-----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, GNy5nu+fyPTMlFh9GxjzFEL9gnbqvCwnnuHJEyVKBguNq0doVL1NkQ03De65KN3V QLKhqBOheNQu2WZg21QEHA== 0000950152-02-001039.txt : 20020414 0000950152-02-001039.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950152-02-001039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020213 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: 1934 Act SEC FILE NUMBER: 001-11373 FILM NUMBER: 02541119 BUSINESS ADDRESS: STREET 1: 7000 CARDINAL PLACE CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147575000 MAIL ADDRESS: STREET 1: 7000 CARDINAL PLACE CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 10-Q 1 l92629ae10-q.txt CARDINAL HEALTH, INC. FORM 10-Q 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 The Quarter Ended December 31, 2001 Commission File Number 0-11373 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.) 7000 CARDINAL PLACE, DUBLIN, OHIO 43017 (Address of principal executive offices and zip code) (614) 757-5000 (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 January 31, 2002 was as follows: Common Shares, without par value: 449,507,368 -------------- CARDINAL HEALTH, INC. AND SUBSIDIARIES Index *
Page No. -------- Part I. Financial Information: --------------------- Item 1. Financial Statements: Condensed Consolidated Statements of Earnings for the Three and Six Months Ended December 31, 2001 and 2000 (unaudited)....................................... 3 Condensed Consolidated Balance Sheets at December 31, 2001 and June 30, 2001 (unaudited).......................................................... 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2001 and 2000 (unaudited)............................................. 5 Notes to Condensed Consolidated Financial Statements............................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................................ 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk......................... 15 Part II. Other Information: ----------------- Item 1. Legal Proceedings.................................................................. 16 Item 4. Submission of Matters to a Vote of Security Holders................................ 16 Item 5. Other Information.................................................................. 17 Item 6. Exhibits and Reports on Form 8-K................................................... 17
* Items not listed are inapplicable. Page 2 PART I. FINANCIAL INFORMATION CARDINAL HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Operating revenue $ 11,221.7 $ 9,560.7 $ 21,087.1 $ 18,071.6 Operating cost of products sold 10,221.2 8,675.8 19,171.9 16,383.0 ----------- ----------- ----------- ----------- Operating gross margin 1,000.5 884.9 1,915.2 1,688.6 Bulk deliveries to customer warehouses 1,870.4 2,365.9 3,778.4 4,894.9 Cost of products sold - bulk deliveries 1,870.4 2,365.4 3,778.4 4,893.9 ----------- ----------- ----------- ----------- Bulk gross margin - 0.5 - 1.0 Selling, general and administrative expenses 514.0 479.3 1,016.4 934.6 Goodwill amortization - 12.4 - 24.5 Special charges 16.8 8.0 29.1 20.3 ----------- ----------- ----------- ----------- Operating earnings 469.7 385.7 869.7 710.2 Interest expense and other 38.8 39.5 67.4 73.2 ----------- ----------- ----------- ----------- Earnings before income taxes 430.9 346.2 802.3 637.0 Provision for income taxes 147.6 125.0 272.6 225.8 ----------- ----------- ----------- ----------- Net earnings before cumulative effect of change in accounting principle 283.3 221.2 529.7 411.2 Cumulative effect on prior years of change in accounting principle, net of tax (See Note 8) - - 70.1 - ----------- ----------- ----------- ----------- Net earnings $ 283.3 $ 221.2 $ 459.6 $ 411.2 =========== =========== =========== =========== Basic earnings per Common Share: Before cumulative effect of change in accounting principle $ 0.63 $ 0.50 $ 1.18 $ 0.93 Cumulative effect of change in accounting principle - - (0.16) - ----------- ----------- ----------- ----------- Net basic earnings per Common Share $ 0.63 $ 0.50 $ 1.02 $ 0.93 =========== =========== =========== =========== Diluted earnings per Common Share: Before cumulative effect of change in accounting principle $ 0.62 $ 0.49 $ 1.15 $ 0.91 Cumulative effect of change in accounting principle - - (0.15) - ----------- ----------- ----------- ----------- Net diluted earnings per Common Share $ 0.62 $ 0.49 $ 1.00 $ 0.91 =========== =========== =========== =========== Weighted average number of Common Shares outstanding: Basic 449.9 441.8 449.7 440.3 Diluted 459.7 454.2 460.2 452.6 Cash dividends declared per Common Share $ 0.025 $ 0.020 $ 0.050 $ 0.040
See notes to condensed consolidated financial statements. Page 3 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN MILLIONS)
DECEMBER 31, JUNE 30, 2001 2001 --------- --------- ASSETS Current assets: Cash and equivalents $ 398.9 $ 934.1 Trade receivables, net 2,568.3 2,408.7 Current portion of net investment in sales-type leases 199.5 236.3 Inventories 8,255.2 6,286.1 Prepaid expenses and other 811.5 851.1 --------- --------- Total current assets 12,233.4 10,716.3 --------- --------- Property and equipment, at cost 3,407.9 3,345.9 Accumulated depreciation and amortization (1,569.4) (1,507.6) --------- --------- Property and equipment, net 1,838.5 1,838.3 Other assets: Net investment in sales-type leases, less current portion 547.1 671.7 Goodwill and other intangibles 1,166.7 1,175.4 Other 260.9 240.7 --------- --------- Total $16,046.6 $14,642.4 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable, banks $ 4.9 $ 8.3 Current portion of long-term obligations 15.2 5.9 Accounts payable 5,612.9 5,319.9 Other accrued liabilities 1,392.2 1,240.7 --------- --------- Total current liabilities 7,025.2 6,574.8 --------- --------- Long-term obligations, less current portion 2,459.4 1,871.0 Deferred income taxes and other liabilities 698.8 759.5 Shareholders' equity: Common Shares, without par value 1,989.4 1,893.1 Retained earnings 4,581.9 4,146.0 Common Shares in treasury, at cost (560.1) (457.2) Accumulated other comprehensive loss, net of tax (135.2) (140.3) Other (12.8) (4.5) --------- --------- Total shareholders' equity 5,863.2 5,437.1 --------- --------- Total $16,046.6 $14,642.4 ========= =========
See notes to condensed consolidated financial statements. Page 4 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
SIX MONTHS ENDED DECEMBER 31, 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings before cumulative effect of change in accounting principle $ 529.7 $ 411.2 Adjustments to reconcile net earnings before cumulative effect of change in accounting principle to net cash from operating activities: Depreciation and amortization 123.1 138.9 Provision for bad debts 14.8 8.0 Change in operating assets and liabilities, net of effects from acquisitions: Increase in trade receivables (169.7) (383.4) Increase in inventories (1,962.4) (1,454.6) (Increase)/decrease in net investment in sales-type leases 161.5 (52.9) Increase in accounts payable 291.3 1,249.6 Other operating items, net 64.7 (179.2) -------- -------- Net cash used in operating activities (947.0) (262.4) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiaries, net of cash acquired (2.8) (262.3) Proceeds from sale of property and equipment 16.9 5.2 Additions to property and equipment (121.3) (141.2) -------- -------- Net cash used in investing activities (107.2) (398.3) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in commercial paper and short-term debt 576.6 205.1 Reduction of long-term obligations (27.7) (12.4) Proceeds from long-term obligations, net of issuance costs 46.4 479.2 Proceeds from issuance of Common Shares 65.1 98.6 Dividends on Common Shares and cash paid in lieu of fractional shares (22.5) (18.1) Purchase of treasury shares (115.7) (136.4) Other (3.2) (1.9) -------- -------- Net cash provided by financing activities 519.0 614.1 -------- -------- NET DECREASE IN CASH AND EQUIVALENTS (535.2) (46.6) CHANGE IN BINDLEY'S FISCAL YEAR - 47.6 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 934.1 539.5 -------- -------- CASH AND EQUIVALENTS AT END OF PERIOD $ 398.9 $ 540.5 ======== ========
See notes to condensed consolidated financial statements. Page 5 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. The condensed 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 condensed 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 condensed 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, 2001 (the "2001 Form 10-K"). Without limiting the generality of the foregoing, Note 1 of the "Notes to Consolidated Financial Statements" from the 2001 Form 10-K is specifically incorporated herein by reference. Note 2. 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. In September 2001, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $500 million. As of December 31, 2001, 1.8 million Common Shares having an aggregate cost of approximately $115.7 million had been repurchased through this plan. The repurchased shares will be held as treasury shares and used for general corporate purposes. Note 3. The Company's comprehensive income consists of net earnings, foreign currency translation adjustments, unrealized (loss)/gain on investment, reclassification adjustment for investment losses included in net income, and net unrealized (loss)/gain on derivative instruments, all net of tax, as follows:
For the Three Months Ended For the Six Months Ended (in millions) December 31, December 31, 2001 2000 2001 2000 ------- ------- ------- ------- Net earnings $ 283.3 $ 221.2 $ 459.6 $ 411.2 Foreign currency translation adjustments (10.3) (0.7) 4.0 (21.0) Unrealized (loss)/gain on investment - - 2.2 (5.4) Reclassification adjustment for investment losses included in net income - - 3.2 - Net unrealized (loss)/gain on derivative instruments 2.2 (0.3) (4.3) (0.5) ------- ------- ------- ------- Total comprehensive income $ 275.2 $ 220.2 $ 464.7 $ 384.3 ======= ======= ======= =======
Note 4. Pyxis Funding LLC ("Pyxis Funding") was organized during the first quarter of fiscal year 2002 for the sole purpose of buying receivables and selling them to certain investors. Pyxis Funding is a wholly owned, special purpose, bankruptcy-remote subsidiary of Pyxis Corporation ("Pyxis"). During the first quarter of fiscal year 2002, Pyxis Funding acquired a pool of sales-type leases from Pyxis, and sold an undivided interest in those leases to an investor for approximately $150 million, which approximated the fair value of the sold interest. This was accounted for as a sale by the Company and Pyxis under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." Although Pyxis Funding is consolidated by the Company and Pyxis as required by U.S. generally accepted accounting principles, it is a separate legal entity and maintains separate financial statements. The assets of Pyxis Funding are available, first and foremost, to satisfy claims of its creditors. Page 6 Note 5. Costs of effecting mergers and subsequently integrating the operations of the various merged companies are recorded as merger-related costs when incurred. The merger-related costs currently being recognized are primarily a result of the merger transactions with Bindley Western Industries, Inc. ("Bindley"), Bergen Brunswig Medical Corporation ("BBMC"), Automatic Liquid Packaging, Inc. ("ALP"), Allegiance Corporation ("Allegiance") and R.P. Scherer Corporation ("Scherer"). The following is a summary of the special charges for the three and six-month periods ended December 31, 2001 and 2000.
Special Charges Three Months Ended Six Months Ended December 31, December 31, ------------------------------------------------------------------------------------------------------ (in millions) 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------ Merger-Related Costs: Employee-related costs $ (5.9) $ (2.8) $ (10.0) $ (10.7) Net exit costs and asset impairment (1.1) (0.1) (3.7) (0.2) Restructuring costs - - - (1.6) Other integration costs (9.8) (5.1) (15.4) (12.8) ------------------------------------------------------------------------------------------------------ Total merger-related costs $ (16.8) $ (8.0) $ (29.1) $ (25.3) ------------------------------------------------------------------------------------------------------ Other Special Charges: Litigation settlement $ - $ - $ - $ 5.0 ------------------------------------------------------------------------------------------------------ Total other special charges $ - $ - $ - $ 5.0 ------------------------------------------------------------------------------------------------------ Total special charges $ (16.8) $ (8.0) $ (29.1) $ (20.3) Tax effect of special charges 6.5 2.0 11.2 8.3 ------------------------------------------------------------------------------------------------------ Net effect of special charges $ (10.3) $ (6.0) $ (17.9) $ (12.0) =======================================================================================================
Merger-Related Costs During the above stated periods, the Company incurred employee-related costs associated with certain of its merger transactions. These expenses primarily consist of severance, noncompete agreements, and transaction/stay bonuses as a result of the Bindley, BBMC, ALP, Allegiance and Scherer merger transactions. Exit costs relate primarily to costs associated with lease terminations, moving expenses, and asset impairments as a direct result of the merger transactions with Bindley, BBMC, ALP, Allegiance and Scherer. Other integration costs include charges primarily related to integrating the operations of the above mentioned merger transactions. The Company incurred a restructuring charge of $1.6 million during the first quarter of fiscal 2001 relating to the Company's merger transaction with Scherer. As part of the business restructuring, the Company has closed certain facilities. In connection with such closings, the Company has incurred employee-related costs, asset impairment charges and exit costs related to the termination of contracts and lease agreements. Other Special Charges During the first quarter of fiscal 2001, Bindley recorded a benefit of approximately $5.0 million related to a reduction in a litigation settlement accrual, which was previously recorded. The amount of the final settlement was lower than originally anticipated. Summary The net effect of the various special charges recorded during the three months ended December 31, 2001 and 2000 was to reduce net earnings by $10.3 million to $283.3 million and by $6.0 million to $221.2 million, respectively, and to reduce reported diluted earnings per Common Share by $0.02 per share to $0.62 per share and by $0.01 per share to $0.49 per share, respectively. The net effect of the various special charges recorded during the six months ended December 31, 2001 and 2000 was to reduce net earnings before cumulative effect of change in accounting principle by $17.9 million to $529.7 million and by $12.0 million to $411.2 million, respectively, and to reduce reported diluted earnings per Common Share before cumulative effect of change in accounting principle by $0.04 per share to $1.15 per share and by $0.03 per share to $0.91 per share, respectively. Page 7 Note 6. The Company is organized based on the products and services it offers. Under this organizational structure, the Company operates in four business segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and Services, Pharmaceutical Technologies and Services, and Automation and Information Services. With the exception noted in Note 8 for the Automation and Information Services segment, the Company has not made any significant changes in the segments reported or the basis of measurement of segment profit or loss from the information provided in the Company's 2001 Form 10-K. The Pharmaceutical Distribution and Provider Services segment involves the distribution of a broad line of pharmaceuticals, healthcare and beautycare products, radiopharmaceuticals, therapeutic plasma and other specialty pharmaceutical products and other items typically sold by hospitals, retail drug stores and other healthcare providers. In addition, this segment provides services to the healthcare industry through integrated pharmacy management, temporary pharmacy staffing, as well as franchising of apothecary-style retail pharmacies. The Medical-Surgical Products and Services segment involves the manufacture of medical, surgical and laboratory products and the distribution of these products to hospitals, physician offices, surgery centers and other healthcare providers. The Pharmaceutical Technologies and Services segment provides services to the healthcare manufacturing industry through the design of unique drug delivery systems, liquid fill contract manufacturing, comprehensive packaging services, and sales and marketing services. The Automation and Information Services segment provides services to hospitals and other healthcare providers through pharmacy automation equipment and clinical information system services. The Company evaluates the performance of the segments based on operating earnings after the corporate allocation of administrative expenses. Special charges are not allocated to the segments. The following tables include revenue and operating earnings for the three and six-month periods ended December 31, 2001 and 2000 for each segment and reconciling items necessary to equal amounts reported in the condensed consolidated financial statements:
For the Three Months Ended For the Six Months Ended December 31, December 31, ----------------------------- ----------------------------- (in millions) Revenue Revenue ----------------------------- ----------------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Operating revenue: Pharmaceutical Distribution and Provider Services $ 9,214.5 $ 7,700.9 $17,175.2 $14,480.6 Medical-Surgical Products and Services 1,554.6 1,473.7 3,064.1 2,852.2 Pharmaceutical Technologies and Services 330.2 286.6 630.9 558.7 Automation and Information Services 139.7 119.5 248.0 209.6 Other (17.3) (20.0) (31.1) (29.5) --------- --------- --------- --------- Total operating revenue 11,221.7 9,560.7 21,087.1 18,071.6 Bulk deliveries to customer warehouses: Pharmaceutical Distribution and Provider Services 1,870.4 2,365.9 3,778.4 4,894.9 --------- --------- --------- --------- Total revenue $13,092.1 $11,926.6 $24,865.5 $22,966.5 =========================================================
Page 8
For the Three Months Ended For the Six Months Ended December 31, December 31, -------------------------- ------------------------ (in millions) Operating Earnings Operating Earnings -------------------- --------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Operating earnings: Pharmaceutical Distribution and Provider Services $ 256.2 $ 204.6 $ 478.0 $ 382.3 Medical-Surgical Products and Services 130.5 105.6 257.0 208.2 Pharmaceutical Technologies and Services 69.5 58.9 127.2 108.8 Automation and Information Services 55.1 45.4 84.9 68.5 Corporate (1) (41.6) (28.8) (77.4) (57.6) ------- ------- ------- ------- Total operating earnings $ 469.7 $ 385.7 $ 869.7 $ 710.2 --------------------------------------------------------------------------------------------------
(1) Corporate - operating earnings primarily consist of special charges of $16.8 million and $8.0 million for the three months ended December 31, 2001 and 2000, respectively, and $29.1 million and $20.3 million for the six months ended December 31, 2001 and 2000, respectively, and unallocated corporate administrative expenses and investment spending. Note 7. On September 30, 1996, Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries their U.S. Healthcare distribution business, surgical and respiratory therapy business and healthcare cost-saving business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter. In connection with this spin-off, Allegiance, which was acquired by the Company on February 3, 1999, agreed to indemnify Baxter Healthcare Corporation ("BHC") from certain claims related to the Allegiance Business, including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. Allegiance will be defending and indemnifying BHC, as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to the litigation assumed by Allegiance. As of December 31, 2001, there were approximately 562 lawsuits involving BHC and/or Allegiance containing allegations of sensitization to natural rubber latex products. Some of the cases are now proceeding to trial. Because of the number of claims filed and the ongoing defense costs that will be incurred, the Company believes it is probable that it will continue to incur significant expenses related to the resolution of cases involving natural rubber latex gloves. AEIA, one of the insurers for the latex glove litigation, previously advised the Company of its intent to resolve through arbitration the extent of its obligation to reimburse the Company for certain defense costs and loss expenses incurred in connection with the litigation. On October 22, 2001, BHC, Allegiance and AEIA reached a settlement agreement resolving all issues related to the Company's recovery of reimbursable expenses under the AEIA insurance policy, the terms of which are confidential. The Company believes a substantial portion of any liability will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The Company also becomes involved from time-to-time in other litigation incidental to its business, including, without limitation, inclusion of certain of its subsidiaries as a potentially responsible party for environmental clean-up costs. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company intends to vigorously defend itself and does not currently believe that the outcome of any pending litigation will have a material adverse effect on the Company's consolidated financial statements. Note 8. In the first quarter of fiscal 2002, the method of recognizing revenue for pharmacy automation equipment was changed from recognizing revenue when the units were delivered to the customer to recognizing revenue when the units are installed at the customer site. Management believes that the change in accounting method will provide for a more objectively determinable method of revenue recognition. In addition, the Company has implemented other changes to better service its customers and leverage operational efficiencies. The Company has recorded a cumulative effect of change in accounting principle of $70.1 million (net of tax of $44.6 million) in the consolidated statement of earnings during the first quarter of fiscal 2002. The after tax dilutive impact of the cumulative effect is $0.15 per diluted share. The estimated effect of the change for the three and six months ended December 31, 2001, is to reduce net earnings before the cumulative effect by $1.7 million and $5.9 million, respectively. This change resulted in no impact to diluted earnings per share for the three months ended December 31, 2001, but did reduce diluted earnings per share by $0.01 for the six months ended December 31, 2001. The pro-forma effect of this accounting change on prior periods has not been presented as the required information is not available. Page 9 Note 9. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 142 "Goodwill and Other Intangible Asssets" which revises the accounting for purchased goodwill and other intangible assets. SFAS 142 is effective for fiscal years beginning after December 15, 2001, with earlier adoption permitted. The Company elected to adopt SFAS 142 beginning with the first quarter of fiscal 2002. Under SFAS 142, purchased goodwill and intangible assets with indefinite lives are no longer amortized, but instead tested for impairment at least annually. Accordingly, the Company has ceased amortization of all goodwill and intangible assets with indefinite lives as of July 1, 2001. Intangible assets with finite lives, primarily patents and trademarks, will continue to be amortized over their useful lives. During the three and six month periods ended December 31, 2001, there were no material changes to goodwill as a result of acquisitions, impairment losses, or disposals. SFAS 142 requires a two step impairment test for goodwill. The first step is to compare the carrying amount of the reporting unit's assets to the fair value of the reporting unit. If the carrying amount exceeds the fair value then the second step is required to be completed, which involves the fair value of the reporting unit being allocated to each asset and liability with the excess being implied goodwill. The impairment loss is the amount by which the recorded goodwill exceeds the implied goodwill. The Company was required to complete a "transitional" impairment test for goodwill as of the beginning of the fiscal year in which the statement is adopted. This transitional impairment test required that the Company complete step one of the goodwill impairment test within six months from the date of initial adoption, or December 31, 2001. The Company completed the transitional impairment test and did not incur any impairment charges. The following table compares the Company's net earnings and per share amounts before the cumulative effect of change in accounting principle for the three and six months ended December 31, 2001, to net earnings and per share amounts for the three and six months ended December 31, 2000, adjusted for the amortization of intangible assets and goodwill.
For the Three Months Ended For the Six Months Ended (in millions, except per share amounts) December 31, December 31, --------------------------------------------------------------- 2001 2000 2001 2000 --------------------------------------------------------------- Earnings before cumulative effect of change in accounting principle $283.3 $232.5 $529.7 $433.5 Basic earnings per share $0.63 $0.53 $1.18 $ 0.98 Diluted earnings per share $0.62 $0.52 $1.15 $ 0.96
Note 10. In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This statement requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company does not believe that the adoption of this standard will have a material impact on its consolidated financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard is effective for fiscal years beginning after June 15, 2002, and provides accounting requirements for asset retirement obligations associated with tangible long-lived assets. The Company does not believe that the adoption of this standard will have a material impact on the Company's consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not believe that the adoption of this standard will have a material impact on the Company's consolidated financial statements. Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's discussion and analysis is concerned with material changes in financial condition and results of operations for the Company's condensed consolidated balance sheets as of December 31, 2001 and June 30, 2001, and for the condensed consolidated statements of earnings for the three and six-month periods ended December 31, 2001 and 2000. 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, 2001. 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. The words "believe", "expect", "anticipate", "project", and similar expressions, among others, identify "forward-looking statements", which speak only as of the date the statement was made. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to materially differ from those made, projected or implied. The most significant of such risks, uncertainties and other factors are described in Exhibit 99.01 to this Form 10-Q and are incorporated herein by reference. The Company disclaims any obligation to update any forward-looking statement. GENERAL The Company operates within four operating business segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and Services, Pharmaceutical Technologies and Services and Automation and Information Services. See Note 6 of "Notes to Condensed Consolidated Financial Statements" for a description of these segments. RESULTS OF OPERATIONS
Operating Revenue Three Months Ended Six Months Ended December 31, 2001 December 31, 2001 -------------------------------------------------------------------- Percent of Total Percent of Total Growth(1) Operating Revenues Growth(1) Operating Revenues - --------------------------------------------------------------------------------------------------------------------- Pharmaceutical Distribution and Provider Services 20% 82% 19% 81% Medical-Surgical Products and Services 5% 14% 7% 15% Pharmaceutical Technologies and Services 15% 3% 13% 3% Automation and Information Services 17% 1% 18% 1% Total Company 17% 100% 17% 100% - ---------------------------------------------------------------------------------------------------------------------
(1) The growth rate applies to the applicable three and six-month periods ended December 31, 2001 compared to the corresponding periods of the prior year. Total operating revenue increased 17% for the three and six months ended December 31, 2001 compared to the same periods of the prior year. The increase in operating revenue resulted from a higher sales volume to existing customers; pharmaceutical price increases; and the addition of new customers, some of which was a result of cross-selling opportunities among the various businesses. The Pharmaceutical Distribution and Provider Services segment's operating revenue growth during the three and six months ended December 31, 2001 resulted from strong sales to all customer segments, especially retail chain customers. The growth for this segment was organic, resulting from increased volume to existing customers and new contracts. A portion of the growth can be attributed to pharmaceutical price increases during the period. The Medical-Surgical Products and Services segment's operating revenue growth during the quarter and six months ended December 31, 2001 resulted from organic growth, led by strong sales of self-manufactured products, particularly sales of medical gloves, surgical instruments and custom kits. Virtually all self-manufactured product categories have experienced an accelerated growth rate during the six-month period ended December 31, 2001. In addition, several new long-term contracts were signed during the quarter within the segment's distribution business. Page 11 The Pharmaceutical Technologies and Services segment's operating revenue growth during the three and six months ended December 31, 2001 resulted from higher sales volume particularly involving sterile-liquid and controlled-release pharmaceutical technologies, as well as its proprietary packaging offerings. Accelerating demand for sterile-liquid and controlled-release technologies was a significant contributor to the growth within the pharmaceutical technologies business. The pharmaceutical packaging business' growth was attributable to the addition of several new customers and increased volume from existing customers. The Automation and Information Services segment's operating revenue growth during the quarter and six months ended December 31, 2001, resulted from strong sales of new products, such as MEDSTATION SN(R) and SUPPLYSTATION(R) System 30, and further penetration of the market with existing automation products. Bulk Deliveries to Customer Warehouses. The Company reports bulk deliveries made to customers' warehouses as revenue. These sales involve the Company acting as an intermediary in the ordering and subsequent delivery of pharmaceutical products. Fluctuations in bulk deliveries result largely from circumstances that the Company cannot control, including consolidation within the customers' industries, decisions by customers to either begin or discontinue warehousing activities, and changes in policies by manufacturers related to selling directly to customers. Due to the lack of margin generated through bulk deliveries, fluctuations in their amount have no significant impact on the Company's earnings.
Gross Margin Three Months Ended Six Months Ended December 31, December 31, - -------------------------------------------------------------------------------------------------------------------- (as a percentage of operating revenue) 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Pharmaceutical Distribution and Provider Services 4.87% 5.05% 5.03% 5.10% Medical-Surgical Products and Services 22.11% 21.60% 21.77% 22.03% Pharmaceutical Technologies and Services 33.97% 35.77% 33.90% 34.15% Automation and Information Services 67.93% 68.30% 67.49% 66.59% Total Company 8.92% 9.26% 9.08% 9.35% - --------------------------------------------------------------------------------------------------------------------
The overall gross margin as a percentage of operating revenue decreased during the three and six months ended December 31, 2001, compared to the same periods of the prior year. This decrease resulted primarily from a greater mix of lower margin pharmaceutical distribution business as well as a decrease in margins for the Pharmaceutical Technologies and Services segment. The Pharmaceutical Distribution and Provider Services segment has a gross margin rate that is significantly below the other segments due to the high volume, low margin nature of the pharmaceutical distribution business. This segment's mix increased to 82% and 81% of total operating revenues for the three and six months ended December 31, 2001, as compared to 80% for each of the comparable periods a year ago. The Pharmaceutical Distribution and Provider Services segment's gross margin as a percentage of operating revenue decreased during the three and six months ended December 31, 2001, as compared to the same periods of the prior year. This decrease was primarily due to a highly competitive market within the pharmaceutical distribution industry and a greater mix of sales to retail chain customers. Such customers have a relatively lower margin in connection with a lower cost of service. This decrease was partially offset by higher vendor margins from favorable price increases and manufacturer marketing programs. The Medical-Surgical Products and Services segment's gross margin as a percentage of operating revenue increased for the three months ended December 31, 2001, primarily from a higher sales volume of self-manufactured products that carry significantly higher gross margins than other portions of this segment's business. For the six months ended December 31, 2001, this segment's gross margin as a percentage of operating revenue decreased primarily due to the purchase of Bergen Brunswig Medical Corporation ("BBMC") during the first quarter of fiscal 2001. This purchase temporarily shifted product mix away from self-manufactured products toward lower margin distributed products. The Pharmaceutical Technologies and Services segment's gross margin as a percentage of operating revenue decreased during the quarter and six months ended December 31, 2001. The gross margin in this segment was negatively impacted by certain items that occurred in fiscal year 2001 that did not recur in fiscal year 2002, namely milestone payments related to the use of the Company's proprietary technology and a decline in business resulting from the Company's decision to reduce participation in the domestic health and nutritional market. A greater mix of lower margin pharmaceutical packaging business within this segment also contributed to the gross margin decline. These declines were somewhat offset in the six-month period by the recording in the Page 12 first quarter of fiscal 2002 of the minimum recovery expected to be received for claims against vitamin manufacturers for amounts overbilled in prior years. This pricing adjustment was recorded as a reduction of cost of goods sold, consistent with the classification of the original overcharge. Fluctuations in gross margin as a percentage of operating revenue for the Automation and Information Services segment generally relate to changes in product mix within the various offerings provided to its customers.
Selling, General & Administrative Expenses Three Months Ended Six Months Ended December 31, December 31, - -------------------------------------------------------------------------------------------------------------------- (as a percentage of operating revenue) 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Pharmaceutical Distribution and Provider Services 2.09% 2.39% 2.25% 2.46% Medical-Surgical Products and Services 13.72% 14.43% 13.38% 14.74% Pharmaceutical Technologies and Services 12.92% 15.22% 13.73% 14.67% Automation and Information Services 28.50% 30.31% 33.27% 33.91% Total Company 4.58% 5.14% 4.82% 5.31% - --------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses as a percentage of operating revenue decreased during the three and six months ended December 31, 2001, as compared to the same periods of the prior year. This decrease reflects economies of scale associated with the Company's revenue growth, significant productivity gains resulting from continued cost control efforts in all segments and the continuation of consolidation and selective automation of operating facilities. The Company is continuing to take advantage of synergies from recent acquisitions to decrease selling, general and administrative expenses as a percentage of operating revenue. In addition, the Company ceased amortizing goodwill during the first quarter of fiscal 2002 due to the adoption of Statement of Financial Accounting Standards 142 "Goodwill and Other Intangible Assets" (see Note 9 in the "Notes to Condensed Consolidated Financial Statements" for further discussion), which also contributed to the improvement. Selling, general and administrative expenses, including goodwill amortization in fiscal 2001, increased 5% and 6% during the three and six months ended December 31, 2001, compared to the respective periods in the prior fiscal year. This increase is primarily attributed to increases in personnel costs and depreciation expense, partially offset by the fact that no goodwill amortization was recorded in fiscal 2002. The overall increase compares favorably to the 17% growth in operating revenue for the three and six months ended December 31, 2001. Special Charges. Costs of effecting mergers and subsequently integrating the operations of the various merged companies are recorded as merger-related costs when incurred. The merger-related costs currently being recognized are primarily a result of the merger transactions with Bindley Western Industries, Inc. ("Bindley"), BBMC, Automatic Liquid Packaging, Inc. ("ALP"), Allegiance Corporation ("Allegiance") and R.P. Scherer Corporation ("Scherer"). The following is a summary of the special charges for the three and six-month periods ended December 31, 2001 and 2000.
Special Charges Three Months Ended Six Months Ended December 31, December 31, - ------------------------------------------------------------------------------------------------------- (in millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------- Merger-Related Costs: Employee-related costs $ (5.9) $ (2.8) $ (10.0) $ (10.7) Net exit costs and asset impairment (1.1) (0.1) (3.7) (0.2) Restructuring costs - - - (1.6) Other integration costs (9.8) (5.1) (15.4) (12.8) - ------------------------------------------------------------------------------------------------------- Total merger-related costs $ (16.8) $ (8.0) $ (29.1) $ (25.3) - ------------------------------------------------------------------------------------------------------- Other Special Charges: Litigation settlement $ - $ - $ - $ 5.0 - ------------------------------------------------------------------------------------------------------- Total other special charges $ - $ - $ - $ 5.0 - ------------------------------------------------------------------------------------------------------- Total special charges $ (16.8) $ (8.0) $ (29.1) $ (20.3) Tax effect of special charges 6.5 2.0 11.2 8.3 - ------------------------------------------------------------------------------------------------------- Net effect of special charges $ (10.3) $ (6.0) $ (17.9) $ (12.0) =======================================================================================================
Page 13 Merger-Related Costs. During the above stated periods, the Company incurred employee-related costs associated with certain of its merger transactions. These expenses primarily consist of severance, noncompete agreements, and transaction/stay bonuses as a result of the Bindley, BBMC, ALP, Allegiance and Scherer merger transactions. Exit costs relate primarily to costs associated with lease terminations, moving expenses, and asset impairments as a direct result of the merger transactions with Bindley, BBMC, ALP, Allegiance and Scherer. Other integration costs include charges primarily related to integrating the operations of the above mentioned merger transactions. The Company incurred a restructuring charge of $1.6 million during the first quarter of fiscal 2001 relating to the Company's merger transaction with Scherer. As part of the business restructuring, the Company has closed certain facilities. In connection with such closings, the Company has incurred employee-related costs, asset impairment charges and exit costs related to the termination of contracts and lease agreements. Other Special Charges. During the first quarter of fiscal 2001, Bindley recorded a benefit of approximately $5.0 million related to a reduction in a litigation settlement accrual, which was previously recorded. The amount of the final settlement was lower than originally anticipated. Summary. The net effect of the various special charges recorded during the three months ended December 31, 2001 and 2000 was to reduce net earnings by $10.3 million to $283.3 million and by $6.0 million to $221.2 million, respectively, and to reduce reported diluted earnings per Common Share by $0.02 per share to $0.62 per share and by $0.01 per share to $0.49 per share, respectively. The net effect of the various special charges recorded during the six months ended December 31, 2001 and 2000 was to reduce net earnings before cumulative effect of change in accounting principle by $17.9 million to $529.7 million and by $12.0 million to $411.2 million, respectively, and to reduce reported diluted earnings per Common Share before cumulative effect of change in accounting principle by $0.04 per share to $1.15 per share and by $0.03 per share to $0.91 per share, respectively. The Company estimates that it will incur additional merger-related costs and integration expenses associated with the various mergers it has completed to date (primarily related to the Allegiance, BBMC, and Bindley mergers) of approximately $118.3 million ($73.4 million, net of tax) in future periods (primarily fiscal 2002 and 2003) related to the exit of contractual arrangements, employee-related costs, and costs to properly integrate operations and implement efficiencies. Such amounts will be charged to expense when incurred. Provision for Income Taxes. The Company's provision for income taxes relative to pre-tax earnings, excluding the impact of goodwill amortization, was 34.3% and 35.2%, respectively, for the second quarters of fiscal 2002 and 2001 and 34.0% and 34.5%, respectively, for the six-month periods ended December 31, 2001 and 2000. Fluctuations in the effective tax rate are primarily due to the impact of recording non-deductible merger-related costs during various periods as well as fluctuating state and foreign effective tax rates as a result of the Company's business mix. The provision for income taxes excluding the impact of merger-related charges and goodwill amortization was 34.4% and 34.9%, respectively, for the second quarters of fiscal 2002 and 2001 and 34.1% and 34.6%, respectively, for the six month-periods ended December 31, 2001 and 2000. LIQUIDITY AND CAPITAL RESOURCES Working capital increased to $5.2 billion at December 31, 2001 from $4.1 billion at June 30, 2001. This increase resulted from additional investments in inventories of $2.0 billion and an increase in trade receivables of $0.2 billion. Partially offsetting the increases in current assets was an increase in accounts payable of $0.3 billion. The inventory increase reflects the Company's investment in conjunction with various vendor-margin programs, as well as the general buildup for seasonality within the pharmaceutical distribution business. The increase also reflects the higher level of business volume in Pharmaceutical Distribution and Provider Services' activities. The change in accounts payable resulted primarily from the timing of inventory purchases and related payments. Property and equipment, at cost, increased by $62.0 million from June 30, 2001. The increase was primarily the result of ongoing plant expansion and manufacturing equipment purchases in certain manufacturing businesses, as well as additional investments made for management information systems and upgrades to distribution facilities. The investment in sales-type leases decreased $161.4 million during the first six months of fiscal 2002. This decrease was primarily the result of the sale by Pyxis Funding LLC ("Pyxis Funding") of an undivided interest in a defined pool of sales-type leases to an investor at amounts approximating their fair value. Pyxis Funding obtained proceeds of approximately $150 million related to the transaction (see Note 4 in the "Notes to Condensed Consolidated Financial Statements" for further discussion). Page 14 Shareholders' equity increased to $5.9 billion at December 31, 2001 from $5.4 billion at June 30, 2001, primarily due to net earnings of $459.6 million and the investment of $65.1 million by employees of the Company through various employee stock benefit plans. These increases were partially offset by the purchase of treasury shares of $115.7 million and dividends paid of $22.5 million. In September 2001, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $500 million. As of December 31, 2001, 1.8 million Common Shares having an aggregate cost of approximately $115.7 million had been repurchased through this plan. The repurchased shares will be held as treasury shares and used for general corporate purposes. The Company believes that it has adequate capital resources at its disposal to fund currently anticipated capital expenditures, business growth and expansion, and current and projected debt service requirements, including those related to business combinations. SUBSEQUENT EVENT On January 22, 2002, Kmart Corporation ("Kmart") announced its filing for Chapter 11 bankruptcy protection. Cardinal Distribution, the most significant business within the Pharmaceutical Distribution and Provider Services segment, has serviced Kmart for more than ten years and currently services approximately 1,600 of its stores nationwide. Sales to Kmart represent approximately 5% of the Company's total volume, but earnings from these sales are an even smaller percentage of the Company's total operating earnings. Due to a unique consignment structure in which the Company still owns the related pharmaceutical inventories, it has significantly limited its credit exposure to Kmart. The Company does not anticipate any material impact on the consolidated financial statements due to this bankruptcy filing. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes there has been no material change in its exposure to market risk from that discussed in the Company's Form 10-K for the fiscal year ended June 30, 2001. Page 15 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The following disclosure should be read together with the disclosure set forth in the Company's Form 10-K for the fiscal year ended June 30, 2001, and to the extent any such statements constitute "forward looking statements" reference is made to Exhibit 99.01 of this Form 10-Q. On September 30, 1996, Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance and its subsidiaries their U.S. Healthcare distribution business, surgical and respiratory therapy business and healthcare cost-saving business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter. In connection with this spin-off, Allegiance, which was acquired by the Company on February 3, 1999, agreed to indemnify Baxter Healthcare Corporation ("BHC") from certain claims related to the Allegiance Business, including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. Allegiance will be defending and indemnifying BHC, as contemplated by the agreements between Baxter and Allegiance, for all expenses and potential liabilities associated with claims pertaining to the litigation assumed by Allegiance. As of December 31, 2001, there were approximately 562 lawsuits involving BHC and/or Allegiance containing allegations of sensitization to natural rubber latex products. Some of the cases are now proceeding to trial. Because of the number of claims filed and the ongoing defense costs that will be incurred, the Company believes it is probable that it will continue to incur significant expenses related to the resolution of cases involving natural rubber latex gloves. AEIA, one of the insurers for the latex glove litigation, previously advised the Company of its intent to resolve through arbitration the extent of its obligation to reimburse the Company for certain defense costs and loss expenses incurred in connection with the litigation. On October 22, 2001, BHC, Allegiance and AEIA reached a settlement agreement resolving all issues related to the Company's recovery of reimbursable expenses under the AEIA insurance policy, the terms of which are confidential. The Company believes a substantial portion of any liability will be covered by insurance, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The Company also becomes involved from time-to-time in other litigation incidental to its business, including, without limitation, inclusion of certain of its subsidiaries as a potentially responsible party for environmental clean-up costs. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company intends to vigorously defend itself and does not currently believe that the outcome of any pending litigation will have a material adverse effect on the Company's consolidated financial statements. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) Registrant's 2001 Annual Meeting of Shareholders was held on November 7, 2001. (b) Proxies were solicited by Registrant's management pursuant to Regulation 14A under the Securities Exchange Act of 1934; there was no solicitation in opposition to management's nominees as listed in the proxy statement; and all director nominees were elected to the class indicated in the proxy statement pursuant to the vote of the Registrant's shareholders. (c) Matters voted upon at the Annual Meeting were as follows: (i) Election of William E. Bindley, George H. Conrades, Robert L. Gerbig, Richard C. Notebaert and Melburn G. Whitmire. The results of the shareholder vote were as follows: Mr. Bindley - 383,345,272 for, 0 against, 4,129,965 withheld, and 0 broker non-votes; Mr. Conrades - 383,354,795 for, 0 against, 4,120,442 withheld, and 0 broker non-votes; Mr. Gerbig - 383,384,911 for, 0 against, 4,090,326 withheld, and 0 broker non-votes; Mr. Notebaert - 383,377,968 for, 0 against, 4,097,269 withheld, and 0 broker non-votes; and Mr. Whitmire - 377,062,576 for, 0 against, 10,412,661 withheld, and 0 broker non-votes. (ii) Adoption of an Amendment to the Company's Code of Regulations relating to delivery of notice, as permitted under Ohio law, of shareholders and directors meetings. The results of the shareholder vote were as follows: 384,824,790 for, 902,249 against, 1,748,198 withheld, and 0 broker non-votes. (iii) Proposal from Shareholders to Phase Out PVC Use in Manufacture of Medical Supplies. The results of the shareholder vote were as follows: 12,331,452 for, 307,818,751 against, 26,628,937 withheld, and 40,696,097 broker non-votes. Page 16 ITEM 5: OTHER INFORMATION: The Company entered into an employment agreement with Robert D. Walter, dated as of November 20, 2001. Mr. Walter will vest in certain benefits provided to him under the agreement if he stays with the Company through June 30, 2004. The agreement provides for him to remain as the Company's Chairman and Chief Executive Officer indefinitely after that date, unless either party provides one year's prior notice otherwise. The agreement provides that Mr. Walter will be paid a minimum annual base salary of $1,000,000 along with an annual bonus and equity incentives, including a grant of 150,000 restricted share units. Under the agreement, Mr. Walter has agreed to comply with certain non-compete and non-solicitation covenants during the term of the agreement and generally for two years thereafter. Regina E. Herzlinger resigned from the Board of Directors of the Company, effective January 15, 2002, thereby reducing the number of Directors from 13 to 12. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K: (a) Listing of Exhibits: Exhibit ------- Number Exhibit Description ------ ------------------- 10.01 Form of Nonqualified Stock Option Agreement, as amended* 10.02 Form of Directors' Stock Option Agreement, as amended* 10.03 Form of Outside Directors' Stock Option Agreement, as amended* 10.04 Nonqualified Stock Option Agreement, dated November 19, 2001, between the Registrant and Robert D. Walter* 10.05 Cardinal Health Deferred Compensation Plan, amended and restated effective January 1, 2002* 10.06 Form of Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and each of Messrs. Ford, Miller and Rucci* 10.07 Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and George L. Fotiades* 10.08 Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and James F. Millar* 10.09 Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and Stephen S. Thomas* 10.10 Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and Kathy Brittain White* 10.11 Employment Agreement, dated November 20, 2001, between the Registrant and Robert D. Walter* 10.12 Restricted Share Units Agreement, dated November 20, 2001, between the Registrant and Robert D. Walter* 99.01 Statement Regarding Forward-Looking Information (1) - ---------------- (1) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (File No. 0-11373) and incorporated herein by reference. * Management contract or compensation plan or arrangement. (b) Reports on Form 8-K: None Page 17 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: February 13, 2002 By: /s/ Robert D. Walter ------------------------------------------ Robert D. Walter Chairman and Chief Executive Officer By: /s/ Richard J. Miller ------------------------------------------ Richard J. Miller Executive Vice President and Chief Financial Officer Page 18 EX-10.0 3 l92629aex10-01.txt EX-10.01 NON-QUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10.01 CARDINAL HEALTH, INC. FORM OF NONQUALIFIED STOCK OPTION AGREEMENT Dollars at Work*: Grant Date: Exercise Price: Grant vesting date: Grant expiration date: Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to [employee name] ("Grantee"), an option (the "Option") to purchase [# of shares] shares (the "Shares") of common stock in the Company for a total purchase price (typically known as Dollars at Work *) of , (i.e., the equivalent of [stock price] for each full Share). The Option has been granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"), and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. This option shall be exercisable at any time on or after and prior to . By:____________________ Robert D. Walter Chairman and CEO * Dollars at Work and total purchase price may vary (up to one share amount due to rounding). 1. METHOD OF EXERCISE AND PAYMENT OF PRICE (a) METHOD OF EXERCISE. At any time when the Option is exercisable under the Plan and this agreement, the Option shall be exercised from time to time by written notice to the Company which shall: (i) state the number of Shares with respect to which the Option is being exercised; and (ii) if the Option is being exercised by anyone other than the Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations. (b) PAYMENT OF PRICE. The full exercise price for the Option shall be paid to the Company as provided in the Plan. 2. TRANSFERABILITY. The Option shall be transferable (I) at the Grantee's death, by the Grantee by will or pursuant to the laws of descent and distribution, and (II) by the Grantee during the Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, stepchildren, children-in-law, grandchildren, nieces, or nephews of the Grantee, or any other persons sharing the Grantee's household (other than tenants or employees) ("Family Members"), (b) a trust or trusts for the primary benefit of the Grantee or such Family Members, (c) a foundation in which the Grantee or such Family Members control the management of assets, or (d) a partnership in which the Grantee or such Family Members are the majority or controlling partners, provided that subsequent transfers of the transferred Option shall be prohibited except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution and (Y) without payment of consideration to the individuals or entities listed in subitems II(a), (b), or (c), above, with respect to the original Grantee. The Human Resources and Compensation Committee of the Board of Directors of the Company (the "Committee") may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by the Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Within ten days of any transfer, the Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to 2 be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of termination of employment of the Grantee provided in item 3 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in item 3. The Company shall have no obligation to notify any transferee of the Grantee's termination of employment with the Company for any reason. The conduct prohibited of Grantee in items 5 and 6 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from the Grantee to the same extent as would have been the case of the Grantee had the Option not been transferred. The Grantee shall remain subject to the recoupment provisions of items 5 and 6 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option. 3. TERMINATION OF RELATIONSHIP. (a) TERMINATION BY DEATH. If the Grantee's employment by the Company and its subsidiaries (collectively, the "Cardinal Group") terminates by reason of death, then, unless otherwise determined by the Committee within sixty days of such death, any unvested portion of the Option shall vest upon and become exercisable in full from and after the sixtieth day after such death. The Option may thereafter be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of the Grantee under the will of the Grantee for a period of one year (or such other period as the Committee may specify at or after grant or death) from the date of death or until the expiration of the stated term of the Option, whichever period is shorter. (b) TERMINATION BY REASON OF RETIREMENT OR DISABILITY. If the Grantee's employment by the Cardinal Group terminates by reason of retirement or disability (each as defined in the Plan), then, unless otherwise determined by the Committee within sixty days of such retirement or disability, any unvested portion of the Option will vest in accordance with the terms indicated on the first page of this agreement and may thereafter be exercised by the Grantee (or any transferee, if applicable) until the earlier of (the "Exercise Period") the fifth anniversary of the date of such retirement or disability or the expiration of the stated term of the Option; provided, that any vesting that would otherwise occur during the sixty-day period beginning immediately after such retirement or disability shall not occur until the end of such sixty-day period. If the Grantee has at least fifteen years of service with the Cardinal Group at the time of retirement, the Option may thereafter be exercised by the Grantee (or any transferee, if applicable) until the expiration of the stated term of the Option. Notwithstanding the foregoing, if the Grantee dies after retirement or disability but before the expiration of the Exercise Period, unless otherwise determined by the Committee within 60 days of such death, any unvested portion of the Option shall vest upon, and the Option may be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of the Grantee under the will of the Grantee from and after, the sixtieth day after such death for a period of one year (or such other period as the Committee may specify at or after grant or death) from the date of death or until the expiration of the Exercise Period, whichever period is shorter. (c) OTHER TERMINATION OF EMPLOYMENT. If the Grantee's employment by the Cardinal Group terminates for any reason other than death, retirement or disability (subject to Section 10 of the Plan regarding acceleration of the vesting of the Option upon a Change of Control), any unexercised portion of the Option which has not vested on such date of termination will automatically terminate on the date of such termination. Unless 3 otherwise determined by the Committee at or after grant or termination, the Grantee (or any transferee, if applicable) will have ninety days (or such other period as the Committee may specify at or after grant or termination) from the date of termination or until the expiration of the stated term of the Option, whichever period is shorter, to exercise any portion of the Option that is then vested and exercisable on the date of termination; provided, however, that if the termination was for Cause, as determined by the Committee, the Option may be immediately canceled by the Committee (whether then held by Grantee or any transferee). 4. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions in this agreement and/or in the Plan. As a condition of any exercise of the Option, the Company may require the Grantee or his transferee or successor to make any representation and warranty to comply with any applicable law or regulation or to confirm any factual matters (including Grantee's compliance with the terms of items 5 and 6 of this agreement or any employment or severance agreement between any member of the Cardinal Group and the Grantee) reasonably requested by the Company. 5. TRIGGERING CONDUCT/COMPETITOR TRIGGERING CONDUCT. As used in this agreement, "Triggering Conduct" shall include disclosing or using in any capacity other than as necessary in the performance of duties assigned by the Cardinal Group any confidential information, trade secrets or other business sensitive information or material concerning the Cardinal Group; violation of Company policies, including conduct which would constitute a breach of any of the Certificates of Compliance with Company Policies and/or Certificate of Compliance with Company Business Ethics Policies signed by the Grantee, directly or indirectly employing, contacting concerning employment or participating in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is an employee, representative, officer or director of the Cardinal Group at any time within the twelve months prior to the termination of Grantee's employment with the Cardinal Group; any action by Grantee and/or his representatives that either does or could reasonably be expected to undermine, diminish or otherwise damage the relationship between the Cardinal Group and any of its customers and/or potential customers, vendors and/or suppliers that were known to Grantee, and breaching any provision of any employment or severance agreement with a member of the Cardinal Group. As used herein, "Competitor Triggering Conduct" shall include, either during Grantee's employment or within one year following Grantee's termination of employment with the Cardinal Group, accepting employment with or serving as a consultant, advisor, or in any other capacity to an entity that is in competition with the business conducted by any member of the Cardinal Group (a "Competitor"), including, but not limited to, employment or another business relationship with any Competitor if Grantee has been introduced to trade secrets, confidential information or business sensitive information during Grantee's employment with the Cardinal Group and such information would aid the Competitor because the threat of disclosure of such information is so great that, for purposes of this agreement, it must be assumed that such disclosure would occur. 4 6. SPECIAL FORFEITURE/REPAYMENT RULES For so long as Grantee continues as an employee with the Cardinal Group and for three years following Grantee's termination of employment with the Cardinal Group regardless of the reason, Grantee agrees not to engage in Triggering Conduct. If Grantee engages in such Triggering Conduct during the time period set forth in the preceding sentence or in Competitor Triggering Conduct during the time period set forth in Section 5 above, then: (a) the Option (or any part thereof that has not been exercised) shall immediately and automatically terminate, be forfeited, and shall cease to be exercisable at any time; and (b) the Grantee shall, within 30 days following written notice from the Company, pay the Company an amount equal to the gross option gain realized or obtained by the Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., the difference between the market value of the Option Shares on the exercise date and the exercise price paid for such Option Shares), with respect to any portion of the Option that has already been exercised at any time within three years prior to the Triggering Conduct (the "Look-Back Period"), less $1.00. If Grantee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of employment with the Cardinal Group, but including any period between the time of Grantee's termination and engagement in Competitor Triggering Conduct . The Grantee may be released from Grantee's obligations under this item 6 only if the Committee (or its duly appointed designee) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this item 6 constitutes a so-called "noncompete" covenant. However, this item 6 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least ten days written notice prior to directly or indirectly accepting employment with or serving as a consultant, advisor, or in any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this item 6 and the Grantee's continuing obligations contained herein. No provisions of this agreement shall diminish, negate, or otherwise impact any separate noncompete or other agreement to which Grantee may be a party, including but not limited to any of the Certificates of Compliance with Company Policies and/or Certificate of Compliance with Company Business Ethics Policies. Grantee acknowledges and agrees that the provisions contained in this item 6 are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, in consideration of employment, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Option to Grantee without including this item 6. Further, the parties agree 5 and acknowledge that the provisions contained in items 5 and 6 are ancillary to or part of an otherwise enforceable agreement at the time the agreement is made. 7. RIGHT OF SET-OFF. By accepting this Option, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as wages, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. 8. GOVERNING LAW/VENUE. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superceded by the laws of the United States of America. The parties agree and acknowledge that the laws of the State of Ohio bear a substantial relationship to the parties and/or this agreement and that the Option and benefits granted herein would not be granted without the governance of this agreement by the laws of the State of Ohio. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Grantee acknowledges that the covenants contained in items 5 and 6 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of item 5 or 6 of this agreement, the Company shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and Grantee hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Company hereunder or by law. In the event that it becomes necessary for the Company to institute legal proceedings under this agreement, Grantee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. 9. ACTION BY THE COMMITTEE. The parties agree that the interpretation of this agreement shall rest exclusively and completely within the good faith province and discretion of the Committee. The parties agree to be bound by the decisions of the Committee with regard to the interpretation of this agreement and with regard to any and all matters set forth in this agreement. The Committee may delegate its functions under this agreement to an officer of the Cardinal Group designated by the Committee (hereinafter the "designee"). In fulfilling its responsibilities hereunder, the Committee or 6 its designee may rely upon documents, written statements of the parties, or such other material as the Committee or its designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Committee or its designee and that any decision of the Committee or its designee relating to this agreement, including without limitation whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, shall be final and binding unless such decision is arbitrary and capricious. 10. PROMPT ACCEPTANCE OF AGREEMENT. The Option grant evidenced by this agreement shall, at the discretion of the Committee, be forfeited if this agreement is not executed by the Grantee and returned to the Company within ninety days of the Grant Date set forth on the first page of this agreement. 7 ACCEPTANCE OF AGREEMENT The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is provided with this agreement, and represents that he is familiar with and understands all provisions of the Plan and this agreement; and (b) voluntarily and knowingly accepts this agreement and the Option granted to him under this agreement subject to all provisions of the Plan and this agreement. The Grantee further acknowledges receiving a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan. --------------------------------- Signature --------------------------------- Print Name --------------------------------- Grantee's Social Security Number --------------------------------- Date 8 EX-10.02 4 l92629aex10-02.txt EX-10.02 DIRECTORS STOCK OPTION AGREEMENT EXHIBIT 10.02 FORM OF DIRECTORS' STOCK OPTION AGREEMENT ----------------------------------------- UNDER THE --------- AMENDED AND RESTATED EQUITY INCENTIVE PLAN ------------------------------------------ Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to _______________ (the "Grantee"), an option (the "Option") to purchase 2,019 Common Shares, without par value (the "Shares"), of the Company for a total purchase price (the "Option Price") of $129,014.10 (i.e., the equivalent of $63.90 for each full Share). The Option has been granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan") and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the following provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. This option shall be exercisable at any time on or after November 7, 2001 and prior to November 7, 2011. Section 1. METHOD OF EXERCISE. At any time when the Option is exercisable under the Plan, the Option shall be exercisable from time to time by written notice to the Company (the date such notice is received by the Company, the "Exercise Date") which shall: (a) state that the Option is thereby being exercised, the number of Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Shares should be registered and his or her address and social security number; (b) be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and (c) contain such representations, warranties and agreements with respect to the investment intent of such person or persons in form and substance satisfactory to counsel for the Company. Section 2. PAYMENT OF EXERCISE PRICE. The full exercise price for the Option shall be paid to the Company: (i) in cash, (ii) by delivery of Shares with a fair market value equal to the total exercise price at the time of exercise, (iii) by attestation of ownership of such already-owned Shares, (iv) by delivery of cash on the extension of credit by a broker-dealer to whom the Grantee (or other person authorized to exercise the Option) has submitted a notice of exercise or an irrevocable election to effect such extension of credit, or (v) by a combination of the preceding methods. Any Shares delivered or attested to in payment of an exercise price shall be valued as of the Exercise Date. Section 3. TRANSFERABILITY. The Option shall be transferable (I) at the Grantee's death, by the Grantee by will or pursuant to the laws of descent and distribution, and (II) by the Grantee during the Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, stepchildren, children-in-law, grandchildren, nieces, or nephews of the Grantee, or any other persons sharing the Grantee's household (other than tenants or employees) ("Family Members"), (b) a trust or trusts for the primary benefit of the Grantee or such Family Members, (c) a foundation in which the Grantee or such Family Members control the management of assets, or (d) a partnership in which the Grantee or such Family Members are the majority or controlling partners, provided that subsequent transfers of the transferred Option shall be prohibited except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution and (Y) without payment of consideration to the individuals or entities listed in subitems II(a), (b), or (c), above, with respect to the original Grantee. The Committee may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by the Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Within ten days of any transfer, the Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of Grantee's termination from the Board of Directors of the Company (the "Board") provided in Section 4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in Section 4. The conduct prohibited of Grantee in Section 6 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from the Grantee to the same extent as would have been the case of the Grantee had the Option not been transferred. The Company shall have no obligation to notify any transferee of the Option of the Grantee's termination as a member of the Board for any reason. The Grantee shall remain subject to the recoupment provisions of Section 6 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option. Section 4. TERMINATION OF RELATIONSHIP. If a Grantee ceases to be a member of the Board for any reason, then all Options or any unexercised portion of such Options which otherwise are exercisable by such Grantee (or any transferee) shall remain exercisable until expiration of the original term of such Option. Section 5. TERMINATION FOR CAUSE. Notwithstanding any provision to the contrary in the Plan or in this agreement, upon the discharge of the Grantee as a director of the Company for Cause 2 (as defined in the Plan), all unexercised Options awarded to such Grantee (whether then held by Grantee or any transferee) shall immediately lapse and be of no further force or effect. Section 6. SPECIAL FORFEITURE/REPAYMENT RULES. For so long as Grantee continues as a Director of the Company and for three years following Grantee's termination as a Director of the Company, Grantee agrees not to engage in Triggering Conduct. If Grantee engages in such "Triggering Conduct" or in Competitor Triggering Conduct during such time, then: (a) the Option (or any part thereof that has not been exercised) shall immediately and automatically terminate, be forfeited, and shall cease to be exercisable at any time; and (b) the Grantee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to the gross option gain realized or obtained by the Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., the difference between the market value of the Option Shares on the exercise date and the exercise price paid for such Option Shares), with respect to any portion of the Option that has already been exercised at any time within three years prior to the Triggering Conduct (the "Look-Back Period"), less $1.00. If Grantee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of service as a Director of the Company, but including any period between the time of Grantee's termination and engagement in Competitor Triggering Conduct. As used herein, "Triggering Conduct" shall include disclosing or using in any capacity other than as necessary in the performance of duties as a Director of the Company any confidential information, trade secrets or other business sensitive information or material concerning the Company or its subsidiaries (collectively, the "Cardinal Group"); violation of Company policies, including conduct which would constitute a breach of the then-most recent version of the Certificate of Compliance with Company Policies and/or Certificate of Compliance with Company Business Ethics Policies signed by the Grantee; directly or indirectly employing, contacting concerning employment, or participating in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is an employee, representative, officer, or director of the Cardinal Group at any time within the twelve months prior to the termination of service with the Cardinal Group; any action by Grantee and/or Grantee's representatives that either does or could reasonably be expected to undermine, diminish or otherwise damage the relationship between the Cardinal Group and any of its customers, and/or potential customers, vendors and/or suppliers that were known to Grantee; and breaching any provision of any benefit or severance agreement with a member of the Cardinal Group. As used herein, "Competitor Triggering Conduct" shall include, either during or within one year following Grantee's termination of service as a Director of the Company, accepting employment with or serving as a consultant, advisor, or any other capacity to an entity that is in competition with the business conducted by any member of the Cardinal Group (a "Competitor") including, but not limited to, employment or another business relationship with any Competitor if Grantee has been introduced to trade secrets, confidential information or business sensitive information during Grantee's service as a Director of the Company and such information would aid the Competitor because the threat of disclosure of such information is so great that, for purposes of this agreement, it must be assumed that such disclosure would occur. The Committee shall resolve in good faith any disputes concerning 3 whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, and any such determination by the Committee shall be conclusive and binding on all interested persons. The Grantee may be released from Grantee's obligations under this Section 6 only if the Committee (or its duly appointed agent) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this Section 6 constitutes a so-called "noncompete" covenant. However, this Section 6 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least ten days written notice prior to directly or indirectly accepting employment with or serving as a consultant, advisor, or in any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this Section 6 and of the Grantee's continuing obligations contained herein. No provision of this agreement shall diminish, negate, or otherwise impact any separate noncompete agreement to which Grantee may be a party. Grantee acknowledges and agrees that the provisions contained in this Section 6 are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Option to Grantee without including this Section 6. Further, the parties agree and acknowledge that the provisions contained in this Section 6 are ancillary to or part of an otherwise enforceable agreement at the time the agreement is made. Section 7. RIGHT OF SET-OFF. By accepting this Option, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as Director fees, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. Section 8. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions in this agreement or in the Plan. As a condition of any exercise of the Option, the Company may require the Grantee or his transferee or successor to make such representation and warranties and to enter into such agreements as are necessary to comply with any applicable law or regulation or to confirm any factual matters reasonably requested by counsel for the Company. Section 9. GOVERNING LAW/VENUE. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws, except to the extent superceded by the laws of the United States of America. The Parties agree and acknowledge that the laws of the State of Ohio bear a substantial relationship to the parties and/or this agreement and that the Option and benefits granted herein would not be granted without the soverance of the agreement 4 by the laws of the State of Ohio. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Grantee acknowledges that the covenants contained in Section 6 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of Section 6 of this agreement, the Company shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and Grantee hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Company hereunder or by law. In the event that it becomes necessary for the Company to institute legal proceedings under this agreement, Grantee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. Section 10. ACTION BY THE COMMITTEE. The parties agree that the interpretation of this agreement shall rest exclusively and completely within the good faith province and discretion of the Committee. The parties agree to be bound by the decisions of the Committee with regard to the interpretation of this agreement and with regard to any and all matters set forth in this agreement. The Committee may delegate its functions under this agreement to an officer of the Cardinal Group designated by the Committee (hereinafter the "designee"). In fulfilling its responsibilities hereunder, the Committee or its designee may rely upon documents, written statements of the parties, or such other material as the Committee or its designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Committee or its designee and that any decision of the Committee or its designee relating to this agreement, including without limitation whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, shall be final and binding unless such decision is arbitrary and capricious. CARDINAL HEALTH, INC. DATE OF GRANT: November 7, 2001 By: ---------------- --------------------------------- Paul S. Williams Executive Vice President and Chief Legal Officer 5 ACCEPTANCE OF AGREEMENT ----------------------- The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is attached to this Agreement, and represents that he/she is familiar with all provisions of the Plan; and (b) accepts this Agreement and the Option granted to him/her under this Agreement subject to all provisions of the Plan and this Agreement. The Grantee further acknowledges receiving a copy of the Company's most recent Annual Report to Shareholders and communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated August 8, 2001, pertaining to the Plan. ------------------------------------- Grantee Signature ------------------------------------- Social Security Number EX-10.03 5 l92629aex10-03.txt EX-10.03 OUTSIDE DIRECTORS STOCK OPTION AGREEMENT EXHIBIT 10.03 FORM OF DIRECTORS' STOCK OPTION AGREEMENT ----------------------------------------- UNDER THE --------- OUTSIDE DIRECTORS EQUITY INCENTIVE PLAN --------------------------------------- Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to ____________ (the "Grantee"), an option (the "Option") to purchase ______ Common Shares, without par value (the "Shares"), of the Company for a total purchase price (the "Option Price") of $___________ (i.e., the equivalent of $63.90 for each full Share). The Option has been granted pursuant to the Cardinal Health, Inc. Outside Directors Equity Incentive Plan (the "Plan") and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the following provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. This option shall be exercisable at any time on or after November 7, 2001 and prior to November 7, 2011. Section 1. METHOD OF EXERCISE. At any time when the Option is exercisable under the Plan, the Option shall be exercisable from time to time by written notice to the Company (the date such notice is received by the Company, the "Exercise Date") which shall: (a) state that the Option is thereby being exercised, the number of Shares with respect to which the Option is being exercised, each person in whose name any certificates for the Shares should be registered and his or her address and social security number; (b) be signed by the person or persons entitled to exercise the Option and, if the Option is being exercised by anyone other than the Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations; and (c) contain such representations, warranties and agreements with respect to the investment intent of such person or persons in form and substance satisfactory to counsel for the Company. Section 2. PAYMENT OF EXERCISE PRICE. The full exercise price for the Option shall be paid to the Company: (i) in cash, (ii) by delivery of Shares with a fair market value equal to the total exercise price at the time of exercise, (iii) by attestation of ownership of such already-owned Shares, (iv) by delivery of cash on the extension of credit by a broker-dealer to whom the Grantee (or other person authorized to exercise the Option) has submitted a notice of exercise or an irrevocable election to effect such extension of credit, or (v) by a combination of the preceding methods. Any Shares delivered or attested to in payment of an exercise price shall be valued as of the Exercise Date. Section 3. TRANSFERABILITY. The Option shall be transferable (I) at the Grantee's death, by the Grantee by will or pursuant to the laws of descent and distribution, and (II) by the Grantee during the Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, stepchildren, children-in-law, grandchildren, nieces, or nephews of the Grantee, or any other persons sharing the Grantee's household (other than tenants or employees) ("Family Members"), (b) a trust or trusts for the primary benefit of the Grantee or such Family Members, (c) a foundation in which the Grantee or such Family Members control the management of assets, or (d) a partnership in which the Grantee or such Family Members are the majority or controlling partners, provided that subsequent transfers of the transferred Option shall be prohibited except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution and (Y) without payment of consideration to the individuals or entities listed in subitems II(a), (b), or (c), above, with respect to the original Grantee. The Committee may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by the Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Within ten days of any transfer, the Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of Grantee's termination from the Board of Directors of the Company (the "Board") provided in Section 4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in Section 4. The conduct prohibited of Grantee in Section 6 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from the Grantee to the same extent as would have been the case of the Grantee had the Option not been transferred. The Company shall have no obligation to notify any transferee of the Option of the Grantee's termination as a member of the Board for any reason. The Grantee shall remain subject to the recoupment provisions of Section 6 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option. Section 4. TERMINATION OF RELATIONSHIP. If a Grantee ceases to be a member of the Board for any reason, then all Options or any unexercised portion of such Options which otherwise are exercisable by such Grantee (or any transferee) shall remain exercisable until expiration of the original term of such Option. Section 5. TERMINATION FOR CAUSE. Notwithstanding any provision to the contrary in the Plan or in this agreement, upon the discharge of the Grantee as a director of the Company for Cause 2 (as defined in the Plan), all unexercised Options awarded to such Grantee (whether then held by Grantee or any transferee) shall immediately lapse and be of no further force or effect. Section 6. SPECIAL FORFEITURE/REPAYMENT RULES. For so long as Grantee continues as a Director of the Company and for three years following Grantee's termination as a Director of the Company, Grantee agrees not to engage in Triggering Conduct. If Grantee engages in such "Triggering Conduct" or in Competitor Triggering Conduct during such time, then: (a) the Option (or any part thereof that has not been exercised) shall immediately and automatically terminate, be forfeited, and shall cease to be exercisable at any time; and (b) the Grantee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to the gross option gain realized or obtained by the Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., the difference between the market value of the Option Shares on the exercise date and the exercise price paid for such Option Shares), with respect to any portion of the Option that has already been exercised at any time within three years prior to the Triggering Conduct (the "Look-Back Period"), less $1.00. If Grantee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of service as a Director of the Company, but including any period between the time of Grantee's termination and engagement in Competitor Triggering Conduct. As used herein, "Triggering Conduct" shall include disclosing or using in any capacity other than as necessary in the performance of duties as a Director of the Company any confidential information, trade secrets or other business sensitive information or material concerning the Company or its subsidiaries (collectively, the "Cardinal Group"); violation of Company policies, including conduct which would constitute a breach of the then-most recent version of the Certificate of Compliance with Company Policies and/or Certificate of Compliance with Company Business Ethics Policies signed by the Grantee; directly or indirectly employing, contacting concerning employment, or participating in any way in the recruitment for employment (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is an employee, representative, officer, or director of the Cardinal Group at any time within the twelve months prior to the termination of service with the Cardinal Group; any action by Grantee and/or Grantee's representatives that either does or could reasonably be expected to undermine, diminish or otherwise damage the relationship between the Cardinal Group and any of its customers, and/or potential customers, vendors and/or suppliers that were known to Grantee; and breaching any provision of any benefit or severance agreement with a member of the Cardinal Group. As used herein, "Competitor Triggering Conduct" shall include, either during or within one year following Grantee's termination of service as a Director of the Company, accepting employment with or serving as a consultant, advisor, or any other capacity to an entity that is in competition with the business conducted by any member of the Cardinal Group (a "Competitor") including, but not limited to, employment or another business relationship with any Competitor if Grantee has been introduced to trade secrets, confidential information or business sensitive information during Grantee's service as a Director of the Company and such information would aid the Competitor because the threat of disclosure of such information is so great that, for purposes of this agreement, it must be assumed that such disclosure would occur. The Committee shall resolve in good faith any disputes concerning 3 whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, and any such determination by the Committee shall be conclusive and binding on all interested persons. The Grantee may be released from Grantee's obligations under this Section 6 only if the Committee (or its duly appointed agent) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this Section 6 constitutes a so-called "noncompete" covenant. However, this Section 6 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least ten days written notice prior to directly or indirectly accepting employment with or serving as a consultant, advisor, or in any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this Section 6 and of the Grantee's continuing obligations contained herein. No provision of this agreement shall diminish, negate, or otherwise impact any separate noncompete agreement to which Grantee may be a party. Grantee acknowledges and agrees that the provisions contained in this Section 6 are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Option to Grantee without including this Section 6. Further, the parties agree and acknowledge that the provisions contained in this Section 6 are ancillary to or part of an otherwise enforceable agreement at the time the agreement is made. Section 7. RIGHT OF SET-OFF. By accepting this Option, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as Director fees, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. Section 8. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions in this agreement or in the Plan. As a condition of any exercise of the Option, the Company may require the Grantee or his transferee or successor to make such representation and warranties and to enter into such agreements as are necessary to comply with any applicable law or regulation or to confirm any factual matters reasonably requested by counsel for the Company. Section 9. GOVERNING LAW/VENUE. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws, except to the extent superceded by the laws of the United States of America. The Parties agree and acknowledge that the laws of the State of Ohio bear a substantial relationship to the parties and/or this agreement and that the Option and benefits granted herein would not be granted without the soverance of the agreement 4 by the laws of the State of Ohio. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Grantee acknowledges that the covenants contained in Section 6 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of Section 6 of this agreement, the Company shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and Grantee hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Company hereunder or by law. In the event that it becomes necessary for the Company to institute legal proceedings under this agreement, Grantee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. Section 10. ACTION BY THE COMMITTEE. The parties agree that the interpretation of this agreement shall rest exclusively and completely within the good faith province and discretion of the Committee. The parties agree to be bound by the decisions of the Committee with regard to the interpretation of this agreement and with regard to any and all matters set forth in this agreement. The Committee may delegate its functions under this agreement to an officer of the Cardinal Group designated by the Committee (hereinafter the "designee"). In fulfilling its responsibilities hereunder, the Committee or its designee may rely upon documents, written statements of the parties, or such other material as the Committee or its designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Committee or its designee and that any decision of the Committee or its designee relating to this agreement, including without limitation whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, shall be final and binding unless such decision is arbitrary and capricious. CARDINAL HEALTH, INC. DATE OF GRANT: November 7, 2001 By: ---------------- ----------------------------- Paul S. Williams Executive Vice President and Chief Legal Officer 5 ACCEPTANCE OF AGREEMENT ----------------------- The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is attached to this Agreement, and represents that he/she is familiar with all provisions of the Plan; and (b) accepts this Agreement and the Option granted to him/her under this Agreement subject to all provisions of the Plan and this Agreement. The Grantee further acknowledges receiving a copy of the Company's most recent Annual Report to Shareholders and communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated November 1, 2000, pertaining to the Plan. ------------------------------------- Grantee Signature ------------------------------------- Social Security Number 6 EX-10.04 6 l92629aex10-04.txt EX-10.04 NON-QUALIFIED STOCK OPT. AGMT. 11/19/01 EXHIBIT 10.04 CARDINAL HEALTH, INC. NONQUALIFIED STOCK OPTION AGREEMENT Grant Date: November 19, 2001 Exercise Price: $68.10 Grant vesting date: November 19, 2004 Grant expiration date: November 19, 2011 Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to Robert D. Walter ("Grantee"), an option (the "Option") to purchase 440,529 shares (the "Shares") of common stock in the Company for a total purchase price of $30,000,024.90, (i.e., the equivalent of $68.10 for each full Share). The Option has been granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"), and shall include and be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. This Option shall be exercisable at any time on or after November 19, 2004 and prior to November 19, 2011. By: /s/ Anthony J. Rucci ---------------------- Anthony J. Rucci Executive Vice President 1. METHOD OF EXERCISE AND PAYMENT OF PRICE (a) METHOD OF EXERCISE. At any time when the Option is exercisable under the Plan and this agreement, the Option shall be exercised from time to time by written notice to the Company which shall: (i) state the number of Shares with respect to which the Option is being exercised; and (ii) if the Option is being exercised by anyone other than the Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations. (b) PAYMENT OF PRICE. The full exercise price for the Option shall be paid to the Company as provided in the Plan. 2. TRANSFERABILITY. The Option shall be transferable (I) at the Grantee's death, by the Grantee by will or pursuant to the laws of descent and distribution, and (II) by the Grantee during the Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, stepchildren, children-in-law, grandchildren, nieces, or nephews of the Grantee, or any other persons sharing the Grantee's household (other than tenants or employees) ("Family Members"), (b) a trust or trusts for the primary benefit of the Grantee or such Family Members, (c) a foundation in which the Grantee or such Family Members control the management of assets, or (d) a partnership in which the Grantee or such Family Members are the majority or controlling partners, provided that subsequent transfers of the transferred Option shall be prohibited except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution and (Y) without payment of consideration to the individuals or entities listed in subitems II(a), (b), (c) or (d), above, with respect to the original Grantee. The Human Resources and Compensation Committee of the Board of Directors of the Company (the "Committee") may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than fifty percent of the voting interests are owned by the Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Within ten days of any transfer, the Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of termination of employment of the Grantee provided in item 3 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in item 3. The Company shall have no obligation to notify any transferee of the Grantee's termination of employment with the Company for any reason. The conduct prohibited of Grantee in items 5 and 6 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from the Grantee to the same extent as would have been the case of the Grantee had the Option not been transferred. The Grantee shall remain subject to the recoupment provisions of items 5 and 6 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option. 2 3. TERMINATION OF RELATIONSHIP. (a) TERMINATION BY DEATH. If the Grantee's employment by the Company and its subsidiaries (collectively, the "Cardinal Group") terminates by reason of death, then any unvested portion of the Option shall immediately vest and become exercisable. The Option may thereafter be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of the Grantee under the will of the Grantee until the expiration of the stated term of the Option. (b) TERMINATION BY REASON OF RETIREMENT OR DISABILITY. If the Grantee's employment by the Cardinal Group terminates by reason of retirement (as defined in the Plan) or Disability (as defined in the Employment Agreement between the Grantee and the Company dated as of November 20, 2001 (the "Employment Agreement")), then any unvested portion of the Option will vest in accordance with the terms indicated on the first page of this agreement and may thereafter be exercised by the Grantee (or any transferee, if applicable) until the expiration of the stated term of the Option (the "Exercise Period"). Notwithstanding the foregoing, if the Grantee dies after retirement or Disability but before the expiration of the Exercise Period, any unvested portion of the Option shall immediately vest and the Option may be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of the Grantee under the will of the Grantee until the expiration of the Exercise Period. (c) TERMINATION FOR GOOD REASON OR OTHER THAN FOR CAUSE. If the Company terminates Grantee's employment other than for Cause (as defined in the Employment Agreement) or the Grantee terminates employment for Good Reason (as defined in the Employment Agreement), then any unvested portion of the Option shall immediately vest and become exercisable. The Option may thereafter be exercised by the Grantee (or any transferee, if applicable) until the expiration of the stated term of the Option. (d) OTHER TERMINATION OF EMPLOYMENT. If the Grantee's employment by the Cardinal Group terminates for Cause or for any reason other than death, retirement, Disability, or Good Reason (subject to Section 10 of the Plan regarding acceleration of the vesting of the Option upon a Change of Control), any unexercised portion of the Option which has not vested on such date of termination will automatically terminate on the date of such termination. Unless otherwise determined by the Committee at or after grant or termination, the Grantee (or any transferee, if applicable) will have ninety days (or such other period as the Committee may specify at or after grant or termination) from the date of termination or until the expiration of the stated term of the Option, whichever period is shorter, to exercise any portion of the Option that is then vested and exercisable on the date of termination; provided, however, that, subject to Grantee's rights of Due Process (as defined in the Employment Agreement), if the termination was for Cause the Option may be immediately canceled by the Committee (whether then held by Grantee or any transferee). 4. RESTRICTIONS ON EXERCISE. The Option is subject to all restrictions in this agreement and/or in the Plan. As a condition of any exercise of the Option, the Company may require the Grantee or his transferee or successor to make any representation and warranty to comply with any applicable law or regulation or to confirm any factual matters (including Grantee's compliance with the terms of items 5 and 6 of this agreement) reasonably requested by the Company. 3 5. TRIGGERING CONDUCT/COMPETITOR TRIGGERING CONDUCT. As used in this agreement, "Triggering Conduct" shall mean engaging in any conduct described in Section 9(b), 9(c) or 9(f) of the Employment Agreement. As used herein, "Competitor Triggering Conduct" shall mean engaging in any conduct described in Section 9(d) or 9(e) of the Employment Agreement. 6. SPECIAL FORFEITURE/REPAYMENT RULES. If Grantee engages in Triggering Conduct prior to the second anniversary of the date on which the Option vests hereunder or in Competitor Triggering Conduct prior to the sooner to occur of (a) the first anniversary of Grantee's termination of employment with the Cardinal Group and (b) the second anniversary of the date on which the Option vests hereunder, then, subject to Grantee's rights of Due Process (as defined in the Employment Agreement): (a) the Option (or any part thereof that has not been exercised) shall immediately and automatically terminate, be forfeited, and shall cease to be exercisable at any time; and (b) the Grantee shall, within 60 days following written notice from the Company, pay the Company an amount equal to the gross option gain realized or obtained by the Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., the difference between the market value of the Option Shares on the exercise date and the exercise price paid for such Option Shares), less $1.00; provided, Grantee shall not be deemed to have engaged in Triggering Conduct or Competitor Triggering Conduct until he shall have been afforded Due Process (as defined in the Employment Agreement). The Grantee may be released from Grantee's obligations under this item 6 only if the Committee (or its duly appointed designee) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this item 6 constitutes a so-called "noncompete" covenant. However, this item 6 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. This agreement is subject to the provisions of Grantee's Employment Agreement. No provisions of this agreement shall diminish, negate, or otherwise impact any separate noncompete or other agreement to which Grantee may be a party, including but not limited to any of the Certificates of Compliance with Company Policies and/or Certificate of Compliance with Company Business Ethics Policies. Grantee acknowledges and agrees that the provisions contained in this item 6 are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, in consideration of employment, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Option to Grantee without including this item 6. Further, the parties agree and acknowledge that the provisions contained in items 5 and 6 are ancillary to or part of an otherwise enforceable agreement at the time the agreement is made. 7. RIGHT OF SET-OFF. By accepting this Option, the Grantee consents to a deduction from and set-off against any amounts owed to the Grantee by any member of the Cardinal Group from time to time (including but not limited to amounts owed to the Grantee as wages, severance payments, or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by the Grantee under this agreement. 4 8. GOVERNING LAW/VENUE. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superceded by the laws of the United States of America. The parties agree and acknowledge that the laws of the State of Ohio bear a substantial relationship to the parties and/or this agreement and that the Option and benefits granted herein would not be granted without the governance of this agreement by the laws of the State of Ohio. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Grantee acknowledges that the covenants contained in items 5 and 6 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of item 5 or 6 of this agreement, the Company shall have the right (in addition to, and not in lieu of, any right or remedy that may be available to it) to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement. 9. PROMPT ACCEPTANCE OF AGREEMENT. The Option grant evidenced by this agreement shall, at the discretion of the Committee, be forfeited if this agreement is not executed by the Grantee and returned to the Company within ninety days of the Grant Date set forth on the first page of this agreement. 5 ACCEPTANCE OF AGREEMENT The Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is provided with this agreement, and represents that he is familiar with and understands all provisions of the Plan and this agreement; and (b) voluntarily and knowingly accepts this agreement and the Option granted to him under this agreement subject to all provisions of the Plan and this agreement. The Grantee further acknowledges receiving a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan. /s/ Robert D. Walter --------------------------------- Signature Robert D. Walter --------------------------------- Print Name --------------------------------- Grantee's Social Security Number 1/19/02 --------------------------------- Date 6 EX-10.05 7 l92629aex10-05.txt EX-10.05 DEFERRED COMPENSATION PLAN - AMENDED EXHIBIT 10.05 CARDINAL HEALTH DEFERRED COMPENSATION PLAN Amended and Restated Effective January 1, 2002 TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE I DEFINITIONS AND GENERAL PROVISIONS. ...................1 ARTICLE II ELIGIBILITY AND PARTICIPATION..........................5 ARTICLE III DEFERRED COMPENSATION AND MATCHING CREDITS.............6 ARTICLE IV VESTING................................................9 ARTICLE V DISTRIBUTION OF BENEFITS..............................10 ARTICLE VI PLAN ADMINISTRATION...................................12 ARTICLE VII AMENDMENT AND TERMINATION.............................14 ARTICLE VIII MISCELLANEOUS PROVISIONS..............................15 -i- CARDINAL HEALTH DEFERRED COMPENSATION PLAN The Cardinal Health, Inc. Incentive Deferred Compensation Plan (the "Plan") is hereby renamed the "Cardinal Health Deferred Compensation Plan" and amended and restated effective as of January 1, 2002 by Cardinal Health, Inc., an Ohio corporation (the "Company"), for the benefit of a select group of the management and highly compensated employees of the Company and of its affiliated entities which adopt and participate in this Plan with the consent of the Company. BACKGROUND INFORMATION A. The Company desires to continue to maintain the Plan in order to provide certain of its highly compensated and management employees with the opportunity to defer a portion of the base salary, bonuses and other cash compensation otherwise payable to them. B. The Company intends for the Plan to continue to be an unfunded, nonqualified deferred compensation arrangement as provided under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and to satisfy the requirements of a "top hat" plan thereunder and under Labor Reg. Sec. 2520.104-23. C. The Company also hereby consolidates other nonqualified deferred compensation arrangements established by affiliates of the Company with and into this Plan as a single, uniform deferred compensation arrangement available to a select group of eligible employees of the Company on and after the effective date of this restated Plan. ARTICLE I DEFINITIONS AND GENERAL PROVISIONS ---------------------------------- 1.1. DEFINITIONS. Unless the context requires otherwise, the terms defined in this Article shall have the following respective meanings: (a). ACCOUNT. The bookkeeping account described in Section 3.6 under which benefits and earnings are credited on behalf of a Participant. (b). ADMINISTRATIVE COMMITTEE. The Employee Benefits Administrative Committee of the Company. (c). BENEFICIARY. The person(s) entitled to receive any distribution hereunder upon the death of a Participant. The Beneficiary for benefits payable under this Plan shall be the beneficiary designated by the Participant in accordance with procedures established by the Administrative Committee as of the Participant's date of death, or, in the absence of any such designation, the Participant's estate. -1- (d) BOARD. The board of directors of the Company or the compensation committee thereof. (e) CHANGE OF CONTROL. For purposes of the Plan, a Change of Control means: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent (25%) or more of either (A) the then outstanding Shares of the Company (the "Outstanding Shares") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); provided, however, that for purposes of this Subsection (i), the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company or any corporation controlled by the Company, (II) any acquisition by the Company or any corporation controlled by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation that is a Non-Control Acquisition (as defined in Subsection (iii) of this Section); or (ii) individuals who, as of the Effective Date of this Plan, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition by the Company of assets or shares of another corporation (a "Business Combination"), unless, such Business Combination is a Non-Control Acquisition. A "Non-Control Acquisition" shall mean a Business Combination where: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Shares and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, -2- as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Shares and Outstanding Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty-five percent (25%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination (including any ownership that existed in the Company or the company being acquired, if any) and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (f) CODE. The Internal Revenue Code of 1986, as amended from time to time. (g) COMPANY. Cardinal Health, Inc., or any affiliate thereof or successor thereto which adopts the Plan with the consent of Cardinal Health, Inc. (h) COMPENSATION. Amounts paid or payable by the Company to an Eligible Employee for a Plan Year which are includable in income for federal tax purposes, including base salary and variable compensation in the form of commissions and/or bonuses (except as otherwise provided herein). Notwithstanding the foregoing, the following amounts are excluded from Compensation: (i) other cash or noncash compensation, expense reimbursements or other benefits or contributions by the Company to any other employee benefit plan, other than pre-tax salary deferrals into the Qualified Plan or any Code Section 125 plan sponsored by the Company or any of its affiliates, (iii) amounts realized (A) from the exercise of a stock option, (B) when restricted stock (or property) held by a Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture, (C) when the Shares underlying restricted share units are payable to a Participant, or (D) from the sale, exchange or other disposition of stock acquired under a qualified stock option, and (ii) any amounts that are required to be withheld from a Participant's wages from the Company pursuant to Code Section 3102 to satisfy the Participant's tax obligations under Code Section 3101. (i) DISTRIBUTION OPTIONS. A single lump sum or annual installment payments over a period of five (5) or ten (10) years. The standard form of distribution shall be installments over a period of ten (10) years unless otherwise determined or approved by the Company. -3- (j) EFFECTIVE DATE. January 1, 2002. (k) ELIGIBLE EMPLOYEE. Any individual who is (i) a Reporting Person or (ii) (A) among a select group of management or highly compensated employees (within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA), and (B) designated by the Company as eligible to make Compensation deferral contributions under Article II of the Plan in accordance with eligibility criteria established from time to time by the Policy Committee and the Chairman of the Company. (l) ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time. (m) PARTICIPANT. Any Eligible Employee who meets the eligibility requirements for participation in the Plan as set forth in Article II and who earns benefits under the Plan. (n) PLAN. The Cardinal Health Deferred Compensation Plan, as set forth herein, and as such Plan may be amended from time to time hereafter. (o) PLAN YEAR. The fiscal year of the Plan, which is the twelve (12) consecutive month period beginning July 1 and ending June 30. (p) POLICY COMMITTEE. The Employee Benefits Policy Committee of the Company. (q) QUALIFIED PLAN. The Cardinal Health Profit Sharing, Retirement and Savings Plan, as amended from time to time. (r) REPORTING PERSON. Eligible Employees who are subject to Section 16 of the Securities Exchange Act of 1934, as amended. (s) RETIREMENT. An Eligible Employee's termination of employment with the Company following attainment of age 65. (t) SHARES. The common shares, without par value, of the Company. (u) TOTAL DISABILITY. A physical or mental condition which totally and presumably permanently prevents the Participant from engaging in his usual occupation or any occupation for which he is qualified by reason of training, education, or experience for a period of at least twelve (12) months. The Company shall determine the existence of a Total Disability in its sole discretion and may require the Participant to submit to periodic medical examinations at the Participant's expense to confirm the existence and continuation of a Total Disability. 1.2 GENERAL PROVISIONS. The masculine wherever used herein shall include the feminine; singular and plural forms are interchangeable. Certain terms of more limited application have been defined in the provisions to which they are principally applicable. The division of the Plan into Articles and Sections with captions is for convenience only and is not to be taken as limiting or extending the meaning of any of its provisions. -4- ARTICLE II ELIGIBILITY AND PARTICIPATION ----------------------------- 2.1 GENERAL ELIGIBILITY CONDITIONS. To become eligible to participate in the Plan, an individual must be (i) a Reporting Person or (ii) (A) among a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA and (B) designated as an Eligible Employee by the Company (or another participating affiliated employer) to receive any applicable Company contributions and to make Compensation deferral contributions under the Plan. In order to receive a benefit under the Plan, however, a Participant must also meet the requirements of Sections 2.2 and 2.3. 2.2 SPECIFIC CONDITIONS FOR ACTIVE PARTICIPATION. To participate actively in the Plan (i.e., to make deferrals hereunder), a Participant must execute or acknowledge a Compensation Deferral Agreement, or otherwise agree to defer some of his Compensation in accordance with such other procedures as are established by the Administrative Committee from time to time. A Participant's Compensation Deferral Agreement, if required, shall be maintained by the Administrative Committee and must be executed, acknowledged or filed in advance of the beginning of the pay period for which the Compensation covered by such agreement is to be deferred or at such other times as the Administrative Committee may specify. Upon a Participant's initial eligibility, the Compensation Deferral Agreement, if required, shall be acknowledged or executed within time limitations established by the Administrative Committee subsequent to the Participant's notification of eligibility to participate in the Plan. In all cases, a Participant's election to defer Compensation shall be made prior to the time any of the Compensation covered by such election is to be earned by such Participant. Elections to participate and defer Compensation shall continue in effect until amended, revoked or suspended by the Participant in accordance with procedures established by the Administrative Committee. In general, elections made by a Participant under the Qualified Plan shall be considered to apply to this nonqualified plan, subject to the limitations hereof, upon reaching any maximum limitations on deferrals to the Qualified Plan. 2.3 ELIGIBILITY LIST; SUSPENSION OF ACTIVE PARTICIPATION. The Administrative Committee shall maintain a written list of those employees who then qualify as Eligible Employees under the Plan, as determined by the Chairman of the Company and the Policy Committee. Any Participant not listed as an Eligible Employee for a given Plan Year shall cease to have any right to defer Compensation for such Plan Year. However, any amounts credited to the Account of a Participant whose participation is suspended shall otherwise continue to be maintained under the Plan in accordance with its terms. All Reporting Persons shall at all times during which they are a Reporting Person be eligible to participate in the Plan. 2.4 TERMINATION OF PARTICIPATION. Once an Eligible Employee becomes a Participant, such individual shall continue to be a Participant until such individual (i) ceases to be described as an Eligible Employee and (ii) ceases to have any vested interest in the Plan (as a result of distributions made to such Participant or his Beneficiary, if applicable, or otherwise). -5- 2.5 PARTICIPATION BY OTHER EMPLOYERS. With the consent of the Company, any corporation that is a member of the same controlled group as the Company (within the meaning of Code Section 1563(a)) may become a participating employer under the Plan by taking such action as may be necessary or desirable to put the Plan into effect with respect to such corporation. Accrued account amounts under certain nonqualified deferred compensation plans sponsored by such affiliates of the Company for their employees shall be transferred to and assumed by this Plan effective as of January 1, 2002. Notwithstanding any other provision of the Plan to the contrary, the terms of any such plans shall thereafter be governed by the terms of this Plan provided that the accrued benefit of all participants in such plans shall not be reduced and shall be preserved and assumed by this Plan. ARTICLE III DEFERRED COMPENSATION AND MATCHING CREDITS ------------------------------------------ 3.1 DEFERRED COMPENSATION CREDITS. Pursuant to the provisions of Article II and this Article III, a Participant and the Company may, by mutual agreement, provide for deferred and postponed payment of a percentage of the Participant's Compensation which otherwise would be paid during the applicable Plan Year(s) for services to be rendered in such year(s). The Participant may defer between one percent (1%) and twenty percent (20%) of Compensation, except that a Participant may defer up to one hundred percent (100%) of any special bonus payable to the Participant. The Company may, in its discretion, establish and change from time to time the minimum and maximum amount that may be so deferred for Participants who are not Reporting Persons. Elections shall be made in accordance with procedures established by the Policy Committee, and may be coordinated with (or governed by) the deferral elections made to the Qualified Plan. In addition, special limitations may be established by the Policy Committee to apply to the deferral of any special bonus or other nonperiodic Compensation that a Participant who is not a Reporting Person is expected to receive. The Chairman of the Company may also determine, in his discretion, that any Participant who is not a Reporting Person may make a special or different deferral election from time to time or on a one-time basis. The Chairman shall also be permitted, notwithstanding any other limitations hereunder, to defer up to one hundred percent (100%) of his annual base salary, annual bonus and any special bonuses. All deferrals shall be made only from Compensation not yet paid or payable to the Participant as of the date of the deferral election. The Company will credit the deferred compensation amount agreed to for each Plan Year to the Participant's Account from time to time as the deferred amounts otherwise would have been earned by the Participant. All contributions under this provision to the Accounts of Participants in the Plan, as adjusted for earnings or losses (described below), are referred to as "Deferred Compensation Credits." 3.2. MATCHING CREDITS. The Company may, in its discretion, credit to a Participant's Account each Plan Year during which the Participant is selected to participate in the Plan an amount equal to a percentage of the Participant's Deferred Compensation Credits as a matching contribution. The amount of any such contributions may vary from year to year or among Participants in the discretion of the Company. In general, such matching contributions may be made at the same rate as is applicable to the Participant under the Qualified Plan, but only with respect to the portion of a Participant's deferrals from the first $100,000 of Compensation in excess -6- of the maximum amount of Compensation recognized under the Qualified Plan for the fiscal year of the Qualified Plan that coincides with or ends within the Plan Year of this Plan. All contributions under this provision to the Accounts of Participants in the Plan, as adjusted for earnings or losses (described below), are referred to as "Matching Credits." 3.3 SUSPENSION OF DEFERRALS. Participant Deferred Compensation Credits hereunder will be automatically suspended during any unpaid leave of absence or temporary layoff. Contributions suspended in accordance with the provisions of this paragraph shall be automatically resumed, without the necessity of any action by the Participant, upon return to employment at the expiration of such suspension period. 3.4 PROFIT SHARING AND SOCIAL SECURITY SUPPLEMENT CREDITS. The Company may, in its discretion, credit to the Participant's Account each Plan Year an amount equal to a percentage of the Participant's Compensation from the Company in excess of the dollar limitation in effect for the year under ss.401(a)(17) of the Code, but not more than an excess of $100,000 above such compensation limit. All contributions under this provision to the Accounts of Participants in the Plan, as adjusted for earnings or losses (described below), are referred to as "Profit Sharing Credits." In addition, the Company may make an additional discretionary contribution for a Plan Year to the Participant's Account, as determined by the Company in its discretion, equal to a percentage of the Participant's Compensation from the Company in excess of the dollar limitation in effect for the year under ss.401(a)(17) of the Code, but not more than an excess of $100,000 above such compensation limit, for the purpose of supplementing the benefits the Participant will receive at retirement under the Social Security program. All contributions under this provision to the Accounts of Participants in the Plan, as adjusted for earnings or losses (described below), are referred to as "Social Security Supplement Credits." Contributions made to Participant Accounts under this section may be subject to additional requirements as established from time to time by the Chairman of the Company or the Policy Committee, such as a requirement to be employed on the last day of the Plan Year. 3.5 PRIOR PLAN ACCOUNTS. The Company will credit to the Participant's Account the accrued benefit of the Participant under any other nonqualified deferred compensation plan or arrangement sponsored by the Company or one of its affiliates that is consolidated and merged with and into this Plan. All amounts credited as contributions under this provision to the Accounts of Participants in the Plan, as adjusted for earnings or losses (described below), are referred to as "Prior Plan Credits." A schedule of the nonqualified deferred compensation plans merged with and into this Plan, and of the amounts credited to the Accounts of Participants from such prior plans, shall be maintained by the Policy Committee or the Administrative Committee. 3.6 RECORD OF ACCOUNT. Solely for the purpose of measuring the amount of the Company's obligations to each Participant or his beneficiaries under the Plan, the Company will maintain a separate bookkeeping record, an "Account," for each Participant in the Plan. The Company, in its discretion, may either credit a hypothetical earnings rate to the Participant's Account balance for the Plan Year, or may actually invest an amount equal to the amount credited to the Participant's Account from time to time in an account or accounts in its name with investment media or companies, which investment options may include some or all of those used for investment purposes under the Qualified Plan, as determined by the Company in its -7- discretion. If such separate investments are made, the Participant may be permitted to direct the investment of the portion of the Company's accounts allocable to him under the Plan in the same manner he is permitted to direct the investment of his account in the Qualified Plan, except that certain of the investment options may not be available options under this Plan. The Participant may change the allocation of his Account among the applicable investment alternatives then available under the Plan in accordance with procedures established by the Policy Committee from time to time. In no event shall a Participant who is a Reporting Person be permitted to change any investment in a Cardinal Stock Account (defined below) to any other investment alternative, except as to future funds allocable to him. The Company is not obligated to make any particular investment options available, however, if investments are in fact made, and may, from time to time in its sole discretion, change the investment alternatives. Nothing herein shall be construed to confer on the Participant the right to continue to have any particular investment available. The Company will credit the Participant's Account with hypothetical or actual earnings or losses at least quarterly based on the earnings rate declared by the Company or the performance results of the Company's account(s) invested pursuant to the Company's or the Participant's directions, and shall determine the fair market value of the Participant's Account based on the bookkeeping record or the fair market value of the portion of the Company's accounts representing the Participant's Account. The determination of the earnings, losses or fair market value of the Participant's Account may be adjusted by the Company to reflect its payroll, income or other taxes or costs associated with the Plan, as determined by the Company in its sole discretion. 3.7 SPECIAL RULES APPLICABLE TO INVESTMENTS IN SHARES. Subject to the provisions of this Article III, a Participant may also elect to have all or a portion of his Account to be deemed invested in Shares (such dollar amounts shall be referred to as the "Share Election Accumulations"). On the date when the amounts to be credited to the Participant's Share Election Accumulations are otherwise allocated to his Account, the Company will credit to a separate subaccount (the Participant's "Cardinal Stock Account") a number of hypothetical Shares (and fractions thereof) having a Value equal to the Share Election Accumulations. For purposes of this Plan, the "Value" of a Share on a particular day shall mean the closing trading price of a Share on the New York Stock Exchange on that day (or, if there is no trading of the Shares on that day, on the most recent previous date on which trading occurred). With respect to any Reporting Person, any election made pursuant to this Section shall be irrevocable for all amounts credited to a Participant's Account during the Plan Year for which the election is made. Any election made by a Reporting Person pursuant to this Section shall remain in effect for amounts credited to the Participant's Account in subsequent Plan Years unless the Participant delivers a written notice to the Secretary of the Company setting forth a different investment election, which shall be applied to future Plan Years until further written notice is received by the Secretary of the Company pursuant to this Section. If any Organic Change shall occur, then the Participant's Cardinal Stock Account (if any) shall be adjusted so as to contain such shares of stock, securities or assets (including cash) as would have been issued or payable with respect to or in exchange for the number of Shares credited thereto immediately before such Organic Change, if such Shares had been outstanding. An "Organic Change" includes the recapitalization, reorganization, reclassification, -8- consolidation, or merger of the Company, or any sale of all or substantially all of the Company's assets to another person or entity, or any other transaction which is effected in such a way that holders of Shares are entitled to receive (either directly or upon subsequent liquidation) other stock, securities, or assets with respect to or in exchange for Shares. If the assets held in the Participant's Cardinal Stock Account immediately after such adjustment are not equity securities, then the Participant shall be permitted to re-direct the investment thereof into the other investment choices then available under this Plan. In the case of the Cardinal Stock Account (if any) of a Participant, the earnings (or losses) credited to such account shall consist solely of dividend equivalent credits pursuant to this paragraph. Whenever a dividend or other distribution is made with respect to the Shares, then the Participant's Cardinal Stock Account shall be credited, on the payment date for such dividend or other distribution (the "Dividend Payment Date"), with a number of additional Shares having a Value, as of the Dividend Payment Date, based upon the number of Shares deemed to be held in the Participant's Cardinal Stock Account as of the record date for such dividend or other distribution (the "Dividend Record Date"), if such Shares were outstanding. If such dividend or other distribution is in the form of cash, the number of Shares so credited shall be a number of Shares (and fractions thereof) having a Value, as of the Dividend Payment Date, equal to the amount of cash that would have been distributed with respect to the Shares deemed to be held in the Participant's Cardinal Stock Account as of the Dividend Record Date, if such Shares were outstanding. If such dividend or other distribution is in the form of Shares, the number of Shares so credited shall equal the number of such Shares (and fractions thereof) that would have been distributed with respect to the Shares deemed to be held in the Participant's Cardinal Stock Account as of the Dividend Record Date, if such Shares were outstanding. If such dividend or other distribution is in the form of property other than cash or Shares, the number of Shares so credited shall be a number of Shares (and fractions thereof) having a Value, as of the Dividend Payment Date, equal to the value of the property that would have been distributed with respect to the Shares deemed to be held in the Participant's Cardinal Stock Account as of the Dividend Record Date, if such Shares were outstanding. The value of such property shall be its fair market value as of the Dividend Payment Date, determined by the Board based upon market trading if available and otherwise based upon such factors as the Board deems appropriate. ARTICLE IV VESTING ------- 4.1 VESTING. A Participant always will be one hundred percent (100%) vested in amounts credited to his Account as Deferred Compensation Credits, Prior Plan Credits and earnings allocable thereto. The Participant or his Beneficiaries shall be entitled to benefits from Matching Credits, Profit Sharing Credits and Social Security Supplement Credits allocated to his Account by the Company, and earnings thereon, only upon satisfaction of the vesting requirements of this Article IV. The Participant shall become one hundred percent (100%) vested in his Account upon his Retirement, death, Total Disability or upon a Change of Control of the Company. If the Participant terminates employment with the Company and all participating employers for any reason other than Retirement, death, Total Disability, or pursuant to a Change of Control, all rights of the Participant, his Beneficiaries, executors, administrators, or any other person to receive benefits under this Plan derived from amounts credited as -9- Matching Credits, Profit Sharing Credits and Social Security Supplement Credits shall vest as of the date that the Participant has completed three (3) Years of Service with the Company or any of its affiliates. Notwithstanding the foregoing, Participants with Account balances under the Plan as of January 1, 2002, shall also be vested in twenty-five percent (25%) of the amount credited to the Participant's Account as Matching Credits, Profit Sharing Credits and Social Security Supplement Credits after completion of two (2) Years of Service. A "Year of Service" for this purpose means a period of twelve (12) consecutive calendar months during which the Participant was employed by the Company or one of its affiliates. If a Participant terminates employment before that date (other than due to a Change of Control, Retirement, death or Total Disability), all Matching Credits, Profit Sharing Credits and Social Security Supplement Credits shall be forfeited. If the Participant terminates employment but is subsequently re-employed by the Company or another participating employer, no benefits forfeited hereunder shall be reinstated unless otherwise determined by the Company in its sole discretion. 4.2 CONFIDENTIALITY AND NON-COMPETITION AGREEMENT. In its discretion, the Company may require any Eligible Employee selected to become a Participant in the Plan to execute a Confidentiality and Non-competition Agreement with the Company and/or its affiliates in consideration of the benefits to be provided hereunder. ARTICLE V DISTRIBUTION OF BENEFITS ------------------------ 5.1 DISTRIBUTION UPON RETIREMENT. Upon Retirement, the Participant shall be eligible to receive payment of the amounts credited to the Participant's Account in the standard Distribution Option (or, in the discretion of the Company, in one of the other permitted Distribution Options) commencing as soon as practicable after such Retirement. If an annual installment payment method is the selected Distribution Option, the amount of the annual benefit shall equal the amount necessary to fully distribute the Participant's Account as an annual benefit payable over the installment period, consistent with the following methodology: the amount payable as the annual installment shall equal the value of the Participant's Account as of the most recent Account valuation date, multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of annual installments remaining in the installment period elected by the Participant. For example, assuming the standard ten (10) year installment payment period applies, the amount distributed at each of the distribution dates would represent the value of the Participant's Account as of the most recent valuation date preceding the actual distribution date times the following factors: Year 1 - 10% (1/10), Year 2 - 11.11% (1/9), Year 3 - 12.5% (1/8), Year 4 - 14.29% (1/7), Year 5 - 16.66% (1/6), Year 6 --20% (1/5), Year 7 -- 25% (1/4), Year 8 - 33.33% (1/3), Year 9 -- 50% (1/2) and Year 10 - 100% (1/1). The Participant must provide the Company advance notice of his intention to retire and receive benefits hereunder in accordance with uniform procedures established by the Administrative Committee. Payments of amounts credited to the Participant's Account will be made in U.S. dollars, except for amounts credited to the Participant's Cardinal Stock Account, if any, which shall be payable in the form of Shares plus cash in lieu of any fractional shares. 5.2 DISTRIBUTION UPON DEATH. In the event of the death of the Participant while receiving benefit payments under the Plan, the Company shall pay the Beneficiary or Beneficiaries designated by the Participant the remaining payments due under the Plan in -10- accordance with the method of distribution in effect to the Participant at the date of death. In the event of the death of the Participant prior to the commencement of the distribution of benefits under the Plan, the Company shall pay such benefits to the Beneficiary or Beneficiaries designated by the Participant, beginning as soon as practicable after the Participant's death. Such benefits shall be paid as an annual benefit equal to the amount necessary to amortize the Participant's Account as an installment payment payable for ten (10) years, or such other Distribution Option, as selected by the Company in its sole discretion, computed under the method described in Section 5.1. 5.3 DISTRIBUTION IN THE EVENT OF DISABILITY. Upon the Participant's Total Disability, the Participant shall be eligible to receive payment of the amounts credited to his Account in the standard Distribution Option (or, in the discretion of the Company, in one of the other permitted Distribution Options) commencing as soon as practicable after the Administrative Committee is satisfied that the Participant has been determined to be Totally Disabled. The amount of any annual installment benefit shall equal the amount necessary to amortize the Participant's Account as an installment payment payable for ten (10) years, or such other Distribution Option, as selected by the Company in its sole discretion, computed under the method described in Section 5.1. Total Disability shall be considered to have ended and entitlement to a disability benefit shall cease if the Participant (i) is re-employed by the Company or one of its affiliates, or (ii) engages in any substantial gainful activity, except for such employment as is found by the Company in its sole discretion to be for the primary purpose of rehabilitation or not incompatible with a finding of total and permanent disability. If entitlement to a disability benefit ceases in accordance with the provisions of this paragraph, the Participant shall not be prevented from qualifying for a benefit under another provision of the Plan. 5.4 TERMINATION OF SERVICE FOR OTHER REASONS. If the Participant's service for the Company terminates for any reason other than Retirement, death, or Total Disability, then the vested portion of the Participant's Account shall be paid, beginning as soon as administratively practicable, to the Participant as an installment payment payable for ten (10) years, or such other Distribution Option, as selected by the Company in its sole discretion, computed under the method described in Section 5.1. Notwithstanding the foregoing, if the Participant's employment terminates within two (2) years after a Change of Control occurs, then the Participant's Account shall be payable in a single lump sum within thirty (30) days after the termination of the Participant's employment. 5.5 PAYMENT ALTERNATIVES. At the Company's election, or upon request by the Participant or his Beneficiary following the Participant's Retirement, other termination of service, Total Disability, or death, the entire vested balance of the Participant's Account may be payable hereunder at any time in lump sum or over a shorter period of time than the ten (10) annual installments generally called for in the Sections above, or in installments of a greater frequency than annually; provided, however, that no such request shall be binding upon the Company and any accelerated or deferred payment hereunder shall be made only in the sole discretion of the Company. In addition, the Company may alter the payment method in effect from time to time in its sole discretion as necessary or desirable to avoid the loss of a tax deduction under Code ss.162(m). The amount of payments to be made over a period of time other -11- than ten (10) years shall be computed under one of the methodologies applicable to the payment of benefits under this agreement in the normal form of distribution, as determined by the Company in its sole discretion. Notwithstanding the foregoing, if a Change of Control occurs, the Company may under no circumstances and for no reason, including but not limited to those recited herein, extend the payment period beyond, or delay the commencement of payments to a date later than, that otherwise specifically provided for under Sections 5.1 through 5.4, above. 5.6 SPECIAL RULES FOR PRIOR PLAN CREDITS. Amounts credited to a Participant's Account as Prior Plan Credits shall be payable under the terms of this Plan notwithstanding any contrary provisions of the Prior Plan. ARTICLE VI PLAN ADMINISTRATION ------------------- 6.1 ADMINISTRATION. The Plan shall be administered by the Administrative Committee as an unfunded deferred compensation plan that is not intended to meet the qualification requirements of Code Section 401. 6.2 ADMINISTRATIVE COMMITTEE. The Administrative Committee will operate and administer the Plan and shall have all powers necessary to accomplish that purpose, including, but not limited to, the discretionary authority to interpret the Plan, the discretionary authority to determine all questions relating to the rights and status of Eligible Employees and Participants, and the discretionary authority to make such rules and regulations for the administration of the Plan as are not inconsistent with the terms and provisions hereof, as well as such other authority and powers relating to the administration of the Plan, except such as are reserved by the Policy Committee or by the Plan to the Policy Committee or the Board. All decisions made by the Policy Committee or the Administrative Committee shall be final. Without limiting the powers set forth herein, the Administrative Committee shall have the power (i) with the consent of the Board or the Policy Committee, to change or waive any requirements of the Plan to conform with the law or to meet special circumstances not anticipated or covered in the Plan; (ii) to determine the times and places for holding meetings of the Administrative Committee and the notice to be given of such meetings; (iii) to employ such agents and assistants, such counsel (who may be counsel to the Company herein), and such clerical and other services as the Administrative Committee may require in carrying out the provisions of the Plan; and (iv) to authorize one or more of their number or any agent to execute or deliver any instrument on behalf of the Administrative Committee. The members of the Administrative Committee, the Policy Committee, and the Company and its officers and directors, shall be entitled to rely upon all valuations, certificates and reports furnished by any funding agent or service provider, upon all certificates and reports made by an accountant, and upon all opinions given by any legal counsel selected or approved by the Administrative Committee, and the members of the Administrative Committee, the Policy Committee, and the Company and its officers and directors shall, except as otherwise provided by law, be fully protected in respect of any action taken or suffered by them in good faith in reliance upon any such valuations, certificates, reports, opinions or other advice of a funding agent, service provider, accountant or counsel. -12- 6.3 STATEMENT OF PARTICIPANT'S ACCOUNT. The Administrative Committee shall, as soon as practicable after the end of each Plan Year, provide to each Participant a statement setting forth the Account of such Participant under Section 3.6 as of the end of such Plan Year. Such statement shall be deemed to have been accepted as correct unless written notice to the contrary is received by the Administrative Committee within thirty (30) days after providing such statement to the Participant. Account statements may be provided more often than annually in the discretion of the Administrative Committee. 6.4 FILING CLAIMS. Any Participant, Beneficiary or other individual (hereinafter a "Claimant") entitled to benefits under the Plan, or otherwise eligible to participate herein, shall be required to make a claim with the Administrative Committee (or its designee) requesting payment or distribution of such Plan benefits (or written confirmation of Plan eligibility, as the case may be), on such form or in such manner as the Administrative Committee shall prescribe. Unless and until a Claimant makes proper application for benefits in accordance with the rules and procedures established by the Administrative Committee, such Claimant shall have no right to receive any distribution from or under the Plan. 6.5 NOTIFICATION TO CLAIMANT. If a Claimant's application is wholly or partially denied, the Administrative Committee (or its designee) shall, within ninety (90) days, furnish to such Claimant a written notice of its decision. Such notices shall be written in a manner calculated to be understood by such Claimant, and shall contain at least the following information: (i) the specific reason or reasons for such denial; (ii) specific reference to pertinent Plan provisions upon which such denial is based; (iii) a description of any additional material or information necessary for such Claimant to perfect his claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the Plan's claim review procedure describing the steps to be taken by such Claimant, if he wishes to submit his claim for review. 6.6 REVIEW PROCEDURE. Within sixty (60) days after the receipt of such notice from the Administrative Committee, such Claimant, or the duly authorized representative thereof, may request, by written application to the Plan, a review by the Administrative Committee of the decision denying such claim. In connection with such review, such Claimant, or duly authorized representative thereof, shall be entitled to receive any and all documents pertinent to the claim or its denial and shall also be entitled to submit issues and comments in writing. The decision of the Administrative Committee upon such review shall be made promptly and not later than sixty (60) days after the receipt of such request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after the Administrative Committee's receipt of a request for review. Any such decision on review shall be in writing and shall include specific -13- reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. 6.7 PAYMENT OF EXPENSES. All costs and expenses incurred in administering the Plan shall be paid from the Plan unless the Company elects to pay the costs and expenses. 6.8 SPECIAL RESTRICTIONS APPLICABLE TO SHARES. Notwithstanding any other provision of this Plan or any Deferred Compensation Agreement, the Company shall not be required to issue or deliver any certificate or certificates for Shares under this Plan prior to fulfillment of all of the following conditions: (i) Listing or approval for listing upon official notice of issuance of such shares on the New York Stock Exchange, Inc., or such other securities exchange as may at the time be a market for the Shares; (ii) Any registration or other qualification of such shares under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Chairman shall, in his absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) Obtaining any other consent, approval, or permit from any state or federal governmental agency which the Chairman shall, in his absolute discretion upon the advice of counsel, determine to be necessary or advisable. Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements for the Participants. 6.9 SHARES AVAILABLE. The maximum aggregate number of Shares which may be credited to Cardinal Stock Accounts pursuant to this Plan is 2,250,000. Shares issuable under the Plan may be taken from authorized but unissued Shares, treasury Shares, Shares held in a trust for purposes of the Plan, or purchased on the open market. No single Participant may acquire under the Plan more than 1,125,000 Shares. In the event of any stock dividend, stock split, share combination, corporate separation or division (including, but not limited to, split-up, spin-off, split-off or distribution to the Company's shareholders other than a normal cash dividend), or partial or complete liquidation, or any other corporate transaction or event having any effect similar to any of the foregoing, then the aggregate number of Shares reserved for issuance under the Plan shall be appropriately substituted for new shares or adjusted, as determined by the Board in its sole discretion. ARTICLE VII AMENDMENT AND TERMINATION ------------------------- 7.1 AMENDMENT. The Company has reserved, and does hereby reserve, the right at any time and from time to time by action of the Policy Committee or of its Board (or by action of an officer or officers of the Company to whom the Board has delegated the authority to amend -14- the provisions of the Plan) to amend, modify or alter any or all of the provisions of the Plan without the consent of any Eligible Employees or Participants; provided, however, that no amendment shall operate retroactively so as to affect adversely any rights to which a Participant may be entitled under the provisions of the Plan as in effect prior to such action. Any such amendment, modification or alteration shall be expressed in an instrument executed by an authorized officer or officers of the Company, and shall become effective as of the date designated in such instrument. 7.2 TERMINATION. The Company reserves the right to suspend, discontinue or terminate the Plan, at any time in whole or in part; provided, however, that a suspension, discontinuance or termination of the Plan shall not accelerate the obligation to make payments to any person not otherwise currently entitled to payments under the Plan, unless otherwise specifically so determined by the Company, relieve the Company of its obligations to make payments to any person then entitled to payments under the Plan, or reduce any existing Account balance. ARTICLE VIII MISCELLANEOUS PROVISIONS ------------------------ 8.1 EMPLOYMENT RELATIONSHIP. A Participant shall be considered to be in the employ of the Company and its related affiliates and subsidiaries as long as he remains an employee of either the Company, any subsidiary corporation of the Company, or any corporation to which substantially all of the assets and business of the Company are transferred. For this purpose, a subsidiary corporation of the Company is any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, as of the date such determination is to be made, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Nothing in the adoption of the Plan nor the crediting of deferred compensation shall confer on any Participant the right to continued employment by the Company or an affiliate or subsidiary corporation of the Company, or affect in any way the right of the Company or such affiliate or subsidiary to terminate his employment at any time. Any question as to whether and when there has been a termination of a Participant's employment, and the cause of such termination, shall be determined by the Administrative Committee, and its determination shall be final. 8.2 FACILITY OF PAYMENTS. Whenever, in the opinion of the Administrative Committee, a person entitled to receive any payment, or installment thereof, is under a legal disability or is unable to manage his financial affairs, the Administrative Committee shall have the discretionary authority to direct payments to such person's legal representative or to a relative or friend of such person for his benefit; alternatively, the Administrative Committee may in its discretion apply the payment for the benefit of such person in such manner as the Administrative Committee deems advisable. Any such payment or application of benefits made in good faith in accordance with the provisions of this Section shall be a complete discharge of any liability of the Administrative Committee with respect to such payment or application of benefits. -15- 8.3 FUNDING. All benefits under the Plan are unfunded and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets in order to assure the payment of any amounts under the Plan; provided, however, that in order to provide a source of payment for its obligations under the Plan, the Company may establish a trust fund. The right of a Participant or his Beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participant nor his Beneficiary shall have any rights in or against any amounts credited under the Plan or any other specific assets of the Company. All amounts credited under the Plan to the benefit of a Participant shall constitute general assets of the Company and may be disposed of by the Company at such time and for such purposes as it may deem appropriate. 8.4 ANTI-ASSIGNMENT. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge; and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit shall be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefits. If a Participant, a Participant's spouse, or any Beneficiary should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right to benefits under the Plan, then those rights, in the discretion of the Administrative Committee, shall cease. In this case, the Administrative Committee may hold or apply the benefits at issue or any part thereof for the benefit of the Participant, the Participant's spouse, or Beneficiary in such manner as the Administrative Committee may deem proper. 8.5 UNCLAIMED INTERESTS. If the Administrative Committee shall at any time be unable to make distribution or payment of benefits hereunder to a Participant or any Beneficiary of a Participant by reason of the fact that his whereabouts is unknown, the Administrative Committee shall so certify, and thereafter the Administrative Committee shall make a reasonable attempt to locate such missing person. If such person continues missing for a period of three (3) years following such certification, the interest of such Participant in the Plan shall, in the discretion of the Administrative Committee, be distributed to the Beneficiary of such missing person. 8.6 REFERENCES TO CODE, STATUTES AND REGULATIONS. Any and all references in the Plan to any provision of the Code, ERISA, or any other statute, law, regulation, ruling or order shall be deemed to refer also to any successor statute, law, regulation, ruling or order. 8.7 LIABILITY. The Company, and its directors, officers and employees, shall be free from liability, joint or several, for personal acts, omissions, and conduct, and for the acts, omissions and conduct of duly constituted agents, in the administration of the Plan, except to the extent that the effects and consequences of such personal acts, omissions or conduct shall result from willful misconduct. However, this Section shall not operate to relieve any of the aforementioned from any responsibility or liability for any responsibility, obligation, or duty that may arise under ERISA. 8.8 TAX CONSEQUENCES OF COMPENSATION REDUCTIONS. The income tax consequences to Participants of Compensation reductions under the Plan shall be determined under applicable federal, state and local tax law and regulation. -16- 8.9 COMPANY AS AGENT FOR RELATED EMPLOYERS. Each corporation which shall become a participating employer pursuant to Section 2.5 by so doing shall be deemed to have appointed the Company its agent to exercise on its behalf all of the powers and authority hereby conferred upon the Company by the terms of the Plan, including but not limited to the power to amend and terminate the Plan. The Company's authority shall continue unless and until the related employer terminates its participation in the Plan. 8.10. GOVERNING LAW; SEVERABILITY. The Plan shall be construed according to the laws of the State of Ohio, including choice of law provisions, and all provisions hereof shall be administered according to the laws of that State, except to the extent preempted by federal law. A final judgment in any action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. In the event that any one or more of the provisions of the Plan shall for any reason be held to be invalid, illegal, or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision of the Plan, but the Plan shall be construed as if such invalid, illegal, or unenforceable provisions had never been contained herein, and there shall be deemed substituted such other provision as will most nearly accomplish the intent of the parties to the extent permitted by applicable law. 8.11. TAXES. The Company shall be entitled to withhold any taxes from any distribution hereunder or from other compensation then payable, as it believes necessary, appropriate, or required under relevant law. -17- EX-10.06 8 l92629aex10-06.txt EX-10.06 RESTRICTED SHARE UNITS AGREEMENT 12/31/01 EXHIBIT 10.06 FORM OF RESTRICTED SHARE UNITS AGREEMENT ---------------------------------------- Cardinal Health, Inc., an Ohio corporation (the "Company"), on February 9, 2000, granted to ____________________ (the "Executive") ________ (which as of the date of this Agreement have been split adjusted to equal _________) Common Shares in the Company (the "Restricted Shares"). The Company and Executive desire to cancel the Restricted Shares and grant to Executive _________ Restricted Share Units (the "Restricted Share Units" or "Award") representing an unfunded, unsecured promise of the Company to deliver Common Shares to the Executive as set forth herein. The Restricted Shares are thus hereby cancelled and forfeited. The Restricted Share Units are being granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"). The Restricted Share Units are subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this Agreement. This Agreement also hereby incorporates by reference the Agreement of the Executive and the Company, dated as of February 9, 2000 (the "Agreement"), and any reference to "this Agreement" herein includes this Restricted Share Units Agreement and the Agreement. Any capitalized terms used in this Restricted Share Units Agreement that are not specifically defined herein shall have the meanings ascribed to such terms in the Agreement. 1. VESTING. Except as otherwise provided in this Agreement, 100% of the Restricted Share Units shall vest on February 9, 2002 (which date shall be the "Vesting Date"). 2. PURCHASE PRICE. The purchase price of the Restricted Share Units shall be $0.00. 3. TRANSFERABILITY. The Restricted Share Units shall not be transferable. 4. TERMINATION OF SERVICE. If the Executive's employment with the Cardinal Group terminates prior to the Vesting Date, all of the Restricted Share Units shall be forfeited. Notwithstanding the foregoing, if the Executive's employment with the Company is terminated prior to the Vesting Date by the Company without Cause (within the meaning of Section 3 of the Agreement), the Restricted Share Units shall nevertheless vest on the Vesting Date unless the Executive has violated any of the provisions of Section 4 of the Agreement. If the Executive's employment with the Company terminates prior to the vesting of the Restricted Share Units by reason of the Executive's death or Incapacity, then the restrictions with respect to a ratable portion of the Restricted Share Units shall lapse and such shares shall not be forfeited, unless the Executive has violated any of the provisions of Section 4 of the Agreement. Such ratable portion shall be an amount equal to the number of Restricted Share Units multiplied by the portion of the period between February 9, 2000 and the second anniversary thereof that has expired at the date of the Executive's death or Incapacity. 5. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at any time prior to the Vesting Date, the Executive violates any of the provisions of Section 4 of the Agreement, the Restricted Share Units shall be forfeited by the Executive. In addition, if at any time the Executive violates any of the provisions of Section 4 of the Agreement, the Executive is subject to being required to pay the Clawback Amount to the Company, as more fully set forth in Section 4(h) of the Agreement. No provision of this Agreement shall diminish, negate, or otherwise affect any separate noncompete agreement to which the Executive may be a party. The Executive acknowledges and agrees that the provisions contained in this item 5 are being made for the benefit of the Cardinal Group in consideration of the Executive's receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing the Executive to the Cardinal Group's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. The Executive further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of the Executive, and that the Company is unwilling to provide the Restricted Share Units to the Executive without their being subject to this item 5. 6. PAYMENT. On the one year anniversary of the first date on which the Executive would not be a reporting person pursuant to Section 16 of the Securities Exchange Act, as amended, or on such earlier date as may be approved by the Chairman of the Company as to all or any portion of the Restricted Share Units, the Executive shall be entitled to receive from the Company (without any payment on behalf of the Executive) the Company Common Shares represented by this Award. 7. DIVIDENDS. The Executive shall not receive cash dividends on the Restricted Share Units but instead shall receive a cash payment from the Company on each cash dividend payment date of the Company in an amount equal to the dividends that would have been paid on the Company Common Shares represented by the Restricted Share Unit. 8. RIGHT OF SET-OFF. By accepting these Restricted Share Units, the Executive consents to a deduction from and set-off against any amounts owed to the Executive by the Cardinal Group from time to time (including but not limited to amounts owed to the Executive as wages, severance payments, or other fringe benefits) to the extent of the amounts so owed. 9. NO SHAREHOLDER RIGHTS. The Executive shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, the Executive shall not have the right to vote the Common Shares represented by the Restricted Share Units. 10. WITHHOLDING TAX. The Company shall have the right to require the Executive to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Share Units or, in lieu thereof, to withhold a sufficient amount of Common Shares underlying the Restricted Share Units to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Common Shares, the amount withheld shall not exceed the minimum required by applicable law and regulation. The Company shall also have the right to facilitate withholding by any other method permitted by the Plan. 11. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this Restricted Share Units Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this Agreement hereby consent to the personal jurisdiction of such courts. The Executive acknowledges that the covenants contained in item 5 of this Restricted Share Units Agreement and in Section 4 of the Agreement are reasonable in nature, are fundamental for the protection of the Cardinal Group's legitimate business and -2- proprietary interests, and do not adversely affect the Executive's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by the Executive of any such covenants, the Cardinal Group will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of such covenants, the Cardinal Group shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and the Executive hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event that it becomes necessary for the Cardinal Group to institute legal proceedings under this Agreement, the Executive shall be responsible to the Cardinal Group for all costs and reasonable legal fees incurred by the Cardinal Group with regard to such proceedings. Any provision of this Agreement that is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this Agreement. CARDINAL HEALTH, INC. DATE OF AGREEMENT: December 31, 2001 By: ------------------------------ Title: ---------------------------- -3- ACCEPTANCE OF AGREEMENT ----------------------- The Executive hereby: (a) acknowledges that he has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to him under this Agreement subject to all provisions of the Plan and this Agreement; (c) represents and warrants to the Company that he is purchasing the Restricted Share Units for his own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Common Shares delivered in respect of the Restricted Share Units shall be made unless the Common Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration. ------------------------------------------- Executive's Signature ------------------------------------------- Executive's Social Security Number -4- EX-10.07 9 l92629aex10-07.txt EX-10.07 RESTRICTED SHARE UNITS AGREEMENT-FOTIADES EXHIBIT 10.07 RESTRICTED SHARE UNITS AGREEMENT -------------------------------- Cardinal Health, Inc., an Ohio corporation (the "Company"), on February 9, 2000, granted to George L. Fotiades (the "Executive") 17,575 (which as of the date of this Agreement have been split adjusted to equal 26,362) Common Shares in the Company (the "Restricted Shares"). The Company and Executive desire to cancel the Restricted Shares and grant to Executive 26,362 Restricted Share Units (the "Restricted Share Units" or "Award") representing an unfunded, unsecured promise of the Company to deliver Common Shares to the Executive as set forth herein. The Restricted Shares are thus hereby cancelled and forfeited. The Restricted Share Units are being granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"). The Restricted Share Units are subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this Agreement. This Agreement also hereby incorporates by reference the Employment Agreement of the Executive and the Company, dated as of February 9, 2000 (the "Employment Agreement"), and any reference to "this Agreement" herein includes this Restricted Share Units Agreement and the Employment Agreement. Any capitalized terms used in this Restricted Share Units Agreement that are not specifically defined herein shall have the meanings ascribed to such terms in the Employment Agreement. 1. VESTING. Except as otherwise provided in this Agreement, 100% of the Restricted Share Units shall vest on February 9, 2002 (which date shall be the "Vesting Date"). 2. PURCHASE PRICE. The purchase price of the Restricted Share Units shall be $0.00. 3. TRANSFERABILITY. The Restricted Share Units shall not be transferable. 4. TERMINATION OF SERVICE. If the Executive's employment with the Cardinal Group terminates prior to the Vesting Date, all of the Restricted Share Units shall be forfeited. Notwithstanding the foregoing, if the Executive's employment with the Company is terminated before the end of the Employment Period by the Company without Cause or before the end of the Full-Time Period by the Executive for Good Reason, the Restricted Share Units shall nevertheless vest on the Vesting Date unless the Executive has violated any of the provisions of Section 5 of the Employment Agreement. If the Executive's employment with the Company terminates prior to the vesting of the Restricted Share Units by reason of the Executive's death or Incapacity, then the restrictions with respect to a ratable portion of the Restricted Share Units shall lapse and such shares shall not be forfeited, unless the Executive has violated any of the provisions of Section 5 of the Employment Agreement. Such ratable portion shall be an amount equal to the number of Restricted Share Units multiplied by the portion of the period between February 9, 2000 and the second anniversary thereof that has expired at the date of the Executive's death or Incapacity. 5. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at any time prior to the Vesting Date, the Executive violates any of the provisions of Section 5 of the Employment Agreement, the Restricted Share Units shall be forfeited by the Executive. In addition, if at any time the Executive violates any of the provisions of Section 5 of the Employment Agreement, the Executive is subject to being required to pay the Clawback Amount to the Company, as more fully set forth in Section 5(h) of the Employment Agreement. No provision of this Agreement shall diminish, negate, or otherwise affect any separate noncompete agreement to which the Executive may be a party. The Executive acknowledges and agrees that the provisions contained in this item 5 are being made for the benefit of the Cardinal Group in consideration of the Executive's receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing the Executive to the Cardinal Group's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. The Executive further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of the Executive, and that the Company is unwilling to provide the Restricted Share Units to the Executive without their being subject to this item 5. 6. PAYMENT. On the one year anniversary of the first date on which the Executive would not be a reporting person pursuant to Section 16 of the Securities Exchange Act, as amended, or on such earlier date as may be approved by the Chairman of the Company as to all or any portion of the Restricted Share Units, the Executive shall be entitled to receive from the Company (without any payment on behalf of the Executive) the Company Common Shares represented by this Award. 7. DIVIDENDS. The Executive shall not receive cash dividends on the Restricted Share Units but instead shall receive a cash payment from the Company on each cash dividend payment date of the Company in an amount equal to the dividends that would have been paid on the Company Common Shares represented by the Restricted Share Unit. 8. RIGHT OF SET-OFF. By accepting these Restricted Share Units, the Executive consents to a deduction from and set-off against any amounts owed to the Executive by the Cardinal Group from time to time (including but not limited to amounts owed to the Executive as wages, severance payments, or other fringe benefits) to the extent of the amounts so owed. 9. NO SHAREHOLDER RIGHTS. The Executive shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, the Executive shall not have the right to vote the Common Shares represented by the Restricted Share Units. 10. WITHHOLDING TAX. The Company shall have the right to require the Executive to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Share Units or, in lieu thereof, to withhold a sufficient amount of Common Shares underlying the Restricted Share Units to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Common Shares, the amount withheld shall not exceed the minimum required by applicable law and regulation. The Company shall also have the right to facilitate withholding by any other method permitted by the Plan. 11. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this Restricted Share Units Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this Agreement hereby consent to the personal jurisdiction of such courts. The Executive acknowledges that the covenants contained in item 5 2 of this Restricted Share Units Agreement and in Section 5 of the Employment Agreement are reasonable in nature, are fundamental for the protection of the Cardinal Group's legitimate business and proprietary interests, and do not adversely affect the Executive's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by the Executive of any such covenants, the Cardinal Group will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of such covenants, the Cardinal Group shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and the Executive hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event that it becomes necessary for the Cardinal Group to institute legal proceedings under this Agreement, the Executive shall be responsible to the Cardinal Group for all costs and reasonable legal fees incurred by the Cardinal Group with regard to such proceedings. Any provision of this Agreement that is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this Agreement. CARDINAL HEALTH, INC. DATE OF AGREEMENT: December 31, 2001 By: /s/ Paul S. Williams ----------------------------- Title: Executive Vice President ------------------------- 3 ACCEPTANCE OF AGREEMENT ----------------------- The Executive hereby: (a) acknowledges that he has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to him under this Agreement subject to all provisions of the Plan and this Agreement; (c) represents and warrants to the Company that he is purchasing the Restricted Share Units for his own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Common Shares delivered in respect of the Restricted Share Units shall be made unless the Common Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration. /s/ George L. Fotiades ------------------------------------------- Executive's Signature ------------------------------------------- Executive's Social Security Number 4 EX-10.08 10 l92629aex10-08.txt EX-10.08 RESTRICTED SHARE UNITS AGREEMENT-MILLAR EXHIBIT 10.08 RESTRICTED SHARE UNITS AGREEMENT -------------------------------- Cardinal Health, Inc., an Ohio corporation (the "Company"), on February 9, 2000, granted to James F. Millar (the "Executive") 19,425 (which as of the date of this Agreement have been split adjusted to equal 29,137) Common Shares in the Company (the "Restricted Shares"). The Company and Executive desire to cancel the Restricted Shares and grant to Executive 29,137 Restricted Share Units (the "Restricted Share Units" or "Award") representing an unfunded, unsecured promise of the Company to deliver Common Shares to the Executive as set forth herein. The Restricted Shares are thus hereby cancelled and forfeited. The Restricted Share Units are being granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"). The Restricted Share Units are subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this Agreement. This Agreement also hereby incorporates by reference the Employment Agreement of the Executive and the Company, dated as of February 9, 2000 (the "Employment Agreement"), and any reference to "this Agreement" herein includes this Restricted Share Units Agreement and the Employment Agreement. Any capitalized terms used in this Restricted Share Units Agreement that are not specifically defined herein shall have the meanings ascribed to such terms in the Employment Agreement. 1. VESTING. Except as otherwise provided in this Agreement, 100% of the Restricted Share Units shall vest on February 9, 2002 (which date shall be the "Vesting Date"). 2. PURCHASE PRICE. The purchase price of the Restricted Share Units shall be $0.00. 3. TRANSFERABILITY. The Restricted Share Units shall not be transferable. 4. TERMINATION OF SERVICE. If the Executive's employment with the Cardinal Group terminates prior to the Vesting Date, all of the Restricted Share Units shall be forfeited. Notwithstanding the foregoing, if the Executive's employment with the Company is terminated before the end of the Employment Period by the Company without Cause, the Restricted Share Units shall nevertheless vest on the Vesting Date unless the Executive has violated any of the provisions of Section 5 of the Employment Agreement. If the Executive's employment with the Company terminates prior to the vesting of the Restricted Share Units by reason of the Executive's death or Incapacity, then the restrictions with respect to a ratable portion of the Restricted Share Units shall lapse and such shares shall not be forfeited, unless the Executive has violated any of the provisions of Section 5 of the Employment Agreement. Such ratable portion shall be an amount equal to the number of Restricted Share Units multiplied by the portion of the period between February 9, 2000 and the second anniversary thereof that has expired at the date of the Executive's death or Incapacity. 5. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at any time prior to the Vesting Date, the Executive violates any of the provisions of Section 5 of the Employment Agreement, the Restricted Share Units shall be forfeited by the Executive. In addition, if at any time the Executive violates any of the provisions of Section 5 of the Employment Agreement, the Executive is subject to being required to pay the Clawback Amount to the Company, as more fully set forth in Section 5(h) of the Employment Agreement. No provision of this Agreement shall diminish, negate, or otherwise affect any separate noncompete agreement to which the Executive may be a party. The Executive acknowledges and agrees that the provisions contained in this item 5 are being made for the benefit of the Cardinal Group in consideration of the Executive's receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing the Executive to the Cardinal Group's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. The Executive further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of the Executive, and that the Company is unwilling to provide the Restricted Share Units to the Executive without their being subject to this item 5. 6. PAYMENT. On the one year anniversary of the first date on which the Executive would not be a reporting person pursuant to Section 16 of the Securities Exchange Act, as amended, or on such earlier date as may be approved by the Chairman of the Company as to all or any portion of the Restricted Share Units, the Executive shall be entitled to receive from the Company (without any payment on behalf of the Executive) the Company Common Shares represented by this Award. 7. DIVIDENDS. The Executive shall not receive cash dividends on the Restricted Share Units but instead shall receive a cash payment from the Company on each cash dividend payment date of the Company in an amount equal to the dividends that would have been paid on the Company Common Shares represented by the Restricted Share Unit. 8. RIGHT OF SET-OFF. By accepting these Restricted Share Units, the Executive consents to a deduction from and set-off against any amounts owed to the Executive by the Cardinal Group from time to time (including but not limited to amounts owed to the Executive as wages, severance payments, or other fringe benefits) to the extent of the amounts so owed. 9. NO SHAREHOLDER RIGHTS. The Executive shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, the Executive shall not have the right to vote the Common Shares represented by the Restricted Share Units. 10. WITHHOLDING TAX. The Company shall have the right to require the Executive to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Share Units or, in lieu thereof, to withhold a sufficient amount of Common Shares underlying the Restricted Share Units to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Common Shares, the amount withheld shall not exceed the minimum required by applicable law and regulation. The Company shall also have the right to facilitate withholding by any other method permitted by the Plan. 11. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this Restricted Share Units Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this Agreement hereby consent to the personal jurisdiction of such courts. The Executive acknowledges that the covenants contained in item 5 of this Restricted Share Units Agreement and in Section 5 of the Employment Agreement are reasonable in nature, are fundamental for the protection of the Cardinal Group's legitimate -2- business and proprietary interests, and do not adversely affect the Executive's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by the Executive of any such covenants, the Cardinal Group will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of such covenants, the Cardinal Group shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and the Executive hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event that it becomes necessary for the Cardinal Group to institute legal proceedings under this Agreement, the Executive shall be responsible to the Cardinal Group for all costs and reasonable legal fees incurred by the Cardinal Group with regard to such proceedings. Any provision of this Agreement that is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this Agreement. CARDINAL HEALTH, INC. DATE OF AGREEMENT: December 31, 2001 By: /s/ Paul S. Williams -------------------------------- Title: Executive Vice President ---------------------------- -3- ACCEPTANCE OF AGREEMENT ----------------------- The Executive hereby: (a) acknowledges that he has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to him under this Agreement subject to all provisions of the Plan and this Agreement; (c) represents and warrants to the Company that he is purchasing the Restricted Share Units for his own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Common Shares delivered in respect of the Restricted Share Units shall be made unless the Common Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration. /s/ James F. Millar ------------------------------------------- Executive's Signature ------------------------------------------- Executive's Social Security Number -4- EX-10.09 11 l92629aex10-09.txt EX-10.09 RESTRICTED SHARE UNITS AGREEMENT-THOMAS EXHIBIT 10.09 RESTRICTED SHARE UNITS AGREEMENT -------------------------------- Cardinal Health, Inc., an Ohio corporation (the "Company"), on February 9, 2000, granted to Stephen S. Thomas (the "Executive") 13,320 (which as of the date of this Agreement have been split adjusted to equal 19,980) Common Shares in the Company (the "Restricted Shares"). The Company and Executive desire to cancel the Restricted Shares and grant to Executive 19,980 Restricted Share Units (the "Restricted Share Units" or "Award") representing an unfunded, unsecured promise of the Company to deliver Common Shares to the Executive as set forth herein. The Restricted Shares are thus hereby cancelled and forfeited. The Restricted Share Units are being granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"). The Restricted Share Units are subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this Agreement. This Agreement also hereby incorporates by reference the Agreement of the Executive and the Company, dated as of February 9, 2000 (the "Agreement"), and the Employment Agreement between the Company and the Executive, dated as of July 1, 1999 (the "Employment Agreement") and any reference to "this Agreement" herein includes this Restricted Share Units Agreement, the Agreement and the Employment Agreement. Any capitalized terms used in this Restricted Share Units Agreement that are not specifically defined herein shall have the meanings ascribed to such terms in the Agreement, and if such terms are not in the Agreement, in the Employment Agreement. 1. VESTING. Except as otherwise provided in this Agreement, 100% of the Restricted Share Units shall vest on February 9, 2002 (which date shall be the "Vesting Date"). 2. PURCHASE PRICE. The purchase price of the Restricted Share Units shall be $0.00. 3. TRANSFERABILITY. The Restricted Share Units shall not be transferable. 4. TERMINATION OF SERVICE. If the Executive's employment with the Cardinal Group terminates prior to the Vesting Date, all of the Restricted Share Units shall be forfeited. Notwithstanding the foregoing, if the Executive's employment with the Company is terminated before the end of the Employment Period by the Company without Cause or by the Executive for Good Reason, the Restricted Share Units shall nevertheless vest on the Vesting Date unless the Executive has violated any of the provisions of Section 7 of the Employment Agreement. If the Executive's employment with the Company terminates prior to the vesting of the Restricted Share Units by reason of the Executive's death or Disability, then the restrictions with respect to a ratable portion of the Restricted Share Units shall lapse and such shares shall not be forfeited, unless the Executive has violated any of the provisions of Section 7 of the Employment Agreement. Such ratable portion shall be an amount equal to the number of Restricted Share Units multiplied by the portion of the period between February 9, 2000 and the second anniversary thereof that has expired at the date of the Executive's death or Disability. 5. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at any time prior to the Vesting Date, the Executive violates any of the provisions of Section 7 of the Employment Agreement, the Restricted Share Units shall be forfeited by the Executive. In addition, if at any time the Executive violates any of the provisions of Section 7 of the Employment Agreement, the Executive is subject to being required to pay the Clawback Amount to the Company, as more fully set forth in Section 3(c) of the Agreement. No provision of this Agreement shall diminish, negate, or otherwise affect any separate noncompete agreement to which the Executive may be a party. The Executive acknowledges and agrees that the provisions contained in this item 5 are being made for the benefit of the Cardinal Group in consideration of the Executive's receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing the Executive to the Cardinal Group's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. The Executive further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of the Executive, and that the Company is unwilling to provide the Restricted Share Units to the Executive without their being subject to this item 5. 6. PAYMENT. On the one year anniversary of the first date on which the Executive would not be a reporting person pursuant to Section 16 of the Securities Exchange Act, as amended, or on such earlier date as may be approved by the Chairman of the Company as to all or any portion of the Restricted Share Units, the Executive shall be entitled to receive from the Company (without any payment on behalf of the Executive) the Company Common Shares represented by this Award. 7. DIVIDENDS. The Executive shall not receive cash dividends on the Restricted Share Units but instead shall receive a cash payment from the Company on each cash dividend payment date of the Company in an amount equal to the dividends that would have been paid on the Company Common Shares represented by the Restricted Share Unit. 8. RIGHT OF SET-OFF. By accepting these Restricted Share Units, the Executive consents to a deduction from and set-off against any amounts owed to the Executive by the Cardinal Group from time to time (including but not limited to amounts owed to the Executive as wages, severance payments, or other fringe benefits) to the extent of the amounts so owed. 9. NO SHAREHOLDER RIGHTS. The Executive shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, the Executive shall not have the right to vote the Common Shares represented by the Restricted Share Units. 10. WITHHOLDING TAX. The Company shall have the right to require the Executive to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Share Units or, in lieu thereof, to withhold a sufficient amount of Common Shares underlying the Restricted Share Units to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Common Shares, the amount withheld shall not exceed the minimum required by applicable law and regulation. The Company shall also have the right to facilitate withholding by any other method permitted by the Plan. 11. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this Restricted Share Units Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this Agreement hereby consent to the personal -2- jurisdiction of such courts. The Executive acknowledges that the covenants contained in item 5 of this Restricted Share Units Agreement and in Section 7 of the Employment Agreement are reasonable in nature, are fundamental for the protection of the Cardinal Group's legitimate business and proprietary interests, and do not adversely affect the Executive's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by the Executive of any such covenants, the Cardinal Group will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of such covenants, the Cardinal Group shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and the Executive hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event that it becomes necessary for the Cardinal Group to institute legal proceedings under this Agreement, the Executive shall be responsible to the Cardinal Group for all costs and reasonable legal fees incurred by the Cardinal Group with regard to such proceedings. Any provision of this Agreement that is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this Agreement. CARDINAL HEALTH, INC. DATE OF AGREEMENT: December 31, 2001 By: /s/ Paul S. Williams ------------------------------- Title: Executive Vice President --------------------------- -3- ACCEPTANCE OF AGREEMENT ----------------------- The Executive hereby: (a) acknowledges that he has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to him under this Agreement subject to all provisions of the Plan and this Agreement; (c) represents and warrants to the Company that he is purchasing the Restricted Share Units for his own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Common Shares delivered in respect of the Restricted Share Units shall be made unless the Common Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration. /s/ Stephen S. Thomas --------------------------------------------- Executive's Signature --------------------------------------------- Executive's Social Security Number EX-10.10 12 l92629aex10-10.txt EX-10.10 RESTRICTED SHARE UNITS AGREEMENT-WHITE EXHIBIT 10.10 RESTRICTED SHARE UNITS AGREEMENT -------------------------------- Cardinal Health, Inc., an Ohio corporation (the "Company"), on February 9, 2000, granted to Kathy Brittain White (the "Executive") 6,300 (which as of the date of this Agreement have been split adjusted to equal 9,450) Common Shares in the Company (the "Restricted Shares"). The Company and Executive desire to cancel the Restricted Shares and grant to Executive 9,450 Restricted Share Units (the "Restricted Share Units" or "Award") representing an unfunded, unsecured promise of the Company to deliver Common Shares to the Executive as set forth herein. The Restricted Shares are thus hereby cancelled and forfeited. The Restricted Share Units are being granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"). The Restricted Share Units are subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to the provisions of this Agreement. This Agreement also hereby incorporates by reference the Agreement of the Executive and the Company, dated as of February 9, 2000 (the "Agreement"), and any reference to "this Agreement" herein includes this Restricted Share Units Agreement and the Agreement. Any capitalized terms used in this Restricted Share Units Agreement that are not specifically defined herein shall have the meanings ascribed to such terms in the Agreement. 1. VESTING. Except as otherwise provided in this Agreement, 100% of the Restricted Share Units shall vest on February 9, 2002 (which date shall be the "Vesting Date"). 2. PURCHASE PRICE. The purchase price of the Restricted Share Units shall be $0.00. 3. TRANSFERABILITY. The Restricted Share Units shall not be transferable. 4. TERMINATION OF SERVICE. If the Executive's employment with the Cardinal Group terminates prior to the Vesting Date, all of the Restricted Share Units shall be forfeited. Notwithstanding the foregoing, if the Executive's employment with the Company is terminated before the end of the Employment Period by the Company without Cause or by the Executive for Good Reason, the Restricted Share Units shall nevertheless vest on the Vesting Date unless the Executive has violated any of the provisions of Section 4 of the Participant Agreement. If the Executive's employment with the Company terminates prior to the vesting of the Restricted Share Units by reason of the Executive's death or disability, then the restrictions with respect to a ratable portion of the Restricted Share Units shall lapse and such shares shall not be forfeited, unless the Executive has violated any of the provisions of Section 4 of the Participant Agreement. Such ratable portion shall be an amount equal to the number of Restricted Share Units multiplied by the portion of the period between February 9, 2000 and the second anniversary thereof that has expired at the date of the Executive's death or disability. 5. SPECIAL FORFEITURE/CLAWBACK RULES. Notwithstanding the foregoing, if at any time prior to the Vesting Date, the Executive violates any of the provisions of Section 4 of the Participant Agreement, the Restricted Share Units shall be forfeited by the Executive. In addition, if at any time the Executive violates any of the provisions of Section 4 of the Participant Agreement, the Executive is subject to being required to pay the Clawback Amount to the Company, as more fully set forth in Section 2(c) of the Agreement. No provision of this Agreement shall diminish, negate, or otherwise affect any separate noncompete agreement to which the Executive may be a party. The Executive acknowledges and agrees that the provisions contained in this item 5 are being made for the benefit of the Cardinal Group in consideration of the Executive's receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing the Executive to the Cardinal Group's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. The Executive further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of the Executive, and that the Company is unwilling to provide the Restricted Share Units to the Executive without their being subject to this item 5. 6. PAYMENT. On the one year anniversary of the first date on which the Executive would not be a reporting person pursuant to Section 16 of the Securities Exchange Act, as amended, or on such earlier date as may be approved by the Chairman of the Company as to all or any portion of the Restricted Share Units, the Executive shall be entitled to receive from the Company (without any payment on behalf of the Executive) the Company Common Shares represented by this Award. 7. DIVIDENDS. The Executive shall not receive cash dividends on the Restricted Share Units but instead shall receive a cash payment from the Company on each cash dividend payment date of the Company in an amount equal to the dividends that would have been paid on the Company Common Shares represented by the Restricted Share Unit. 8. RIGHT OF SET-OFF. By accepting these Restricted Share Units, the Executive consents to a deduction from and set-off against any amounts owed to the Executive by the Cardinal Group from time to time (including but not limited to amounts owed to the Executive as wages, severance payments, or other fringe benefits) to the extent of the amounts so owed. 9. NO SHAREHOLDER RIGHTS. The Executive shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, the Executive shall not have the right to vote the Common Shares represented by the Restricted Share Units. 10. WITHHOLDING TAX. The Company shall have the right to require the Executive to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Share Units or, in lieu thereof, to withhold a sufficient amount of Common Shares underlying the Restricted Share Units to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the form of Common Shares, the amount withheld shall not exceed the minimum required by applicable law and regulation. The Company shall also have the right to facilitate withholding by any other method permitted by the Plan. 11. GOVERNING LAW/VENUE. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this Restricted Share Units Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this Agreement hereby consent to the personal jurisdiction of such courts. The Executive acknowledges that the covenants contained in item 5 of this Restricted Share Units Agreement and in Section 4 of the Participant Agreement are reasonable in nature, are fundamental for the protection of the Cardinal Group's legitimate -2- business and proprietary interests, and do not adversely affect the Executive's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by the Executive of any such covenants, the Cardinal Group will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of such covenants, the Cardinal Group shall be entitled to specific performance and injunctive relief or other equitable relief without any showing of irreparable harm or damage, and the Executive hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event that it becomes necessary for the Cardinal Group to institute legal proceedings under this Agreement, the Executive shall be responsible to the Cardinal Group for all costs and reasonable legal fees incurred by the Cardinal Group with regard to such proceedings. Any provision of this Agreement that is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this Agreement. CARDINAL HEALTH, INC. DATE OF AGREEMENT: December 31, 2001 By: /s/ Paul S. Williams ------------------------------ Title: Executive Vice President ------------------------------ -3- ACCEPTANCE OF AGREEMENT ----------------------- The Executive hereby: (a) acknowledges that she has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to her under this Agreement subject to all provisions of the Plan and this Agreement; (c) represents and warrants to the Company that she is purchasing the Restricted Share Units for her own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Common Shares delivered in respect of the Restricted Share Units shall be made unless the Common Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration. /s/ Kathy White ------------------------------------------- Executive's Signature ------------------------------------------- Executive's Social Security Number -4- EX-10.11 13 l92629aex10-11.txt EX-10.11 EMPLOYMENT AGREEMENT-WALTER EXHIBIT 10.11 EMPLOYMENT AGREEMENT -------------------- AGREEMENT by and among Cardinal Health, Inc., an Ohio corporation (the "Company"), and Robert D. Walter (the "Executive") dated as of the 20th day of November, 2001. The Company has determined that because of the unique nature of the Executive's services to the Company it is in its best interests and those of its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Company with the continuity of management the Company considers crucial to ensuring the Company's continued success. Therefore, in order to accomplish these objectives, the Board of Directors and the Company have caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. EFFECTIVE DATE. The "Effective Date" shall mean the date hereof. 2. EMPLOYMENT PERIOD. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on June 30, 2004 ("Initial Term"); provided, commencing on June 30, 2003, the employment period shall be extended each day by one day to create a new one year term until, at any time at or after such date, the Company or the Executive delivers a written notice to the other party that the employment period shall expire at the end of such one year term (the Initial Term as so extended is the "Employment Period"). 3. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the Employment Period (A) the Executive shall serve as the Chairman and Chief Executive Officer of the Company with such authority, duties and responsibilities as are commensurate with such position and as may be consistent with such position, reporting directly to the Board of Directors of the Company (the "Board"), and (B) the Executive's services shall be performed in Dublin, Ohio. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall thereafter be deemed not to interfere with the performance of the Executive's responsibilities to the Company. (b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the E xecutive shall receive an annual base salary ("Annual Base Salary") of no less than $1,000,000. During the Employment Period, the Annual Base Salary shall be reviewed at the time that the salaries of all of the executive officers of the Company are reviewed. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) ANNUAL BONUS. For each fiscal year completed during the Employment Period, the Executive shall receive an annual cash bonus ("Annual Bonus") based upon performance targets that are established by the Board or an appropriate committee of the Board, provided that the Executive shall have a target Annual Bonus of at least 250% of his Annual Base Salary. (iii) INCENTIVE AWARDS. The Executive shall be eligible for equity and non-equity awards under the Company's stock incentive and other long-term incentive compensation plans during the Employment Period as determined by the Board or an appropriate committee of the Board, consistent with past practice and CEO competitive pay practices, provided that during the Employment Period the Executive shall receive an annual stock option award with a value of no less than 3,000% of Annual Base Salary in terms of "dollars at work." (iv) RETIREMENT BENEFITS. The Executive shall be eligible to participate in any supplemental executive retirement program established by the Company during the Employment Period. (v) DEFERRABLE RESTRICTED SHARE UNIT AWARD. As of the Effective Date, the Executive shall be granted 150,000 shares of deferrable restricted stock units of the Company ("Restricted Share Unit Award"), which may be settled only in Company common stock, in accordance with the form of grant attached hereto as Exhibit A. Such grant shall provide that the units shall vest on June 30, 2004. Except as otherwise provided herein and in such deferrable restricted stock unit agreement, stock subject to such Restricted Share Unit Award will not be distributable until the later to occur of (A) the Executive's 62nd birthday or (B) the first date on which the Executive ceases to be a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, of the Company, or such earlier date as may be approved by the Board. To the extent that dividends are paid on Company common stock after the Effective Date and prior to the date that the Company common stock subject to a Restricted Share Unit Award is issued to the Executive, the Executive shall be entitled to a cash payment in an amount equal to the dividends that he would have been entitled to receive had he been the owner of such unissued shares on the date such dividends are paid. Such cash payment shall be made at the same time as payment of dividends are made to other shareholders of Company common stock. The issuance of any Company common stock pursuant to a Restricted Share Unit Award shall be subject to the satisfaction of any and all conditions necessary for the issuance of such shares under applicable law. 2 (vi) OTHER BENEFITS. During the Employment Period, the Executive shall be entitled to participate in all employee pension, welfare, perquisites, fringe benefit, and other benefit plans, practices, policies and programs generally applicable to the most senior executives of the Company on a basis and on terms no less favorable than that provided to the Executive immediately prior to the Effective Date. (vii) EXPENSES. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all expenses incurred by the Executive in accordance with the Company's policies for its senior executives. (viii) VACATION. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the plans, policies, programs and practices of the Company as in effect with respect to the senior executives of the Company. 4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(a) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) CAUSE. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or its representative, which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company or its affiliates, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto; or (iv) a material breach of Section 9 of this Agreement. 3 For purposes of this provision, no act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's act or omission was in the best interests of the Company. Any act, or failure to act, based upon express authority given pursuant to a resolution duly adopted by the Board with respect to such act or omission or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (not including the Executive) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i), (ii), (iii) or (iv) above, and specifying the particulars thereof in detail. The definition of "Cause" hereunder shall supersede any provision of any Plan or Agreement (as hereafter defined) that provides for a Forfeiture or Payment (as hereafter defined) upon the Executive's violation of a Company policy or similar such conduct under such Plan or Agreement. (c) GOOD REASON. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) the assignment to the Executive of any duties materially inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose any action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than a failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company requiring the Executive to be based at any office or location more than 10 miles from that provided in Section 3(a)(i)(B) hereof, provided that reasonable travel required in connection with Executive's reporting relationships and responsibilities to the Board shall not be deemed a breach hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; (v) any failure by the Company to comply with and satisfy Section 10(b) of this Agreement; 4 (vi) the Company giving Executive a notice of the termination of the Employment Period effective at the end of or after the Initial Term, pursuant to Section 2 prior to the Executive's attaining age 62; or (vii) the occurrence of a Change of Control (as hereinafter defined). (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, subject to the provisions of Section 5(d), the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, death or Disability or the Executive shall terminate employment for Good Reason: (i) except as specified below, the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) the average Annual Bonus paid to the Executive in respect of the three completed fiscal years prior to the Date of Termination, provided that such amount shall not be less than Executive's Annual Bonus at target hereunder (the "Recent Average Bonus"), and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of 5 which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2), shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (x) two, or if the Date of Termination is within three years after a Change of Control, three and (y) the sum of (I) the Executive's Annual Base Salary and (II) the Recent Average Bonus; and (ii) any stock options, restricted stock and restricted share units held by the Executive or a permitted transferee (whether granted under this Agreement or otherwise) shall vest immediately (with option exercisability continuing until the end of the option term); and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliates (such amounts and benefits, the "Other Benefits") in accordance with the terms and normal procedures of each such plan, program, policy or practice; provided that Executive and his eligible dependents shall continue to participate in the Company's welfare benefit plans for the period during which severance is measured commencing on the Date of Termination. For purposes of this Agreement, "Change of Control" shall mean any of the following events: (i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)(a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent (25%) or more of either (x) the then outstanding common shares of the Company (the "outstanding Company Common Shares") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company or any corporation controlled by the Company, (B) any acquisition by the Company or any corporation controlled by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation that is a Non-Control Acquisition (as defined in (iii) below); or (ii) the individuals who, as of the Effective Date constitute the Board of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of the Company 6 provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition by the Company of assets or shares of another corporation (a "Business Combination"), unless such Business Combination is a Non-Control Acquisition. A "Non-Control Acquisition" means a Business Combination where, following such Business Combination, (x) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation a corporation which as a result of such transaction owns the Company all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Shares and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty-five percent (25%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination (including any ownership that existed in the Company or the company being acquired, if any) and (z) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of 7 the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (b) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay or provide to the Executive an amount equal to the amount set forth in clause (1) of Section 5(a)(i)(A) above, and the timely payment or provision of the Other Benefits, in each case to the extent theretofore unpaid. In the event the Executive gives the Company notice of termination of the Employment Period effective at the end of or after the Initial Term, pursuant to Section 2, the Company shall pay Executive the amount provided for in Section 5(a)(i)(A)(1), and shall provide the Executive (and his spouse, as applicable) Other Benefits. (c) DEATH. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of the Other Benefits. Additionally, any stock options, restricted stock and restricted stock units held by the Executive or a permitted transferee (granted under this Agreement or otherwise) shall immediately vest (with option exercisability continuing until the end of the option term). Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (d) DISABILITY; RETIREMENT. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. Additionally, unless the award agreement with respect to an individual stock option, restricted stock or restricted share unit award otherwise provides for immediate and full vesting, for purposes of the vesting of any stock options, restricted stock or restricted share units held by the Executive or a permitted transferee (granted under this Agreement or otherwise), if the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period or the Executive's employment is terminated by reason of the Executive's retirement at any time after June 30, 2004, the Executive shall be treated as a consulting employee and any such stock options, restricted stock or restricted share units shall continue to vest in accordance with their original vesting schedule (with option exercisability continuing until the end of the option term), provided, that, the Executive and the Company shall enter into an agreement reasonably acceptable to the Executive pursuant to which the Executive will continue as a consulting employee from the Date of Termination or the retirement date, as applicable, until March 31, 2006. In the event that the Executive retires prior to June 30, 2004, all restricted stock, restricted share units and stock options shall continue to vest or be forfeited, as the case may be, in accordance with their original terms, provided that the Company (or an 8 instrumentality thereof) may only exercise any right it may have to curtail vesting if the Executive is indicted for a felony involving moral turpitude or grievous bodily harm within 60 days after the Date of Termination. If the Executive shall die after termination by reason of his retirement or Disability, all stock options, restricted stock and restricted share units (other than with respect to the Restricted Share Unit Award in the event of death following a retirement prior to June 30, 2004) shall immediately vest and all stock options shall remain exercisable until the end of the option term. With respect to the provision of Other Benefits upon the Executive's Disability, the term Other Benefits as utilized in this Section 5(d) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits as in effect at any time thereafter generally with respect to senior executives of the Company. 6. NON-EXCLUSIVITY OF RIGHTS. Except as specifically provided, 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, or any of its affiliates and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company, or its affiliates. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or its affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. As used in this Agreement, the terms "affiliated companies" and "affiliates" shall include any company controlled by, controlling or under common control with the Company. 7. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), if the Executive prevails on any material claim made by him, and disputed by the Company under the terms of this Agreement. 8. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. If at any time for any reason any payment or distribution (a "Payment") by the Company or any other person or entity to or for the benefit of the Executive is determined to be a "parachute payment" (within the meaning of Section 280G (b) (2) of the Code), whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with or arising out of his employment with the Company or a change in ownership or excise tax imposed by 9 Section 4999 of the Code or any interest or penalties are incurred by the Executive ( the "Excise Tax"), then within a reasonable period of time after such determination is reached the Company shall pay to the Executive an additional payment (the "Gross-Up Payment") in an amount such that the net amount retained by the Executive, after deduction of any Excise Tax on such Payment and any federal, state or local income or employment tax or other taxes and Excise Tax on the Gross-Up Payment, shall equal the amount of such Payment (including any interest or penalties with respect to any of the foregoing). All determinations concerning the application of the foregoing shall be made by a nationally recognized firm of independent accountants (together with legal counsel of its choosing) selected by the Company after consultation with the Executive (which may be the Company' independent auditors), whose determination shall be conclusive and binding on all parties. The fees and expenses of such accountants and counsel (including counsel for the Executive) shall be borne by the Company. If such independent auditors determine that no Excise Tax is payable by the Executive, it shall furnish the Executive with an opinion that the Executive has substantial authority not to report any Excise Tax on his Federal income tax return. In the event the Internal Revenue Service assesses the Executive an amount of Excise Tax in excess of that determined in accordance with the foregoing, the Company shall pay to the Executive an additional Gross-Up Payment, calculated as described above in respect of such excess Excise Tax, including a Gross-Up Payment in respect of any interest or penalties imposed by the Internal Revenue Service with respect to such excess Excise Tax. 9. COVENANTS. (a) INTRODUCTION. The parties acknowledge that the provisions and covenants contained in this Section 9 are ancillary and material to this Agreement and that the limitations contained herein are reasonable in geographic and temporal scope and do not impose a greater restriction or restraint than is necessary to protect the goodwill and other legitimate business interests of the Company. The parties also acknowledge and agree that the provisions of this Section 9 do not adversely affect the Executive's ability to earn a living in any capacity that does not violate the covenants contained herein. The parties further acknowledge and agree that the provisions of Section 11(a) below are accurate and necessary because (i) this Agreement is entered into in the State of Ohio, (ii) Ohio has a substantial relationship to the parties and to this transaction, (iii) Ohio is the headquarters state of the Company, which has operations nationwide and has a compelling interest in having its employees treated uniformly within the United States, (iv) the use of Ohio law provides certainty to the parties in any covenant litigation in the United States, and (v) enforcement of the provision of this Section 9 would not violate any fundamental public policy of Ohio or any other jurisdiction. (b) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company and all of its subsidiaries, partnerships, joint ventures, limited liability companies, and other affiliates (collectively, the "Cardinal Group"), all secret or confidential information, knowledge or data relating to the Cardinal Group and its businesses (including, without limitation, any proprietary and not publicly available information concerning any processes, methods, trade secrets, research secret data, costs, names of users or purchasers of their respective products or services, business methods, operating procedures or programs or methods of promotion and sale) that the Executive has obtained or obtains during the Executive's employment by the Cardinal Group and that is not public knowledge (other than as a result of the 10 Executive's violation of this Section 9(b))("Confidential Information"). For the purposes of this Section 9(b), information shall not be deemed to be publicly available merely because it is embraced by general disclosures or because individual features or combinations thereof are publicly available. The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Cardinal Group, except with prior written consent of the applicable Cardinal Group company, or as otherwise required by law or legal process. All records, files, memoranda, reports, customer lists, drawings, plans, documents and the like that the Executive uses, prepares or comes into contact with during the course of the Executive's employment shall remain the sole property of the Company and/or the Cardinal Group, as applicable, and shall be turned over to the applicable Cardinal Group company upon termination of the Executive's employment. (c) NON-RECRUITMENT OF CARDINAL GROUP EMPLOYEES, ETC. Executive shall not, at any time during the Restricted Period (as defined in this Section 9(c)), without the prior written consent of the Company, engage in the following conduct (a "Solicitation"): (i) directly or indirectly, contact, solicit, recruit or employ (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the previous six months an employee, representative, officer or director of the Cardinal Group; or (ii) take any action to encourage or induce any employee, representative, officer or director of the Cardinal Group to cease their relationship with the Cardinal Group for any reason. A "Solicitation" does not include any recruitment of employees within or for the Cardinal Group. The "Restricted Period" means the period of Executive's employment with the Cardinal Group and the additional period ending on the second anniversary of the Executive's Date of Termination. (d) NO COMPETITION - - SOLICITATION OF BUSINESS. During the Restricted Period, the Executive shall not (either directly or indirectly or as an officer, agent, employee, partner or director of any other company, partnership or entity) solicit, service, or accept on behalf of any competitor of the Cardinal Group the business of (i) any customer of the Cardinal Group at the time of the Executive's employment or Date of Termination, or (ii) any potential customer of the Cardinal Group which the Executive knew to be an identified, prospective purchaser of services or products of the Cardinal Group. (e) NO COMPETITION - - EMPLOYMENT BY COMPETITOR. During the Restricted Period, the Executive shall not invest in (other than in a publicly traded company with a maximum investment of no more than 1% of outstanding shares), counsel, advise, or be otherwise engaged or employed by, any entity or enterprise (other than an entity or enterprise with annual revenues of 10% or less of the Company's revenues controlled by any of the Executive's sons, including without limitation Bound Tree Parr, Talisman Capital Partners or Inchord Communications, and which such foregoing exception shall apply for the purpose of the covenant of this Section 9(e) as well as any covenant or other limitation under any restricted stock, stock option or other stock incentive held by Executive) that competes with the Cardinal Group, by developing, manufacturing or selling any product or service of a type, respectively, developed, manufactured or sold by the Cardinal Group (each such person described, and not excepted, as a customer, potential customer or a competitor under Section 9(d) or this Section 9(e) is a "Competitor"). 11 (f) NO DISPARAGEMENT (i) The Executive and the Company shall at all times refrain from taking actions or making statements, written or oral, that (A) denigrate, disparage or defame the goodwill or reputation of Executive or the Cardinal Group, as the case may be, or any of its trustees, officers, security holders, partners, agents or former or current employees and directors, or (B) are intended to, or may be reasonably expected to, adversely affect the morale of the employees of the Cardinal Group. The Executive further agrees not to make any negative statements to third parties relating to the Executive's employment or any aspect of the businesses of Cardinal Group and not to make any statements to third parties about the circumstances of the termination of the Executive's employment, or about the Cardinal Group or its trustees, directors, officers, security holders, partners, agents or former or current employees and directors, except as may be required by a court or governmental body. (ii) The Executive further agrees that, following termination of employment for any reason, the Executive shall assist and cooperate with the Company with regard to any matter or project in which the Executive was involved during the Executive's employment with the Company, including but not limited to any litigation that may be pending or arise after such termination of employment. Further, the Executive agrees to notify the Company at the earliest opportunity of any contact that is made by any third parties concerning any such matter or project. The Company shall not unreasonably request such cooperation of Executive and shall compensate the Executive for any lost wages or expenses associated with such cooperation and assistance. (g) INVENTIONS. All plans, discoveries and improvements, whether patentable or unpatentable, made or devised by the Executive, whether alone or jointly with others, from the date of the Executive's initial employment by the Company and continuing until the end of any period during which the Executive is employed by the Cardinal Group, relating or pertaining in any way to the Executive's employment with or the business of the Cardinal Group, shall be promptly disclosed in writing to the Secretary of 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 assignment to the Company or its nominee, of the Executive's entire right, title and interest in and to any such discoveries and improvements and to execute any other instruments and documents requisite or desirable in applying for and obtaining patents, trademarks or copyrights, at the expense of the Company, with respect thereto in the United States and in all foreign countries, that may be required by the Company. The Executive further agrees at all times, to cooperate to the extent and in the manner required by the Company, in the prosecution or defense of any patent or copyright claims or any litigation, or other proceeding involving any trade secrets, processes, discoveries or improvements covered by this Agreement, but all necessary expenses thereof shall be paid by the Company. (h) ACKNOWLEDGEMENT AND ENFORCEMENT. (i) The Executive acknowledges and agrees that: (A) the purpose of the foregoing covenants, including without limitation the noncompetition covenants of Sections 9(d) and (e), is to protect the goodwill, trade secrets and other Confidential Information of the Company; (B) because of the nature of the business in which the Cardinal Group is engaged and because of the nature of the Confidential Information to which the Executive has access, the Company would suffer irreparable harm and it would be impractical and excessively difficult to determine the actual damages of the Cardinal Group in the event the Executive breached any of the covenants of this Section 9; and (C) remedies at law 12 (such as monetary damages) for any breach of the Executive's obligations under this Section 9 would be inadequate. The Executive therefore agrees and consents that if the Executive commits any breach of a covenant under this Section 9 or threatens to commit any such breach, the Company shall have the right (in addition to, and not in lieu of, any other right or remedy that may be available to it) to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage. (i) Any provision of any agreement between the Company (or other member of the Cardinal Group) and the Executive or of any plan, program, policy or practice of the Company (or other member of the Cardinal Group) affecting the Executive, (including, without limitation, any stock option grant agreement, restricted stock agreement and the Restricted Share Unit Award agreement) (collectively, "Plan or Agreement") to the contrary notwithstanding, (x) no covenant or other restriction under any such Plan or Agreement respecting the Executive's conduct (which is sometimes referred to therein as "Triggering Conduct" or "Competitor Triggering Conduct") shall be enforceable, to cause a forfeiture or obligation to pay an amount realized by Executive (or his permitted transferees thereunder) as provided under such Plan or Agreement (a "Forfeiture or Payment"), except as a result of any breach of such covenant or restriction by the Executive prior to the second anniversary of the date on which the Executive's rights under such Plan or Agreement shall have vested (or to the extent of such vesting) (except that the last day of the Restricted Period shall be substituted for such second anniversary only if the Restricted Period expires before such second anniversary) respecting any grant of restricted stock made to the Executive prior to the Effective Date); and (y) the definition of a "Solicitation" at Section 9(c) and of a "Competitor" at Section 9(e) hereof shall supersede any definition of such conduct that is less beneficial to the Executive under such a covenant or restriction under any such Plan and Agreement. In furtherance thereof, (i) no such covenant or restriction shall be enforceable to cause a Forfeiture or Payment against the Executive (or his permitted transferees) under any Plan or Agreement to the extent that the Executive's rights thereunder vested two or more years prior to the Effective Date, (ii) the Executive shall not be subject to any Forfeiture or Payment under any such Plan or Agreement until he shall have been afforded Due Process (as hereafter defined), and (iii) any such Plan or Agreement entered into after the Effective Date shall be subject to the provisions of this Section 9(i) and to the definition of "Cause" under Section 4(c) hereof unless such Plan or Agreement specifically refers to this Section 9(i) or Section 4(c) as the case may be and specifically states that the provisions of this Section 9(i) or the definition of "Cause" under Section 4(c) shall not apply. "Due Process" shall mean: (A) the Executive has been given not less than 60 days prior written notice of such conduct ("Conduct Notice") by the Board, (B) upon such notice to the Executive, the Executive is given an opportunity, together with counsel, to be heard before the Board at a meeting of the Board called and held for the purpose of reviewing such conduct, (C) in the good faith opinion of the Board at such meeting and delivery of a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (not including the Executive) finding that the Executive is guilty of such conduct, (D) the Executive fails to cure such conduct, if it is capable of cure, on or before the later of the 60th day following the Conduct Notice or the 14th day after delivery of such resolution, and (E) the Company shall promptly pay all professional fees incurred by the Executive to defend such allegation of a breach of such covenant or restriction (unless such three-quarters majority of the Board adopts such resolution 13 in which case the provisions of Section 7 hereof shall govern any subsequent dispute resolution proceedings or settlement of the parties). 10. SUCCESSORS. (a) (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. MISCELLANEOUS. (a) (a) 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 parties hereto irrevocably agree to submit to the jurisdiction and venue of the courts of the State of Ohio, in any action or proceeding brought with respect to or in connection with this Agreement. 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 modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: ------------------- At the most recent address on file for the Executive at the Company. If to the Company: ----------------- 7000 Cardinal Place Dublin, Ohio 43017 Attention: Chief Legal Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Except as otherwise specifically provided herein, notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 14 (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4 of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) From and after the Effective Date, this Agreement shall supersede any other employment, severance or change of control agreement between the parties and any other Plan or Agreement with respect to the subject matter hereof. In the case of any conflict between the terms of this Agreement (the "Terms") and the provisions of any such employment, severance or change of control agreement or any other Plan or Agreement as in effect from time to time (the "Provisions"), the Executive's rights and the Company's obligations shall be established by whichever of the Terms or Provisions would be more beneficial to the Executive. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written. /s/ ROBERT D. WALTER ----------------------------------- ROBERT D. WALTER CARDINAL HEALTH, INC. By: /s/ Anthony J. Rucci ------------------------------- Title: Executive Vice President ----------------------------- 15 EX-10.12 14 l92629aex10-12.txt EX-10.12 RESTRICTED SHARE UNITS AGREEMENT-WALTER EXHIBIT 10.12 RESTRICTED SHARE UNITS AGREEMENT -------------------------------- Cardinal Health, Inc, an Ohio corporation (the "Company") hereby grants to Robert D. Walter (the "Grantee") 150,000 Restricted Share Units (the "Restricted Share Units" or "Award"), representing an unfunded unsecured promise of the Company to deliver Common Shares to the Grantee as set forth herein. The Restricted Share Units are being granted pursuant to the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan") and shall be subject to all provisions of the Plan, which are hereby incorporated herein by reference, and shall be subject to all provisions of this agreement. Capitalized terms used herein which are not specifically defined herein shall have the meanings ascribed to such terms in the Plan. 1. VESTING. The Restricted Share Units shall vest in full on June 30, 2004 2. PURCHASE PRICE. The purchase price of the Restricted Share Units shall be $-0-. 3. TERMINATION OF SERVICE. Unless otherwise determined by the Committee at or after grant or termination and except as set forth below, if the Grantee's Continuous Service (as defined below) to the Company and its subsidiaries (collectively, the "Cardinal Group") terminates, prior to June 30, 2004, all of the Restricted Share Units that have not vested shall be forfeited by the Grantee. If the Grantee's Continuous Service terminates prior to the vesting of all of the Restricted Share Units by reason of the Grantee's death or "Disability," by the Grantee for "Good Reason" or by the Company other than for "Cause" (as each such term is defined in the Employment Agreement between the Grantee and the Company, dated as of November 20, 2001 (the "Employment Agreement")), then all of the Restricted Share Units shall immediately fully vest. For purposes of this agreement, the term "Continuous Service" shall mean the absence of any interruption or termination of service as an employee or director of any entity within the Cardinal Group. 4. PROHIBITED CONDUCT. The Grantee hereby agrees to comply with the covenants set forth in Section 9(d) and Section 9(e) of the Employment Agreement, as if such covenants were set forth herein in their entirety. For purposes of this Agreement, a violation of Section 9(d) or (e) of the Employment Agreement shall constitute "Competitor Triggering Conduct" hereunder. Grantee acknowledges and agrees that the provisions contained in this Section 4 are being made for the benefit of the Company in consideration of Grantee's receipt of the Restricted Share Units, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Restricted Share Units and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Restricted Share Units to Grantee without including this Section 4. No provision of this agreement shall diminish, negate, or otherwise impact any separate noncompete agreement to which Grantee may be a party. 5. PAYMENT. On the later to occur of (a) the Grantee's 62nd birthday or (b) the first date on which the Grantee would not be a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, or on such earlier date as may be approved by the Board of Directors of the Company, the Grantee shall be entitled to receive from the Company (without any payment on behalf of the Grantee) the Company Common Shares represented by this Award. All Common Shares represented by this Award, when issued, shall be duly authorized and shall be (i) validly issued, fully paid and nonassessable, (ii) registered for sale, and for resale, by Grantee under Federal and state securities laws and shall remain registered so long as the shares may not be freely sold in the absence of such registration and (iii) listed, or otherwise qualified, for trading in the United States on each national securities exchange or national securities market system on which the Company Common Shares are listed or qualified. 6. DIVIDENDS. The Grantee shall not receive cash dividends on the Restricted Share Units but instead shall receive a cash payment from the Company on each cash dividend payment date of the Company in an amount equal to the dividends that would have been paid on the Company Common Shares represented by the Restricted Share Unit. 7. SPECIAL FORFEITURE/REPAYMENT RULES. If the Grantee engages in Competitor Triggering Conduct prior to the second anniversary of the date on which the Restricted Share Units vest hereunder, then subject to Grantee's rights of Due Process (as defined in the Employment Agreement): (a) the Restricted Share Units (or any part thereof that have not vested) shall immediately and automatically terminate, be forfeited, and shall cease to vest at any time; and (b) the Grantee shall, within 60 days following written notice from the Company, pay to the Company an amount equal to the gross gain realized or obtained by the Grantee resulting from the vesting of such Restricted Share Units, measured at the date of vesting (i.e., the market value of the Restricted Share Units on the vesting date), less $1.00; provided, the Grantee shall not be deemed to have engaged in Competitor Triggering Conduct until he shall have been afforded Due Process. The Grantee may be released from Grantee's obligations under this Section 7 only if the Committee (or its duly appointed agent ) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this Section 7 constitutes a so-called "non-compete" covenant. However, this Section 7 does prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including but not limited to the Grantee's acceptance of employment with a Competitor. This Agreement is subject to the provisions of Grantee's Employment Agreement. Grantee acknowledges and agrees that the provisions contained in this Section 7 are being made for the benefit of the Company in consideration of Grantee's receipt of the Restricted Share Units, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Restricted Share Units and execution of this agreement are voluntary actions on the part of Grantee, and that the Company is unwilling to provide the Restricted Share Units to Grantee without including this Section 7. 8. WITHHOLDING TAX. The Company shall have the right to require the Grantee to pay to the Company the amount of any taxes which the Company is required to withhold with respect to the Restricted Share Units or, in lieu thereof, to withhold a sufficient amount of Common Shares underlying the Restricted Share Units to cover the amount required to be withheld. In the case of any amounts withheld for taxes pursuant to this provision in the 2 form of Common Shares, the amount withheld shall not exceed the minimum required by applicable law and regulation. 9. LAW/VENUE MISCELLANEOUS. (a) This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superseded by the laws of the United States of America. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this agreement hereby consent to personal jurisdiction of such courts. The Grantee acknowledges that the covenants contained in Sections 4 and 7 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect the Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that, in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of Sections 4 or 7 of this agreement, the Company shall be entitled to specific performance and injunctive relief or other equitable relief as provided under Section 9 of the Employment Agreement. (b) The Company represents and warrants that (a) it is fully authorized by its Board or the Committee (and of any person or body whose action is required) to enter into this Agreement and to perform its obligations under it, (b) the execution, delivery and performance of this Agreement by the Company does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company, and (c) upon the execution and delivery of this Agreement by the Company and Grantee, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. (c) In the event of any conflict between the Plan and the terms and conditions in this Agreement, this Agreement shall govern unless the terms and conditions of the Plan are more favorable to Grantee. If such terms and conditions are more favorable to Grantee, then the Company and Grantee agree that this Agreement is amended to the extent necessary to enable Grantee to gain the benefit of the more favorable terms and conditions of the Plan. CARDINAL HEALTH, INC. DATE OF GRANT: November 20, 2001 By: /s/ Anthony J. Rucci ------------------------------ Title: Executive Vice President ---------------------------- 3 ACCEPTANCE OF AGREEMENT ----------------------- The Grantee hereby: (a) acknowledges that he has received a copy of the Plan, a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders, and a copy of the Plan Description dated August 8, 2001 pertaining to the Plan; (b) accepts this agreement and the Restricted Share Units granted to him under this agreement subject to all provisions of the Plan and this agreement; (c) represents and warrants to the Company that he is purchasing the Restricted Share Units for his own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (d) agrees that no transfer of the Common Shares delivered in respect of the Restricted Share Units shall be made unless the Common Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration: /s/ Robert D. Walter ---------------------------------------------- Grantee's Signature ---------------------------------------------- Grantee's Social Security Number 4 -----END PRIVACY-ENHANCED MESSAGE-----