-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J3Jpt3tcQ82BuM6Vbc8gvUAe1/O4aBi1jH2QggshiPvmBLUzrwRBsmSUJQd55GRG wh87NqFX/zRL1WkpNoD8/A== 0000950152-98-004411.txt : 19980514 0000950152-98-004411.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950152-98-004411 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL HEALTH INC CENTRAL INDEX KEY: 0000721371 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 310958666 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11373 FILM NUMBER: 98618735 BUSINESS ADDRESS: STREET 1: 5555 GLENDON COURT CITY: DUBLIN STATE: OH ZIP: 43016 BUSINESS PHONE: 6147175000 MAIL ADDRESS: STREET 1: 5555 GLEDNON COURT CITY: DUBLIN STATE: OH ZIP: 43016 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 10-Q 1 CARDINAL HEALTH, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1998 Commission File Number 0-12591 CARDINAL HEALTH, INC. (Exact name of registrant as specified in its charter) OHIO 31-0958666 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5555 GLENDON COURT, DUBLIN, OHIO 43016 (Address of principal executive offices and zip code) (614) 717-5000 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- The number of Registrant's Common Shares outstanding at the close of business on April 30, 1998 was as follows: Common Shares, without par value: 110,507,970 ----------- 2 CARDINAL HEALTH, INC. AND SUBSIDIARIES Index *
Page No. -------- Part I. Financial Information: ---------------------- Item 1. Financial Statements: Consolidated Statements of Earnings for the Fiscal Quarter and Nine Months Ended March 31, 1998 and 1997............................................... 3 Consolidated Balance Sheets at March 31, 1998 and June 30, 1997...................................................................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1998 and 1997............................................................ 5 Notes to Consolidated Financial Statements......................................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................................ 8 Part II. Other Information: ------------------ Item 1. Legal Proceedings.................................................................. 12 Item 2. Changes in Securities and Use of Proceeds.......................................... 13 Item 4. Submission of Matters to a Vote of Security Holders................................ 13 Item 6. Exhibits and Reports on Form 8-K................................................... 13
* Items deleted are inapplicable. Page 2 3 PART I. FINANCIAL INFORMATION CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Quarter Ended Nine Months Ended -------------------------------- -------------------------------- March 31, March 31, March 31, March 31, 1998 1997 1998 1997 --------------- --------------- --------------- --------------- Net revenues $ 3,381,479 $ 2,825,500 $ 9,381,955 $ 8,177,382 Cost of products sold (3,102,103) (2,578,842) (8,627,913) (7,513,038) --------------- --------------- --------------- --------------- Gross margin 279,376 246,658 754,042 664,344 Selling, general and administrative expenses (142,205) (131,502) (412,372) (383,071) Special charges: Mergers-related costs (21,157) (30,882) (26,529) (49,056) Facilities closures and employee severance (8,634) -- (8,634) -- --------------- --------------- --------------- --------------- Operating earnings 107,380 84,274 306,507 232,217 Other income (expense): Interest expense (7,096) (8,414) (17,261) (22,388) Other, net-- primarily interest income 459 787 8,520 5,308 --------------- --------------- --------------- --------------- Earnings before income taxes 100,743 76,647 297,766 215,137 Provision for income taxes (44,431) (34,466) (121,234) (92,304) --------------- --------------- --------------- --------------- Net earnings $ 56,312 $ 42,181 $ 176,532 $ 122,833 =============== =============== =============== =============== Net earnings per Common Share: Basic $ 0.51 $ 0.39 $ 1.61 $ 1.15 Diluted $ 0.50 $ 0.38 $ 1.58 $ 1.13 Weighted average number of Common Shares outstanding: Basic 109,982 108,194 109,495 106,646 Diluted 111,602 110,246 111,183 108,711 Cash dividends declared per Common Share $ 0.03 $ 0.025 $ 0.08 $ 0.07
See notes to consolidated financial statements Page 3 4 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
March 31, June 30, 1998 1997 --------------- ---------------- ASSETS Current assets: Cash and equivalents $ 90,151 $ 243,061 Trade receivables, net 811,332 672,164 Current portion of net investment in sales-type leases 70,779 40,997 Merchandise inventories 2,157,814 1,436,220 Prepaid expenses and other 173,304 94,668 --------------- ---------------- Total current assets 3,303,380 2,487,110 --------------- ---------------- Property and equipment, at cost 537,672 477,420 Accumulated depreciation and amortization (222,825) (199,949) --------------- ---------------- Property and equipment, net 314,847 277,471 Other assets: Net investment in sales-type leases, less current portion 155,500 118,563 Goodwill and other intangibles 120,745 122,104 Other 78,557 86,502 --------------- ---------------- Total $ 3,973,029 $ 3,091,750 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable, banks $ 85,941 $ 22,159 Current portion of long-term obligations 6,847 6,158 Accounts payable 1,613,095 1,135,951 Other accrued liabilities 297,192 225,165 --------------- ---------------- Total current liabilities 2,003,075 1,389,433 --------------- ---------------- Long-term obligations, less current portion 273,267 277,766 Deferred income taxes and other liabilities 149,285 89,821 Shareholders' equity: Common Shares, without par value 700,603 645,051 Retained earnings 861,454 701,896 Common Shares in treasury, at cost (8,626) (6,373) Other (6,029) (5,844) --------------- ---------------- Total shareholders' equity 1,547,402 1,334,730 --------------- ---------------- Total $ 3,973,029 $ 3,091,750 =============== ================
See notes to consolidated financial statements. Page 4 5 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended -------------------------------- March 31, March 31, 1998 1997 --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 176,532 $ 122,833 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation and amortization 47,538 38,945 Provision for bad debts 9,648 5,923 Change in operating assets and liabilities: Increase in trade receivables (147,729) (133,469) Increase in merchandise inventories (721,594) (283,324) Increase in net investment in sales-type leases (66,719) (3,660) Increase/(decrease) in accounts payable 476,887 (114,543) Other operating items, net 61,922 27,880 --------------- ---------------- Net cash used in operating activities (163,515) (339,415) --------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 1,491 2,148 Additions to property and equipment (77,698) (52,613) Purchase of marketable securities available-for-sale -- (3,400) Proceeds from sale of marketable securities available-for-sale -- 57,735 --------------- ---------------- Net cash (used in) provided by investing activities (76,207) 3,870 --------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowing activity 63,782 127,684 Reduction of long-term obligations (6,669) (129,501) Proceeds from long-term obligations 552 604 Proceeds from issuance of Common Shares 25,661 34,516 Tax benefit of stock options 13,913 10,500 Dividends paid on Common Shares and cash paid in lieu of fractional shares (8,193) (6,388) Purchase of treasury shares (2,234) (1,379) --------------- ---------------- Net cash provided by financing activities 86,812 36,036 --------------- ---------------- NET DECREASE IN CASH AND EQUIVALENTS (152,910) (299,509) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 243,061 312,030 --------------- ---------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 90,151 $ 12,521 =============== ================
See notes to consolidated financial statements. Page 5 6 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. The consolidated financial statements of Cardinal Health, Inc. (the "Company") include the accounts of all majority-owned subsidiaries and all significant intercompany amounts have been eliminated. These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by generally accepted accounting principles for interim reporting. In the opinion of management, all adjustments necessary for a fair presentation have been included. Except as disclosed elsewhere herein, all such adjustments are of a normal and recurring nature. The consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company's annual report on Form 10-K for the fiscal year ended June 30, 1997, as amended by the Form 10K/A (Amendment No.1) filed on January 7, 1998. Note 2. The Company arranges for bulk deliveries to be made to customer warehouses. Revenues for these deliveries are excluded from net revenues and totaled $0.7 billion and $0.6 billion for the quarters ending March 31, 1998 and 1997, respectively, and $2.1 billion and $1.8 billion during the nine months ended March 31, 1998 and 1997, respectively. The service fees related to bulk deliveries are included in net revenues and were not significant in any of the periods presented. Note 3. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," in the quarter ended December 31, 1997. In accordance with the provisions of the Standard, all prior periods presented have been restated to comply with SFAS No. 128. 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. Note 4. On February 18, 1998, the Company completed a merger with MediQual Systems, Inc. ("MediQual"). The merger was accounted for as a pooling-of-interests. In the merger, the Company issued approximately 600,000 Common Shares to MediQual shareholders and MediQual's outstanding stock options were converted into options to purchase approximately 20,000 Common Shares of the Company. The historical cost of MediQual's assets combined was approximately $7.3 million and the total liabilities assumed were approximately $1.6 million. The impact of the MediQual merger, on a historical basis, is not significant. Accordingly, prior period financial statements have not been restated for the MediQual merger. Note 5. Costs of effecting mergers and subsequently integrating the operations of the various merged companies are recorded as merger costs when incurred. During the three and nine months ended March 31, 1998, the Company recorded $21.2 million ($18.5 million, net of tax) and $26.5 million ($21.8 million, net of tax), respectively, related to various mergers. Of the amount recorded during the third quarter of fiscal 1998, $13.3 million ($13.1 million, net of tax) related to transaction costs incurred to date in connection with the pending merger transaction with Bergen Brunswig Corporation ("Bergen") (see Note 7), $2.3 million ($2.1 million, net of tax) related to transaction costs incurred in connection with the MediQual merger (see Note 4), with the remaining $5.6 million ($3.3 million, net of tax) in the three-month period and $10.9 million ($6.6 million, net of tax) in the nine-month period, related to integrating the operations of companies that previously merged with Cardinal. During the three and nine months ended March 31, 1997, mergers-related costs totaling $30.9 million ($22.3 million, net of tax) and $49.1 million ($35.4 million, net of tax), respectively, were recorded. Of the amount recorded during the third quarter of fiscal 1997, approximately $13.1 million related to transaction and employee related costs, and $13.2 million to asset impairments, associated with the Page 6 7 Company's merger with Owen Healthcare, Inc. ("Owen"), which was completed on March 18, 1997. Additionally, approximately $13.8 million for transaction and employee related costs associated with the Company's merger with PCI Services, Inc. ("PCI"), which was completed on October 11, 1996, were recorded during the nine month period ended March 31, 1997. The remaining amounts recorded in each of the respective periods related to integrating the operations of companies that previously merged with Cardinal. The Company estimates that it will incur additional mergers-related costs associated with the various mergers it has completed to date (excluding the Bergen merger - see Note 7) of approximately $6.2 million ($3.8 million, net of tax) in future periods (primarily fiscal 1998 and 1999) in order to properly integrate operations and implement efficiencies. Such amounts will be charged to expense when incurred. Note 6. During the three months ended March 31, 1998, the Company recorded a special charge of $8.6 million ($5.2 million, net of tax) related to the rationalization of its 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 for plans announced prior to March 31, 1998, including approximately $2.0 million incurred in connection with the final settlement of a labor dispute with former employees of the Company's Boston distribution facility, resulting in termination of the union relationship. Note 7. On August 23, 1997, the Company signed a definitive merger agreement with Bergen, a distributor of pharmaceuticals and medical-surgical supplies, pursuant to which Bergen will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. Under the terms of the proposed merger, shareholders of Bergen will receive .775 of a Company Common Share in exchange for each outstanding common share of Bergen. The Company expects to issue approximately 42 million Common Shares in the transaction and also expects to assume approximately $603 million in long-term debt. Shareholders of both companies approved the transaction on February 20, 1998. On March 9, 1998, the U.S. Federal Trade Commission (the "FTC") filed a complaint in the United States District Court for the District of Columbia seeking a preliminary injunction to halt the merger. On March 17, 1998, the companies announced that they would contest the FTC's attempt to challenge the transaction. A court hearing is currently scheduled to begin on June 10, 1998. The companies have agreed not to consummate the merger pending a decision on the preliminary injunction, which is expected by the end of July 1998. In connection with the pending merger transaction with Bergen, the companies have incurred investment banking, legal, accounting, and other related transaction costs and fees. During the three months ended March 31, 1998, the Company expensed $13.3 million ($13.1 million, net of tax) related to transaction costs incurred to date (see Note 5). Based on information currently available, the total amount of merger-related charges to be recognized in connection with the merger (including those recorded to date) is estimated to be between $100 and $130 million, after tax. These merger-related expenses will be charged to expense in the period when incurred. Since the merger has not yet been consummated, the merger expenses can only be estimated at this time, and are subject to revision as further information becomes available. Note 8. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," both of which will require adoption in fiscal 1999. These new statements will not impact the Company's financial statements, but may require additional disclosures. The Company is presently evaluating the applicability of SFAS No.'s 130 and 131 to its operations. Page 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's discussion and analysis presented below is concerned with material changes in financial condition and results of operations for the Company's consolidated balance sheets as of March 31, 1998 and June 30, 1997, and for the consolidated statements of earnings for the three and nine month periods ended March 31, 1998 and 1997. On February 18, 1998, the Company completed a merger with MediQual, which was accounted for as a pooling-of-interests. The impact of the MediQual merger, on a historical basis, is not significant. Accordingly, prior period financial statements have not been restated for the MediQual merger (see Note 4 of "Notes to Consolidated Financial Statements"). This discussion and analysis should be read together with management's discussion and analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, as amended by the Form 10K/A (Amendment No. 1) filed on January 7, 1998. Portions of management's discussion and analysis presented below include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to materially differ from those projected or implied. The most significant of such risks, uncertainties and other factors are described in the Company's Form 10-K, Form 8-K and Form 10-Q and exhibits and amendments to those reports and are incorporated herein by reference. The Company disclaims any obligation to update any forward-looking statement. RESULTS OF OPERATIONS Net Revenues. Net revenues for the third quarter of fiscal 1998 and for the nine-month period ended March 31, 1998 increased 20% and 15%, respectively, as compared to the prior year. Distribution businesses (those whose primary operations involve the wholesale distribution of pharmaceuticals, representing 91% of total revenues) grew at a rate of 22% and 15% during the three and nine months ended March 31, 1998, respectively, while Service businesses (those that provide services to the healthcare industry primarily through pharmacy franchising, pharmacy automation equipment, pharmacy management, and pharmaceutical packaging) grew at a rate of 19% and 25% during the three and nine months ended March 31, 1998, respectively, primarily on the strength of the Company's pharmacy automation and pharmacy management businesses. The majority of the revenue increase (approximately 80% for the three and nine month periods ended March 31, 1998) came from existing customers in the form of increased volume and price increases. The remainder of the growth came from the addition of new customers. Gross Margin. For the three months ended March 31, 1998 and 1997, gross margin as a percentage of net revenues was 8.26% and 8.73%, respectively. For the nine-month periods ended March 31, 1998 and 1997, gross margin as a percentage of revenue was 8.04% and 8.12%, respectively. The current year decreases in the gross margin percentages are due to a greater mix of lower margin Distribution business in the quarter ended March 31, 1998, as well as declines in the Distribution businesses gross margin, and to a lesser extent, declines in the Service businesses gross margin. The Distribution businesses gross margin as a percentage of revenues decreased for the third quarter of the current fiscal year from 6.39% a year ago to 5.80%. During the nine month period ended March 31, 1998, the Distribution businesses' gross margin percentage rate decreased from 5.84% a year ago to 5.59%. These decreases are primarily due to the impact of lower selling margins, as a result of a highly competitive market and a greater mix of high volume customers, where a lower cost of distribution and better asset management enable the Company to offer lower selling margins to its customers. These factors were particularly relevant in the three months ended March 31, 1998 as the Distribution businesses achieved 22% revenue growth, primarily through the addition or expansion of business with large, high volume customers. The Service businesses' gross margin as a percentage of revenues for the third quarter of fiscal 1998 and fiscal 1997 was 30.88% and 31.49%, respectively, and 30.96% and 32.64% for the nine months ended March 31, 1998 and 1997, respectively. The slight decline in gross margin rates experienced by the Service businesses is a function of the mix of the various businesses. Revenue growth has been greater in the relatively lower margin pharmacy management and pharmaceutical packaging businesses than it has been in the higher margin pharmacy franchising business. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of net revenues improved to 4.20% in the third quarter of fiscal 1998 compared to 4.66% in the prior year, and 4.40% Page 8 9 for the nine-month period ended March 31, 1998 compared to 4.68% in the prior year. The improvements in the third quarter and the nine month period reflect economies associated with the Company's revenue growth, as well as significant productivity gains resulting from continued cost control efforts and the consolidation and selective automation of operating facilities. The growth in the business, combined with a shift towards a greater mix of Service business (Service businesses had a 16.28% and 16.52% ratio of expenses to revenues for the three and nine month periods ending March 31, 1998, respectively, compared to Distribution businesses with a ratio of 2.78% and 2.92%, during the same periods) has caused the increase in expense in the current periods. The 8% growth in selling, general and administrative expenses experienced in the third quarter of fiscal 1998 and in the nine months ended March 31, 1998 was due primarily to increases in personnel costs and depreciation expense. Special Charge - Mergers-Related. Costs of effecting mergers and subsequently integrating the operations of the various merged companies are recorded as merger costs when incurred. During the three and nine months ended March 31, 1998, the Company recorded $21.2 million ($18.5 million, net of tax) and $26.5 million ($21.8 million, net of tax), respectively, related to various mergers. Of the amount recorded during the third quarter of fiscal 1998, $13.3 million ($13.1 million, net of tax) related to transaction costs incurred to date in connection with the pending merger transaction with Bergen Brunswig Corporation ("Bergen") (see Note 7 of "Notes to Consolidated Financial Statements"), $2.3 million ($2.1 million, net of tax) related to transaction costs incurred in connection with the MediQual merger (see Note 4 of "Notes to Consolidated Financial Statements"), with the remaining $5.6 million ($3.3 million, net of tax) in the three-month period and $10.9 million ($6.6 million, net of tax) in the nine-month period, related to integrating the operations of companies that previously merged with Cardinal. During the three and nine months ended March 31, 1997, mergers-related costs totaling $30.9 million ($22.3 million, net of tax) and $49.1 million ($35.4 million, net of tax), respectively, were recorded. Of the amount recorded during the third quarter of fiscal 1997, approximately $13.1 million related to transaction and employee related costs, and $13.2 million to asset impairments associated with the Company's merger with Owen Healthcare, Inc. ("Owen"), which was completed on March 18, 1997. Additionally, approximately $13.8 million for transaction and employee related costs associated with the Company's merger with PCI Services, Inc. ("PCI"), which was completed on October 11, 1996, were recorded during the nine-month period ended March 31, 1997. The remaining amounts recorded in each of the respective periods related to integrating the operations of companies that previously merged with Cardinal. The Company estimates that it will incur additional mergers-related costs associated with the various mergers it has completed to date (excluding the Bergen merger - see Note 7) of approximately $6.2 million ($3.8 million, net of tax) in future periods (primarily fiscal 1998 and 1999) in order to properly integrate operations and implement efficiencies. Such amounts will be charged to expense when incurred. Special Charge - Facilities Closures and Employee Severance. During the three months ended March 31, 1998, the Company recorded approximately $8.6 million ($5.2 million, net of tax) related to the rationalization of its 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 for plans announced prior to March 31, 1998, including approximately $2.0 million incurred in connection with the final settlement of a labor dispute with former employees of the Company's Boston distribution facility, which resulted in termination of the union relationship. The effect of Special Charges, including mergers-related costs and facilities closures and employee severance, recorded during the three months ended March 31, 1998 and 1997 was to reduce net earnings by $23.7 million to $56.3 million and $22.3 million to $42.2 million, respectively, and to reduce reported diluted earnings per common share by $0.22 per share to $0.50 per share and by $0.20 per share to $0.38 per share, respectively. The effect of Special Charges recorded during the nine months ended March 31, 1998 and 1997 was to reduce net earnings by $27.0 million to $176.5 million and $35.4 million to $122.8 million, respectively, and to reduce reported diluted earnings per common share by $0.25 per share to $1.58 per share and by $0.32 per share to $1.13 per share, respectively. Other Income (Expense). The decrease in interest expense of $1.3 million in the third quarter of fiscal 1998 compared to fiscal 1997 and $5.1 million for the nine-month period ended March 31, 1998 compared to the prior year is primarily due to extinguishment of the Company's $100 million 8% Notes on March 1, 1997. The increase in other income for the nine-month period ended March 31, 1998, as compared to the prior year, is primarily due to higher investment income. This is in part due to better asset management. Only $152.9 million of cash was used Page 9 10 during the nine month period ended March 31, 1998, compared to a use of cash of $299.5 million in the same period of the prior year. Provision for Income Taxes. The Company's provision for income taxes relative to pretax earnings was 44% and 45% for the third quarter of fiscal 1998 and 1997, respectively, and 41% and 43% for the nine-month periods ended March 31, 1998 and 1997, respectively. The decrease in the effective tax rate is due to a reduction in the state effective tax rate as a result of the change in the Company's business mix and the impact of recording certain non-deductible mergers-related costs during various periods. LIQUIDITY AND CAPITAL RESOURCES Working capital increased to $1,300 million at March 31, 1998 from $1,098 million at June 30, 1997. This increase included additional investments in merchandise inventories and trade receivables of $721 million and $139 million, respectively. Offsetting the increases in working capital was a decrease in cash and equivalents of $153 million and an increase in accounts payable of $477 million. The increase in merchandise inventories reflects normal seasonal purchases of pharmaceutical inventories and the higher level of current and anticipated business volume in pharmaceutical distribution activities. The increase in trade receivables is consistent with the Company's net revenues growth (see "Net Revenues" above). The change in cash and equivalents and accounts payable is due primarily to the timing of inventory purchases and related payments. Property and equipment, at cost, increased by $60 million from June 30, 1997. The property acquired included increased investment in management information systems and customer support systems. Shareholders' equity increased to $1,547.4 million at March 31, 1998 from $1,334.7 million at June 30, 1997, primarily due to net earnings of $176.5 million and the investment of $25.7 million by employees of the Company through various stock incentive plans during the nine-month period ended March 31, 1998. 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 pending business combinations. See "Other" below. OTHER On August 23, 1997, the Company signed a definitive merger agreement with Bergen, a distributor of pharmaceuticals and medical-surgical supplies, pursuant to which Bergen will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. Under the terms of the proposed merger, shareholders of Bergen will receive .775 of a Company Common Share in exchange for each outstanding common share of Bergen. The Company expects to issue approximately 42 million Common Shares in the transaction and also expects to assume approximately $603 million in long-term debt. Shareholders of both companies approved the transaction on February 20, 1998. On March 9, 1998, the U.S. Federal Trade Commission (the "FTC") filed a complaint in the United States District Court for the District of Columbia seeking a preliminary injunction to halt the merger. On March 17, 1998, the companies announced that they would contest the FTC's attempt to challenge the transaction. A court hearing is currently scheduled to begin on June 10, 1998. The companies have agreed not to consummate the merger pending a decision on the preliminary injunction, which is expected by the end of July 1998. In connection with the pending merger transaction with Bergen, the companies have incurred investment banking, legal, accounting, and other related transaction costs and fees. During the three months ended March 31, 1998, the Company expensed $13.3 million ($13.1 million, net of tax) related to transaction costs incurred to date (see Note 5 of "Notes to Consolidated Financial Statements"). Based on information currently available, the total amount of merger-related charges to be recognized in connection with the merger (included those recorded to date) is estimated to be between $100 and $130 million, after tax. These merger-related expenses will be charged to expense in the period when incurred. Since the merger has not yet been consummated, the merger expenses can only be estimated at this time, and are subject to revision as further information becomes available The Company utilizes computer technologies throughout its business to effectively carry out its day-to-day operations. Similar to most companies, the Company must determine whether its systems are capable of recognizing and processing date sensitive information properly as the year 2000 approaches. The Company has completed a preliminary assessment of its year 2000 requirements and is currently correcting and replacing those Page 10 11 systems which are not year 2000 compliant in order to continue to meet its internal needs and those of its suppliers and customers. The Company currently believes it will be able to modify or replace its affected systems in time to avoid any detrimental impact on its operations. The Company estimates that the costs of its year 2000 project will be approximately $20 million. A significant portion of these costs are not likely to be incremental costs, but rather will represent the redeployment of existing resources. The anticipated impact and costs of the project, as well as the date on which the Company expects to complete the project, are based on management's best estimates using information currently available and numerous assumptions about future events. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Based on its current estimates, the Company does not anticipate that the costs associated with this project will have a material adverse effect on the Company's consolidated financial statements in future periods. The Company has initiated formal communications with its significant suppliers and customers to determine the extent to which the Company may be vulnerable in the event that those parties fail to properly remediate their own year 2000 issues. While the Company is not presently aware of any such significant exposure, there can be no guarantee that the systems of third parties on which the Company relies will be converted in a timely manner, or that a failure to properly convert by another company would not have a material adverse effect on the Company. Along with other companies in its industry, the Company has been advised that bulk deliveries to be made to its customers' warehouses should be reported as revenues, rather than reporting as revenues only the service fees related to such bulk deliveries. Such service fees were not significant in any of the periods presented (see Note 2 of "Notes to Consolidated Financial Statements"). The Company is currently evaluating its options in this matter, and intends to adopt the revised presentation beginning with its audited financial statements for its fiscal year ending June 30, 1998. Page 11 12 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS In November 1993, the Company and Whitmire Distribution Corporation (which is now a subsidiary of the Company) ("Whitmire"), as well as other pharmaceutical wholesalers, were named as defendants in a series of purported class action antitrust lawsuits 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 (the "Brand Name Prescription Drug Litigation"). Subsequent to the consolidation, a new consolidated complaint was filed which included allegations that the wholesaler defendants, including the Company and Whitmire conspired with manufacturers to inflate prices by using a chargeback pricing system. Most recently, the wholesaler defendants also have been added as defendants in a series of related antitrust lawsuits brought by certain independent pharmacies who have opted out of the class action cases and by certain chain drug and grocery stores. In addition to the federal court cases described above, the Company and Whitmire have also been named as defendants in a series of state court cases alleging similar claims under various state laws regarding the sale of brand name prescription drugs. These lawsuits are described in "Item 1 - Legal Proceedings" of Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, which was filed with the Securities and Exchange Commission and is incorporated herein by reference. Effective October 26, 1994, the Company entered into a Judgment Sharing Agreement in the Brand Name Prescription Drug Litigation with other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred, up to an aggregate of $9 million; and (b) if a judgment is entered against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or one million dollars. In addition, the Company has released any claims which it might have had against the manufacturers for the claims presented by the plaintiffs in the Brand Name Prescription Drug Litigation. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. On December 15, 1994, the plaintiffs filed a motion to declare the Judgment Sharing Agreement unenforceable. On April 10, 1995, the court denied that motion and ruled that the Judgment Sharing Agreement is valid and enforceable. The plaintiffs filed a motion for reconsideration of the court's April 10, 1995 ruling, and the court denied that motion and reaffirmed its earlier decision on April 24, 1995. On November 9, 1995, the Company, along with the other wholesaler defendants, filed a motion for summary judgment in the Brand Name Prescription Drug Litigation. On April 4, 1996, summary judgment was granted in favor of the Company and the other wholesaler defendants. The plaintiffs appealed this decision. On August 15, 1997, the Court of Appeals for the Seventh Circuit, along with other rulings, reversed the District Court's decision granting summary judgment to the wholesaler defendants. On September 5, 1997, the wholesaler defendants filed a motion for this decision to be reconsidered by the Court of Appeals en banc. On October 8, 1997, the motion to reconsider was denied by the Court of Appeals. The wholesaler defendants filed a petition seeking review of the Court of Appeals decision by the United States Supreme Court, which petition was denied. Trial has been set for the Brand Name Prescription Drug Litigation in September 1998. The Company continues to believe that the allegations against Cardinal and Whitmire in such litigation are without merit, and it intends to contest such allegations vigorously. On March 9, 1998, the U.S. Federal Trade Commission (the "FTC") filed two complaints in the United States District Court for the District of Columbia seeking preliminary injunctions blocking consummation of the Company's proposed merger involving Bergen Brunswig Corporation and the proposed merger of McKesson Corporation and AmeriSource Healthcare Corporation. The two lawsuits have been consolidated and will be heard together. On March 17, 1998, the Company and Bergen announced that they would contest the FTC's challenge to the proposed merger; subsequently, McKesson and AmeriSource announced that they would also contest the FTC's challenge to their proposed merger transaction. The District Court has established a schedule for the consolidated action pursuant to which expedited discovery is presently on-going and the hearing on the FTC's preliminary injunction request is scheduled to commence on June 10, 1998. It is anticipated that the hearing will take approximately three weeks. The parties have agreed not to consummate their proposed mergers pending a decision on the preliminary injunction, which is expected by the end of July 1998. The Company believes that the FTC's suit is without merit, and intends to vigorously contest the FTC's request for a preliminary injunction, although there can be no assurance that the Company will succeed in its efforts, that a decision will be rendered before the end of July 1998 or that the proposed merger transaction with Bergen will be consummated. Page 12 13 The Company also becomes involved from time-to-time in litigation incidental to its business. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company does not believe that the outcome of these lawsuits will have a material adverse effect on the Company's financial statements. ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS. On February 20, 1998, the shareholders of the Company adopted an amendment to Article FOURTH of the Company's Amended and Restated Articles of Incorporation, as amended, which increased the number of authorized common shares, without par value, from 150 million to 300 million. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) A Special Meeting of the Company's shareholders was held on February 20, 1998. (b) Not applicable. (c) Matters voted upon at the Special Meeting were as follows: (1) Approval, authorization and adoption of Agreement and Plan of Merger (the "Merger") by and among Registrant, Bruin Merger Corp. and Bergen Brunswig Corporation. The results of the shareholder vote were as follows: 87,354,953 in favor, 966,902 against, 230,694 withheld, and 12,849 broker non-votes. (2) Amendment of Registrant's Articles of Incorporation to increase the number of authorized common shares, without par value, from 150 million to 300 million. The results of the shareholder vote were as follows: 87,168,667 in favor, 1,115,295 against, 273,586 withheld, and 12,850 broker non-votes. (3) Amendment of Registrant's Articles of Incorporation to change Registrant's name from "Cardinal Health, Inc." to "Cardinal Bergen Health, Inc." if the proposal referenced in item (1) above is approved and the Merger is consummated. The results of the shareholder vote were as follows: 86,996,727 in favor, 1,316,133 against, 244,689 withheld, and 12,849 broker non-votes. (4) Adjournment of the Registrant's Special Meeting, if necessary, to permit further solicitation of proxies in the event there were not sufficient votes at the time of the regularly scheduled meeting to approve either of the proposals referenced in items (1) or (2) above. The results of the shareholder vote were as follows: 67,199,429 in favor, 20,494,431 against, 876,538 withheld, and 0 broker non-votes. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K: (a) Listing of Exhibits: Exhibit Number Exhibit Description - ------ ------------------- 2.01 Agreement and Plan of Merger dated as of August 23, 1997, among the Registrant, Bruin Merger Corp., and Bergen Brunswig Corporation (1) 2.02 First Amendment to the Agreement and Plan of Merger, dated as of August 23, 1997, by and among Cardinal Health, Inc., Bruin Merger Corp., and Bergen Brunswig Corporation, made as of March 16, 1998 (3) 3.01 Amended and Restated Articles of Incorporation of the Registrant, as amended 4.01 Form of Warrant Certificate to purchase Company Common Shares (4) 10.01 Employment Agreement dated February 10, 1998, between Robert J. Zollars and the Registrant* Page 13 14 11.01 Computation of Per Share Earnings 27.01 Financial Data Schedule 99.01 Statement Regarding Forward-Looking Information (2) - ------------------ (1) Included as an exhibit to the Registrant's Current Report on Form 8-K/A, Amendment No. 1 (No. 0-12591) filed with the Commission on August 27, 1997, and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1997 (No. 0-12591), and incorporated herein by reference. (3) Included as an exhibit to the Registrant's Current Report on form 8-K (No. 0-12591) filed with the Commission on March 17, 1998, and incorporated herein by reference. (4) Included as an exhibit to the Registrant's Amendment No. 2 to Form S-4 Registration Statement(No. 333-30889),and incorporated herein by reference. * Management contract or compensation plan or arrangement. (b) Reports on Form 8-K: On February 18, 1998, the Company filed a Current Report on Form 8-K under Item 5 which reported that it had completed its merger of a wholly-owned subsidiary with and into MediQual Systems, Inc. on February 18, 1998. On March 17, 1998, the Company filed a Current Report on Form 8-K under Item 5 which reported that it had entered into a First Amendment (the "First Amendment") to the Agreement and Plan of Merger (without amendment, the "Original Merger Agreement") by and among the Company, Bruin Merger Corp., and Bergen Brunswig Corporation, which First Amendment, among other things, amended certain of the termination provisions of the Original Merger Agreement. Page 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARDINAL HEALTH, INC. Date: May 13, 1998 By: /s/ ROBERT D. WALTER --------------------- Robert D. Walter Chairman and Chief Executive Officer By: /s/ DAVID BEARMAN ----------------- David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer) Page 15 EX-3.1 2 EXHIBIT 3.1 1 Exhibit 3.01 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CARDINAL DISTRIBUTION, INC. These constitute the amended and restated articles of incorporation of Cardinal Distribution, Inc., a corporation for profit formed under the Ohio General Corporation Law, which amended and restated articles of incorporation supersede the previously existing articles of incorporation of the corporation, as heretofore amended: FIRST: The name of the corporation shall be "Cardinal Dis- tribution, Inc." SECOND: The place in Ohio where the principal office of the corporation is to be located is the City of Columbus, Franklin County. THIRD: The purpose or purposes for which the corporation is formed are to engage in any lawful act or activity for which corpora- tions may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code and any amendments heretofore or hereafter made thereto. FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 10,500,000, consisting of 10,000,000 common shares without par value and 500,000 nonvoting preferred shares without par value. Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series: (a) the division of such shares into series and the designation and authorized number of shares of each series, (b) the dividend rate, -1- 2 (c) the dates of payment of dividends and the dates from which they are cumulative, (d) liquidation price, (e) redemption rights and price, (f) sinking fund requirements, (g) conversion rights, and (h) restrictions on the issuance of such shares. Prior to the issuance of any shares of a series, but after adoption by the board of directors of the resolution establishing such series, the appropriate officers of the corporation shall file such documents with the State of Ohio as may be required by law including, without limitation, an amendment to these Articles of Incorporation. Section 3. COMMON SHARES. Each common share shall entitle the holder thereof to one vote, in person or by proxy, at any and all meetings of the shareholders of the corporation, on all propositions before such meetings. Subject to the preferences of any outstanding preferred shares, each common share shall be entitled to participate equally in such dividends as may be declared by the board of directors out of funds legally available therefor, and to participate equally in all distributions of assets upon liquidation. FIFTH: The amount of stated capital with which the corporation will begin business shall be not less than five hundred dollars ($500). SIXTH: The board of directors may fix and determine, and vary, the amount of working capital of the corporation; determine whether any (and, if any, what part) of the surplus, however created or arising, shall be used or disposed of or declared in dividends or paid to share- holders; and, without action by the shareholders, use and apply such surplus, or any part thereof, or such part of the stated capital of the corporation as is permitted under the laws of the State of Ohio, at any time or from time to time, in the purchase or acquisition of shares of any class, voting-trust certificates for shares, bonds, deben- tures, notes, scrip, warrants, obligations, evidence of indebtedness of the corporation, or other securities of the corporation, to such extent or amount and in such manner and upon such terms as the board of directors shall deem expedient and without regard to any provisions which may hereafter be contained in the corporation's articles of incor- poration with respect to the redemption of shares of any class at the option of the corporation. SEVENTH: Every statute of the State of Ohio hereafter enacted, whereby rights or privileges of the shareholders of a corporation organ- -2- 3 ized under the Ohio General Corporation Law are increased, diminished, or in any way affected, or whereby effect is given to any action author- ized, ratified, or approved by less than all the shareholders of any such corporation, shall apply to the corporation and shall bind every shareholder to the same extent as if such statute had been in force at the date of the filing of these articles of incorporation. EIGHTH: A director or officer of the corporation shall not be disqualified by his office from dealing or contracting with the corporation as a vendor, purchaser, employee, agent, or otherwise. No transaction or contract or act of the corporation shall be void or voidable or in any way affected or invalidated by reason of the fact that any director or officer, or any firm of which any director or officer is a shareholder, director, or trustee, or any trust of which any director or officer is a trustee or beneficiary, is in any way interested in such transaction or contract or act. No director or officer shall be accountable or responsible to the corporation for or in respect to any transaction or contract or act of the corporation or for any gains or profits directly or indirectly realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director, or trustee, or any trust of which he is a trustee or beneficiary, is interested in such transaction or contract or act; provided the fact that such director or officer or such firm or corporation or such trust is so interested shall have been disclosed or shall have been known to the board of directors or such members thereof as shall be present at any meeting of the board of directors at which action upon such contract or transaction or act shall have been taken. Any director may be counted in determining the existence of a quorum at any meeting of the board of directors which shall authorize or take action in respect to any such contract or transaction or act, and may vote thereat to authorize, ratify, or approve any such contract or transaction or act, and any officer of the corporation may take any action within the scope of his authority respecting such contract or transaction or act with like force and effect as if he or any firm of which he is a member, or any corporation of which he is a shareholder, director, or trustee, or any trust of which he is a trustee or beneficiary, were not interested in such transaction or contract or act. Without limiting or qualifying the foregoing, if in any judicial or other inquiry, suit, cause, or proceeding, the question of whether a director or officer of the corpora- tion has acted in good faith is material, then notwithstanding any statute or rule of law or of equity to the contrary (if any there be), his good faith shall be presumed, in the absence of proof to the contrary by clear and convincing evidence. NINTH: No holder of shares of any class of the corporation shall be entitled as such, as a matter of right, to subscribe for or purchase shares of any class, now or hereafter authorized, or to purchase or to subscribe for securities convertible into or exchangeable for shares of the corporation, or to which shall appertain or be attached -3- 4 any warrants or rights entitling the holder thereto to subscribe for or purchase shares, except such rights of subscription or purchase, if any, at such price or prices, and upon such terms and conditions as the board of directors in its discretion may from time to time deter- mine. TENTH: Except as otherwise provided in these Articles of Incorporation or the Code of Regulations of the corporation, notwithstand- ing any provision of any statute of the State of Ohio, now or hereafter in force, requiring for any purpose the vote, consent, waiver, or release of the holders of shares entitling them to exercise two-thirds or any other proportion of the voting power of the corporation or of any class or classes of shares thereof, any action may be taken by the vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation, or of such class or classes, unless the proportion designated by such statute cannot be altered by these articles. -4- 5 CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CARDINAL DISTRIBUTION, INC. Robert D. Walter and Michael E. Moritz hereby certify that they are the duly elected and acting chairman and secretary, respectively, of Cardinal Distribution, Inc., an Ohio corporation (the "Company"), and further certify that the following is a true copy of a resolution amending the Company's Amended and Restated Articles of Incorporation duly adopted by the affirmative vote of the holders of shares of the Company entitling them to exercise a majority of the voting power of the Company at the annual meeting of shareholders duly held on August 30, 1989: RESOLVED, That the Amended and Restated Articles of Incorporation of the Company be amended by deleting ARTICLE FOURTH thereof in its entirety and by substituting in lieu thereof the following ARTICLE FOURTH: FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 20,500,000, consisting of 20,000,000 common shares without par value and 500,000 nonvoting preferred shares without par value. Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to the issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series: (a) the division of such shares into series and the designation and authorized number of shares of each series, (b) the dividend rate, (c) the dates of payment of dividends and the dates from which they are cumulative, (d) liquidation price, -5- 6 (e) redemption rights and price, (f) sinking fund requirements, (g) conversion rights, and (h) restrictions on the issuance of such shares. Prior to the issuance of any shares of a series, but after adoption by the board of directors of the resolution establishing such series, the appropriate officers of the corporation shall file such documents with the State of Ohio as may be required by law including, without limitation, an amendment to these Articles of Incorporation. Section 3. COMMON SHARES. Each common share shall entitle the holder thereof to one vote, in person or by proxy, at any and all meetings of the shareholders of the corporation, on all propositions before such meetings. Subject to the preferences of any outstanding preferred shares, each common share shall be entitled to participate equally in such dividends as may be declared by the board of directors out of funds legally available therefor, and to participate equally in all distributions of assets upon liquidation. August 30, 1989 CARDINAL DISTRIBUTION, INC. By /s/ ROBERT D. WALTER ------------------------------ Robert D. Walter, Chairman By /s/ MICHAEL E. MORITZ ------------------------------ Michael E. Moritz, Secretary -6- 7 CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF CARDINAL DISTRIBUTION, INC. Robert D. Walter and George H. Bennett, Jr. hereby certify that they are the duly elected and acting chairman and assistant secretary, respectively, of Cardinal Distribution, Inc., an Ohio corporation (the "Company"), and further certify that the following is a true copy of a resolution amending the Company's Amended and Restated Articles of Incorporation duly adopted by the affirmative vote of the holders of shares of the Company entitling them to exercise a majority of the voting power of the Company at the annual meeting of shareholders duly held on August 15, 1991: REVOLVED, that Article FOURTH of the Company's Amended and Restated Articles of Incorporation be, and the same hereby is, deleted in its entirety and there is substituting the following: FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 40,500,000 consisting of 40,000,000 common shares without par value and 500,000 nonvoting preferred shares without par value. Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any other series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to the issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series: (a) the division of such shares into series and the designation and authorized number of shares of each series, (b) the divided rate, (c) the dates of payment of dividends and the dates from which they are cumulative, -7- 8 (d) liquidation price, (e) redemption rights and price, (f) sinking fund requirements, (g) conversion rights, and (h) restrictions on the issuance of such shares. Prior to the issuance of any shares of a series, but after adoption by the board of directors of the resolution establishing such series, the appropriate officers of the corporation shall file such documents with the State of Ohio as may be required by law including, without limitation, an amendment to these Articles of Incorporation. Section 3. COMMON SHARES. Each common share shall entitle the holder thereof to one vote, in person or by proxy, at any and all meetings of the shareholders of the corporation, on all propositions before such meetings. Subject to the preferences of any outstanding preferred shares, each common share shall be entitled to participate equally in such dividends as may be declared by the board of directors out of funds legally available therefor, and to participate equally in all distributions of assets upon liquidation. August 15, 1991 CARDINAL DISTRIBUTION, INC. By /s/ ROBERT D. WALTER --------------------------- Robert D. Walter, Chairman By /s/ GEORGE H. BENNETT, JR. --------------------------- George H. Bennett, Jr., Assistant Secretary -8- 9 EXHIBIT A TO CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED OF CARDINAL DISTRIBUTION, INC. Resolved, that Article FIRST, of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Distribution, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following: FIRST: The name of the corporation shall be "Cardinal Health, Inc." Resolved, that Article FOURTH of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Distribution, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following: FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 65,500,000, consisting of 60,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value. Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to the issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series: (a) the division of such shares into series and the designation and authorized number of shares of each series, (b) the dividend rate, (c) the dates of payment of dividends and the dates from which they are cumulative, (d) liquidation price, (e) redemption rights and price, (f) sinking fund requirements, (g) conversion rights, and (h) restrictions on the issuance of such shares. Prior to the issuance of any shares of a series, but after adoption by the board of directors of the resolution establishing such series, the appropriate officers of the corporation shall file such documents with the State of Ohio as may be required by law including, without limitation, an amendment to these Articles of Incorporation. Section 3. COMMON SHARES. All common shares shall be identical and will entitle the holders thereof to the same rights and privileges, except as otherwise provided herein. A. VOTING RIGHTS. 1. CLASS A COMMON SHARES. Except as set forth herein or as otherwise required by law, each outstanding Class A Common Share shall entitle the holder thereof to one vote, in person or by -9- 10 proxy, at any and all meetings of the shareholders of the corporation, on all propositions before such meetings. 2. CLASS B COMMON STOCK. Except as set forth herein or as otherwise required by law, each outstanding Class B Common Share shall entitle the holder thereof to one-fifth (1/5) of one vote, in person or by proxy, at any and all meetings of shareholders of the corporation, on all propositions before such meetings. Notwithstanding the foregoing, holders of the Class B Common Shares shall be entitled to vote as a separate class on any amendment to this paragraph 2 of this Section A, on the issuance in the aggregate by the corporation of additional Class B Common Shares in excess of the number of Class B Common Shares held by Chemical Equity Associates and its Affiliates or issuable pursuant to Section 3(c) hereof and on any amendment, repeal or modification of any provision of these Articles that adversely affects the powers, preferences or special rights of the holders of the Class B Common Shares. B. DIVIDENDS; LIQUIDATION. Subject to the preferences of any preferred shares, each Common Share shall be entitled to participate equally in such dividends as may be declared by its board of directors out of funds legally available therefor or to participate equally in all distributions of assets upon liquidation; provided, that in the case of dividends payable in Common Shares of the Corporation, or options, warrants or rights to acquire such Common Shares, or securities convertible into or exchangeable for such Common Shares, the shares, options, warrants, rights or securities so payable shall be payable in shares of, or options, warrants or rights to acquire, or securities convertible into or exchangeable for, Common Shares of the same class upon which the dividend or distribution is being paid. C. CONVERSION. 1. CONVERSION OF CLASS A COMMON SHARES. Any Regulated Shareholder (defined below) shall be entitled to convert, at any time and from time to time, any or all of the Class A Common Shares held by such shareholder into the same number of Class B Common Shares. 2. CONVERSION OF CLASS B COMMON SHARES. Each holder of Class B Common Shares may convert such shares into Class A Common Shares if such holder reasonably believes that such converted shares will be transferred within fifteen (15) days pursuant to a Conversion Event (defined below) and such holder agrees not to vote any such Class A Common Shares prior to such Conversion Event and undertakes to promptly convert such shares back into Class B Common Shares if such shares are not transferred pursuant to a Conversion Event. Each Regulated Shareholder may provide for further restrictions or limitations upon the conversion of any Class B Common Shares by providing the corporation with signed, written instructions specifying such additional restrictions and legending such shares as to the existence of such restrictions. 3. CONVERSION PROCEDURE. Each conversion of Common Shares of the corporation into shares of another class of Common Shares of the Corporation shall be effected by the surrender of the certificate or certificates representing the shares to be converted (the "Converting Shares") at the principal office of the corporation (or such other office or agency of the corporation as the corporation may designate by written notice to the holders of common shares) at any time during its usual business hours, together with written notice by the holder of such Converting Shares, stating that such holder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of the class into which such shares may be converted (the "Converted Shares"). Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued and shall include instructions for the delivery thereof. Promptly after such surrender and the receipt of such written notice, the corporation will issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the corporation will deliver to the converting holder a certificate representing any shares which were represented by the certificate or certificates that were delivered to the corporation with such conversion, but which were not converted. -10- 11 Such conversion shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been received by the corporation, and at such time the rights of the holder of the Converting Shares as such holder shall cease and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares. Upon issuance of shares in accordance with this Section C, such Converted Shares shall be deemed to be duly authorized, validly issued, fully paid and non-assessable. Each holder of Class B Common Shares shall be entitled to convert Class B Common Shares in connection with any Conversion Event if such holder reasonably believes that such Conversion Event will be consummated, and a written request for conversion from any holder of Class B Common Shares to the corporation stating such holder's reasonable belief that a Conversion Event shall occur shall be conclusive and shall obligate the corporation to effect such conversion in a timely manner so as to enable each such holder to participate in such Conversion Event. The corporation will not cancel the Class B Common Shares so converted before the 15th day following such Conversion Event and will reserve such shares until such 15th day for reissuance in compliance with the next sentence. If any Class B Common Shares are converted into Class A Common Shares in connection with a Conversion Event and such Class A Common Shares are not actually distributed, disposed of or sold pursuant to such Conversion Event, such Class A Common Shares shall be promptly converted back into the same number of Class B Common Shares. 4. STOCK SPLITS; ADJUSTMENTS. If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding Class A Common Shares or the Class B Common Shares, then the outstanding shares of each other class of common shares shall be subdivided or combined, as the case may be, to the same extent, share and share alike, and effective provision shall be made for the protection of the conversion rights hereunder. In the case of any reorganization, reclassification or change of shares of the Class A Common Shares or Class B Common Shares (other than a change in par value or from par to no par value as a result of a subdivision or combination), or in case of any consolidation of the corporation with one or more corporations or a merger of the corporation with another corporation (other than a consolidation or merger in which the corporation is the resulting or surviving corporation and which does not result in any reclassification or change of outstanding Class A Common Shares or Class B Common Shares), each holder of Class A Common Shares or Class B Common Shares shall have the right at any time thereafter, so long as the conversion right hereunder with respect to such share would exist had such event not occurred, to convert such share into the kind and amount of shares of stock and other securities and properties (including cash) receivable upon such reorganization, reclassification, change, consolidation or merger by a holder of the number of Class A Common Shares or Class B Common Shares into which such Class A Common Shares or Class B Common Shares, as the case may be, might have been converted immediately prior to such reorganization, reclassification, change, consolidation or merger. In the event of any such reorganization, reclassification, change, consolidation or merger which will have the effect of causing any Regulated Shareholder's direct or indirect ownership of shares of capital stock of the resulting or surviving corporation immediately following such transaction to equal or exceed 5% of the voting power thereof (calculated as if all such Regulated Shareholder's Class B Common Shares were converted to Class A Common Shares immediately prior to consummation of such transaction) then provision shall be made in the certificate of incorporation of the resulting or surviving corporation for the protection of the conversion rights of Class A Common Shares and Class B Common Shares that shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of such Class A Common Shares or Class B Common Shares into which such Class A Common Shares or Class B Common Shares might have been converted prior to such event. -11- 12 5. RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of its authorized but unissued Class A Common Shares and Class B Common Shares or its treasury shares, for the purpose of issuance upon the conversion of Class A Common Shares and Class B Common Shares, such number of shares of such class as are then issuable upon the conversion of all outstanding shares of Class A Common Shares and Class B Common Shares which may be converted. 6. NO CHARGE. The issuance of certificates for shares of any class of common shares upon conversion of shares of any other class of common shares shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of common shares; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the common shares converted. D. As used herein, the following terms shall have the meanings shown below: 1. "AFFILIATES" shall mean with respect to any Person, any other person, directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of the above definition, the term "control" (including with correlative meaning, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. 2. "CONVERSION EVENT" shall mean (a) any public offering or public sale of securities of the Corporation (including a public offering registered under the Securities Act of 1933 and a public sale pursuant to Rule 144 of the Securities and Exchange Commission or any similar rule then in force), (b) any sale of securities of the corporation to a person or group of persons (withing the meaning of the Securities Exchange Act of 1934, as amended (the "1934 Act")) if, after such sale, such person or group of persons in the aggregate would own or control securities which possess in the aggregate the ordinary voting power to elect a majority of the corporation's directors (provided that such sale has been approved by the corporation's Board of Directors or a committee thereof), (c) any sale of securities of the corporation to a person or group of persons (within the meaning of the 1934 Act) if, after such sale, such person or group of persons in the aggregate would own or control securities of the corporation (excluding any Class B Common Shares being converted and disposed of in connection with such Conversion Event) which possess in the aggregate the ordinary voting power to elect a majority of the corporation's directors, (d) any sale of securities of the corporation to a person or group of persons (within the meaning of the 1934 Act) if, after such sale, such person or group of persons would not, in the aggregate, own, control or have the right to acquire more than two percent (2%) of the outstanding securities or any class of voting securities of the corporation (for purposes of this clause, treating Class A Common Stock and Class B Common Stock as a single class), and (e) a merger, consolidation or similar transaction involving the corporation if, after such transaction, a person or group of persons (within the meaning of the 1934 Act) in the aggregate would own or control securities which possess in the aggregate the ordinary voting power to elect a majority of the surviving corporation's directors (provided that the transaction has been approved by the corporation's Board of Directors or a committee thereof). 3. "PERSON" or "PERSON" shall mean an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization or a government or any department or agency thereof. 4. "REGULATED SHAREHOLDER" shall mean Chemical Equity Associates and its Affiliates. -12- 13 CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OF CARDINAL HEALTH, INC. Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on November 14, 1995, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted: Resolved, that Section 1 of Article FOURTH of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Health, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following: FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 105,500,000, consisting of 100,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value. IN WITNESS WHEREOF, Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., acting for and on its behalf, do hereunto subscribe their names this 14th day of November, 1995. /s/ ROBERT D. WALTER ------------------------------ Robert D. Walter, Chairman /s/ GEORGE H. BENNETT, JR. ------------------------------ George H. Bennett, Jr. -13- 14 CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OF CARDINAL HEALTH, INC. Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on October 29, 1996, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted; Resolved, that Section 1 of Article FOURTH of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Health, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following: FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 155,500,000, consisting of 150,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value. IN WITNESS WHEREOF, Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., acting for and on its behalf, do hereunto subscribe their names this 29th day of October, 1996. /s/ ROBERT D. WALTER ----------------------------------- Robert D. Walter, Chairman /s/ GEORGE H. BENNETT, JR. ------------------------------------- George H. Bennett, Jr., Secretary -14- 15 CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OF CARDINAL HEALTH, INC. Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on February 20, 1998, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted: Resolved, that Section 1 of Article FOURTH of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Health, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following: FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 305,500,000 consisting of 300,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value. IN WITNESS WHEREOF, Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., acting for and on its behalf, do hereunto subscribe their names this 20th day of February, 1998. /s/ ROBERT D. WALTER ------------------------------ Robert D. Walter, Chairman /s/ GEORGE H. BENNETT, JR. ------------------------------ George H. Bennett, Jr., Secretary EX-10.1 3 EXHIBIT 10.1 1 Exhibit 10.01 EMPLOYMENT AGREEMENT This is an agreement between Cardinal Health, Inc., an Ohio corporation (the "Company" ) and Robert J. Zollars (the "Executive"), dated as of the 10th day of February, 1998. 1. Employment Period. The Company shall employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement, for the period commencing on February 10, 1998 (the "Effective Date") and ending on the third anniversary of the Effective Date (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, the Executive shall be employed by the Company, and shall perform such duties and responsibilities of an executive nature as may be determined from time to time by the Company's Board of Directors (the "Board") or its lawfully designated representative. (b) During the Employment Period, the Executive shall devote his full time and attention to the business and affairs of the Company, and shall use his best efforts to promote and establish the business of the Company and to carry out faithfully and efficiently the responsibilities assigned to him under this Agreement. It shall not be considered a violation of the foregoing for the Executive to (i) serve on corporate boards with the approval of Cardinal, (ii) serve on civic or charitable boards or committees, and (iii) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities under this Agreement. 3. Compensation. (a) Base Salary. During the Employment Period, the Company shall pay the Executive a base salary (the "Base Salary") at an annual rate of $356,250, payable in accordance with the Company's payroll practices for management personnel, as in effect from time to time (but not less frequently than monthly). During the Employment Period, the Base Salary shall be reviewed for possible increase annually in accordance with the Company's normal payroll practices for management personnel. Any increase in the Base Salary shall not limit, expand or reduce any other obligation of the Company under this Agreement. (b) Annual Bonus. In addition to the Base Salary, during the Employment Period the Executive shall be eligible to receive annual bonuses (each, regardless of whether for a 12-month period or a different period, an "Annual Bonus") pursuant to this Section 3(b). The Annual Bonus shall be determined and paid at the sole discretion of the Company pursuant to the terms and conditions of the Company's standard Management Incentive Plan as in effect from time to time, or any successor thereto (the "MIP"), with an MIP potential equal to 85 percent of the Base Salary. (c) Other Benefits. During the Employment Period, the Executive shall be entitled to participate in the group health, life, disability insurance, retirement savings and other employee benefit plans (collectively, "Group Plans") generally offered to the Company's employees in accordance with the standard terms and conditions of such plans as in effect from time to time. In addition, the Executive shall be eligible to participate in the Company's Equity Incentive Plan or any successor thereto (the "Cardinal Stock Plan"), although the actual awards and benefits, if any, to be granted to the Executive thereunder shall be in the sole discretion of the Compensation and Personnel Committee of the Company's Board of Directors. The Employee shall at all times comply with the Company's policies on option exercises and the selling and buying of Company stock. (d) Expenses. The Company shall reimburse the Executive for all reasonable business expenses incurred by the Executive in the performance of his services hereunder for the Company, which expenses shall be substantiated to the reasonable satisfaction of the Company, in a manner similar to that 2 applicable to other management personnel of the Company, and the Executive shall provide all necessary records to reflect the reasonable business expenses incurred. (e) Vacation. During the Employment Period, the Executive shall be entitled to annual paid vacations as provided in the Company's vacation policy as in effect as of the Effective Date, as it may be revised thereafter from time to time. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. The Company shall be entitled to terminate the Executive's employment because of the Executive's Disability during the Employment Period. "Disability" means the illness or disability of the Executive which prevents or hampers the performance of his obligations hereunder, and which continues for a consecutive period of one hundred and twenty (120) days or longer or an aggregate period of one hundred and eighty (180) days or longer, in either instance during the Employment Period. A termination of the Executive's employment by the Company for Disability shall be communicated to the Executive by written notice, and shall be effective upon receipt of such notice by the Executive (the "Disability Effective Date"). (b) By the Company. (iv) The Company may terminate the Executive's employment during the Employment Period for Cause or without Cause. "Cause" shall mean (A) fraud, misappropriation, embezzlement or material misconduct on the part of the Executive, (B) the Executive's (x) failure to substantially perform his duties for the Company when and to the extent requested by the Board or its lawfully designated representative to do so and (y) failure to correct same within five (5) business days after notice from the Board or its lawfully designated representative requesting the Executive to do so, or (C) the Executive's breach of any material provision of this Agreement, the Certificate of Compliance with Company Policies then applicable to management personnel of the Company, or other agreements between the Executive and the Company and such breach continues for a period of five (5) business days after notice from the Board or its lawfully designated representative of such breach. (v) A termination of the Executive's employment by the Company without Cause shall be effected by giving the Executive five (5) business days written notice of the termination. (c) Good Reason. (i) The Executive may terminate employment for Good Reason or without Good Reason. "Good Reason" means: (A) the assignment to the Executive of duties inconsistent in any material respect with Section 2(a) of this Agreement, other than any such action that is remedied by the Company within five (5) business days after receipt of notice thereof from the Executive; (B) any failure by the Company to comply with any provision of Section 3 of this Agreement other than any such failure that is remedied by the Company within five (5) business days after receipt of notice thereof from the Executive; or (C) if prior to December 1, 2000 (the "Trigger Date"), the Executive and the Company are unable to mutually agree upon the terms of continued employment after the Employment Period (including, without limitation, the Executive's position and duties with the Company) and provided the term of this Agreement has not been terminated prior to the Trigger Date, then the Executive may terminate this Agreement for Good Reason. (ii) A termination of employment by the Executive for Good Reason shall be effectuated by giving the Company written notice ("Notice of Termination for Good Reason") of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies. A termination of employment by 3 the Executive for Good Reason shall be effective on the fifth business day following the date when the Notice of Termination for Good Reason is given, unless the notice sets forth a later date (which date shall in no event be later than 30 days after the notice is given); provided, that such a termination of employment shall not become effective if the Company shall have substantially corrected the circumstance giving rise to the Notice of Termination within such period. Notwithstanding the foregoing, a Trigger Notice shall become effective on the last day of the Employment Period, unless agreed in writing to the contrary by the Executive and the Company and, for all purposes hereof (including for purposes of Section 5(b) hereof), a termination of employment under Section 4 (c) (i) (C) shall be deemed a termination for Good Reason during the Employment Period. (iii) A termination of the Executive's employment by the Executive without Good Reason shall be effected by giving the Company written notice of the termination. (d) Date of Termination. The "Date of Termination" means the date of the Executive's death, the Disability Effective Date, the date on which the termination of the Executive's employment by the Company for Cause or by the Executive for Good Reason is effective, the date on which the Company gives the Executive notice of a termination of employment without Cause, or the date on which the Executive gives the Company notice of a termination of employment without Good Reason, as the case may be. 5. Obligations of the Company upon Termination. (a) Death, Disability, Cause; Without Good Reason. If, during the Employment Period, the Executive's employment is terminated because of death, Disability, for Cause, or by the Executive without Good Reason, then the Executive shall not be entitled to any compensation provided for under this Agreement, other than Base Salary through the Termination Date, benefits under any long-term disability insurance coverage in the case of termination because of Disability, and (without limiting the provisions of Section 6 hereof) vested benefits, if any, required to be paid or provided by law. (b) Without Cause; Good Reason. If, during the Employment Period, the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason (collectively, an "Eligible Termination"), the Executive shall not be entitled to any compensation provided for under this Agreement except as set forth in the following three sentences. If the Eligible Termination occurs prior to the second anniversary of the Effective Date, then the Company (i) shall continue to pay the Executive his Base Salary, at the rate then in effect, for and with respect to the period beginning on the date of such termination of employment and ending on the last day of the Employment Period (hereinafter, the "Continuation Period") in the same manner as specified in Section 3(a) hereof; (ii) shall pay the Executive, in lieu of annual bonuses pursuant to Section 3(b), an annual amount equal to the Executive's most recent previous annual bonus actually paid at the same time and in the same manner as such annual bonuses would have been paid during the Continuation Period pursuant to Section 3(b). If the Eligible Termination occurs on or after the second anniversary of the Effective Date, then the Company (i) shall continue to pay the Executive his Base Salary, at the rate then in effect, for and with respect to the period beginning on the date of such termination of employment and ending on the first anniversary of such date; and (ii) shall pay the Executive, in lieu of an annual bonus pursuant to Section 3(b), an amount equal to the Executive's most recent previous annual bonus actually paid at the same time and in the same manner as such annual bonus would have been paid had the Executive continued to be employed by the Company during such one year period. In addition, and irrespective of whether the Eligible Termination occurred prior to, on or after the second anniversary of the Effective Date, the Company shall, with respect to each employee stock option and restricted share granted to the Executive on or prior to the Effective Date that remains outstanding but has not vested as of the date of such Eligible Termination in accordance with its terms, either (A) cause such options and restricted shares to become fully vested as of the date of such Eligible Termination, or (B) arrange for the Executive to enjoy a status such that such options and restricted shares continue to vest in accordance with their terms in the same manner as would have occurred if the Executive had remained employed under this Agreement, as the Company shall elect. 4 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 Company for which the Executive may qualify, nor, subject to Section 10(f), shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any agreement with the Company. 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 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. 7. Confidential Information; Business Interference; Noncompetition; Inventions. (a) Both during his association with the Company or the Affiliated Companies (as defined below) and at all times thereafter, Executive shall not disclose to anyone else, directly or indirectly, any confidential, proprietary or business-sensitive information or trade secrets concerning or relating to the business of the Company or the Affiliated Companies (collectively, "Confidential Information") or use, or permit or assist, by acquiescence or otherwise, anyone else to use, directly or indirectly, any such Confidential Information. "Confidential Information" is information not generally known to the public and which, if released to unauthorized persons, could be detrimental to the reputation or business interests of the Company or the Affiliated Companies or parties with which the Company or the Affiliated Companies contract, or which could permit such unauthorized persons to benefit improperly. Examples of Confidential Information include, but are not limited to, the following: strategic business plans; computer materials such as software programs or documentation; information concerning the Company's and the Affiliated Companies' customers and potential customers, including their identities, contact persons, requirements, preferences, pricing or contract terms; marketing and sales information; research and development plans or data; budgets and unpublished financial statements; pricing information and cost data; information concerning the skills and compensation of other employees of the Company or the Affiliated Companies; and information concerning the suppliers of the Company and the Affiliated Companies. The foregoing restrictions shall not apply to disclosure of information by the Executive as may be required in the proper conduct of his duties on behalf of the Company or the Affiliated Companies or as may be specifically authorized in writing by the Company's chief executive officer, president, or chief financial officer. Upon termination of employment with the Company for any reason, Executive shall promptly deliver to the Company all property belonging to the Company and the Affiliated Companies and shall not retain any copies or reproductions of correspondence, reports, proposals, lists, computer programs or files, or other information relating in any way to the affairs of the Company or the Affiliated Companies. (b) Both during his association with the Company and at all times thereafter, Executive shall not take any action which is intended to or would disparage or diminish the reputation of the Company or the Affiliated Companies. In addition, while associated with the Company and for a period of two (2) years after expiration or termination of employment or other association with the Company, Executive shall not directly or indirectly, employ, contact concerning employment, or participate in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) of any person who was or is at any time during the previous 12 months an employee, representative, officer, or director of the Company or any of the Affiliated Companies. (c) During the Noncompetition Period (as defined below), the Executive shall not, without the prior written consent of the Board, engage in or become associated with a Competitive Activity. For purposes of this Section 7(c): (i) the "Noncompetition Period" means (A) the period during which the Executive is employed by the Company, plus (B) one year; (ii) a "Competitive Activity" means any business or other endeavor, in the United States or Canada or any other country, of a kind then being conducted by the Company or any of the Affiliated Companies in such country; and (v) the Executive shall be considered to have become "associated with a Competitive Activity" if he becomes directly or indirectly involved as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, financial backer, agent, partner, advisor, lender, or in any other individual or representative 5 capacity with any individual, partnership, corporation, other organization or entity that is engaged in a Competitive Activity. Notwithstanding the foregoing, the Executive may make and retain investments during the Employment Period in not more than five percent of the equity of any entity engaged in a Competitive Activity, if such equity is listed on a national securities exchange or regularly traded in an over-the-counter market. Should this provision be unenforceable in any jurisdiction because it is deemed too broad, as to time, area, subject matter, or otherwise, this provision shall be deemed modified to the extent necessary to be enforceable in such jurisdiction. (d) As special consideration for the Executive's agreement to be bound by the provisions of Section 7(c), the receipt and adequacy of which is hereby confirmed and acknowledged, he is receiving, as of the Effective Date, a special grant of stock options and restricted shares pursuant to the Cardinal Stock Plan. (e) All plans, discoveries and improvements, whether patentable or unpatentable, made or devised by the Executive, whether by himself 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 Company or any of the Affiliated Companies, relating or pertaining in any way to his employment with or the business of the Company or any of the Affiliated Companies, shall be promptly disclosed in writing to the Board 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 his 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 or copyrights, at the expense of the Company, with respect thereto in the United States and in all foreign countries. 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. (f) The Executive acknowledges and agrees that the Company's remedy at law for any breach of the Executive's obligations under this Section 7 would be inadequate and agrees and consents that temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision of such Section without the necessity of proof of actual damage. With respect to any provision of this Section 7 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. 8. Successors. (g) This Agreement is personal to the Executive, and he may not assign any interest herein in any manner whatsoever. Any purported assignment by the Executive shall be void. (h) In addition to assignments by operation of law, the Company shall have the right to assign this Agreement to any person, firm or corporation, controlling, controlled by or under common control with the Company (including without limitation any of the Affiliated Companies), or acquiring substantially all of its assets, but such assignment shall not release the Company from its obligations under this Agreement. 9. Miscellaneous. (a) The provisions of Sections 5, 6, 7, 8, and 9 of this Agreement shall survive any expiration or termination of this Agreement. (b) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or 6 modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices, requests, consents and other communications required or provided under this Agreement shall be in writing and shall be deemed sufficient if delivered by facsimile, overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and shall be effective upon delivery as follows: If to the Executive: -------------------- Robert J. Zollars 5555 Glendon Court Dublin, Ohio 43016 Facsimile: (614) 717-8676 If to the Company: ------------------ Cardinal Health, Inc. 5555 Glendon Court Dublin, Ohio 43016 Attention: General Counsel Facsimile: (614) 717-8919 Either party may change the address and/or facsimile number to which notices are to be sent to that party by giving written notice of such change of address to the other party in the same manner above provided for giving notice. (d) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective, but only to the extent of such prohibition or unenforceability, without invalidating the other provisions hereof or without affecting the validity or enforceability of such provision in any other jurisdiction. (e) 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. (f) As of the Effective Date, this Agreement shall constitute the entire agreement between the parties relative to the subject matter contained herein, superseding, canceling and replacing all prior agreements. No promises, covenants or representations of any character or nature other than those expressly stated herein have been made to induce either party to enter into this Agreement. This Agreement shall not be modified, waived or discharged except in writing duly signed by each of the parties or their authorized assignees. (g) 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 except to the extent any other party hereto is materially prejudiced by such failure. (h) The term "Affiliated Companies" means all companies controlled by, controlling or under common control with the Company. 7 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and 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. /s/ ROBERT J. ZOLLARS ------------------------------ Robert J. Zollars CARDINAL HEALTH, INC. By /s/ GEORGE H. BENNETT, JR. ------------------------------ Title Executive Vice President ------------------------------ EX-11.1 4 EXHIBIT 11.1 1 Exhibit 11.01 CARDINAL HEALTH, INC. COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Quarter Ended Nine Months Ended ------------------------------- -------------------------------- March 31, March 31, March 31, March 31, 1998 1997 1998 1997 --------------- --------------- --------------- --------------- BASIC: Net earnings $ 56,312 $ 42,181 $ 176,532 $ 122,833 =============== =============== =============== =============== Weighted average number of Common Shares outstanding 109,982 108,194 109,495 106,646 =============== =============== =============== =============== Basic earnings per Common Share $ 0.51 $ 0.39 $ 1.61 $ 1.15 =============== =============== =============== =============== DILUTED: Net earnings $ 56,312 $ 42,181 $ 176,532 $ 122,833 =============== =============== =============== =============== Weighted average number of Common Shares outstanding 109,982 108,194 109,495 106,646 Dilutive effect of stock options 1,620 2,052 1,688 2,065 --------------- --------------- --------------- --------------- Weighted average number of shares outstanding 111,602 110,246 111,183 108,711 =============== =============== =============== =============== Diluted earnings per Common Share $ 0.50 $ 0.38 $ 1.58 $ 1.13 =============== =============== =============== ===============
EX-27.1 5 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 1 90,151 0 850,937 (39,605) 2,157,814 3,303,380 537,672 (222,825) 3,973,029 2,003,075 273,267 0 0 700,603 846,799 3,973,029 9,381,955 9,381,955 8,627,913 8,627,913 412,372 0 (17,261) 297,766 121,234 176,532 0 0 0 176,532 1.61 1.58
EX-27.2 6 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED JUNE 30, 1995, JUNE 30, 1996 AND JUNE 30, 1997 AND FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE INFORMATION HAS BEEN RESTATED TO CONFORM WITH THE REQUIREMENTS OF SFAS NO. 128, EARNINGS PER SHARE. 1,000 U.S. DOLLARS YEAR YEAR YEAR 3-MOS JUN-30-1995 JUN-30-1996 JUN-30-1997 JUN-30-1997 JUL-01-1994 JUL-01-1995 JUL-01-1996 JUL-01-1996 JUN-30-1995 JUN-30-1996 JUN-30-1997 SEP-30-1996 1 1 1 1 74,279 312,030 243,061 125,119 100,760 54,335 0 57,735 608,141 668,669 707,116 693,771 (34,606) (36,803) (34,952) (37,159) 1,112,958 1,272,112 1,436,220 1,577,493 1,945,734 2,374,943 2,487,110 2,513,187 311,986 411,781 477,420 289,892 (134,942) (161,222) (199,949) (117,176) 2,363,752 2,959,401 3,091,750 2,979,124 1,139,535 1,432,903 1,389,433 1,494,828 267,677 320,327 277,766 263,655 0 0 0 0 0 0 0 0 504,943 589,476 645,051 582,840 361,531 505,749 689,679 518,464 2,363,752 2,959,401 3,091,750 2,979,124 8,472,302 9,407,591 10,968,042 2,535,476 8,472,302 9,407,591 10,968,042 2,535,476 7,779,030 8,597,878 10,068,384 2,341,648 7,779,030 8,597,878 10,068,384 2,341,648 428,343 514,879 515,551 193,828 0 0 0 0 (23,948) (30,611) (27,974) (6,606) 249,264 227,502 311,080 65,745 102,677 100,262 126,481 26,419 146,587 127,240 184,599 39,326 0 0 0 0 0 0 0 0 0 0 0 0 146,587 127,240 184,599 39,326 1.46 1.22 1.72 0.38 1.40 1.19 1.69 0.37
EX-27.3 7 EXHIBIT 27.3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CARDINAL HEALTH INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1996, MARCH 31, 1997, SEPTEMBER 30, 1997 AND DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE INFORMATION HAS BEEN RESTATED TO CONFORM WITH THE REQUIREMENTS OF SFAS NO. 128, EARNINGS PER SHARE. 1,000 U.S. DOLLARS 6-MOS 9-MOS 3-MOS 6-MOS JUN-30-1997 JUN-30-1997 JUN-30-1998 JUN-30-1998 JUL-01-1996 JUL-01-1996 JUL-01-1997 JUL-01-1997 DEC-31-1996 MAR-31-1997 SEP-30-1997 DEC-31-1997 1 1 1 1 87,460 12,521 180,515 111,654 37,185 0 0 0 775,122 797,088 728,409 790,748 (38,351) (37,882) (36,806) (38,417) 1,725,725 1,558,882 1,614,140 1,938,526 2,706,346 2,455,093 2,655,030 2,954,558 456,393 467,652 492,539 514,221 (192,213) (200,815) (206,573) (210,075) 3,299,147 3,039,959 3,259,489 3,602,491 1,666,946 1,407,265 1,494,534 1,769,328 297,909 279,539 277,882 275,615 0 0 0 0 0 0 0 0 623,580 629,879 656,596 667,858 585,490 631,563 740,897 803,702 3,299,147 3,039,959 3,259,489 3,602,491 5,351,882 8,177,382 2,869,971 6,000,476 5,351,882 8,177,382 2,869,971 6,000,476 4,934,196 7,513,038 2,644,106 5,525,713 4,934,196 7,513,038 2,644,106 5,525,713 251,569 383,071 135,054 270,265 0 0 0 0 (13,974) (22,388) (5,005) (10,165) 138,490 215,137 88,585 197,022 57,838 92,304 34,545 76,804 80,652 122,833 54,040 120,218 0 0 0 0 0 0 0 0 0 0 0 0 80,652 122,833 54,040 120,218 0.76 1.15 0.50 1.10 0.75 1.13 0.49 1.08
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