):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Current:
Federal $ 221.1 $ 123.9 $ 113.9
State 21.1 26.3 23.1
Foreign 28.3 21.7 15.8
-------------- -------------- --------------
Total $ 270.5 $ 171.9 $ 152.8
Deferred 127.6 132.4 90.1
-------------- -------------- --------------
Total provision $ 398.1 $ 304.3 $ 242.9
============== ============== ==============
</TABLE>
38
<PAGE> 39
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the provision based on the Federal statutory income tax
rate to the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Provision at Federal
statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
Federal benefit 3.0 3.9 4.1
Foreign tax rates (2.2) (3.0) (4.8)
Nondeductible expenses 1.4 4.5 1.5
Other (0.3) (1.7) (0.7)
--------------- --------------- ---------------
Effective income tax rate 36.9% 38.7% 35.1%
=============== =============== ===============
</TABLE>
Provision has not been made for U.S. or additional foreign taxes on $303.2
million of undistributed earnings of foreign subsidiaries because those earnings
are considered permanently reinvested in the operations of those subsidiaries.
It is not practicable to estimate the amount of tax that might be payable on the
eventual remittance of such earnings.
Deferred income taxes arise from temporary differences between financial
reporting and tax reporting bases of assets and liabilities, and operating loss
and tax credit carryforwards for tax purposes. The components of the deferred
income tax assets and liabilities are as follows (in millions):
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
--------------- ---------------
<S> <C> <C>
Deferred income tax assets:
Receivable basis difference $ 37.0 $ 27.8
Accrued liabilities 35.5 101.0
Net operating loss carryforwards 8.3 9.1
Foreign tax and other credit carryforwards 10.5 16.5
Other 8.9 35.0
--------------- ---------------
Total deferred income tax assets $ 100.2 $ 189.4
Valuation allowance for deferred income tax assets (2.7) (7.0)
--------------- ---------------
Net deferred income tax assets $ 97.5 $ 182.4
--------------- ---------------
Deferred income tax liabilities:
Inventory basis differences (180.4) (138.9)
Property-related (199.7) (218.9)
Revenues on lease contracts (178.7) (165.9)
Other (4.9) 2.7
--------------- ---------------
Total deferred income tax liabilities $ (563.7) $ (521.0)
--------------- ---------------
Net deferred income tax liabilities $ (466.2) $ (338.6)
=============== ===============
</TABLE>
39
<PAGE> 40
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The above amounts are classified in the consolidated balance sheets as
follows (in millions):
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
--------------- ---------------
<S> <C> <C>
Other current assets/(liabilities) $ (124.3) $ 82.5
Deferred income taxes and other liabilities (341.9) (421.1)
--------------- ---------------
Net deferred income tax liabilities $ (466.2) $ (338.6)
=============== ===============
</TABLE>
The Company had Federal net operating loss carryforwards of $2.3 million
and state net operating loss carryforwards of $166.9 million at June 30, 2000. A
valuation allowance of $2.7 million at June 30, 2000 has been provided for the
state net operating loss, as utilization of such carryforwards within the
applicable statutory periods is uncertain. The Company's Federal net operating
loss carryforwards and a portion of the state net operating loss carryforwards
are subject to a change in ownership limitation calculation under Internal
Revenue Code Section 382. After application of the valuation allowance described
above, the Company anticipates no limitations will apply with respect to
utilization of these assets. The Federal net operating loss carryforward begins
expiring in 2005 and the state net operating loss carryforward expires through
2020. Expiring state net operating loss carryforwards and the required valuation
allowances have been adjusted annually. At June 30, 2000, the Company did not
have any foreign tax credit carryforwards.
Under a tax-sharing agreement with Baxter International, Inc. ("Baxter"),
Allegiance will pay for increases and be reimbursed for decreases to the net
deferred tax assets transferred on the date of the Baxter spin-off of
Allegiance. Such increases or decreases may result from audit adjustments to
Baxter's prior period tax returns.
7. EMPLOYEE RETIREMENT BENEFIT PLANS
The Company sponsors various retirement and pension plans, including
defined benefit and defined contribution plans. Substantially all of the
Company's domestic non-union employees are eligible to be enrolled in
Company-sponsored contributory profit sharing and retirement savings plans which
include features under Section 401(k) of the Internal Revenue Code, and provide
for Company matching and profit sharing contributions. The Company's
contributions to the plans are determined by the Board of Directors subject to
certain minimum requirements as specified in the plans.
Qualified domestic union employees are covered by multi-employer defined
benefit pension plans under the provisions of collective bargaining agreements.
Benefits under these plans are generally based on the employee's years of
service and average compensation at retirement.
The total expense for employee retirement benefit plans (excluding defined
benefit plans (see below)) was as follows (in millions):
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Defined contribution plans $ 40.6 $ 44.3 $ 37.9
Multi-employer plans 0.4 0.5 0.5
--------------- --------------- ---------------
Total $ 41.0 $ 44.8 $ 38.4
=============== =============== ===============
</TABLE>
40
<PAGE> 41
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFINED BENEFIT PLANS. The Company has several defined benefit plans covering
substantially all salaried and hourly Scherer employees. The Company's domestic
defined benefit plans provide defined benefits based on years of service and
level of compensation. Foreign subsidiaries provide for pension benefits in
accordance with local customs or law. The Company funds its pension plans at
amounts required by the applicable regulations.
The following tables provide a reconciliation of the change in benefit
obligation, the change in plan assets and the net amount recognized in the
consolidated balance sheets (based on a measurement date of March 31, in
millions):
<TABLE>
<CAPTION>
June 30,
----------------------------------------
2000 1999
------------------- --------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $ 98.7 $ 86.7
Service cost 4.6 6.5
Interest cost 5.7 6.7
Plan participant contributions 0.5 0.7
Amendments - 0.2
Actuarial loss 6.1 4.6
Benefits paid (2.8) (3.7)
Translation and other adjustments (12.5) (3.0)
Curtailments (0.3) -
------------------- --------------------
Benefit obligation at end of year $ 100.0 $ 98.7
------------------- --------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $ 55.7 $ 42.2
Actual return on plan assets 6.3 12.2
Employer contributions 3.5 4.9
Plan participant contributions 0.5 0.7
Benefits paid (2.3) (2.6)
Translation and other adjustment 1.2 (1.7)
------------------- --------------------
Fair value of plan assets
at end of year $ 64.9 $ 55.7
=================== ====================
Funded status $ (35.1) $ (43.0)
Unrecognized net actuarial loss 8.0 7.5
Unrecognized net transition
asset (0.4) (2.0)
Unrecognized prior service cost 0.2 0.2
Translation and other adjustment 0.5 -
------------------- --------------------
Net amount recognized $ (26.8) $ (37.3)
=================== ====================
Amounts recognized in the
Consolidated Balance Sheet:
Prepaid benefit cost $ - $ 1.6
Accrued benefit liability (26.8) (38.9)
------------------- --------------------
Net amount recognized $ (26.8) $ (37.3)
=================== ====================
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $98.7 million, $94.9 million, and $63.5 million,
respectively, as of June 30, 2000 and $89.4 million, $85.1 million and $47.8
million, respectively, as of June 30, 1999.
41
<PAGE> 42
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Components of the Company's net periodic benefit costs are as follows (in
millions):
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
--------------------------------------------------------
2000 1999 1998
------------------ -------------------- ----------------
Components of net periodic benefit cost:
<S> <C> <C> <C>
Service cost $ 4.6 $ 6.5 $ 4.9
Interest cost 5.7 6.7 5.4
Expected return on plan assets (6.2) (6.9) (5.1)
Amortization of actuarial loss 0.1 1.9 1.0
Amortization of transition obligation 1.9 - 0.1
Amortization of prior service cost - 0.3 -
------------------ -------------------- ----------------
Net amount recognized $ 6.1 $ 8.5 $ 6.3
================== ==================== ================
</TABLE>
For fiscal 2000 and 1999, the weighted-average actuarial assumptions used
in determining the funded status information and net periodic benefit cost
information were: discount rate of 6.5% and 6.4%, expected return on plan assets
of 7.4% and 6.2% and rate of compensation increase of 4.0% and 3.7%,
respectively.
8. COMMITMENTS AND CONTINGENT LIABILITIES
The future minimum rental payments for operating leases having initial or
remaining non-cancelable lease terms in excess of one year at June 30, 2000 are:
2001 - $47.0 million; 2002 - $34.3 million; 2003 - $27.7 million; 2004 - $23.3
million; 2005 - $18.7 million and 2006 and thereafter - $35.9 million.
In addition, the Company has entered into operating lease agreements with
several banks for the construction of various new facilities. The initial terms
of the lease agreements extend through May 2005, with optional five-year renewal
periods. In the event of termination, the Company is required to either purchase
the facility or vacate the property and make reimbursement for a portion of
unrecovered property cost. The instruments provide for maximum fundings of
$406.2 million, which is the total estimated cost of the construction projects.
As of June 30, 2000, the amount expended was $279.9 million. Currently, the
Company's minimum annual lease payments under the agreements are approximately
$18.8 million. Neither the facilities' cost or the minimum annual lease payments
are included in the future minimum rental payments disclosed above.
Rental expense relating to operating leases was approximately $73.7
million, $69.6 million, and $64.8 million in fiscal 2000, 1999 and 1998,
respectively. Sublease rental income was not material for any period presented
herein.
As of June 30, 2000, the Company has capital expenditure commitments
related primarily to plant expansions and facility acquisitions of approximately
$18.0 million.
The Company and Whitmire Distribution Corporation ("Whitmire"), one of the
Company's wholly-owned subsidiaries, as well as other pharmaceutical
wholesalers, were named as defendants in a series of purported class action
lawsuits regarding the sale of brand name prescription drugs which were later
consolidated and transferred by the Judicial Panel for Multi-District Litigation
to the United States District Court for the Northern District of Illinois. On
November 30, 1998, the Court ordered judgment as a matter of law in favor of the
defendants. On February 22, 2000, the United States Supreme Court denied the
plaintiffs' final attempt to appeal the ruling, refusing to grant the
plaintiffs' Petition for Writ of Certiorari. The wholesaler defendants,
including the Company and Whitmire, entered into a Judgment Sharing Agreement
whereby the total exposure for the Company and its subsidiaries is limited to
the lesser of $1 million or 1% of any judgment against the wholesalers and the
manufacturers and provides for a reimbursement mechanism for legal fees and
expenses. The Company and Whitmire have also been named as defendants in a
series of related antitrust lawsuits brought by chain drug stores and
independent pharmacies who opted out of the federal class action lawsuits, and
in a series of state court cases alleging similar claims under various state
laws regarding the sale of brand name prescription drugs. The Judgment Sharing
Agreement applies to these related cases as well.
On September 30, 1996, Baxter International, Inc. ("Baxter") and its
subsidiaries transferred to Allegiance and its subsidiaries their U.S.
healthcare distribution business, surgical and respiratory therapy business and
healthcare cost-saving business, as well as certain foreign operations (the
"Allegiance Business") in connection with a spin-off of the
42
<PAGE> 43
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allegiance Business by Baxter. In connection with this spin-off, Allegiance,
which was acquired by the Company on February 3, 1999, assumed the defense of
litigation involving claims related to the Allegiance Business from Baxter
Healthcare Corporation ("BHC"), including certain claims of alleged personal
injuries as a result of exposure to natural rubber latex gloves. Allegiance will
be defending and indemnifying BHC, as contemplated by the agreements between
Baxter and Allegiance, for all expenses and potential liabilities associated
with claims pertaining to the litigation assumed by Allegiance. As of June 30,
2000, there were approximately 533 lawsuits involving BHC and/or Allegiance
containing allegations of sensitization to natural rubber latex products. Some
of these cases are now beginning to proceed to trial. Because of the increase in
claims filed and the ongoing defense costs that will be incurred, the Company
believes it is probable that it will continue to incur significant expenses
related to the defense of cases involving natural rubber latex gloves. At this
time, the Company is unable to evaluate the extent of total potential liability,
and unable to estimate total potential loss. The Company believes that a
substantial portion of any liability will be covered by insurance, subject to
self-insurance retentions, exclusions, conditions, coverage gaps, policy limits
and insurer solvency.
The Company also becomes involved from time-to-time in other litigation
incidental to its business, including without limitation inclusion of certain of
its subsidiaries as a potentially responsible party for environmental cleanup
costs. Although the ultimate resolution of the litigation referenced herein
cannot be forecast with certainty, the Company intends to vigorously defend
itself and does not believe that the outcome of any pending litigation will have
a material adverse effect on the Company's consolidated financial statements.
9. SHAREHOLDERS' EQUITY
At June 30, 2000 and 1999, the Company's authorized capital shares
consisted of (a) 500,000,000 Class A common shares, without par value; (b)
5,000,000 Class B common shares, without par value; and (c) 500,000 non-voting
preferred shares without par value. The Class A common shares and Class B common
shares are collectively referred to as Common Shares. Holders of Class A and
Class B common shares are entitled to share equally in any dividends declared by
the Company's Board of Directors and to participate equally in all distributions
of assets upon liquidation. Generally, the holders of Class A common shares are
entitled to one vote per share and the holders of Class B common shares are
entitled to one-fifth of one vote per share on proposals presented to
shareholders for vote. Under certain circumstances, the holders of Class B
common shares are entitled to vote as a separate class. Only Class A common
shares were outstanding as of June 30, 2000 and 1999.
On March 16, 2000, the Company's Board of Directors authorized the
repurchase of up to an aggregate of $750 million of Common Shares. Through June
30, 2000, approximately 7 million Common Shares, having an aggregate cost of
$302.8 million, have been repurchased under an accelerated share repurchase
program and placed into treasury shares. The 7 million shares repurchased under
the program are subject to a future contingent purchase price adjustment to be
settled based upon the difference in the market price of the Company's common
stock at the time of settlement compared to the market price as of March 16,
2000. The forward stock purchase contract allows the Company to determine the
method of settlement. As of June 30, 2000, the cost to settle the transaction
would be approximately $115.1 million; when settled the amount will be charged
to common shares in treasury.
10. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company invests cash in deposits with major banks throughout the world
and in high quality short-term liquid instruments. Such investments are made
only in instruments issued or enhanced by high quality institutions. These
investments mature within three months and the Company has not incurred any
related losses.
The Company's trade receivables, finance notes and accrued interest
receivable, and lease receivables are exposed to a concentration of credit risk
with customers in the retail and healthcare sectors. Credit risk can be affected
by changes in reimbursement and other economic pressures impacting the acute
care portion of the healthcare industry. However, such credit risk is limited
due to supporting collateral and the diversity of the customer base, including
its wide geographic dispersion. The Company performs ongoing credit evaluations
of its customers' financial conditions and maintains reserves for credit losses.
Such losses historically have been within the Company's expectations.
During fiscal 2000, the Company's two largest customers individually
accounted for 12% and 14% of operating revenue, respectively. During fiscal 1999
and fiscal 1998, the same two customers individually accounted for 11% and 13%
of operating revenue, respectively. These two customers are serviced primarily
through the Pharmaceutical Distribution and
43
<PAGE> 44
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provider Services and Medical-Surgical Products and Services segments. During
fiscal 2000, 1999 and 1998, one customer accounted for 52%, 57% and 62% of bulk
deliveries, respectively.
11. STOCK OPTIONS AND RESTRICTED SHARES
The Company maintains stock incentive plans (the "Plans") for the benefit
of certain officers, directors and employees. Options granted generally vest
over two or three years and are exercisable for periods up to ten years from the
date of grant at a price which equals fair market value at the date of grant.
The Company accounts for the Plans in accordance with APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
the Plans been determined consistent with Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the
Company's net income and diluted earnings per Common Share would have been
reduced by $21.6 million and $0.08 per share, respectively, for fiscal 2000,
$83.1 million and $0.29 per share, respectively, for fiscal 1999, and $33.6
million and $0.12 per share, respectively, for fiscal 1998. During fiscal 1999,
stock option grants under the previous Allegiance and Scherer plans vested
immediately on the merger date. These accelerated grants increased the fiscal
1999 pro forma effect on net income and diluted earnings per Common Share by
$32.9 million and by $0.12 per share, respectively. Because the SFAS 123 method
of accounting has not been applied to options granted prior to July 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years.
The following summarizes all stock option transactions for the Company
under the plans from July 1, 1997 through June 30, 2000, giving retroactive
effect to conversions of options in connection with merger transactions and
stock splits (in millions, except per share amounts):
Weighted
Options Average
Outstanding Exercise Price
----------------------------------------------------------------------
Balance at June 30, 1997 20.1 $ 19.25
Granted 6.3 43.70
Exercised (3.7) 14.62
Canceled (0.9) 21.46
Change in fiscal year (0.7) 28.26
----------------------------------------------------------------------
Balance at June 30, 1998 21.1 23.96
Granted 3.4 69.61
Exercised (3.6) 16.80
Canceled (0.6) 45.60
----------------------------------------------------------------------
Balance at June 30, 1999 20.3 34.51
Granted 6.4 47.02
Exercised (3.9) 22.74
Canceled (1.0) 55.07
----------------------------------------------------------------------
Balance at June 30, 2000 21.8 $ 39.21
======================================================================
Giving retroactive effect to conversion of stock options related to
mergers and stock splits, the weighted average fair value of options granted
during fiscal 2000, 1999, and 1998 was $17.64, $22.55, and $14.19, respectively.
44
<PAGE> 45
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the options granted to Company employees and directors
were estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions for grants in the respective periods:
<TABLE>
<CAPTION>
As of June 30,
------------------------------------------------------
2000 1999 1998
----------------- ------------------ -----------------
<S> <C> <C> <C>
Risk-free interest rate 6.25% 5.72% 5.53%
Expected life 4 years 4 years 3 years
Expected volatility 37% 30% 27%
Dividend yield 0.18% 0.18% 0.16%
</TABLE>
Information relative to stock options outstanding as of June 30, 2000:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------------------- -------------------------------
Weighted
average
remaining Weighted Weighted
Range of exercise Options contractual average Options average
prices (in millions) life in years exercise price (in millions) exercise price
------------------- ----------------- ----------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.05 - $26.61 7.1 5.6 $17.57 7.1 $17.57
$26.78 - $40.58 3.9 6.6 38.24 3.9 38.24
$40.71 - $46.75 6.3 9.1 46.44 0.3 42.24
$47.38 - $71.00 4.4 7.9 64.62 0.1 60.35
$73.38 - $79.56 0.1 8.6 74.70 - -
----------------- ----------------- ----------------- -------------- ----------------
$ 0.05 - $79.56 21.8 7.2 $39.21 11.4 $25.60
================= ================= ================= ============== ================
</TABLE>
As of June 30, 2000, there remained approximately 4.8 million additional
shares available to be issued pursuant to the Plans.
The market value of restricted shares awarded by the Company is recorded in
the "Other" component of shareholders' equity in the accompanying consolidated
balance sheets. The compensation awards are amortized to expense over the period
in which participants perform services, generally one to seven years. As of June
30, 2000, approximately 0.3 million shares remained restricted and subject to
forfeiture.
The Company has an employee stock purchase plan under which the sale of 5.0
million of Cardinal's common stock have been authorized. The purchase price is
determined by the lower of 85 percent of the closing market price on the date of
subscription or 85 percent of the closing market price on the last day of the
offering period. At June 30, 2000, subscriptions of 0.3 million were
outstanding, however no shares had been issued to employees under the plan.
12. SEGMENT INFORMATION
In the prior year, the Company was comprised of three reportable segments:
Pharmaceutical Distribution, Pharmaceutical Services and Medical-Surgical
Products. In September 2000, the Company expanded its management reporting
structure from three to four reportable segments by separating the
Pharmaceutical Services segment primarily into two segments: Pharmaceutical
Technologies and Services and Automation and Information Services. Prior period
amounts have been restated for this change.
The Company's operations are principally managed on a products and
services basis and are comprised of four reportable business segments:
Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and
Services, Pharmaceutical Technologies and Services and Automation and
Information Services.
The Pharmaceutical Distribution and Provider Services segment involves the
distribution of a broad line of pharmaceuticals, healthcare and beautycare
products, therapeutic plasma and other specialty pharmaceutical products and
other items typically sold by hospitals, retail drug stores and other healthcare
providers. In addition, this segment provides services to the healthcare
industry through integrated pharmacy management, temporary pharmacy staffing, as
well as franchising of apothecary-style retail pharmacies.
45
<PAGE> 46
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Medical-Surgical Products and Services segment involves the manufacture
of medical, surgical and laboratory products and the distribution of these
products to hospitals, physician offices, surgery centers and other healthcare
providers.
The Pharmaceutical Technologies and Services segment provides services to
the healthcare manufacturing industry through the design of unique drug delivery
systems, liquid fill contract manufacturing, comprehensive packaging services,
and reimbursement services.
The Automation and Information Services segment provides services to
hospitals and other healthcare providers through pharmacy automation equipment
and clinical information system services.
The Company evaluates the performance of the segments based on operating
earnings after the corporate allocation of administrative expenses. Information
about interest income and expense, and income taxes is not provided on a segment
level. In addition, special charges are not allocated to the segments. The
accounting policies of the segments are the same as described in the summary of
significant accounting policies.
The following tables include revenue and operating earnings for the fiscal
years ended June 30, 2000, 1999 and 1998 for each segment and reconciling items
necessary to total to amounts reported in the consolidated financial statements:
<TABLE>
<CAPTION>
(in millions) Revenue
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Operating revenue:
Pharmaceutical Distribution and Provider Services $ 18,838.7 $ 15,482.2 $ 12,468.6
Medical-Surgical Products and Services 4,960.2 4,726.3 4,456.1
Pharmaceutical Technologies and Services 1,079.8 938.0 889.0
Automation and Information Services 402.4 411.6 270.6
Other (34.2) 0.4 0.3
--------------------------------------------------
Total operating revenue $ 25,246.9 $ 21,558.5 $ 18,084.6
Bulk deliveries to customer warehouses:
Pharmaceutical Distribution and Provider Services 4,623.7 3,553.0 2,991.4
--------------------------------------------------
Total revenue $ 29,870.6 $ 25,111.5 $ 21,076.0
==================================================
Operating Earnings
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
Pharmaceutical Distribution and Provider Services $ 589.1 $ 466.8 $ 389.2
Medical-Surgical Products and Services 368.0 303.7 247.0
Pharmaceutical Technologies and Services 200.6 160.4 160.8
Automation and Information Services 138.0 141.0 79.5
Corporate (1) (100.7) (172.4) (76.2)
--------------------------------------------------
Total operating earnings $ 1,195.0 $ 899.5 $ 800.3
==================================================
</TABLE>
The following tables include depreciation and amortization expense as well
as capital expenditures for the fiscal years ended June 30, 2000, 1999 and 1998
and assets as of June 30, 2000, 1999 and 1998 for each segment and reconciling
items necessary to total to amounts reported in the consolidated financial
statements:
<TABLE>
<CAPTION>
Depreciation and Amortization Expense
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Pharmaceutical Distribution and Provider Services $ 41.9 $ 37.9 $ 32.6
Medical-Surgical Products and Services 120.5 119.9 122.8
Pharmaceutical Technologies and Services 48.9 57.6 42.5
Automation and Information Services 15.8 9.1 7.4
Corporate (1) 18.8 13.7 13.1
--------------------------------------------------
Total depreciation and amortization expense $ 245.9 $ 238.2 $ 218.4
==================================================
</TABLE>
46
<PAGE> 47
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Capital Expenditures
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Pharmaceutical Distribution and Provider Services $ 75.9 $ 76.7 $ 70.1
Medical-Surgical Products and Services 109.8 108.3 80.2
Pharmaceutical Technologies and Services 105.1 126.2 127.3
Automation and Information Services 17.0 14.8 8.7
--------------------------------------------------
Total capital expenditures $ 307.8 $ 326.0 $ 286.3
==================================================
Assets
--------------------------------------------------
2000 1999 1998
--------------------------------------------------
Pharmaceutical Distribution and Provider Services $ 4,514.1 $ 3,457.6 $ 2,919.7
Medical-Surgical Products and Services 2,899.5 2,823.7 2,731.0
Pharmaceutical Technologies and Services 1,291.7 1,230.4 1,101.5
Automation and Information Services 1,044.5 827.3 444.3
Corporate (2) 341.6 65.5 400.1
--------------------------------------------------
Total assets $ 10,091.4 $ 8,404.5 $ 7,596.6
==================================================
</TABLE>
(1) Corporate-operating earnings primarily consist of special charges of $64.7
million, $146.6 million, and $57.8 million for the fiscal years ended June
30, 2000, 1999, and 1998, respectively, and unallocated corporate
depreciation and amortization and administrative expenses.
(2) Corporate-assets include primarily corporate cash and cash equivalents,
corporate property, plant and equipment, net, unallocated deferred taxes
and the elimination of investment in subsidiaries.
The following table presents revenue and long-lived assets by geographic area
(in millions):
<TABLE>
<CAPTION>
Revenue Long-Lived Assets
--------------------------------------------- ------------------------------
For The Fiscal Year Ended June 30, As of June 30,
--------------------------------------------- ------------------------------
2000 1999 1998 2000 1999
--------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
United States $ 28,889.1 $ 24,199.5 $ 20,336.3 $ 1,112.9 $ 1,101.7
International 981.5 912.0 739.7 514.0 459.8
--------------------------------------------- ------------------------------
Total $ 29,870.6 $ 25,111.5 $ 21,076.0 $ 1,626.9 $ 1,561.5
============================================= ==============================
</TABLE>
Long-lived assets include property, plant and equipment, net of accumulated
depreciation.
47
<PAGE> 48
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected quarterly financial data (in millions, except per
share amounts) for fiscal 2000 and 1999 has been restated to reflect the
pooling-of-interests business combinations as discussed in Note 2.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Fiscal 2000
Revenue:
Operating revenue $ 5,829.3 $ 6,254.3 $ 6,400.6 $ 6,762.7
Bulk deliveries to customer
warehouses 954.4 1,145.2 1,072.5 1,451.6
------------- -------------- ------------- -------------
Total revenue $ 6,783.7 $ 7,399.5 $ 7,473.1 $ 8,214.3
Gross margin $ 654.8 $ 721.9 $ 739.5 $ 770.9
Selling, general and administrative
expenses $ 391.3 $ 415.3 $ 394.7 $ 426.1
Net earnings $ 122.0 $ 173.5 $ 189.5 $ 194.7
Net earnings per Common Share:
Basic $ 0.44 $ 0.62 $ 0.68 $ 0.71
Diluted $ 0.43 $ 0.61 $ 0.67 $ 0.69
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Fiscal 1999
Revenue:
Operating revenue $ 5,017.4 $ 5,289.5 $ 5,579.5 $ 5,672.1
Bulk deliveries to customer
warehouses 781.7 999.8 874.7 896.8
------------- -------------- ------------- -------------
Total revenue $ 5,799.1 $ 6,289.3 $ 6,454.2 $ 6,568.9
Gross margin $ 591.4 $ 654.6 $ 677.7 $ 699.3
Selling, general and administrative
expenses $ 373.9 $ 401.4 $ 397.1 $ 408.5
Net earnings $ 94.7 $ 141.5 $ 89.2 $ 155.6
Net earnings per Common Share:
Basic $ 0.34 $ 0.51 $ 0.32 $ 0.56
Diluted $ 0.33 $ 0.50 $ 0.31 $ 0.54
- -----------------------------------------------------------------------------------------------------
</TABLE>
As more fully discussed in Note 2, merger-related costs and other special
charges were recorded in various quarters in fiscal 2000 and 1999. The following
table summarizes the impact of such costs, as well as the impact of the pro
forma adjustments related to ALP taxes on net earnings and diluted earnings per
share in the quarters in which they were recorded (in millions, except per share
amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Fiscal 2000
Net earnings $ (29.7) $ (3.4) $ (9.1) $ (7.6)
Diluted net earnings per Common Share $ (0.10) $ (0.01) $ (0.03) $ (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Fiscal 1999
Net earnings $ (26.3) $ 0.9 $ (71.5) $ (11.4)
Diluted net earnings per Common Share $ (0.10) $ 0.01 $ (0.25) $ (0.04)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 49
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," as amended in June 2000 by Statement of Financial Accounting
Standards No. 138 ("SFAS 138"), "Accounting for Certain Derivative Instruments
and Certain Hedging Activities," which requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
such instruments at fair value. As amended by Statement of Financial Accounting
Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,"
the provisions of SFAS 133 will require adoption no later than the beginning of
the Company's fiscal year ending June 30, 2001. Adoption of SFAS 133, as amended
by SFAS 138, is not expected to have a material impact on the Company's
consolidated financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements" which requires adoption
during the fourth quarter of fiscal 2001. At this time, the Company does not
anticipate that the adoption of SAB 101 will have a material impact on the
consolidated financial statements. The Company will continue to analyze the
impact of SAB 101, including any amendments or further interpretation, based
upon the relevant facts and circumstances at the time of adoption.
15. TERMINATED MERGER AGREEMENT
On August 24, 1997, the Company and Bergen announced that they had entered
into a definitive merger agreement (as subsequently amended by the parties on
March 16, 1998), pursuant to which a wholly owned subsidiary of the Company
would be merged with and into Bergen (the "Bergen Merger Agreement"). On March
9, 1998, the FTC filed a complaint in the United States District Court for the
District of Columbia seeking a preliminary injunction to halt the proposed
merger. On July 31, 1998, the District Court granted the FTC's request for an
injunction to halt the proposed merger. On August 7, 1998, the Company and
Bergen jointly terminated the Bergen Merger Agreement. In accordance with the
terms of the Bergen Merger Agreement, the Company was required to reimburse
Bergen for $7.0 million of transaction costs upon termination of the Bergen
Merger Agreement. Additionally, the termination of the Bergen Merger Agreement
caused the costs incurred by the Company (that would not have been deductible
had the merger been consummated) to become tax deductible, resulting in a tax
benefit of $12.2 million. The obligation to reimburse Bergen and the additional
tax benefit are reflected in the consolidated financial statements in the fourth
quarter of the fiscal year ended June 30, 1998.
16. SUBSEQUENT EVENTS
On August 16, 2000, the Company completed the purchase of Bergen Brunswig
Medical Corporation for approximately $180 million, subject to post-closing
adjustments. On July 26, 2000, the Company completed the purchase of a
manufacturing facility and the rights to two proprietary, topical drug delivery
technologies from Advanced Polymer Systems, Inc. for $25.0 million at closing
and contingent future payments totaling potentially an additional $26.5 million.
On July 19, 2000, the Company completed the purchase of Rexam Healthcare
Packaging's folding-carton manufacturing operations in Guaynabo, Puerto Rico for
$32.5 million, subject to post-closing adjustments. All three acquisitions will
be accounted for as purchase transactions for financial reporting purposes.
49
<PAGE> 50
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company provided the following disclosure in its Annual Report on Form
10-K for the fiscal year ended June 30, 1999. The Company is required to include
this language again in this Form 10-K:
Cardinal Health, Inc. ("Cardinal") and R.P. Scherer Corporation ("Scherer")
completed a merger on August 7, 1998. Cardinal and Allegiance Corporation
("Allegiance") completed a merger on February 3, 1999. Cardinal has historically
engaged Deloitte & Touche LLP ("D&T") as its certifying accountant while Scherer
has historically engaged Arthur Andersen LLP ("AA") and Allegiance has
historically engaged PricewaterhouseCoopers LLP ("PWC") as their certifying
accountants.
For Cardinal's fiscal year ended June 30, 1999, these certifying accountant
relationships were left intact, with D&T serving as the principal certifying
accountant, with reference in its audit opinion to work performed on Scherer by
AA and Allegiance by PWC. This was done to provide management with sufficient
time to conduct a diligent process to select one firm as the certifying
accountant for the merged entity.
Selection of AA as the certifying accountant was recommended to and
approved by the Cardinal Health, Inc. Audit Committee on August 30, 1999.
The reports of D&T on the financial statements of Cardinal and PWC on the
financial statements of Allegiance for the past two fiscal years contained no
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.
In connection with their audits for the two most recent fiscal years and
through August 30, 1999, there have been no disagreements with D&T or PWC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of D&T or PWC would have caused them to make reference thereto in
their reports on the financial statements for such years. In addition, there
were no reportable events (as defined in SEC Regulation S-K, Item 304 (a) (1)
(v)) during the two most recent fiscal years and through August 30, 1999.
Cardinal has requested that D&T and PWC each furnish it with a letter
addressed to the SEC stating whether or not they agree with the above
statements. A copy of D&T's letter, dated September 2, 1999, is filed as Exhibit
16.01 to this Form 10-K. A copy of PWC's letter, dated September 1, 1999, is
filed as Exhibit 16.02 to this Form 10-K.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G (3) to Form 10-K, the information
called for in this Item 10 relating to Directors is incorporated herein by
reference to the Company's Definitive Proxy Statement, to be filed with the
Securities and Exchange Commission (the "SEC"), pursuant to Regulation 14A of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), relating to the Company's 2000 Annual Meeting of
Shareholders (the "Annual Meeting") under the caption "ELECTION OF DIRECTORS."
Certain information relating to senior officers of the Company, including but
not limited to, the executive officers of the Company appears at pages 9 through
11 of this Form 10-K, which is hereby incorporated by reference.
ITEM 11: EXECUTIVE COMPENSATION
In accordance with General Instruction G (3) to Form 10-K, the information
called for by this Item 11 is incorporated herein by reference to the Company's
Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A
of the Exchange Act, relating to the Company's Annual Meeting under the caption
"EXECUTIVE COMPENSATION" (other than information set forth under the captions
"Human Resources and Compensation Committee Report" and "Shareholder Performance
Graph").
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G (3) to Form 10-K, the information
called for by this Item 12 is incorporated herein by reference to the Company's
Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A
of the Exchange Act, relating to the Company's Annual Meeting under the caption
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
50
<PAGE> 51
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with General Instruction G (3) to Form 10-K, the information
called for by this Item 13 is incorporated herein by reference to the Company's
Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A
of the Exchange Act, relating to the Company's Annual Meeting under the caption
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a)(1) The following financial statements are included in Item 8 of this
report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports............................................................ 21
Financial Statements:
Consolidated Statements of Earnings for the Fiscal Years Ended
June 30, 2000, 1999 and 1998........................................................... 26
Consolidated Balance Sheets at June 30, 2000 and 1999.................................... 27
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended June 30, 2000, 1999 and 1998............................................... 28
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 2000, 1999 and 1998........................................................... 29
Notes to Consolidated Financial Statements............................................... 30
</TABLE>
(a)(2) The following Supplemental Schedule is included in this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II - Valuation and Qualifying Accounts.......................................... 57
</TABLE>
All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in notes thereto.
(a)(3) Exhibits required by Item 601 of Regulation S-K:
Exhibit Exhibit Description
-------
Number
-------
3.01 Amended and Restated Articles of Incorporation of the Registrant,
as amended (1)
3.02 Restated Code of Regulations, as amended (1)
4.01 Specimen Certificate for the Registrant's Class A common shares
(4)
4.02 Indenture dated as of May 1, 1993 between the Registrant and Bank
One, Indianapolis, NA, Trustee, relating to the Registrant's 6
1/2% Notes Due 2004 and 6% Notes Due 2006 (2)
4.03 Indenture dated as of April 18, 1997 between the Registrant and
Bank One, Columbus, NA, Trustee, relating to the Registrant's 6
1/4 % Notes due 2008 (3)
4.04 Indenture dated as of October 1, 1996 between Allegiance
Corporation and PNC Bank, Kentucky, Inc. ("PNC"), Trustee; and
First Supplemental Indenture dated as of February 3, 1999 by and
among Allegiance Corporation, the Company and Chase Manhattan
Trust Company National Association (as successor in interest to
PNC), Trustee (4)
51
<PAGE> 52
4.05 Indenture dated January 1, 1994 between R.P. Scherer International
Corporation and Comerica Bank; First Supplemental Indenture by and
among R.P. Scherer International Corporation, R.P. Scherer
Corporation and Comerica Bank dated February 28, 1995; and Second
Supplemental Indenture by and among R.P. Scherer Corporation, the
Registrant and Comerica Bank dated as of August 7, 1998 (5)
4.06 Form of Warrant Certificate to Purchase Company Common Shares (6)
10.01 Stock Incentive Plan of the Registrant, as amended (7)*
10.02 Directors' Stock Option Plan of the Registrant, as amended and
restated (7)*
10.03 Amended and Restated Equity Incentive Plan of the Registrant, as
amended (17)*
10.04 Form of Nonqualified Stock Option Agreement, as amended (17)*
10.05 Form of Restricted Shares Agreement, as amended (17)*
10.06 Form of Directors' Stock Option Agreement, as amended (17)*
10.07 Cardinal Health, Inc. Directors Deferred Compensation Plan (18)*
10.08 Allegiance Corporation 1996 Incentive Compensation Program (8)*
10.09 Allegiance Corporation 1998 Incentive Compensation Program (8)*
10.10 Allegiance Corporation 1996 Outside Director Incentive Corporation
Plan (8)*
10.11 R.P. Scherer Corporation 1997 Stock Option Plan (9)*
10.12 R.P. Scherer Corporation 1990 Nonqualified Performance Stock Option
Plans (9)*
10.13 Cardinal Health, Inc. Performance-Based Incentive Compensation Plan
(10)*
10.14 Cardinal Health, Inc. Incentive Deferred Compensation Plan, as
amended (11)*
10.15 Form of Agreement, dated February 9, 2000, between the Registrant
and each of Messrs. Bennett, Ford, Miller and Rucci*
10.16 Agreement, dated February 9, 2000, between the Registrant and
George L. Fotiades*
10.17 Agreement, dated February 9, 2000, between the Registrant and John
C. Kane*
10.18 Agreement, dated February 9, 2000, between the Registrant and James
F. Millar *
10.19 Agreement, dated July 1, 1999, between the Registrant and Stephen
S. Thomas, as amended (21, except for the amendment thereto which
is included as an exhibit to this Annual Report on Form 10-K)*
10.20 Change in Control Severance Agreement, by and among the Company,
Allegiance Corporation and Joseph F. Damico, as amended (12 and 20,
except for the Second Amendment thereto which is included as an
exhibit to this Annual Report on Form 10-K)*
10.21 Form of Indemnification Agreement between the Registrant and
individual Directors (13)*
10.22 Form of Indemnification Agreement between the Registrant and
individual Officers. (13)*
52
<PAGE> 53
Exhibit Exhibit Description
------
Number
------
10.23 Split Dollar Agreement dated April 16, 1993, among the Registrant,
Robert D. Walter, and Bank One Ohio Trust Company, NA, Trustee U/A
dated April 16, 1993 FBO Robert D. Walter (7)*
10.24 Agreement dated as of March 16, 2000 between the Registrant and
Credit Suisse Financial Products, as amended
10.25 364-Day Credit Agreement dated as of March 30, 2000 among the
Registrant, certain subsidiaries of the Registrant, certain
lenders, and Bank One, NA, as Administrative Agent, Bank of America
NT, as Syndication Agent, Citibank USA, Inc., as Co-Documentation
Agent, and Credit Suisse First Boston, as Co-Documentation Agent
(19)
10.26 Master Agreement and related documents, dated as of July 19, 1996
among the Registrant and/or its subsidiaries, SunTrust Banks, Inc.,
PNC Leasing Corp. and SunTrust Bank, Atlanta, as amended (14 and
17)
10.27 Participation Agreement and related documents, dated as of June 23,
1997, among the Registrant and certain of its subsidiaries, Bank of
Montreal and BMO Leasing (U.S.), Inc. (15 and 17)
10.28 Vendor Program Agreement dated as of October 10, 1991 by and
between General Electric Capital Corporation and Pyxis Corporation,
as amended on December 13, 1991, January 15, 1993, March 10, 1994,
June 23, 1997 and June 1, 1998 (5), (14) and (15)
10.29 Pharmaceutical Services Agreement, dated as of August 1, 1996, as
amended, between Kmart Corporation and Cardinal Distribution (16
and 17)
10.30 Wholesale Supply Agreement dated as of August 10, 2000 between the
Registrant and CVS Meridian, Inc.
10.31 Form of Commercial Paper Dealer Agreement 4(2) Program between The
Company, as Issuer, and certain entities, each as Dealer,
concerning notes to be issued pursuant to Issuing and Paying Agency
Agreement between the Issuer and The First National Bank of
Chicago, as Issuing and Paying Agent (17)
10.32 Partnership Agreement of R.P. Scherer GMBH & Co. KG (5)
10.33 Five-year Credit Agreement dated as of March 31, 1999 among the
Registrant, certain subsidiaries of the Registrant, certain
lenders, The First National Bank of Chicago, as Administrative
Agent, Bank of America NT &SA, as Syndication Agent, Citibank,
N.A., as Co-Documentation Agent, and Credit Suisse First Boston, as
Co-Documentation Agent (17)
16.01 Letter of Deloitte & Touche LLP required by Item 304 of Regulation
S-K (17)
16.02 Letter of PricewaterhouseCoopers LLP required by Item 304 of
Regulation S-K (17)
21.01 List of subsidiaries of the Registrant
53
<PAGE> 54
Exhibit Exhibit Description
-------
Number
-------
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Deloitte & Touche LLP
23.03 Consent of Arthur Andersen LLP
23.04 Consent of PricewaterhouseCoopers LLP
27.01 Financial Data Schedule
99.01 Statement Regarding Forward-Looking Information
- ------------------
(1) Included as an exhibit to the Registrant's Current Report on Form
8-K filed November 24, 1998 (File No. 0-12591) and incorporated
herein by reference.
(2) Included as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994 (File No. 0-12591) and
incorporated herein by reference.
(3) Included as an exhibit to the Registrant's Current Report on Form
8-K filed April 21, 1997 (File No. 0-12591) and incorporated herein
by reference.
(4) Included as an exhibit to the Registrant's Registration Statement
on Form S-4 (No. 333-74761) and incorporated herein by reference.
(5) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1998 (File No. 0-12591) and
incorporated herein by reference.
(6) Included as an exhibit to the Registrant's Registration Statement
on Form S-4 (No. 333-30889) and incorporated herein by reference.
(7) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1994 (File No. 0-12591) and
incorporated herein by reference.
(8) Included as an exhibit to the Registrant's Post-Effective Amendment
No. 1 on Form S-8 to Form S-4 Registration Statement (No.
333-68819-01) and incorporated herein by reference.
(9) Included as an exhibit to the Registrant's Post-effective Amendment
No. 1 on Form S-8 to Form S-4 Registration Statement (No.
333-56655) and incorporated herein by reference.
(10) Included as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (File No. 0-12591) and
incorporated herein by reference.
(11) Included as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-90423) and incorporated herein by reference.
(12) Included as an exhibit to the Registrant's Registration Statement
on Form S-4 (No. 333-68819) and incorporated herein by reference.
(13) Included as an exhibit to the Company's Amendment No. 1 to Annual
Report on Form 10-K/A for the fiscal year ended June 30, 1997 (File
No. 0-12591) and incorporated herein by reference.
(14) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal ended June 30, 1996 (File No. 0-12591) and
incorporated herein by reference.
(15) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997 (File No. 0-12591) and
incorporated herein by reference.
54
<PAGE> 55
(16) Included as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 (File No. 0-12591)
and incorporated herein by reference.
(17) Included as an exhibit to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999 (File No. 0-12591) and
incorporated herein by reference.
(18) Included as an exhibit to the Registrant's Registration Statement
on Form S-8 (No. 333-90415) and incorporated herein by reference.
(19) Included as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000 (File No. 0-12591) and
incorporated herein by reference.
(20) Included as an exhibit to Allegiance Corporation's Form S-1/A filed
with the Commission on September 30, 1996 (No. 333-12525) and
incorporated herein by reference.
(21) Included as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999 (File No. 0-12591) and
incorporated herein by reference.
* Management contract or compensation plan or arrangement
(b) Reports on Form 8-K:
On May 26, 2000, the Registrant filed a Current Report on Form 8-K under Item 5,
which included supplemental consolidated financial statements of the Company to
give retroactive effect to the merger with ALP, which was accounted for as a
pooling-of-interests business combination.
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C> <C>
CARDINAL HEALTH, INC.
By: /s/ Robert D. Walter
-------------------------------
Robert D. Walter, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated:
NAME TITLE DATE
- --------------------------------------- ------------------------------------------------ ------------------
/s/ Robert D. Walter Chairman, Chief Executive Officer and September 6, 2000
- --------------------------------------- Director (principal executive officer)
Robert D. Walter
/s/ Richard J. Miller Executive Vice President and Chief Financial September 6, 2000
- --------------------------------------- Officer (principal financial officer)
Richard J. Miller
/s/ Michael E. Beaulieu Senior Vice President, Controller and Principal September 6, 2000
- --------------------------------------- Accounting Officer
Michael E. Beaulieu
/s/ John C. Kane Vice Chairman, President, Chief Operating Officer September 6, 2000
- --------------------------------------- and Director
John C. Kane
/s/ Dave Bing Director September 6, 2000
- ---------------------------------------
Dave Bing
/s/ Silas S. Cathcart Director September 6, 2000
- ---------------------------------------
Silas S. Cathcart
/s/ George H. Conrades Director September 6, 2000
- ---------------------------------------
George H. Conrades
/s/ John F. Finn Director September 6, 2000
- ---------------------------------------
John F. Finn
/s/ Robert L. Gerbig Director September 6, 2000
- ---------------------------------------
Robert L. Gerbig
/s/ John F. Havens Director September 6, 2000
- ---------------------------------------
John F. Havens
/s/ Regina E. Herzlinger Director September 6, 2000
- ---------------------------------------
Regina E. Herzlinger
/s/ J. Michael Losh Director September 6, 2000
- ---------------------------------------
J. Michael Losh
/s/ John B. McCoy Director September 6, 2000
- ---------------------------------------
John B. McCoy
/s/ Richard C. Notebaert Director September 6, 2000
- ---------------------------------------
Richard C. Notebaert
/s/ Michael D. O'Halleran Director September 6, 2000
- ---------------------------------------
Michael D. O'Halleran
/s/ Melburn G. Whitmire Director September 6, 2000
- ---------------------------------------
Melburn G. Whitmire
</TABLE>
56
<PAGE> 57
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO CHANGE BALANCE AT
BEGINNING COSTS AND OTHER IN FISCAL END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS (2) YEAR (3) OF PERIOD
- -------------------------------------------------- ------------ ------------ ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 2000:
Accounts receivable $ 53.9 $ 30.7 $ 1.9 $ (24.9) $ - $ 61.6
Finance notes receivable 4.9 0.5 (0.1) (0.7) - 4.6
Net investment in sales-type leases 11.8 3.2 - - - 15.0
------------ ------------ ------------- ------------- ------------ ------------
$ 70.6 $ 34.4 $ 1.8 $ (25.6) $ - $ 81.2
============ ============ ============= ============= ============ ============
Fiscal Year 1999:
Accounts receivable $ 64.8 $ 29.2 $ 1.3 $ (41.4) $ - $ 53.9
Finance notes receivable 6.4 - - (1.5) - 4.9
Net investment in sales-type leases 8.8 0.5 2.7 (0.2) - 11.8
------------ ------------ ------------- ------------- ------------ ------------
$ 80.0 $ 29.7 $ 4.0 $ (43.1) $ - $ 70.6
============ ============ ============= ============= ============ ============
Fiscal Year 1998:
Accounts receivable $ 62.9 $ 19.1 $ 3.3 $ (20.5) $ - $ 64.8
Finance notes receivable 8.2 0.1 0.1 (2.0) - 6.4
Net investment in sales-type leases 4.7 4.2 - (3.7) 3.6 8.8
------------ ------------ ------------- ------------- ------------ ------------
$ 75.8 $ 23.4 $ 3.4 $ (26.2) $ 3.6 $ 80.0
============ ============ ============= ============= ============ ============
</TABLE>
(1) During fiscal 2000, 1999, and 1998 recoveries of amounts provided for or
written off in prior years were $1.5 million, $4.0 million, and $3.4
million, respectively.
(2) Write-off of uncollectible accounts.
(3) Change in fiscal year of acquired subsidiary.
57
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>2
<FILENAME>l83475aex10-15.txt
<DESCRIPTION>EXHIBIT 10.15
<TEXT>
<PAGE> 1
EXHIBIT 10.15
AGREEMENT
---------
THIS AGREEMENT, dated and effective as of the 9th day of February,
2000, is made and entered into by and between Cardinal Health, Inc., an Ohio
corporation (the "Company"), and ________________ (the "Executive").
WHEREAS, the Company and the Executive desire to set forth in a
written agreement the terms and conditions under which the Executive will render
services to the Company;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. POSITION AND DUTIES. (a) The Executive shall serve as _________________,
with the duties and responsibilities customarily assigned to such position and
such other duties and responsibilities as the Chief Executive Officer shall from
time to time assign to the Executive; PROVIDED that the Company may change
the Executive's title, duties and responsibilities (including reporting
responsibilities) without violating this provision, so long as the Executive
remains in an executive position.
(c) Excluding any periods of vacation and sick leave to which the
Executive is entitled under the practices and policies of the Company as in
effect from time to time, the Executive shall devote the Executive's full
business attention and time to the business and affairs of the Company and shall
use the Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to (A) serve on corporate boards or committees with
the prior consent of the Chief Executive Officer, (B) serve on civic or
charitable boards or committees, (C) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (D) manage personal
investments, so long as such activities do not materially interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
(c) The Executive's services shall be performed primarily at the
Company's principal place of business in Dublin, Ohio.
2. COMPENSATION. (a) SALARY. While employed by the Company, as compensation for
the
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<PAGE> 2
Executive's services hereunder, the Company shall pay to the Executive an annual
salary (hereinafter the "Base Salary") of not less than the amount of the
Executive's salary as in effect on February 9, 2000, payable at such times and
intervals as the Company customarily pays the base salaries of its other
executive employees; PROVIDED that the Base Salary may be reduced as part of a
reduction that applies proportionately to all employees who are otherwise
similar to the Executive with respect to amount of compensation and level of
managerial responsibility before such reduction.
(b) ANNUAL BONUS. In addition to the Base Salary, while employed by
the Company, the Executive shall be eligible to receive an annual bonus (an
"Annual Bonus") determined and paid at the sole discretion of the Company
pursuant to the terms and conditions of the Company bonus plan for which the
Executive is then eligible, as such plan is in effect from time to time, or any
successor thereto (the "Bonus Plan"), with a Bonus Plan potential not less than
the target percentage as in effect on February 9, 2000.
(c) ADDITIONAL INCENTIVE AWARDS. In addition to the Base Salary, if
the Executive remains employed by the Company through February 9, 2002, the
Executive shall be paid an amount (the "Additional Incentive Bonus") equal to
one-half of the sum of (i) the Executive's Base Salary as in effect on February
9, 2000 and (ii) the Executive's target annual bonus for fiscal year 2000 under
the Bonus Plan calculated on a full year basis based upon the target bonus
percentage in effect on February 9, 2000. The Additional Incentive Bonus, if
payable, shall be paid as soon as administratively practicable but in no case
later than March 31, 2002. In addition, the Executive is simultaneously herewith
being granted restricted stock (the "Additional Incentive Shares"), pursuant to
the Restricted Shares Agreement attached to this Agreement as Exhibit A (the
"Restricted Shares Agreement").
(d) EMPLOYEE BENEFITS. While employed by the Company, the Executive
shall be entitled to receive employee benefits (including, without limitation,
medical, life insurance and other welfare benefits and benefits under retirement
and savings plans) and vacation to the same extent as, and on the same terms and
conditions as, other similarly situated executives of the Company from time to
time.
(e) EXPENSES. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in carrying
out the Executive's duties under this Agreement, provided that the Executive
complies with the policies, practices and procedures of the Company then
applicable to the Executive for submission of expense reports, receipts, or
similar documentation of such expenses.
3. EMPLOYMENT TERMINATION. (a) TERMINATION BY THE COMPANY. The Executive's
employment may be terminated by the Company under any of the following
circumstances: (i) upon the inability of the Executive to perform the essential
functions of the Executive's position with or without reasonable accommodation,
which inability continues for a consecutive period of 120 days or longer or an
aggregate period of 180 days or longer in any
-2-
<PAGE> 3
particular fiscal year of the Company, in either instance while the Executive is
employed by the Company, ("Incapacity"); (ii) for "Cause," defined as (w) any
willful or grossly negligent conduct by Executive that demonstrably and
materially injures the Company; (x) the Executive being convicted of, confessing
to, or becoming the subject of proceedings that provide a reasonable basis for
the Company to believe the Executive has engaged in, a felony or any crime
involving dishonesty or moral turpitude; (y) the Executive violating any
provision of Section 4 of this Agreement; or (z) the Executive's willful and
continued failure for a significant period of time to perform Executive's
duties; and (iii) for any other reason (a termination without "Cause"). The
Company shall give the Executive notice of termination specifying which of the
foregoing provisions is applicable and (in the case of clause (i) or (ii)) the
factual basis therefor, and the termination shall be effective upon the 14th day
after such notice is given (hereinafter, the date on which the Executive's
employment terminates for any reason, is referred to as the "Date of
Termination").
(b) CONSEQUENCES OF TERMINATION BY THE COMPANY WITHOUT CAUSE. If, at
any time prior to February 9, 2002, the Executive's employment is terminated by
the Company without Cause, the Executive shall not be entitled to any further
compensation or benefits provided for under this Agreement except as provided in
the Restricted Shares Agreement and except for the payments and benefits set
forth in items (i) through (iv) of the last sentence of this Section 3(b). If,
after February 9, 2002, the Executive's employment is terminated by the Company
without Cause, the Executive shall not be entitled to any further compensation
or benefits provided for under this Agreement except as provided in the
Restricted Shares Agreement and except for the payments and benefits set forth
in items (i) and (iv) of the last sentence of this Section 3(b). Termination of
the Executive's employment because of Incapacity shall be treated as described
in Section 3(c) of this Agreement. The payments and benefits provided for above
are as follows:
(i) the Base Salary through the Date of Termination;
(ii) an amount equal to the sum of the Executive's (A) Base Salary
and (B) target annual bonus under the Bonus Plan, in each case as applicable on
the Date of Termination;
(iii) any unpaid portion of the Additional Incentive Bonus, PROVIDED
that the Executive has complied with all of the Executive's obligations under
Section 4 of this Agreement; and
(iv) the vested benefits, if any, required to be paid or provided
by law.
(c) OTHER EMPLOYMENT TERMINATIONS. If the Executive's employment is
terminated for any reason other than by the Company without Cause, the Executive
shall not be entitled to any compensation provided for under this Agreement,
other than (i) the Base Salary through the Date of Termination; (ii) benefits
under any long-term disability insurance coverage in the
-3-
<PAGE> 4
case of termination because of Incapacity; (iii) vested benefits, if any,
required to be paid or provided by law; and (iv) in the case of termination
because of Incapacity or death, the benefits provided for in the Restricted
Shares Agreement, if any.
4. COVENANTS. (a) INTRODUCTION. The parties acknowledge that the provisions and
covenants contained in this Section 4 are ancillary and material to this
Agreement and the Restricted Shares Agreement and that the limitations contained
herein are reasonable in geographic and temporal scope and do not impose a
greater restriction or restraint than is necessary to protect the goodwill and
other legitimate business interests of the Company. The parties also acknowledge
and agree that the provisions of this Section 4 do not adversely affect the
Executive's ability to earn a living in any capacity that does not violate the
covenants contained herein. The parties further acknowledge and agree that the
provisions of Section 10(a) below are accurate and necessary because (i) this
Agreement is entered into in the State of Ohio, (ii) Ohio has a substantial
relationship to the parties and to this transaction, (iii) Ohio is the
headquarters state of the Company, which has operations nationwide and has a
compelling interest in having its employees treated uniformly within the United
States, (iv) the use of Ohio law provides certainty to the parties in any
covenant litigation in the United States, and (v) enforcement of the provision
of this Section 4 would not violate any fundamental public policy of Ohio or any
other jurisdiction.
(b) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company and all of its subsidiaries,
partnerships, joint ventures, limited liability companies, and other affiliates
(collectively, the "Cardinal Group"), all secret or confidential information,
knowledge or data relating to the Cardinal Group and its businesses (including,
without limitation, any proprietary and not publicly available information
concerning any processes, methods, trade secrets, research, secret data, costs,
names of users or purchasers of their respective products or services, business
methods, operating procedures or programs or methods of promotion and sale) that
the Executive has obtained or obtains during the Executive's employment by the
Cardinal Group and that is not public knowledge (other than as a result of the
Executive's violation of this Section 4(b)) ("Confidential Information"). For
the purposes of this Section 4(b), information shall not be deemed to be
publicly available merely because it is embraced by general disclosures or
because individual features or combinations thereof are publicly available. The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Cardinal Group,
except with the prior written consent of the Cardinal Group, as applicable, or
as otherwise required by law or legal process. All records, files, memoranda,
reports, customer lists, drawings, plans, documents and the like that the
Executive uses, prepares or comes into contact with during the course of the
Executive's employment shall remain the sole property of the Company and/or the
Cardinal Group, as applicable, and shall be turned over to the applicable
Cardinal Group company upon termination of the Executive's employment.
(c) NON-RECRUITMENT OF EMPLOYER'S EMPLOYEES, ETC. Executive shall not,
at any time during
-4-
<PAGE> 5
the Restricted Period (as defined in this Section 4(c)), without the prior
written consent of Cardinal Health, Inc., directly or indirectly, contact,
solicit, recruit, or employ (whether as an employee, officer, director, agent,
consultant or independent contractor) any person who was or is at any time
during the previous twelve months an employee, representative, officer or
director of the Cardinal Group. Further, during the Restricted Period, Executive
shall not take any action that could reasonably be expected to have the effect
of encouraging or inducing any employee, representative, officer or director of
the Cardinal Group to cease their relationship with the Cardinal Group for any
reason. This provision does not apply to recruitment of employees within or for
the Cardinal Group. The "Restricted Period" means the period of Executive's
employment with the Cardinal Group and the additional period ending on the later
of (i) the end of the twelfth month following the Executive's Date of
Termination, and (ii) February 9, 2003.
(d) NO COMPETITION--SOLICITATION OF BUSINESS. During the Restricted
Period, the Executive shall not (either directly or indirectly or as an officer,
agent, employee, partner or director of any other company, partnership or
entity) solicit, service, or accept on behalf of any competitor of the Cardinal
Group the business of (i) any customer of the Cardinal Group at the time of the
Executive's employment or Date of Termination, or (ii) potential customer of the
Cardinal Group which the Executive knew to be an identified, prospective
purchaser of services or products of the Cardinal Group.
(e) NO COMPETITION--EMPLOYMENT BY COMPETITOR. During the Restricted
Period, the Executive shall not invest in (other than in a publicly traded
company with a maximum investment of no more than 1% of outstanding shares),
counsel, advise, or be otherwise engaged or employed by, any entity or
enterprise that competes with the Cardinal Group, by developing, manufacturing
or selling any product or service of a type, respectively, developed,
manufactured or sold by the Cardinal Group.
(f) NO DISPARAGEMENT. (i) The Executive shall at all times refrain
from taking actions or making statements, written or oral, that (A) denigrate,
disparage or defame the goodwill or reputation of the Cardinal Group or any of
its trustees, officers, security holders, partners, agents or former or current
employees and directors, or (B) are intended to, or may be reasonably expected
to, adversely affect the morale of the employees of the Cardinal Group. The
Executive further agrees not to make any negative statements to third parties
relating to the Executive's employment or any aspect of the businesses of the
Cardinal Group and not to make any statements to third parties about the
circumstances of the termination of the Executive's employment, or about the
Cardinal Group or its trustees, officers, security holders, partners, agents or
former or current employees and directors, except as may be required by a court
or governmental body.
(ii) The Executive further agrees that, following termination
of employment for any reason, the Executive shall assist and cooperate with the
Company with regard to any matter or project in which the Executive was involved
during the Executive's
-5-
<PAGE> 6
employment with the Company, including but not limited to any litigation that
may be pending or arise after such termination of employment. Further, the
Executive agrees to notify the Company at the earliest opportunity of any
contact that is made by any third parties concerning any such matter or project.
The Company shall not unreasonably request such cooperation of Executive and
shall compensate the Executive for any lost wages or expenses associated with
such cooperation and assistance.
(g) INVENTIONS. All plans, discoveries and improvements, whether
patentable or unpatentable, made or devised by the Executive, whether alone or
jointly with others, from the date of the Executive's initial employment by the
Company and continuing until the end of any period during which the Executive is
employed by the Cardinal Group, relating or pertaining in any way to the
Executive's employment with or the business of the Cardinal Group, shall be
promptly disclosed in writing to the Chief Executive Officer and are hereby
transferred to and shall redound to the benefit of the Company, and shall become
and remain its sole and exclusive property. The Executive agrees to execute any
assignments to the Company or its nominee, of the Executive's entire right,
title and interest in and to any such discoveries and improvements and to
execute any other instruments and documents requisite or desirable in applying
for and obtaining patents, trademarks or copyrights, at the expense of the
Company, with respect thereto in the United States and in all foreign countries,
that may be required by the Company. The Executive further agrees, at all times,
to cooperate to the extent and in the manner required by the Company, in the
prosecution or defense of any patent or copyright claims or any litigation, or
other proceeding involving any trade secrets, processes, discoveries or
improvements covered by this Agreement, but all necessary expenses thereof shall
be paid by the Company.
(h) ACKNOWLEDGMENT AND ENFORCEMENT. (i) The Executive acknowledges and
agrees that: (A) the purpose of the foregoing covenants, including without
limitation the noncompetition covenants of Sections 4(d) and (e), is to protect
the goodwill, trade secrets and other Confidential Information of the Company;
(B) because of the nature of the business in which the Cardinal Group is engaged
and because of the nature of the Confidential Information to which the Executive
has access, the Company would suffer irreparable harm and it would be
impractical and excessively difficult to determine the actual damages of the
Cardinal Group in the event the Executive breached any of the covenants of this
Section 4; and (C) remedies at law (such as monetary damages) for any breach of
the Executive's obligations under this Section 4 would be inadequate. The
Executive therefore agrees and consents that if the Executive commits any breach
of a covenant under this Section 4 or threatens to commit any such breach, the
Company shall have the right (in addition to, and not in lieu of, any other
right or remedy that may be available to it) to temporary and permanent
injunctive relief from a court of competent jurisdiction, without posting any
bond or other security and without the necessity of proof of actual damage.
(ii) In addition, in the event of a violation of this Section
4, the Company shall have no obligation to pay the Additional Incentive Bonus,
if it has not previously been
-6-
<PAGE> 7
paid, and shall have the right to cause the Additional Incentive Shares to be
forfeited (if they have not previously vested) as provided in the Restricted
Shares Agreement and to require the Executive to pay to the Company all or any
portion of the Clawback Amount (as defined below) within 30 days following
written notice by the Company to the Executive (the "Company Notice") that it is
imposing such requirement. The "Clawback Amount" means the sum of:
A. the Additional Incentive Bonus, if it has previously been
paid;
B. the amount equal to the gross gain realized or obtained by
the Executive resulting from the vesting of the Additional Incentive Shares,
measured at the date of vesting (i.e., the market value of the Additional
Incentive Shares on the vesting date); and
C. if (x) the Executive has sold or otherwise disposed of any of
the Additional Incentive Shares, an amount equal to the excess of (I) the fair
market value thereof on the date of the sale or disposition over (II) the fair
market value thereof on the date such shares vested, and if (y) the Executive
has not sold or otherwise disposed of the Additional Incentive Shares, an amount
equal to the excess of (I) the fair market value thereof on the 30th day
following the date of the Company Notice over (II) the fair market value thereof
on the date such shares vested.
(iii) With respect to any provision of this Section 4 finally
determined by a court of competent jurisdiction to be unenforceable, the
Executive and the Company hereby agree that such court shall have jurisdiction
to reform this Agreement or any provision hereof so that it is enforceable to
the maximum extent permitted by law, and the parties agree to abide by such
court's determination. If any of the covenants of this Section 4 are determined
to be wholly or partially unenforceable in any jurisdiction, such determination
shall not be a bar to or in any way diminish the Company's right to enforce any
such covenant in any other jurisdiction.
5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program, policy
or practice provided by the Cardinal Group for which the Executive may qualify,
nor, subject to Section 8 below, shall anything in this Agreement limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Cardinal Group. Vested benefits and other amounts that the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Cardinal Group on or after
the Date of Termination shall be payable in accordance with such plan, policy,
practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement. Notwithstanding the foregoing, the
Executive waives all of the Executive's rights to receive severance payments and
benefits under any severance plan, policy or practice of the Cardinal Group or
any entity merged with or into the Cardinal Group (or any part thereof).
6. NO MITIGATION. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any
-7-
<PAGE> 8
of the provisions of this Agreement and such amounts shall not be reduced,
regardless of whether the Executive obtains other employment.
7. NOTICES. (a) METHODS. Each notice, demand, request, consent, report, approval
or communication (hereinafter, "Notice") which is or may be required to be given
by any party to any other party in connection with this Agreement, shall be in
writing, and given by facsimile, personal delivery, receipted delivery services,
or by certified mail, return receipt requested, prepaid and properly addressed
to the party to be served as shown in Section 7(b) below.
(b) ADDRESSES. Notices shall be effective on the date sent via
facsimile, the date delivered personally or by receipted delivery service, or
three days after the date mailed:
If to the Company: Cardinal Health, Inc.
7000 Cardinal Place
Dublin, OH 43017
Attn.: Chief Executive Officer
Facsimile: (614) 757-6948
If to the Executive: At the Executive's residence address
most recently filed with the Company.
(c) CHANGES. Each party may designate by Notice to the other in
writing, given in the foregoing manner, a new address to which any Notice may
thereafter be so given, served or sent.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements with respect thereto.
9. SUCCESSORS. (a) EXECUTIVE. This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) THE COMPANY. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company may assign this Agreement to any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company that expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
assignment had taken place. As used in this Agreement, "Company" shall mean
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<PAGE> 9
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
10. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of Ohio, without reference to principles
of conflict of laws. In addition, all legal actions or proceedings relating to
this Agreement shall be brought in state or federal courts located in Franklin
County, Ohio, and the parties executing this Agreement hereby consent to the
personal jurisdiction of such courts. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.
(c) TAX WITHHOLDING. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
(d) NO WAIVER. The Executive's or the Company's failure to insist upon
strict compliance with any provision of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(e) WARRANTY. The Executive hereby warrants that the Executive is free
to enter into this Agreement and to perform the services described herein.
(f) HEADINGS. The Section headings contained in this Agreement are for
convenience only and in no manner shall be construed as part of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument
(h) SURVIVAL. The obligations under this Agreement of the Executive
and the Company that by their nature and terms require (or may require)
satisfaction after the end of the Date of Termination shall survive such event
and shall remain binding upon such parties.
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<PAGE> 10
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
EXECUTIVE
/s/ signature of applicable Executive
---------------------------------------
[name of applicable Executive]
CARDINAL HEALTH, INC.
By /s/ Robert D. Walter
-------------------------------------
Robert D. Walter
Chief Executive Officer
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<PAGE> 11
Exhibit A
RESTRICTED SHARES AGREEMENT
---------------------------
Cardinal Health, Inc., an Ohio corporation (the "Company"), hereby
grants, pursuant to the Cardinal Health, Inc. Amended and Restated Equity
Incentive Plan, as amended (the "Plan"), to ______________ (the "Executive")
that number of common shares in the Company (the "Additional Incentive Shares")
equal to the quotient of (a) the sum of (i) one half of the Executive's Base
Salary as in effect on February 9, 2000 and (ii) one half of the Executive's
target annual bonus for fiscal year 2000 under the Bonus Plan calculated on a
full year basis based upon the target bonus percentage in effect on February 9,
2000, divided by (b) the closing NYSE sales price per common share on the Grant
Date (rounded down to the nearest whole share). The Additional Incentive Shares
are subject to all provisions of the Plan, which are hereby incorporated herein
by reference, and shall be subject to the provisions of this Agreement. This
Agreement also hereby incorporates by reference the Agreement of the Executive
and the Company, dated as of February 9, 2000 (the "Agreement"), and any
reference to "this Agreement" herein includes this Restricted Shares Agreement
and the Agreement. Any capitalized terms used in this Restricted Shares
Agreement that are not specifically defined herein shall have the meanings
ascribed to such terms in the Agreement.
11. VESTING. Except as otherwise provided in this Agreement, 100% of the
Additional Incentive Shares shall vest on February 9, 2002 (which date shall be
the "Vesting Date").
12. PURCHASE PRICE. The purchase price of Additional Incentive Shares shall be
$0.00.
13. TRANSFERABILITY. Prior to the Vesting Date, the Executive shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber the Additional
Incentive Shares. The Additional Incentive Shares will be held by the Company;
provided, however, that the Company will deliver certificates representing those
Additional Incentive Shares that have fully vested within a reasonable time
after being requested in writing to do so.
14. TERMINATION OF SERVICE. If the Executive's employment with the Cardinal
Group terminates prior to the Vesting Date, all of the Restricted Shares shall
be forfeited. Notwithstanding the foregoing, if the Executive's employment with
the Company is terminated prior to the Vesting Date by the Company without Cause
(within the meaning of Section 3 of the Agreement), the Additional Incentive
Shares shall nevertheless vest on the Vesting Date unless the Executive has
violated any of the provisions of Section 4 of the Agreement. If the Executive's
employment with the Company terminates prior to the vesting of the Additional
Incentive Shares by reason of the Executive's death or Incapacity, then the
restrictions with respect to a ratable portion of the Additional Incentive
Shares shall lapse and such shares shall not be forfeited, unless the Executive
has violated any of the provisions of Section 4 of the Agreement. Such ratable
portion shall be an amount equal to the number of Additional Incentive Shares
multiplied by the portion of the period between February 9, 2000 and the
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<PAGE> 12
second anniversary thereof that has expired at the date of the Executive's death
or Incapacity.
15. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at any
time prior to the Vesting Date, the Executive violates any of the provisions of
Section 4 of the Agreement, the Additional Incentive Shares shall be forfeited
by the Executive. In addition, if at any time the Executive violates any of the
provisions of Section 4 of the Agreement, the Executive is subject to being
required to pay the Clawback Amount to the Company, as more fully set forth in
Section 4(h) of the Agreement. No provision of this Agreement shall diminish,
negate, or otherwise affect any separate noncompete agreement to which the
Executive may be a party. The Executive acknowledges and agrees that the
provisions contained in this item 5 are being made for the benefit of the
Cardinal Group in consideration of the Executive's receipt of the Additional
Incentive Shares, in consideration of employment, in consideration of exposing
the Executive to the Cardinal Group's business operations and confidential
information, and for other good and valuable consideration, the adequacy of
which consideration is hereby expressly confirmed. The Executive further
acknowledges that the receipt of the Additional Incentive Shares and execution
of this Agreement are voluntary actions on the part of the Executive, and that
the Company is unwilling to provide the Additional Incentive Shares to the
Executive without their being subject to this item 5.
16. RIGHT OF SET-OFF. By accepting these Additional Incentive Shares, the
Executive consents to a deduction from and set-off against any amounts owed to
the Executive by the Cardinal Group from time to time (including but not limited
to amounts owed to the Executive as wages, severance payments, or other fringe
benefits) to the extent of the amounts so owed.
17. SHAREHOLDER RIGHTS AND RESTRICTIONS. Except with regard to the disposition
of Additional Incentive Shares, the Executive shall generally have all rights of
a shareholder with respect to the Additional Incentive Shares from the date of
grant, including, without limitation, the right to receive dividends with
respect to the Additional Incentive Shares and the right to vote the Additional
Incentive Shares, but subject, however, to those restrictions in this Agreement
or in the Plan.
18. WITHHOLDING TAX. The Company shall have the right to require the Executive
to pay to the Company the amount of any taxes which the Company determines that
it is required to withhold with respect to the Additional Incentive Shares
(including the amount of any taxes which the Company is required to withhold
with respect to dividends on the Additional Incentive Shares) or, in lieu
thereof, to retain, or sell without notice, a sufficient number of Additional
Incentive Shares to cover the amount required to be withheld. The Company shall
also have the right to facilitate withholding by any other method permitted by
the Plan.
19. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of the
State of Ohio, without regard to principles of conflicts of law, except to the
extent superseded by the laws of the United States of America. In addition, all
legal actions or proceedings relating to this Restricted Shares Agreement shall
be brought in state or federal courts located in Franklin
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<PAGE> 13
County, Ohio, and the parties executing this Agreement hereby consent to the
personal jurisdiction of such courts. The Executive acknowledges that the
covenants contained in item 5 of this Restricted Shares Agreement and in Section
4 of the Agreement are reasonable in nature, are fundamental for the protection
of the Cardinal Group's legitimate business and proprietary interests, and do
not adversely affect the Executive's ability to earn a living in any capacity
that does not violate such covenants. The parties further agree that, in the
event of any violation by the Executive of any such covenants, the Cardinal
Group will suffer immediate and irreparable injury for which there is no
adequate remedy at law. In the event of any violation or attempted violations of
such covenants, the Cardinal Group shall be entitled to specific performance and
injunctive relief or other equitable relief without any showing of irreparable
harm or damage, and the Executive hereby waives any requirement for the securing
or posting of any bond in connection with such remedy, without prejudice to the
rights and remedies afforded the Cardinal Group hereunder or by law. In the
event that it becomes necessary for the Cardinal Group to institute legal
proceedings under this Agreement, the Executive shall be responsible to the
Cardinal Group for all costs and reasonable legal fees incurred by the Cardinal
Group with regard to such proceedings. Any provision of this Agreement that is
determined by a court of competent jurisdiction to be invalid or unenforceable
should be construed or limited in a manner that is valid and enforceable and
that comes closest to the business objectives intended by such provision,
without invalidating or rendering unenforceable the remaining provisions of this
Agreement.
20. PROMPT ACCEPTANCE OF AGREEMENT. The Additional Incentive Shares grant
evidenced by this Agreement shall, at the discretion of the Committee, be
forfeited if this Agreement is not executed by the Executive and returned to the
Company within sixty days of the grant date set forth below.
CARDINAL HEALTH, INC.
DATE OF GRANT: FEBRUARY 9, 2000 By:/s/ Robert D. Walter
---------------- --------------------------------
Robert D. Walter
Chief Executive Officer
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<PAGE> 14
ACCEPTANCE OF AGREEMENT
-----------------------
The Executive hereby: (a) acknowledges that the Executive has received
a copy of (i) the attached Restricted Shares Agreement, (ii) the Company's most
recent Annual Report and other communications routinely distributed to the
Company's shareholders, (iii) the Executive's Agreement, (iv) the Plan, and (v)
the most recent summary description of the Plan issued by the Company; and (b)
accepts this Agreement and the Additional Incentive Shares granted to the
Executive under this Agreement subject to all provisions of the Restricted
Shares Agreement, the Plan and the Agreement; (c) represents and warrants to the
Company that the Executive is purchasing the Additional Incentive Shares for the
Executive's own account, for investment, and not with a view to or any present
intention of selling or distributing the Additional Incentive Shares either now
or at any specific or determinable future time or period or upon the occurrence
or nonoccurrence of any predetermined or reasonably foreseeable event; and (d)
agrees that no transfer of the Additional Incentive Shares shall be made unless
the Additional Incentive Shares have been duly registered under all applicable
federal, state, local and foreign securities laws pursuant to a then-effective
registration that contemplates the proposed transfer or unless the Company has
received a written opinion of, or satisfactory to, its legal counsel that the
proposed transfer is exempt from such registration.
/s/ signature of applicable Executive
------------------------------------------
Executive's Signature
------------------------------------------
Executive's Social Security Number
------------------------------------------
Date
-14-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>3
<FILENAME>l83475aex10-16.txt
<DESCRIPTION>EXHIBIT 10.16
<TEXT>
<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated and effective as of the 9th day of February,
2000, is made and entered into by and between Cardinal Health, Inc., an Ohio
corporation (the "Company"), and George L. Fotiades (the "Executive").
WHEREAS, the Company and the Executive desire to set forth in a
written agreement the terms and conditions under which the Executive will render
services to the Company;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. EMPLOYMENT PERIOD. The Company shall employ, or shall cause one of
its subsidiaries or affiliates to employ, the Executive, and the Executive shall
serve the Company, on the terms and conditions set forth in this Agreement, for
the Full-Time Period and, if any, the Part-Time Period, each as defined herein
(together, the "Employment Period"). For purposes of this Agreement, any
reference to the "Company" shall mean, where appropriate, the actual Cardinal
subsidiary or affiliate that employs the Executive. The "Full-Time Period" shall
mean the period beginning as of February 9, 2000 and ending on November 30,
2002, unless before such date (i) the employment of the Executive is terminated
in accordance with Section 4 of this Agreement, or (ii) the Executive properly
exercises his right, as described in the next sentence, to change his status to
that of a consulting employee. If the Executive's employment is terminated by
the Company without Cause (as defined in Section 4 of this Agreement) during the
Full-Time Period, the Executive may, at his option, immediately change his
status to that of a consulting employee. In such event, the Executive shall
become a consulting employee without experiencing any break in Executive's
status as an employee of the Company. The Executive's ability to serve as a
consulting employee is conditioned upon his continued observance of Section 5 of
this Agreement. The Executive's service as a consulting employee shall terminate
on or before November 30, 2002 (the period during which the Executive serves as
a consulting employee, if any, the "Part-Time Period"). The Employment Period
may be extended by mutual written agreement of the parties.
2. POSITION AND DUTIES. (a) During the Full-Time Period, the Executive
shall serve as Executive Vice President and Group President--R.P. Scherer
Corporation, with the duties and responsibilities customarily assigned to such
position and such other duties and
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<PAGE> 2
responsibilities as the Chief Operating Officer shall from time to time assign
to the Executive; PROVIDED that the Company may change the Executive's title,
duties and responsibilities (including reporting responsibilities) without
violating this provision, so long as the Executive remains in an executive
position.
(b) During the Full-Time Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled under the practices and
policies of the Company as in effect from time to time, the Executive shall
devote the Executive's full business attention and time to the business and
affairs of the Company and shall use the Executive's reasonable best efforts to
carry out such responsibilities faithfully and efficiently. It shall not be
considered a violation of the foregoing for the Executive to (A) serve on
corporate boards or committees with the prior consent of the Chief Operating
Officer, (B) serve on civic or charitable boards or committees, (C) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(D) manage personal investments, so long as such activities do not materially
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
(c) The Executive's services shall be performed primarily at the
Company's offices located in Basking Ridge, New Jersey.
3. COMPENSATION. (a) SALARY. During the Full-Time Period, as
compensation for the Executive's services hereunder, the Company shall pay to
the Executive an annual salary of not less than the amount of the Executive's
salary as in effect on February 9, 2000 (the "Commencement Base Salary"),
payable at such times and intervals as the Company customarily pays the base
salaries of its other executive employees; PROVIDED that the Commencement Base
Salary may be reduced as part of a reduction that applies proportionately to all
employees who are otherwise similar to the Executive with respect to amount of
compensation and level of managerial responsibility before such reduction.
During the Part-Time Period, as compensation for the Executive's services as a
consulting employee hereunder, the Company shall pay to the Executive an annual
base salary of $50,000 (the "Consulting Base Salary"), payable at such times and
intervals as the Company customarily pays the base salaries of its other
executive employees.
(b) ANNUAL BONUS. In addition to the Commencement Base Salary, during
the Full-Time Period the Executive shall be eligible to receive an annual bonus
(an "Annual Bonus") determined and paid at the sole discretion of the Company
pursuant to the terms and conditions of the Company bonus plan for which the
Executive is then eligible, as such plan is in effect from time to time, or any
successor thereto (the "Bonus Plan"), with a Bonus Plan potential not less than
the target percentage as in effect on February 9, 2000. In addition to the
Consulting Base Salary, during the Part-Time Period the Executive shall be
eligible to receive an Annual Bonus determined and paid at the sole discretion
of the Company, in such amount, if any, as the Company may determine, in its
sole discretion.
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<PAGE> 3
(c) ADDITIONAL INCENTIVE AWARDS. In addition to the Commencement Base
Salary or Consulting Base Salary, as applicable, if the Executive remains
employed by the Company through February 9, 2002, the Executive shall be paid an
amount (the "Additional Incentive Bonus") equal to the sum of (i) the
Executive's Commencement Base Salary as in effect on February 9, 2000 and (ii)
the Executive's target annual bonus for fiscal year 2000 under the Bonus Plan
calculated on a full year basis based upon the target bonus percentage in effect
on February 9, 2000. The Additional Incentive Bonus, if payable, shall be paid
as soon as administratively practicable but in no case later than March 31,
2002. In addition, the Executive is simultaneously herewith being granted
restricted stock (the "Additional Incentive Shares"), pursuant to the Restricted
Shares Agreement attached to this Agreement as Exhibit A (the "Restricted Shares
Agreement").
(d) EMPLOYEE BENEFITS. During the Employment Period, the Executive
shall be entitled to receive employee benefits (including, without limitation,
medical, life insurance and other welfare benefits and benefits under retirement
and savings plans) and vacation to the same extent as, and on the same terms and
conditions as, other similarly situated executives of the Company from time to
time.
(e) AUTOMOBILE. During the Employment Period, the Company shall
provide the Executive with the use of a Company-owned or leased automobile, and
shall pay all taxes and insurance on said automobile.
(f) EXPENSES. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive during the
Employment Period in carrying out the Executive's duties under this Agreement,
provided that the Executive complies with the policies, practices and procedures
of the Company then applicable to the Executive for submission of expense
reports, receipts, or similar documentation of such expenses.
(g) ADDITIONAL PAYMENTS. In complete satisfaction of the payments
described in Section 3(f) of the Amended and Restated Employment Agreement among
the Company and the Executive, dated as of May 17, 1998 (the "May Agreement"),
the Executive shall be paid $166,667 on or about August 7, 2000 and $166,667 on
or about August 7, 2001, provided, in each case, that the Executive remains
employed hereunder on each such date.
4. EMPLOYMENT TERMINATION. (a) TERMINATION BY THE COMPANY. During the
Employment Period, the Executive's employment may be terminated by the Company
under any of the following circumstances: (i) upon the inability of the
Executive to perform the essential functions of his position with or without
reasonable accommodation, which inability continues for a consecutive period of
120 days or longer or an aggregate period of 180 days or longer, in either
instance during the Full-Time Period ("Incapacity"); (ii) for "Cause," defined
as (w) any willful or grossly negligent conduct by Executive that demonstrably
and materially injures the Company; (x) the Executive being convicted of,
confessing to, or becoming the
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<PAGE> 4
subject of proceedings that provide a reasonable basis for the Company to
believe the Executive has engaged in, a felony or any crime involving dishonesty
or moral turpitude; (y) the Executive violating any provision of Section 5 of
this Agreement; or (z) the Executive's willful and continued failure for a
significant period of time to perform Executive's duties; and (iii) for any
other reason (a termination without "Cause"). The Company shall give the
Executive notice of termination specifying which of the foregoing provisions is
applicable and (in the case of clause (i) or (ii)) the factual basis therefor,
and the termination shall be effective upon the 14th day after such notice is
given (hereinafter, the date on which the Executive's employment terminates for
any reason, whether or not during the Employment Period, is referred to as the
"Date of Termination").
(b) TERMINATION BY EXECUTIVE. During the Full-Time Period, the
Executive's employment may be terminated by the Executive for "Good Reason,"
defined as a termination within 30 days after and as a result of (i) the
assignment to the Executive of duties inconsistent in any material respect with
Section 2 of this Agreement, other than actions that are not taken in bad faith
and are remedied by the Company within ten business days after receipt of
written notice thereof from the Executive, or (ii) any reduction in the
compensation paid by the Company pursuant to Section 3 of this Agreement, other
than reductions that apply equally to all employees who are otherwise similar to
the Executive with respect to amount of compensation and level of managerial
responsibility before such reduction. The Executive may also terminate his
employment during the Employment Period other than for Good Reason. The
Executive shall give the Company notice of termination specifying which of the
foregoing provisions is applicable and the factual basis therefor, and the
termination shall be effective upon the 30th business day after such notice is
given unless the Company agrees to an earlier Date of Termination.
(c) CONSEQUENCES OF TERMINATION DURING THE FIRST YEAR OF THE
EMPLOYMENT PERIOD BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD
REASON. If, prior to February 9, 2001, the Executive's employment is terminated
by the Company without Cause, or by the Executive for Good Reason if during the
Full-Time Period, the Executive shall not be entitled to any further
compensation or benefits provided for under this Agreement except (i) as
provided in the Restricted Shares Agreement and (ii) as provided in the
following sentence. The Company shall
(i) provide the Executive the opportunity to change his status
to that of a consulting employee as provided in Section 1 hereof;
(ii) continue to pay the Executive the Commencement Base Salary,
at the rate in effect on the last day of the Full-Time Period (but, in the case
of a termination by the Executive for Good Reason, disregarding any reduction
thereof that was the basis for such termination), for and with respect to the
remainder of the period concluding on February 9, 2002;
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<PAGE> 5
(iii) pay the Executive a bonus for the fiscal year ending
June 30, 2000 under the applicable Bonus Plan based on the target percentage and
Commencement Base Salary as each existed on the last day of the Full-Time Period
(the "Severance Bonus") but only if an annual bonus for such fiscal year ending
June 30, 2000 has not previously been received by the Executive;
(iv) pay the Executive an additional amount equal to the
Severance Bonus;
(v) pay the Executive any unpaid portion of the Additional
Incentive Bonus at such time as the same shall become payable pursuant to
Section 3(c) hereof;
(vi) continue to provide the Executive with an automobile (as
provided in Section 3(e) of this Agreement) and with group health benefits on
the terms and conditions applicable to active employees of the Company
(hereinafter the "Group Health Benefits") through February 9, 2002; PROVIDED,
HOWEVER, that (x) if the Group Health Benefits cannot be provided to the
Executive under the terms of the applicable plans or applicable law because he
is not an employee, the Company shall provide the Executive with substitute
benefits that are comparable and equal in value to such benefits, and (y) during
any period when the Executive is eligible to receive any such benefits under
another employer-provided plan or a government plan, the Group Health Benefits
or substitute benefits provided by the Company under this clause (v) may be made
secondary to those provided under such other plan;
(vii) provide the vested benefits, if any, required to be paid
or provided by law; and
(viii) continue to pay the Executive the amounts provided for
in Section 3(g) of this Agreement, to the extent not previously paid, as and
when such amounts are required to be paid thereunder.
Notwithstanding the foregoing, the Company's obligations to the Executive under
this Section 4(c) shall terminate, and the Executive shall not be entitled to
any further compensation or benefits provided for under this Agreement or the
Restricted Shares Agreement, if the Executive violates any of the provisions of
Section 5 of this Agreement.
(d) CONSEQUENCES OF TERMINATION DURING THE REMAINING TWO YEARS OF THE
EMPLOYMENT PERIOD BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD
REASON. If, on or after February 9, 2001 but before the end of the Employment
Period, the Executive's employment is terminated by the Company without Cause,
or by the Executive for Good Reason if during the Full-Time Period, the
Executive shall not be entitled to any further compensation or benefits provided
for under this Agreement except (i) as provided in the Restricted Shares
Agreement and (ii) as provided in the following sentence. The Company shall
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<PAGE> 6
(i) if the Executive's employment is terminated by the Company
without Cause or by the Executive for Good Reason during the Full-Time Period,
allow the Executive to change his status to that of a consulting employee as
specified in Section 1 hereof;
(ii) continue to pay the Executive the Commencement Base Salary,
at the rate in effect on the last day of the Full-Time Period (but, in the case
of a termination by the Executive for Good Reason, disregarding any reduction
thereof that was the basis for such termination), for one year following the
Date of Termination;
(iii) pay the Executive a bonus under the applicable Bonus Plan
based on the target percentage and Commencement Base Salary as each existed on
the last day of the Full-Time Period;
(iv) pay the Executive any unpaid portion of the Additional
Incentive Bonus, if any, at such time as the same shall become payable pursuant
to Section 3(c) hereof;
(v) continue to provide the Executive with an automobile (as
provided in Section 3(e) of this Agreement) and with Group Health Benefits for
one year following the Date of Termination; PROVIDED, HOWEVER, that (x) if the
Group Health Benefits cannot be provided to the Executive under the terms of the
applicable plans or applicable law because he is not an employee, the Company
shall provide the Executive with substitute benefits that are comparable and
equal in value to such benefits, and (y) during any period when the Executive is
eligible to receive any such benefits under another employer-provided plan or a
government plan, the Group Health Benefits or substitute benefits provided by
the Company under this clause (iv) may be made secondary to those provided under
such other plan;
(vi) provide the vested benefits, if any, required to be paid or
provided by law; and
(vii) continue to pay the Executive the amounts provided for in
Section 3(g) of this Agreement, to the extent not previously paid, as and when
such amounts are required to be paid thereunder.
Notwithstanding the foregoing, the Company's obligations to the Executive under
this Section 4(d) shall terminate, and the Executive shall not be entitled to
any further compensation or benefits provided for under this Agreement or the
Restricted Shares Agreement, if the Executive violates any of the provisions of
Section 5 of this Agreement.
(e) OTHER EMPLOYMENT TERMINATIONS. If, during the Employment Period,
the Executive's employment is terminated for any reason other than by the
Company without Cause or by the Executive for Good Reason, the Executive shall
not be entitled to any compensation provided for under this Agreement, other
than (i) the Commencement Base
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<PAGE> 7
Salary or Consulting Base Salary, as applicable, through the Date of
Termination; (ii) benefits under any long-term disability insurance coverage in
the case of termination because of Incapacity; (iii) vested benefits, if any,
required to be paid or provided by law; and (iv) in the case of termination
because of Incapacity or death, the benefits provided for in the Restricted
Shares Agreement, if any.
5. COVENANTS. (a) INTRODUCTION. The parties acknowledge that the
provisions and covenants contained in this Section 5 are ancillary and material
to this Agreement and the Restricted Shares Agreement and that the limitations
contained herein are reasonable in geographic and temporal scope and do not
impose a greater restriction or restraint than is necessary to protect the
goodwill and other legitimate business interests of the Company. The parties
also acknowledge and agree that the provisions of this Section 5 do not
adversely affect the Executive's ability to earn a living in any capacity that
does not violate the covenants contained herein. The parties further acknowledge
and agree that the provisions of Section 11(a) below are accurate and necessary
because (i) this Agreement is entered into in the State of Ohio, (ii) Ohio has a
substantial relationship to the parties and to this transaction, (iii) Ohio is
the headquarters state of the Company, which has operations nationwide and has a
compelling interest in having its employees treated uniformly within the United
States, (iv) the use of Ohio law provides certainty to the parties in any
covenant litigation in the United States, and (v) enforcement of the provision
of this Section 5 would not violate any fundamental public policy of Ohio or any
other jurisdiction.
(b) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company and all of its subsidiaries,
partnerships, joint ventures, limited liability companies, and other affiliates
(collectively, the "Cardinal Group"), all secret or confidential information,
knowledge or data relating to the Cardinal Group and its businesses (including,
without limitation, any proprietary and not publicly available information
concerning any processes, methods, trade secrets, research, secret data, costs,
names of users or purchasers of their respective products or services, business
methods, operating procedures or programs or methods of promotion and sale) that
the Executive has obtained or obtains during the Executive's employment by the
Cardinal Group and that is not public knowledge (other than as a result of the
Executive's violation of this Section 5(b)) ("Confidential Information"). For
the purposes of this Section 5(b), information shall not be deemed to be
publicly available merely because it is embraced by general disclosures or
because individual features or combinations thereof are publicly available. The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Cardinal Group,
except with the prior written consent of the Cardinal Group, as applicable, or
as otherwise required by law or legal process. All records, files, memoranda,
reports, customer lists, drawings, plans, documents and the like that the
Executive uses, prepares or comes into contact with during the course of the
Executive's employment shall remain the sole property of the Company and/or the
Cardinal Group, as applicable, and shall be turned over to the applicable
Cardinal Group company upon
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<PAGE> 8
termination of the Executive's employment.
(c) NON-RECRUITMENT OF EMPLOYER'S EMPLOYEES, ETC. Executive shall not,
at any time during the Restricted Period (as defined in this Section 5(c)),
without the prior written consent of Cardinal Health, Inc., directly or
indirectly, contact, solicit, recruit, or employ (whether as an employee,
officer, director, agent, consultant or independent contractor) any person who
was or is at any time during the previous twelve months an employee,
representative, officer or director of the Cardinal Group. Further, during the
Restricted Period, Executive shall not take any action that could reasonably be
expected to have the effect of encouraging or inducing any employee,
representative, officer or director of the Cardinal Group to cease their
relationship with the Cardinal Group for any reason. This provision does not
apply to recruitment of employees within or for the Cardinal Group. The
"Restricted Period" means the period of Executive's employment with the Cardinal
Group and the additional period that ends 12 months after the latest to occur
of: (i) the Executive's Date of Termination; (ii) payment to the Executive of
the amounts described in items (i), (ii) and (iii) of Section 4(c) hereof; and
(iii) payment to the Executive of the Additional Incentive Award.
(d) NO COMPETITION--SOLICITATION OF BUSINESS. During the Restricted
Period, the Executive shall not (either directly or indirectly or as an officer,
agent, employee, partner or director of any other company, partnership or
entity) solicit, service, or accept on behalf of any competitor of the Cardinal
Group the business of (i) any customer of the Cardinal Group at the time of the
Executive's employment or Date of Termination, or (ii) potential customer of the
Cardinal Group which the Executive knew to be an identified, prospective
purchaser of services or products of the Cardinal Group.
(e) NO COMPETITION--EMPLOYMENT BY COMPETITOR. During the Restricted
Period, the Executive shall not invest in (other than in a publicly traded
company with a maximum investment of no more than 1% of outstanding shares),
counsel, advise, or be otherwise engaged or employed by, any entity or
enterprise that competes with the Cardinal Group, by developing, manufacturing
or selling any product or service of a type, respectively, developed,
manufactured or sold by the Cardinal Group.
(f) NO DISPARAGEMENT. (i) The Executive shall at all times refrain
from taking actions or making statements, written or oral, that (A) denigrate,
disparage or defame the goodwill or reputation of the Cardinal Group or any of
its trustees, officers, security holders, partners, agents or former or current
employees and directors, or (B) are intended to, or may be reasonably expected
to, adversely affect the morale of the employees of the Cardinal Group. The
Executive further agrees not to make any negative statements to third parties
relating to the Executive's employment or any aspect of the businesses of the
Cardinal Group and not to make any statements to third parties about the
circumstances of the termination of the Executive's employment, or about the
Cardinal Group or its trustees, officers, security holders, partners, agents or
former or current employees and directors, except as may be
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<PAGE> 9
required by a court or governmental body.
(ii) The Executive further agrees that, following termination of
employment for any reason, the Executive shall assist and cooperate with the
Company with regard to any matter or project in which the Executive was involved
during the Executive's employment with the Company, including but not limited to
any litigation that may be pending or arise after such termination of
employment. Further, the Executive agrees to notify the Company at the earliest
opportunity of any contact that is made by any third parties concerning any such
matter or project. The Company shall not unreasonably request such cooperation
of Executive and shall compensate the Executive for any lost wages or expenses
associated with such cooperation and assistance.
(g) INVENTIONS. All plans, discoveries and improvements, whether
patentable or unpatentable, made or devised by the Executive, whether alone or
jointly with others, from the date of the Executive's initial employment by the
Company and continuing until the end of the Employment Period and any subsequent
period when the Executive is employed by the Cardinal Group, relating or
pertaining in any way to the Executive's employment with or the business of the
Cardinal Group, shall be promptly disclosed in writing to the Chief Executive
Officer and are hereby transferred to and shall redound to the benefit of the
Company, and shall become and remain its sole and exclusive property. The
Executive agrees to execute any assignments to the Company or its nominee, of
the Executive's entire right, title and interest in and to any such discoveries
and improvements and to execute any other instruments and documents requisite or
desirable in applying for and obtaining patents, trademarks or copyrights, at
the expense of the Company, with respect thereto in the United States and in all
foreign countries, that may be required by the Company. The Executive further
agrees, during and after the Employment Period, to cooperate to the extent and
in the manner required by the Company, in the prosecution or defense of any
patent or copyright claims or any litigation, or other proceeding involving any
trade secrets, processes, discoveries or improvements covered by this Agreement,
but all necessary expenses thereof shall be paid by the Company.
(h) ACKNOWLEDGMENT AND ENFORCEMENT. (i) The Executive acknowledges and
agrees that: (A) the purpose of the foregoing covenants, including without
limitation the noncompetition covenants of Sections 5(d) and (e), is to protect
the goodwill, trade secrets and other Confidential Information of the Company;
(B) because of the nature of the business in which the Cardinal Group is engaged
and because of the nature of the Confidential Information to which the Executive
has access, the Company would suffer irreparable harm and it would be
impractical and excessively difficult to determine the actual damages of the
Cardinal Group in the event the Executive breached any of the covenants of this
Section 5; and (C) remedies at law (such as monetary damages) for any breach of
the Executive's obligations under this Section 5 would be inadequate. The
Executive therefore agrees and consents that if the Executive commits any breach
of a covenant under this Section 5 or threatens to commit any such breach, the
Company shall have the right (in addition to, and not in lieu of, any other
right or remedy that may be available to it) to temporary and permanent
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<PAGE> 10
injunctive relief from a court of competent jurisdiction, without posting any
bond or other security and without the necessity of proof of actual damage.
(ii) In addition, in the event of a violation of this Section 5, the
Company shall have no obligation to pay the Additional Incentive Bonus or the
payments described in Section 3(g) of this Agreement, to the extent each has not
previously been paid, and shall have the right to cause the Additional Incentive
Shares to be forfeited (if they have not previously vested) as provided in the
Restricted Shares Agreement and to require the Executive to pay to the Company
all or any portion of the Clawback Amount (as defined below) within 30 days
following written notice by the Company to the Executive (the "Company Notice")
that it is imposing such requirement. The "Clawback Amount" means the sum of:
A. the Additional Incentive Bonus, if it has previously been
paid;
B. the amount equal to the gross gain realized or obtained by
the Executive resulting from the vesting of the Additional Incentive Shares,
measured at the date of vesting (i.e., the market value of the Additional
Incentive Shares on the vesting date);
C. if (x) the Executive has sold or otherwise disposed of any of
the Additional Incentive Shares, an amount equal to the excess of (I) the fair
market value thereof on the date of the sale or disposition over (II) the fair
market value thereof on the date such shares vested, and if (y) the Executive
has not sold or otherwise disposed of the Additional Incentive Shares, an amount
equal to the excess of (I) the fair market value thereof on the 30th day
following the date of the Company Notice over (II) the fair market value thereof
on the date such shares vested; and
D. any amounts the Executive has previously been paid pursuant
to Section 3(g) of this Agreement.
In addition to the foregoing, all outstanding stock options, if any, granted to
the Executive by the Cardinal Group (or any part thereof) that have not been
exercised shall immediately and automatically terminate, be forfeited, and cease
to be exercisable at any time. If the Executive has exercised any stock options
granted to the Executive by the Cardinal Group within three years before a
violation of Section 5(b), 5(c), 5(f) or 5(g) or within one year before a
violation of Section 5(d) or 5(e), the Clawback Amount shall also include an
amount equal to the gross option gain realized or obtained by the Executive or
any transferee resulting from the exercise of such stock option, measured at the
date of exercise (i.e., the difference between the fair market value of the
purchased stock on the date of exercise and the exercise price paid by the
Executive therefor).
(iii) With respect to any provision of this Section 5 finally
determined by a court of competent jurisdiction to be unenforceable, the
Executive and the Company hereby agree that such court shall have jurisdiction
to reform this Agreement or any provision hereof
-10-
<PAGE> 11
so that it is enforceable to the maximum extent permitted by law, and the
parties agree to abide by such court's determination. If any of the covenants of
this Section 5 are determined to be wholly or partially unenforceable in any
jurisdiction, such determination shall not be a bar to or in any way diminish
the Company's right to enforce any such covenant in any other jurisdiction.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Cardinal Group for which the
Executive may qualify, nor, subject to Section 9 below, shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Cardinal Group. Vested benefits and other
amounts that the Executive is otherwise entitled to receive under any plan,
policy, practice or program of, or any contract or agreement with, the Cardinal
Group on or after the Date of Termination shall be payable in accordance with
such plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement. Notwithstanding the foregoing,
the Executive waives all of the Executive's rights to receive severance payments
and benefits under any severance plan, policy or practice of the Cardinal Group
or any entity merged with or into the Cardinal Group (or any part thereof).
7. NO MITIGATION. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
8. NOTICES. (a) METHODS. Each notice, demand, request, consent,
report, approval or communication (hereinafter, "Notice") which is or may be
required to be given by any party to any other party in connection with this
Agreement, shall be in writing, and given by facsimile, personal delivery,
receipted delivery services, or by certified mail, return receipt requested,
prepaid and properly addressed to the party to be served as shown in Section
8(b) below.
(b) ADDRESSES. Notices shall be effective on the date sent via
facsimile, the date delivered personally or by receipted delivery service, or
three days after the date mailed:
If to the Company: Cardinal Health, Inc.
7000 Cardinal Place
Dublin, OH 43017
Attn.: General Counsel
Facsimile: (614) 757-6948
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<PAGE> 12
If to the Executive: At the Executive's residence address
most recently filed with the Company.
(c) CHANGES. Each party may designate by Notice to the other in
writing, given in the foregoing manner, a new address to which any Notice may
thereafter be so given, served or sent.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersedes all
prior agreements with respect thereto, including, without limitation, the May
Agreement.
10. SUCCESSORS. (a) EXECUTIVE. This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) THE COMPANY. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company may assign this Agreement to any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company that expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
assignment had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of Ohio, without reference to
principles of conflict of laws. In addition, all legal actions or proceedings
relating to this Agreement shall be brought in state or federal courts located
in Franklin County, Ohio, and the parties executing this Agreement hereby
consent to the personal jurisdiction of such courts. This Agreement may not be
amended or modified except by a written agreement executed by the parties hereto
or their respective successors and legal representatives.
(b) SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.
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<PAGE> 13
(c) TAX WITHHOLDING. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
(d) NO WAIVER. The Executive's or the Company's failure to insist upon
strict compliance with any provision of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(e) WARRANTY. The Executive hereby warrants that the Executive is free
to enter into this Agreement and to perform the services described herein.
(f) HEADINGS. The Section headings contained in this Agreement are for
convenience only and in no manner shall be construed as part of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument
(h) SURVIVAL. The obligations under this Agreement of the Executive
and the Company that by their nature and terms require (or may require)
satisfaction after the end of the Employment Period shall survive such event and
shall remain binding upon such parties.
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<PAGE> 14
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
EXECUTIVE
/s/ George L. Fotiades
------------------------------
George L. Fotiades
CARDINAL HEALTH, INC.
By /s/ Robert D. Walter
---------------------------
Robert D. Walter
Chief Executive Officer
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<PAGE> 15
Exhibit A
RESTRICTED SHARES AGREEMENT
---------------------------
Cardinal Health, Inc., an Ohio corporation (the "Company"), hereby
grants, pursuant to the Cardinal Health, Inc. Amended and Restated Equity
Incentive Plan, as amended (the "Plan"), to George L. Fotiades (the "Executive")
that number of common shares in the Company (the "Additional Incentive Shares")
equal to the quotient of (a) the sum of (i) the Executive's Base Salary as in
effect on February 9, 2000 and (ii) the Executive's target annual bonus for
fiscal year 2000 under the Bonus Plan calculated on a full year basis based upon
the target bonus percentage in effect on February 9, 2000, divided by (b) the
closing NYSE sales price per common share on the Grant Date (rounded down to the
nearest whole share). The Additional Incentive Shares are subject to all
provisions of the Plan, which are hereby incorporated herein by reference, and
shall be subject to the provisions of this Agreement. This Agreement also hereby
incorporates by reference the Employment Agreement of the Executive and the
Company, dated as of February 9, 2000 (the "Employment Agreement"), and any
reference to "this Agreement" herein includes this Restricted Shares Agreement
and the Employment Agreement. Any capitalized terms used in this Restricted
Shares Agreement that are not specifically defined herein shall have the
meanings ascribed to such terms in the Employment Agreement.
12. VESTING. Except as otherwise provided in this Agreement, 100% of
the Additional Incentive Shares shall vest on February 9, 2002 (which date shall
be the "Vesting Date").
13. PURCHASE PRICE. The purchase price of Additional Incentive Shares
shall be $0.00.
14. TRANSFERABILITY. Prior to the Vesting Date, the Executive shall
not be permitted to sell, transfer, pledge, assign or otherwise encumber the
Additional Incentive Shares. The Additional Incentive Shares will be held by the
Company; provided, however, that the Company will deliver certificates
representing those Additional Incentive Shares that have fully vested within a
reasonable time after being requested in writing to do so.
15. TERMINATION OF SERVICE. If the Executive's employment with the
Cardinal Group terminates prior to the Vesting Date, all of the Restricted
Shares shall be forfeited. Notwithstanding the foregoing, if the Executive's
employment with the Company is terminated before the end of the Employment
Period by the Company without Cause or before the end of the Full-Time Period by
the Executive for Good Reason, the Additional Incentive Shares shall
nevertheless vest on the Vesting Date unless the Executive has violated any of
the provisions of Section 5 of the Employment Agreement. If the Executive's
employment with the Company terminates prior to the vesting of the Additional
Incentive Shares by reason of the Executive's death or Incapacity, then the
restrictions with respect to a ratable portion of
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<PAGE> 16
the Additional Incentive Shares shall lapse and such shares shall not be
forfeited, unless the Executive has violated any of the provisions of Section 5
of the Employment Agreement. Such ratable portion shall be an amount equal to
the number of Additional Incentive Shares multiplied by the portion of the
period between February 9, 2000 and the second anniversary thereof that has
expired at the date of the Executive's death or Incapacity.
16. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing,
if at any time prior to the Vesting Date, the Executive violates any of the
provisions of Section 5 of the Employment Agreement, the Additional Incentive
Shares shall be forfeited by the Executive. In addition, if at any time the
Executive violates any of the provisions of Section 5 of the Employment
Agreement, the Executive is subject to being required to pay the Clawback Amount
to the Company, as more fully set forth in Section 5(h) of the Employment
Agreement. No provision of this Agreement shall diminish, negate, or otherwise
affect any separate noncompete agreement to which the Executive may be a party.
The Executive acknowledges and agrees that the provisions contained in this item
5 are being made for the benefit of the Cardinal Group in consideration of the
Executive's receipt of the Additional Incentive Shares, in consideration of
employment, in consideration of exposing the Executive to the Cardinal Group's
business operations and confidential information, and for other good and
valuable consideration, the adequacy of which consideration is hereby expressly
confirmed. The Executive further acknowledges that the receipt of the Additional
Incentive Shares and execution of this Agreement are voluntary actions on the
part of the Executive, and that the Company is unwilling to provide the
Additional Incentive Shares to the Executive without their being subject to this
item 5.
17. RIGHT OF SET-OFF. By accepting these Additional Incentive Shares,
the Executive consents to a deduction from and set-off against any amounts owed
to the Executive by the Cardinal Group from time to time (including but not
limited to amounts owed to the Executive as wages, severance payments, or other
fringe benefits) to the extent of the amounts so owed.
18. SHAREHOLDER RIGHTS AND RESTRICTIONS. Except with regard to the
disposition of Additional Incentive Shares, the Executive shall generally have
all rights of a shareholder with respect to the Additional Incentive Shares from
the date of grant, including, without limitation, the right to receive dividends
with respect to the Additional Incentive Shares and the right to vote the
Additional Incentive Shares, but subject, however, to those restrictions in this
Agreement or in the Plan.
19. WITHHOLDING TAX. The Company shall have the right to require the
Executive to pay to the Company the amount of any taxes which the Company
determines that it is required to withhold with respect to the Additional
Incentive Shares (including the amount of any taxes which the Company is
required to withhold with respect to dividends on the Additional Incentive
Shares) or, in lieu thereof, to retain, or sell without notice, a sufficient
number of Additional Incentive Shares to cover the amount required to be
withheld. The
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<PAGE> 17
Company shall also have the right to facilitate withholding by any other method
permitted by the Plan.
20. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws
of the State of Ohio, without regard to principles of conflicts of law, except
to the extent superseded by the laws of the United States of America. In
addition, all legal actions or proceedings relating to this Restricted Shares
Agreement shall be brought in state or federal courts located in Franklin
County, Ohio, and the parties executing this Agreement hereby consent to the
personal jurisdiction of such courts. The Executive acknowledges that the
covenants contained in item 5 of this Restricted Shares Agreement and in Section
5 of the Employment Agreement are reasonable in nature, are fundamental for the
protection of the Cardinal Group's legitimate business and proprietary
interests, and do not adversely affect the Executive's ability to earn a living
in any capacity that does not violate such covenants. The parties further agree
that, in the event of any violation by the Executive of any such covenants, the
Cardinal Group will suffer immediate and irreparable injury for which there is
no adequate remedy at law. In the event of any violation or attempted violations
of such covenants, the Cardinal Group shall be entitled to specific performance
and injunctive relief or other equitable relief without any showing of
irreparable harm or damage, and the Executive hereby waives any requirement for
the securing or posting of any bond in connection with such remedy, without
prejudice to the rights and remedies afforded the Cardinal Group hereunder or by
law. In the event that it becomes necessary for the Cardinal Group to institute
legal proceedings under this Agreement, the Executive shall be responsible to
the Cardinal Group for all costs and reasonable legal fees incurred by the
Cardinal Group with regard to such proceedings. Any provision of this Agreement
that is determined by a court of competent jurisdiction to be invalid or
unenforceable should be construed or limited in a manner that is valid and
enforceable and that comes closest to the business objectives intended by such
provision, without invalidating or rendering unenforceable the remaining
provisions of this Agreement.
21. PROMPT ACCEPTANCE OF AGREEMENT. The Additional Incentive Shares
grant evidenced by this Agreement shall, at the discretion of the Committee, be
forfeited if this Agreement is not executed by the Executive and returned to the
Company within sixty days of the grant date set forth below.
CARDINAL HEALTH, INC.
DATE OF GRANT: FEBRUARY 9, 2000 By: /s/ Steven Alan Bennett
---------------- ----------------------------
Steven Alan Bennett
Executive Vice President
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<PAGE> 18
ACCEPTANCE OF AGREEMENT
-----------------------
The Executive hereby: (a) acknowledges that the Executive has received
a copy of (i) the attached Restricted Shares Agreement, (ii) the Company's most
recent Annual Report and other communications routinely distributed to the
Company's shareholders, (iii) the Executive's Employment Agreement, (iv) the
Plan, and (v) the most recent summary description of the Plan issued by the
Company; and (b) accepts this Agreement and the Additional Incentive Shares
granted to the Executive under this Agreement subject to all provisions of the
Restricted Shares Agreement, the Plan and the Employment Agreement; (c)
represents and warrants to the Company that the Executive is purchasing the
Additional Incentive Shares for the Executive's own account, for investment, and
not with a view to or any present intention of selling or distributing the
Additional Incentive Shares either now or at any specific or determinable future
time or period or upon the occurrence or nonoccurrence of any predetermined or
reasonably foreseeable event; and (d) agrees that no transfer of the Additional
Incentive Shares shall be made unless the Additional Incentive Shares have been
duly registered under all applicable federal, state, local and foreign
securities laws pursuant to a then-effective registration that contemplates the
proposed transfer or unless the Company has received a written opinion of, or
satisfactory to, its legal counsel that the proposed transfer is exempt from
such registration.
/s/ George L. Fotiades
--------------------------------------
Executive's Signature
--------------------------------------
Executive's Social Security Number
04/04/2000
--------------------------------------
Date
-18-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>4
<FILENAME>l83475aex10-17.txt
<DESCRIPTION>EXHIBIT 10.17
<TEXT>
<PAGE> 1
EXHIBIT 10.17
July 25, 2000
John C. Kane
2205 Wingate Drive
Delaware, OH 43015
Re: Agreement Concerning Retirement
Dear John:
This letter confirms our agreement as of February 1, 2000 respecting your
retirement as Chief Operating Officer ("COO") of Cardinal Health, Inc.
("Company"), as follows:
1. DUTIES/TITLE
a) Effective February 9, 2000, you will become Vice Chairman of the
Board, in addition to President, COO and a Director. You will remain
COO and President until the earlier of (i) the date on which your
successor has commenced work, or (ii) December 31, 2000 (the "Search
Period").
b) Upon conclusion of the Search Period, you shall relinquish the
President and COO positions, but may remain an employee of the
Company for a period of 12 months (the "Transition Period"). During
the Transition Period, you shall be an executive in transition
available up to 10 days per month (inclusive of any time necessary
to attend Board of Directors meetings and meetings of Board
Committees) to perform such tasks and pursue such projects of an
executive nature as the CEO of the Company shall assign, if any, in
the CEO's sole discretion.
c) At any time, upon request of either the Chairman or the Board, you
shall tender your resignation as Vice Chairman and a Director.
d) At any time before, or upon conclusion of, the Transition Period,
you, at your election, may either (i) immediately "retire" within
the meaning of the Company's various incentive and welfare plans, in
which case all duties required of you and all compensation and
benefits payable to you, other than vested benefits and, in
accordance with their terms, previously granted stock based
incentives (collectively, the "Prior Entitlements"), shall cease and
the "Retirement Period" shall commence, or (ii) elect to remain a
consulting executive employee of the Company in a consulting
capacity for a period of up to two years (the "Consulting Period")
at an annual salary of $50,000 per year. In either case, you may
pursue other employment, so long as the requirements of Section 4
below are observed.
<PAGE> 2
If you have not earlier elected to retire, upon the conclusion of
the Consulting Period, you agree to and shall retire and the
"Retirement Period" shall commence.
2. TERMINATION/DEATH/DISABILITY
a) You may terminate your employment with the Company at any time, but
in such event any compensation or benefits payable hereunder, other
than the Prior Entitlements, shall cease although you shall remain
bound by the terms of Section 4 below.
b) Should the Company, in its discretion, elect to terminate your
employment at any time prior to the end of the Transition Period,
you may exercise your rights under Section 1(d) above and shall
retain any rights you may have to any Prior Entitlements, provided
however that should you elect to retire at the time of such
termination, you shall no longer be bound by the non-competition and
non-hiring/non-solicitation restrictions contained in Sections 4(a)
and 4(b) below.
c) If you die or become incapacitated prior to retirement such that you
cannot perform the essential functions of your position with or
without reasonable accommodation, you shall not receive any further
compensation or benefits other than long term disability coverage
and the Prior Entitlements.
3. COMPENSATION/INCENTIVES/BENEFITS
a) Upon execution of this letter and through the Search Period, you
shall remain at your current rate of pay with such duties,
perquisites and benefits as you currently enjoy as President and
COO. Upon commencement of the Transition Period, your annual salary
shall become $750,000, payable on the same terms and conditions as
salaries of other corporate executives of the Company. Upon
commencement of the Consulting Period, if any, your annual salary
shall become $50,000, payable on the same terms and conditions as
salaries of other corporate executives of the Company. Upon
commencement of the Retirement Period, all compensation and benefits
payable to you, other than the Prior Entitlements, shall cease and
your rights and benefits shall be limited to those of a retiree of
the Company.
b) With respect to the Company's 2000 fiscal year, you shall be
eligible to receive an annual bonus at such a percentage and upon
such terms and conditions as those applicable to other, similarly
situated, bonused executives. If the Search Period ends during
fiscal year 2001 of the Company, you shall be eligible to receive a
pro-rated bonus for such year. Other than this, you shall receive no
further bonuses at any time.
c) As of February 9, 2000, you shall receive a non-qualified option
grant in the amount of 50,000 shares (the "Final Grant").
d) During the Transition Period and the Consulting Period, if any, you
may use Company aircraft on an as-available basis while pursuing
company business.
2
<PAGE> 3
This use of aircraft may include any necessary commuting to Company
offices. In addition, during such periods, all travel expenses you
incur in pursuit of Company business shall be reimbursed.
4. RESTRICTIONS
a) During the "Restricted Period" (defined below) you shall not engage
with or invest in, counsel or advise or be employed by any
enterprise which competes with the Company by developing,
manufacturing or selling any product or service of a type,
respectively, developed, manufactured or sold by the Company or any
subsidiary thereof. The "Restricted Period" means the period ending
on December 31, 2001 unless you have elected to remain a consulting
employee of the Company, in which case the Restricted Period shall
end when the Consulting Period ends.
b) During the Restricted Period, you shall not, without prior written
consent of Company, directly or indirectly, solicit or hire any
person who was or is at any time during the preceding three months
an employee of the Company or any of its affiliates.
c) At all times, you agree to maintain as confidential all secret or
confidential information of the Company and any of its affiliates
and you agree never to divulge same unless compelled to do so by
court order.
d) At all times, you agree to refrain from actions or statements,
written or oral, which disparage the Company, its affiliates or any
of their senior management. You also agree to refrain from any
action which has the effect of interfering with the Company's or any
of its affiliates' relationships with their customers.
e) In addition to all other limitations and conditions, receipt and
continued vesting and exercisability of all of your stock-based
incentives, including the Final Grant, are conditioned upon your
continuing observance of the provisions of this Section 4 and, in
the event of a breach of any such provision, any gains achieved by
you with respect to any such incentives shall be subject to clawback
as provided in the Final Grant. In addition, the Company may seek
injunctive relief to enforce the provisions of this Section 4.
3
<PAGE> 4
5. ANNOUNCEMENT OF DEPARTURE
Your retirement from your positions as COO, Vice Chairman or Director may
be announced in a Company press release at such time and in such manner as
you and the Company may mutually agree.
6. MISCELLANEOUS
a) This Agreement shall be governed by Ohio law and all legal actions
or proceedings, including those brought under Section 4 of this
letter, shall be brought only in federal or state courts in Franklin
County, Ohio. The prevailing party in any such case may recover
attorneys' fees and costs from the loser. In addition, this
Agreement shall be severable, and either party's failure to insist
upon strict compliance shall not be deemed a waiver. This Agreement
is our entire agreement and may only be amended in writing.
b) You and the Company agree to execute, simultaneous herewith, a
mutual release in the form attached as Exhibit "A", so as to comply
with the provisions of the Older Worker Benefit Protection Act.
If this letter correctly states our agreement, I would ask that you execute one
of the enclosed originals and return it to me.
Very truly yours,
/s/ Robert D. Walter
Robert D. Walter
Chairman of the Board and
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ John C. Kane
- ----------------------------------
John C. Kane
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>5
<FILENAME>l83475aex10-18.txt
<DESCRIPTION>EXHIBIT 10.18
<TEXT>
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated and effective as of the 9th day of February,
2000, is made and entered into by and between Cardinal Health, Inc., an Ohio
corporation (the "Company"), and James F. Millar (the "Executive").
WHEREAS, the Company and the Executive desire to set forth in a
written agreement the terms and conditions under which the Executive will render
services to the Company;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. EMPLOYMENT PERIOD. The Company shall employ, or shall cause one of
its subsidiaries or affiliates to employ, the Executive, and the Executive shall
serve the Company, on the terms and conditions set forth in this Agreement, for
the Full-Time Period and, if any, the Part-Time Period, each as defined herein
(together, the "Employment Period"). For purposes of this Agreement, any
reference to the "Company" shall mean, where appropriate, the actual Cardinal
subsidiary or affiliate that employs the Executive. The "Full-Time Period" shall
mean the period beginning as of February 9, 2000 and ending on February 9, 2003,
unless before such date (i) the employment of the Executive is terminated in
accordance with Section 4 of this Agreement, or (ii) the Executive properly
exercises his right, as described in the next sentence, to change his status to
that of a consulting employee. If the Executive's employment is terminated by
the Company without Cause (as defined in Section 4 of this Agreement) during the
Full-Time Period, the Executive may, at his option, immediately change his
status to that of a consulting employee. In such event, the Executive shall
become a consulting employee without experiencing any break in Executive's
status as an employee of the Company. The Executive's ability to serve as a
consulting employee is conditioned upon his continued observance of Section 5 of
this Agreement. The Executive's service as a consulting employee shall terminate
on or before February 9, 2003 (the period during which the Executive serves as a
consulting employee, if any, the "Part-Time Period"). The Employment Period may
be extended by mutual written agreement of the parties.
2. POSITION AND DUTIES. (a) From February 18, 2000 and during the
remainder of the Full-Time Period, the Executive shall serve as Executive Vice
President and Group President - Pharmaceutical Distribution and Provider
Services Group, with the duties and responsibilities
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<PAGE> 2
customarily assigned to such position and such other duties and responsibilities
as the Chief Operating Officer shall from time to time assign to the Executive;
PROVIDED that the Company may change the Executive's title, duties and
responsibilities (including reporting responsibilities) at any time without
violating this provision, so long as the Executive remains in an executive
position.
(b) During the Full-Time Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled under the practices and
policies of the Company as in effect from time to time, the Executive shall
devote the Executive's full business attention and time to the business and
affairs of the Company and shall use the Executive's reasonable best efforts to
carry out such responsibilities faithfully and efficiently. It shall not be
considered a violation of the foregoing for the Executive to (A) serve on
corporate boards or committees with the prior consent of the Chief Operating
Officer, (B) serve on civic or charitable boards or committees, (C) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(D) manage personal investments, so long as such activities do not materially
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement.
(c) The Executive's services shall be performed primarily at the
Company's principal place of business in Dublin, Ohio.
3. COMPENSATION. (a) SALARY. During the Full-Time Period, as
compensation for the Executive's services hereunder, the Company shall pay to
the Executive an annual salary of not less than the amount of the Executive's
salary as in effect on February 9, 2000 (hereinafter the "Commencement Base
Salary"), payable at such times and intervals as the Company customarily pays
the base salaries of its other executive employees; PROVIDED that the
Commencement Base Salary may be reduced as part of a reduction that applies
proportionately to all employees who are otherwise similar to the Executive with
respect to amount of compensation and level of managerial responsibility before
such reduction. During the Part-Time Period, as compensation for the Executive's
services as a consulting employee hereunder, the Company shall pay to the
Executive an annual base salary of $50,000 ("Consulting Base Salary"), payable
at such times and intervals as the Company customarily pays the base salaries of
its other executive employees.
(b) ANNUAL BONUS. In addition to the Commencement Base Salary, during
the Full-Time Period the Executive shall be eligible to receive an annual bonus
(an "Annual Bonus") determined and paid at the sole discretion of the Company
pursuant to the terms and conditions of the Company bonus plan for which the
Executive is then eligible, as such plan is in effect from time to time, or any
successor thereto (the "Bonus Plan"), with a Bonus Plan potential not less than
the target percentage as in effect on February 9, 2000. In addition to the
Consulting Base Salary, during the Part-Time Period the Executive shall be
eligible to receive an Annual
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<PAGE> 3
Bonus determined and paid at the sole discretion of the Company, in such amount,
if any, as the Company may determine, in its sole discretion.
(c) ADDITIONAL INCENTIVE AWARDS. In addition to the Commencement Base
Salary or Consulting Base Salary, as applicable, if the Executive remains
employed by the Company through February 9, 2002, the Executive shall be paid an
amount (the "Additional Incentive Bonus") equal to the sum of (i) the
Executive's Commencement Base Salary as in effect on February 9, 2000 and (ii)
the Executive's target annual bonus for fiscal year 2000 under the Bonus Plan
calculated on a full year basis based upon the target bonus percentage in effect
on February 9, 2000. The Additional Incentive Bonus, if payable, shall be paid
as soon as administratively practicable but in no case later than March 31,
2002. In addition, the Executive is simultaneously herewith being granted
restricted stock (the "Additional Incentive Shares"), pursuant to the Restricted
Shares Agreement attached to this Agreement as Exhibit A (the "Restricted Shares
Agreement").
(d) EMPLOYEE BENEFITS. During the Employment Period, the Executive
shall be entitled to receive employee benefits (including, without limitation,
medical, life insurance and other welfare benefits and benefits under retirement
and savings plans) and vacation to the same extent as, and on the same terms and
conditions as, other similarly situated executives of the Company from time to
time.
(e) EXPENSES. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive during the
Employment Period in carrying out the Executive's duties under this Agreement,
provided that the Executive complies with the policies, practices and procedures
of the Company then applicable to the Executive for submission of expense
reports, receipts, or similar documentation of such expenses.
(f) RETIREMENT. If the Executive's employment with the Company has not
terminated before February 9, 2003, the Executive will be eligible for
"retirement" and may "retire" at such date, in each case within the meaning of
the Company's various stock incentive plans. Nothing in this Agreement shall
limit the ability of the Executive to be eligible for such retirement for other
reasons or at other times, including at an earlier time, upon the then
applicable terms and conditions. In the event that the Executive retires on or
after February 9, 2003 but before the end of the Company's fiscal year in which
such date falls, the Executive's annual bonus earned for such fiscal year, if
any, shall be paid to the Executive in a ratable portion determined based upon
the percentage of the fiscal year during which the Executive was employed by the
Company.
4. EMPLOYMENT TERMINATION. (a) TERMINATION BY THE COMPANY. During the
Employment Period, the Executive's employment may be terminated by the Company
under any of the following circumstances: (i) upon the inability of the
Executive to perform the essential functions of his position with or without
reasonable accommodation, which inability continues for a consecutive period of
120 days or longer or an aggregate period of 180 days or longer, in either
instance during the Full-Time Period ("Incapacity"); (ii) for "Cause," defined
as (w) any willful or grossly negligent conduct by Executive that demonstrably
and materially injures the
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<PAGE> 4
Company; (x) the Executive being convicted of, confessing to, or pleading nolo
contendere to any crime involving dishonesty or moral turpitude; (y) the
Executive violating any provision of Section 5 of this Agreement; or (z) the
Executive's willful and continued failure for a significant period of time to
perform Executive's duties; and (iii) for any other reason (a termination
"without Cause"). The Company shall give the Executive notice of termination
specifying which of the foregoing provisions is applicable and (in the case of
clause (i) or (ii)) the factual basis therefor, and the termination shall be
effective upon the 14th day after such notice is given (hereinafter, the date on
which the Executive ceases to be an employee of the Company for any reason,
including, without limitation, retirement, whether or not during the Employment
Period, is referred to as the "Date of Termination").
(b) CONSEQUENCES OF TERMINATION BY THE COMPANY WITHOUT CAUSE. In the
event the Executive is terminated by the Company without Cause during the
Full-Time Period, the Executive shall be entitled to change his status to that
of a consulting employee as specified in Section 1 hereof. In addition to such
right, and not in lieu thereof, if Executive is terminated without Cause during
the Employment Period, Executive shall also receive
(i) if not already received, the Additional Incentive Shares in
accordance with the Restricted Shares Agreement, including without limitation
the vesting schedule set forth therein, provided that the Executive has complied
with all of the Executive's obligations under Section 5 of this Agreement;
(ii) any unpaid portion of the Additional Incentive Bonus in
accordance with Section 3(c) hereof, including without limitation the timing of
payment thereof after February 9, 2002, provided that the Executive has complied
with all of the Executive's obligations under Section 5 of this Agreement;
(iii) the vested benefits, if any, required to be paid or provided
by law; and
(iv) an amount equal to the sum of the Executive's (A)
Commencement Base Salary as applicable on the last day of the Full-Time Period
and (B) target annual bonus, calculated on a full year basis based upon the
target bonus percentage in effect on the last day of the Full-Time Period.
(c) OTHER EMPLOYMENT TERMINATIONS. If, during the Employment Period,
the Executive's employment is terminated for any reason other than by the
Company without Cause, the Executive shall not be entitled to any compensation
provided for under this Agreement, other than (i) the Commencement Base Salary
or Consulting Base Salary, as applicable, through the Date of Termination; (ii)
benefits under any long-term disability insurance coverage in the case of
termination because of Incapacity; (iii) vested benefits, if any, required to be
paid or provided by law; and (iv) in the case of termination because of
Incapacity or death, the benefits provided for in the Restricted Shares
Agreement, if any.
5. COVENANTS. (a) INTRODUCTION. The parties acknowledge that the
provisions and covenants contained in this Section 5 are ancillary and material
to this Agreement and the
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<PAGE> 5
Restricted Shares Agreement and that the limitations contained herein are
reasonable in geographic and temporal scope and do not impose a greater
restriction or restraint than is necessary to protect the goodwill and other
legitimate business interests of the Company. The parties also acknowledge and
agree that the provisions of this Section 5 do not adversely affect the
Executive's ability to earn a living in any capacity that does not violate the
covenants contained herein. The parties further acknowledge and agree that the
provisions of Section 11(a) below are accurate and necessary because (i) this
Agreement is entered into in the State of Ohio, (ii) Ohio has a substantial
relationship to the parties and to this transaction, (iii) Ohio is the
headquarters state of the Company, which has operations nationwide and has a
compelling interest in having its employees treated uniformly within the United
States, (iv) the use of Ohio law provides certainty to the parties in any
covenant litigation in the United States, and (v) enforcement of the provision
of this Section 5 would not violate any fundamental public policy of Ohio or any
other jurisdiction.
(b) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company and all of its subsidiaries,
partnerships, joint ventures, limited liability companies, and other affiliates
(collectively, the "Cardinal Group"), all secret or confidential information,
knowledge or data relating to the Cardinal Group and its businesses (including,
without limitation, any proprietary and not publicly available information
concerning any processes, methods, trade secrets, research, secret data, costs,
names of users or purchasers of their respective products or services, business
methods, operating procedures or programs or methods of promotion and sale) that
the Executive has obtained or obtains during the Executive's employment by the
Cardinal Group and that is not public knowledge (other than as a result of the
Executive's violation of this Section 5(b)) ("Confidential Information"). For
the purposes of this Section 5(b), information shall not be deemed to be
publicly available merely because it is embraced by general disclosures or
because individual features or combinations thereof are publicly available. The
Executive shall not communicate, divulge or disseminate Confidential Information
at any time during or after the Executive's employment with the Cardinal Group,
except with the prior written consent of the Cardinal Group, as applicable, or
as otherwise required by law or legal process. All records, files, memoranda,
reports, customer lists, drawings, plans, documents and the like that the
Executive uses, prepares or comes into contact with during the course of the
Executive's employment shall remain the sole property of the Company and/or the
Cardinal Group, as applicable, and shall be turned over to the applicable
Cardinal Group company upon termination of the Executive's employment.
(c) NON-RECRUITMENT OF EMPLOYER'S EMPLOYEES, ETC. Executive shall not,
at any time during the Restricted Period (as defined in this Section 5(c)),
without the prior written consent of Cardinal Health, Inc., directly or
indirectly, contact, solicit, recruit, or employ (whether as an employee,
officer, director, agent, consultant or independent contractor) any person who
was or is at any time during the previous twelve months an employee,
representative, officer or director of the Cardinal Group. Further, during the
Restricted Period, Executive shall not take any action that could reasonably be
expected to have the effect of encouraging or inducing any employee,
representative, officer or director of the Cardinal Group to cease their
relationship with the Cardinal Group for any reason. This provision does not
apply to recruitment of employees within or for the Cardinal Group. The
"Restricted Period" means the
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<PAGE> 6
period of Executive's employment with the Cardinal Group (whether Full-Time or
Part-Time) through the end of the twelfth month following the later to occur of
(i) the Date of Termination and (ii) the date on which the last benefit (other
than the vested benefits referenced in Section 4(b)(iii)) is paid under Section
4(b) of this Agreement.
(d) NO COMPETITION--SOLICITATION OF BUSINESS. During the Restricted
Period, the Executive shall not (either directly or indirectly or as an officer,
agent, employee, partner or director of any other company, partnership or
entity) solicit, service, or accept on behalf of any competitor of the Cardinal
Group the business of (i) any customer of the Cardinal Group at the time of the
Executive's employment or Date of Termination, or (ii) potential customer of the
Cardinal Group which the Executive knew to be an identified, prospective
purchaser of services or products of the Cardinal Group.
(e) NO COMPETITION--EMPLOYMENT BY COMPETITOR. During the Restricted
Period, the Executive shall not invest in (other than in a publicly traded
company with a maximum investment of no more than 1% of outstanding shares),
counsel, advise, or be otherwise engaged or employed by, any entity or
enterprise that competes with the Cardinal Group, by developing, manufacturing
or selling any product or service of a type, respectively, developed,
manufactured or sold by the Cardinal Group.
(f) NO DISPARAGEMENT. (i) The Executive shall at all times refrain
from taking actions or making statements, written or oral, that (A) denigrate,
disparage or defame the goodwill or reputation of the Cardinal Group or any of
its trustees, officers, security holders, partners, agents or former or current
employees and directors, or (B) are intended to, or may be reasonably expected
to, adversely affect the morale of the employees of the Cardinal Group. The
Executive further agrees not to make any negative statements to third parties
relating to the Executive's employment or any aspect of the businesses of the
Cardinal Group and not to make any statements to third parties about the
circumstances of the termination of the Executive's employment, or about the
Cardinal Group or its trustees, officers, security holders, partners, agents or
former or current employees and directors, except as may be required by a court
or governmental body.
(ii) The Executive further agrees that, following termination of
employment for any reason, the Executive shall assist and cooperate with the
Company with regard to any matter or project in which the Executive was involved
during the Executive's employment with the Company, including but not limited to
any litigation that may be pending or arise after such termination of
employment. Further, the Executive agrees to notify the Company at the earliest
opportunity of any contact that is made by any third parties concerning any such
matter or project. The Company shall not unreasonably request such cooperation
of Executive and shall compensate the Executive for any lost wages or expenses
associated with such cooperation and assistance.
(g) INVENTIONS. All plans, discoveries and improvements, whether
patentable or unpatentable, made or devised by the Executive, whether alone or
jointly with others, from the date of the Executive's initial employment by the
Company and continuing until the end of the
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<PAGE> 7
Employment Period and any subsequent period when the Executive is employed by
the Cardinal Group, relating or pertaining in any way to the Executive's
employment with or the business of the Cardinal Group, shall be promptly
disclosed in writing to the Chief Executive Officer and are hereby transferred
to and shall redound to the benefit of the Company, and shall become and remain
its sole and exclusive property. The Executive agrees to execute any assignments
to the Company or its nominee, of the Executive's entire right, title and
interest in and to any such discoveries and improvements and to execute any
other instruments and documents requisite or desirable in applying for and
obtaining patents, trademarks or copyrights, at the expense of the Company, with
respect thereto in the United States and in all foreign countries, that may be
required by the Company. The Executive further agrees, during and after the
Employment Period, to cooperate to the extent and in the manner required by the
Company, in the prosecution or defense of any patent or copyright claims or any
litigation, or other proceeding involving any trade secrets, processes,
discoveries or improvements covered by this Agreement, but all necessary
expenses thereof shall be paid by the Company.
(h) ACKNOWLEDGMENT AND ENFORCEMENT. (i) The Executive acknowledges and
agrees that: (A) the purpose of the foregoing covenants, including without
limitation the noncompetition covenants of Sections 5(d) and (e), is to protect
the goodwill, trade secrets and other Confidential Information of the Company;
(B) because of the nature of the business in which the Cardinal Group is engaged
and because of the nature of the Confidential Information to which the Executive
has access, the Company would suffer irreparable harm and it would be
impractical and excessively difficult to determine the actual damages of the
Cardinal Group in the event the Executive breached any of the covenants of this
Section 5; and (C) remedies at law (such as monetary damages) for any breach of
the Executive's obligations under this Section 5 would be inadequate. The
Executive therefore agrees and consents that if the Executive commits any breach
of a covenant under this Section 5 or threatens to commit any such breach, the
Company shall have the right (in addition to, and not in lieu of, any other
right or remedy that may be available to it) to temporary and permanent
injunctive relief from a court of competent jurisdiction, without posting any
bond or other security and without the necessity of proof of actual damage.
(ii) In addition, in the event of a violation of this Section 5,
the Company shall have no obligation to pay the Additional Incentive Bonus, if
it has not previously been paid, and shall have the right to cause the
Additional Incentive Shares to be forfeited (if they have not previously vested)
as provided in the Restricted Shares Agreement and to require the Executive to
pay to the Company all or any portion of the Clawback Amount (as defined below)
within 30 days following written notice by the Company to the Executive (the
"Company Notice") that it is imposing such requirement. The "Clawback Amount"
means the sum of:
A. the Additional Incentive Bonus, if it has previously been
paid;
B. the amount equal to the gross gain realized or obtained
by the Executive resulting from the vesting of the Additional Incentive Shares,
measured at the date of vesting (i.e., the market value of the Additional
Incentive Shares on the vesting date); and
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<PAGE> 8
C. if (x) the Executive has sold or otherwise disposed of
any of the Additional Incentive Shares, an amount equal to the excess of (I) the
fair market value thereof on the date of the sale or disposition over (II) the
fair market value thereof on the date such shares vested, and if (y) the
Executive has not sold or otherwise disposed of the Additional Incentive Shares,
an amount equal to the excess of (I) the fair market value thereof on the 30th
day following the date of the Company Notice over (II) the fair market value
thereof on the date such shares vested.
(iii) With respect to any provision of this Section 5 finally
determined by a court of competent jurisdiction to be unenforceable, the
Executive and the Company hereby agree that such court shall have jurisdiction
to reform this Agreement or any provision hereof so that it is enforceable to
the maximum extent permitted by law, and the parties agree to abide by such
court's determination. If any of the covenants of this Section 5 are determined
to be wholly or partially unenforceable in any jurisdiction, such determination
shall not be a bar to or in any way diminish the Company's right to enforce any
such covenant in any other jurisdiction.
6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Cardinal Group for which the
Executive may qualify, nor, subject to Section 9 below, shall anything in this
Agreement limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Cardinal Group. Vested benefits and other
amounts that the Executive is otherwise entitled to receive under any plan,
policy, practice or program of, or any contract or agreement with, the Cardinal
Group on or after the Date of Termination shall be payable in accordance with
such plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement. Notwithstanding the foregoing,
the Executive waives all of the Executive's rights to receive severance payments
and benefits under any severance plan, policy or practice of the Cardinal Group
or any entity merged with or into the Cardinal Group (or any part thereof)
except to the extent provided for in this Agreement.
7. NO MITIGATION. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
8. NOTICES. (a) METHODS. Each notice, demand, request, consent,
report, approval or communication (hereinafter, "Notice") which is or may be
required to be given by any party to any other party in connection with this
Agreement, shall be in writing, and given by facsimile, personal delivery,
receipted delivery services, or by certified mail, return receipt requested,
prepaid and properly addressed to the party to be served as shown in Section
8(b) below.
(b) ADDRESSES. Notices shall be effective on the date sent via
facsimile, the date delivered personally or by receipted delivery service, or
three days after the date mailed:
If to the Company: Cardinal Health, Inc.
7000 Cardinal Place
Dublin, OH 43017
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<PAGE> 9
Attn.: General Counsel
Facsimile: (614) 757-6948
If to the Executive: At the Executive's residence address
most recently filed with the Company.
(c) CHANGES. Each party may designate by Notice to the other in
writing, given in the foregoing manner, a new address to which any Notice may
thereafter be so given, served or sent.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersedes all
prior agreements with respect thereto, including without limitation, the
Employment Agreement between the Company and the Executive, dated as of May 12,
1998.
10. SUCCESSORS. (a) EXECUTIVE. This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) THE COMPANY. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company may assign this Agreement to any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company that expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
assignment had taken place. As used in this Agreement, "Company" shall mean both
the Company as defined above and any such successor that assumes and agrees to
perform this Agreement, by operation of law or otherwise.
11. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of Ohio, without reference to
principles of conflict of laws. In addition, all legal actions or proceedings
relating to this Agreement shall be brought in state or federal courts located
in Franklin County, Ohio, and the parties executing this Agreement hereby
consent to the personal jurisdiction of such courts. This Agreement may not be
amended or modified except by a written agreement executed by the parties hereto
or their respective successors and legal representatives.
(b) SEVERABILITY. The invalidity or unenforceability of any provision
of this
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<PAGE> 10
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(c) TAX WITHHOLDING. Notwithstanding any other provision of this
Agreement, the Company may withhold from amounts payable under this Agreement
all federal, state, local and foreign taxes that are required to be withheld by
applicable laws or regulations.
(d) NO WAIVER. The Executive's or the Company's failure to insist upon
strict compliance with any provision of, or to assert any right under, this
Agreement shall not be deemed to be a waiver of such provision or right or of
any other provision of or right under this Agreement.
(e) WARRANTY. The Executive hereby warrants that the Executive is free
to enter into this Agreement and to perform the services described herein.
(f) HEADINGS. The Section headings contained in this Agreement are for
convenience only and in no manner shall be construed as part of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument
(h) SURVIVAL. The obligations under this Agreement of the Executive
and the Company that by their nature and terms require (or may require)
satisfaction after the end of the Employment Period shall survive such event and
shall remain binding upon such parties.
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<PAGE> 11
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
EXECUTIVE
/s/ James F. Millar
------------------------------
James F. Millar
CARDINAL HEALTH, INC.
By /s/ Robert D. Walter
----------------------------
Robert D. Walter
Chief Executive Officer
-11-
<PAGE> 12
Exhibit A
RESTRICTED SHARES AGREEMENT
---------------------------
Cardinal Health, Inc., an Ohio corporation (the "Company"), hereby
grants, pursuant to the Cardinal Health, Inc. Amended and Restated Equity
Incentive Plan, as amended (the "Plan"), to James F. Millar (the "Executive")
that number of common shares in the Company (the "Additional Incentive Shares")
equal to the quotient of (a) the sum of (i) the Executive's Base Salary as in
effect on February 9, 2000 and (ii) the Executive's target annual bonus for
fiscal year 2000 under the Bonus Plan calculated on a full year basis based upon
the target bonus percentage in effect on February 9, 2000, divided by (b) the
closing NYSE sales price per common share on the Grant Date (rounded down to the
nearest whole share). The Additional Incentive Shares are subject to all
provisions of the Plan, which are hereby incorporated herein by reference, and
shall be subject to the provisions of this Agreement. This Agreement also hereby
incorporates by reference the Employment Agreement of the Executive and the
Company, dated as of February 9, 2000 (the "Employment Agreement"), and any
reference to "this Agreement" herein includes this Restricted Shares Agreement
and the Employment Agreement. Any capitalized terms used in this Restricted
Shares Agreement that are not specifically defined herein shall have the
meanings ascribed to such terms in the Employment Agreement.
VESTING. Except as otherwise provided in this Agreement, 100% of the
Additional Incentive Shares shall vest on February 9, 2002 (which date shall be
the "Vesting Date").
PURCHASE PRICE. The purchase price of Additional Incentive Shares
shall be $0.00.
TRANSFERABILITY. Prior to the Vesting Date, the Executive shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber the Additional
Incentive Shares. The Additional Incentive Shares will be held by the Company;
provided, however, that the Company will deliver certificates representing those
Additional Incentive Shares that have fully vested within a reasonable time
after being requested in writing to do so.
TERMINATION OF SERVICE. If the Executive's employment with the
Cardinal Group terminates prior to the Vesting Date, all of the Restricted
Shares shall be forfeited. Notwithstanding the foregoing, if the Executive's
employment with the Company is terminated before the end of the Employment
Period by the Company without Cause, the Additional Incentive Shares shall
nevertheless vest on the Vesting Date unless the Executive has violated any of
the provisions of Section 5 of the Employment Agreement. If the Executive's
employment with the Company terminates prior to the vesting of the Additional
Incentive Shares by reason of the Executive's death or Incapacity, then the
restrictions with respect to a ratable portion of the Additional Incentive
Shares shall lapse and such shares shall not be forfeited, unless the Executive
has violated any of the provisions of Section 5 of the Employment Agreement.
Such ratable portion shall be an amount equal to the number of Additional
Incentive Shares multiplied
-12-
<PAGE> 13
by the portion of the period between February 9, 2000 and the second anniversary
thereof that has expired at the date of the Executive's death or Incapacity.
SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if
at any time prior to the Vesting Date, the Executive violates any of the
provisions of Section 5 of the Employment Agreement, the Additional Incentive
Shares shall be forfeited by the Executive. In addition, if at any time the
Executive violates any of the provisions of Section 5 of the Employment
Agreement, the Executive is subject to being required to pay the Clawback Amount
to the Company, as more fully set forth in Section 5(h) of the Employment
Agreement. No provision of this Agreement shall diminish, negate, or otherwise
affect any separate noncompete agreement to which the Executive may be a party.
The Executive acknowledges and agrees that the provisions contained in this item
5 are being made for the benefit of the Cardinal Group in consideration of the
Executive's receipt of the Additional Incentive Shares, in consideration of
employment, in consideration of exposing the Executive to the Cardinal Group's
business operations and confidential information, and for other good and
valuable consideration, the adequacy of which consideration is hereby expressly
confirmed. The Executive further acknowledges that the receipt of the Additional
Incentive Shares and execution of this Agreement are voluntary actions on the
part of the Executive, and that the Company is unwilling to provide the
Additional Incentive Shares to the Executive without their being subject to this
item 5.
RIGHT OF SET-OFF. By accepting these Additional Incentive Shares, the
Executive consents to a deduction from and set-off against any amounts owed to
the Executive by the Cardinal Group from time to time (including but not limited
to amounts owed to the Executive as wages, severance payments, or other fringe
benefits) to the extent of the amounts so owed.
SHAREHOLDER RIGHTS AND RESTRICTIONS. Except with regard to the
disposition of Additional Incentive Shares, the Executive shall generally have
all rights of a shareholder with respect to the Additional Incentive Shares from
the date of grant, including, without limitation, the right to receive dividends
with respect to the Additional Incentive Shares and the right to vote the
Additional Incentive Shares, but subject, however, to those restrictions in this
Agreement or in the Plan.
WITHHOLDING TAX. The Company shall have the right to require the
Executive to pay to the Company the amount of any taxes which the Company
determines that it is required to withhold with respect to the Additional
Incentive Shares (including the amount of any taxes which the Company is
required to withhold with respect to dividends on the Additional Incentive
Shares) or, in lieu thereof, to retain, or sell without notice, a sufficient
number of Additional Incentive Shares to cover the amount required to be
withheld. The Company shall also have the right to facilitate withholding by any
other method permitted by the Plan.
GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of
the State of Ohio, without regard to principles of conflicts of law, except to
the extent superseded by the laws of the United States of America. In addition,
all legal actions or proceedings relating to this Restricted Shares Agreement
shall be brought in state or federal courts located in Franklin
-13-
<PAGE> 14
County, Ohio, and the parties executing this Agreement hereby consent to the
personal jurisdiction of such courts. The Executive acknowledges that the
covenants contained in item 5 of this Restricted Shares Agreement and in Section
5 of the Employment Agreement are reasonable in nature, are fundamental for the
protection of the Cardinal Group's legitimate business and proprietary
interests, and do not adversely affect the Executive's ability to earn a living
in any capacity that does not violate such covenants. The parties further agree
that, in the event of any violation by the Executive of any such covenants, the
Cardinal Group will suffer immediate and irreparable injury for which there is
no adequate remedy at law. In the event of any violation or attempted violations
of such covenants, the Cardinal Group shall be entitled to specific performance
and injunctive relief or other equitable relief without any showing of
irreparable harm or damage, and the Executive hereby waives any requirement for
the securing or posting of any bond in connection with such remedy, without
prejudice to the rights and remedies afforded the Cardinal Group hereunder or by
law. In the event that it becomes necessary for the Cardinal Group to institute
legal proceedings under this Agreement, the Executive shall be responsible to
the Cardinal Group for all costs and reasonable legal fees incurred by the
Cardinal Group with regard to such proceedings. Any provision of this Agreement
that is determined by a court of competent jurisdiction to be invalid or
unenforceable should be construed or limited in a manner that is valid and
enforceable and that comes closest to the business objectives intended by such
provision, without invalidating or rendering unenforceable the remaining
provisions of this Agreement.
PROMPT ACCEPTANCE OF AGREEMENT. The Additional Incentive Shares grant
evidenced by this Agreement shall, at the discretion of the Committee, be
forfeited if this Agreement is not executed by the Executive and returned to the
Company within sixty days of the grant date set forth below.
CARDINAL HEALTH, INC.
DATE OF GRANT: FEBRUARY 9, 2000 By: /s/ Steven Alan Bennett
---------------- --------------------------------
Steven Alan Bennett
Executive Vice President
-14-
<PAGE> 15
ACCEPTANCE OF AGREEMENT
-----------------------
The Executive hereby: (a) acknowledges that the Executive has received
a copy of (i) the attached Restricted Shares Agreement, (ii) the Company's most
recent Annual Report and other communications routinely distributed to the
Company's shareholders, (iii) the Executive's Employment Agreement, (iv) the
Plan, and (v) the most recent summary description of the Plan issued by the
Company; and (b) accepts this Agreement and the Additional Incentive Shares
granted to the Executive under this Agreement subject to all provisions of the
Restricted Shares Agreement, the Plan and the Employment Agreement; (c)
represents and warrants to the Company that the Executive is purchasing the
Additional Incentive Shares for the Executive's own account, for investment, and
not with a view to or any present intention of selling or distributing the
Additional Incentive Shares either now or at any specific or determinable future
time or period or upon the occurrence or nonoccurrence of any predetermined or
reasonably foreseeable event; and (d) agrees that no transfer of the Additional
Incentive Shares shall be made unless the Additional Incentive Shares have been
duly registered under all applicable federal, state, local and foreign
securities laws pursuant to a then-effective registration that contemplates the
proposed transfer or unless the Company has received a written opinion of, or
satisfactory to, its legal counsel that the proposed transfer is exempt from
such registration.
/s/ James F. Millar
----------------------------------------
Executive's Signature
----------------------------------------
Executive's Social Security Number
04/03/2000
----------------------------------------
Date
-15-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>6
<FILENAME>l83475aex10-19.txt
<DESCRIPTION>EXHIBIT 10.19
<TEXT>
<PAGE> 1
EXHIBIT 10.19
AGREEMENT
---------
THIS AGREEMENT, dated and effective as of the 9th day of February,
2000, is made and entered into by and between Cardinal Health, Inc., an Ohio
corporation (the "Company"), and Stephen S. Thomas (the "Executive").
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and conditions under which the Executive will render
services to the Company;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. SUPPLEMENT TO EMPLOYMENT AGREEMENT. This Agreement incorporates by
reference the Employment Agreement between the Company and the Executive, dated
as of July 1, 1999 (the "Employment Agreement"). Any capitalized word used but
not defined herein shall have the meaning ascribed to it in the Employment
Agreement. This Agreement is intended to supplement the Employment Agreement and
is intended to be interpreted and applied consistent with the terms of the
Employment Agreement unless specifically indicated otherwise herein.
2. ADDITIONAL INCENTIVE AWARDS. If the Executive remains employed by
the Company through February 9, 2002, the Executive shall be paid an amount (the
"Additional Incentive Bonus") equal to the sum of (i) the Executive's Base
Salary as in effect on February 9, 2000 and (ii) the Executive's target annual
bonus for fiscal year 2000 under the MIP calculated on a full year basis based
upon the target bonus percentage in effect on February 9, 2000. The Additional
Incentive Bonus, if payable, shall be paid as soon as administratively
practicable but in no case later than March 31, 2002. In addition, the Executive
is simultaneously herewith being granted restricted stock (the "Additional
Incentive Shares"), pursuant to the Restricted Shares Agreement attached to this
Agreement as Exhibit A (the "Restricted Shares Agreement").
3. EMPLOYMENT TERMINATION. (a) CONSEQUENCES OF TERMINATION BY THE
COMPANY WITHOUT CAUSE. If, at any time prior to February 9, 2002, the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason (within the meaning of Section 4 of the Employment
Agreement), the Executive shall
-1-
<PAGE> 2
not be entitled to any further compensation or benefits provided for under this
Agreement except as provided in the Restricted Shares Agreement and except for
any unpaid portion of the Additional Incentive Bonus, PROVIDED that the
Executive has complied with all of the Executive's obligations under Section 7
of the Employment Agreement ("Section 7"). Termination of the Executive's
employment because of Disability shall be treated as described in Section 3(b)
of this Agreement.
(b) OTHER EMPLOYMENT TERMINATIONS. If the Executive's employment is
terminated for any reason other than by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any
compensation provided for under this Agreement, other than, in the case of
termination because of Disability or death, the benefits provided for in the
Restricted Shares Agreement, if any.
(c) ACKNOWLEDGMENT AND ENFORCEMENT. (i) The Executive acknowledges and
agrees that: (A) the purpose of Section 7 is to protect the goodwill, trade
secrets and other Confidential Information of the Company; (B) because of the
nature of the business in which the Company and the Affiliated Companies are
engaged and because of the nature of the Confidential Information to which the
Executive has access, the Company would suffer irreparable harm and it would be
impractical and excessively difficult to determine the actual damages of the
Company and the Affiliated Companies in the event the Executive breached any of
the covenants of Section 7; and (C) remedies at law (such as monetary damages)
for any breach of the Executive's obligations under Section 7 would be
inadequate. The Executive therefore agrees and consents that if the Executive
commits any breach of a covenant under Section 7 or threatens to commit any such
breach, the Company shall have the right (in addition to, and not in lieu of,
any other right or remedy that may be available to it) to temporary and
permanent injunctive relief from a court of competent jurisdiction, without
posting any bond or other security and without the necessity of proof of actual
damage.
(ii) In addition, in the event of a violation of Section 7,
the Company shall have no obligation to pay the Additional Incentive Bonus, if
it has not previously been paid, and shall have the right to cause the
Additional Incentive Shares to be forfeited (if they have not previously vested)
as provided in the Restricted Shares Agreement and to require the Executive to
pay to the Company all or any portion of the Clawback Amount (as defined below)
within 30 days following written notice by the Company to the Executive (the
"Company Notice") that it is imposing such requirement. The "Clawback Amount"
means the sum of:
A. the Additional Incentive Bonus, if it has
previously been paid;
B. the amount equal to the gross gain realized or
obtained by the Executive resulting from the vesting of the Additional Incentive
Shares, measured at the date of vesting (i.e., the market value of the
Additional Incentive Shares on the vesting date); and
-2-
<PAGE> 3
C. if (x) the Executive has sold or otherwise
disposed of any of the Additional Incentive Shares, an amount equal to the
excess of (I) the fair market value thereof on the date of the sale or
disposition over (II) the fair market value thereof on the date such shares
vested, and if (y) the Executive has not sold or otherwise disposed of the
Additional Incentive Shares, an amount equal to the excess of (I) the fair
market value thereof on the 30th day following the date of the Company Notice
over (II) the fair market value thereof on the date such shares vested.
(iii) With respect to any provision of this Section 3 finally
determined by a court of competent jurisdiction to be unenforceable, the
Executive and the Company hereby agree that such court shall have jurisdiction
to reform this Agreement or any provision hereof so that it is enforceable to
the maximum extent permitted by law, and the parties agree to abide by such
court's determination. If any of the covenants of this Section 3 are determined
to be wholly or partially unenforceable in any jurisdiction, such determination
shall not be a bar to or in any way diminish the Company's right to enforce any
such covenant in any other jurisdiction.
4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company and the Affiliated Companies
for which the Executive may qualify, nor, subject to Section 5 below, shall
anything in this Agreement limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company and the
Affiliated Companies. Vested benefits and other amounts that the Executive is
otherwise entitled to receive under any plan, policy, practice or program of, or
any contract or agreement with, the Company and the Affiliated Companies on or
after the Date of Termination shall be payable in accordance with such plan,
policy, practice, program, contract or agreement, as the case may be, except as
explicitly modified by this Agreement. Notwithstanding the foregoing, the
Executive waives all of the Executive's rights to receive severance payments and
benefits under any severance plan, policy or practice of the Company or any
Affiliated Company or any entity merged with or into the Company or any
Affiliated Company.
5. ENTIRE AGREEMENT. This Agreement, together with the Employment
Agreement, constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements with respect thereto.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
EXECUTIVE
/s/ Stephen S. Thomas
-------------------------------------
Stephen S. Thomas
CARDINAL HEALTH, INC.
By: /s/ Robert D. Walter
--------------------------------
Robert D. Walter
Chief Executive Officer
-4-
<PAGE> 5
Exhibit A
RESTRICTED SHARES AGREEMENT
---------------------------
Cardinal Health, Inc., an Ohio corporation (the "Company"), hereby
grants, pursuant to the Cardinal Health, Inc. Amended and Restated Equity
Incentive Plan, as amended (the "Plan"), to Stephen S. Thomas (the "Executive")
that number of common shares in the Company (the "Additional Incentive Shares")
equal to the quotient of (a) the sum of (i) the Executive's Base Salary as in
effect on February 9, 2000 and (ii) the Executive's target annual bonus for
fiscal year 2000 under the MIP calculated on a full year basis based upon the
target bonus percentage in effect on February 9, 2000, divided by (b) the
closing NYSE sales price per common share on the Grant Date (rounded down to the
nearest whole share). The Additional Incentive Shares are subject to all
provisions of the Plan, which are hereby incorporated herein by reference, and
shall be subject to the provisions of this Agreement. This Agreement also hereby
incorporates by reference the Agreement of the Executive and the Company, dated
as of February 9, 2000 (the "Agreement"), and the Employment Agreement between
the Company and the Executive, dated as of July 1, 1999 (the "Employment
Agreement") and any reference to "this Agreement" herein includes this
Restricted Shares Agreement, the Agreement and the Employment Agreement. Any
capitalized terms used in this Restricted Shares Agreement that are not
specifically defined herein shall have the meanings ascribed to such terms in
the Agreement, and if such terms are not in the Agreement, in the Employment
Agreement.
VESTING. Except as otherwise provided in this Agreement, 100% of the
Additional Incentive Shares shall vest on February 9, 2002 (which date shall be
the "Vesting Date").
PURCHASE PRICE. The purchase price of Additional Incentive Shares shall
be $0.00.
TRANSFERABILITY. Prior to the Vesting Date, the Executive shall not be
permitted to sell, transfer, pledge, assign or otherwise encumber the Additional
Incentive Shares. The Additional Incentive Shares will be held by the Company;
provided, however, that the Company will deliver certificates representing those
Additional Incentive Shares that have fully vested within a reasonable time
after being requested in writing to do so.
TERMINATION OF SERVICE. If the Executive's employment with the Cardinal
Group terminates prior to the Vesting Date, all of the Restricted Shares shall
be forfeited. Notwithstanding the foregoing, if the Executive's employment with
the Company is terminated before the end of the Employment Period by the Company
without Cause or by the Executive for Good Reason, the Additional Incentive
Shares shall nevertheless vest on the Vesting Date unless the Executive has
violated any of the provisions of Section 7 of the Employment Agreement. If the
Executive's employment with the Company terminates prior
-5-
<PAGE> 6
to the vesting of the Additional Incentive Shares by reason of the Executive's
death or Disability, then the restrictions with respect to a ratable portion of
the Additional Incentive Shares shall lapse and such shares shall not be
forfeited, unless the Executive has violated any of the provisions of Section 7
of the Employment Agreement. Such ratable portion shall be an amount equal to
the number of Additional Incentive Shares multiplied by the portion of the
period between February 9, 2000 and the second anniversary thereof that has
expired at the date of the Executive's death or Disability.
SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at
any time prior to the Vesting Date, the Executive violates any of the provisions
of Section 7 of the Employment Agreement, the Additional Incentive Shares shall
be forfeited by the Executive. In addition, if at any time the Executive
violates any of the provisions of Section 7 of the Employment Agreement, the
Executive is subject to being required to pay the Clawback Amount to the
Company, as more fully set forth in Section 3(c) of the Agreement. No provision
of this Agreement shall diminish, negate, or otherwise affect any separate
noncompete agreement to which the Executive may be a party. The Executive
acknowledges and agrees that the provisions contained in this item 5 are being
made for the benefit of the Cardinal Group in consideration of the Executive's
receipt of the Additional Incentive Shares, in consideration of employment, in
consideration of exposing the Executive to the Cardinal Group's business
operations and confidential information, and for other good and valuable
consideration, the adequacy of which consideration is hereby expressly
confirmed. The Executive further acknowledges that the receipt of the Additional
Incentive Shares and execution of this Agreement are voluntary actions on the
part of the Executive, and that the Company is unwilling to provide the
Additional Incentive Shares to the Executive without their being subject to this
item 5.
RIGHT OF SET-OFF. By accepting these Additional Incentive Shares, the
Executive consents to a deduction from and set-off against any amounts owed to
the Executive by the Cardinal Group from time to time (including but not limited
to amounts owed to the Executive as wages, severance payments, or other fringe
benefits) to the extent of the amounts so owed.
SHAREHOLDER RIGHTS AND RESTRICTIONS. Except with regard to the
disposition of Additional Incentive Shares, the Executive shall generally have
all rights of a shareholder with respect to the Additional Incentive Shares from
the date of grant, including, without limitation, the right to receive dividends
with respect to the Additional Incentive Shares and the right to vote the
Additional Incentive Shares, but subject, however, to those restrictions in this
Agreement or in the Plan.
WITHHOLDING TAX. The Company shall have the right to require the
Executive to pay to the Company the amount of any taxes which the Company
determines that it is required to withhold with respect to the Additional
Incentive Shares (including the amount of any taxes which the Company is
required to withhold with respect to dividends on the
-6-
<PAGE> 7
Additional Incentive Shares) or, in lieu thereof, to retain, or sell without
notice, a sufficient number of Additional Incentive Shares to cover the amount
required to be withheld. The Company shall also have the right to facilitate
withholding by any other method permitted by the Plan.
GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of
the State of Ohio, without regard to principles of conflicts of law, except to
the extent superseded by the laws of the United States of America. In addition,
all legal actions or proceedings relating to this Restricted Shares Agreement
shall be brought in state or federal courts located in Franklin County, Ohio,
and the parties executing this Agreement hereby consent to the personal
jurisdiction of such courts. The Executive acknowledges that the covenants
contained in item 5 of this Restricted Shares Agreement and in Section 7 of the
Employment Agreement are reasonable in nature, are fundamental for the
protection of the Cardinal Group's legitimate business and proprietary
interests, and do not adversely affect the Executive's ability to earn a living
in any capacity that does not violate such covenants. The parties further agree
that, in the event of any violation by the Executive of any such covenants, the
Cardinal Group will suffer immediate and irreparable injury for which there is
no adequate remedy at law. In the event of any violation or attempted violations
of such covenants, the Cardinal Group shall be entitled to specific performance
and injunctive relief or other equitable relief without any showing of
irreparable harm or damage, and the Executive hereby waives any requirement for
the securing or posting of any bond in connection with such remedy, without
prejudice to the rights and remedies afforded the Cardinal Group hereunder or by
law. In the event that it becomes necessary for the Cardinal Group to institute
legal proceedings under this Agreement, the Executive shall be responsible to
the Cardinal Group for all costs and reasonable legal fees incurred by the
Cardinal Group with regard to such proceedings. Any provision of this Agreement
that is determined by a court of competent jurisdiction to be invalid or
unenforceable should be construed or limited in a manner that is valid and
enforceable and that comes closest to the business objectives intended by such
provision, without invalidating or rendering unenforceable the remaining
provisions of this Agreement.
PROMPT ACCEPTANCE OF AGREEMENT. The Additional Incentive Shares grant
evidenced by this Agreement shall, at the discretion of the Committee, be
forfeited if this Agreement is not executed by the Executive and returned to the
Company within sixty days of the grant date set forth below.
CARDINAL HEALTH, INC.
DATE OF GRANT: February 9, 2000 By: /s/ Steven Alan Bennett
---------------- --------------------------
Steven Alan Bennett
Executive Vice President
-7-
<PAGE> 8
ACCEPTANCE OF AGREEMENT
-----------------------
The Executive hereby: (a) acknowledges that the Executive has received
a copy of (i) the attached Restricted Shares Agreement, (ii) the Company's most
recent Annual Report and other communications routinely distributed to the
Company's shareholders, (iii) the Agreement, (iv) the Employment Agreement, (v)
the Plan, and (vi) the most recent summary description of the Plan issued by the
Company; and (b) accepts this Agreement and the Additional Incentive Shares
granted to the Executive under this Agreement subject to all provisions of the
Restricted Shares Agreement, the Plan, the Agreement and the Employment
Agreement; (c) represents and warrants to the Company that the Executive is
purchasing the Additional Incentive Shares for the Executive's own account, for
investment, and not with a view to or any present intention of selling or
distributing the Additional Incentive Shares either now or at any specific or
determinable future time or period or upon the occurrence or nonoccurrence of
any predetermined or reasonably foreseeable event; and (d) agrees that no
transfer of the Additional Incentive Shares shall be made unless the Additional
Incentive Shares have been duly registered under all applicable federal, state,
local and foreign securities laws pursuant to a then-effective registration that
contemplates the proposed transfer or unless the Company has received a written
opinion of, or satisfactory to, its legal counsel that the proposed transfer is
exempt from such registration.
/s/ Stephen S. Thomas
--------------------------------------
Executive's Signature
--------------------------------------
Executive's Social Security Number
03/17/00
--------------------------------------
Date
-8-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>7
<FILENAME>l83475aex10-20.txt
<DESCRIPTION>EXHIBIT 10.20
<TEXT>
<PAGE> 1
EXHIBIT 10.20
SECOND AMENDMENT TO
-------------------
CHANGE IN CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS AGREEMENT ("Second Amendment") is made as of February 9, 2000, by
and among Allegiance Corporation, a Delaware corporation ("Company"), Cardinal
Health, Inc., an Ohio corporation ("Cardinal"), and Joseph F. Damico
("Employee").
WHEREAS, Company and Employee entered into a change in control
severance agreement under the Allegiance Corporation Change in Control Plan (the
"CIC Plan"), effective as of October 1, 1996 (the "Original Agreement"), which
Original Agreement was amended as of October 8, 1998 by and between Company,
Cardinal and Employee (the "First Amendment") (the Original Agreement as amended
by the First Amendment is hereinafter referred to as the "Change in Control
Agreement"); and
WHEREAS, Company, Cardinal and Employee have determined to further
amend the Change in Control Agreement by this Second Amendment;
NOW, THEREFORE, in consideration of these mutual premises and the
mutual and dependent promises hereinafter set forth, the parties hereto agree as
follows:
1. SUPPLEMENT TO CHANGE IN CONTROL AGREEMENT. This Second Amendment
incorporates by reference the Change in Control Agreement, including all
Exhibits thereto. Any capitalized word used but not defined herein shall have
the meaning ascribed to it in the Change in Control Agreement. All references to
Section numbers of the Change in Control Agreement set forth in this Second
Amendment reference Sections of the Original Agreement. This Second Amendment is
intended to amend and supplement the Change in Control Agreement and is intended
to be interpreted and applied consistent with the terms of the Change in Control
Agreement unless specifically indicated otherwise herein. To the extent there is
any inconsistency between this Second Amendment and the Change in Control
Agreement, however, this Second Amendment shall control.
2. A new Section 21 is hereby added to the Change in Control Agreement
which reads as follows:
21. PART-TIME PERIOD. Employee may, at his option, elect to
change his status to that of a consulting employee, if (i) Employee's
employment is terminated by Company without Cause during the Full-Time
Period (defined below), or (ii) the Full-Time Period expires on
February 9, 2001 according to its terms. The "Full-Time Period" is
defined as that period beginning on February 9, 2000 and ending on
February 9, 2001. In the event that Employee exercises his right to
change his status to that of a consulting employee, then Employee shall
become a consulting employee without experiencing any break in
Employee's status as an employee of Company (the period during which
Employee serves as a consulting employee, if any, the "Part-Time
Period"). During the Part-Time Period, as compensation for Employee's
services as a consulting employee,
-1-
<PAGE> 2
Company shall pay Employee $1,000 per month, payable at such times and
intervals as Company customarily pays the base salaries of its other
executive employees ("Consulting Base Salary"). Employee's ability to
serve as a consulting employee is conditioned upon his continuing
compliance with the obligations set forth in Section 5 of the Change in
Control Agreement. Notwithstanding the foregoing, during such Part-Time
Period, provided Employee is and remains in compliance with Section 5
of the Change in Control Agreement (i) nothing herein shall be deemed
to preclude Employee from engaging in any other business, profession or
occupation so long as such business, profession or occupation is
consistent with the requirements of Section 5 of the Change in Control
Agreement and (ii) Company may not terminate Employee other than for
Cause. The Part-Time Period, if any, shall terminate on February 9,
2003 and in no event shall Employee be entitled to any rights or
benefits from or after such date, except to the extent he remains
entitled to any amounts deferred hereunder. Any stock options held by
Employee will continue to vest in accordance with their terms during
the Part-Time Period.
3. A new Section 22 is hereby added to the Change in Control Agreement
which reads as follows:
22. ADDITIONAL INCENTIVE BONUS AND STAY BONUS. (a) If Employee
remains employed by Company on either a full-time or consulting basis
through February 9, 2001, or if Employee is terminated without Cause by
Company prior to February 9, 2001, Employee shall be paid an amount
(the "Additional Incentive Bonus") equal to the sum of (i) Employee's
base salary as in effect on February 9, 2000 (i.e., $475,000) and (ii)
Employee's target annual bonus for fiscal year 2000 under the bonus
plan for which Employee is eligible on February 9, 2000, calculated on
a full year basis based upon the target bonus percentage in effect on
February 9, 2000 (i.e., $565,250). The Additional Incentive Bonus, if
payable, shall be paid as soon as administratively practicable but in
no case later than April 14, 2001.
(b) In addition to the base salary or Consulting Base Salary,
as applicable, and the Additional Incentive Bonus, if Employee remains
employed by Company on either a full-time or consulting basis through
February 9, 2001, or if Employee is terminated without Cause by Company
prior to February 9, 2001, Employee shall earn a stay bonus (the "Stay
Bonus") in the amount of $570,750.
4. Section 2 of the Change in Control Agreement is hereby deleted in
its entirety and the following provisions are substituted therefor:
2. BENEFITS PAYABLE HEREUNDER.
(a) AGREEMENT BONUS. As soon as administratively practicable
but in no case later than August 15, 2000, Employee shall be paid
$50,000 in consideration for execution of this Second Amendment (the
"Agreement Bonus").
(b) NONCOMPETITION PAYMENT. In consideration for Employee's
obligations set
-2-
<PAGE> 3
forth in Section 5 of the Change in Control Agreement, Company shall
pay Employee a "Noncompetition Payment" in an amount equal to
$2,500,000 plus an amount equal to Employee's bonus plan potential for
Company's fiscal year 2001 which shall be calculated at a level not
less than the target percentage in effect on July 1, 2000 (i.e.,
$565,250). The payment of the Noncompetition Payment is conditioned
upon Employee's continuing compliance with the obligations set forth in
Section 5 of the Change in Control Agreement.
(c) PAYMENT OF STAY BONUS AND NONCOMPETITION PAYMENT. The Stay
Bonus provided for in Section 22 and Noncompetition Payment provided
for in Section 2(b), each if earned, shall be paid not later than July
31, 2001. Notwithstanding the fact that Employee's obligations under
Section 5 of the Change in Control Agreement and his liability for
violations thereof extend beyond July 31, 2001, Employee shall be paid
the Noncompetition Payment as set forth in the immediately preceding
sentence if he is in compliance with such covenants on the payment
date.
5. (a) The introductory paragraph to Section 5 and subsections (a) and
(b) of Section 5 of the Change in Control Agreement are each hereby deleted and
replaced in their entirety as follows:
NON-SOLICITATION AND NON-COMPETITION. In consideration for the
benefits called for under Sections 2, 3, and 22 of this Change in
Control Agreement, Employee agrees that Employee shall not:
(a) at any time during the Full-Time Period and an additional
period that ends upon the later of (i) 12 months following (x) the
last day of the Full-Time Period or (y) the date of termination if
Employee is terminated without Cause prior to the expiration of
the Full-Time Period and (ii) 24 months following the end of the
month in which the Cardinal Merger is consummated, without the
prior written consent of Cardinal, alone or association with
others, solicit on behalf of Employee, or any other person, firm,
corporation or entity, any employee of Company or Cardinal or any
of their subsidiaries, partnerships, joint ventures, limited
liability companies, or other affiliates (collectively, the
"Cardinal Group"); and
(b) at any time during the Full-Time Period and an additional
period that ends 24 months after (i) the last day of the Full-Time
Period or (ii) the date of termination if Employee is terminated
without Cause prior to the expiration of the Full-Time Period,
without the prior written consent of Cardinal, directly or
indirectly, engage or invest in, counsel or advise or be employed
by any of the entities set forth on Exhibit A attached to this
Agreement (the "Listed Entities"), or by any person, entity, firm
or corporation which is now an affiliate of any of the Listed
Entities, until such time as such Listed Entity is acquired or
consolidated with any entity other than any of the Listed
Entities. Notwithstanding the foregoing, Employee shall be
entitled to passively own not more than four and nine-tenths
percent (4.9%) of any of the Listed Entities.
-3-
<PAGE> 4
(b) The remainder of Section 5 not modified by the foregoing shall
remain in full force and effect.
6. The last sentence of Section 6 of the Change in Control Agreement is
hereby deleted and replaced in its entirety as follows:
Payment to Employee of the Agreement Bonus, Noncompetition
Payment, Additional Incentive Bonus, and Stay Bonus, each if earned,
and, if any, the Consulting Base Salary and Gross-Up Payment, shall
constitute the entire obligation of Company and Cardinal (other than
for vested benefits and, in accordance with their terms, stock based
incentives) to Employee under the Change in Control Agreement and full
settlement of any claim under law or in equity that Employee might
otherwise assert against Company or Cardinal or any of its employees,
officers or directors on account of Employee's employment or departure
from the Cardinal Group.
7. Section 8 of the Change in Control Agreement is hereby deleted and
replaced in its entirety as follows:
8. TERMINATION FOR CAUSE AND GOOD REASON. Employee will be
considered to have been terminated for "Cause" if the
termination is by reason of Employee willfully engaging in
conduct demonstrably and materially injurious to the Cardinal
Group, Employee being convicted of or confessing to a crime
involving dishonesty or moral turpitude, Employee's failure to
comply with any of the obligations set forth in Section 5 of
this Change in Control Agreement, or Employee's willful and
continued failure for a significant period of time to perform
Employee's duties after a demand for substantial performance
has been delivered to Employee by the Board of Directors of
Company which demand specifically identifies the manner in
which the Board believes that Employee has not substantially
performed his duties. Employee's termination shall be
considered to have been for "Good Reason" if Employee's
termination is by reason of the occurrence of any of the
following events during the Part-Time Period without
Employee's express written consent:
(a) the failure by Company to provide Employee with the
compensation and benefits provided for in this Change
in Control Agreement;
(b) any material breach by Company of this Change in
Control Agreement; and
(c) the failure of Company to obtain a satisfactory
agreement from any successor or assign of Company to
assume and agree to perform this Change in Control
Agreement, as required in Section 10 of this Change
in Control Agreement.
If, during the Part-Time Period, Employee elects to terminate
Employee's employment for Good Reason, Employee shall so
notify Cardinal in writing after the occurrence of the event
constituting Good Reason, specifying the basis for such
termination. If Cardinal fails, within ten (10) days after
receiving such written notice, to remedy the facts and
circumstances that provided Good Reason, Employee's
-4-
<PAGE> 5
employment shall be deemed to have terminated for Good Reason
on the tenth day after Cardinal receives such written notice.
If, during the Part-Time Period, Cardinal does remedy such
facts and circumstances within such ten (10) days, Employee
shall be deemed to no longer have Good Reason, and shall
continue in the employ of Company as if no notice had been
given.
8. In the event that Cardinal and Employee agree that Employee shall
continue as a full-time employee of Company after February 9, 2001, Company,
Cardinal and Employee agree to further modify the Change in Control Agreement in
a mutually acceptable manner to take into account such extension of full-time
employment. In the event there is a Change in Control of Company or Cardinal
other than the Cardinal Merger, Employee shall not be entitled to any new or
additional benefits under the CIC Plan, Change in Control Agreement, or this
Second Amendment.
9. All references to Change in Control Agreement in this Second
Amendment shall, to the extent required by the context, be deemed to include the
changes made by this Second Amendment.
IN WITNESS WHEREOF, Company, Cardinal and Employee have signed this Second
Amendment as of the date first written above.
ALLEGIANCE CORPORATION CARDINAL HEALTH, INC.
By: /s/ Anthony J. Rucci By: /s/ Robert D. Walter
----------------------------------- -------------------------
Anthony J. Rucci Robert D. Walter
Executive Vice President - Administration Chairman and Chief
Executive Officer
/s/ Joseph F. Damico
- ------------------------------------
Joseph F. Damico
-5-
<PAGE> 6
EXHIBIT A
AmeriSource
Bergen Brunswig (including Bergen Medical and any
successor in interest to the Bergen Medical business)
Bindley Western
C.D. Smith
D & K Healthcare
McKesson (including General Medical and any
successor in interest to the General Medical business)
Morris & Dickson
Neuman
Owens & Minor
Omnicell
PSS World Medical
Henry Schein
Medline
Diebold
ServiceMaster
Fischer Scientific
Maxxim
Safeskin
DeRoyal
VWR
-6-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>8
<FILENAME>l83475aex10-24.txt
<DESCRIPTION>EXHIBIT 10.24
<TEXT>
<PAGE> 1
EXHIBIT 10.24
CREDIT SUISSE FIRST BOSTON CORPORATION
[CREDIT SUISSE LOGO]
Eleven Madison Avenue Telephone (212) 325 5900
New York, NY 10010-3629 Facsimile (212) 325-8176/7
March 16, 2000
Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Attn: Richard J. Miller
Executive Vice President
and Chief Financial Officer
Credit Suisse Financial Products
One Cabot Square
London E14 4QJ
England
- --------------------------------------------------------------------------------
Dear Sirs:
The purpose of this telecopy (this "Confirmation") is to confirm the terms and
conditions of the Transaction entered into between Credit Suisse Financial
Products ("Party A") and Cardinal Health, Inc.("Party B"), through Credit Suisse
First Boston Corporation ("CSFB") and its assigns as agent for both parties (in
such capacity, the "Agent"), on the Trade Date specified below (the
"Transaction"). This Confirmation constitutes a "Confirmation" as referred to in
the Agreement specified below.
1. The definitions and provisions contained in the 1991 ISDA Definitions
(as supplemented by the 1998 Supplement) (the "Definitions") as
published by the International Swaps and Derivatives Association, Inc.,
formerly the International Swap Dealers Association, Inc., are
incorporated into this Confirmation. In the event of any inconsistency
between the Definitions and this Confirmation, this Confirmation will
prevail.
If Party A and Party B are parties to the 1992 ISDA Master Agreement (the
"Agreement"), this Confirmation supplements, forms a part of, and is subject to
such Agreement. If Party A and Party B are not yet parties to the Agreement,
Party A and Party B agree to use their best efforts promptly to negotiate,
execute, and deliver the Agreement with such modifications as Party A and Party
B shall in good faith agree. Upon execution and delivery by Party A and Party B
of the Agreement, this Confirmation shall supplement, form a part of, and be
subject to such Agreement. Until Party A and Party B execute and deliver the
Agreement, this Confirmation (together with all other Confirmations of
Transactions previously entered into between Party A and Party B,
notwithstanding anything to the contrary therein) shall supplement, form a part
of, and be subject to the 1992 ISDA Master Agreement, as if, on the Trade Date
of the first such Transaction between them, Party A and Party B had executed
that
<PAGE> 2
agreement (without any Schedule or Addendum thereto) and had specified that the
Automatic Early Termination provisions contained in Section 6(a) of such
agreement would not apply.
The Agreement and each Confirmation thereunder will be governed by and construed
in accordance with the laws of the State of New York, without reference to
choice of law doctrine and each party hereby submits to the jurisdiction of the
Courts of the State of New York.
Party A and Party B each represents to the other that it is entering into this
Transaction in reliance upon such accounting, regulatory, legal, tax and
financial advice as it deems necessary and not upon any view expressed by the
other.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:
Number of Shares: 7,000,000
Shares: The no par value common stock of Party B
(sometimes also referred to as the "Issuer")
Purchase of Shares On the Trade Date, Party B will purchase the
number of Shares from Party A or its
designee in an over-the-counter transaction
for a purchase price equal to $43.25 per
Share.
Trade Date: March 16, 2000
Effective Date: Trade Date
Termination Date: The earlier of:
(i) the date that is three (3) Exchange
Business Days following the first
date upon which the sum of the
Reference Share Amounts is equal to
the Number of Shares; and
(ii) the Accelerated Termination Date;
provided, however, that the Termination Date
shall not be later than June 30, 2000,
subject to the Adjustment to Termination
Date and the Accelerated Termination
provisions set out below and further subject
to adjustment in accordance with the
Modified Following Business Day Convention,
-2-
<PAGE> 3
unless there is a Market Disruption Event on
that day, or a Settlement Disruption Event
or Nationalization or Liquidation has
occurred and is continuing on that day. In
the case of any of the above, the
Termination Date shall be rescheduled to a
date determined by the Calculation Agent.
Adjustment to
Termination Date: If a party determines that any date that
would otherwise have been a Valuation Date
is not a Valuation Date, in accordance with
the terms of the Valuation Date provision
set out in Appendix A, then the Termination
Date shall be delayed by the number of
Exchange Business Days equal to the number
of dates for which such party makes such
determination.
Payment Date for
both parties: The Termination Date
Period End Date for
both parties: The Termination Date
Party A Floating
Amount: An amount in U.S. Dollars equal to the sum
of the Compounded Daily Strike Amounts for
all Valuation Dates.
As used herein, "Compounded Daily Strike
Amount" means each Daily Strike Amount
compounded at the LIBOR Rate in effect on
the day which is three (3) Exchange Business
Days after the applicable Valuation Date for
the actual number of days elapsed from, and
including, the day which is three (3)
Exchange Business Days after the Valuation
Date on which such Daily Strike Amount was
determined to, but excluding, the
Termination Date, any Early Termination Date
or Accelerated Termination Date, as the case
may be, divided by 360.
Party B Floating Amount: An amount in U.S. Dollars equal to the sum
(a) the sum of the Compound Dividend Amounts
(b) $1,059,625 and (c) the sum of the
Compounded Daily Reference Amounts for all
Valuation Dates.
As used herein "Compounded Daily Reference
Amount" means each Daily Reference Amount
compounded at the LIBOR Rate in effect on
the day
-3-
<PAGE> 4
which is three (3) Exchange Business Days
after the applicable Valuation Date for the
actual number of days elapsed from, and
including, the day which is three (3)
Exchange Business Days after the Valuation
Date on which such Daily Reference Amount
was determined to, but excluding, the
Termination Date, any Early Termination Date
or Accelerated Termination Date, as the case
may be, divided by 360
Dividend Amount: The Dividend Amount shall be determined by
the Calculation Agent in good faith and in a
commercially reasonable manner and shall be
equal to the Dividends multiplied by the
Remaining Number of Shares on the Valuation
Date immediately preceding the applicable
ex-dividend date.
Compound Dividend Amount: An amount (whether in cash or in kind) with
respect to each ex-dividend date equal to
the product of: (x) the amount of any
Dividend per Share having an ex-dividend
date after the Effective Date and prior to
the Termination Date, Accelerated
Termination Date or Early Termination Date,
as the case may be; and (y) the Remaining
Number of Shares on the day immediately
preceding the ex-dividend date for such
Dividend; such amount being:
(i) in the case of Dividends with a
payment date after the Termination
Date, Accelerated Termination Date
or Early Termination Date, as
applicable: discounted at the LIBOR
Rate for the number of days in the
period commencing on and including
the Termination Date, Early
Termination Date or Accelerated
Termination Date, as applicable, to
but excluding the date that holders
of the Shares receive such
Dividend, divided by 360; and
(ii) in the case of Dividends with a
payment date prior to the
Termination Date: compounded at the
LIBOR Rate for the number of days
in the period commencing on and
including the date that holders of
the Shares receive such Dividend,
to but excluding the Termination
-4-
<PAGE> 5
Date, Accelerated Termination Date
or Early Termination Date, as
applicable, divided by 360.
Remaining Number
of Shares: For any Exchange Business Day, a number of
Shares equal to the Number of Shares minus
the sum of the Reference Share Amounts for
each of the Valuation Dates occurring in the
period commencing on the Effective Date to
and including such Exchange Business Day,
or, in the case of an Accelerated
Termination as described below, exclusive of
the Accelerated Termination Date.
Cash Settlement: Applicable, provided, that Party B may
elect, upon seven (7) calendar days' prior
written notice in accordance with the
provisions of Section 12 of the Agreement,
that Physical Settlement shall apply to this
Transaction. If Party B makes such election,
the terms of the Net Share Settlement
provision specified in Appendix C shall
apply. If, after electing Physical
Settlement, the conditions set forth on
Appendix B have not been satisfied on the
Termination Date, Early Termination Date or
Accelerated Termination Date, Cash
Settlement shall apply.
Business Days: New York
Calculation Agent: Party A, whose determinations and
calculations shall be binding in the absence
of manifest error or lack of good faith. The
Calculation Agent shall have no
responsibility for good faith errors or
omissions in making any determination as
provided herein. All determinations and
calculations by the Calculation Agent shall
be made in good faith and in a commercially
reasonable manner.
Upon Party B's reasonable request, the
Calculation Agent shall in good faith
disclose to Party B any relevant materials
or methods referenced by the Calculation
Agent in making any determinations and/or
calculations applicable to this Transaction.
Credit Support Documents: Party A: None
Party B: None
-5-
<PAGE> 6
Clearance System: The Depository Trust Company
Reference Market-maker: For the purposes of this Transaction, Party
A shall be the sole Reference Market-maker
in respect of any calculation to be made
pursuant to Section 6 of the Agreement.
3. Accelerated Termination.
Accelerated Termination: So long as a Market Disruption Event,
Distribution Event or Share Liquidity Event
shall not have occurred and be continuing,
Party B shall have the right upon three (3)
Business Days' notice to designate any
Exchange Business Day as the Termination
Date (the "Accelerated Termination Date").
Payments Upon Accelerated
Termination: All amounts paid and delivery of Shares made
in connection with any such Accelerated
Termination Date shall be calculated by the
Calculation Agent so as to preserve for the
parties the economic benefits of this
Transaction, as if this Transaction were
amended so as to provide that the
Accelerated Termination Date were the
Termination Date. All deliveries of Shares
by Party B in connection with any such
Accelerated Termination Date shall satisfy
the requirements of Appendix C hereto.
4. Indemnification and Contribution
(a) Indemnification by Party B.
Party B agrees to indemnify and hold harmless Party A, its affiliates,
their respective directors, officers, employees, agents, advisors,
brokers and representatives and each person who controls Party A or its
affiliates within the meaning of either the United States Securities
Act of 1933, as amended (the "Securities Act") or the United States
Securities Exchange Act of 1934, as amended (the "Exchange Act")
against, and Party B agrees that no indemnified party shall have any
liability to Party B or any of its affiliates, officers, directors, or
employees for, any losses, claims, damages, liabilities (whether direct
or indirect, in contract, tort or otherwise) or expenses, joint or
several, to which any indemnified party may become subject under the
Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions, claims,
investigations or proceedings in respect thereof, whether commenced or
threatened) (i) arise out of or relate to (A) actions or failures to
act by Party B (including any misstatement or alleged
-6-
<PAGE> 7
misstatement of a material fact contained in a registration statement
or a prospectus relating to the delivery of Shares of the Issuer upon
an election by Party B of Physical Settlement, if any, or in any
amendment thereof or supplement thereto, or omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading) or (B)
actions or failures to act by an indemnified party with the consent of
Party B or (ii) otherwise arise out of or relate to this Transaction or
any related transactions, provided that this clause (ii) shall not
apply to the extent, but only to the extent, that any losses, claims,
damages, liabilities or expenses of an indemnified party have resulted
primarily from the gross negligence or wilful misconduct of such
indemnified party in which case Party A shall indemnify Party B for any
losses, claims, damages, liabilities (whether direct or indirect, in
contract, tort or otherwise) or expenses which Party B may suffer as a
result of such indemnified parties' gross negligence or wilful
misconduct. Party B agrees to reimburse promptly each such indemnified
party for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damages, liability, expense or action. Notwithstanding anything to the
contrary in the foregoing, Party B will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expenses
arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to Party B by or
on behalf of Party A specifically for use in connection with the
preparation of a prospectus or any supplement thereto. This indemnity
agreement will be in addition to any liability which Party B may
otherwise have.
(b) Legal Proceedings.
Party B shall not, without the prior written consent of Party A, effect
any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability arising from such proceeding.
(c) Contribution.
If the indemnification provided for above is unavailable to an
indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or
expenses, in such proportion as is appropriate to reflect not only the
relative fault of Party B on the one hand and of Party A on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages, expenses or liabilities, but also any other
relevant equitable considerations. The relative fault of Party B on the
one hand and Party A on the other shall be determined by reference to,
among other things, whether the misstatement or alleged misstatement of
a material fact or the omission or alleged omission to state a material
fact relates to information supplied by Party B or by Party A and the
parties' relative intent, knowledge,
-7-
<PAGE> 8
access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The parties agree that
it would not be just and equitable if contribution pursuant to this
paragraph (c) were determined by a method of allocation that does not
take account of the equitable considerations referred to in this
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
5. Account Details:
Payments to Agent: Citibank NA
ABA: 021-000-089
A/c: 40804388
A/c: Credit Suisse First Boston
Payments to Party B: Bank One, NA
100 E. BROAD STREET
COLUMBUS OH 43271
044-000-037
Name: Cardinal Health, Inc.
A/C: 981875773
Deliveries to Agent: DTC 355
Credit Suisse First Boston
6. U.S. Private Placement Representations:
As this Transaction constitutes, or may constitute, the sale by Party A
to Party B, through the Agent, of a Security or Securities (as defined
in the Securities Act), in addition to the representations contained in
Section 3 of the Agreement, Party B hereby represents to Party A, in
accordance with Section 3 of the Agreement, as follows:
(a) Party B is acquiring such Securities through the Agent for its
own account as principal, for investment purposes only, and
not with a view to, or for, resale, distribution or
fractionalisation thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in any
such Securities acquired by Party B through the Agent;
-8-
<PAGE> 9
(b) Party B understands that the offer and sale by Party A,
through the Agent, of such Securities are intended to be
exempt from registration under the Securities Act, by virtue
of Section 4(2) thereof. In furtherance thereof, Party B
represents and warrants that (i) it has the financial ability
to bear the economic risk of its investment and has adequate
means of providing for its current needs and other
contingencies, (ii) it is experienced in investing in options
and similar instruments and has determined that such
securities are a suitable investment for it, and (iii) it is
an institution that qualifies as an "accredited investor" as
that term is defined in Regulation D under the Securities Act;
and
(c) Party B has been given the opportunity to ask questions of,
and receive answers from, Party A through the Agent concerning
the terms and conditions of such Securities and concerning the
financial condition and business operations of Party A and has
been given the opportunity to obtain such additional
information necessary in order for Party B to evaluate the
merits and risks of purchase of such Securities to the extent
Party A possesses such information or can acquire it without
unreasonable effort or expense.
Party B hereby acknowledges that it understands and agrees that
disposition of any such Securities is restricted under the Agreement,
the Securities Act and state securities laws. For example, such
Securities have not been registered under the Securities Act or under
the securities laws of certain states and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless they have been
registered under the Securities Act and under the applicable laws of
such states or an exemption from such registration is available.
7. The Agent:
(a) As a broker-dealer registered with the Securities and Exchange
Commission (the "SEC"), CSFB, in its capacity as Agent for Party A and
Party B will be responsible for: (i) effecting this Transaction, (ii)
issuing all required confirmations and statements to Party A and Party
B, (iii) maintaining books and records relating to this Transaction as
required by Rules 17a-3 and 17a-4 under the Exchange Act and (iv)
unless otherwise requested by Party B, receiving, delivering and
safeguarding any securities and funds of Party B in connection with
this Transaction in compliance with Rule 15c3-3 under the Exchange Act.
The parties agree that the Agent may assign all of its rights and
delegate all of its obligations and duties under the Transaction to any
Affiliate of Party A which is a broker-dealer registered with the SEC
without the consent of either party.
(b) CSFB is acting in connection with this Transaction solely as Agent for
both Party A and Party B pursuant to instructions from them. CSFB shall
have no responsibility or personal liability to Party A or Party B
arising from any failure by Party A or Party B to pay or perform any
obligation hereunder or to monitor or to enforce compliance by Party A
or Party B with any obligation hereunder including, without limitation,
any obligations to maintain collateral. Each of Party A and Party B
agrees to proceed solely against the other to collect or recover any
securities or money owing to it in connection with or as a
-9-
<PAGE> 10
result of this Transaction. CSFB shall otherwise have no liability in
respect of this Transaction, except for its gross negligence, wilful
misconduct or bad faith in performing its duties as Agent hereunder.
(c) Any and all notices, demands, or communications of any kind relating to
this Transaction between Party A and Party B shall be transmitted
exclusively through the Agent at the following address:
Credit Suisse First Boston Corporation
11 Madison Avenue
New York, NY 10010
Facsimile No: (212) 325-8175
Telephone No: (212) 325-8678
Attn: Ricardo A. Harewood
(d) The date and time of this Transaction will be furnished by the Agent to
Party A and Party B upon written request.
(e) The Agent will furnish to Party A and Party B upon written request a
statement as to the sources and amount of any remuneration received or
to be received by it in connection with this Transaction.
(f) Party A and Party B each represents and agrees that this Transaction is
not unsuitable for it in light of the information concerning such
party's financial situation and investment objectives which have been
furnished by such party to the Agent. Party A and Party B each agrees
to notify the Agent of any material change in its investment objectives
or financial situation.
Appendices A, B and C attached hereto are hereby incorporated into and made a
part of this Confirmation.
-10-
<PAGE> 11
Please confirm that the foregoing correctly sets forth the terms of your
agreement by signing and returning to us a copy of this Confirmation.
Yours sincerely,
CREDIT SUISSE FIRST BOSTON CORPORATION
solely in its capacity as Agent for
Party A and Party B
By: /S/ LINDA STEINMULLER
-----------------------------
Name: Linda Steinmuller
Title: Vice President
Agreed to as of the date first above written.
CARDINAL HEALTH, INC.
By: /S/ RICHARD J. MILLER
-----------------------------
Name: Richard J. Miller
Title: Corporate Vice President & CFO
Credit Suisse Financial Products
By: /S/ KAREN NEWTON
-----------------------------
Name: Karen Newton
Title: Vice President, Operations
-11-
<PAGE> 12
APPENDIX A
TO
CONFIRMATION OF A TRANSACTION
BETWEEN
CREDIT SUISSE FINANCIAL PRODUCTS
AND
CARDINAL HEALTH, INC.
PARTY A REFERENCE EXT ID# 5748188
A. Definitions
-----------
As used in this Confirmation, the following terms have the meanings set
forth below:
"Borrowing Rate" means, with respect to any day, the offer rate for
borrowings of the Shares as determined by the Calculation Agent;
"Daily Reference Amount" means, with respect to any Valuation Date, the
Reference Share Amount for such Valuation Date multiplied by the
Reference Price for such Valuation Date;
"Daily Strike Amount" means, with respect to any Valuation Date, the
Reference Share Amount for such Valuation Date multiplied by the Strike
Price for the day that is three (3) Business Days after such Valuation
Date;
"Dividends" means an amount in U.S. Dollars equal to the dividends in
kind or in cash paid by the Issuer per Share which is then outstanding
(other than Dividends that result in an adjustment pursuant to Section
B below).
"Exchange" means the New York Stock Exchange or any successor reporting
system.
"Exchange Business Day" means a day that is a trading day on the
Exchange;
"LIBOR Rate" means, with respect to any day, the rate for deposits for
a period of the Designated Maturity during the periods set forth below
in U.S. Dollars which appears on Telerate Page 3750 as of 11:00 a.m.
London time on the day that is two (2) London Banking Days preceding
such day:
<TABLE>
<CAPTION>
Period Designated Maturity
------ -------------------
<S> <C>
From, and including, the Effective Date 2 Months
to, and including, April 16, 2000:
From, but excluding, April 16, 2000 to, 1 Month
and including, the Termination Date:
</TABLE>
-12-
<PAGE> 13
Upon the occurrence of an Early Termination Date or Accelerated
Termination Date, the then applicable Designated Maturity shall be
equal to the number of days elapsed from such Early Termination Date or
Accelerated Termination Date to, but excluding the scheduled
Termination Date; provided that if the Termination Date is extended,
the Designated Maturity shall be equal to the number of days elapsed
from the Termination Date to such date to which the Termination Date is
extended. If such rate does not appear on the Telerate Page 3750, the
rate for that day will be the rates at which deposits in U.S. Dollars
are offered to the Reference Banks at approximately 11:00 a.m., London
time, on the day that is two London Banking Days preceding that day to
prime banks in the London interbank market for a period of the
applicable Designated Maturity commencing on such date;
"Market Disruption Event" means the occurrence or existence on any
Exchange Business Day of any suspension of or limitation imposed on
trading (by reason of movement in price exceeding limits permitted by
the relevant exchange or otherwise) on the Exchange in the Shares, if,
in the reasonable determination of the Calculation Agent, such
suspension or limitation prevents such day from being used as a
Termination Date;
"Overnight Rate" means the effective rate for Federal Funds, as
published on Telerate Page 118, provided that if, for any reason,
Telerate Page 118 should be unavailable the Overnight Rate shall be
such rate as the Calculation Agent shall reasonably determine;
"Reference Price" means, with respect to any Valuation Date, the price
per share on such Valuation Date at which Party A purchases the Shares
comprising the Reference Share Amount in order to hedge its obligations
under this Transaction (the "Hedging Price") plus transaction costs of
$0.03 per Share;
"Reference Share Amount" means with respect to any Valuation Date, the
aggregate number of Shares determined by the opening price of the
Shares (the "Price") for each Valuation Date according to the table
below, provided that the aggregate Reference Share Amount for all
Valuation Dates shall not exceed the Number of Shares:
-13-
<PAGE> 14
<TABLE>
<S> <C>
If the Price is less than or equal to $42: 400,000 Shares;
If the Price is greater than $42 but less than 375,000 Shares;
or equal to $43:
If the Price is greater than $43 but less than 350,000 Shares;
or equal to $44:
If the Price is greater than $44 but less than 300,000 Shares;
or equal to $45:
If the Price is greater than $45 but less than 250,000 Shares;
or equal to $46:
If the Price is greater than $46 but less than 200,000 Shares;
or equal to $47:
If the Price is greater than $47 but less than 150,000 Shares;
or equal to $48:
If the Price is greater than $48 but less than 125,000 Shares;
or equal to $49:
If the Price is greater than $49 but less than 100,000 Shares;
or equal to $50:
If the Price is greater than $50 but less than 75,000 Shares;
or equal to $51:
If the Price is greater than $51 but less than 50,000 Shares;
or equal to $52:
If the Price is greater than $52 but less than 25,000 Shares;
or equal to $53:
If the Price is greater than $53 but less than 15,000 Shares;
or equal to $54:
If the Price is greater than $54: - 0 - Shares.
</TABLE>
"Settlement Disruption Event" means an event beyond the control of the
parties as a result of which transfer of the Shares cannot take place
through the Clearance System on
-14-
<PAGE> 15
the first day on which settlement of a sale of Shares executed on the
relevant day customarily would take place through the Clearance System;
"Strike Price" means $43.25 per Share for the initial Valuation Date
and thereafter, the Strike Price then in effect for the immediately
preceding Business Day multiplied by one plus the Borrowing Rate on the
immediately preceding Business Day and multiplied by the actual number
of days elapsed from such preceding Business Day to the current
Business Day divided by 360;
"Valuation Date" means, subject to the provisions of Share Liquidity
Event, each Exchange Business Day commencing on the Trade Date and
ending on the day which is four Exchange Business Days prior to the
Termination Date, unless such Exchange Business Day falls during an
Adjustment Period (as defined under "Distribution Event" below);
provided that either party may, by notice to the other party through
the Agent by 9:20 a.m., New York time, on any day that would otherwise
be a Valuation Date, determine, that such day shall not be a Valuation
Date.
B. Adjustment Events
-----------------
Adjustments
Following each Potential Adjustment Event, the parties will negotiate
in good faith to determine whether such Potential Adjustment Event has
a diluting or concentrative effect on the market value of the Shares
and, if so, will negotiate in good faith to: (a) calculate the
corresponding adjustment, if any, to be made to the Strike Price and
the Number of Shares or any other term of this Transaction as
appropriate to account for that diluting or concentrative effect and
(b) determine the effective date of that adjustment such that the
fundamental economic terms of this Transaction are substantially
equivalent to those in effect immediately prior to the occurrence of
the Potential Adjustment Event. If the parties, after negotiating in
good faith, are unable to make such determinations, the Calculation
Agent shall make such determinations on behalf of both parties and the
determinations of the Calculation Agent shall be binding on the parties
absent manifest error.
Potential Adjustment Event
The declaration by the Issuer of the terms of any of the following:
(a) a subdivision, consolidation or reclassification of the Shares
(unless a Merger Event), or a free distribution or dividend of
Shares to existing holders by way of bonus, capitalization or
similar issue;
(b) a distribution or dividend to existing holders of the Shares
of (i) Shares or (ii) other share capital or securities
granting the right to payment of dividends and/or the proceeds
of liquidation of the Issuer equally or proportionately with
such
-15-
<PAGE> 16
payments to holders of the Shares or (iii) any other type of
securities, rights or warrants or other assets in any case for
payment (cash or other) at less than the prevailing market
price, as determined by the Calculation Agent;
(c) a call in respect of Shares that are not fully paid; or
(d) any other similar event that may have a diluting or
concentrating effect on the market value of the Shares.
C. Distribution Event
------------------
Party B will immediately notify Party A in writing, through the Agent,
if Party B becomes, or is likely to become, subject to the restrictions
set forth in Regulation M under the Exchange Act. If at any time during
the Term of this Transaction,
(1) Party B is prohibited from purchasing its Shares under
Regulation M under the Exchange Act; or
(2) Party B has announced or otherwise made known to holders of
Shares a cash tender offer or exchange offer for Shares or
another security (a) which is immediately exchangeable for or
convertible into Shares or (b) which entitles the holder
thereof immediately to acquire Shares; or
(3) a person other than Party B makes a tender offer for, or
request or invitation for tenders of, any class of equity
securities of Party B subject to section 14(d) of the Exchange
Act and such person has filed a statement with the SEC
pursuant to Rule 14d-1 under the Exchange Act and Party B has
received notice thereof;
then,
(i) in the case of an event specified in subsection (1)
above, from the date that Party B is prohibited from
purchasing its Shares under Regulation M to the date
of completion or other termination of the relevant
distribution, and
(ii) in the case of an event specified in subsection (2)
above, from the date the event specified in (2)
occurs to the date that is ten Business Days after
the relevant cash tender offer or exchange offer is
completed or otherwise terminated, and
(iii) in the case of an event specified in subsection (3)
above, from the date that the event in subsection (3)
occurs to the date that Party B has complied with the
conditions set forth in Rule 13e-1 under the Exchange
Act,
-16-
<PAGE> 17
the Termination Date shall be rescheduled to a date determined by the
Calculation Agent. For purposes hereof, the term "Adjustment Period"
shall mean the period of time specified in subsections (i), (ii) and/or
(iii), as the case may be.
D. Share Availability Event
------------------------
If in Party A's good faith judgement, on any Business Day Party A is
unable to hedge its position in respect of this Transaction through
share borrowing arrangements because of the lack of sufficient Shares
being made available by lenders, Party A will give notice thereof,
through the Agent, to Party B. If on the second Business Day ("X")
following such notice, Party A in good faith cannot borrow a sufficient
number of Shares, as determined by Party A, to hedge its position,
then, notwithstanding the provisions of this Transaction, X shall be
deemed to be an Accelerated Termination Date with respect only to such
number of Shares which Party A is unable to borrow.
E. Share Liquidity Event
---------------------
If in Party A's good faith judgement, it is unable to complete its
hedging activities or unwind its hedge transactions, then Party A shall
give written notice thereof, through the Agent, to Party B. Upon
receipt of such notice by Party B, the parties will, in good faith,
negotiate an amendment to the Transaction to extend the Termination
Date. During the term of such negotiations, no Valuation Dates shall be
deemed to have occurred.
F. Rule 10b-18
-----------
With the co-operation of Party B, Party A undertakes to conduct its
purchases of the Shares to hedge its exposure under this Transaction in
accordance with the conditions of subsections 10b-18(b)2 (Time of
Purchases), 10b-18(b)3 (Price of Purchases) and 10b-18(b)4 (Volume of
Purchases) of Rule 10b-18 so long as Party B conducts all of its
purchases of Shares during the Term of this Transaction through Credit
Suisse First Boston Corporation in compliance with Rule 10b-18 and in a
manner that the parties hereto believe is in compliance with applicable
law.
G. Merger Event
------------
Following each Merger Event:
(i) If the consideration for the Shares in the Merger
Event consists (or, at the option of a holder of the
Shares, may consist) solely of shares, each Share
will be converted to the number of shares to which a
holder of a Share would be entitled upon consummation
of the Merger Event. Such shares and their issuer
shall be deemed the "Shares" and the "Issuer" for
purposes of this Transaction and if necessary the
Calculation Agent shall adjust the Strike Price
proportionately;
-17-
<PAGE> 18
(ii) If the consideration for the Shares in the Merger
Event consists solely of cash or any other securities
or assets other than shares, a Termination Event
shall have deemed to have occurred with this
Transaction being the sole Affected Transaction,
Party B being the Affected Party and the Early
Termination Date being the next succeeding Exchange
Business Day; and
(iii) If the consideration for the Shares in the Merger
Event consists of both (A) shares and (B) cash or any
other securities or assets other than shares, then
the consideration will be deemed to be shares and the
adjustments described in paragraph (i) above shall be
made after reduction of the Strike Price by an amount
equal to the sum of the cash and the fair market
value (as determined by the Calculation Agent) of any
other securities or assets other than shares to which
a holder of a Share would have been entitled.
For purposes of this Confirmation, "Merger Event" means:
(i) Any reclassification or change of the Shares (other
than a change in par value, if any, as a result of a
subdivision or combination);
(ii) any consolidation, amalgamation or merger of Party B
with or into another corporation (other than a
consolidation, amalgamation or merger in which Party
B is the continuing corporation and which does not
result in any such reclassification or change of
Shares); or
(iii) any other take-over offer for the Shares
which results in a transfer of, or a commitment to, transfer all the
Shares on or before the Termination Date, in each case as of the date
on which all holders become bound to transfer the Shares held by them.
H. Blackout Event
--------------
If one party gives to the other the notice referred to in the
definition of Valuation Date, the Termination Date may be extended by
mutual agreement of the parties to a date equating to the Termination
Date plus a number of days equal to the number of days which are the
subject of the notice referred to in the definition of Valuation Date.
I. Nationalization or Liquidation
------------------------------
A Termination Event shall be deemed to have occurred with this
Transaction being the sole Affected Transaction, Party B being the
Affected Party and the Early Termination Date being the next succeeding
Exchange Business Day if:
-18-
<PAGE> 19
(i) by reason of the adoption of or any change in any applicable
law, all or substantially all of the assets of Party B or all
or substantially all of the Shares are nationalized,
expropriated or are otherwise required to be transferred to
any governmental agency, authority or entity; or
(ii) by reason of the liquidation, winding-up or dissolution of
Party B (a) all the Shares are required to be transferred to a
trustee, liquidator or other similar official or (b) holders
of the Shares become legally prohibited from transferring
them.
J. Party B Representations
-----------------------
Party B hereby represents and warrants to Party A that it has entered
into this Transaction (i) in connection with the Share repurchase
program publicly announced on March 15, 2000 and (ii) solely for the
purposes stated in such public disclosures. Party B hereby represents
and warrants that (unless Party B notifies Party A, through the Agent,
that such day is not a Valuation Date) it has publicly disclosed all
material information with respect to its condition (financial or
otherwise) and, as of the date hereof after giving effect to the
Transaction and each day until the Termination Date or such other date
to which the Termination Date may be extended can purchase the
Reference Share Amount in compliance with applicable law.
K. Party B Covenants
-----------------
From the date hereof to the Termination Date (as such date may be
adjusted from time to time as provided herein), Party B will effect all
of its purchase transactions in Shares through Credit Suisse First
Boston Corporation ("CSFB"). If an event specified in subsection (1) of
Distribution Event occurs, then Party B will use its reasonable efforts
to cause such distribution to be completed or otherwise terminated as
soon as reasonably practicable given the circumstances of the
Distribution Event, it being understood that it is fully within Party
B's discretion to undertake transactions pursuant to Regulation M. If
an event specified in subsection (3) of Distribution Event occurs,
Party B will, upon the request of Party A use its best efforts to
comply with the conditions set forth in Rule 13e-1 under the Exchange
Act no later than thirty (30) after any such request.
L. Transfer
--------
Neither party may Transfer this Transaction, in whole or in part,
without the prior written consent, communicated through the Agent, of
the other party.
-19-
<PAGE> 20
APPENDIX B
TO
CONFIRMATION OF A TRANSACTION
BETWEEN
CREDIT SUISSE FINANCIAL PRODUCTS
AND
CARDINAL HEALTH, INC.
PARTY A REFERENCE EXT ID# 5748188
If Party B elects Physical Settlement of this Transaction, the
following provisions shall apply:-
(a) Party B shall have reserved and have available, free from pre-emptive
rights, out of its authorized but unissued capital stock, for the
purpose of effecting the payment of any Party B Floating Amount in
Shares as provided in the Confirmation, the full number of shares of
capital stock that would then be issuable with respect to such payment.
(b) There shall be an effective registration statement on the Termination
Date, Early Termination Date or Accelerated Termination Date with
respect to such Shares (the "Registration Statement") providing for a
plan of distribution acceptable to Party A and its underwriters.
(c) Party B shall have registered or qualified such Shares under such
securities or "blue sky" laws of such States and other jurisdictions in
the United States and Puerto Rico as Party A or any underwriter shall
have reasonably requested, and shall have done any and all other acts
and things as may be necessary to enable Party A or any underwriter to
consummate the disposition in such jurisdictions of the Shares covered
by the Registration Statement.
(d) Party B shall have caused such Shares to be registered with or approved
by such other governmental agencies or authorities in the United States
as may be necessary to enable Party A or any underwriter to consummate
the disposition of such Shares.
(e) Party B shall have (i) given Party A and its underwriters, if any, and
their respective counsel and accountants, the opportunity to
participate in the preparation of all materials filed with the
Commission or any other governmental agency (the "Filed Materials")
prior to the date Party B elects to pay the Party B Floating Amount in
Shares, (ii) furnished to each of them copies of all such Filed
Materials (and all documents incorporated therein by reference)
sufficiently in advance of filing to provide them with a reasonable
opportunity to review such documents and comment thereon, (iii) given
each of them such access to its books and records and such
opportunities to discuss the business of Party B with its officers and
the independent public accountants who have issued a report on its
financial statement as shall be necessary, in the opinion of Party A
and such underwriters or their respective counsel, to conduct a
reasonable investigation (within the meaning of the Securities Act of
1933, as amended, (the "Securities Act"))
-20-
<PAGE> 21
with respect to such Filed Materials, (iv) delivered to Party A and its
underwriters, if any, any financial statements of Party B filed with
the Commission, (v) included in such Filed Materials material,
furnished to Party B in writing, which in the judgement of Party A or
its underwriters, if any, subject to the consent of Party B (which
shall not be unreasonably withheld), should be included, including,
without limitation, language to the effect that the holding by Party A
of the Shares is not to be construed as a recommendation by Party A of
the investment quality thereof and (vi) if requested by Party A,
deleted from such Filed Materials any reference to Party A if such
reference to Party A by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force.
(f) Party B shall have furnished to Party A and any underwriter, addressed
to Party A and any such underwriter and dated the day payment in Shares
is made, (i) an opinion of counsel for Party B (which may be internal
counsel to Party B) and (ii) a "cold comfort" letter signed by the
independent public accountants who have issued a report on Party B's
financial statements included in such Registration Statement, covering
substantially the same matters with respect to such Shares and the
offering, sale and issuance thereof as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and, in the
case of the accountants' letter, such other financial matters as Party
A may have reasonably requested.
(g) Party B shall have complied with all applicable provisions of the
Securities Act and the Exchange Act, all applicable rules of the
Commission and all other applicable laws, rules and regulations of any
governmental or regulatory authority with respect to such Filing
Materials and such Shares and the offering, sale and issuance thereof;
in connection thereto Party A shall assist in the preparation of a
seller shareholder registration statement and, if requested by Party B,
supply Party B with such representations regarding Party A's due
diligence and financial ability to bear the economic risk of its
investment in the Shares as are customary for a purchaser in a private
placement of securities.
(h) Party B shall have caused all such Shares to be listed on the Exchange
and on each securities exchange on which similar securities issued by
Party B are then listed.
(i) Party B shall have provided a transfer agent and registrar for such
Shares.
(j) Party B shall have taken such other actions as Party A or any
underwriter of such Shares shall have reasonably requested in order to
expedite or facilitate the disposition of such Shares.
(k) Party B shall provide Party A and its underwriters, if any, with a
usual and customary indemnity and contribution in the opinion of
counsel to Party A covering such matters relating to the Shares, the
Filed Materials, and such other matters as counsel to Party A shall
deem to be necessary or required.
-21-
<PAGE> 22
(l) Party B shall have paid all costs and expenses incurred in connection
with the preparation and filing of any document with the Commission,
the preparation and delivery of the legal opinion referred to in
paragraph (f) hereof and any other ancillary documents relating to the
sale of the Shares by or on behalf of Party A and all underwriting fees
and/or applicable commissions in connection with the sale of the shares
by or on behalf of Party A.
(m) Party B shall deliver all such Shares through the Clearance System.
-22-
<PAGE> 23
APPENDIX C
TO
CONFIRMATION OF A TRANSACTION
BETWEEN
CREDIT SUISSE FINANCIAL PRODUCTS
AND
CARDINAL HEALTH INC.
PARTY A REFERENCE EXT ID# 5748188
Net Share Settlement:
(a) Net Share Settlement Amount:
If Party B has elected that Net Share Settlement shall apply and if the
Net Floating Amount (as such term is defined below) owing by one party
(the "Delivering Party") to the other party (the "Receiving Party")
under this Transaction is greater than zero then such obligation shall
be satisfied and discharged by:
(i) the delivery of an amount of Shares to be determined as set
forth below (hereinafter referred to as the "Net Share
Settlement Amount"); plus
(ii) an amount in U.S. Dollars equal to the Balancing Payment (as
such term is defined below), if any, plus
(iii) an amount in U.S. Dollars equal to the Carry Charges (as such
term is defined below), if any,
provided that if Party B is the Delivering Party then such Shares
delivered by Party B shall meet the conditions specified in Appendix B
hereto and further provided that Party A is at that time permitted to
purchase and sell Shares and that Party B is at that time permitted to
deliver and take delivery of Shares, both in accordance with applicable
law in the determination of counsel to the party affected.
The Net Share Settlement Amount and the identity of the Delivering
Party and the Receiving Party shall be determined by the Calculation
Agent acting in good faith and in a commercially reasonable manner as
set out below.
The Calculation Agent shall determine the difference in U.S. Dollars
between the Party A Floating Amount and the Party B Floating Amount
(the "Net Floating Amount"); if the Party A Floating Amount is greater
than the Party B Floating Amount, Party A shall be the Delivering Party
and if the Party B Floating Amount is greater than the Party A Floating
Amount, Party B shall be the Delivering Party.
-23-
<PAGE> 24
The Calculation Agent shall provide written confirmation of its
calculations and determinations to the parties hereto in reasonable
detail not later than the close of business on the Termination Date.
The failure of the Calculation Agent to provide such written
confirmation shall not vitiate any such calculations or determinations
nor shall it absolve the parties hereto from compliance with their
respective obligations under this Transaction.
The Net Share Settlement Amount shall be the number of Shares, rounded
down to the nearest whole Share, that represents the quotient of the
Net Floating Amount divided by the Hedging Price of the Shares on the
Exchange on the final Valuation Date.
If Party A is the Delivering Party, subject to any requirements of
applicable law, on each Exchange Business Day following the final
Valuation Date (each such date being a "Purchase Date") Party A shall
purchase as many Shares through the Exchange as it deems appropriate in
its sole commercial discretion until it has bought a number of Shares
equal to the Net Share Settlement Amount. The provisions of paragraph F
in Appendix A shall apply with respect to such purchases by Party A.
Subject to the occurrence of a Settlement Disruption Event, Party A
shall, subject to any requirements of applicable law, deliver such
number of Shares to Party B on the third Exchange Business Day
following each Purchase Date (each such date of delivery being a "Party
A Settlement Date") and the provisions below shall apply with respect
to each such delivery of Shares.
If Party B is the Delivering Party then, on the Payment Date, Party B
shall, subject to any requirements of applicable law, deliver the
number of Shares equal to the Net Share Settlement Amount which Shares
shall satisfy the conditions of Appendix B hereto. Party A shall use
its best efforts to sell the Shares comprising the Net Share Settlement
Amount (the date of each such sale being a "Resale Date" and the third
Exchange Business Day after each such Resale Date being a "Party B
Settlement Date").
In the event of the occurrence of a Settlement Disruption Event or in
the event that the parties cannot deliver and take delivery of Shares,
both in accordance with applicable law in the determination of counsel
to the party affected, each Purchase Date, Resale Date, or Party A
Settlement Date or Party B Settlement Date, as the case may be, shall
be postponed until the first Exchange Business Day on which a
Settlement Disruption Event has not occurred and on which the parties
may deliver and take delivery of Shares in accordance with applicable
law in the determination of counsel to the party affected.
On each Purchase Date or each Resale Date, as the case may be, the
Calculation Agent shall determine the Balancing Payment and the Carry
Charges (as each of such terms are defined below) and the identity of
the party to pay and receive such Balancing Payment and Carry Charges.
On the final Party A Settlement Date or on the final Party B Settlement
Date, as the case may be, the net amount of all of the Balancing
Payments and Carry Charges shall be discharged by a single payment in
U.S. Dollars by the party so identified by the Calculation Agent to the
other party, through the Agent.
-24-
<PAGE> 25
If for any