-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eSyoI436dlUqSENfnjztCd3XtHYYDNnJgVJ+GttJawnKxtEIFDScAB3EqVTWC2Ys qnkkgrMhiJJ62Dt17NBQ6g== 0000950152-94-000897.txt : 19940908 0000950152-94-000897.hdr.sgml : 19940908 ACCESSION NUMBER: 0000950152-94-000897 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940902 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL HEALTH INC CENTRAL INDEX KEY: 0000721371 STANDARD INDUSTRIAL CLASSIFICATION: 5122 IRS NUMBER: 310958666 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11373 FILM NUMBER: 94548034 BUSINESS ADDRESS: STREET 1: 655 METRO PL SOUTH STE 925 CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147618700 MAIL ADDRESS: STREET 1: 655 METRO PLACE SOUTH STREET 2: SUITE 925 CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 10-K 1 CARDINAL HEALTH 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended June 30, 1994 Commission File Number 0-12591 ------------- ------- CARDINAL HEALTH, INC. (formerly known as Cardinal Distribution, 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.) 655 METRO PLACE SOUTH, SUITE 925, DUBLIN, OHIO 43017 - - ---------------------------------------------- ----- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (614) 761-8700 -------------- Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: COMMON SHARES (WITHOUT PAR VALUE) --------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the Registrant as of August 19, 1994, was approximately $1,097,875,000. The number of Registrant's Common Shares outstanding as of August 19, 1994, was as follows: common shares, without par value 36,254,409 Class B common shares, without par value 2,971,375 Documents Incorporated by Reference: None 2 PART I ITEM 1: BUSINESS - - ----------------- GENERAL - - ------- The Company is a national, full-service wholesaler distributing a broad line of pharmaceuticals, surgical and hospital supplies, health and beauty care products, and other items typically sold by hospitals, retail drug stores, and other health care providers. An important component of the Company's distribution activities is the broad range of support services it offers to its customers, which are designed to assist the Company's customers in maintaining and improving their market positions. These support services foster strong relationships between the Company and its customers by positioning the Company as a valuable resource capable of offering the centralized services which are increasingly important in today's competitive market place. The Company believes that in most instances it would not be economically feasible for its customers to develop and maintain these services independently. Cardinal Health, Inc. is a holding company with sixteen principal operating subsidiaries: Whitmire Distribution Corporation ("Whitmire"); James W. Daly, Inc. ("Daly"); Ellicott Drug Company ("Ellicott"); Cardinal Syracuse, Inc. ("Syracuse"); Marmac Distributors, Inc. ("Marmac"); Bailey Drug Company ("Bailey"); Ohio Valley-Clarksburg, Inc. ("Ohio Valley"); Chapman Drug Company ("Chapman"); Solomons Company ("Solomons"); Cardinal Florida, Inc. ("Florida"); Cardinal Mississippi, Inc. ("Mississippi"); Humiston-Keeling, Inc. ("H-K"); Behrens Inc. ("Behrens"); National PharmPak Services, Inc. ("PharmPak"); National Specialty Services, Inc. ("NSS"); and PRN Services, Inc. ("PRN"). These separate operating subsidiaries are sometimes collectively referred to as the "Cardinal Health" companies. As used in this report, the "Registrant" and the "Company" refers to Cardinal Health, Inc. and subsidiaries, unless the context requires otherwise. Prior to February 7, 1994, the Company was known as Cardinal Distribution, Inc. The term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries prior to the business combination with Whitmire on February 7, 1994. The Company distributes products to hospitals, drug stores, alternate care centers, and the pharmacy departments of supermarkets and mass merchandisers located throughout the continental United States. The Company obtains its products from many different suppliers, the largest of which accounted for approximately 7% (by dollar volume) of its net sales in fiscal 1994. The Company's five largest suppliers accounted for approximately 29% (by dollar volume) of its net sales during fiscal 1994. The loss of certain pharmaceutical or medical/surgical product suppliers could adversely affect the Company's business because many suppliers are the sole source of certain pharmaceuticals and medical/surgical products under exclusive patents or processes. The Company has agreements with many of its suppliers which generally require the Company to maintain an adequate quantity of the supplier's products in inventory. These agreements typically have a term of one year and may be canceled by either the Company or the supplier, without cause, upon specified prior notice. Management believes that the Company's relationships with its suppliers are excellent. SUPPORT SERVICES - - ---------------- As a full-service wholesale distributor, the Company complements its distribution activities by offering a broad range of value-added support services to assist customers and suppliers in maintaining and improving their market positions and to strengthen the Company's role in the channel of distribution. These support services include computerized order entry and order confirmation systems, customized invoicing, generic sourcing programs, product movement and management reports, consultation on store operation and merchandising, and customer training. 2 3 Most customers transmit merchandise orders directly to the Company's data processing system through computerized order entry devices. The Company's proprietary software systems feature customized databases specially designed to help its customers order more efficiently, contain costs, and monitor their purchases which are covered by group contract purchasing arrangements. Upon receipt of the customer's order at a distribution center, the Company's warehouse management system processes the order and provides customized price information to facilitate the customer's pricing of items. Customer orders are routinely processed for next-day delivery, enabling the Company's customers to minimize the size and carrying cost of their own inventories. In addition, the Company's AccuNet(R), Otis(R), and Network(TM) proprietary software systems facilitate primary supply relationships between the Company and its customers and enable the Company's customers to reduce their costs. These systems provide a variety of information which assist the customer to identify the best price available under group purchasing contracts with pharmaceutical manufacturers, maintain formulary compliance, and better manage their own inventories. Over 2,800 of these systems have been placed with hospital, managed care, and chain drug customers located throughout the United States. SPECIALTY WHOLESALING - - --------------------- In addition to the comprehensive support services provided in connection with its core drug wholesaling activities, the Company also offers diversified "specialty wholesaling" enhancements to its customers and suppliers. For example, the Company's PharmPak subsidiary operates a pharmaceutical repackaging program for both independent and chain customers. In January 1992, the Company formed National Specialty Services, Inc. ("NSS"). NSS is a distributor of therapeutic plasma products and other specialty pharmaceuticals to hospitals and other managed care facilities on a nationwide basis through the utilization of telemarketing and direct mail programs. In December 1993, the Company expanded its specialty wholesaling business through the acquisition of PRN Services, Inc., a distributor of pharmaceuticals and medical supplies to oncologists and oncology clinics across the United States. These specialty wholesaling activities are part of the Company's overall strategy, which combines competitive pricing with diversified offerings in order to enhance the profitability of its core business and that of its customers and suppliers CUSTOMERS - - --------- The Company regularly supplies pharmaceuticals, surgical and hospital supplies, health and beauty care products, and other items to hospitals, independent and chain drug stores, alternate care centers, and pharmacy departments of supermarkets and mass merchandisers located throughout the continental United States. In fiscal 1994, approximately 50% of the Company's net sales were to hospitals and managed care facilities, approximately 23% of the Company's net sales were to chain drug stores and the pharmacy departments of supermarkets and mass merchandisers, approximately 21% of the Company's net sales were to independently owned drug stores, and approximately 6% of the Company's net sales were to specialty wholesaling customers. COMPETITION - - ----------- The Company's markets and those of its customers are highly competitive. The Company competes directly with other national and regional wholesalers, direct selling manufacturers, mail-order houses, and specialty distributors on the basis of price, breadth of product lines, marketing programs, and support services. The Company's businesses have narrow profit margins and accordingly, the Company's earnings depend significantly on its ability to distribute a large volume and variety of products efficiently and to provide quality support services. 3 4 RECENT ACQUISITIONS - - ------------------- Since March 31, 1993, the Company has completed five business combinations. On May 4, 1993, the Company purchased Solomons Company, a Savannah, Georgia based drug wholesaler serving customers located primarily in the southeastern region of the United States. On December 17, 1993, the Company merged with PRN (see "Specialty Wholesaling" above). On February 7, 1994, the Company completed its largest business combination to date when it merged with Whitmire Distribution Corporation, a Folsom, California based drug wholesaler (the "Whitmire Merger"). The majority of Whitmire's sales were concentrated in the western and central United States, complementing Cardinal's former concentration of sales in the eastern United States and positioning the combined company to service both customers and suppliers on a national basis. Whitmire's customer base was weighted toward hospital, managed care, and large retail chain customers, complementing Cardinal's rapidly expanding presence in these customer categories and Cardinal's well-developed programs and services for independent retail pharmacies. The Company has completed two additional business combinations since the Whitmire Merger. On July 1, 1994, the Company purchased Humiston-Keeling, Inc., a Calumet City, Illinois based drug wholesaler serving customers located primarily in the upper midwest region of the Unites States. On July 18, 1994, the Company completed its merger with Behrens Inc., a Waco, Texas based drug wholesaler serving customers located primarily in Texas and adjoining states. The Company continually evaluates possible candidates for acquisition and intends to continue to seek opportunities to expand its healthcare distribution operations and services. For additional information concerning the acquisitions described above see Notes 3 and 16 of "Notes to Consolidated Financial Statements." EMPLOYEES - - --------- At August 1, 1994, the Company had approximately 3,500 employees, of which approximately 300 are subject to collective bargaining agreements. The Company considers its employee relations to be good. REGULATORY MATTERS - - ------------------ The Company, as a distributor of prescription drugs, including certain controlled substances, is required to register for permits and/or licenses with appropriate federal and state agencies and comply with certain operating and security standards. In addition, the Company is subject to the Prescription Drug Marketing Act of 1987, an amendment to the Food, Drug and Cosmetic Act which requires each state to regulate certain aspects of the purchase and distribution of prescription drugs. The Company believes that it is in substantial compliance with all federal and state statutes and regulations applicable to its activities. 4 5 INDUSTRY CONSIDERATIONS - - ----------------------- An aging population, new product introductions, and a higher concentration of distribution through wholesalers are all factors which have created favorable growth patterns for the drug wholesaling industry. At the same time, it is also a very competitive industry undergoing rapid change and consolidation. A number of factors have in the recent past affected and are expected to continue to affect the business equation for the Company, including: (a) a greater mix of higher volume customers, where the lower cost of distribution and better asset management and cash flow enable the Company to offer lower pricing to the customer; (b) reduced inventory gains associated with lower drug price inflation, which are partially offset by corresponding decreases in last-in, first-out (LIFO) earnings charges and inventory carrying costs; (c) increased merchandising funding from manufacturers, particularly related to the growth in generic pharmaceuticals; (d) improved selling, general and administrative cost absorption due to significant productivity investments and the operating leverage associated with sales growth and acquisitions; and (e) increased sales and earnings from specialty distribution services. In response to cost containment pressure from private and governmental payers and the current focus on healthcare reform in the United States, customers are consolidating into super-regional and national affiliations while manufacturers are under increased pressure to slow the rate of drug price inflation and to seek more cost-effective methods of marketing and distributing their products. In this regard, drug wholesalers, including the Company, will be challenged to service customers over a wider geographic base, offer manufacturers innovative marketing and distribution services, and provide both manufacturers and customers with the common system and reporting links necessary to streamline the efficient flow of product and information among distribution partners. Another consideration associated with healthcare reform is the wide variety of legislation which has been proposed at both the federal and state level. The Company is unable to predict which, if any, of the current legislative proposals may be adopted or what impact, if any, such legislation would have upon the Company's business. ITEM 2: PROPERTIES - - ------------------- Because of the nature of the Company's business, office and warehousing facilities are operated in widely dispersed locations across the United States. At August 19, 1994, the Company distributed products from forty principal operating facilities located in twenty-six states, eight of which are owned by the Company and the balance of which are leased. The Company's principal executive offices consist of leased office space located at 655 Metro Place South, Dublin, Ohio. The Company considers its operating properties to be in satisfactory condition and adequate to meet its present needs. However, the Company expects to make further additions, improvements, and consolidations to its properties as the Company's business continues to expand. For certain financial information regarding the Company's office and warehousing facilities, see Notes 5 and 9 of "Notes to Consolidated Financial Statements." 5 6 ITEM 3: LEGAL PROCEEDINGS - - -------------------------- In November 1993, Cardinal and Whitmire were each named as defendants in a series of purported class action antitrust lawsuits which were later consolidated and transferred by the Judicial Panel for Multi District Litigation to the United States District Court for the Northern District of Illinois (the "Brand Name Prescription Drug Litigation"). Subsequent to the consolidation, a new consolidated complaint ("amended complaint") was filed which included allegations that the wholesaler defendants, including Cardinal and Whitmire, conspired with manufacturers to inflate prices by using a chargeback pricing system. Cardinal and Whitmire have filed an answer denying the allegations in the amended complaint. Subsequent to the filing of the answer, the wholesaler defendants filed a motion for summary judgment. The Court has not yet ruled on the motion for summary judgment. In addition to the federal court case described above, Whitmire has been named as a defendant in a series of state court cases alleging similar claims under various state laws regarding the sale of Brand Name Prescription Drugs. The Company believes that both the federal and state court allegations against Cardinal and Whitmire are without merit, and it intends to contest such allegations vigorously. The Company also becomes involved from time-to-time in ordinary routine litigation incidental to its business, none of which is expected to have any material adverse effect on the Company's financial condition. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------ None. EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------ There is hereby incorporated by reference information with respect to the executive officers of the Registrant set forth in Item 10 of this Annual Report on Form 10-K. 6 7 PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER - - -------------------------------------------------------------------------- MATTERS - - ------- The Company's common shares, without par value (the "Class A Common Shares") are quoted on the Nasdaq National Market under the symbol "CDIC." Application has been made, however, to list the Class A Common Shares on the New York Stock Exchange under the symbol "CAH" and such listing is expected to occur in September 1994. The following table reflects, for the periods indicated, the range of the reported high and low last sale prices of the Class A Common Shares as reported on the Nasdaq National Market, and the per share dividends declared thereon. The information in the table has been adjusted to reflect all stock splits and stock dividends and also to reflect the Company's decision, as of March 1, 1994, to change its fiscal year end from March 31 to June 30.
High Low Dividends ---- --- --------- FISCAL 1993: Quarter Ended June 30, 1992 $24.00 $19.80 $.016 September 30, 1992 25.80 21.60 .016 December 31, 1992 24.20 20.20 .020 March 31, 1993 23.80 19.60 .020 Three Months Ended June 30, 1993 $23.70 $20.60 $.020 FISCAL 1994: Quarter Ended September 30, 1993 $30.00 $21.80 $.020 December 31, 1993 38.40 28.80 .024 March 31, 1994 40.60 33.30 .024 June 30, 1994 40.80 34.40 .030 FISCAL 1995: Through August 19, 1994 $41.25 $36.625 $.030
At August 19, 1994, there were approximately 1,150 shareholders of record of the Company's Class A Common Shares. In connection with the Whitmire Merger in February 1994, the Company issued Class B common shares, without par value (the "Class B Common Shares"), to a former Whitmire stockholder. Holders of Class B Common Shares are entitled to one-fifth of one vote per share in the election of Directors and upon all matters on which shareholders are entitled to vote. At August 19, 1994, all 2,971,375 Class B Common Shares issued and outstanding were held by one holder. There is no established public trading market for the Class B Common Shares. All holders of Class A Common Shares and Class B Common Shares (collectively, "Common Shares") participate equally in dividends when and as declared by the Company's Board of Directors. The Company paid a 25% stock dividend on June 30, 1994, to effect a five-for-four stock split of the Company's Common Shares. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Company's Board of Directors and will depend upon the Company's future earnings, financial condition, capital requirements, and other factors. 7 8 ITEM 6: SELECTED FINANCIAL DATA - - -------------------------------- The following selected consolidated financial data of the Company has been prepared giving retroactive effect to the business combination with Whitmire Distribution Corporation ("Whitmire") on February 7, 1994 (the "Whitmire Merger" ), which has been accounted for as a pooling-of-interests transaction. The term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries prior to the Whitmire Merger. Cardinal's fiscal year has historically ended on March 31, while Whitmire's fiscal year has ended on the Saturday closest to the end of June. On March 1, 1994, the Company changed its fiscal year end from March 31 to June 30. As a result, for the fiscal year ended March 31, 1993, and prior years, the information presented is derived from consolidated financial statements which combine data from Cardinal for the fiscal years ended March 31, 1993, March 31, 1992, March 31, 1991, and March 31, 1990, with data from Whitmire for fiscal years ended July 3, 1993, June 27, 1992, June 29, 1991, and June 30, 1990, respectively. For the fiscal year ended June 30, 1994, and the twelve months ended June 30, 1993, the information presented is derived from consolidated financial statements which combine data from Cardinal for the fiscal year ended June 30, 1994, and the twelve months ended June 30, 1993, with data from Whitmire for the fiscal years ended June 30, 1994, and July 3, 1993. Due to the different fiscal year ends of the merged companies, Whitmire's results of operations for the three months ended July 3, 1993, have been included in both the twelve months ended June 30, 1993, and the fiscal year ended March 31, 1993. The selected consolidated financial data below should be read in conjunction with the Company's consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 8 9 CARDINAL HEALTH, INC. AND SUBSIDIARIES - - -------------------------------------- SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - - ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Twelve Year Months Ended Ended Fiscal Year Ended ---------- ---------- ---------------------------------------------------------- June 30, June 30, March 31, March 31, March 31, March 31, 1994 1993 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- ---------- (Unaudited) EARNINGS STATEMENT DATA Net sales $5,790,411 $4,709,085 $4,633,375 $3,680,678 $2,803,111 $2,137,896 Earnings available for Common Shares before cumulative effect of change in accounting principle 33,931 39,298 37,671 25,522 16,849 10,070 Cumulative effect of change in accounting principle (10,000) ---------- ---------- ---------- ---------- ---------- ---------- Net earnings available for Common Shares $ 33,931 $ 39,298 $ 27,671 $ 25,522 $ 16,849 $ 10,070 ========== ========== ========== ========== ========== ========== Primary earnings per Common Share: Before cumulative effect of change in accounting principle $0.86 $1.14 $1.10 $0.74 $0.53 $0.34 Cumulative effect of change in accounting principle (0.29) ----- ----- ----- ----- ----- ----- Net $0.86 $1.14 $0.81 $0.74 $0.53 $0.34 ===== ===== ===== ===== ===== ===== Fully diluted earnings per Common Share: Before cumulative effect of change in accounting principle $0.86 $1.10 $1.06 $0.74 $0.53 $0.34 Cumulative effect of change in accounting principle (0.26) ----- ----- ----- ----- ----- ----- Net $0.86 $1.10 $0.80 $0.74 $0.53 $0.34 ===== ===== ===== ===== ===== ===== BALANCE SHEET DATA Total assets $1,395,602 $1,150,423 $1,099,850 $ 947,081 $ 800,213 $ 513,442 Long-term obligations 210,086 274,908 275,789 304,943 213,986 111,721 Redeemable preferred stock 20,400 20,400 19,560 18,320 17,480 Shareholders' equity 368,494 257,917 247,862 212,438 185,998 118,123 Cash dividends declared per Common Share $0.10 $0.08 $0.07 $0.06 $0.05 $0.04
Net earnings and cash dividends per Common Share have been adjusted to reflect all stock dividends and stock splits. Amounts reflect business combinations in fiscal 1994, the twelve months ended June 30, 1993, fiscal 1992 and 1991. Fiscal 1994, the twelve months ended June 30, 1993, and fiscal 1993 and 1992 amounts reflect the impact of Unusual Items (See Note 2 of "Notes to Consolidated Financial Statements"). 9 10 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - - ------------------------------------------------------------------------------- OF OPERATIONS - - ------------- Management's discussion and analysis presented below has been prepared giving retroactive effect to the pooling-of-interests business combination with Whitmire on February 7, 1994 (see Note 3 of "Notes to Consolidated Financial Statements"). The term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries prior to the Whitmire Merger. Cardinal's fiscal year has historically ended on March 31, while Whitmire's fiscal year has ended on the Saturday closest to the end of June. On March 1, 1994, the Company changed its fiscal year end from March 31 to June 30. Accordingly, the Company's consolidated financial statements for the fiscal year ended June 30, 1994, and for the twelve months ended June 30, 1993, combine the information for Cardinal and Whitmire as of June 30, 1994, and for each of the two years then ended. The Company's consolidated financial statements for earlier fiscal years combine information for Cardinal's March year end with Whitmire's subsequent fiscal June year end. The discussion and analysis presented below should be read in conjunction with the consolidated financial statements and related notes appearing in this report. 10 11 The table below sets forth for the periods indicated certain financial data expressed in a percentage relationship to net sales and in comparison to prior periods. The data for the twelve months ended June 30, 1993, is unaudited and is presented for informational purposes only. In the discussion and analysis which follows the table, comments regarding the comparison of fiscal 1994 to fiscal 1993 apply generally to the comparison of fiscal 1994 to the twelve month period ended June 30, 1993.
Percentage Change Percentage of Net Sales From Prior Period ------------------------------------------------ ----------------------------------------- Fiscal Year Twelve Months Fiscal 1994 Ended Ended Fiscal Year Ended vs. ----------- ------------- -------------------- Twelve Months Fiscal 1994 Fiscal 1993 June 30, June 30, March 31, March 31, Ended vs. vs. 1994 1993 1993 1992 June 30, 1993 Fiscal 1993 Fiscal 1992 ----------- ------------- --------- --------- ------------- ----------- ----------- (Unaudited) Net sales 100.00% 100.00% 100.00% 100.00% 23% 25% 26% Gross margin 6.13 6.38 6.42 6.98 18 19 16 Selling, general & administrative expenses (4.03) (4.36) (4.40) (5.01) 14 15 10 Unusual items Merger costs (0.62) Termination fee 0.29 0.29 Nonrecurring charges (0.41) (0.41) (0.06) ------ ------ ------ ------ Operating earnings 1.48 1.90 1.90 1.91 (4) (2) 25 Interest expense (0.31) (0.55) (0.58) (0.76) (31) (32) (5) Other income 0.05 0.11 0.10 0.15 (42) (39) (12) Taxes (0.61) (0.56) (0.55) (0.53) 35 39 33 ------ ------ ------ ----- Earnings before cumulative effect of change in accounting principle 0.61 0.90 0.87 0.77 (17)% (13)% 43% Preferred dividends declared/accretion (0.02) (0.06) (0.06) (0.08) ------ ------ ----- ----- Earnings available for Common Shares before cumulative effect of change in accounting principle 0.59 0.84 0.81 0.69 Cumulative effect of change in accounting principle (0.21) ------ ------ ------ ------ Net earnings available for Common Shares 0.59% 0.84% 0.60% 0.69% ====== ====== ====== ======
11 12 NET SALES. Net sales in fiscal 1994 increased 25% compared to fiscal 1993 due to internal business growth of 20%, the merger with PRN Services, Inc. in December 1993, and the acquisition of Solomons Company in May 1993 (see Note 3 of "Notes to Consolidated Financial Statements"). The 26% increase in net sales in fiscal 1993 compared to fiscal 1992 was due to internal business growth of 22%, sales resulting from the acquisition of Chapman Drug Company in October 1991 (see Note 3 of "Notes to Consolidated Financial Statements"), and the full consolidation of the Company's repackaging operation. The internal business growth in both fiscal 1994 and fiscal 1993 resulted primarily from the addition of new customers (partially as a result of expanded sales territories), increased sales to existing customers, and price increases. GROSS MARGIN. As a percentage of net sales, gross margin declined to 6.13% in fiscal 1994 from 6.42% in fiscal 1993 and 6.98% in fiscal 1992. The decreases in the gross margin percentages were due to (a) lower selling margin rates, reflecting a more competitive market and a greater mix of higher volume customers, where a lower cost of distribution and better asset management and cash flow enabled the Company to offer lower selling margins, and (b) reduced purchasing gains associated with lower drug price inflation. The reduced purchasing gains were partially offset by a lower LIFO charge. The Company expects the decline in gross margin rates to continue, but at a more moderate rate. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and administrative expenses as a percentage of net sales have improved consistently from 5.01% in fiscal 1992 to 4.40% in fiscal 1993 and 4.03% in fiscal 1994. The improvements are due primarily to economies associated with the Company's significant sales growth, particularly with major customers where support costs are generally lower, and to productivity improvements. UNUSUAL ITEMS. In February 1994, the Company recorded a nonrecurring charge to reflect estimated Whitmire Merger costs of approximately $35.9 million ($28.2 million net of tax), including (a) fees and other transaction costs related to the combination, and (b) other nonrecurring costs expected to be incurred in connection with the integration of Cardinal's and Whitmire's business operations. These estimated costs include approximately $7 million for investment banking, legal, accounting, and other related transaction fees and costs associated with the combination; $13 million for corporate restructuring and distribution rationalization; $6 million for integration of information systems; and $2 million for restructuring Whitmire's revolving credit agreement. Of these estimated costs, approximately $7 million pertain to the revaluation of certain operating assets and $2 million pertain to employee relocation, retraining and termination costs. Certain of these amounts are based on a preliminary estimate of costs to be incurred by the Company, and actual costs may differ from such estimate. At June 30, 1994, the Company had incurred actual costs aggregating approximately $11.7 million relative to the Whitmire Merger. The current estimates of merger costs ultimately to be incurred are not materially different than the amounts originally recorded. During fiscal 1993, the Company received a termination fee of approximately $13.5 million resulting from the termination by Durr-Fillauer Medical, Inc. of its agreement to merge with the Company. Also during fiscal 1993, the Company recorded nonrecurring charges totaling approximately $13.7 million, primarily related to the closing of certain non-core operations and the rationalization, standardization and improvement of selected distribution operations, information systems and support functions. The charges included the write-down of certain assets, moving costs and other costs associated with the affected operations, and modification costs necessary to centralize and standardize certain information systems and support functions. At June 30, 1994, the Company had incurred actual costs aggregating approximately $9.1 million related to these charges and expects most of the remaining amounts to be incurred in fiscal 1995. The modification of the terms of certain Whitmire stock options in fiscal 1993 also resulted in a one-time stock option compensation charge of approximately $5.2 million (see Note 11 of "Notes to Consolidated Financial Statements"). In fiscal 1992, the completion by Whitmire of certain equity transactions resulted in the recording of an unusual expense of approximately $2.0 million (see Note 11 of "Notes to Consolidated Financial Statements"). 12 13 INTEREST EXPENSE. The decrease in interest expense in fiscal 1994 compared to fiscal 1993 is due primarily to the following: (a) the conversion of debt to equity following the call for redemption, effective July 2, 1993, of the Company's $75 million face amount of 7.25% Convertible Debentures due 2015 (the "Subordinated Debentures") (see Note 5 of "Notes to Consolidated Financial Statements"), and (b) reduced borrowings under Whitmire's revolving credit agreements. The reductions in interest expense as discussed above were partially offset by (a) increased interest expense resulting from the sale by the Company of $100 million of 6.5% Notes due 2004 (the "New Notes") on February 23, 1994 (see Note 5 of "Notes to Consolidated Financial Statements"), and (b) increased average short-term borrowings (see Note 4 of "Notes to Consolidated Financial Statements"). The increased average short-term borrowings were a result of (a) increased working capital requirements, (b) the repayment of amounts outstanding under Whitmire's revolving credit agreements at the time of the Whitmire Merger (see Note 5 of "Notes to Consolidated Financial Statements"), and (c) the redemption of Whitmire's preferred stock (see Note 10 of "Notes to Consolidated Financial Statements"). Additional interest expense recognized in fiscal 1993 compared to fiscal 1992 relating to the issuance of the Company's $100 million 8% Notes due 1997 (the "Notes") on March 11, 1992, was primarily offset by (a) the use of the proceeds of the Notes to reduce short-term borrowings, and (b) lower average interest rates on amounts borrowed under Whitmire's revolving credit agreements. Fiscal 1992 interest expense also includes a charge of approximately $1.8 million associated with the replacement of a Whitmire credit agreement (see Note 5 of "Notes to Consolidated Financial Statements"). The Company has entered into various interest rate swap agreements which serve to hedge the Notes (see Note 5 of "Notes to Consolidated Financial Statements"). The net effect of the swap agreements is that the Company exchanged its 8% fixed rate position on the Notes for a fixed rate of 5.1% for the period July 15, 1992, through March 1, 1993, a fixed rate of 6.5% for the period March 2, 1993, through March 1, 1994, and, thereafter, a fixed rate of 8.1% through March 1, 1997 (the maturity date of the Notes). In May 1993, two of the offsetting swap agreements were canceled at no gain or loss to the Company. PROVISION FOR INCOME TAXES. The Company's provision for income taxes relative to pretax earnings increased significantly in fiscal 1994 compared to fiscal 1993 due primarily to (a) certain nondeductible costs associated with the Whitmire Merger recorded in the third quarter of fiscal 1994 (see Note 2 of "Notes to Consolidated Financial Statements"), (b) the reduction of income from tax-advantaged investments, and (c) the 1993 Omnibus Budget Reconciliation Act's 1% tax rate increase enacted on August 11, 1993, retroactive to January 1, 1993. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Effective at the beginning of fiscal 1993, Cardinal adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). The cumulative effect of adopting SFAS No. 109 ($10 million) by Cardinal has been reported as a change in accounting principle retroactive to the beginning of fiscal 1993. The $10 million cumulative effect recorded by Cardinal resulted primarily from the fact that SFAS No. 109 modifies the accounting for business combinations recorded using the purchase method. The cumulative effect of adopting SFAS No. 109 by Whitmire was not material and has been included in the fiscal 1992 provision for income taxes, and not presented separately in the consolidated statement of earnings. 13 14 LIQUIDITY AND CAPITAL RESOURCES Net working capital increased to $471.1 million at June 30, 1994, from $440.7 million at March 31, 1993, and included increased investments in merchandise inventories and trade receivables of $233.1 million and $92.5 million respectively, offset primarily by (a) an increase in accounts payable of $219.7 million, (b) a reduction in cash and equivalents and marketable securities of $49.1 million, and (c) an increase in notes payable-banks of $25.0 million. The increases in merchandise inventories and accounts payable primarily reflect the timing of seasonal purchases and related payments. The increase in trade receivables was due primarily to increased sales (see "Net Sales", above). The decrease in cash and marketable securities and the increase in notes payable-banks resulted primarily from (a) the increased investments in merchandise inventories and trade receivables (net of the increase in accounts payable) as described above, (b) the repayment of amounts outstanding under Whitmire's revolving credit arrangements at the time of the Whitmire Merger (approximately $120 million, including a prepayment penalty of approximately $1.2 million), and (c) the redemption of Whitmire's preferred stock (approximately $20.4 million). Long-term obligations decreased from $275.8 million at March 31, 1993, to $210.1 million at June 30, 1994, due primarily to (a) the issuance by the Company of additional Class A Common Shares upon the conversion of $74.9 million of the Subordinated Debentures, and (b) the repayment of amounts outstanding under Whitmire's revolving credit arrangements, offset primarily by the sale of the $100 million New Notes described above. Shareholders' equity increased to $368.5 million at June 30, 1994 from $247.9 million at March 31, 1993 due primarily to (a) the issuance of additional Class A Common Shares upon conversion of $74.9 million of the Subordinated Debentures, offset by approximately $1.8 million of unamortized debenture offering costs charged to shareholders' equity, (b) net earnings of the Company of approximately $35.1 million in fiscal 1994 and net earnings of approximately $7.8 million by Cardinal (exclusive of Whitmire) in the three months ended June 30, 1993 (see Note 1 of "Notes to Consolidated Financial Statements"), and (c) the issuance of approximately 1,062,000 Class A Common Shares to acquire all of the outstanding stock of Solomons Company (see Note 3 of "Notes to Consolidated Financial Statements"), offset primarily by (i) the repurchase of approximately 725,000 Class A Common Shares owned by subsidiaries of North American National Corporation (see Note 15 of "Notes to Consolidated Financial Statements"), and (ii) dividends paid by the Company of approximately $3.9 million in fiscal 1994. The Company has line-of-credit agreements with various bank sources aggregating $321 million, of which $100 million is represented by committed line-of-credit agreements and the balance is uncommitted. The Company had drawn upon $25 million of the available lines-of-credit at June 30, 1994, leaving $296 million available under the Company's existing line-of-credit agreements. On May 6, 1993, the Company filed with the Securities and Exchange Commission a Registration Statement for the public offering, from time-to-time, of its debt securities (the "Debt Securities") issuable in one or more series in an aggregate principal amount not to exceed $150 million. On February 23, 1994, the Company sold $100 million of the New Notes (see Note 5 of "Notes to Consolidated Financial Statements"), the net proceeds of which were used for general corporate purposes, including the repayment of the bank lines of credit incurred as part of the Whitmire Merger. At June 30, 1994, $50 million of the Debt Securities remain issuable. On August 17, 1994, the Company filed with the Securities and Exchange Commission a registration statement for an underwritten public offering of 5,250,000 Class A Common Shares. Of the 5,250,000 shares, 1,600,000 are being sold by the Company and 3,650,000 are being sold by certain shareholders of the Company. The underwriters have been granted an option to purchase up to 787,500 additional Class A Common Shares to cover overallotments, if any, including up to 266,949 such shares from the Company. 14 15 The Company believes that it has adequate capital resources at its disposal (exclusive of the anticipated proceeds from the proposed public offering of Class A Common Shares described above) to meet currently anticipated capital expenditures, routine business growth and expansion, and current and projected debt service, including the additional liquidity and capital requirements associated with recent and prospective business combinations (see Notes 3 and 16 of "Notes to Consolidated Financial Statements"). ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - - ----------------------------------------------------- Independent Auditors' Reports Financial Statements: Consolidated Statements of Earnings for the Fiscal Year Ended June 30, 1994, Twelve Months Ended June 30, 1993, and Fiscal Years Ended March 31, 1993, and March 31, 1992 Consolidated Balance Sheets at June 30, 1994, and March 31, 1993 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1994, March 31, 1993, and March 31, 1992 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1994, March 31, 1993, and March 31, 1992 Notes to Consolidated Financial Statements 15 16 INDEPENDENT AUDITORS' REPORT To the Shareholders and Directors of Cardinal Health, Inc.: We have audited the accompanying consolidated balance sheets of Cardinal Health, Inc. and subsidiaries as of June 30, 1994 and March 31, 1993, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the years ended June 30, 1994, March 31, 1993 and March 31, 1992. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. The consolidated financial statements and financial statement schedule give retroactive effect to the pooling-of-interests business combination of Cardinal Health, Inc. and Whitmire Distribution Corporation on February 7, 1994, as described in Note 1 to the consolidated financial statements. We did not audit the balance sheet of Whitmire Distribution Corporation as of July 3, 1993, or the related statements of earnings, shareholders' equity and cash flows of Whitmire Distribution Corporation for the years ended July 3, 1993 and June 27, 1992, which statements reflect total assets of $451,855,000 as of July 3, 1993; net sales of $2,666,829,000 and $2,033,067,000 for the years ended July 3, 1993 and June 27, 1992, respectively; and net earnings available for common shares before cumulative effect of change in accounting principle of $4,039,000 and $330,000 for the years ended July 3, 1993 and June 27, 1992, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Whitmire Distribution Corporation in the March 31, 1993 and 1992 financial statements, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardinal Health, Inc. and subsidiaries at June 30, 1994 and March 31, 1993, and the results of their operations and their cash flows for the years ended June 30, 1994, March 31, 1993, and March 31, 1992 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109 by applying it retroactively effective April 1, 1992. DELOITTE & TOUCHE LLP Columbus, Ohio August 16, 1994 16 17 Report of Independent Public Accountants To the Board of Directors of Whitmire Distribution Corporation: We have audited the balance sheet of Whitmire Distribution Corporation (a Delaware corporation), as of July 3, 1993, and the related statements of operations, stockholders' equity and cash flows for each of the two years in the period ended July 3, 1993 (not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Whitmire Distribution Corporation as of July 3, 1993, and the results of its operations and its cash flows for each of the two years in the period ended July 3, 1993, in conformity with generally accepted accounting principles. Arthur Andersen & Co. Sacramento, California September 3, 1993 (Except with respect to the matter discussed in Note 10, as to which date is October 11, 1993.) 17 18 CARDINAL HEALTH, INC. AND SUBSIDIARIES - - --------------------------------------
Fiscal Year Twelve Months Ended Ended Fiscal Year Ended -------------- ----------------- ------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS June 30, June 30, March 31, March 31, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1993 1992 - - ---------------------------------------------------------------------------------------------------------------------------- (Unaudited) Net sales $ 5,790,411 $ 4,709,085 $ 4,633,375 $ 3,680,678 Cost of products sold 5,435,239 4,408,840 4,336,082 3,423,845 --------- --------- --------- --------- Gross margin 355,172 300,245 297,293 256,833 Selling, general and administrative expenses (233,305) (205,161) (203,740) (184,523) Unusual items Merger costs (35,880) Termination fee 13,466 13,466 Nonrecurring charges (18,904) (18,904) (1,973) ---------- -------- -------- ------- Operating earnings 85,987 89,646 88,115 70,337 Other income (expense): Interest expense (18,140) (26,174) (26,623) (28,073) Other, net - primarily interest income 2,913 5,047 4,765 5,389 ---------- ---------- --------- ------- Earnings before income taxes and cumulative effect of change in accounting principle 70,760 68,519 66,257 47,653 Provision for income taxes (35,624) (26,345) (25,710) (19,291) -------- -------- -------- --------- Earnings before cumulative effect of change in accounting principle 35,136 42,174 40,547 28,362 Preferred dividends declared/accretion (1,205) (2,876) (2,876) (2,840) --------- --------- --------- ---------- Earnings available for Common Shares before cumulative effect of change in accounting principle 33,931 39,298 37,671 25,522 Cumulative effect of change in accounting principle (10,000) --------- ------- ----------- --------- Net earnings available for Common Shares $ 33,931 $ 39,298 $ 27,671 $ 25,522 =========== =========== =========== ========== Primary earnings per Common Share: Before cumulative effect of change in accounting principle $0.86 $1.14 $1.10 $0.74 Cumulative effect of change in accounting principle ____ ____ (0.29) ___ ----- Net $0.86 $1.14 $0.81 $0.74 ==== ==== ==== ==== Fully diluted earnings per Common Share: Before cumulative effect of change in accounting principle $0.86 $1.10 $1.06 $0.74 Cumulative effect of change in accounting principle ___ ___ (0.26) ___ ------ Net $0.86 $1.10 $0.80 $0.74 ==== ==== ==== ==== Weighted average number of Common Shares outstanding: Primary 39,392 34,349 34,311 34,291 Fully diluted 39,477 38,653 38,616 38,571 The accompanying notes are an integral part of these statements.
18 19 CARDINAL HEALTH INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES)
- - ----------------------------------------------------------------------------------------------------------------------------- June 30, March 31, 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 54,941 $ 66,739 Marketable securities 37,292 Trade receivables 340,911 248,398 Merchandise inventories 868,210 635,108 Prepaid expenses and other 23,062 8,295 ---------- ---------- Total current assets 1,287,124 995,832 Property and equipment - at cost Land, buildings and improvements 28,354 28,229 Machinery and equipment 81,925 65,528 Furniture and fixtures 9,096 10,057 ---------- ---------- Total 119,375 103,814 Accumulated depreciation and amortization (59,346) (44,501) ---------- ---------- Property and equipment - net 60,029 59,313 Other assets 48,449 44,705 ---------- ---------- Total $1,395,602 $1,099,850 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable - banks $ 25,000 Current portion of long-term obligations 2,929 $ 5,436 Accounts payable 705,702 485,978 Other accrued liabilities 82,411 63,680 ---------- ---------- Total current liabilities 816,042 555,094 Long-term obligations - less current portion 210,086 275,789 Other liabilities 980 705 Redeemable preferred stock 20,400 Shareholders' equity: Common Shares - without par value, authorized 65,000,000 shares, issued 1994 - 38,014,088 shares, 1993 - 23,943,376 shares 255,458 172,367 Retained earnings 120,399 81,573 Common Shares in treasury, at cost - 1994 - 179,878 shares, 1993 - 172,311 shares (3,390) (3,074) Unamortized restricted stock awards (3,973) (3,004) ---------- ---------- Total shareholders' equity 368,494 247,862 ---------- ---------- Total $ 1,395,602 $ 1,099,850 ========== ========== The accompanying notes are an integral part of these statements.
19 20 CARDINAL HEALTH INC. AND SUBSIDIARIES - - -------------------------------------
Common Shares ------------- Treasury Shares Unamortized Total CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Shares Retained --------------- Restricted Shareholders' (IN THOUSANDS) Issued Amount Earnings Shares Amount Stock Awards Equity - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1991 16,625 $159,777 $ 30,339 (141) $(2,183) $(1,935) $185,998 Earnings before preferred dividends 28,362 28,362 Shares issued in connection with stock options and warrants 3,245 521 174 695 Restricted stock awards 37 1,388 (1,388) Amortization of restricted stock awards 672 672 Treasury shares acquired (7) (201) (201) Dividends paid and preferred stock accretion (4,190) (4,190) 5-for-4 stock split effected as a stock dividend and cash paid in lieu of fractional shares 3,754 (11) (11) Tax benefits related to restricted stock and stock options 1,113 1,113 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1992 23,661 162,799 54,674 (148) (2,384) (2,651) 212,438 Earnings before cumulative effect of change in accounting principle and preferred dividends 40,547 40,547 Cumulative effect of change in accounting principle (10,000) (10,000) Shares issued in connection with stock options and warrants 280 2,322 2,322 Stock option compensation 5,247 5,247 Restricted stock awards 40 1,054 (1,054) Amortization of restricted stock awards 701 701 Treasury shares acquired (24) (690) (690) Shares repurchased and retired (38) (199) (199) Dividends paid and preferred stock accretion (4,488) (4,488) Tax benefits related to restricted stock and stock options 1,984 1,984 Miscellaneous other (840) 840 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1993 23,943 172,367 81,573 (172) (3,074) (3,004) 247,862 Earnings before preferred dividends 35,136 35,136 Shares issued pursuant to the conversion of $75 million of convertible debentures 3,423 73,140 73,140 Shares issued pursuant to the acquisition of Solomons 849 18,006 18,006 Repurchase and retirement of shares owned by North American National Corporation (580) (15,373) (15,373) Shares issued in connection with stock options and warrants 2,531 1,025 1,025 Restricted stock awards 47 1,984 (1,984) Amortization of restricted stock awards 985 985 Treasury shares acquired and restricted stock forfeitures (8) (316) 30 (286) Dividends paid (3,935) (3,935) 5-for-4 stock split effected as a stock dividend and cash paid in lieu of fractional shares 7,564 (16) (16) Adjustment to change fiscal year of Cardinal Health, Inc. 7,293 7,293 Equity of PRN Services, Inc. on merger date (see Note 3) 237 34 348 382 Tax benefits related to restricted stock and stock options 4,275 4,275 - - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1994 38,014 $255,458 $120,399 (180) $(3,390) $(3,973) $368,494 =================================================================================================================================== The accompanying notes are an integral part of these statements.
20 21
CARDINAL HEALTH INC. AND SUBSIDIARIES - - ------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Fiscal Year Ended - - -------------------------------------------------------------------------------------------------------------------------------- June 30, March 31, March 31, 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings before cumulative effect of change in accounting principle $ 35,136 $ 40,547 $ 28,362 Adjustments to reconcile earnings before cumulative effect of change in accounting principle to net cash from operations: Depreciation and amortization 16,971 18,260 18,036 Stock option compensation 5,247 Provision for deferred income taxes (11,374) (10,063) 3,293 Provision for bad debts 9,761 4,498 5,224 Change in operating assets and liabilities net of effects from acquisitions: Increase in trade receivables (84,704) (5,139) (30,611) Increase in merchandise inventories (232,178) (51,343) (129,016) Increase in accounts payable 169,988 128,353 36,489 Other operating items - net 21,451 10,746 (4,185) --------- -------- -------- Net cash provided by (used in) operating activities (74,949) 141,106 (72,408) --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary, net of cash acquired (16,365) Proceeds from sale of property and equipment 1,079 111 298 Additions to property and equipment (11,229) (14,620) (16,433) Purchase of marketable securities (115,241) (330,371) (100,719) Proceeds from sale of marketable securities 187,229 294,083 120,035 --------- -------- -------- Net cash provided by (used in) investing activities 61,838 (50,797) (13,184) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term activity 25,000 (46,375) Reduction of short-term borrowing of an acquired subsidiary (5,226) Reduction of long-term obligations (92,701) (30,495) (15,020) Proceeds from long-term obligations 100,000 100,000 Issuance costs of long-term obligations (860) (2,468) Proceeds from issuance of Class A Common Shares 1,025 2,322 695 Proceeds from issuance of preferred shares 400 Income tax credited to shareholders' equity 4,275 1,984 1,113 Dividends on common and preferred shares and cash paid in lieu of fractional shares (3,951) (3,648) (3,361) Redemption of preferred stock (20,400) Purchase of treasury shares (307) (889) (201) Debenture conversion costs charged to shareholders' equity (13) --------- -------- -------- Net cash provided by (used in) financing activities 6,842 (30,726) 34,783 --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (6,269) 59,583 (50,809) CASH AND EQUIVALENTS AT BEGINNING OF YEAR 61,210 7,156 57,965 --------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR $ 54,941 $ 66,739 $ 7,156 ========= ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (NOTE 13) Interest paid during the year (net of capitalized amount) $ 16,412 $ 25,889 $ 25,735 ========= ========= ======== Income taxes paid during the year $ 35,974 $ 27,097 $ 16,740 ========= ========= ========
The accompanying notes are an integral part of these statements. 21 22 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - ------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company is a full service wholesaler distributing a broad line of pharmaceuticals, surgical and hospital supplies, health and beauty care products, and other items typically sold by hospitals, retail drug stores, and other health care providers. The Company is currently operating in only one business segment. BASIS OF PRESENTATION The consolidated financial statements of the Company include the accounts of all majority-owned subsidiaries and all significant intercompany amounts have been eliminated. The consolidated financial statements have been prepared to give retroactive effect to the pooling-of-interests business combination with Whitmire Distribution Corporation (the "Whitmire Merger") on February 7, 1994 (see Note 3). The term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries prior to the Whitmire Merger. Cardinal's fiscal year has historically ended on March 31, while Whitmire's fiscal year has ended on the Saturday closest to the end of June. On March 1, 1994, the Company changed its fiscal year end from March 31 to June 30. Accordingly, the accompanying consolidated financial statements for the fiscal year ended June 30, 1994, and for the twelve months ended June 30, 1993, combine the information for Cardinal and Whitmire as of June 30, 1994, and for each of the two years then ended. The accompanying consolidated financial statements for earlier fiscal years combine information for Cardinal's March year end with Whitmire's subsequent fiscal June year end. The consolidated statement of earnings for the twelve months ended June 30, 1993, is unaudited and is presented for the purpose of supplemental analysis. Due to the different fiscal period ends of the merged companies, the results of Whitmire for the three months ended July 3, 1993, have been included in the consolidated statements of earnings for both the periods ended June 30, 1993, and March 31, 1993. Cardinal's results of operations (exclusive of Whitmire) for the three months ended June 30, 1993, are not included in the consolidated statement of earnings but have been included as an adjustment in the consolidated statement of shareholders' equity. Such amounts, along with certain cash flow information, are summarized as follows (in thousands):
Three Months Ended June 30, 1993 ------------------- Net sales $550,034 Net earnings 7,771 Cash provided by operating activities $53,752 Cash used in investing activities 36,521 Cash used in financing activities 22,760 Dividends paid 478
CASH EQUIVALENTS The company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents. 22 23 MARKETABLE SECURITIES Marketable securities are recorded at cost, which approximates market value. TRADE RECEIVABLES Trade receivables are presented net of the related allowance for doubtful accounts of approximately $21,594,000 and $13,428,000 at June 30, 1994, and March 31, 1993, respectively. MERCHANDISE INVENTORIES Substantially all merchandise inventories are stated at lower of cost, last-in, first-out (LIFO) method, or market. If the Company had used the first-in, first-out (FIFO) method of inventory valuation, which approximates current replacement cost, inventories would have been higher than reported at June 30, 1994, by $61,852,000 and at March 31, 1993, by $55,374,000. The impact of partial inventory liquidations in certain LIFO pools reduced the LIFO provision by approximately $2,500,000 in fiscal 1993. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization for financial reporting purposes are computed using the straight-line method over the estimated useful lives of the assets which range from three to forty years, including capital lease assets which are amortized over the terms of their respective leases. Amortization of capital lease assets is included in depreciation and amortization expense. OTHER ASSETS Other assets primarily represent intangible assets related to the excess of cost over net assets of subsidiaries acquired and noncurrent deferred tax assets (see Note 7). Intangible assets are being amortized using the straight-line method over lives which range from ten to forty years. Accumulated amortization was $16,571,000 and $15,369,000 at June 30, 1994, and March 31, 1993, respectively. At each balance sheet date, a determination is made by management to ascertain whether the intangible assets have been impaired based on several criteria, including, but not limited to, sales trends, undiscounted operating cash flows, and other operating factors. SALES RECOGNITION The Company records sales when merchandise is delivered to its customers and the Company has no further obligation to provide services related to merchandise delivered. Service fees related to bulk sales of pharmaceuticals are included in net sales. Such amounts are not significant in fiscal 1994, 1993 and 1992. INCOME TAXES Effective as of the beginning of fiscal 1993, Cardinal began accounting for income taxes under the liability method by adopting Statement of Financial Accounting Standards SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109). The cumulative effect of adopting this statement ($10,000,000) has been reported as a change in accounting principle retroactive to the beginning of fiscal 1993. The cumulative effect of adopting SFAS No. 109 by Whitmire was not material and has been included in the fiscal 1992 provision for income taxes, and not separately presented in the accompanying consolidated financial statements. Prior to the adoption of SFAS No. 109, both Cardinal and Whitmire accounted for income taxes in accordance with Accounting Principles Board Opinion No. 11. 23 24 CAPITAL STOCK The Company's authorized capital shares consist of: (a) 60,000,000 common shares, without par value ("Class A Common Shares"), of which at June 30, 1994, 34,862,835 were outstanding; (b) 5,000,000 Class B common shares, without par value ("Class B Common Shares"), of which at June 30, 1994, 2,971,375 were outstanding; and (c) 500,000 non-voting preferred shares without par value ("Preferred Shares"), none of which has been issued. The Class B Common Shares were issued to a former Whitmire stockholder in February 1994 in connection with the Whitmire Merger. All of the outstanding Class B Common Shares are held by one holder. All holders of Class A Common Shares and Class B Common Shares (collectively, "Common Shares") participate equally in dividends when and as declared by the Company's Board of Directors. Holders of Class A Common Shares are entitled to one vote per share for the election of Directors and upon all matters on which shareholders are entitled to vote. Holders of Class B Common Shares are entitled to one-fifth of one vote per share in the election of Directors and upon all matters which shareholders are entitled to vote. EARNINGS PER COMMON SHARE Primary earnings per Common Share are based on the weighted average number of Common Shares outstanding during each period and the dilutive effect of stock options and warrants from the date of grant computed using the treasury stock method. Fully diluted earnings per Common Share reflect: (a) the dilutive effect of stock options and warrants from the date of grant computed using the treasury stock method; and (b) the full conversion of the 7.25% Convertible Subordinated Debentures due 2015 through their conversion and redemption in July 1993 (see Note 5). STOCK SPLIT The Company paid a 25% stock dividend on June 30, 1994, to effect a five-for-four stock split of the Company's Common Shares. All share and per share amounts included in the Consolidated Financial Statements, except the Consolidated Statements of Shareholders' Equity, have been adjusted to reflect this stock split. 2. UNUSUAL ITEMS In February 1994, the Company recorded a nonrecurring charge to reflect estimated Whitmire Merger costs of approximately $35.9 million ($28.2 million net of tax), including (a) fees and other transaction costs related to the combination, and (b) other nonrecurring costs expected to be incurred in connection with the integration of Cardinal's and Whitmire's business operations. These estimated costs include approximately $7 million for investment banking, legal, accounting, and other related transaction fees and costs associated with the combination; $13 million for corporate restructuring and distribution rationalization; $6 million for integration of information systems; and $2 million for restructuring Whitmire's revolving credit agreement. Of these estimated costs, approximately $7 million pertain to the revaluation of certain operating assets and $2 million pertain to employee relocation, retraining and termination costs. Certain of these amounts are based on a preliminary estimate of costs to be incurred by the Company, and actual costs may differ from such estimate. At June 30, 1994, the Company had incurred actual costs aggregating approximately $11.7 million relating to the Whitmire Merger. The Company's current estimates of merger costs ultimately to be incurred are not materially different than the amounts originally recorded. 24 25 During fiscal 1993, the Company received a termination fee of approximately $13.5 million, resulting from the termination by Durr-Fillauer Medical, Inc. of its agreement to merge with the Company. Also during fiscal 1993, the Company recorded nonrecurring charges totaling approximately $13.7 million, primarily related to the closing of certain non-core operations and the rationalization, standardization and improvement of selected distribution operations, information systems and support functions. The charges included the write-down of certain assets, moving costs and other costs associated with the affected operations, and modification costs necessary to centralize and standardize certain information systems and support functions. At June 30, 1994, the Company had incurred actual costs aggregating approximately $9.1 million related to these charges and expects most of the remaining amounts to be incurred in fiscal 1995. The modification of the terms of certain Whitmire stock options in fiscal 1993 also resulted in a one-time stock option compensation charge of approximately $5.2 million (see Note 11). In fiscal 1992, the completion by Whitmire of certain equity transactions resulted in the recording of an unusual expense of approximately $2.0 million (see Note 11). The following supplemental information summarizes the results of operations of the Company, adjusted on a pro forma basis to reflect (a) the elimination of the effect of the unusual items discussed above, and (b) the redemption of Whitmire's preferred stock pursuant to the terms of the Reorganization Agreement. Solely for purposes of the summary presented below, such redemption is assumed to have been funded from the liquidation of investments in tax-exempt marketable securities.
Fiscal Year Twelve Months Ended Ended Fiscal Year Ended -------- -------- ------------------------- June 30, June 30, March 31, March 31, (In thousands, except per share amounts) 1994 1993 1993 1992 -------- -------- -------- -------- (Unaudited) Operating earnings $121,867 $95,084 $93,553 $72,310 Earnings before cumulative effect of change in accounting principle 63,044 44,510 42,865 29,252 Earnings per Common Share before cumulative effect of change in accounting principle: Primary $1.60 $1.30 $1.25 $0.85 Fully diluted 1.60 1.24 1.19 0.84
3. BUSINESS COMBINATIONS On January 27, 1994, shareholders of Cardinal and Whitmire approved and adopted the Agreement and Plan of Reorganization dated October 11, 1993 (the "Reorganization Agreement"), pursuant to which Cardinal Merger Corp., a wholly owned subsidiary of Cardinal, was merged with and into Whitmire effective February 7, 1994. In the merger, which was accounted for as a pooling-of-interests business combination, holders of outstanding Whitmire common stock received an aggregate of approximately 6,802,000 Class A Common Shares and approximately 1,861,000 Class B Common Shares in exchange for all of the previously outstanding common stock of Whitmire. In addition, Whitmire's outstanding stock options were converted into options to purchase an aggregate of approximately 1,721,000 additional Class A Common Shares pursuant to the terms of such options and the Reorganization Agreement. 25 26 The following presents a reconciliation of amounts of net sales and net earnings available for Common Shares as reported in the accompanying consolidated financial statements with those previously reported by Cardinal as well as such information for the interim period before the combination occurred (in thousands):
Cardinal Whitmire Combined -------- -------- -------- FISCAL YEAR ENDED MARCH 31, 1992 -------------------------------- Net sales $1,647,611 $2,033,067 $3,680,678 Net earnings available for Common Shares $ 25,192 $ 330 $ 25,522 FISCAL YEAR ENDED MARCH 31, 1993 -------------------------------- Net sales $1,966,546 $2,666,829 $4,633,375 Net earnings available for Common Shares $ 23,632 $ 4,039 $ 27,671 NINE MONTHS ENDED DECEMBER 31, 1993 (UNAUDITED) ----------------------------------------------- Net sales $1,805,065 $2,197,386 $4,002,451 Net earnings available for Common Shares $ 27,925 $ 10,246 $ 38,171
On December 17, 1993, the Company issued approximately 296,000 Class A Common Shares in a merger transaction for all of the capital stock of PRN Services, Inc., a distributor of pharmaceuticals and medical supplies to oncologists and oncology clinics. The transaction was accounted for as a pooling-of-interests business combination. The impact of the PRN merger, on both an historical and pro forma basis, is not significant. Accordingly, prior periods have not been restated for the PRN merger. On May 4, 1993, the Company acquired all of the outstanding capital stock of Solomons Company, a wholesale drug distributor based in Savannah, Georgia, in exchange for approximately 1,062,000 Class A Common Shares. The transaction was accounted for by the purchase method. Had the acquisition occurred at the beginning of fiscal 1993, operating results on a pro forma basis would not have been significantly different. On October 15, 1991, the Company acquired all of the issued and outstanding shares of Chapman Drug Company, a drug wholesaler based in Knoxville, Tennessee, for cash of $16,800,000 in a transaction accounted for by the purchase method. Had the acquisition occurred at the beginning of fiscal 1992, operating results on a pro forma basis would not have been significantly different. 4. NOTES PAYABLE - BANKS The Company has entered into various uncommitted line-of-credit arrangements which allow for borrowings up to $221,000,000 at various money market rates. The amount outstanding under such arrangements as of June 30, 1994 was $25,000,000. In addition to the aforementioned credit arrangements, at June 30, 1994, the Company has revolving credit agreements with eight banks which have a maturity of less than one year, are renewable on a quarterly basis, and allow the Company to borrow up to $100,000,000 (none of which was in use at June 30, 1994) at either the prime rate, eurodollar rates plus .5%, or a mutually agreed upon rate. The Company is required to pay a commitment fee at the annual rate of .125% on the average daily unused amounts of the total credit allowed under the revolving credit agreements. Total unused lines of credit at June 30, 1994 and March 31, 1993 were $296,000,000 and $176,000,000, respectively. 26 27 The following summarizes notes payable - banks activity (in thousands, except interest rate data):
Fiscal Year ----------------------------------------------------- 1994 1993 1992 ----------------------------------------------------- Weighted average interest rates: During the year 5.06% 4.31% 5.92% At end of year 4.28% ---- ---- Maximum amounts borrowed $244,400 $ 7,300 $136,750 Average amounts borrowed 46,799 129 71,780
The weighted average interest rates during the periods represent annualized rates computed based on the number of days the borrowings were outstanding. The average amounts borrowed were computed based on the average of the daily amounts outstanding during the respective periods. 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
June 30, March 31, 1994 1993 --------- -------- Notes; 6.5% due 2004 $100,000 Notes; 8%, due 1997 100,000 $100,000 Revolving credit agreement; rates that fluctuate based on prime or LIBOR, due 1995 88,824 Convertible Subordinated Debentures; 7.25%, due 2015 75,000 Various mortgage revenue bonds, notes and capital leases; 8.5% to 10.05% and rates that fluctuate based on prime, due in varying installments through 2002 13,015 17,401 -------- -------- Total 213,015 281,225 Less current portion 2,929 5,436 -------- -------- Long-term obligations - less current portion $210,086 $275,789 ======== ========
On February 23, 1994, the Company sold $100,000,000 of 6.5% Notes due 2004 (the "New Notes") in a public offering. The New Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Issuance costs of approximately $860,000 incurred in connection with the offering are being amortized on a straight-line basis over the period the New Notes will be outstanding. The Company used the proceeds of this sale for general corporate purposes, including the repayment of bank lines of credit incurred as part of the Whitmire Merger (see Note 3). In anticipation of the sale of the New Notes, the Company entered into an interest rate hedge agreement, which was terminated at the approximate time of the issuance of the New Notes, resulting in a deferred gain of approximately $1.3 million which will be amortized as a reduction of interest expense over the period the New Notes are outstanding. On March 11, 1992, the Company sold $100,000,000 of 8% Notes due 1997 (the "Notes") in a public offering. The Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Issuance costs of approximately $718,000 incurred in connection with the offering, are being amortized on a straight-line basis over the period the Notes will be outstanding. 27 28 The Company has entered into various interest rate swap agreements which serve to hedge the Notes. The net effect of the swap agreements is that the Company exchanged its 8% fixed rate position on the Notes for a fixed rate of 5.1% for the period July 15, 1992, through March 1, 1993, a fixed rate of 6.5% for the period March 2, 1993, through March 1, 1994, and, thereafter, a fixed rate of 8.1% through March 1, 1997 (the maturity date of the Notes). In May 1993, two of the offsetting swap agreements were canceled at no gain or loss to the Company. Due to the offsetting nature of the swaps, the market value of those in a net receivable position approximates the market value of those in a net payable position. The risk of accounting loss in the event of nonperformance by counterparties is approximately $4 million as of June 30, 1994; however, based on the credit quality of the counterparties, the Company believes the likelihood of such a credit loss to be remote. During fiscal 1992, the Company, through Whitmire, entered into a revolving credit agreement under which it could borrow up to $210,000,000. During fiscal 1993, the agreement was amended to provide for seasonal increases in the availability up to $235,000,000. Interest was payable monthly at 1.5% over the prime rate or, at Whitmire's election, 3.25% over the London Interbank Offered Rate (LIBOR). The average interest rate under the revolving credit agreement at the end of fiscal 1993 was 6.9%. This agreement replaced a $175,000,000 credit agreement, and interest expense in fiscal 1992 includes a charge of $1,837,000 associated with this replacement. On February 7, 1994, the revolving credit agreement was terminated. The Subordinated Debentures outstanding at March 31, 1993, were convertible into the Company's Class A Common Shares at any time on or before July 1, 2015, unless previously redeemed, at a conversion price of $17.51 per share. Issuance costs of approximately $2,000,000 incurred in connection with the offering were being amortized on a straight-line basis over the original period the Subordinated Debentures were to be outstanding. On June 11, 1993, the Company called the Subordinated Debentures for redemption, effective as of July 2, 1993. Following this call, $74,920,000 of Subordinated Debentures outstanding as of March 31, 1993, were converted into Class A Common Shares of the Company. The remaining $80,000 of Subordinated Debentures outstanding as of March 31, 1993, were redeemed for cash. The pro forma primary earnings per share of the Company, as if the above conversion and redemption had occurred as of the beginning of fiscal 1992, would have been $0.80 and $0.74 in fiscal 1993 and 1992, respectively. The amount credited to shareholders' equity as a result of the conversion of the Subordinated Debentures was reduced by unamortized offering costs of approximately $1,767,000 and costs directly related to the conversion of approximately $13,000. Certain long-term obligations are collateralized by property and equipment of the Company with an aggregate book value of approximately $13,500,000 at June 30, 1994. Maturities of long-term obligations for future fiscal years are as follows (in thousands): 1995 $ 2,929 1996 2,236 1997 101,245 1998 868 1999 738 After 1999 104,999 ----------------------------------- Total $213,015 ===================================
28 29 6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each material class of financial instruments for which estimates are practicable: CASH AND EQUIVALENTS, MARKETABLE SECURITIES, AND OTHER ACCRUED LIABILITIES The carrying amount at June 30, 1994, and March 31, 1993, approximates the fair value because of the short-term maturities of these items. LONG-TERM OBLIGATIONS The Company's long-term obligations are composed of notes, a long-term revolving credit agreement, convertible debentures, and various mortgage revenue bonds, notes and capital leases. The fair value of the Company's long-term obligations is estimated based on the quoted market prices for the same or similar issues and the current interest rates offered for debt of the same remaining maturities. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The fair values do not include early redemption premiums, underwriter's fees and commissions, and refunding costs (legal and registration fees). The estimated value of the Company's long-term obligations was $206,116,000 and $313,704,000, as compared to the carrying amounts of $213,015,000 and $281,225,000 at June 30, 1994, and March 31, 1993, respectively. The fair value estimates presented herein are based on pertinent information available to management as of the dates indicated. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair values may differ significantly from the amounts presented herein. 29 30 7. INCOME TAXES Effective the beginning of fiscal 1993, Cardinal adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). Under the provisions of SFAS No. 109, income taxes are recorded under the liability method. SFAS No. 109 results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between financial reporting and tax reporting bases of assets and liabilities (temporary differences), and operating loss and tax credit carryforwards for tax purposes. The cumulative effect of adopting SFAS No. 109 ($10,000,000) by Cardinal has been reported as a change in accounting principle retroactive to the beginning of fiscal 1993. The cumulative effect of adopting SFAS No. 109 by Whitmire was not material and has been included in the fiscal 1992 provision for income taxes, and not separately presented in the accompanying consolidated statements of earnings. The provision for income taxes consists of the following (in thousands):
Fiscal Year --------------------------------------------- 1994 1993 1992 --------------------------------------------- Current: Federal $42,146 $29,991 $12,260 State 4,852 5,782 4,790 ------- ------- ------- Total 46,998 35,773 17,050 ------ ------ ------ Deferred (11,374) (10,063) 3,293 Whitmire net operating loss benefit _____ _____ ( 1,052) ------- Total provision $35,624 $25,710 $19,291 ====== ====== ====== A reconciliation of the Company's income tax provision and the provision based on the Federal statutory income tax rate follows: Fiscal Year ------------------------------------------ 1994 1993 1992 ----------------------------------------- Provision at Federal statutory rate 35.0% 34.0% 34.0% State income taxes - net of Federal benefit 4.5 5.0 6.6 Income from tax-advantaged investments (0.8) (1.4) (2.5) Nondeductible expenses 9.5 1.7 Valuation allowance 2.0 Net operating loss benefit (2.2) Other 2.1 1.2 0.9 ------- -------- ----- Effective income tax rate 50.3% 38.8% 40.5% ===== ===== =====
30 31 After giving effect to the adoption of SFAS No. 109, the components of the Company's deferred income tax assets (liabilities), the current portion of which (an asset of $4,990,000 and a liability of $5,358,000 at June 30, 1994, and March 31, 1993, respectively) is included in the Consolidated Balance Sheet captions "Prepaid expenses and other" and "Other accrued liabilities," and the noncurrent portion of which (an asset of $467,000 and $1,822,000 at June 30, 1994, and March 31, 1993, respectively) is included in the Consolidated Balance Sheet caption "Other assets," are as follows (in thousands):
As of -------------------------------------- June 30, March 31, 1994 1993 ------------ ----------- Deferred income tax assets: Allowance for doubtful accounts $ 7,839 $ 4,823 Accrued liabilities 22,623 12,038 Stock option compensation 2,240 2,275 Other 1,929 1,878 -------- --------- Total deferred income tax assets $ 34,631 $ 21,014 -------- -------- Deferred income tax liabilities: Inventory basis differences $ (25,210) $ (20,282) Property related (2,840) (3,428) Other (1,124) (840) --------- ---------- Total deferred income tax liabilities $ (29,174) $ (24,550) -------- -------- Net deferred income tax assets (liabilities) $ 5,457 $ (3,536) ========= =========
8. EMPLOYEE RETIREMENT BENEFIT PLANS Substantially all of the Company's non-union employees are enrolled in Company-sponsored contributory profit sharing and retirement savings plans which include features under Section 401(k) of the Internal Revenue Code, and provide for matching Company contributions. The Company's contributions to the plans are determined by the Board of Directors subject to certain minimum requirements as specified in the plans. Qualified union employees are covered by Company-sponsored and multiemployer defined benefit pension plans under the provisions of collective bargaining agreements. Benefits under these plans are generally based on the employee's years of service and average compensation at retirement. The effect of the Company-sponsored defined benefit plans on the Company's consolidated financial statements is not material. Employee retirement benefit plans expense was as follows (in thousands):
Fiscal Year ------------------------------------------ 1994 1993 1992 ------------------------------------------ Defined contribution plans $3,917 $3,400 $2,727 Multiemployer plans 522 538 543 ----- ----- ----- Total $4,439 $3,938 $3,270 ===== ===== =====
31 32 The Financial Accounting Standards Board has issued Statement No. 112, "Employer's Accounting for Postemployment Benefits" which requires employers to accrue for certain postemployment benefits provided to former or inactive employees, their beneficiaries, and covered dependents after employment, but before retirement. This change must be implemented by the Company in fiscal 1995. Based upon preliminary estimates, management does not believe that the new statement will have a material effect on the consolidated financial statements of the Company. 9. COMMITMENTS AND CONTINGENT LIABILITIES The Company leases certain warehouse and office facilities, vehicles, and data processing equipment under operating leases. The leases expire at various dates over the next thirteen years. Certain of these leases provide for renewal options and/or contingent rentals based on various factors. The future minimum rental payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year at June 30, 1994, are as follows (in thousands): 1995 $10,300 1996 8,835 1997 6,737 1998 5,373 1999 4,700 After 1999 6,306 --------------------------------- Total $42,251 =================================
The minimum rental payments above have been reduced by sublease rentals of approximately $582,000 in 1995, $215,000 in 1996, $79,000 in 1997, and $12,000 in 1998. Rental expense (net of sublease rental income) relating to operating leases and short-term cancelable leases was approximately $11,189,000, $10,316,000 and $8,990,000 in fiscal 1994, 1993, and 1992, respectively. In connection with its supplier relationship with various customers, the Company has guaranteed certain indebtedness and lease payments. As of June 30, 1994, these guarantees total approximately $2,251,000. During fiscal 1994, the Company began a program whereby certain customer notes receivables were sold, with full recourse, to a commercial bank. As of June 30, 1994, amounts outstanding on customer notes receivables sold to the commercial bank under this program totaled approximately $6.7 million. The Company becomes involved from time-to-time in litigation arising out of its normal business activities. In addition, in November 1993, Cardinal, Whitmire, five other pharmaceutical wholesalers, and twenty-four pharmaceutical manufacturers were named as defendants in a series of purported class action antitrust lawsuits alleging violations of various antitrust laws associated with the chargeback pricing system. The Company believes that the allegations set forth against Cardinal and Whitmire in these lawsuits are without merit. In the opinion of management, the Company's liability, if any, under any pending litigation would not have a material adverse effect on the Company's financial condition. 10. REDEEMABLE PREFERRED STOCK The Company had authorized 360,000 shares of redeemable preferred $.01 par value stock in Whitmire. The redeemable preferred stock was divided into two series: 350,000 shares designated as Senior Preferred Stock and 10,000 shares designated as Series A Preferred Stock. 32 33 The holders of the Whitmire redeemable preferred stock were entitled to cumulative annual dividends of $10.00 per share for Senior Preferred Stock and $10.125 for Series A Preferred Stock when and as declared by Whitmire's board of directors. In lieu of paying cash dividends to the holders of Senior Preferred Stock and Series A Preferred Stock, Whitmire could, at its election, pay scheduled dividends with additional shares of Senior Preferred Stock or Series A Preferred Stock, as appropriate. Whitmire would have been required to redeem, at $100.00 per share plus accrued but unpaid dividends, all shares of its Senior and Series A Preferred Stock commencing in October 1994 through July 1996. Stockholders' equity was charged $840,000 in each of fiscal 1993 and 1992 for accretion relative to this mandatory redemption obligation. As of March 31, 1993, a total of $4,200,000 had been credited to redeemable preferred stock through accretion. Pursuant to the terms of the Reorganization Agreement between Cardinal and Whitmire (see Note 3), all of the outstanding shares of Senior and Series A Preferred Stock were redeemed as of February 7, 1994, the date of the Whitmire Merger. 11. STOCKHOLDERS' EQUITY During fiscal 1992, the Company, through Whitmire, completed a series of transactions which affected its capitalization as follows: warrants for the purchase of Whitmire common stock were returned and canceled; options were granted for the benefit of key employees to purchase shares of Whitmire common stock; outside investors were granted adjustment share rights representing rights to purchase shares of Whitmire common stock (a defined percentage of the adjustment share rights were cancelable annually, up to 100%, based upon the achievement of certain financial targets); shares of Whitmire's Series A Preferred Stock were issued to certain outside investors as reimbursement of expenses incurred in connection with their ownership interest; and put and call provisions of certain outstanding warrants were canceled. The fiscal 1992 consolidated statement of earnings reflects an expense associated with the above transactions of approximately $2.0 million. During fiscal 1993, the adjustment share rights were canceled and certain conditions relative to the exercise of options were eliminated. For financial reporting purposes, the modification of the terms of these options has been treated as if the options were issued on the date that the terms were modified. Accordingly, a compensation charge totaling approximately $5.2 million was recorded relative to these changes. The compensation charge is equal to the fair value (as determined by an independent appraisal) of the options on the date that the terms of the options were modified. Pursuant to the terms of the Reorganization Agreement (see Note 3), warrants to purchase shares of Whitmire common stock which, upon exercise became convertible into approximately 2,831,000 Common Shares at an average price of $.08 per share, were exercised prior to the consummation of the pooling-of-interests business combination of Cardinal and Whitmire. 12. STOCK OPTIONS AND RESTRICTED SHARES The Company maintains stock incentive plans (the "Plans") for the benefit of certain officers, directors and key employees. Under the Plans, at June 30, 1994, the Company was authorized to issue up to an aggregate of approximately 3,875,000 Class A Common Shares in the form of incentive stock options, nonqualified stock options, and restricted shares. Options granted are generally exercisable for periods up to ten years from the date of grant at a price approximating fair market value at the date of grant. 33 34 The following summarizes all stock option transactions under the Plans from March 31, 1991, through June 30, 1994, giving retroactive effect to stock dividends and stock splits (in thousands, except per share amounts):
Number of Exercise Price Shares Per Share Total -------------------------------------------------------- Balance, March 31, 1991 852 4.00 - 22.24 $ 7,657 Granted 146 19.00 - 28.96 3,623 Exercised (116) 4.00 - 7.78 (517) Canceled (7) 7.78 - 28.80 (127) - - ------------------------------------------------------------------------------------------------ Balance, March 31, 1992 875 4.00 - 28.96 10,636 Granted 229 20.80 - 22.00 4,801 Exercised (349) 4.00 - 17.04 (2,319) Canceled (16) 11.14 - 24.50 (279) - - ------------------------------------------------------------------------------------------------ Balance, March 31, 1993 739 7.78 - 28.96 12,839 Granted 751 23.20 - 38.60 26,286 Exercised (58) 7.78 - 28.96 (787) Canceled (35) 17.04 - 38.60 (899) - - ------------------------------------------------------------------------------------------------ Balance, June 30, 1994 1,397 7.78 - 38.60 $ 37,439
At June 30, 1994, approximately 389,000 option shares under the Plans were exercisable and approximately 2,919,000 Class A Common Shares were reserved for issuance under the Plans. In connection with a 1988 acquisition, the Company issued options for approximately 133,000 Class A Common Shares at $7.45 per share. All of these options were exercised in fiscal 1993. In connection with the Whitmire Merger, outstanding Whitmire stock options granted to current or former Whitmire officers or employees were automatically converted into options ("Cardinal Exchange Options") to purchase an aggregate of approximately 1,721,000 additional Cardinal Class A Common Shares pursuant to the terms of such options and the Reorganization Agreement (see Note 3). Under the terms of their original issuance and as reflected in the Reorganization Agreement, the exercise price for substantially all of the Cardinal Exchange Options is remitted to certain former investors of Whitmire. During fiscal 1994, Cardinal Exchange Options to purchase approximately 271,000 shares were exercised with an average option price of $1.60 per share. At June 30, 1994, Cardinal Exchange Options to purchase approximately 1,450,000 shares were outstanding with an average exercise price of $1.60 per share. Substantially all of the Cardinal Exchange Options outstanding at June 30, 1994, are 100% vested and are exercisable through October 25, 1995. The market value of restricted shares awarded by the Company is recorded as unamortized restricted stock awards and shown as a separate component of shareholders' equity. The compensation awards are amortized to expense over the period in which participants perform services, generally four to seven years. As of June 30, 1994, approximately 414,000 restricted shares have been issued, of which approximately 195,000 shares remain restricted and subject to forfeiture and approximately 16,000 shares have been forfeited. 34 35 13. SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING AND FINANCING ACTIVITIES Capital lease obligations of $906,000, $648,000 and $2,130,000 were incurred in 1994, 1993 and 1992, respectively, as a result of the Company entering into leases for equipment. In conjunction with the acquisitions of Solomons and Chapman (see Note 3), liabilities were assumed as follows (in thousands):
Three Months Ended Fiscal Year Ended June 30, 1993 March 31, 1992 ------------- -------------- Fair value of assets acquired $ 44,468 $ 45,302 Cash paid for the issued and outstanding shares 16,800 Common Shares issued for the issued and outstanding shares 18,006 ______ ------ Liabilities assumed $ 26,462 $ 28,502 ======= ======
Total debt assumed by the Company as a result of these acquisitions was $6,275,000 in fiscal 1992 and $4,315,000 in the three months ended June 30, 1993, and is included as part of the amount of liabilities assumed. In conjunction with the pooling-of-interests combination with PRN (see Note 3) in fiscal 1994, the historical cost of PRN assets combined was approximately $16,946,000, and the total PRN liabilities assumed (including total debt of approximately $5,847,000) were approximately $16,564,000. 35 36 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following information presents the selected quarterly financial data using the same basis of presentation as the accompanying consolidated financial statements (see Note 1):
First Second Third Fourth Total (In thousands, except per share amounts) Quarter Quarter Quarter Quarter Year - - ---------------------------------------------------------------------------------------------------------------------------------- Fiscal 1994: Net sales $1,291,470 $1,397,769 $1,510,674 $1,590,498 $5,790,411 Gross margin 77,775 83,312 98,371 95,714 355,172 Selling, general and administrative expenses (53,556) (54,855) (61,531) (63,363) (233,305) Unusual items (35,880) (35,880) Operating earnings 24,219 28,457 960 32,351 85,987 Net earnings (loss) available for Common Shares 11,806 14,574 (9,096) 16,647 33,931 Net earnings (loss) per Common Share: Primary $0.30 $0.37 $(0.23) $0.42 $0.86 Fully diluted 0.30 0.37 (0.23) 0.42 0.86 Fiscal 1993: Net sales $1,041,252 $1,111,449 $1,218,590 $1,262,084 $4,633,375 Gross margin 67,089 69,082 77,983 83,139 297,293 Selling, general and administrative expenses (49,098) (49,928) (52,203) (52,511) (203,740) Unusual items 3,584 (9,022) (5,438) Operating earnings 17,991 22,738 25,780 21,606 88,115 Cumulative effect of change in accounting principle (10,000) (10,000) Net earnings (loss) available for Common Shares (3,490) 10,228 6,323 14,610 27,671 Primary earnings (loss) per Common Share: Before cumulative effect of change in accounting principle $ 0.19 $0.30 $0.18 $0.43 $1.10 Cumulative effect of change in accounting principle (0.29) (0.29) ------ ----- ----- ----- ----- Net $(0.10) $0.30 $0.18 $0.43 $0.81 ====== ===== ===== ===== ===== Fully diluted earnings(loss) per Common Share: Before cumulative effect of change in accounting principle $ 0.19 $0.29 $0.18 $0.40 $1.06 Cumulative effect of change in accounting principle (0.29) (0.26) ------ ----- ----- ----- ----- Net $(0.10) $0.29 $0.18 $0.40 $0.80 ====== ===== ===== ===== =====
36 37 The above amounts differ from amounts reported in previously filed quarterly reports due to the pooling-of-interests transaction between Cardinal and Whitmire consummated February 7, 1994. Amounts originally reported by Cardinal before the pooling-of-interests transaction were as follows:
First Second Third Fourth (In thousands, except per share amounts) Quarter Quarter Quarter Quarter --------------------------------------------------------------------------------------------------------- Fiscal 1994: Net sales $597,378 $657,653 Gross margin 45,888 48,824 Selling, general and administrative expenses (29,451) (30,151) Operating earnings 16,437 18,673 Net earnings available for Common Shares 9,230 10,924 Net earnings per Common Share: Primary $ 0.32 $ 0.38 Fully diluted 0.32 0.38 Fiscal 1993: Net sales $474,324 $481,693 $511,623 $498,906 Gross margin 39,263 38,041 40,105 44,481 Selling, general and administrative expenses (26,024) (25,627) (25,860) (25,321) Unusual items 3,584 Operating earnings 13,239 15,998 14,245 19,160 Cumulative effect of change in accounting principle (10,000) Net earnings (loss) available for Common Shares (3,855) 8,924 7,972 10,591 Primary earnings (loss) per Common Share: Before cumulative effect of change in accounting principle $0.26 $0.38 $0.34 $0.44 Cumulative effect of change in accounting principle (0.42) ----- ----- ----- ----- Net $(0.16) $0.38 $0.34 $0.44 ====== ===== ===== ===== Fully diluted earnings (loss) per Common Share: Before cumulative effect of change in accounting principle $0.25 $0.34 $0.31 $0.40 Cumulative effect of change in accounting principle (0.41) ----- ----- ----- ----- Net $(0.16) $0.34 $0.31 $0.40 ====== ===== ===== =====
37 38 The following supplemental information, presented to show the seasonal trend of earnings, reflects the selected quarterly financial data on the basis of consolidating the same calendar quarters for Cardinal and Whitmire, excludes the impact of unusual items (see Note 2) and assumes the redemption of Whitmire's preferred stock. Solely for purposes of the supplemental information presented below, such redemption is assumed to have been funded from the liquidation of investments in tax-exempt marketable securities.
First Second Third Fourth Total (In thousands, except per share amounts) Quarter Quarter Quarter Quarter Year - - ---------------------------------------- ------- ------- ------- ------- ----- Fiscal 1994 Net sales $1,291,470 $1,397,769 $1,510,674 $1,590,498 $5,790,411 Gross margin 77,775 83,312 98,371 95,714 355,172 Selling, general and administrative expenses (53,556) (54,855) (61,531) (63,363) (233,305) Operating earnings 24,219 28,457 36,840 32,351 121,867 Net earnings 12,201 14,968 19,228 16,647 63,044 Net earnings per Common Share: Primary $0.31 $0.38 $0.49 $0.42 $1.60 Fully diluted 0.31 0.38 0.49 0.42 1.60 Twelve Months Ended June 30, 1993: Net Sales $1,048,621 $1,141,379 $1,205,873 $1,313,212 $4,709,085 Gross margin 65,867 71,146 82,359 80,873 300,245 Selling, general, and administrative expenses (48,701) (50,161) (51,664) (54,635) (205,161) Operating earnings 17,166 20,985 30,695 26,238 95,084 Net earnings 7,624 9,851 14,650 12,385 44,510 Net earnings per Common Share: Primary $0.22 $0.29 $0.43 $0.36 $1.30 Fully diluted 0.22 0.28 0.40 0.34 1.24
15. COMMON SHARES REPURCHASE On April 14, 1993, the Company repurchased all of the Class A Common Shares (approximately 725,000) owned by subsidiaries of North American National Corporation, the former Chairman of which is also a Director of the Company, at a price of $21.20 per share. Nearly all of these shares were subject to certain restrictions contained in a Shareholders Agreement among North American National Corporation and other individual shareholders, which restrictions were released as part of the repurchase transaction. 16. SUBSEQUENT EVENTS On July 1, 1994, the Company purchased all of the common stock of Humiston-Keeling, Inc. in a transaction to be accounted for by the purchase method. Humiston-Keeling is a Calumet City, Illinois based wholesale drug distributor with annualized revenues of approximately $330 million. On July 18, 1994, the Company issued Class A Common Shares in exchange for all of the common shares of Behrens Inc. in a transaction to be accounted for as a pooling-of-interests business combination. The impact of the Behrens combination, on both an historical and pro forma basis, is not significant. Accordingly, prior periods will not be restated for the Behrens combination. Behrens is a Waco, Texas based wholesale drug distributor with annualized revenues of approximately $185 million. 38 39 On August 17, 1994, the Company filed with the Securities and Exchange Commission a registration statement for an underwritten public offering of 5,250,000 Class A Common Shares. Of the 5,250,000 shares, 1,600,000 are being sold by the Company and 3,650,000 are being sold by certain shareholders of the Company. The underwriters have been granted an option to purchase up to 787,500 additional Class A Common Shares to cover overallotments, including up to 266,949 such shares from the Company. The net proceeds payable to the Company will be used to finance working capital growth and for other general corporate purposes. 39 40 Item 9: Disagreements on Accounting and Financial Disclosure. Not applicable. PART III Item 10: Directors and Executive Officers of the Registrant. The Directors and executive officers of the Company are as follows:
Director's Term Name Age Positions Expires ---- --- --------- --------- Robert D. Walter 49 Chairman and Chief Executive Officer (1) 1994 Melburn G. Whitmire 54 Vice Chairman (1) 1995 John C. Kane 54 President and Chief Operating Officer 1996 David Bearman 48 Executive Vice President and Chief Financial Officer George H. Bennett, Jr. 41 Executive Vice President, General Counsel and Secretary James E. Clare 36 Executive Vice President - Southern Group Gary E. Close 49 Executive Vice President - Western Group Daniel P. Finkelman 38 Executive Vice President - Marketing James F. Millar 46 Executive Vice President - Northern Group Mitchell J. Blutt, M.D. 37 Director 1996 John F. Finn 46 Director (2) 1994 Robert L. Gerbig 49 Director 1995 Michael S. Gross 32 Director (3) 1996 John F. Havens 67 Director (2) 1994 James L. Heskett 61 Director (2) 1996 George R. Manser 63 Director (1)(3) 1995 John B. McCoy 51 Director (2) 1996 Michael E. Moritz 61 Director (1)(3) 1995 Jerry E. Robertson 61 Director (3) 1995 L. Jack Van Fossen 56 Director (3) 1994 (1) Member of Executive Committee. (2) Member of Compensation Committee. (3) Member of Audit Committee.
40 41 Unless indicated to the contrary, the business experience summaries provided below for the Company's Directors and executive officers describe positions held by the named individuals during the last five years but may exclude other positions held with subsidiaries of the Company. Robert D. Walter has been a Director, Chairman of the Board and Chief Executive Officer of the Company since its formation in 1979 and has served as a director and officer of certain of the Company's subsidiaries since their formation or acquisition by the Company. Mr. Walter also serves as a director of Banc One Corporation and Columbia/HCA Healthcare Corporation. Melburn G. Whitmire has been a Director of the Company since January 1994 and was elected Vice Chairman of the Company in February 1994. Prior to that, Mr. Whitmire was Chairman of the Board, Chief Executive Officer and President of Whitmire Distribution Corporation, and he has continued to serve in those capacities for Whitmire following its merger transaction with the Company. John C. Kane has been a Director of the Company since August 1993 and has been the Company's President and Chief Operating Officer since joining the Company in February 1993. Prior to that, Mr. Kane was employed by Abbott Laboratories (a pharmaceutical and health care manufacturer), where he served most recently as President of the Ross Laboratories Division. David Bearman has been an Executive Vice President of the Company since February 1994 and, prior to that, served as a Region President from May 1991 to February 1994 and as a Senior Vice President from October 1989. Mr. Bearman has also served as the Company's Chief Financial Officer since joining the Company in October 1989 and serves in similar capacities for subsidiaries of the Company. Prior to joining the Company, Mr. Bearman served as the Chief Finance Executive of the Medical Systems Division of General Electric Company. George H. Bennett, Jr. has been Secretary of the Company since July 1994 and an Executive Vice President of the Company since February 1994. Prior to that, Mr. Bennett was a Senior Vice President and Chief Administrative Officer of the Company from May 1991. Mr. Bennett has also served as General Counsel of the Company since joining the Company in January 1984, and serves in a similar capacity for subsidiaries of the Company. James E. Clare has been the Company's Executive Vice President - Southern Group since February 1994. Prior to that, Mr. Clare served as the Vice President - Eastern Region of Whitmire Distribution Corporation and has continued to serve as an officer of Whitmire following its merger transaction with the Company. Gary E. Close has been the Company's Executive Vice President - Western Group since February 1994. Prior to that, Mr. Close served as the Executive Vice President - Operations of Whitmire Distribution Corporation and has continued to serve as an officer of Whitmire following its merger transaction with the Company. Daniel P. Finkelman has been the Company's Executive Vice President - Marketing since joining the Company in May 1994. Prior to that, Mr. Finkelman was a principal with McKinsey & Company, Inc. (an international management consulting firm). James F. Millar has been the Company's Executive Vice President - Northern Group since February 1994. Prior to that, Mr. Millar served as a Region President from May 1991, a Senior Vice President of the Company from November 1992, and President of the Company's Cardinal Syracuse, Inc. subsidiary. 41 42 Mitchell J. Blutt has been a Director of the Company since January 1994. Dr. Blutt is an Executive Partner of Chemical Venture Partners (an investment partnership which is the general partner of Chemical Equity Associates). Dr. Blutt also serves as a director of Hanger Orthopedic Group, Inc. and Cyberonics, Inc. See Item 12 for a description of an arrangement pursuant to which Dr. Blutt may continue to be nominated and elected as a Director of the Company. John F. Finn has been a Director of the Company since January 1994. Mr. Finn is the Chairman and Chief Executive Officer of Gardner Inc. (an outdoor power equipment distributor). Robert L. Gerbig has been a Director of the Company since July 1982. Mr. Gerbig is the President and Chief Executive Officer of Gerbig, Snell/Weisheimer & Associates, Inc. (an advertising agency). Michael S. Gross has been a Director of the Company since January 1994. Mr. Gross has been Vice President of Apollo Capital Management, Inc. (which is the general partner of Apollo Investment Fund, L.P., a securities investment fund), since February 1990. Prior to February 1990, Mr. Gross served as an associate of Drexel Burnham Lambert Incorporated. Mr. Gross also serves as a director of Buster Brown Apparel, Inc.; Interco Incorporated; Hills Stores, Inc.; and Cole National Group. See Item 12 for a description of an arrangement pursuant to which Mr. Gross may continue to be nominated and elected as a Director of the Company. John F. Havens has been a Director of the Company since its formation in 1979. Prior to his retirement in April 1986, Mr. Havens was the Chairman of the Board of Banc One Corporation (a bank holding company), and he continues to serve as a Director Emeritus of Banc One. Mr. Havens also serves as a director of Worthington Industries, Inc. James L. Heskett has been a Director of the Company since December 1982. Dr. Heskett is a Professor at the Harvard University Graduate School of Business Administration and also serves as a director of the Equitable of Iowa Companies. George R. Manser has been a Director of the Company since July 1982. Mr. Manser is Chairman of Uniglobe Travel (Capital Cities) Inc. (a travel planning services company). Prior to his retirement in June 1994, Mr. Manser was a director and Chairman of the Board of North American National Corporation (an insurance holding company). Mr. Manser currently serves as a director of AmeriLink Corporation and State Auto Financial Corporation. John B. McCoy has been a Director of the Company since November 1987. Mr. McCoy is the Chairman and Chief Executive Officer of Banc One Corporation (a bank holding company). Mr. McCoy also serves as a director of Federal Home Loan Mortgage Corporation; Tenneco Incorporated; and Ameritech Corporation. Michael E. Moritz has been a Director of the Company since its formation in 1979. Mr. Moritz served as Secretary of the Company from the formation of the Company in 1979 to July 1994, and served in a similar capacity for subsidiaries of the Company. Mr. Moritz is a partner in the law firm of Baker & Hostetler, which has in the past and currently serves as outside counsel to the Company. Jerry E. Robertson has been a Director of the Company since December 1991. Until his retirement in March 1994, Dr. Robertson served as Executive Vice President of the Life Sciences Sector and Corporate Services of Minnesota Mining and Manufacturing Company (a manufacturer of industrial, commercial, health care and consumer products). Dr. Robertson also serves as a director of Manor Care, Inc.; Allianz Life Insurance Company of North America; Coherent, Inc.; Haemonetics Corporation; Life Technologies, Inc.; and Steris Corporation. 42 43 L. Jack Van Fossen has been a Director of the Company since August 1983. Mr. Van Fossen has been the President and Chief Executive Officer of Red Roof Inns, Inc. (a lodging company) since May 1991. Prior to that time, Mr. Van Fossen served as President of Nessoff Corp. (a private investment company) and as President and Chief Executive Officer of Chemlawn Corporation (a lawn care company). Mr. Van Fossen also serves as a director of The Scotts Company. The Company's Restated Code of Regulations provides that the Board of Directors shall consist of fourteen members, divided into two classes of five members each and a third class of four members. The Regulations provide that the number of Directors may be increased or decreased by action of the Board of Directors upon the majority vote of the Board, but in no case shall the number of Directors be fewer than nine or more than fourteen without an amendment approved by the affirmative vote of the holders of not less than 75% of the shares having voting power with respect to that proposed amendment. The Regulations require that any proposal to either remove a Director during his term of office or to further amend the Regulations relating to the classification or removal of Directors be approved by the affirmative vote of the holders of not less than 75% of the shares having voting power with respect to that proposal. The Board of Directors may fill any vacancies with a person who shall serve until the shareholders hold an election to fill the vacancy. There are currently no vacancies on the Company's Board of Directors. The officers of the Company serve at the pleasure of the Company's Board of Directors. The Executive Committee is empowered to exercise all powers and perform all duties of the Board of Directors when the Board is not in session other than the authority of filling vacancies among the Directors or in any committee of the Directors. The Audit Committee is empowered to exercise all of the powers and authority of the Board of Directors with respect to the Company's annual audit, accounting policies, financial reporting, and internal controls. The Compensation Committee is empowered to exercise all powers and authority of the Board of Directors with respect to compensation of the employees of the Company, sales to employees of stock in the Company, or grants to employees of options to purchase stock in the Company. The Company does not have a nominating committee of the Board of Directors or other committee which performs similar functions. 43 44 ITEM 11: EXECUTIVE COMPENSATION ------------------------------- The following information is set forth with respect to the Company's Chief Executive Officer and each of the Company's four other most highly compensated executive officers. I. SUMMARY COMPENSATION TABLE - - ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS ------------------------------------------------------------------------ OTHER ALL ANNUAL RESTRICTED SECURITIES OTHER FY - COMPEN- STOCK UNDERLYING COMPEN- NAME AND ENDED SALARY BONUS SATION AWARDS OPTIONS SATION PRINCIPAL POSITION (1) ($) ($) ($)(2) ($)(3) (#) ($)(4) =================================================================================================================== Robert D. Walter 1994 $463,458 $333,705 - $336,563 73,963 $153,306 (5) --------------------------------------------------------------------------------------- Chairman and Chief 1993 424,046 190,000 $102,967 -0- 17,250 23,544 --------------------------------------------------------------------------------------- Executive Officer 1992 387,808 256,000 - 1,140,000 16,250 - --------------------------------------------------------------------------------------- John C. Kane (6) 1994 360,789 255,472 - 251,850 51,225 22,298 --------------------------------------------------------------------------------------- President and Chief 1993 13,269 -0- - 1,470,000 68,750 - --------------------------------------------------------------------------------------- Operating Officer Melburn G. Whitmire (6) 1994 120,385 300,000 - -0- -0- 193,530 (7) --------------------------------------------------------------------------------------- Vice Chairman David Bearman 1994 239,989 127,754 - 73,950 24,425 23,545 --------------------------------------------------------------------------------------- Executive Vice President 1993 223,170 87,000 20,381 -0- 5,000 58,178 (8) --------------------------------------------------------------------------------------- and Chief Financial Officer 1992 213,308 99,000 - -0- 4,813 - --------------------------------------------------------------------------------------- James F. Millar 1994 201,375 110,515 106,451 65,250 22,225 22,224 --------------------------------------------------------------------------------------- Executive Vice President-- 1993 178,846 68,400 - 147,538 4,625 22,794 --------------------------------------------------------------------------------------- Northern Group 1992 165,847 62,000 - 122,648 4,250 - =================================================================================================================== (1) On March 1, 1994, the Company changed its fiscal year end from March 31 to June 30. As such, the information presented for 1994 includes compensation earned, awarded or paid during the fiscal year ended June 30, 1994, and the information presented for prior fiscal years includes compensation earned, awarded or paid during those fiscal years ended March 31. (2) Amounts shown represent reimbursements paid by the Company for taxes incurred by the executive. (3) Aggregate restricted share holdings and values at June 30, 1994, for the named executive officers are as follows: (i) Mr. Walter--47,265 shares, $1,852,788; (ii) Mr. Whitmire--0 shares; (iii) Mr. Kane--44,500 shares, $1,744,400; (iv) Mr. Bearman--8,716 shares, $341,667; and (v) Mr. Millar--12,487 shares, $489,490. Dividends are paid on restricted shares at the same rate as all shares of record. The restrictions on all shares granted to the named executive officers in fiscal year 1994 lapse 50% on the third anniversary of the grant and 50% on the sixth anniversary of the grant. The restrictions on the shares granted to Mr. Walter on May 23, 1991 (fiscal year 1992) lapse(d) as follows -- 30% on December 23, 1992, 10% on each of the third through sixth anniversaries of the grant, and 30% on the seventh anniversary of the grant. The restrictions on the shares granted to Mr. Kane on February 17, 1993 (fiscal year 1993) lapse 20% on each of the third through seventh anniversaries of the grant; provided that if Mr. Kane's employment with the Company continues through the fifth anniversary of the grant and is thereafter terminated by the Company other than for cause, then the restrictions on the remaining unvested shares shall lapse as of such termination date. The restrictions on the shares granted to Mr. Millar on: (i) July 2, 1991 (fiscal year 1992) lapsed on April 30, 1994; and (ii) June 18, 1992 (fiscal year 1993) lapse on April 30, 1995. (4) Amounts shown represent Company contributions to the executive's account under the Company's Profit Sharing and Retirement Savings Plan in the case of Messrs. Walter, Kane, Bearman and Millar; and contributions under the Whitmire Retirement Savings Plan in the case of Mr. Whitmire. (5) Includes $130,635 for premiums paid by the Company on a split-dollar life insurance arrangement among the Company, Mr. Walter, and a trust for Mr. Walter's family. The Company will recover all such premiums paid by it, plus interest at the rate of 3% per annum, upon the earlier to occur of January 12, 2003, or the death of the survivor of Mr. Walter and his spouse. (6) Mr. Kane joined the Company in February 1993. Mr. Whitmire joined the Company in February 1994 following the Whitmire Merger. Compensation included in the Summary Compensation Table for Mr. Whitmire excludes all compensation paid by Whitmire prior to the Whitmire Merger (including the Cardinal Exchange Options described in "Certain Relationships and Related Transactions-Transactions in Connection with the Whitmire Merger").
44 45 (7) Includes $10,000 for Company funded matching contributions and $85,000 for premiums paid by the Company on a split-dollar insurance arrangement between the Company and Mr. Whitmire under the Whitmire Selective Deferred Compensation Plan. The Company will recover all such premiums paid by it upon the death of Mr. Whitmire. Also includes $90,000 for previously accrued vacation time paid to Mr. Whitmire in connection with the Whitmire Merger. (8) Includes $34,634 for expenses related to relocation. II. OPTION/SAR GRANTS IN LAST FISCAL YEAR - - ---------------------------------------------------------------------------------------------------------------------
Individual Grants - - --------------------------------------------------------------- Percent of Number of Total Potential Realizable Value Securities Options at Assumed Annual Rates Underlying Granted to of Stock Price Appreciation Options Employees Exercise for Option Term(3) Granted in Fiscal Price Expiration Name (#)(1) Year(2) ($/Sh) Date 0%($) 5%($) 10%($) ===================================================================================================================== Robert D. Walter 34,500(4) 4.74% $34.60 10/13/03 $-0- $750,712 $1,902,450 - - --------------------------------------------------------------------------------------------------------------------- 39,463(5) 5.42 38.60 4/08/04 -0- 957,977 2,427,703 - - --------------------------------------------------------------------------------------------------------------------- John C. Kane 25,000(4) 3.43 34.60 10/13/03 -0- 543,994 1,378,587 - - --------------------------------------------------------------------------------------------------------------------- 26,225(5) 3.60 38.60 4/08/04 -0- 636,621 1,613,322 - - --------------------------------------------------------------------------------------------------------------------- Melbum G. Whitmire N/A N/A N/A N/A N/A N/A N/A - - --------------------------------------------------------------------------------------------------------------------- David Bearman 11,250(4) 1.55 34.60 10/13/03 -0- 244,797 620,364 - - --------------------------------------------------------------------------------------------------------------------- 13,175(5) 1.81 38.60 4/08/04 -0- 319,828 810,506 - - --------------------------------------------------------------------------------------------------------------------- James F. Miller 10,000(4) 1.37 34.60 10/13/03 -0- 217,598 551,435 - - --------------------------------------------------------------------------------------------------------------------- 12,225(5) 1.68 38.60 4/08/04 -0- 296,766 752,063 ===================================================================================================================== (1) All options granted during the fiscal year to the named executives were qualified stock options. (2) Based on 728,058 options granted to all employees during the fiscal year ended June 30, 1994. (3) These accounts are based on hypothetical appreciation rates of 0%, 5% and 10% and are not intended to forecast the actual future appreciation of the Company's stock price. No gain to optionees is possible without an actual increase in the price of the Company's shares, which increase benefits all of the Company's shareholders. (4) Option is exerciseable on and after October 13, 1996. (5) Option is exercisable on and after April 8, 1997.
45 46 III. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
=========================================================================================== Number of Value of Unexercised Unexercised Options In-the-Money at FY-End Options (#) ($) ------------ -------------- Shares Value Acquired on Realized Exercisable/ Exercisable/ Name Exercise (#) ($) Unexerciseable Unexerciseable - - ------- ------------- --------- -------------- ------------------ =========================================================================================== Robert D. Walter -0- $-0- 38,125/107,463 $960,278/$735,202 - - ------------------------------------------------------------------------------------------- John C. Kane -0- -0- -0-/119,975 -0-/1,395,735 - - ------------------------------------------------------------------------------------------- Melburn G. Whitmire(1) -0- -0- 532,333/-0- 19,986,259/-0- - - ------------------------------------------------------------------------------------------- David Besman -0- -0- 19,239/34,238 503,125/221,406 - - ------------------------------------------------------------------------------------------- James F. Miller 1,788 65,262 10,264/31,100 260,355/199,985 =========================================================================================== (1) Prior to the Whitmire Merger, Mr. Whitmire held options to purchase 51,002 shares of common stock, $0.01 par value, of Whitmire. In connection with the Whitmire Merger, these options were automatically converted into options to purchase 532,333 Class A Common Shares of the Company (as adjusted to reflect the Company's 5-for-4 stock split paid June 30, 1994).
EMPLOYMENT AGREEMENTS - - ---------------------- In connection with the Whitmire Merger, Messrs. Whitmire, Clare and Close each entered into an employment agreement with Whitmire, the performance of which was guaranteed by the Company. The employment agreements provide for an employment term of three years commencing February 7, 1994, and payment of a base salary of $275,000 for Mr. Whitmire, $98,400 for Mr. Clare and $180,000 for Mr. Close, such base salaries to be reviewed for possible increase at least annually. The agreements also provide for an annual bonus payable in accordance with the bonus plan in which other Company executive officers participate from time to time. The emplyment agreements provide that individual parties to the employment agreements will be entitled to participate in group health, life, disability insurance, retirement savings and other employee benefit plans which are substantially equivalent in the aggregate to either (i) Whitmire's group benefit plans in effect at the time of the Whitmire Merger or (ii) the group benefit plans maintained from time to time by the Company in which the other executives of the Company participate. In addition, the employment agreements contain noncompete covenants effective throughout the employment term, and for up to two additional one year periods following the employment term (the "Extension Period"). As consideration for his noncompete covenants, Mr. Whitmire will receive two consecutive annual payments of $600,000 each, with the first such payment to be paid on the 30th day after the earlier of the termination of Mr. Whitmire's employment or February 7, 1999. As consideration for their respective noncompete covenants following the termination of their employment with the Company, each of Messrs. Clare and Close may, if the noncompete covenants are triggered during the Extension Period by the Company, at its election, continue to receive during the Extension Period base salary, 50% of their bonus target, and participation in certain group benefit plans. COMPENSATION OF DIRECTORS - - ------------------------- The Company's non-employee Directors are paid $2,000 per quarter plus $1,000 for each Board meeting attended. Non-employee Directors are also entitled to receive $600 for each Committee meeting attended. Employee Directors do not receive compensation in their capacity as a Director. 46 47 Pursuant to the Company's Directors' Stock Option Plan, as amended (the "Directors' Option Plan"), options to purchase that number of Class A Common Shares having a fair market value of $50,000 on the date of grant are automatically granted on an annual basis to each non-employee Director who has served as such for three consecutive annual meetings. The exercise price of these options is the fair market value of the Class A Common Shares on the date of grant. In addition, options to purchase that number of Class A Common Shares having a fair market value of $100,000 on the date of grant are automatically made to each non-employee Director subsequently added to the Board. The exercise price of these options is the fair market value of Class A Common Shares on the date of grant. All grants under the Directors' Option Plan vest immediately, are exerciseable for ten years from the date of grant, and are subject to adjustment for subsequent stock dividends, splits, and other changes in the Company's capital structure. If a Director ceases to serve as such, then options previously granted under the Directors' Option Plan lapse unless exercised within six months (twelve months in the case of a Director's death). Options granted under the Directors' Option Plan are treated as "nonqualified options" under the Code. The Company has entered into Indemnification Agreements with each of its Directors. See "Certain Relationships and Related Transactions-- Indemnification Agreements." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION - - ----------------------------------------------------------- John F. Finn, John F. Havens, James L. Heskett and John B. McCoy are the members of the Company's Compensation Committee. Mr. McCoy is Chairman and Chief Executive Officer of Banc One Corporation ("Banc One"). Robert D. Walter, Chairman and Chief Executive Officer of the Company, is a director of Banc One. Banc One is the parent corporation of Bank One, Columbus, N.A. ("Bank One, Columbus"), a bank with which the Company conducts business. As of June 30, 1994, the Company had lines of credit totaling $46 million with Bank One, Columbus, of which $4 million was drawn upon at June 30, 1994. Bank One is also the parent corporation of Bank One, Indianapolis, N.A. ("Bank One, Indianapolis"), which serves as the transfer agent for the Company's Class A Common Shares and as Trustee under the Indentures pertaining to the Company's 8% Notes due 1997 and its 6 1/2% Notes due 2004. 47 48 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - - ------------------------------------------------------------------------ The following table sets forth certain information regarding the beneficial ownership of the Company's Class A Common Shares as of August 19, 1994, by: (a) Company Directors; (b) each other person who is known by the Company to own beneficially more than 5% of the outstanding Class A Common Shares; (c) the Company's Chief Executive Officer and the other four most highly compensated executive officers named in the Summary Compensation Table; and (d) the Company's executive officers and Directors as a group. Except as otherwise described in the notes below, the following beneficial owners have sole voting power and sole investment power with respect to all Class A Common Shares set forth opposite their names.
Number of Class A Common Shares Name of Beneficial Owner Beneficially Owned Percent of Class ------------------------ ------------------ ---------------- Robert D. Walter (1) (2) (3) 3,315,975 9.14% Apollo Investment Fund, L.P. (4) 3,333,921 9.20 Chemical Equity Associates (5) 3,261,803 8.32 FMR Corp. (6) 2,650,857 7.31 Firstar Corporation (7) 2,147,863 5.92 Nicholas Company, Inc. (8) 2,011,500 5.55 Melburn G. Whitmire (3) (9) 1,205,134 3.28 Michael E. Moritz (1) (10) (11) 551,233 1.52 John C. Kane (3) 58,250 * George R. Manser (11) 52,598 * Robert L. Gerbig (11) 38,642 * John B. McCoy (11) (12) 33,434 * L. Jack Van Fossen (11) 29,724 * James L. Heskett (11) (13) 18,521 * John F. Havens (11) 12,805 * Jerry E. Robertson (11) 8,056 * John F. Finn (11) (14) 5,057 * Michael S. Gross (11) (15) 2,865 * Mitchell J. Blutt, M.D. (11) (15) 2,865 * James F. Millar (3) 36,530 * David Bearman (3) 35,483 * All Executive Officers and Directors as a 5,301,729 14.27% Group (16) (20 Persons) _________________ (1) Mr. Walter's address is 655 Metro Place South, Suite 925, Dublin, Ohio 43017. Mr. Walter, Edward D. Esping and members of his family (the "Espings"), and Mr. Moritz are parties to a Shareholders Agreement dated July 13, 1984, as amended (the "Shareholders Agreement"), pursuant to which they have agreed to act jointly in voting certain Class A Common Shares (the "Pooled Shares") owned by each of them in a manner determined desirable by the holders of a majority of the Pooled Shares. The Pooled Shares are owned as follows: Mr. Walter - 2,525,146 shares; the Espings - 173,505 shares; and Mr. Moritz - 528,428 shares. Since Mr. Walter owns a majority of the Pooled Shares, he controls the voting of the Pooled Shares. The Pooled Shares are subject to a right of first refusal in favor of the owners of the remaining Pooled Shares. The terms of the Shareholders Agreement will continue through September 14, 1999, unless earlier terminated by, among other things, the decision by then-holders of a majority of the Pooled Shares, any event which results in Mr. Walter not owning a majority of the Pooled Shares, or the release from the Shareholders Agreement of more than 50% of the original Pooled Shares. Mr. Walter has sole investment power with respect to the 2,525,146 Pooled Shares he owns of record and, as a result of the Shareholders Agreement, he has shared voting power with respect to all the Pooled Shares (which include such 2,525,146 shares). (2) Bank One Trust Company, N.A. is the trustee of separate trusts (the "Walter Trusts") for the benefit of each of Mr. Walter's three children. Each such trust owns 45,897 Class A Common Shares. Class A Common Shares listed as being beneficially owned by Mr. Walter exclude the 137,691 Class A Common Shares owned by the Walter Trusts, and Mr. Walter disclaims beneficial ownership of such Class A Common Shares.
48 49 (3) Class A Common Shares and the percent of class listed as being beneficially owned by the Company's named executive officers include outstanding options to purchase Class A Common Shares which are exercisable within 60 days of August 19, 1994, as follows: Mr. Walter - 38,125 shares; Mr. Kane - -0- shares; Mr. Whitmire - 532,333 shares; Mr. Bearman - 19,239 shares; and Mr. Millar - 10,264 shares. (4) The address of Apollo Investment Fund, L.P. ("Apollo") is Two Manhattanville Road, Purchase, New York 10577. Apollo's managing general partner is Apollo Advisors, L.P., whose general partner is Apollo Capital Management, Inc. Michael S. Gross, who also serves as a Director of the Company, is a Vice President of Apollo Capital Management, Inc. Each of the foregoing parties may be deemed to be the beneficial owner of the Class A Common Shares owned by Apollo, although each expressly disclaims beneficial ownership of such shares. (5) The address of Chemical Equity Associates ("CEA") is c/o Apollo Advisors, L.P., 270 Park Avenue (5th Floor), New York, New York 10017. Class A Common Shares and the percent of class listed as being beneficially owned by CEA include 2,971,375 Class A Common Shares issuable upon the conversion of the same number of Class B Common Shares, which conversion is possible only under the circumstances set forth in the Company's Articles. At August 19, 1994, CEA was the beneficial owner of all of the Company's 2,971,375 Class B Common Shares issued and outstanding. Mitchell J. Blutt, M.D., who serves as a Director of the Company and as an Executive Partner of Chemical Venture Partners, the sole general partner of CEA; Chemical Banking Corporation, whose wholly owned subsidiary is a general partner of Chemical Venture Partners; Jeffrey C. Walker, Managing General Partner of Chemical Venture Partners; and Arnold L. Chavkin, David L. Ferguson, Donald J. Hofmann, Brian J. Richmand and Shahan D. Soghikian, partners of Chemical Venture Partners; may also be deemed to be beneficial owners of the Common Shares held by CEA, although they expressly disclaim beneficial ownership of such shares. (6) Based on information obtained from a 13G filed by FMR Corp. with the Securities and Exchange Commission on or about February 11, 1994. The address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts 02109. (7) Based on information obtained from a 13G filed by Firstar Corporation with the Securities and Exchange Commission on or about February 11, 1994. The address of Firstar Corporation is 777 E. Wisconsin Avenue, Milwaukee, Wisconsin 53202. (8) Based on information obtained from a 13G filed by Nicholas Company, Inc. with the Securities and Exchange Commission on or about February 8, 1994. The address of Nicholas Company, Inc. is 700 North Water Street, Milwaukee, Wisconsin 53202. (9) Includes 4,801 Class A Common Shares held by Mr. Whitmire and his wife as custodian for the benefit of their minor daughter. (10) Mr. Moritz has sole investment power with respect to all but 10,000 Class A Common Shares listed as being beneficially owned by him in the table above, which 10,000 shares are held by a family partnership of which Mr. Moritz and his spouse are general partners and over which he has shared investment and voting power. As a result of the Shareholders Agreement described in Note (1) above, Mr. Moritz has shared voting power with respect to the Pooled Shares owned by him. (11) Class A Common Shares and the percent of class listed as being beneficially owned by the listed Company Directors (except for Messrs. Kane, Walter and Whitmire) include outstanding options to purchase Class A Common Shares which are exercisable under the Company's Directors' Stock Option Plan as follows: Mr. Moritz - 12,805 shares; Dr. Robertson - 8,056 shares; Messrs. Gross, Blutt, and Finn - 2,865 shares each; and each other listed Director (except for Messrs., Kane, Walter and Whitmire) - 10,120 shares. (12) Includes 2,827 Class A Common Shares which are held by Mr. McCoy in trust for the benefit of his children, but does not include Class A Common Shares owned by Banc One Corporation and its subsidiaries. (13) Includes 686 Class A Common Shares held by Mr. Heskett in trust for the benefit of his children. (14) Includes 625 Class A Common Shares held jointly by Mr. Finn and his wife, 106 Class A Common Shares held in his wife's individual retirement account, and 62 Class A Common Shares held for the benefit of each of Mr. Finn's two minor children. 49 50 (15) Does not include Common Shares beneficially owned by Apollo, in the case of Mr. Gross, or by CEA, in the case of Dr. Blutt (see Notes (4) and (5)). As a result of the Company's merger with Whitmire Distribution Corporation in February 1994 (the "Whitmire Merger"), Apollo has the right to designate two nominees for election as Directors of the Company for so long as (A) Apollo, including any of its affiliates and any of its accounts under common management and control (the "Apollo Group"), and (B) any former shareholder of Whitmire (exclusive of Apollo Advisors, L.P. and any such shareholders who were current or former employees of Whitmire as of October 11, 1993, or any family members of such employees or trusts for their benefit ("Management Shareholders")) each continue to have a pecuniary interest in 1,250,000 or more Common Shares issued to such person in the Whitmire Merger (the "Threshold Amount"). Further, Apollo Advisors, L.P. has the right to designate one individual for so long as only one of the Apollo Group or any former shareholder of Whitmire (exclusive of Apollo Advisors, L.P. or Management Shareholders) shall continue to have a pecuniary interest in a number of Common Shares which equals or exceeds the Threshold Amount. In connection with the Whitmire Merger, Apollo designated Messrs. Gross and Blutt as nominees for Directors of the Company and they were elected by the Company's shareholders. In addition, until the Apollo Group no longer has a pecuniary interest in a number of Common Shares equal to or exceeding the Threshold Amount, the Company must include as a member of its Audit Committee one Director designated by the Apollo Group and, if Mr.Whitmire ceases to be a member of the Company's Executive Committee, one Director designated by the Apollo Group on the Company's Executive Committee. (16) Class A Common Shares and percent of class listed as being beneficially owned by all executive officers and Directors as a group include: (a) all Pooled Shares, including those Pooled Shares owned by the Espings; and (b) outstanding options to purchase Class A Common Shares which are exercisable within 60 days of August 19, 1994, but do not include any Class A Common Shares beneficially owned by Apollo, CEA or Banc One (including the 137,691 Class A Common Shares owned by the Walter Trusts). ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - ------------------------------------------------------- BUSINESS TRANSACTIONS - - --------------------- A property which includes parts of the Company's former Columbus food distribution center is leased by the Company from a limited partnership in which the general partner is Mr. Walter and the limited partners include certain shareholders and directors of the Company or their affiliates. The Company has subleased this property to third parties at rentals substantially in excess of the rentals it is required to pay. The initial term of the Company's lease expired February 29, 1984, and the lease is currently in its second ten-year renewal term. The Company has options to renew the lease for two additional ten-year terms. The rent payable by the Company is $92,000 per annum during each of the first two renewal terms, and the fair rental value of the premises during each of the last two renewal terms. The Company has a first- refusal option to purchase the premises in the event the lessor proposes to sell the premises to a third party. See also, "Executive Compensation - Compensation Committee Interlocks and Insider Participation." In the opinion of management, the transactions described above are on terms at least as favorable as could be obtained from unaffiliated third parties. EMPLOYMENT AGREEMENTS - - --------------------- For a discussion of the employment agreements between the Company and each of Messrs. Whitmire, Close and Clare, see "Executive Compensation - Employment Agreements." 50 51 TRANSACTIONS IN CONNECTION WITH THE WHITMIRE MERGER - - --------------------------------------------------- COMPANY COMMON SHARES ISSUED IN THE MERGER As a result of the Whitmire Merger, the persons listed in the table below received either Class A Common Shares or Class B Common Shares of the Company in exchange for Whitmire common stock or Whitmire class B common stock (including Whitmire stock acquired upon the exercise of warrants):
Class A Class B Common Shares Common Shares -------------- ------------- Melburn G. Whitmire 672,801 -0- Gary E. Close 167,000 -0- James E. Clare 62,625 -0- Apollo Investment Fund, L.P. (1) 3,333,921 -0- Chemical Equity Associates (1) 290,428 2,971,375 (1) At the time of the Whitmire Merger, the Whitmire stock was held of record by M.D. investors, L.P. ("MD"), a limited partnership whose general partner was Apollo and whose limited partner was CEA. Shortly following the Whitmire Merger, MD was dissolved and the Common Shares of the Company issued in the Whitmire Merger were distributed to MD's partners. The numbers shown in the table above reflect the Common Shares held by Apollo and CEA following the dissolution of MD.
CONVERSION OF OPTIONS In connection with the Whitmire Merger, options to purchase Whitmire common stock were automatically converted into options to purchase a number of Class A Common Shares equal to the number of shares of Whitmire common stock issuable immediately prior to the Whitmire Merger multiplied by the exchange ratio used for the Whitmire Merger. Accordingly, options to purchase Whitmire common stock held by Messrs. Whitmire, Close and Clare were converted into options to purchase Class A Common Shares of the Company ("Cardinal Exchange Options") at exercise prices ranging from less than $.01 to $2.20 per share as follows: Mr. Whitmire -- 532,333 shares; Mr. Close -- 146,125 shares; Mr. Clare -- 52,187 shares. REDEMPTION OF WHITMIRE PREFERRED STOCK Immediately prior to the completion of the Whitmire Merger, and as a condition to such completion, Whitmire redeemed all of its issued and outstanding Senior Preferred Stock and Series A Preferred Stock at the redemption price of $100 per share, plus cumulated and unpaid dividends, resulting in redemption payments to MD and CEA of $13,598,000 and $6,558,000, respectively. As described above, MD was dissolved shortly following the Whitmire Merger. Of the $13,598,000 in redemption payments to MD, $10,200,182 was for the benefit of Apollo and $3,398,248 was for the benefit of CEA. 51 52 WHITMIRE REGISTRATION RIGHTS AGREEMENT In connection with the Whitmire Merger, the Company granted to Apollo, CEA, and Mr. Whitmire (collectively, the "Whitmire Stockholders") certain rights to require the Company to register under the Securities Act of 1933, as amended (the "Securities Act") Class A Common Shares held by them (including Class A Common Shares issuable to CEA upon conversion of Class B Common Shares). These rights include "demand" and "piggyback" registration rights and are contained in the Registration Rights Agreement dated as of October 11, 1993, as amended (the "Registration Rights Agreement"), among the Company, the Whitmire Stockholders, and Robert D. Walter, Chairman of the Company. Under the Registration Rights Agreement, the Whitmire Stockholders are entitled to require the Company to file a registration statement under the Securities Act with the Securities and Exchange Commission covering the sale of their shares (a "Required Registration") up to seven times in the five-year period ending April 25, 1999, unless earlier terminated or extended as provided below. The Whitmire Stockholders may only request up to four Required Registrations during the three-year period ending April 25, 1997. The Company will pay all expenses incurred in connection with up to four Required Registrations, exclusive of the fees and expenses of counsel for selling stockholders. In addition, the selling Whitmire Stockholders will be responsible for any underwriters' discounts and commissions attributable to the sale of their shares. The Company is not required to effect the first Required Registration under the Registration Rights Agreement unless Whitmire Stockholders (together with certain permitted transferees) making the request hold at least 1,250,000 Common Shares, and the Company is not required to effect subsequent Required Registrations unless such persons hold (i) at least 937,500 Common Shares acquired in the Whitmire Merger, or (ii) Common Shares acquired in the Whitmire Merger with a fair market value of at least $25 million. The Whitmire Stockholders may not make a request for a Required Registration until 180 days have elapsed since the completion of a prior Required Registration. In addition, the Company has the right to delay for up to 90 days the filing of a registration statement with respect to a Required Registration if the Company's Board of Directors determines such action is in the best interests of the Company's shareholders, but the Company may not invoke a delay if at least 12 months have not elapsed from the end of any previous delay period. These delays and certain other events will extend on a day-for-day basis the five-and three-year periods referred to in the preceding and following paragraphs. The Registration Rights Agreement also provides that the Whitmire Stockholders have the right to include their Class A Common Shares in registration statements filed by the Company in connection with primary or secondary offerings for cash (with certain exceptions). These "piggyback" registration rights also terminate on April 25, 1999, unless earlier terminated or extended. The demand and piggyback registration rights granted to (i) CEA, its affiliates and successors (the "Chemical Holders"), and (ii) Apollo, its affiliates and successors (the "Apollo Holders"), terminate prior to April 25, 1999, if the Chemical Holders or the Apollo Holders, as the case may be, either (i) shall beneficially own fewer than 312,500 Common Shares or (ii) shall acquire more than an additional 625,000 Common Shares without the Company's consent. The Registration Rights Agreement also limits the grant by the Company of additional registration rights. 52 53 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - - ------------------------------------------------------------------------- (a)(1) The following financial statements are included in Item 8 of this report:
Pag --- Independent Auditors' Reports 16-17 Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1994, Twelve Months Ended June 30, 1993, and Fiscal Years Ended March 31, 1993, and March 31, 1992 18 Consolidated Balance Sheets at June 30, 1994, and March 31, 1993 19 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1994, March 31, 1993, and March 31, 1992 20 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1994, March 31, 1993, and March 31, 1992 21 Notes to Consolidated Financial Statements 22-39 (a)(2) The following Supplemental Schedule is included in this report: Page ---- Schedule VIII - Valuation and Qualifying Accounts 58
All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in notes thereto. (a)(3) Exhibits required by S-K item 601:
EXHIBIT NUMBER EXHIBIT DESCRIPTION - - ------ ------------------- 2.01 Agreement and Plan of Reorganization dated October 11, 1993, among the Registrant, Cardinal Merger Corp., Whitmire, and certain other persons named therein.(1) 3.01 Amended and Restated Articles of Incorporation of the Registrant, as amended.(2) 3.02 Restated Code of Regulations of the Registrant, as amended.(2) 4.01 Specimen Certificate for the Registrant's Class A Common Shares. 4.02 Indenture between the Registrant and Bank One, Indianapolis, NA relating to the Registrant's 8% Notes Due 1997.(3)
54 4.03 Indenture between the Registrant and Bank One Indianapolis, NA relating to the Registrant's 6 1/2% Notes Due 2004.(2) 4.04 Registration Rights Agreement dated as of October 11, 1993, as amended, among the Registrant, certain former stockholders of Whitmire, and Robert D. Walter.
Other long-term debt agreements of the Registrant are not filed pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K and the Registrant agrees to furnish copies of such agreements to the Securities and Exchange Commission upon its request. 10.01 Stock Incentive Plan of the Registrant, as amended.* 10.02 Forms of Cardinal Exchange Option Agreements entered into February 7, 1994, by the Registrant, Whitmire, and certain officers of the Registrant and certain employees of Whitmire.(4)* 10.03 Directors' Stock Option Plan of the Registrant, as amended and restated. 10.04 Employment Agreement dated October 11, 1993, among Whitmire, Melburn G. Whitmire and the Registrant, as amended.(5)* 10.05 Employment Agreement dated October 11, 1993, among Whitmire, Gary E. Close, and the Registrant, as amended. (5)* 10.06 Employment Agreement dated October 11, 1993, among Whitmire, James E. Clare, and the Registrant.(2)* 10.07 Form of Indemnification Agreement between the Registrant and individual directors.(6) 10.08 Form of Indemnification Agreement between the Registrant and individual officers.(7)* 10.09 Form of Indemnification Agreement between Whitmire and directors and officers of Whitmire.* 10.10 Split Dollar Agreement dated April 16, 1993, among the Registrant, Robert D. Walter, and Bank One Ohio Trust Company, NA, Trustee U/A dated April 16, 1993 FBO Robert D. Walter.* 10.11 Whitmire Distribution Corporation Selective Deferred Compensation Plan, as amended, and form of related Split-Dollar Agreements.* 10.12 Lease for Registrant's Peabody, Massachusetts, distribution center dated April 30, 1986, as amended.(8) 10.13 Lease for portions of the Registrant's Columbus Investment Property dated July 7, 1958, as amended.(9) 10.14 Cardinal Health, Inc. Incentive Deferred Compensation Plan dated April 7, 1994.* 10.15 Shareholders Agreement dated July 13, 1984, as amended.(10) 11.01 Statement concerning computation of per share earnings. 21.01 List of subsidiaries of the Registrant.
54 55 23.01 Consent of Deloitte & Touche LLP. 23.02 Consent of Arthur Andersen & Co. 27.01 Financial Data Table ______________ (1) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (No. 0-12592) and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (No. 0-12591) and incorporated herein by reference. (3) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1992 (No. 0-12591) and incorporated herein by reference. (4) Included as an exhibit to the Registrant's Statement on Form S-8 (No. 33-52535) and incorporated herein by reference. (5) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993 (No. 0-12591) and hereby incorporated herein by reference. (6) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 29, 1986 (No. 0-12591) and incorporated herein by reference. (7) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 28, 1987 (No. 0-12591) and incorporated herein by reference. (8) Included as an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1988 (No. 0-12591) and incorporated herein by reference. (9) Included as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 2-84444) and incorporated herein by reference. (10) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 (No. 0-12592) and incorporated herein by reference. * Management contract or compensation plan or arrangement. (b) Reports on Form 8-K: None.
55 56 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARDINAL HEALTH, INC. September 2, 1994 By: /s/ Robert D. Walter -------------------------- Robert D. Walter, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Name Title Date - - ---- ----- ---- /s/ Robert D. Walter Chairman, Chief Executive September 2, 1994 - - -------------------------- Officer and Director Robert D. Walter (principal executive officer) /s/ David Bearman Executive Vice President and Chief September 2, 1994 - - -------------------------- Financial Officer (principal David Bearman financial officer and principal accounting officer) /s/ John C. Kane President, Chief Operating Officer - - -------------------------- and Director September 2, 1994 John C. Kane /s/ Mitchell J. Blutt, M.D. Director September 2, 1994 - - --------------------------- Mitchell J. Blutt, M.D. /s/ John F. Finn Director September 2, 1994 - - -------------------------- John F. Finn /s/ Robert L. Gerbig Director September 2, 1994 - - -------------------------- Robert L. Gerbig
56 57 /s/ Michael S. Gross Director September 2, 1994 - - -------------------------- Michael S. Gross /s/ John F. Havens Director September 2, 1994 - - -------------------------- John F. Havens /s/ James L. Heskett Director September 2, 1994 - - -------------------------- James L. Heskett /s/ George R. Manser Director September 2, 1994 - - -------------------------- George R. Manser /s/ John B. McCoy Director September 2, 1994 - - -------------------------- John B. McCoy /s/ Michael E. Moritz Director September 2, 1994 - - -------------------------- Michael E. Moritz /s/ Jerry E. Robertson Director September 2, 1994 - - -------------------------- Jerry E. Robertson /s/ L. Jack Van Fossen Director September 2, 1994 - - -------------------------- L. Jack Van Fossen /s/ Melburn G. Whitmire Director September 2, 1994 - - -------------------------- Melburn G. Whitmire
57 58 CARDINAL HEALTH, INC. AND SUBSIDIARIES - - -------------------------------------- Schedule VIII - Valuation and Qualifying Accounts For Fiscal Year Ended June 30, 1994, Three Months ended June 30, 1993, Fiscal - - ----------------------------------------------------------------------------- Years March 31, 1993, and March 31, 1992 (In thousands) - - -------------------------------------------------------
Column A Column B Column C Column D Column E -------- ---------- ----------------------- -------- -------- Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions Period ----------- ---------- --------- --------- ---------- ---------- Valuation allowance for doubtful receivable: $ 308 (1) 648 (3) ------ Fiscal Year 1994 $15,108 $9,761 $ 956 $(4,231) (2) $21,594 ======= ====== ====== ======= ======= $ 38 (1) Three-months ended June 30, 1993 (4) 1,410 (3) ------ (Columns C & D Cardinal only) $13,428 $ 606 $1,448 $ (374) (2) $15,108 ======= ======= ====== ======= ======= Fiscal Year 1993 $12,257 $4,498 $ 136 (1) $(3,463) (2) $13,428 ======= ====== ====== ======= ======= $1,304 (1) 2,022 (3) ------ Fiscal Year 1992 $ 8,371 $5,224 $3,326 $(4,664) (2) $12,257 ======= ====== ====== ======= ======= (1) Recovery of amounts provided for or written off in prior years. (2) Current year write-off of uncollectible accounts. (3) Amount arises from the acquisition of a subsidiary. (4) See Note 1 of "Notes to Consolidated Financial Statements" regarding basis of presentation.
58 EX-4.01 2 EXHIBIT 4.01 1 EXHIBIT NO. 4.01 Temporary Certificate -- Exchangable for Definitive Engraved Certificate -- When Ready for Delivery CARDINAL HEALTH, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO NUMBER A THIS CERTIFICATE IS TRNASFERABLE IN INDIANAPOLIS, IN. OR IN NEW YORK, NY. SHARES CUSIP 14149Y 10 8 SEE REVERSE FOR CERTAIN DEFINITIONS THIS CERTIFIES THAT is the owner of fully paid and non-assessable Common shares without par value of Cardinal Health, Inc., transferable only on the books of the corporation by the holder of this certificate in person or by duly authorized attorney upon surender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Dated: George H. Bennett, Jr. Robert D. Walter SECRETARY CHAIRMAN OF THE BOARD COUNTERSIGNED AND REGISTERED BANK ONE, INDIANAPOLIS, NA (Indianapolis, Indiana) Transfer Agent and Registrar By Authorized 2 Cardinal Health, Inc. will mail to each shareholder without charge within five days of reciept of written request therefor a copy of the express terms, if any, of the shares represented by this certificate and of the other class or classes and series of shares, if any, which the corporation is authorized to issue. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN CON -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ____________ Custodian ____________ (Cust) (Minor) under Unifirm Gifts to Minors Act _______________________________ (State) Additional abbreviations may also be used though not in the above list. For value received, the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE / / / / _______________________________________________________________________________ (PLEASE PRINT OR TYPE ASSIGNEE'S NAME AND ADDRESS, INCLUDING ZIP CODE) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ of the shares represented by this certificate, and hereby irrevocably constitute(s) and appoint(s) _______________________________________________________________________________ attorney, with full power of substitution, to transfer the shares on the books of the corporation. Dated ______________________________ ____________________________________ ____________________________________ (PLEASE SIGN EXATCLY AS NAME APPEARS ON THE FACE OF THIS CERTIFICATE) EX-4.04 3 EXHIBIT 4.04 1 EXHIBIT 4.04 [Conformed Copy] ============================================================================== REGISTRATION RIGHTS AGREEMENT by and among CARDINAL DISTRIBUTION, INC. and The Persons and Entities Listed on the Signature Pages Hereof ======================= Dated as of October 11, 1993 ============================================================================== 2 TABLE OF CONTENTS -----------------
Section Page - - ------- ---- 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Registration Under the Securities Act . . . . . . . . . . . . . . . . . . . . . . . 7 (a) Required Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 (b) Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 11 (c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 (d) Effective Registration Statement; Suspension . . . . . . . . . . . . . . . . 14 (e) Selection of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . 15 3. Holdback Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 (a) Restrictions on Public Sale by Holders of Registrable Securities . . . . . . . . . . . . . . . . . . . . 16 (b) Restrictions on Public Sale by the Company and Walter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5. Indemnification; Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 (a) Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . 24 (b) Indemnification by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (c) Conduct of Indemnification Proceedings . . . . . . . . . . . . . . . . . . . . 26 (d) Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (a) No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 28 (b) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (c) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 (d) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (e) Recapitalizations, Exchanges, etc., Affecting Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (g) Descriptive Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (h) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (i) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (j) Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 (k) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(i) 3 REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of October 11, 1993, by and among CARDINAL DISTRIBUTION, INC., an Ohio corporation (the "Company"), the Persons (other than the Company and Robert D. Walter) listed on the signature pages hereof (herein referred to collectively, along with their respective Affiliates and successors who from and after the date hereof acquire or are otherwise the transferee of any Registrable Securities (as hereinafter defined), as the "Initial Holders" and individually as an "Initial Holder") and any other Person that shall from and after the date hereof acquire or otherwise be the transferee of any Registrable Securities and who shall be a Permitted Transferee (as hereinafter defined) of any Initial Holder (herein referred to collectively as the "Holders" and individually as a "Holder") and, with respect to Section 3(b) of this Agreement, Robert D. Walter ("Walter"). WHEREAS, the Company has entered into an Agreement and Plan of Reorganization, dated October 11, 1993 (the "Merger Agreement"), with, among others, Cardinal Merger Corp., a Delaware corporation and a wholly-owned subsidiary of the Company and Whitmire Distribution Corporation, a Delaware corporation ("Whitmire"), which provides, upon the terms and subject to the conditions thereof, for the merger of the Cardinal Merger Corp. with and into Whitmire (the "Merger"), with Whitmire as the surviving corporation; WHEREAS, in consideration of the Merger, among other things, all of the issued and outstanding shares of common stock of Whitmire owned by the Initial Holders shall be converted into the right to receive validly issued, fully paid and nonassessable Common Shares (without par value) ("Class A Common Shares") or Class B Common Shares (without par value) ("Class B Common Shares") of the Company and all of the outstanding options to acquire shares of common stock of Whitmire granted by Whitmire or Melco Managers to current or former officers or employees of Whitmire shall be converted into options to acquire Class A Common Shares ("Options", with the Class A Common Shares issuable upon exercise thereof hereinafter referred to as "Option Shares"), all as provided in the Merger Agreement; and WHEREAS, in order to induce the Initial Holders to complete the transactions contemplated by the Merger Agreement, the Company has agreed to provide registration rights on the terms and subject to the conditions provided herein; NOW THEREFORE, in consideration of the premises and the representations, warranties and agreements contained herein, and for other good and valuable consideration, the 4 receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: Section 1. Definitions. (a) As used in this Agreement, the following terms shall have the following meanings: "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under the Exchange Act. "Beneficially owns" shall mean shares of Company Stock which are owned directly by a Person, as well as shares of Company Stock which may be acquired upon exercise of Options or as to which the applicable Person has a Pecuniary Interest. "Chemical Holders" shall mean Chemical Equity Associates, A California Limited Partnership, and Holders who are Affiliates of or successors to Chemical Equity Associates, and any Permitted Transferees of the foregoing. "Class A Common Shares" shall have the meaning set forth in the preamble. "Class B Common Shares" shall have the meaning set forth in the preamble. "Common Shares" shall mean the Company Stock, and each reference thereto herein shall also include the Option Shares. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Company Stock" shall mean Class A Common Shares and Class B Common Shares. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Holder" shall have the meaning set forth in the preamble. "Incidental Registration" shall mean a registration required to be effected by the Company pursuant to Section 2(b). -2- 5 "Incidental Registration Statement" shall mean a registration statement of the Company, as provided in Section 2(b), which covers any of the Registrable Securities on an appropriate form in accordance with the Securities Act and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Initial Holder" shall have the meaning set forth in the preamble. "Majority Holders" shall mean Holders of Common Shares representing in the aggregate a majority of the aggregate number of outstanding Common Shares beneficially owned by Holders or, if applicable, a majority of the aggregate number of outstanding Common Shares beneficially owned by any class of Holders (i.e., Chemical Holders, Management Holders or MD Holders). "Management Holders" shall mean Melburn G. Whitmire and Holders who are successors to Melburn G. Whitmire, and any Permitted Transferees of Melburn G. Whitmire or such successors. "Merger" shall have the meaning set forth in the preamble. "Merger Agreement" shall have the meaning set forth in the preamble. "MD Holders" shall mean MD Investors, L.P., a Delaware limited partnership, and Apollo Advisors, L.P., a Delaware limited partnership, and Holders who are Affiliates of MD Investors, L.P. or Apollo Advisors, L.P. (excluding Chemical Equity Associates or any Affiliates thereof) or successors to or Permitted Transferees of MD Investors, L.P. or Apollo Advisors, L.P. or their respective Affiliates; provided that if MD Investors, L.P. is dissolved, MD Holders shall not include Chemical Equity Associates or any Affiliates thereof. "NASD" shall mean the National Association of Securities Dealers, Inc. "Option Shares" shall have the meaning set forth in the preamble. "Options" shall have the meaning set forth in the preamble. -3- 6 "Pecuniary Interest" shall mean, with respect to Apollo Advisors, L.P. and its Affiliates, and Chemical Equity Associates and its Affiliates, the number of shares of Company Stock which corresponds to their respective proportionate interests in the shares of Company Stock owned by MD Investors, L.P., based on their respective proportionate interests in the capital accounts of MD Investors, L.P. "Permitted Transferee" shall mean (i) any family member of a Holder, his conservator, executor or guardian or a trust primarily for the benefit of one or more of the foregoing, and (ii) any Person which would be a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act, and if MD Investors, L.P. is dissolved, such definition shall also include Chemical Equity Associates or any Affiliates thereof, provided that after giving effect to any sale or transfer to such Person pursuant to this clause (ii), the Initial Holder which is the transferor (including its Affiliates and successors) beneficially owns at least 750,000 Common Shares. "Person" shall mean any individual, limited or general partnership, corporation, trust, joint venture, association, joint stock company or unincorporated organization. "Pooling Holding Period" shall mean the period from the effective date of the Merger until the publication of the Company's financial results for 30 days of post-Merger combined operations which is sufficient in accordance with Accounting Series Release No. 135 to permit the disposition of shares of Company Stock by former Whitmire shareholders, consistent with the requirements for pooling of interests accounting treatment of the Merger. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary Prospectus, and any such Prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities and by all other amendments and supplements to such Prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Registrable Securities" shall mean Common Shares beneficially owned by any Holder, but shall not include any Common Share (i) which has been effectively registered under the Securities Act and disposed of in accordance with a Registration Statement covering such security (excluding the Company's Registration Statement on Form S-4 covering the -4- 7 shares of Company Stock which are to be issued in the Merger or which are issuable in connection therewith) or (ii) which has been distributed to the public pursuant to Rule 144 under the Securities Act. For purposes of this Agreement, the Company shall not be required to register any Class B Common Shares, but shall be required to register the Class A Common Shares issuable upon conversion of such Class B Common Shares. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance with this Agreement by the Company and its subsidiaries, including, without limitation (i) all SEC, stock exchange, NASD and other registration, listing and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD or any stock exchange (including reasonable fees and disbursements of counsel in connection such compliance and the preparation of a Blue Sky Memorandum and legal investment survey), (iii) all expenses of any Persons in preparing or assisting in preparing, printing, distributing, mailing and delivering any Registration Statement, any Prospectus, any underwriting agreements, transmittal letters, securities sales agreements, securities certificates and other documents relating to the performance of and compliance with this Agreement, (iv) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, (v) the fees and expenses of any trustee, transfer agent, registrar, escrow agent or custodian, (vi) the fees and expenses of any special experts or other persons retained by the Company in connection with any Registration Statement, (vii) the expenses incurred in connection with making road show presentations and holding meetings with potential investors to facilitate the distribution and sale of Registrable Securities which are customarily borne by the issuer, and (viii) all internal expenses of the Company (including all salaries and expenses of officers and employees performing legal or accounting duties); provided, however, Registration Expenses shall not include discounts and commissions payable to underwriters, selling brokers, managers or other similar Persons engaged in the distribution of any of the Registrable Securities or the fees and disbursements of counsel for any selling Holders. "Registration Statement" shall mean any registration statement of the Company which covers any Registrable Securities and all amendments and supplements to any such Registration Statement, including post-effective amendments, -5- 8 in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Required Registration" shall mean a registration required to be effected pursuant to Section 2(a). "Required Registration Statement" shall mean a Registration Statement which covers the Registrable Securities requested to be included therein pursuant to the provisions of Section 2(a) on an appropriate form (in accordance with Section 4(a) hereof) pursuant to the Securities Act, and which form shall be available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof, and all amendments and supplements to such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Restricted Period" shall include each of the months of March, April, June, September and December in any calendar year and the portions of the months of May, July, October and January commencing at the beginning thereof and ending at the end of the second business day following the Company's announcement of earnings for the most recently completed fiscal quarter. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Underwriter" shall have the meaning set forth in Section 5(a). "Underwritten Offering" shall mean a sale of securities of the Company to an Underwriter or Underwriters for reoffering to the public. "Unrestricted Period" shall include any full month and any portion of a month in any calendar year which is not included within the definition of "Restricted Period". (b) Capitalized terms used herein and not otherwise defined shall have the meanings assigned such terms in the Merger Agreement. -6- 9 Section 2. Registration Under the Securities Act. (a) Required Registration. (i) Right to Require Registration. At any time prior to the fifth anniversary of the expiration of the Pooling Holding Period (subject to extension in accordance with the penultimate paragraph of this Section 2(a)(i) and Section 3(a)), one or more Holders of Registrable Securities shall have the right to request in writing (a "Request") (which Request shall be made by one or more Initial Holders (or by Apollo Advisors, L.P. or any Affiliate thereof in lieu of MD Investors, L.P.), shall specify the Registrable Securities intended to be disposed of by such Holders and the intended method of distribution thereof) that the Company register such Holders' Registrable Securities by filing with the SEC a Required Registration Statement. Upon the receipt of such a Request, the Company will, by the second business day thereafter, give written notice of such requested registration to all Initial Holders of Registrable Securities, and, not later than the 20th calendar day after the receipt of such a Request by the Company, the Company will cause to be filed with the SEC a Required Registration Statement covering the Registrable Securities which the Company has been so requested to register in such Request and all other Registrable Securities which the Company has been requested to register by Holders thereof other than the Initial Holder(s) initiating the Request by written request given to the Company within 9 business days after the giving of such written notice by the Company, providing for the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register by all such Holders, to the extent necessary to permit the disposition of such Registrable Securities so to be registered in accordance with the intended methods of distribution thereof specified in such Request or further requests, and shall use all reasonable efforts to have such Required Registration Statement declared effective by the SEC as soon as practicable thereafter (but in no event later than the 60th calendar day after the receipt of such a Request) and to keep such Required Registration Statement continuously effective for a period of at least 60 calendar days (or, in the case of an Underwritten Offering, such period as the Underwriters shall reasonably require) following the date on which such Required Registration Statement is declared effective (or such shorter period which will terminate when all of the Registrable Securities covered by such Required Registration Statement have been sold pursuant thereto), including, if necessary, by filing with the SEC a post-effective amendment or a supplement to the Required Registration Statement or the related Prospectus or any document -7- 10 incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the Required Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Required Registration Statement or by the Securities Act, the Exchange Act, any state securities or blue sky laws, or any rules and regulations thereunder. The Company shall not be required to effect, pursuant to this Section 2(a), (x) the initial Required Registration hereunder unless Initial Holders beneficially owning at least 1,000,000 Common Shares have initiated or joined in such Request, (y) any subsequent Required Registration hereunder unless initiated or joined in by Holders beneficially owning the lesser of (i) 750,000 Common Shares or (ii) Common Shares having a fair market value (based on the closing price of the Class A Common Shares in the principal trading market therefor) of at least $25 million as of the close of trading on the trading day immediately preceding the date of the Request with respect to such Required Registration, and (z) (i) more than seven registrations in the aggregate requested by the Initial Holders or (ii) more than four such registrations for which the Request initiating such Required Registration is delivered to the Company on or prior to the third anniversary of the termination of the Pooling Holding Period (subject to extension in accordance with the penultimate paragraph of this Section 2(a)(i) and Section 3(a)). For purposes of clauses (x) and (y) of the preceding sentence, shares of Company Stock purchased after the effective date of the Merger (except Option Shares acquired upon exercise of Options, Class A Common Shares obtained upon conversion of Class B Common Shares received pursuant to the Merger (or Class B Common Shares obtained upon conversion of Class A Common Shares received pursuant to the Merger) ("After-Acquired Shares") and shares of Company Stock received as a result of the Merger which are purchased by one Initial Holder from another Initial Holder) shall be deemed not to be beneficially owned by the Initial Holders thereof. A Request may be withdrawn prior to the filing of the Required Registration Statement by the Initial Holder(s) which made such Request (a "Withdrawn Request") and a Required Registration Statement may be withdrawn prior to the effectiveness thereof by the Holders of a majority of the Registrable Securities included therein (a "Withdrawn Required Registration"), and, in either such event, such withdrawal shall be treated as a Required Registration which shall have been effected pursuant to clause (z) of the immediately preceding paragraph, except that the Holders may -8- 11 require the Company to disregard one Withdrawn Request for purposes of such clause (z) and to pay all Registration Expenses in connection therewith (exclusive of those referred to in clause (viii) of the definition thereof) and, if the Holders pay such Registration Expenses incurred in connection with one Withdrawn Required Registration, the Holders may require the Company to treat the Required Registration attributable to such Withdrawn Required Registration as not occurring during the period specified in sub-clause (ii) of said clause (z) and as a Required Registration for which the Company has not paid the Registration Expenses for purposes of the four paid Required Registration limitation set forth in Section 2(c). The Initial Holders shall not, without the Company's consent, be entitled to deliver a Request for a Required Registration after the completion of the initial Required Registration if (i) less than 180 calendar days have elapsed since (A) the effective date of a prior Required Registration Statement or (B) in the case of a Required Registration which is effected other than by means of an Underwritten Offering, since the sale by the Holders of their Registrable Securities pursuant thereto or (C) the date of withdrawal of a Withdrawn Required Registration or (ii) the amount of Registrable Securities requested to be included therein by all Holders is less than the lesser of (A) 750,000 Common Shares or (B) Common Shares having a fair market value of $25 million (based on the closing price of the Class A Common Shares in the principal trading market therefor as of the close of trading on the trading day immediately preceding the date of the Request with respect to the relevant Required Registration). Notwithstanding the foregoing, the Company may delay the filing of a registration statement required pursuant to this Section 2(a) only if the Board of Directors of the Company determines that such action is in the best interests of the Company's stockholders and only for a period not to exceed 90 days (a "Blackout Period"); provided that after any initial Blackout Period the Company may not invoke a subsequent Blackout Period until 12 months elapse from the end of any previous Blackout Period and the number of days in each Blackout Period shall be deemed to effect a day-for-day extension of the five-year period referred to in the first sentence of this Section 2(a) and the first sentence of Section 2(b), the three-year period referred to in clause (z)(ii) of the first sentence of the third immediately preceding paragraph and the three- and two-year periods referred to in the proviso to the second sentence of Section 6(a). -9- 12 The registration rights granted pursuant to the provisions of this Section 2(a) shall be in addition to the registration rights granted pursuant to the other provisions of this Section 2. Notwithstanding the foregoing, the Chemical Holders or the MD Holders shall cease to have the Required Registration rights set forth in this Section 2(a) if the Initial Holders for such class of holders (i.e., Chemical Equity Associates and its Affiliates and successors for the Chemical Holders, and MD Investors, L.P. and Apollo Advisors, L.P. and their respective Affiliates and successors for the MD Holders) (i) beneficially owns less than 250,000 Common Shares (exclusive of any After-Acquired Shares) or (ii) acquires more than 500,000 additional Common Shares without the Company's consent (except Common Shares acquired from other Persons included in that Initial Holder, Common Shares acquired upon dissolution of MD Investors, L.P. and, in the case of Chemical Holders, Class A Common Shares obtained upon conversion of Class B Common Shares received pursuant to the Merger or Class B Common Shares obtained upon conversion of Class A Common Shares received pursuant to the Merger), it being agreed that one such Initial Holder's beneficial ownership of less than 250,000 Common Shares or acquisition of more than an additional 500,000 Common Shares shall not affect the registration rights hereunder of the other such Initial Holder or of any Management Holder. (ii) Priority in Required Registrations. If a Required Registration pursuant to this Section 2(a) involves an Underwritten Offering, and the sole Underwriter or the lead managing Underwriter, as the case may be, of such Underwritten Offering shall advise the Company in writing (with a copy to each Holder requesting registration) on or before the date 5 days prior to the date then scheduled for such offering that, in its opinion, the amount of Registrable Securities requested to be included in such Required Registration exceeds the amount which can be sold in such offering without adversely affecting the distribution of the Registrable Securities being offered, the Company will include in such Required Registration only the amount of Registrable Securities that the Company is so advised can be sold in such offering; provided, however, that the Company shall be required to include in such Required Registration first, all Registrable Securities requested to be included in the Required Registration by the Holders and, to the extent not all such Registrable Securities can be included in such Required Registration, the number of Registrable Securities to be included shall be allocated pro rata on the basis of the number of Common Shares beneficially owned at that time by all the Holders requesting to participate in the Required Registration or on such other basis as shall be agreed among the -10- 13 Holders, by agreement of the Majority Holders within each class of Holders which are affected thereby (i.e., Chemical Holders, Management Holders and/or MD Holders); and second, if all Registrable Securities requested to be included in the Required Registration by the Holders can be so included, all other securities requesting, in accordance with any registration rights which are granted in compliance with Section 6(a), to be included in such Required Registration which are of the same class as the Registrable Securities and, to the extent not all such securities can be included in such Required Registration, the number of securities to be included shall be allocated pro rata among the holders thereof requesting inclusion in such Required Registration on the basis of the number of securities requested to be included by all such holders; and provided, further, that the foregoing provisions of this Section 2(a)(ii) are subject to such rights as the former shareholders of Solomons Company have pursuant to the registration rights provisions applicable to such former shareholders, a true and complete copy of which is attached hereto as Exhibit A. In the event the Company will not, by virtue of this paragraph, include in any Required Registration all of the Registrable Securities of any MD Holder, Chemical Holder or Management Holder requested to be included in such Required Registration, such MD Holder, Chemical Holder or Management Holder may, upon written notice to the Company given within 5 days of the time such MD Holder, Chemical Holder or Management Holder first is notified of such matter, reduce the amount of Registrable Securities it desires to have included in such Required Registration, whereupon only the Registrable Securities, if any, it desires to have included will be so included and the Holders not so reducing shall be entitled to a corresponding increase in the amount of Registrable Securities to be included in such Required Registration. (b) Incidental Registration. (i) Right to Include Registrable Securities. If at any time prior to the fifth anniversary of the expiration of the Pooling Holding Period (subject to extension in accordance with the penultimate paragraph of Section 2(a)(i) and Section 3(a)) the Company proposes to register any of its Class A Common Shares under the Securities Act (other than (A) any registration of public sales or distributions solely by and for the account of the Company of securities issued (x) pursuant to any employee benefit or similar plan or any dividend reinvestment plan or (y) in any acquisition by the Company, or (B) pursuant to Section 2(a) hereof), either in connection with a primary offering for cash for the account of the Company or a secondary offering, the Company will, -11- 14 each time it intends to effect such a registration, give written notice to all Initial Holders of Registrable Securities at least 10 business days prior to the initial filing of a Registration Statement with the SEC pertaining thereto, informing such Initial Holders of its intent to file such Registration Statement and of the Holders' rights to request the registration of the Registrable Securities held by the Holders under this Section 2(b) (the "Company Notice"). Upon the written request of any Initial Holder made within 7 business days after any such Company Notice is given (which request shall specify the Registrable Securities intended to be disposed of by such Initial Holder and such Initial Holder's Permitted Transferees and, unless the applicable registration is intended to effect a primary offering of Common Shares for cash for the account of the Company, the intended method of distribution thereof), the Company will use all reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by such Initial Holders to the extent required to permit the disposition (in accordance with the intended methods of distribution thereof or, in the case of a registration which is intended to effect a primary offering for cash for the account of the Company, in accordance with the Company's intended method of distribution) of the Registrable Securities so requested to be registered, including, if necessary, by filing with the SEC a post-effective amendment or a supplement to the Incidental Registration Statement or the related Prospectus or any document incorporated therein by reference or by filing any other required document or otherwise supplementing or amending the Incidental Registration Statement, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Incidental Registration Statement or by the Securities Act, any state securities or blue sky laws, or any rules and regulations thereunder; provided, however, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Incidental Registration Statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Initial Holder of Registrable Securities and, thereupon, (A) in the case of a determination not to register, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith), and (B) in the case of a determination to delay such registration, the Company shall be permitted to delay registration of any Registrable Securities requested to be included in -12- 15 such Incidental Registration Statement for the same period as the delay in registering such other securities. The registration rights granted pursuant to the provisions of this Section 2(b) shall be in addition to the registration rights granted pursuant to the other provisions of this Section. Notwithstanding the foregoing, the Chemical Holders or the MD Holders shall cease to have the Incidental Registration rights set forth in this Section 2(b) if the Initial Holders for such class of holders (i.e., Chemical Equity Associates and its Affiliates and successors for the Chemical Holders, and MD Investors, L.P. and Apollo Advisors, L.P. and their respective Affiliates and successors for the MD Holders) (i) beneficially owns less than 250,000 Common Shares (exclusive of any After-Acquired Shares) or (ii) acquires more than 500,000 additional Common Shares without the Company's consent (except Common Shares acquired from other Persons included in that Initial Holder, Common Shares acquired upon dissolution of MD Investors, L.P. and, in the case of Chemical Holders, Class A Common Shares obtained upon conversion of Class B Common Shares received pursuant to the Merger or Class B Common Shares obtained upon conversion of Class A Common Shares received pursuant to the Merger), it being agreed that one such Initial Holder's beneficial ownership of less than 250,000 Common Shares or acquisition of more than an additional 500,000 Common Shares shall not affect the registration rights hereunder of the other such Initial Holder or of any Management Holder. (ii) Priority in Incidental Registrations. If a registration pursuant to this Section 2(b) involves an Underwritten Offering of the securities so being registered, whether or not for sale for the account of the Company, and the sole Underwriter or the lead managing Underwriter, as the case may be, of such Underwritten Offering shall advise the Company in writing (with a copy to each Initial Holder of Registrable Securities requesting registration) on or before the date 5 days prior to the date then scheduled for such offering that, in its opinion, the amount of securities (including Registrable Securities) requested to be included in such registration exceeds the amount which can be sold in (or during the time of) such offering without adversely affecting the distribution of the securities being offered, then the Company will include in such registration first, all the securities entitled to be sold pursuant to such Registration Statement without reference to the incidental registration rights of any holder (including Holders), and second, the amount of other securities (including Registrable Securities) requested to be included in such registration that the Company is so advised can be sold in (or during the time of) -13- 16 such offering, allocated, if necessary, pro rata among the holders (including the Holders) thereof requesting such registration on the basis of the number of the securities (including Registrable Securities) beneficially owned at the time by the holders (including Holders) requesting inclusion of their securities; provided, however, that in the event the Company will not, by virtue of this paragraph, include in any such registration all of the Registrable Securities of any Holder requested to be included in such registration, such Holder may, upon written notice to the Company given within 3 days of the time such Holder first is notified of such matter, reduce the amount of Registrable Securities it desires to have included in such registration, whereupon only the Registrable Securities, if any, it desires to have included will be so included and the Holders not so reducing shall be entitled to a corresponding increase in the amount of Registrable Securities to be included in such registration. (c) Expenses. The Company agrees to pay all Registration Expenses in connection with (i) each of four registrations requested pursuant to Section 2(a) (subject to Section 2(a)(i)) and (ii) each registration as to which Holders request inclusion of Registrable Securities pursuant to Section 2(b), and the Holders of Registrable Securities requesting a Required Registration pursuant to Section 2(a) to which clause (i) of this sentence shall not apply shall pay the Registration Expenses (exclusive of those referred to in clause (viii) of the definition thereof) attributable to any such Required Registration which is requested, it being agreed that the Majority Holders shall determine in each instance whether a Required Registration which is requested shall be one of the four as to which the Company pays the Registration Expenses. Each Holder shall pay all discounts and commissions payable to underwriters, selling brokers, managers or other similar Persons related to the sale or disposition of such Holder's Registrable Securities pursuant to any registration pursuant to this Section. (d) Effective Registration Statement; Suspension. Subject to the third paragraph of Section 2(a)(i), a Registration Statement pursuant to Section 2(a) will not be deemed to have become effective (and the related registration will not be deemed to have been effected) unless it has been declared effective by the SEC prior to a request by the Holders of a majority of the Registrable Securities included in such registration that such Registration Statement be withdrawn; provided, however, that if, after it has been declared effective, the offering of any Registrable Securities pursuant to such Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or -14- 17 any other governmental agency or court, such Registration Statement will be deemed not to have become effective and the related registration will not be deemed to have been effected. Any period during which the Company fails to keep any Required Registration Statement effective and usable for resale of Registrable Securities shall be referred to as a "Suspension Period." A Suspension Period shall commence on and include the date that the Company gives notice that any Required Registration Statement is no longer effective or usable for resale of Registrable Securities to and including the date when each Holder of Registrable Securities covered by such Required Registration Statement either receives the copies of the supplemented or amended Prospectus contemplated by Section 4(j) or is advised in writing by the Company that the use of the Prospectus may be resumed. In the event of one or more Suspension Periods, the applicable time period referenced in the first paragraph of Section 2(a)(i)) shall be extended by the number of days included in each such Suspension Period, and, in the event any Suspension Period occurs sooner than 30 days after the end of the previous Suspension Period or 30 days after the initial effectiveness of any Required Registration Statement, none of the days between such Suspension Periods or prior to such Suspension Period shall be included in computing such applicable time period. (e) Selection of Underwriters. At any time or from time to time, the Holders of a majority of the Registrable Securities covered by a Required Registration Statement may elect to have such Registrable Securities sold in an Underwritten Offering and may select the investment banker or investment bankers and manager or managers that will serve as lead managing Underwriter or sole Underwriter with respect to the offering of such Registrable Securities; provided that the Company shall be entitled to select one co-managing Underwriter therefor. No Holder may participate in any Underwritten Offering hereunder unless such Holder (a) agrees to sell such Holder's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents required under the terms of such Underwritten Offering. -15- 18 Section 3. Holdback Arrangements. (a) Restrictions on Public Sale by Holders of Registrable Securities. (i) Each Holder of Registrable Securities agrees, if the applicable offering is a primary Underwritten Offering of Common Shares for cash for the account of the Company as to which such Holder is eligible to participate pursuant to Section 2(b), the requirements of the immediately following sentence are satisfied, and the sole Underwriter or lead managing Underwriter in such Offering so requests, not to effect any public sale or distribution of Registrable Securities (including any sales pursuant to Rule 144 under the Securities Act) during the period commencing on the date the Initial Holders receive the Company Notice pursuant to Section 2(b) and continuing until 60 days after the effective date of the Registration Statement or any shorter period which the sole or lead managing Underwriter shall request (except for sales of such Holder's Registrable Securities pursuant to the Registration Statement). The Holders shall not be obligated to agree to the restrictions set forth in this Section 3(a)(i) (A) unless the registration statement for the offering by the Company is filed with the SEC within 20 calendar days after giving the Company Notice and relates to a primary offering for cash of Common Shares for net proceeds of $50,000,000 for the account of the Company (based upon the closing price of the Class A Common Shares in the principal trading market therefor as of the close of trading on the trading date immediately preceding the date of the Company Notice with respect to such offering), the Company uses all reasonable efforts to have such registration statement declared effective by the SEC as soon as practicable after filing and such registration statement is declared effective no later than the 60th calendar day after giving the Company Notice, (B) unless at least 180 calendar days have elapsed since the expiration or termination of the Holders' agreement pursuant to this Section 3(a)(i) with respect to any prior Company registration to which the restrictions of this Section 3(a)(i) apply (except in the case of the initial such Company registration) and (C) until the Holders have sold Registrable Securities pursuant to at least one Required Registration or, if sooner, until the second anniversary of the termination of the Pooling Holding Period. Those Holders included in any class of Holders (i.e., MD Holders, Management Holders or Chemical Holders) which class has beneficially owned in the aggregate less than 1,000,000 Common Shares for at least six months shall not be obligated to agree to the restrictions set forth in this Section 3(a)(i). The period of time during which any agreement provided by this Section 3(a)(i) is in effect shall be deemed to effect a day-for-day extension of the five-year -16- 19 period referred to in the first sentence of Section 2(a) and the first sentence of Section 2(b), the three-year period referred to in clause (z) of the first sentence of the second paragraph of Section 2(a)(i) and the three- and two-year periods referred to in the proviso to the second sentence of Section 6(a). (ii) Each Holder of Registrable Securities agrees with each other Holder, if the applicable offering is a Required Registration for an Underwritten Offering and the sole Underwriter or lead managing Underwriter so requests, not to effect any public sale or distribution of Registrable Securities (including any sales pursuant to Rule 144 under the Securities Act) during the period commencing on the date the Company receives a Request from a Holder and continuing until 90 days after the commencement of the Underwritten Offering or any shorter period which the sole or lead managing Underwriter shall request, except for sale of such Holder's Registrable Securities pursuant to the applicable Required Registration Statement. (b) Restrictions on Public Sale by the Company and Walter. The Company and Walter each agrees not to effect any public sale or distribution (other than, in the case of the Company, public sales or distributions solely by and for the account of the Company of securities issued pursuant to any employee benefit or similar plan or any dividend reinvestment plan) of any securities (including, in the case of Walter, any sales pursuant to Rule 144 under the Securities Act) during the period commencing on the date the Company receives a Request from an Initial Holder and continuing until 90 days (or, in the case of Walter, 60 days or such longer period, but not in excess of 90 days, if the trading days in excess of 60 days coincide with a Restricted Period) after the commencement of an Underwritten Offering, if requested by the sole Underwriter or lead managing Underwriter in such Underwritten Offering, or for such shorter period as the sole or lead managing Underwriter shall request; provided, however, that Walter shall not be obligated to enter into the agreement pursuant to this Section 3(b) with respect to any Required Registration following the sale of Holders' Registrable Securities pursuant to the first Required Registration unless at least 30 calendar days coinciding with the Unrestricted Period shall have elapsed since the expiration or termination of the restrictions contemplated by any agreement which Walter shall enter into pursuant to this Section 3(b) with respect to the immediately preceding Required Registration which shall have been effected and provided, further, that Walter shall not be obligated to enter the agreement -17- 20 contemplated by this Section 3(b) after (i) the sale of Holders' Registrable Securities pursuant to three Required Registrations (or if six months have elapsed since Walter shall have ceased to be an officer and director of the Company) or (ii) if earlier, December 31, 1996 (which date shall be extended on a day-for-day basis by the number of days in each Blackout Period and the number of days during which Holders are subject to the agreement provided by Section 3(a)(i), but in either event not beyond June 30, 1997). Section 4. Registration Procedures. In connection with the obligations of the Company pursuant to Section 2, the Company shall use all reasonable efforts to effect or cause to be effected the registration of the Registrable Securities under the Securities Act to permit the sale of such Registrable Securities by the Holders in accordance with their intended method or methods of distribution, and the Company shall: (a) (i) prepare and file a Registration Statement with the SEC which (x) shall be on Form S-3 (or any successor to such form), if available, or a form selected by the requesting Holders for which the Company qualifies and which the Company approves (such approval not to be unreasonably withheld), (y) shall be available for the sale or exchange of the Registrable Securities in accordance with the intended method or methods of distribution by the selling Holders thereof, and (z) shall comply as to form with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith and all other information reasonably requested by the lead managing Underwriter or sole Underwriter, if applicable, to be included therein, (ii) use all reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2, (iii) use all reasonable efforts to not take any action that would cause a Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of Registrable Securities during the period that such Registration Statement is required to be effective and usable, and (iv) cause each Registration Statement and the related Prospectus and any amendment or supplement thereto, as of the effective date of such Registration Statement, amendment or supplement (x) to comply in all material respects with any requirements of the Securities Act and the rules and regulations of the SEC and (y) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; -18- 21 (b) subject to paragraph (j) of this Section 4, prepare and file with the SEC such amendments and post-effective amendments to each such Registration Statement, as may be necessary to keep such Registration Statement effective for the applicable period; cause each such Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof, as set forth in such registration statement; (c) furnish to each Holder of Registrable Securities and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or Underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; the Company hereby consents to the use of the Prospectus, including each preliminary Prospectus, by each Holder of Registrable Securities and each Underwriter of an Underwritten Offering of Registrable Securities, if any, in connection with the offering and sale of the Registrable Securities covered by the Prospectus or the preliminary Prospectus (the Holders hereby agreeing not to make a broad public dissemination of a form of preliminary Prospectus which is designed to be a "quiet filing" without the Company's consent, such consent to not be withheld unreasonably); (d) (i) use all reasonable efforts to register or qualify the Registrable Securities, no later than the time the applicable Registration Statement is declared effective by the SEC, under all applicable state securities or "blue sky" laws of such jurisdictions as each Underwriter, if any, or any Holder of Registrable Securities covered by a Registration Statement, shall reasonably request; (ii) use all reasonable efforts to keep each such registration or qualification effective during the period such Registration Statement is required to be kept effective; and (iii) do any and all other acts and things which may be reasonably necessary or advisable to enable each such Underwriter, if any, and Holder to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be obligated to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to -19- 22 consent to be subject to general service of process (other than service of process in connection with such registration or qualification or any sale of Registrable Securities in connection therewith) in any such jurisdiction; (e) notify each Holder of Registrable Securities promptly, and, if requested by such Holder, confirm such advice in writing, (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of the issuance by the SEC or any state securities authority of any stop order, injunction or other order or requirement suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iii) if, between the effective date of a Registration Statement and the closing of any sale of securities covered thereby pursuant to any agreement to which the Company is a party, the representations and warranties of the Company contained in such agreement cease to be true and correct in all material respects or if the Company receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (iv) of the happening of any event during the period a Registration Statement is effective as a result of which such Registration Statement or the related Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (v) of the termination of the Pooling Holding Period; (f) furnish counsel for each such Underwriter, if any, and for the Holders of Registrable Securities copies of any request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (g) use all reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible time; (h) upon request, furnish to the sole Underwriter or lead managing Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, at least one signed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits; and furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment -20- 23 thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (i) cooperate with the selling Holders of Registrable Securities and the sole Underwriter or lead managing Underwriter of an Underwritten Offering of Registrable Securities, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the governing documents thereof) and registered in such names as the selling Holders or the sole Underwriter or lead managing Underwriter of an Underwritten Offering of Registrable Securities, if any, may reasonably request at least three business days prior to any sale of Registrable Securities; (j) upon the occurrence of any event contemplated by paragraph (e)(iv) of this Section, use all reasonable efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus, or any document incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (k) enter into customary agreements (including, in the case of an Underwritten Offering, underwriting agreements in customary form, and including provisions with respect to indemnification and contribution in customary form and consistent with the provisions relating to indemnification and contribution contained herein) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in connection therewith: (1) make such representations and warranties to the Holders of such Registrable Securities and the Underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings; (2) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the lead managing Underwriter, if any, and the Majority -21- 24 Holders of the Registrable Securities being sold) addressed to each selling Holder and the Underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and Underwriters; (3) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling Holders of Registrable Securities, if permissible, and the Underwriters, if any, which letters shall be customary in form and shall cover matters of the type customarily covered in "cold comfort" letters to underwriters in connection with primary underwritten offerings; (4) to the extent requested and customary for the relevant transaction, enter into a securities sales agreement with the Holders and such representative of the selling Holders as the Majority Holders of the Registrable Securities covered by any Registration Statement relating to the Registration and providing for, among other things, the appointment of such representative as agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be customary in form, substance and scope and shall contain customary representations, warranties and covenants; and (5) deliver such customary documents and certificates as may be reasonably requested by the Majority Holders of the Registrable Securities being sold or by the managing Underwriters, if any. The above shall be done (i) at the effectiveness of such Registration Statement (and each post-effective amendment thereto) in connection with any registration, and (ii) at each closing under any underwriting or similar agreement as and to the extent required thereunder; (l) make available for inspection by representatives of the Initial Holders of the Registrable Securities and any Underwriters participating in any disposition pursuant to a Registration Statement and any counsel or accountant retained by such Holders or Underwriters, all relevant financial and other records, pertinent corporate documents and properties of the Company and cause the respective officers, -22- 25 directors and employees of the Company to supply all information reasonably requested by any such representative, Underwriter, counsel or accountant in connection with a Registration Statement; (m) (i) within a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus, provide copies of such document to the Initial Holders of Registrable Securities and to counsel to such Initial Holders and to the Underwriter or Underwriters of an Underwritten Offering of Registrable Securities, if any; fairly consider such reasonable changes in any such document prior to or after the filing thereof as the counsel to the Holders or the Underwriter or the Underwriters may request and not file any such document in a form to which the Majority Holders of any class of Registrable Securities being registered or any Underwriter shall reasonably object; and make such of the representatives of the Company as shall be reasonably requested by the Holders of Registrable Securities being registered or any Underwriter available for discussion of such document; (ii) within a reasonable time prior to the filing of any document which is to be incorporated by reference into a Registration Statement or a Prospectus, provide copies of such document to counsel for the Holders; fairly consider such reasonable changes in such document prior to or after the filing thereof as counsel for such Holders or such Underwriter shall request; and make such of the representatives of the Company as shall be reasonably requested by such counsel available for discussion of such document; (n) cause all Registrable Securities to be qualified for inclusion in or listed on NASDAQ or any securities exchange on which securities of the same class issued by the Company are then so qualified or listed if so requested by the Majority Holders of Registrable Securities covered by a Registration Statement, or if so requested by the Underwriter or Underwriters of an Underwritten Offering of Registrable Securities, if any; (o) otherwise use all reasonable efforts to comply with all applicable rules and regulations of the SEC, including making available to its security holders an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; -23- 26 (p) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any Underwriter in an Underwritten Offering; and (q) use all reasonable efforts to facilitate the distribution and sale of any Registrable Securities to be offered pursuant to this Agreement, including without limitation by making road show presentations, holding meetings with potential investors and taking such other actions as shall be requested by the Majority Holders of Registrable Securities covered by a Registration Statement or the lead managing Underwriter of an Underwritten Offering. Each selling Holder of Registrable Securities as to which any registration is being effected pursuant to this Agreement agrees, as a condition to the registration obligations with respect to such Holder provided herein, to furnish to the Company such information regarding such Holder required to be included in the Registration Statement, the ownership of Registrable Securities by such Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (e)(iv) of this Section, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the affected Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus, contemplated by paragraph (j) of this Section, and, if so directed by the Company, such Holder will deliver to the Company (at the expense of the Company), all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities which was current at the time of receipt of such notice. Section 5. Indemnification; Contribution. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Person who participates as an underwriter (any such Person being an "Underwriter"), each Holder and their respective partners, directors, officers and employees and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as follows: -24- 27 (i) against any and all losses, liabilities, claims, damages, judgments and reasonable expenses whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement pursuant to which Registrable Securities were registered under the Securities Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all losses, liabilities, claims, damages, judgments and reasonable expenses whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, or of any other claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all reasonable expense whatsoever, as incurred (including fees and disbursements of counsel), incurred in investigating, preparing or defending against any litigation, investigation or proceeding by any governmental agency or body, commenced or threatened, in each case whether or not such Person is a party, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under sub-paragraph (i) or (ii) above; provided, however, that this indemnity agreement does not apply to any Holder or Underwriter with respect to any loss, liability, claim, damage, judgment or expense to the extent arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in any such case made in reliance upon and in conformity with written information furnished to the Company by such Holder -25- 28 or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). (b) Indemnification by Holders. (i) Each selling Holder severally agrees to indemnify and hold harmless the Company, each Underwriter and the other selling Holders, and each of their respective partners, directors, officers and employees (including each officer of the Company who signed the Registration Statement), and each Person, if any, who controls the Company, any Underwriter or any other selling Holder within the meaning of Section 15 of the Securities Act, against any and all losses, liabilities, claims, damages, judgments and expenses described in the indemnity contained in paragraph (a) of this Section (provided that any settlement of the type described therein is effected with the written consent of such selling Holder), as incurred, but only with respect to untrue statements or alleged untrue statements of a material fact contained in any Prospectus or the omissions, or alleged omissions therefrom of a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in any such case made in reliance upon and in conformity with written information furnished to the Company by such selling Holder expressly for use in such Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto). (c) Conduct of Indemnification Proceedings. Each indemnified party or parties shall give reasonably prompt notice to each indemnifying party or parties of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party or parties shall not relieve it or them from any liability which it or they may have under this indemnity agreement, except to the extent that the indemnifying party is materially prejudiced by such failure to give notice. If the indemnifying party or parties so elects within a reasonable time after receipt of such notice, the indemnifying party or parties may assume the defense of such action or proceeding at such indemnifying party's or parties' expense with counsel chosen by the indemnifying party or parties and approved by the indemnified party defendant in such action or proceeding, which approval shall not be unreasonably withheld; provided, however, that, if such indemnified party or parties determine in good faith that a conflict of interest exists and that therefore it is advisable for such indemnified party or parties to be represented by separate counsel or that, upon advice of counsel, there may be legal defenses -26- 29 available to it or them which are different from or in addition to those available to the indemnifying party, then the indemnifying party or parties shall not be entitled to assume such defense and the indemnified party or parties shall be entitled to separate counsel (limited in each jurisdiction to one counsel for all Underwriters and another counsel for all other indemnified parties under this Agreement) at the indemnifying party's or parties' expense. If an indemnifying party or parties is not so entitled to assume the defense of such action or does not assume such defense, after having received the notice referred to in the first sentence of this paragraph, the indemnifying party or parties will pay the reasonable fees and expenses of counsel for the indemnified party or parties (limited in each jurisdiction to one counsel for all Underwriters and another counsel for all other indemnified parties under this Agreement). No indemnifying party or parties will be liable for any settlement effected without the written consent of such indemnifying party or parties, which consent shall not be unreasonably withheld. If an indemnifying party is entitled to assume, and assumes, the defense of such action or proceeding in accordance with this paragraph, such indemnifying party or parties shall not, except as otherwise provided in this subsection (c), be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action or proceeding. (d) Contribution. (i) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms in respect of any losses, liabilities, claims, damages, judgments and expenses suffered by an indemnified party referred to therein, each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, liabilities, claims, damages, judgments and expenses in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of the liable selling Holders (including, in each case, that of their respective officers, directors, employees and agents) on the other in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages, judgments or expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the liable selling Holders (including, in each case, that of their respective officers, directors, employees and agents) on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue -27- 30 statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the selling Holders, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, liabilities, claims, damages, judgments and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. (ii) The Company and each Holder of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this paragraph (d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in sub-paragraph (i) above. Notwithstanding the provisions of this paragraph (d), in the case of distributions to the public, an indemnifying Holder shall not be required to contribute any amount in excess of the amount by which (A) the total price at which the Registrable Securities sold by such indemnifying Holder and its affiliated indemnifying Holders and distributed to the public were offered to the public exceeds (B) the amount of any damages which such indemnifying Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (iii) For purposes of this Section, each Person, if any, who controls a Holder or an Underwriter within the meaning of Section 15 of the Securities Act (and their respective partners, directors, officers and employees) shall have the same rights to contribution as such Holder or Underwriter; and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, shall have the same rights to contribution as the Company. Section 6. Miscellaneous. (a) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any -28- 31 agreement which conflicts with the provisions of this Agreement or which grants registration or similar rights nor has the Company entered into any such agreement, except for the registration rights in the form set forth in Exhibit A hereto which have been granted heretofore to shareholders of Solomons Company, and the Company will not on or after the date of this Agreement modify in any manner adverse to the Holders the existing agreement with shareholders of Solomons Company; provided, however, that nothing in this sentence shall prohibit the Company from granting registration rights, which are exercisable on or after the third anniversary of the termination of the Pooling Holding Period (or at any time on or after the second anniversary of the termination of the Pooling Holding Period if each class of Holders (i.e., the MD Holders, the Chemical Holders and the Management Holders), beneficially owns less than 750,000 Common Shares), to any Person (a "Third Party") who becomes an owner of shares of Company Stock after the date hereof (including granting incidental registration rights with respect to any Registration Statement required to be filed or maintained hereunder) if, and only if, (i) any registration pursuant to the Third Party's registration rights permits the Holders of Registrable Securities to participate in any such registration on the terms set forth in Section 2(b), (ii) the Third Party's incidental registration rights with respect to any registration required to be effected pursuant hereto relate only to the Third Party's securities of the same class as those actually registered in any such registration hereunder, utilize the method of disposition utilized by the selling Holders and contain priority in registration provisions no more favorable to the Third Party who may seek to participate through its incidental registration rights in any registration initiated pursuant to Section 2(a) hereof or in any registration as to which the Holders may participate pursuant to Section 2(b) hereof than those incidental registration rights contained in Section 2(b)(ii) hereof with respect to Holders of Registrable Securities participating in any registration not initiated pursuant to this Agreement and (iii) require the Third Party to enter into the agreements provided for in Section 3(b) hereof on the terms and for the period applicable to the Company (including preventing sales pursuant to Rule 144 under the Securities Act) if requested by the sole Underwriter or lead managing Underwriter in an Underwritten Offering initiated by Holders of Registrable Securities pursuant to Section 2(a), so long as the Holders of Registrable Securities agree to enter into the agreements provided for in Section 3(a)(i) hereof if the Third Party shall initiate a required registration of Common Shares for cash in an Underwritten Offering as to which the Holders are entitled to participate pursuant to Section 2(b) and if in connection therewith the -29- 32 sole Underwriter or the lead managing Underwriter shall request the Holders to enter into such agreements. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of a majority of the Holders and, if any such amendment, modification, supplement, waiver or consent would adversely affect the rights of any Holder hereunder, the written consent of each class of Holders which is affected (i.e., MD Holders, Management Holders and/or Chemical Holders, as applicable) shall be obtained; provided, however, that nothing herein shall prohibit any amendment, modification, supplement, waiver or consent the effect of which is limited only to those Holders who have agreed to such amendment, modification, supplement, waiver or consent. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this paragraph (c), which address initially is, with respect to each Holder as of the date hereof, the address set forth next to such Holder's name on the signature pages hereof, and with respect to each Holder who becomes such after the date hereof, the address of such Holder in the stock or warrant records of the Company, or (ii) if to the Company at 655 Metro Place South, Suite 925, Dublin, Ohio 43017, telecopier number 614-761-8919, Attention: General Counsel, and thereafter at such other address, notice of which is given in accordance with the provisions of this paragraph (c), with a copy to Baker & Hostetler, 3200 National City Center, Cleveland, Ohio 44114-3485, telecopier number 216-696-0740, Attention: John M. Gherlein, Esq. Notwithstanding the foregoing, the Company shall not be obligated to provide any notice to any Holder which is not an Initial Holder except with respect to a Required or Incidental Registration Statement which has been filed and pursuant to which such Holder is identified as a selling stockholder. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if -30- 33 personally delivered; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to a courier guaranteeing overnight delivery. Notwithstanding the foregoing, nothing in this Section 6(d) is intended to enlarge the class of Persons which are Holders, as defined in the preamble of this Agreement, and thus entitled to the rights granted hereunder. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without the need for an express assignment, subsequent Holders. If any successor, assignee or transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and to receive the benefits hereof. Notwithstanding the foregoing, nothing in this Section 6(d) is intended to enlarge the class of Persons which are Holders, as defined in the preamble of this Agreement, and thus entitled to the rights granted hereunder. For purposes of this Agreement, "successor" for any entity other than a natural person shall mean a successor to such entity as a result of such entity's merger, consolidation, liquidation, dissolution, sale of substantially all of its assets, or similar transaction. (e) Recapitalizations, Exchanges, etc., Affecting Registrable Securities. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Registrable Securities, to any and all securities or capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution of such Registrable Securities, by reason of any dividend, split, issuance, reverse split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, Common Share amounts hereunder shall be appropriately adjusted if necessary. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which, when so executed and delivered, shall be deemed to be an original, but all of which counterparts, taken together, shall constitute one and the same instrument. -31- 34 (g) Descriptive Headings, Etc. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of terms contained herein. Unless the context of this Agreement otherwise requires: (1) words of any gender shall be deemed to include each other gender; (2) words using the singular or plural number shall also include the plural or singular number, respectively; (3) the words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section and paragraph references are to the Articles, Sections and paragraphs to this Agreement unless otherwise specified; (4) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to successive events and transactions. (h) Severability. In the event that any one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the other remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF). (j) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if any party fails to perform in any material respect any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction. -32- 35 (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the Company and Walter, on the one hand, and the other parties to this Agreement, on the other, with respect to such subject matter. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. CARDINAL DISTRIBUTION, INC. By: /s/ Robert D. Walter ----------------------------------- Name: Robert D. Walter Title: Chief Executive Officer MD INVESTORS, L.P. by APOLLO INVESTMENT FUND, L.P. its general partner by APOLLO ADVISORS, L.P. its general partner by APOLLO CAPITAL MANAGEMENT, INC. its general partner By: /s/ Michael Gross ---------------------------- Name: Michael Gross Title: Vice President -33- 36 CHEMICAL EQUITY ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP by CHEMICAL VENTURE PARTNERS, its general partner By: /s/ David L. Ferguson ------------------------------- Name: David L. Ferguson Title: General Partner /s/ Melburn G. Whitmire ---------------------------------- MELBURN G. WHITMIRE /s/ Robert D. Walter ---------------------------------- ROBERT D. WALTER (for purposes of Section 3(b) only) -34- 37 FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Amendment"), dated as of June , 1984, by and among the signatories hereto, amends the REGISTRATION RIGHTS AGREEMENT (the "Original Agreement"), dated as of October 11, 1993, by and among CARDINAL HEALTH, INC., an Ohio corporation formerly known as Cardinal Distribution, Inc. (the "Company"), MD INVESTORS, L.P. ("MD Investors"), a Delaware limited partnership which has dissolved, CHEMICAL EQUITY ASSOCIATES, a California limited partnership ("CEA"), MELBURN G. WHITMIRE, and, for purposes of Section 3(b) of the Original Agreement only, ROBERT D. WALTER. WHEREAS, the parties entered into the Original Agreement which provides certain registration rights to "Holders" (as such term is defined in the Original Agreement) on the terms and subject to the conditions provided therein; and WHEREAS, MD Investors, a party to the Original Agreement, has dissolved and its successors are Apollo Investment Fund, L.P., a Delaware limited partnership, and CEA. WHEREAS, Cardinal has declared a five-for-four stock split payable June 30, 1984, to holders of record on June 15, 1994, and all references to Common Shares in this First Amendment reflect appropriate adjustments for the split; WHEREAS, the parties desire by this Amendment to amend the Original Agreement in certain respects; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITION OF RESTRICTED PERIOD. The definition of "Restricted period" in Section 1 of the Original Agreement shall be deleted in its entirety and there be substituted therefor the following: "RESTRICTED PERIOD" shall include each of the months of March, June, July, September and December in any calendar year and the portions of the months of January, April, August and October, commencing at the beginning thereof and ending at the end of the second business day following the Company's announcement of earnings for the most recently completed fiscal quarter. 38 2. NO INCONSISTENT AGREEMENT. Section 6(a) of the Original Agreement shall be amended by the addition at the end of such Section of the following: "The provisions of this Section 6(a) to the contrary notwithstanding, the Company may, in connection with its acquisition (the "Behrens Acquisition") of all of the capital stock of Behrens Inc., a Texas corporation ("Behrens"), from the holders thereof (the "Behrens Stockholders"), grant the following registration rights to the Behrens Stockholders. (i) The Company may grant to the Behrens Stockholders registration rights (the "Behrens Registration Rights") on an aggregate of 187,500 of the Common Shares delivered to them in connection with the Behrens Acquisition, with such Behrens Registration Rights allocated proportionally among all Behrens Stockholders; (ii) The Behrens Registration Rights will provide that, if during the period (the "Covered Period") beginning 48 hours following the publication by the Company of financial results reflecting at least 30 days of combined operations of the Company and Behrens and ending two years after the consummation of the Behrens Acquisition (unless earlier terminated as described below), the Company files a registration statement under the Securities Act on Form S-3 (or other form for the general registration of securities other than Form S-8 or Form S-4) for the registration of Common Shares, then the Company will permit (subject to the limitations described below) up to 187,500 Common Shares originally issued to the Behrens Stockholders in the Behrens Acquisition to be included in such registration statement at the request of Behrens Stockholders; (iii) Notwithstanding the foregoing, Common Shares to be included in a registration at the request of Behrens Stockholders, when combined with Common Shares included in such registration at the request of former stockholders of Solomons Company (as permitted in Section 5.3(d) of the Solomons Agreement and Plan of Reorganization dated April 24, 1993) will not exceed 10% of the total number of Common Shares covered by such registration (the "10% Allocation"), except (with respect to Behrens Stockholders only) as specified to the contrary below; (iv) During the period from the consummation of the Behrens Acquisition through May 4, 1995, former stockholders of Solomons ("Solomons Stockholders") will have priority over Behrens Stockholders with respect to the 10% Allocation. After May 4, 1995, and for the balance of the Covered Period, only the Behrens Stockholders will be entitled to the 10% Allocation, subject to the limitations herein; - 2 - 39 (v) In connection with the foregoing, the Initial Holders hereby covenant that any requests they make for Required Registrations during the Covered Period will be such that the reasonably anticipated gross proceeds at the time of the initial request allocable to the 10% Allocation, together with the reasonably anticipated gross proceeds allocable to any additional Common Shares the Initial Holders permit the Behrens Stockholders to include in such Required Registration, will not be less than $7 million, reduced by any portion of the 10% Allocation actually elected by the Solomons Stockholders on Required Registrations initiated by the Initial Holders during the Covered Period. The provisions of this subparagraph (v) will not apply to the benefit of, nor will it increase the amount of Common Shares registerable by, the Solomons Stockholders; moreover, nor will the Behrens Stockholders be permitted to include more than 187,500 Common Shares originally delivered to them in any such required registration. (vi) Notwithstanding anything to the contrary contained elsewhere in this Section 6(a), the Behrens Registration Rights will terminate on the earliest of (a) the second anniversary of the consummation of the Behrens Acquisition, (b) the registration of an aggregate of 187,500 Common Shares on behalf of the Behrens Stockholders, and (c) the date on which the Behrens Stockholders are provided with the opportunity to register under the Securities Act to sell or offer to sell an aggregate of 187,500 Common Shares (including any Common Shares previously registered and sold by the Behrens Stockholders or as to which the Behrens Stockholders have previously been provided the right to register) and decline to include such Common Shares in such registration; provided, however, this clause (c) shall not apply if the registration statement filed with the SEC in connection with such registration is not declared effective by the SEC." The Original Agreement, as amended by this Amendment, remains in full force. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Amendment. - 3 - 40 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. CARDINAL HEALTH, INC. By: /S/ Robert D. Walter ------------------------------- Name: Robert D. Walter ------------------------- Title: Chief Executive Officer APOLLO INVESTMENT FUND, L.P. (as a successor to MD Investors) by APOLLO ADVISORS, L.P., its general partner by APOLLO CAPITAL MANAGEMENT, INC., its general partner By: /s/ Michael Gross --------------------------------- Name: Michael Gross ------------------------- Title: Vice President ------------------------- CHEMICAL EQUITY ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP (in its own right and as a successor to MD Investors) by CHEMICAL VENTURE PARTNERS, its general partner By: /s/ Mitchell J. Blutt ------------------------------- Name: Mitchell J. Blutt -------------------------- Title: Executive Partner -------------------------- /S/ Melburn G. Whitmire ------------------------------------------- MELBURN G. WHITMIRE /S/ Robert D. Walter ---------------------------------------- ROBERT D. WALTER (for purposes of Section 3(b) of the Original Agreement only) - 4 - EX-10.01 4 EXHIBIT 10.01 1 EXHIBIT 10.01 CARDINAL DISTRIBUTION, INC. STOCK INCENTIVE PLAN SECTION 1. PURPOSES OF PLAN. ----------------- The purposes of the Stock Incentive Plan (the "Plan") of Cardinal Distribution, Inc. (the "Company") are to advance the interests of the Company and its shareholders by providing a means of attracting and retaining key employees for the Company and its subsidiaries, providing key employees with a proprietary interest in the Company, and stimulating the interest of key employees in the development and financial success of the Company. SECTION 2. ADMINISTRATION OF PLAN. ----------------------- The Plan shall be administered by the Company's Compensation Committee (the "Committee") which shall consist of not less than three directors of the Company appointed by the Company's Board of Directors (the "Board"). The members of the Committee shall serve at the pleasure of the Board, which may remove members from the Committee or appoint new members to the Committee from time to time, and members of the Committee may resign by written notice to the Chairman of the Board or the Secretary of the Company. Each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b-3 under the Securities and Exchange Act of 1934. The Committee may adopt any rules it considers appropriate for the conduct of its business or the administration of the Plan, make interpretations of the Plan which it deems consistent with the Plan's provisions, take any other actions it considers appropriate in connection with the Plan, and shall have such additional authority as the Board may determine to be desirable from time to time. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any award under the Plan. The members of the Committee and other members of the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit, or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any award granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Company) or paid by them in satisfaction of a judgement in any such action, suit, or proceeding, except a judgement based upon a finding of bad faith. Upon the institution of any such action, suit, or proceeding, the Board or Committee member shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof at its expense. The provisions of this paragraph with respect to the liability and indemnification of members of the Board and the Committee are in addition to, and not in limitation of, the provisions with respect to the liability and indemnification of members of the Board and the Committee (a) contained in the Articles of Incorporation or Code of Regulations of the Company, (b) contained in any indemnification agreements between Directors and the Company, or (c) provided by law. -1- 2 SECTION 3. SHARES SUBJECT TO PLAN. ----------------------- The maximum aggregate number of Common Shares, without par value, of the Company (the "Shares") with respect to which awards may be made under the Plan shall be 300,000 Shares. Such Shares may be authorized but unissued Shares or issued Shares reacquired by the Company and held as treasury Shares. If any Shares awarded under the Plan are forfeited or an option for Shares granted under the Plan expires or terminates such forfeited Shares and the Shares subject to such expired or terminated option shall again be available to be awarded under the Plan. The aggregate number of Shares shall be subject to adjustment under Section 6. SECTION 4. PARTICIPANTS IN PLAN. --------------------- The persons eligible to receive awards under the Plan ("Eligible Persons") shall include officers and other key employees of the Company or its subsidiary corporations and in the case of Nonqualified Options and Restricted Shares, directors of subsidiaries of the Company who, in the opinion of the Committee, have responsibilities affecting the management, development, or financial success of the Company or one or more of its subsidiary corporations. SECTION 5. AWARDS. ------- (a) GENERAL TERMS AND CONDITIONS OF AWARDS. The Committee shall have the authority to make awards of the following: (i) options for Shares intended to qualify as incentive stock options under Section 422A of the Internal Revenue Code of 1986 (the "Code"), as provided in Section 5(b) ("Incentive Options") (ii) options for Shares not intended to qualify as incentive stock options under Section 422A of the Code as provided in Section 5(c) ("Nonqualified Options") (Incentive Options and Nonqualified Options collectively, "Options"), and (iii) contingent awards of Shares as provided in Section 5(d) ("Restricted Shares"). The Committee shall designate from time to time, in its discretion, the Eligible Persons to whom awards shall be granted (such persons, "Grantees") under the Plan, the number of Shares which shall be subject of each award under the Plan and the terms and conditions under which an award is made under the Plan. All actions of the Committee under this section shall be conclusive, and no Eligible Person shall have a right to any award unless, and except to the extent, so designated by the Committee. (b) INCENTIVE OPTIONS. Only officers and other key employees of the Company or its subsidiary corporations shall be eligible for awards of Incentive Options. The aggregate fair market value (determined at the time of the grant of the Option) of the Shares with respect to which Incentive Options are exercisable for the first time by any Eligible Person during any calendar year (under all incentive stock option plans of his employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. All Incentive Options granted under the Plan shall be granted within 10 years from the date the Plan is adopted or the date the Plan is approved by the share- holders of the Company, whichever is earlier. The Committee may, as a condition of granting any Option, require that a Grantee agree to surrender for -2- 3 cancellation one or more Options previously granted to such Grantee. Each Incentive Option granted pursuant to the Plan shall be authorized by the Committee and shall be evidenced by a written Incentive Option Agreement, in form approved by the Committee, which shall be dated as of the date on which the Option is granted, signed by an officer of the Company authorized by the Committee, and signed by the Grantee. The date on which the Committee approves the granting of the Incentive Option shall be deemed the date on which the Incentive Option is granted. The Incentive Option Agreement shall be consistent with the Plan, and shall include, without limitation, the following provisions: (i) TERM. An Incentive Option, by its terms, shall not be exercisable after the expiration of 10 years from the date an Incentive Option is granted. If the Grantee, at the time the Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or its parent or subsidiary corporation, the Option shall not be exercisable after the expiration of five years from the date the Option is granted. (ii) PURCHASE PRICE. The option price of Shares subject to an Incentive Option shall be not less than the fair market value of the Shares at the time the Incentive Option is granted. If the Grantee, at the time the Incentive Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or its parent or a subsidiary corporation, the option price shall be at least 110% of the fair market value of the Shares subject to the Incentive Option. For purposes of this Section 5(b)(ii), the fair market value of the Shares subject to the Incentive Option shall be the last sale price of the Shares as reported on the National Association of Securities Dealers Automated Quotation System, National Market Issues, or, if the Shares are listed or admitted for trading on any national securities exchange, the last sale price, or the closing bid price if no sale occurred, on the date the Incentive Option is awarded. (iii) TRANSFERABILITY. The Incentive Option, by its terms, shall not be transferable by the Grantee other than by will or the laws of descent and distribution. During the lifetime of the Grantee, the Incentive Option, by its terms, shall be exercisable (subject to any other applicable restric- tions on exercise) only by the Grantee for his own account. Upon the death of the Grantee, the Incentive Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the executor or administrator of the Grantee's estate. -3- 4 (iv) METHOD OF EXERCISE. To the extent that the right to exercise the Incentive Option has accrued under the restric- tions, if any, in the Incentive Option Agreement, the Incentive Option shall be exercisable from time to time by written notice to the Company stating the number of Shares with respect to which the Incentive Option is being exercised and the time during normal business hours for delivery of those Shares, which shall be more than 15 and less than 30 days after exercise of the Incentive Option. At the specified time, the Company shall deliver a certificate for such Shares to the Grantee, at the principal office of the Company, upon receipt of payment of the full purchase price for such Shares: (a) by certified or bank cashier's check, or (b) in the discretion of the Committee, by delivery of Shares with a fair market value equal to the total option price at the time of exercise, or (c) in the discretion of the Committee, by a combination of the preceding two methods. (v) TERMINATION OF EMPLOYMENT. Except as otherwise provided in Section 9, if the Grantee ceases to be an employee of Company or any of its subsidiary corporations by reason of his death, disability, retirement, resignation, replacement or any other reason, then the Incentive Option or any unexercised portion of the Incentive Option which otherwise is exercisable shall terminate unless it is exercised within three months after the date the Grantee ceases to be such an employee (but in no event after expiration of the original term of the Option); provided that if the Grantee ceases to be such an employee by reason of the Grantee's death, the three-month period shall instead be a one-year period. (vi) RESTRICTIONS. At the time the Incentive Option is granted, the Committee may determine that the Shares subject to the Incentive Option shall, upon issuance, be restricted as to transferability or be subject to repurchase by the Company upon occurrence of certain events determined by the Committee, in its discretion, and specified in the Incentive Option Agreement. (vii) DESIGNATION AS INCENTIVE STOCK OPTION. A provision identifying the Incentive Option as a stock option intended to qualify as an incentive stock option under 422A of the Code. (c) NONQUALIFIED OPTIONS. Each Nonqualified Option granted pursuant to the Plan shall be authorized by the Committee and shall be evidenced by a written Nonqualified Option Agreement, in form approved by the Committee, which shall be dated as of the date on which the Nonqualified Option is granted, signed by an officer of the Company authorized by the Committee, and signed by the Grantee. The date on which the Committee approves the granting of a Non- qualified Option shall be deemed the date on which the Nonqualified Option -4- 5 is granted. The Committee may, as a condition of granting any Option, require that a Grantee agree to surrender for cancellation one or more Options previously granted to such Grantee. The Nonqualified Option Agreement shall be consistent with the Plan, and shall include, without limitation, the following provisions: (i) TERM. The Nonqualified Option shall not be exercis- able after the expiration of 11 years from the date the Nonqualified Option is granted. (ii) PURCHASE PRICE. The option price shall be any price so determined by the Committee. (iii) TRANSFERABILITY. The Nonqualified Option shall not be transferable by the Grantee other than by will or the laws of descent and distribution. During the lifetime of the Grantee, the Nonqualified Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the Grantee for his own account. Upon the death of the Grantee, the Nonqualified Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the executor or administrator of the Grantee's estate. (iv) METHOD OF EXERCISE. To the extent that the right to exercise the Nonqualified Option has accrued under the restric- tions, if any, in the Nonqualified Option Agreement, the Nonqualified Option shall be exercisable from time to time by written notice to the Company stating the number of Shares with respect to which the Nonqualified Option is being exercised and the time during normal business hours for delivery of those Shares, which shall be more than 15 and less than 30 days after exercise of the Nonqualified Option. At the specified time, the Company shall deliver a certificate for such Shares to the Grantee, at the principal office of the Company, upon receipt of payment of the full purchase price for such Shares: (a) by certified or bank cashier's check, or (b) in the discretion of the Committee, by delivery of Shares with a fair market value equal to the total option price at the time of exercise, or (c) in the discretion of the Committee, by a combination of the preceding two methods. (v) TERMINATION OF RELATIONSHIP. Except as provided in Section 9, if the Grantee ceases to be an officer or employee of the Company or any of its subsidiary corporations or a director of a subsidiary corporation of the Company by reason of hia death, disability, retirement, resignation, replacement, or any other reason, then the Nonqualified Option or any unexercised portion of the Nonqualified Option which otherwise is exercisable shall terminate unless it is exercised within three months after the -5- 6 date the Grantee ceases to be such an officer, employee or director (but in no event after expiration of the original term of the Nonqualified Option); provided that if the Grantee ceases to be such an officer, employee or director by reason of the Grantee's death, the three-month period shall instead be a one- year period. (vi) RESTRICTED STOCK. At the time the Nonqualified Option is granted, the Committee may determine that the Shares subject to the Option shall, upon issuance, be restricted as to trans- ferability or be subject to repurchase by the Company upon occurrence of certain events determined by the Committee, in its discretion, and specified in the Nonqualified Option Agreement. (vii) DESIGNATION AS NONQUALIFIED STOCK OPTION. A provision identifying the Nonqualified Option as a stock option not intended to qualify as an incentive stock option under Section 422A of the Code. (d) RESTRICTED SHARES. Restricted Shares granted pursuant to the Plan shall be authorized by the Committee and shall be evidenced by a written Restricted Shares Agreement, in form approved by the Committee, which shall be dated as of the date on which the Restricted Shares are granted, signed by an officer of the Company authorized by the Committee, and signed by the Grantee. The date on which the Committee approves the granting of Restricted Shares shall be deemed the date on which the Restricted Shares are granted. At the time of an award of Restricted Shares, the Committee shall establish a period of time with respect to such Restricted Shares (the "Restricted Period") during which or at the expiration of which such Restricted Shares shall vest in the Grantee. The Restricted Shares Agreement shall be consistent with the Plan and shall include, without limitation, the following provisions: (i) PURCHASE PRICE. The purchase price, if any, of the Restricted Shares shall be any price so determined by the Committee. (ii) SHAREHOLDER RIGHTS. Grantees of Restricted Shares under the Plan shall generally have all rights of shareholders with respect to such Shares from the date of their award including, without limitation, the right to receive dividends with respect to such Shares and the right to vote such Shares but subject, however, to those restrictions placed on such Shares pursuant to this Plan and as specified by the Committee in the Restricted Shares Agreement. If the Grantee's Continuous Service (as hereinafter defined) terminates prior to the date the Restricted Shares (or any portion thereof) vest, then those unvested Restricted Shares shall be forfeited and returned to the Company, subject to the provisions of Section 5(d) (iii) or Section 14, below. -6- 7 (iii) TRANSFERABILITY. During any applicable Restricted Period, the Restricted Shares shall not be trans- ferable by the Grantee other than by will or the laws of descent and distribution. If a Grantee ceases to maintain Continuous Service (as hereinafter defined) by reason of the Grantee's death or total or partial disability, then the restrictions with respect to a ratable portion of the Restricted Shares shall lapse and such Shares shall be free of restrictions and shall not be forfeited unless the Committee has specified to the contrary in the Restricted Shares Agreement. Such ratable portion shall be determined with respect to each separate award of Restricted Shares and shall be equal to (i) the number of Restricted Shares awarded to the Grantee multiplied by the portion of the Restricted Period that had expired at the date of the Grantee's death or total or partial disability, reduced by (ii) the number of Restricted Shares awarded with respect to which the restrictions had lapsed as of the date of the death or total or partial disability of the Grantee. For purposes of the Plan, "Continuous Service" shall mean the absence of any inter- ruption or termination of service as an employee of the Company or a subsidiary of the Company or as a director of a subsidiary of the Company. At the time the Restricted Shares are awarded, the Committee may determine that such Shares shall, after vesting, be further restricted as to transferability or be subject to repurchase by the Company upon occurrence of certain events determined by the Committee, in its discretion, and specified in the Restricted Shares Agreement. SECTION 6. CHANGE IN CAPITAL STRUCTURE. ---------------------------- In the event the Company changes its outstanding Shares by reason of stock splits, stock dividends, or any other increase or reduction of the number of outstanding Shares without receiving consideration in the form of money, services, or property, the aggregate number of Shares subject to the Plan shall be proportionately adjusted and the number of Restricted Shares awarded and the number of Shares and the option price for each Share subject to the unexercised portion of any then-outstanding Option shall be proportionately adjusted with the objective that the Grantee's proportionate interest in the Company shall remain the same as before the change and, with respect to outstanding Options, without any change in the total option price applicable to the unexercised portion of such Options. In the event of any other recapitalization or any merger, consolida- tion, or other reorganization of the Company, the Committee shall make such adjustment, if any, as it may deem appropriate to accurately reflect the number and kind of Shares deliverable, and the option prices payable, upon subsequent exercise of any then-outstanding Options. -7- 8 The Committee's determination of the adjustments appropriate to be made under this Section 6 shall be conclusive upon all Grantees and other participants under the Plan. Notwithstanding anything in this Section 6 to the contrary, any adjustment made under this Section 6 with respect to Incentive Options shall be made in a manner that will not constitute a "modification" within the meaning defined in Section 425 of the Code. Section 7. DELIVERY AND REGISTRATION OF STOCK. ----------------------------------- The Company's obligation to deliver Shares with respect to an award shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Grantee to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933 or any other applicable federal or state securities legislation. It may be provided that any representation requirement shall become inoperative upon a registration of the Shares or other action eliminating the necessity of such representation under such Securities Act or other securities legislation. The Company shall not be required to deliver any Shares under the Plan prior to (i) the admission of such Shares to listing on any stock exchange or system on which Shares may then be listed, and (ii) the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable. Each certificate for Shares issued pursuant to the Plan shall be registered in the name of the Grantee, shall bear appropriate legend(s) with respect to the restrictions upon such Shares and shall, with respect to Restricted Shares, be deposited by the Grantee together with a stock power endorsed in blank with the Company until such time as all of such Restricted Shares have vested in the Grantee thereof. Section 8. EFFECT OF CHANGE IN CONTROL. ---------------------------- If the Continuous Service of a Grantee is involuntarily terminated, for whatever reason, at any time within 18 months after a Change in Control (as hereinafter defined) then, unless with respect to a Grantee the Committee shall have otherwise provided in the agreement pursuant to which an award under the Plan was made to such Grantee, all Shares awarded as Restricted Shares shall thereupon become fully vested in such Grantee to whom such Shares were awarded. If a tender offer or exchange offer for Shares (other than such an offer by the Company or approved by the Company's Board of Directors) is commenced, or if the event specified in clause (iii) of the definition of a Change in Control shall occur and shall not have been approved by the Company's Board of Directors, unless with respect to a Grantee the Committee shall have otherwise provided in the agreement evidencing the grant of an Option to such Grantee, all Options theretofore granted and not fully exercisable shall (except as otherwise provided in Section 5(b)) thereupon become exercisable in full upon the happening of such event and shall remain so exercisable in accordance with their terms; provided, however, that no Option shall be exercisable by an officer of the Company within six months of the date of grant of such Option -8- 9 and no Option which has previously been exercised or otherwise terminated shall become exercisable. "Change in Control" -- means each of the events specified in the following clauses (i) through (iii): (i) any third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 shall, after the date of the adoption of the Plan by the Board, first become the beneficial owner of shares of the Company with respect to which 25% or more of the total number of votes for the election of the Board may be cast, (ii) as a result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who shall cease to constitute a majority of the Board of Directors of the Company or (iii) the stockholders of the Company shall approve an agreement providing either for a transaction in which the Company will cease to be an independent publicly owned entity or for a sale or other disposition of all or substan- tially all the assets of the Company; provided, however, that the occurrence of any of such events shall not be deemed a Change in Control if, prior to such occurrence, a resolution specifically approving such occurrence shall have been adopted by the Company's Board of Directors. SECTION 9. TERMINATION FOR CAUSE. ---------------------- Notwithstanding any provision to the contrary in the Plan or in any agreement in respect of an award under the Plan, upon the discharge for cause of any Grantee, all unexercised Options awarded to such Grantee shall lapse. SECTION 10. WITHHOLDING TAX. ---------------- The Company shall have the right to require the Grantee of Restricted Shares or other person receiving such Shares to pay the Company the amount of any taxes which the Company is required to withhold with respect to such Shares or, in lieu thereof, to retain, or sell without notice, a sufficient number of such Shares held by it to cover the amount required to be withheld. The Company shall have the right to deduct from all dividends paid with respect to Restricted Shares the amount of any taxes which the Company is required to withhold with respect to such dividend payments. The Company shall also have the right to require a Grantee who is entitled to receive Shares pursuant to the exercise of an Option to pay to the Company the amount of any taxes which the Company is required to withhold with respect to such Shares, or, in lieu thereof, to retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. SECTION 11. LOANS. ------ (a) The Company may make loans to a Grantee in connection with Restricted Shares, or in connection with the exercise of Options, subject to the following terms and conditions and such other terms and conditions not inconsistent with the Plan, including the rate of interest, if any, as the Committee shall impose from time to time. (b) No loan made under the Plan shall exceed: -9- 10 (1) With respect to Options, the sum of (i) the aggregate option price payable upon exercise of the Option with respect to which the loan is made, plus (ii) the amount of the reasonably estimated income taxes payable by the Grantee. (2) With respect to Restricted Shares, the amount of the reasonably estimated income taxes payable by the Grantee. In no event may any such loan exceed the market value of the Shares in respect of which the loan is made at the time of the loan. Loans under the Plan may be satisfied by the Grantee, as determined by the Committee, in cash or, with the consent of the Committee, in whole or in part in Shares. SECTION 12. NO ENLARGEMENT OF EMPLOYMENT RIGHTS. ------------------------------------ The award of Shares under the Plan to an employee of the Company or any of its subsidiaries shall not confer any right to the employee to continue in the employ of the Company or any such subsidiary and shall not restrict or interfere in any way with the right of his employer to terminate his employ- ment, with or without cause, at any time. The award of Shares under the Plan to a director of a subsidiary of the Company shall not confer any right to such director to continue as a director of a subsidiary of the Company and shall not restrict or interfere in any way with the right of the shareholder of such Company to terminate such directorship, with or without cause, at any time. SECTION 13. RIGHTS AS SHAREHOLDER. ---------------------- No Grantee or his executor or administrator shall have any rights of a shareholder in the Company with respect to the Shares covered by an Option unless and until a certificate representing such Shares has been duly issued and delivered to him under the Plan. SECTION l4. ACCELERATION OF RIGHTS. ----------------------- The Committee shall have the authority, in its discretion, to accelerate the time at which an Option shall be exercisable and to accelerate the time at which any or all of the restrictions shall lapse with respect to any Restricted Shares or to remove any or all of such restrictions, whenever it may determine that such action is appropriate by reason of changes in applic- able tax or other laws or other changes in circumstances occurring after the award of such Options or of Restricted Shares. SECTION 15. DEFINITION OF SUBSIDIARY. ------------------------- The term "subsidiary corporation" when used in the Plan or any stock option agreement made pursuant to the Plan means a subsidiary corporation as defined in Section 425 of the Code. -10- 11 Section 16. AMENDMENT OR TERMINATION OF PLAN. --------------------------------- The Board may amend or terminate the Plan at any time, but: (a) no such amendment or termination shall affect the rights of a Grantee with respect to a prior award under the Plan without the consent of the Grantee, and (b) no such amendment shall be made without the approval of the shareholders of the Company whenever such approval would be required with respect to Incentive Options to preserve the status of the Plan as an incentive stock option plan And the qualification of any Options as incentive stock options under Section 422A of the Code, including (i) an increase in the maximum number of shares that may be subject to Incentive Options (unless necessary to effect the adjustments required under Section 6), (ii) an increase in the benefits to any Grantee under the Plan or (iii) a modification in the requirements for eligibility under the Plan. Section 17. GOVERNMENT REGULATIONS. ----------------------- Notwithstanding any provisions of the Plan or any agreement made pursuant to the Plan, the Company's obligations under the Plan and such agree- ment shall be subject to all applicable laws, rules and regulations and to such approvals as may be required by any governmental or regulatory agencies. Section 18. GOVERNING LAW. -------------- The Plan shall be construed and governed by the laws of the State of Ohio. With respect to Incentive Options, the intention of the Plan is to qualify such Incentive Options as issued pursuant to an incentive stock option plan under Section 422A of the Code, and the Plan and any Incentive Option Agreements shall be construed consistently with that intention to the extent possible. Section 19. GENDERS AND NUMBERS. -------------------- When permitted by the context, each pronoun used in the Plan includes the same pronoun in other genders and numbers. Section 20. CAPTIONS. --------- The captions of the various sections of the Plan are not part of the context of the Plan, but are only labels to assist in locating those sections, and shall be ignored in construing the Plan. Section 21. EFFECTIVE DATE. --------------- The Plan shall be effective July 10, 1987. The Plan shall be submitted to the shareholders of the Company for approval and ratification as soon as practicable but in any event not later than 12 months after the Plan has been adopted. If the Plan is not approved and ratified by the shareholders of the Company within 12 months after the Plan has been adopted, the Plan and all Incentive Options granted under the Plan shall become null and void and have no further force or effect. -11- 12 FIRST AMENDMENT TO CARDINAL DISTRIBUTION, INC. STOCK INCENTIVE PLAN The Cardinal Distribution, Inc. Stock Incentive Plan (the "Plan") is hereby amended by deleting in its entirety Section 3 of the Plan and substituting in its place a new Section 3 as follows: SECTION 3. SHARES SUBJECT TO PLAN. ----------------------- The maximum aggregate number of Common Shares, without par value, of the Company (the "Shares") with respect to which awards may be made under the Plan shall be 750,000 Shares. Such Shares may be authorized but unissued Shares or issued Shares reacquired by the Company and held as treasury Shares. If any Shares awarded under the Plan are forfeited or an option for Shares granted under the Plan expires or terminates such forfeited Shares and the Shares subject to such expired or terminated option shall again be available to be awarded under the Plan. The aggregate number of Shares shall be subject to adjustment under Section 6. -12- 13 SECOND AMENDMENT TO CARDINAL DISTRIBUTION, INC. STOCK INCENTIVE PLAN The Cardinal Distribution, Inc. Stock Incentive Plan (the "Plan") is hereby amended effective as of May 19, 1993 by deleting in its entirety Section 3 of the Plan and substituting in its place a new Section 3 as follows: SECTION 3. SHARES SUBJECT TO PLAN. ----------------------- The maximum aggregate number of Common Shares, without par value, of the Company (the "Shares") with respect to which awards may be made under the plan shall be 2,500,000 Shares. Such Shares may be authorized but unissued Shares or issued Shares reacquired by the Company and held as treasury Shares. If any Shares awarded under the Plan are forfeited or an option for Shares granted under the Plan expires or terminates such forfeited Shares and the Shares subject to such expired or terminated option shall again be available to be awarded under the Plan. The aggregate number of Shares shall be subject to adjustment under Section 6. -13- EX-10.03 5 EXHIBIT 10.03 1 EXHIBIT 10.03 CARDINAL DISTRIBUTION, INC. --------------------------- DIRECTORS' STOCK OPTION PLAN ---------------------------- AS AMENDED AND RESTATED ----------------------- SECTION 1. PURPOSE. -------- The purpose of the Cardinal Distribution, Inc. Directors' Stock Option Plan, as Amended and Restated (the "'Plan'") is to encourage those directors of Cardinal Distribution, Inc. (the "Company") who are not employees of the Company or any of its subsidiaries to acquire a proprietary interest in the Company, to further promote the interest of such directors in the development and financial success of the Company, and to assist the Company in attracting and retaining highly qualified directors. SECTION 2. ADMINISTRATION OF PLAN. ----------------------- The Plan shall be administered by the Company's Compensation Committee (the "Committee") which shall consist of not less than three directors of the Company appointed by the Company's Board of Directors (the "Board"). The members of the Committee shall serve at the pleasure of the Board, which may remove members from the Committee or appoint new members to the Committee from time to time, and members of the Committee may resign by written notice to the Chairman of the Board or the Secretary of the Company. The Committee may adopt any rules it considers appropriate for the conduct of its business or the administration of the Plan, make interpretations of the Plan which it deems consistent with the Plan's provisions, take any other actions it considers appropriate in connection with the Plan, and shall have such additional authority as the Board may determine to be desirable from time to time. The decisions of the Committee on matters within its jurisdiction under the Plan shall be conclusive and binding. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any award under the Plan. The members of the Committee and other members of the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit, or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any award granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, except a judgment based upon a finding of bad faith. Upon the institution of any such action, suit, or proceeding, the Board or Committee member shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof at its expense. The provisions of this paragraph with respect to the liability and indemnification of members of the Board and the Committee are in addition to, and not in limitation of, the provisions with respect to the liability and indemnification of members of the Board and the Committee (a) contained in the Articles of Incorporation or Code of Regulations of the Company, (b) contained in any indemnification agreements between Directors and the Company, or (c) provided by law. SECTION 3. SHARES SUBJECT TO PLAN. ----------------------- The maximum aggregate number of Common Shares, without par value, of the Company (the "Shares") allocated to the Plan and available for options shall be 500,000 Shares. Such Shares may be authorized but unissued Shares or issued Shares reacquired by the Company and held as treasury Shares. If an option for Shares granted under the Plan expires or terminates, the Shares subject to such expired or terminated option shall again be available to be awarded under the Plan. The aggregate number of Shares allocated to the Plan shall be subject to adjustment under Section 6. 2 SECTION 4. ELIGIBILITY. ----------- Only an individual who is a director of the Company and not an employee of the Company or any subsidiary of the Company is eligible to participate in this Plan (each such individual an "Eligible Director"). SECTION 5. REQUIRED TERMS AND CONDITIONS OF OPTIONS. ----------------------------------------- Options to purchase Shares granted under the Plan (an "Option") shall be Options not intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). All options to purchase Shares granted under the Plan ("Options") shall be evidenced by a written agreement in such form as the Committee shall from time to time approve, which shall be dated as of the date on which an Option is granted, signed by an officer of the Company authorized by the Committee, and signed by the Grantee. Any such agreements shall be consistent with the Plan and comply with and be subject to the following terms and conditions: (a) VESTING. All Options shall be fully vested on the date of grant. (b) NUMBER OF SHARES. Each individual first elected to serve as a director of the Company after the Effective Date of this Plan who is an Eligible Director shall, upon such election, automatically be granted Options for that number of Shares having a fair market value of $100,000 (Eligible Directors granted Options hereunder, "Grantees.") The fair market value of the Shares shall be the last sale price of the Shares as reported on the National Association of Securities Dealers Automated Quotation System, National Market Issues, or, if the Shares are listed or admitted for trading on any national securities exchange, the last sale price, or the closing bid price if no sale occurred, on the date the Option is granted. In addition, commencing immediately after the adjournment of the Company's annual meeting of shareholders (an "Annual Meeting") in 1993 and continuing on an annual basis immediately following the adjournment of each succeeding Annual Meeting thereafter during the term of this Plan, each Eligible Director whose term did not expire at that Annual Meeting and who has then served as a director of the Company for a consecutive period of time which includes each of the last three Annual Meetings (i.e., including the Annual Meeting then just adjourned) shall automatically be granted additional Options for that number of Shares having a fair market value of $50,000. (c) OPTION PRICE. The option price of Shares subject to Options shall be the fair market value of the Shares at the time the Option is granted. The fair market value of the Shares shall be the last sale price of the Shares as reported on the National Association of Securities Dealers Automated Quotation System, National Market Issues, or, if the Shares are listed or admitted for trading on any national securities exchange, the last sale price, or the closing bid price if no sale occurred, on the date the Option is granted. (d) MAXIMUM TERM. No options issued under the Plan may be exercised more than ten years from the date of grant. (e) TERMINATION OF OPTION. Except as otherwise provided in Section 7, if a Grantee ceases to be an Eligible Director for any reason, then all Options or any unexercised portion of such Options which otherwise are exercisable by such Grantee shall terminate unless such Options are exercised within six months after the date such Grantee ceases to be an Eligible Director (but in no event after expiration of the original term of any such Option); provided, that if such Grantee ceases to be an Eligible Director by reason of such Grantee's death, the six-month period shall instead be a one-year period. (f) TRANSFERABILITY. No Option shall be transferable by a Grantee other than by will or the laws of descent and distribution. During the lifetime of a Grantee, an Option, by its terms, shall be exercisable (subject to any other applicable restrictions on exercise) only by a Grantee for his own account. Upon the death of a Grantee, an Option shall be exercisable (subject to any other applicable restrictions on exercise) only by the executor or administrator of a Grantees's estate. (g) METHOD OF EXERCISE. Options may be exercised from time to time by giving written notice to the Treasurer of the Company (the date such notice is received by the Company, the "Exercise 3 Date"), stating the number of Shares with respect to which an Option is being exercised and the time during normal business hours for delivery of the Shares with respect to which an Option was exercised, which shall be more than 15 and less than 30 days after the Exercise Date. At the specified time, the Company shall deliver, at the principal office of the Company, a certificate for such Shares to the Grantee upon receipt of payment of the full purchase price for such Shares: (i) by certified or bank cashier's check, (ii) by delivery of Shares with a fair market value equal to the total option price at the time of exercise or (iii) by a combination of the proceeding two methods. Any Shares delivered in payment of an option price shall be valued as of the Exercise Date. SECTION 6. CHANGE IN CAPITAL STRUCTURE. ---------------------------- In the event the Company changes its outstanding Shares by reason of stock splits, stock dividends, or any other increase or reduction of the number of outstanding Shares without receiving consideration in the form of money, services, or property, the aggregate number of Shares subject to the Plan shall be proportionately adjusted and the number of Shares and the option price for each Share subject to the unexercised portion of any then-outstanding Option shall be proportionately adjusted with the objective that the Grantee's proportionate interest in the Company shall remain the same as before the change and, with respect to outstanding Options, without any change in the total option price applicable to the unexercised portion of such Options. In the event of any other recapitalization or any merger, consolidation, or other reorganization of the Company, the Committee shall make such adjustment, if any, as it may deem appropriate to accurately refiect the number and kind of Shares deliverable, and the option prices payable, upon subsequent exercise of any then-outstanding Options. The Committee's determination of the appropriate adjustments to be made under this Section 6 shall be conclusive upon all grantees and other participants under the Plan. SECTION 7. TERMINATION FOR CAUSE. --------------------- Notwithstanding any provision to the contrary in the Plan or in any agreement in respect of an award under the Plan,upon the discharge of any Grantee as a director of the Company for cause, all unexercised Options awarded to such Grantee shall immediately lapse and be of no farther force or effect. SECTION 8. TAX WITHHOLDING. --------------- The Company shall have the right to require a Grantee who is entitled to receive Shares pursuant to the exercise of an Option to pay to the Company the amount of any taxes which the Company is required to withhold with respect to such Shares, or, in lieu thereof, to retain, or sell without notice, a number of such Shares sufficient to cover the amount required to be withheld. SECTION 9. TERMINATION AND AMENDMENT OF PLAN. ---------------------------------- The Board of Directors of the Company, without further action on the part of the shareholders, may from time to time alter, amend or suspend the Plan or may at any time terminate the Plan, provided that (a) no such action shall materially and adversely affect any outstanding Options without the consent of the respective Grantees; (b) the provisions of the Plan governing the matters set forth in Rule 16b-3(c)(2)(ii)(A) under the Securities Exchange Act of 1934, as amended (the "1934 Act"), shall not be amended more than once every six months, except as otherwise permitted under Rule 16b-3(c)(2)(ii)(B) of the 1934 Act; and (c) except for the adjustments provided for in Section 6 hereof, no amendment may be made solely by Board action if the amendment would (i) materially increase the benefits accruing to participants under the Plan; (ii) increase or decrease the number of Shares which may be issued under the Plan, or (iii) materially modify the eligibility requirements of the Plan. SECTION 10. DELIVERY AND REGISTRATION OF STOCK. ---------------------------------- The Company's obligation to deliver Shares with respect to the exercise of an Option shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Grantee to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions of the Securities Act of 1933 or any other applicable federal or state securities legislation. It may be provided that any representation requirement shall become 4 inoperative upon a registration of the Shares or other action eliminating the necessity of such representation under such Securities Act or other securities legislation. The Company shall not be required to deliver any Shares under the Plan prior to (i) the admission of such Shares to listing on any stock exchange or system on which Shares may then be listed, and (ii) the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable. Each certificate for Shares issued pursuant to the Plan shall be registered in the name of the Grantee and shall bear appropriate legend(s) with respect to the restrictions upon such Shares. SECTION 11. NO ENLARGEMENT OF RIGHTS. ------------------------- The award of Options under the Plan to an Eligible Director shall not confer any right to such director to continue as a director of the Company and shall not restrict or interfere in any way with the right of the shareholders of the Company to terminate such directorship, with or without cause, at any time. SECTION 12. RIGHTS AS SHAREHOLDER. --------------------- No Grantee or his executor or administrator shall have any rights of a shareholder in the Company with respect to the Shares covered by an Option unless and until a certificate representing such Shares has been duly issued and delivered to him under the Plan. SECTION 13. DEFINITION OF SUBSIDIARY. ------------------------ The term "subsidiary" when used in the Plan or any Option agreement made pursuant to the Plan means a subsidiary corporation as defined in Section 424 of the Code. SECTION 14. GOVERNMENT REGULATIONS. ---------------------- Notwithstanding any provisions of the Plan or any agreement made pursuant to the Plan, the Company's obligations under the Plan and any such agreement shall be subject to all applicable laws, rules and regulations and to such approvals as may be required by any governmental or regulatory agencies. SECTION 15. GOVERNING LAW. ------------- The Plan shall be construed in accordance with and be governed by the laws of the State of Ohio. SECTION 16. GENDERS AND NUMBERS. ------------------- When permitted by the context, each pronoun used in the Plan includes the same pronoun in other genders and numbers. SECTION 17. CAPTIONS. --------- The captions of the various sections of the Plan are not part of the context of the Plan, but are only labels to assist in locating those sections, and shall be ignored in construing the Plan. SECTION 18. EFFECTIVE DATE. --------------- The Plan shall be effective on May 19, 1993 (the "Effective Date"). The Plan shall be submitted to the shareholders of the Company for approval and ratification as soon as practicable but in any event not later than 12 months after the effective date of the Plan. If the Plan is not approved and ratified by the shareholders of the Company within 12 months after the effective date of the Plan, the Cardinal Distribution, Inc. Directors' Stock Option Plan, as amended, as in effect prior to May 19, 1993, and all Options granted under such plan shall continue in full force and effect. EX-10.09 6 EXHIBIT 10.09 1 EXHIBIT 10.09 INDEMNITY AGREEMENT ------------------- THIS INDEMNITY AGREEMENT, effective as of February 9, 1993, between WHITMIRE DISTRIBUTION CORPORATION, a Delaware corporation (the "Corporation"), and the undersigned indemnitee ("Indemnitee"), W I T N E S S E T H: WHEREAS Indemnitee is either a member of the board of directors of the Corporation (the "Board of Directors"), or an officer of the Corporation, or both, and in such capacity or capacities, or otherwise as an Agent of the Corporation (as hereinafter defined) is performing a valuable service for the Corporation; and WHEREAS Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Corporation on the condition that he be indemnified as herein provided; and WHEREAS it is intended that Indemnitee shall be paid promptly by the Corporation all amounts necessary to effectuate in full the indemnity provided herein: N o w, T h e r e f o r e, in consideration of the premises and the covenants in this Agreement, and of Indemnitee continuing to serve the Corporation as an Agent and intending to be legally bound hereby, the parties hereto agree as follows: 1. SERVICES BY INDEMNITEE. ----------------------- Indemnitee agrees to serve as a director or as an officer of the Corporation, or both, so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Restated Certificate of Incorporation and By-Laws of the Corporation, and until such time as he resigns or fails to stand for election or is removed from his position. Indemnitee may from time to time also perform other services at the request or for the convenience of, or otherwise benefiting, the Corporation. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event the Corporation shall have no obligation under this Agreement to continue Indemnitee in any such position. One of Two Counterpart Originals 2 Indemnity Agreement February 9, 1993 Page 2 of 13 Pages 2. INDEMNIFICATION. ---------------- Subject to the limitations set forth herein and in Section 6 hereof, the Corporation hereby agrees to indemnify Indemnitee as follows: The Corporation shall, with respect to any Proceeding associated with Indemnitee's being an Agent of the Corporation, indemnify Indemnitee to the fullest extent permitted by applicable law or the Restated Certificate of Incorporation of the Corporation in effect on the date hereof or as such laws or Restated Certificate of Incorporation may from time to time be amended (but, in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification rights than the law or Restated Certificate of Incorporation permitted the Corporation to provide before such amendment). The right to indemnification conferred in the Restated Certificate of Incorporation shall be presumed to have been relied upon by Indemnitee in serving or continuing to serve the Corporation as an Agent and shall be enforceable as a contract right. Without in any way diminishing the scope of the indemnification provided by this Section 2, the Corporation will, to the greatest extent permitted by law or the Restated Certificate of Incorporation, indemnify Indemnitee if and whenever he is or was a party or is threatened to be made a party to any Proceeding, including without limitation any such Proceeding brought by or in the right of the Corporation, by reason of the fact that he is or was an Agent or by reason of anything done or not done by him in such capacity, against Expenses and Liabilities actually and reasonably incurred by Indemnitee or on his behalf in connection with the investigation, defense, settlement or appeal of such Proceeding. In addition to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 3 and 8 below. 3. ADVANCEMENT OF EXPENSES. ------------------------ All reasonable Expenses incurred by or on behalf of Indemnitee shall be advanced from time to time by the Corporation to him within thirty (30) days after the receipt by the Corporation of a written request for an advance of Expenses, whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse Determination that Indemnitee is not entitled to be indemnified for such Expenses), including without limitation any Proceeding brought by or in the right of the Corporation. The written One of Two Counterpart Originals 3 Indemnity Agreement February 9, 1993 Page 3 of 13 Pages request for an advancement of any and all Expenses under this Section 3(a) shall contain reasonable detail of the Expenses incurred by Indemnitee. By execution of this Agreement, Indemnitee shall be deemed to have made whatever undertaking may be required with respect to repayment to the Corporation of such Expenses under applicable provisions of the General Corporation Law of the State of Delaware, as from time to time amended; provided, however, that in no circumstances shall Indemnitee be deemed to have undertaken to repay the Corporation for Expenses as to which Indemnitee is entitled to indemnification hereunder. 4. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. ----------------------------------------------- Upon making a request for indemnification, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Corporation shall have the burden of proof to overcome that presumption in reaching any contrary deter- mination. The termination of any Proceeding by judgment, order, settlement, arbitration award or conviction, or upon a plea of nolo contendere or its equivalent shall not affect this presumption or, except as may be provided in Section 6 hereof, establish a presumption with regard to any factual matter relevant to determining Indemnitee's rights to indemnification hereunder. If the person or persons so empowered to make a determination pursuant to Section 5 hereof shall have failed to make the requested determination within ninety (90) days after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of plea of nolo contendere or its equivalent, or other disposition or partial disposition of any Proceeding or any other event which could enable the Corporation to determine Indemnitee's entitlement to indemnification, the requisite determination that Indemnitee is entitled to indemnification shall be deemed to have been made. 5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO --------------------------------------------- INDEMNIFICATION. - - --------------- (a) Whenever Indemnitee believes that he is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to the Corporation. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee for the determination of entitlement to indemnification. The Secretary, General Counsel or other appropriate officer shall, promptly upon receipt of Indemnitee's request for indemnification, advise the Board of Directors in writing that he has made such request. Determination of Indemnitee's entitlement to indemnification shall be made not later than One of Two Counterpart Originals 4 Indemnity Agreement February 9, 1993 Page 4 of 13 Pages ninety (90) days after such request for indemnification, provided that any request for indemnification for Liabilities, other than amounts paid in settlement, shall have been made after a determination thereof in a Proceeding. (b) The Corporation shall be entitled to select the forum in which Indemnitee's entitlement to indemnification will be heard; provided, however, that if there is a Change in Control of the Corporation, Independent Legal Counsel or arbitration shall determine whether Indemnitee is entitled to indemnification. The forum shall be any one of the following: (1) the stockholders of the Corporation; (2) a quorum of the Board of Directors con- sisting of Disinterested Directors; (3) Independent Legal Counsel, who shall make the determination in a written opinion; or (4) a panel of three arbitrators, one selected by the Corporation, another by Indemnitee and the third by the first two arbitrators selected; or if for any reason three arbitrators are not selected within thirty (30) days after the appointment of the first arbitrator, then selection of additional arbitrators shall be made by the American Arbitration Association. If any arbitrator resigns or is unable to serve in such capacity for any reason, the person who was entitled originally to select such arbitrator shall select his replacement. The arbitration shall be conducted pursuant to the commercial arbitration rules of the American Arbitration Association now in effect. 6. SPECIFIC LIMITATIONS ON INDEMNIFICATION. ---------------------------------------- Notwithstanding anything in this Agreement to the contrary, the Corporation shall not be obligated under this Agreement to make any payment to Indemnitee with respect to any Proceeding: (a) to the extent that payment is actually made to Indemnitee under any insurance policy, or is made to Indemnitee by the Corporation or an affiliate otherwise than pursuant to this Agreement (notwithstanding the availability of such insurance, Indemnitee also may claim indemnification from the Corporation pursuant to this Agreement by assigning to the One of Two Counterpart Originals 5 Indemnity Agreement February 9, 1993 Page 5 of 13 Pages Corporation any claims under such insurance to the extent Indemnitee is paid by the Corporation); (b) if a court has entered a judgment or other final adjudication adverse to Indemnitee which establishes that Indemnitee's acts were not in good faith or not reasonably believed to be in or not opposed to the best interests of the Corporation; (c) to the extent of any financial advantage to which Indemnitee is not legally entitled, if so established by a judgment or other final adjudication adverse to Indemnitee; (d) for Liabilities in connection with Proceedings settled without the Corporation's consent, which consent, however, shall not be unreasonably withheld; (e) for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation within the meaning of section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory or common law; or (f) to the extent directly attributable to a violation of law in which Indemnitee had reasonable cause to believe his conduct was unlawful. 7. FEES AND EXPENSES OF INDEPENDENT LEGAL COUNSEL. ----------------------------------------------- The Corporation agrees to pay the reasonable fees and expenses of Independent Legal Counsel or a panel of three arbitrators should such Counsel or such panel of arbitrators be retained to make a determination of Indemnitee's entitlement to indemnification pursuant to Section 5(b) of this Agreement, and to fully indemnify such Counsel or arbitrators against any and all expenses and losses incurred by any of them arising out of or relating to this Agreement or their engagement pursuant hereto. 8. REMEDIES OF INDEMNITEE. ---------------------- (a) In the event that (1) a determination pursuant to Section 5(b)(1), 5(b)(2) or 5(b)(3) hereof is made that Indemnitee is not entitled to indemnification, (2) advances of Expenses are not made pursuant to this Agreement, (3) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement, or (4) Indemnitee otherwise seeks enforcement of this Agreement, One of Two Counterpart Originals 6 Indemnity Agreement February 9, 1993 Page 6 of 13 Pages Indemnitee shall be entitled to a final adjudication in an appropriate court of the State of Delaware of the remedy sought. Alternatively, Indemnitee at his option may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial arbitration rules of the American Arbitration Association now in effect, which award is to be made within ninety (90) days following the filing of the demand for arbitration. In any such proceeding or arbitration Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Corporation shall have the burden of proof to overcome that presumption. (b) In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 5(b)(1), 5(b)(2) or 5(b)(3) hereof, the decision in the judicial proceeding or arbitration provided in paragraph (a) of this Section 8 shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination that he is not entitled to indemnification. (c) If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 5 hereof, or is deemed to have been made pursuant to Section 4 hereof or otherwise pursuant to the terms of this Agreement, the Corporation shall be bound by such determination in the absence of a misrepresentation or omission of a material fact by Indem- nitee. (d) The Corporation shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Corporation shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. 9. INSURANCE. ---------- (a) MAINTENANCE OF INSURANCE. Subject only to the provisions within this Section 9, the Corporation agrees that during the Indemnification Period (commencing on the effective date hereof), the Corporation will use its best efforts to purchase and maintain in effect for the benefit of Indemnitee one or more valid, binding and enforceable policies of directors' and officers' liability insurance. Notwithstanding the foregoing, the Corporation shall not be required to maintain said policies of directors' and officers' liability insurance if such insurance is not reasonably available or if it is in good One of Two Counterpart Originals 7 Indemnity Agreement February 9, 1993 Page 7 of 13 Pages faith determined by the then directors of the Corporation either that: (i) the premium cost of maintaining such insurance is substantially disproportionate to the amount of coverage provided thereunder; or (ii) the protection provided by such insurance is so limited by exclusions, deductions or otherwise that there is insufficient benefit to warrant the cost of maintaining such insurance. Anything in this Agreement to the contrary not- withstanding, to the extent that and for so long as the Corporation shall choose to continue to maintain any policies of directors' and officers' liability insurance during the Indemnification Period, the Corporation shall maintain similar and equivalent insurance for the benefit of Indemnitee during the Indemnification Period. (b) ADDITIONAL INDEMNIFICATION IN LIEU OF INSURANCE. In the event that the Corporation shall discontinue any policy or policies of directors' and officers' liability insurance referred to in Section 9(a) or limit in any way the coverages provided thereunder either in scope or amount, or such policies or coverages provided thereunder become unavailable in whole or in part for any reason, the Corporation agrees to hold harmless and indemnify Indemnitee for the remainder of the Indemnification Period to the full extent of the coverage which would otherwise have been provided for the benefit of Indemnitee had such insurance policies specified in Section 9(a) been maintained. 10. MODIFICATION, WAIVER, TERMINATION AND ------------------------------------- CANCELLATION. - - ------------- No supplement, modification, termination, cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 11. SUBROGATION. ------------ In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to One of Two Counterpart Originals 8 Indemnity Agreement February 9, 1993 Page 8 of 13 Pages all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 12. NOTICE BY INDEMNITEE AND DEFENSE OF CLAIM. ------------------------------------------ Indemnitee shall promptly notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative, but the omission so to notify the Corporation will not relieve it from any liability which it may have to Indemnitee if such omission does not prejudice the Corporation's rights. If such omission does prejudice the Corporation's rights, the Corporation will be relieved from liability only to the extent of such prejudice; such omission shall not relieve the Corporation from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; and (b) the Corporation jointly with any other indem- nifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided, however, that the Corporation shall not be entitled to assume the defense of any Proceeding if Indemnitee shall have reasonably concluded based upon a written opinion of counsel to Indemnitee that there may be a conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After notice from the Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investiga- tion or as otherwise provided below. Indemnitee shall have the right to employ Indemnitee's own counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) the employment of counsel by Indemnitee has been authorized by the Corporation; or One of Two Counterpart Originals 9 Indemnity Agreement February 9, 1993 Page 9 of 13 Pages (ii) the Corporation shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Corporation. (c) The Corporation shall not settle any Proceeding in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent; provided, however, that Indemnitee will not unreasonably withhold Indemnitee's consent to any proposed settlement. 13. NOTICES. -------- All notices, requests, demands and other communi- cations hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to: (b) If to the Corporation, to: Whitmire Distribution Corporation 81 Blue Ravine Road Folsom, CA 95630 Attn: Secretary or to such other address as may have been furnished to Indem- nitee by the Corporation or to the Corporation by Indemnitee, as the case may be. 14. NONEXCLUSIVITY. --------------- The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the General Corporation Law of the State of One of Two Counterpart Originals 10 Indemnity Agreement February 9, 1993 Page 10 of 13 Pages Delaware, the Corporation's Restated Certificate of Incorporation or By-laws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise, and to the extent that during the Indemnification Period the rights of the then existing directors and officers are more favorable to such directors or officers than the rights currently provided to Indemnitee thereunder or under this Agreement, Indemnitee shall be entitled to the full benefits of such more favorable rights. 15. CERTAIN DEFINITIONS. -------------------- (a) "AGENT" shall mean any person who is or was a director, officer, employee, agent, fiduciary, joint venturer, partner, manager or other official of the Corporation or a subsidiary or an affiliate of the Corporation, or any other entity (including without limitation, an employee benefit plan) either at the request of, for the convenience of, or otherwise to benefit the Corporation or a subsidiary of the Corporation. (b) "CHANGE IN CONTROL" shall be deemed to have occurred if: (i) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing fifteen percent (15%) or more of the total voting power repre- sented by the Corporation's then outstanding voting securities (excluding for this purpose holders of record of the voting securities of this Corporation as of the effective date hereof); or (ii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into One of Two Counterpart Originals 11 Indemnity Agreement February 9, 1993 Page 11 of 13 Pages voting securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets. (c) "DISINTERESTED DIRECTOR" shall mean a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee. (d) "EXPENSES" shall include all direct and indirect costs (including, without limitation, attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, all other disbursements or out-of-pocket expenses and reasonable compensation for time spent by Indemnitee for which he is otherwise not compensated by the Corporation or any third party) actually and reasonably incurred in connection with either the investigation, defense, settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise; provided, however, that "Expenses" shall not include any Liabilities. (e) "FINAL ADVERSE DETERMINATION" shall mean that a determination that Indemnitee is not entitled to indemnification shall have been made pursuant to Section 5 hereof and, in the case of a determination pursuant to Section 5(b)(1), 5(b)(2) or 5(b)(3), either (1) a final adjudication in a Delaware court or decision of an arbitrator pursuant to Section 8(a) hereof shall have denied Indemnitee's right to indemnification hereunder, or (2) Indemnitee shall have failed to file a complaint in a Delaware court or seek an arbitrator's award pursuant to Section 8(a) for a period of one hundred twenty (120) days after the determination made pursuant to Section 5 hereof. (f) "INDEMNIFICATION PERIOD" shall mean any period during which Indemnitee serves (or has served) as a director or officer of the Corporation, or both, and thereafter so long as Indemnitee shall be subject to any possible Proceeding. One of Two Counterpart Originals 12 Indemnity Agreement February 9, 1993 Page 12 of 13 Pages (g) "INDEPENDENT LEGAL COUNSEL" shall mean a law firm or a member of a law firm selected by the Corporation and approved by Indemnitee (which approval shall not be unreasonably withheld) or, if there has been a Change in Control, selected by Indemnitee and approved by the Corporation (which approval shall not be unreasonably withheld), and that neither is presently nor in the past five years has been retained to represent: (i) the Corporation or any of its subsidiaries or affiliates, or Indemnitee or any corporation as to which Indemnitee was or is a director, officer, employee or agent, or any subsidiary or affiliate of such a corporation, in any material matter, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Legal Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's right to indemnification under this Agreement. (h) "LIABILITIES" shall mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any Proceeding. (i) "PROCEEDING" shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, that is associated with Indemnitee's being an Agent of the Corporation. 16. BINDING EFFECT; DURATION AND SCOPE OF AGREEMENT. ------------------------------------------------ This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation), spouses, heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as an Agent. One of Two Counterpart Originals 13 Indemnity Agreement February 9, 1993 Page 13 of 13 Pages 17. SEVERABILITY. ------------- If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (b) to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provision held invalid, illegal or unenforceable. 18. GOVERNING LAW. -------------- This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. 19. ENTIRE AGREEMENT. ----------------- This Agreement represents the entire agreement between the parties hereto with respect to the subject matter hereof, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 14 hereof. Executed as of the ninth day of February, 1993. WHITMIRE DISTRIBUTION CORPORATION By:/S/ Peter S. McGurdy -------------------------- INDEMNITEE /S/ Melburn G. Whitmire ----------------------------- Melburn G. Whitmire One of Two Counterpart Originals EX-10.10 7 EXHIBIT 10.10 1 EXHIBIT 10.10 SPLIT-DOLLAR AGREEMENT ---------------------- This agreement is made in Columbus, Ohio, on April 16, 1993, among Cardinal Distribution, Inc., an Ohio corporation (the "Employer"), Robert D. Walter (the "Employee"), and Bank One Ohio Trust Company, N.A., as Trustee of Robert D. Walter Irrevocable Trust #2 under an agreement dated April 16, 1993 (the "Owner"). Background Information ---------------------- A. The trust of which the Owner is the trustee was created by the Employee for the benefit of the Employee's children and grandchildren, the spouses of the Employee's children, the parents and the siblings of the Employee or the Employee's spouse, and the children of any siblings of the Employee or the Employee's spouse. B. The Owner has made application to New England Mutual Life Insurance Company (the "Insurer") for a life insurance policy (the "Policy") which is to include survivorship ordinary life insurance on the last-to-die of the Employee and the Employee's spouse in the face amount of $10,000,000 and an indeterminate premium level term rider (the "Term Rider") providing additional insurance on the life of the Employee in the face amount of $10,000,000. Under that application, the Owner is to be the owner and beneficiary of the Policy and, as such, will possess all incidents of ownership of the Policy. C. The Employee is employed as the chairman and chief executive officer of the Employer. In recognition of the valuable services of the Employee, the Employer is wiliing pay all premiums becoming due on the Policy on the terms and conditions described in this agreement. D. The Employer desires to have the policy coliaterally assigned to the Employer by the Owner as security for the payment to the Employer of the amounts to which the Employer is entitled under this agreement. Statement Agreement ------------------- The parties to this agreement (the "Parties") acknowledge the accuracy of the above background information and agree as follows: SECTION 1. OWNERSHIP OF POLICY. The Owner shall be the sole and absolute owner of the Policy and may exercise all rights of ownership relating to the Policy, subject only to the Employer's security interest described in Section 5 and the other terms and conditions of this agreement. As of the date of this agreement, the Owner, the Employee, and the Employee's spouse have taken all actions required to be taken by the applicant and the proposed insured parties, respectively, to cause the Insurer to issue the Policy, and the Employer has submitted payment to the Insurer of $37,992.94 as the initial premium of the Policy. The Parties shall take any additional necessary actions to cause the Insurer to issue the Policy and any further actions that may be necessary from time to time to cause the Policy to conform to the provisions of this agreement. Any dividends on the Policy from time to time shall be applied 2 to purchase additional paid-up insurance on the joint lives of the Employer and the Employer's spouse unless directed to the contrary by the Owner. SECTION 2. PAYMENT OF PREMIUMS. The Employer shall pay to the Insurer the full amount of all premiums becoming due under the Policy from time to time and, promptly upon the request of the Employee, shall furnish the Employee with evidence of the timely payment of the premiums. As soon as practicable after the end of each calendar year, the Employer shall furnish the Employee with a statement of the amount of income reportable by the Employee for Federal and state income tax purposes as a result of the Employer's payment of the premiums on the Policy during that year. SECTION 3. DEATH BENEFITS. If the Employee dies before his spouse dies, then upon the Employee's death the Employer shall be entitied to receive all proceeds, if any, which are payable under the Term Rider. Upon the death of the last-to-die of the Employee and the Employee's spouse, the Employer shall be entitled to receive from the proceeds of the Policy, after reduction by any indebtedness to the Insurer secured by the Policy, an amount equal to: (a) the portion of all premiums pald by the Employer to the Insurer which relate to the survivorship ordinary life insurance coverage of the Policy plus an amount equal to a yield calculated at a rate 3% per annum on the outstanding balance of that portion of those premiums from time to time, compounded annually as of each anniversary date of the Policy (collectively, the "Employer's Interest"), plus, (b) all proceeds, if any, which are then payable under the Term Rider. All proceeds of the Policy which exceed the amount payable to the Employer under the preceding provisions of this section shall be pald directiy to the beneficiary designated by the Owner in the manner described in the beneficiary designation provisions of the Policy. In no event shall the amount payable to the Employer under this section exceed the proceeds payable under the Pmicy. SECTION 4. SURRENDER OF POLICY. If the Policy is surrendered or cancelled in whole or part at any time before the death of the last-to-die of the Employee and the Employee's spouse, the Employer shall be entitied to receive from the cash surrender value of the Policy, after reduction by any indebtedness to the Insurer secured by the Policy, an amount equal to the Employer's Interest plus the amount, if any, payable with respect to any prepald premiums or cash values attributable to the Term Rider. All amounts payable upon surrender of the Policy in excess of the amount payable to the Employer under the preceding sentence shall be paid directly to the Owner. In no event shall the amount payable to the Employer under this section exceed the amounts payable upon surrender of the Policy. SECTION 5. COLLATERAL ASSIGNMENT. The Owner shall collaterally assign the Policy to the Employer as security for the payment to the Employer of all amounts to which the Employer is entitled under Section 3 or Section 4 of this agreement. The collateral assignment shall be in substantially the form customarily used for that purpose by commercial banks with any modifications required by the Insurer. The Employer shall have no right to borrow against the cash value of the Policy without the consent of the Owner. The Owner shall not sell, assign, transfer, surrender, cancel, borrow against, or change the dividend option of, the Policy without the consent of the Employer. 2 3 SECTION 6. TERMINATION. As of any date, the Employer may elect, by notice given to the other Parties not later than 30 days before that date, to terminate its obligation under this agreement to pay any future premiums attributable to the Term Rider. In that event: (a) all rights and economic benefits of the Employer under this agreement relating to the Term Rider shall terminate (including without limitation any payments of death benefits attributable to the Term Rider and any payments upon surrender of the Policy) as of that date; and (b) the Owner may elect to pay any or all premiums attributable to the Term Rider and, if so, shall be entitied to all rights and economic benefits relating to the Term Rider after that date. This paragraph shall supersede any other provision of this agreement to the contrary. This agreement shall terminate as of the earlier of the following events: (a) the Employer gives notice to the other Parties terminating this agreement at any time, or (b) the tenth anniversary date of the Policy. In that event, the Parties shall surrender the Policy to the Insurer, and the amounts payable upon such surrender shall be pald as described in Section 4 unless, within 90 days after the date of termination, the Owner elects to pay the Employer an amount equal to the Employer's Interest plus the amount, if any, of any prepaid premiums or other cash values attributable to the Term Rider in exchange for the Employer's full release and discharge of the collateral assignment of the Policy and of any other rights and interests of the Employer under this agreement. If the Owner elects to make the payment described in the preceding sentence, the Employer may elect to continue payment of the premiums attributable to the Term Rider by giving notice of that election to the other Parties within 30 days after the Owner's election and, in that event, notwithstanding the preceding provisions, the Employer shall continue to be entitied to all rights and economic benefits of the Employer under this agreement relating to the Term Rider, the amount payable by the Owner under the preceding sentence shall be reduced to an amount equal to the Employer's Interest, and the Owner shall collaterally assign the Policy to the Employer as security for the payment to the Employer of all amounts to which the Employer is entitied under this agreement with respect to the Term Rider, subject to the provisions in the first paragraph of this section. SECTION 7. ERISA PROVISIONS. The Employer shall be the "named fiduciary" of the split-dollar life insurance plan under this agreement, which shall be the written plan instrument. The named fiduciary shall have the authority to control and manage the operation and administration of this agreement and shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this agreement. The named fiduciary shall make all determinations concerning rights to benefits under this agreement. Any decision by the named fiduciary denying a claim by the Owner or any of its beneficiaries for benefits under this agreement shall be stated in writing and delivered or mailed to the Owner or such beneficiary. Any such decision shall set forth the specific reasons for the denial, written to the best of the named fiduciary's ability in a manner that may be understood without legal or actuarial counsel. In addition, the Employer shall afford a reasonable opportunity to the Owner or any such beneficiary for a full and fair review of the decision denying the claim. 3 4 SECTION 8. INSURER NOT A PARTY. In no event shall the Insurer be considered a party to this agreement. The Insurer shall be fully discharged from its obligations under the Policy upon payment of the death benefits or cash surrender value of the Policy in accordance with the terms of this agreement. No provision of this agreement shall be construed as changing or otherwise affecting the obligations of the Insurer as provided in the Policy, except to the extent the provisions of this agreement are made a part of the Policy by the collateral assignment executed by the Owner and filed with the Insurer under SECTION 5. SECTION 9. EXONERATION OF EMPLOYEE AND OWNER. If the Employer does not completely recover the Employer's Interest from the death proceeds or cash surrender value under Section 3 or Section 4 for any reason, neither the Employee nor the Owner shall have any liability to the Employer for the difference between the Employer's Interest and the amounts actually received by the Employer under this agreement. SECTION 10. EXECUTION OF DOCUMENTS. The Parties shall execute and deliver such forms and other documents and furnish such information as may be necessary to effectuate the terms of this agreement. The Employer shall furnish to the Insurer, upon request, an affidavit specifying the amount of the Employer's Interest at any time for payment of death proceeds or cash surrender value under this agreement. SECTION 11. COMPLETE AGREEMENT. This document contains the entire agreement among the Parties relating to the subject matter of this agreement and supersedes any previous or contemporaneous agreements, negotiations, representations, or discussions among them relating to this agreement or the subject matter of this agreement. This agreement may not be amended or modified except in writing signed by the Pamies and may not be terminated except as described above. SECTION 12. GOVERNING LAW. All questions concerning the validity or intention of this agreement or performance under this agreement shall be governed by the law of Ohio. SECTION 13. CAPTIONS. The captions at the beginnings of the several sections of this agreement are not part of the context of this agreement, but are only guides in locating those sections, and shall be ignored in construing this agreement. SECTION 14. NOTICES. Any notice or other communication required or desired to be given to any of the Parties under this agreement shall be given in writing and shall be deemed given to that Party when deposited in the United States mall, first-class postage prepaid, addressed to that Party at the address of that Party's principal residence or principal business office or when personally delivered to that address. 4 5 SECTION 15. SUCCESSORS. This agreement shall be binding upon, inure to the benefit of, and enforceable by and against the personal representatives, heirs, successors, and assigns of the Parties. CARDINAL DISTRIBUTION, INC. By: George H. Bennett Jr. --------------------------------- Its: Sr. Vice President ------------------------------- /S/ Robert D. Walter ----------------------------------- ROBERT D. WALTER BANK ONE OHIO TRUST COMPANY, N.A. By: /S/ William R. Thyer -------------------------------- William R. Thyer Its: Assistant Vice President ------------------------------ 5 EX-10.11 8 EXHIBIT 10.11 1 Exhibit 10.11 WHITMIRE DISTRIBUTION CORPORATION --------------------------------- SELECTIVE DEFERRED COMPENSATION PLAN ------------------------------------ 2 TABLE OF CONTENTS -----------------
Page SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . 1 1.01. Act . . . . . . . . . . . . . . . . . . 1 1.02. Accounts . . . . . . . . . . . . . . . . 1 1.03. Beneficiary . . . . . . . . . . . . . . 1 1.04. Board of Directors . . . . . . . . . . . 1 1.05. Change in Control . . . . . . . . . . . 1 1.06. Code . . . . . . . . . . . . . . . . . . 2 1.07. Commitment Period . . . . . . . . . . . 2 1.08. Committee . . . . . . . . . . . . . . . 2 1.09. Company . . . . . . . . . . . . . . . . 3 1.10. Covered Compensation . . . . . . . . . . 3 1.11. Deferral Commitment . . . . . . . . . . 3 1.12. Deferral Election . . . . . . . . . . . 3 1.13. Deferred Retirement Date . . . . . . . . 3 1.14. Disability . . . . . . . . . . . . . . . 3 1.15. Early Retirement Date . . . . . . . . . 3 1.16. Effective Date . . . . . . . . . . . . . 3 1.17. Employer . . . . . . . . . . . . . . . . 3 1.18. Entry Date . . . . . . . . . . . . . . . 4 1.19. Executive . . . . . . . . . . . . . . . 4 1.20. In Pay Status . . . . . . . . . . . . . 4 1.21. Leave . . . . . . . . . . . . . . . . . 4 1.22. Normal Retirement Date . . . . . . . . . 4 1.23. Participant . . . . . . . . . . . . . . 4 1.24. Plan . . . . . . . . . . . . . . . . . . 4 1.25. Plan Year . . . . . . . . . . . . . . . 4 1.26. Pre-Retirement Survivor Benefit . . . . 4 1.27. Post-Retirement Survivor Benefit . . . . 4 1.28. Retirement Income Benefit . . . . . . . 4 1.29. Year of Service . . . . . . . . . . . . 5 SECTION 2. PARTICIPATION 2.01. Eligibility Requirements . . . . . . . . 5 2.02. Termination of Participation . . . . . . 5 SECTION 3. FUNDING OF BENEFITS . . . . . . . . . . . . 5 3.01. Unfunded Plan . . . . . . . . . . . . . 5 SECTION 4. CLAIMS PROCEDURE . . . . . . . . . . . . . 5 4.01. Benefit Claims Procedure . . . . . . . . 5 4.02. Appeals Procedure . . . . . . . . . . . 6
i 3 SECTION 5. DEFERRAL OF COMPENSATION . . . . . . . . . 7 5.01. Deferral Election . . . . . . . . . . . 7 5.02. Subsequent Years . . . . . . . . . . . . 7 5.03. Maximum Deferral . . . . . . . . . . . . 7 5.04. Effective Dates . . . . . . . . . . . . 8 5.05. Establishment of Accounts . . . . . . . 8 5.06. Investment Direction . . . . . . . . . . 8 5.07. Company Matching Contribution . . . . . 8 5.08. Vesting of Company Matching Contribution . . . . . . . . . . . . . . 9 5.09. Investment Experience . . . . . . . . . 9 SECTION 6. RETIREMENT INCOME BENEFITS . . . . . . . . 9 6.01. Normal Retirement Benefit . . . . . . . 9 6.02. Early Retirement Benefit . . . . . . . . 10 6.03. Deferred Retirement Benefit . . . . . . 10 6.04. Change in Control Benefit . . . . . . . 10 6.05. Disability . . . . . . . . . . . . . . . 10 6.06. Leave . . . . . . . . . . . . . . . . . 11 6.07. Suicide . . . . . . . . . . . . . . . . 11 6.08. Benefit Agreement . . . . . . . . . . . 11 6.09. No Duplication of Benefits . . . . . . . 11 6.10. Hardship Withdrawals . . . . . . . . . . 11 6.11. Separation From Service . . . . . . . . 11 6.12. Failure to Complete Deferral Commitment. 11 SECTION 7. SURVIVOR BENEFITS. . . . . . . . . . . . . . 12 7.01. Designation of Beneficiary . . . . . . . 12 7.02. Pre-Retirement Survivor Benefit . . . . 12 7.03. Post-Retirement Survivor Benefit . . . . 13 SECTION 8. ADMINISTRATION OF THE PLAN . . . . . . . . 13 8.01. Appointment of Committee . . . . . . . . 13 8.02. Duties and Powers . . . . . . . . . . . 13 8.03. Conduct of Its Affairs . . . . . . . . . 14 8.04. Allocation of Responsibilities . . . . . 14 8.05. Expenses of the Committee . . . . . . . 14 8.06. Bonding and Compensation . . . . . . . . 14 8.07. Information to be Submitted to the Committee . . . . . . . . . . . . . . . 14 8.08. Notices, Statements and Reports . . . . 15 8.09. Service of Process . . . . . . . . . . . 15 8.10. Insurance . . . . . . . . . . . . . . . 15 8.11. Indemnity . . . . . . . . . . . . . . . 15
ii 4 SECTION 9. AMENDMENT AND TERMINATION . . . . . . . . . 15 9.01. Right to Amend or Terminate . . . . . . 15 9.02. Right to Accelerate . . . . . . . . . . 15 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . 16 10.01. No Right to Continued Employment . . . . 16 10.02. Prohibition Against Alienation . . . . . 16 10.03. Savings Clause . . . . . . . . . . . . . 16 10.04. Payment of Benefit of Incompetent . . . 16 10.05. Withholding . . . . . . . . . . . . . . 16 10.06. Spouse's Interest . . . . . . . . . . . 16 10.07. Successors . . . . . . . . . . . . . . . 17 10.08. Insurance Application . . . . . . . . . 17 10.09. Gender, Tense and Headings . . . . . . . 17 SECTION 11. CONSTRUCTION . . . . . . . . . . . . . . . 17 11.01. Choice of Law . . . . . . . . . . . . . 17
iii 5 WHITMIRE DISTRIBUTION CORPORATION --------------------------------- SELECTIVE DEFERRED COMPENSATION PLAN ------------------------------------ WHITMIRE DISTRIBUTION CORPORATION, formally known as MWC, INC., hereby adopts the Whitmire Distribution Corporation Selective Deferred Compensation Plan effective as of November 1, 1990. The purpose of the Plan is to provide retirement benefits for certain Executives and to provide a measure of security for certain Executives through the payment of death benefits to their Beneficiaries. It is intended that this Plan provide benefits for "a select group of management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of the Act, and therefore to be exempt from the provisions of Parts 2, 3 and 4 of Title I of the Act. SECTION 1. DEFINITIONS The following words and terms as used herein shall, unless the context clearly requires a different meaning, have the respective meanings hereinafter set forth. Except as otherwise expressly provided, the masculine gender includes the feminine and the singular includes the plural. 1.01. "Act" means the Employee Retirement Income Security Act of 1974 (ERISA), as amended from time to time. 1.02. "Accounts" means the Deferred Compensation Account and the Company Matching Account established as provided in Section 5.05 hereof. 1.03. "Beneficiary" means a person entitled under the provisions of Section 7 to receive benefits in the event of the death of a Participant. 1.04. "Board of Directors" means the Board of Directors of the Company. 1.05. "Change in Control" means, after the Effective Date: (a) any "person" (as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than forty percent (40%) of the common stock of the Company (including 1 6 common stock equivalents) some or all of which are not subject to that certain Stockholders' Agreement, dated August 6, 1991; or (b) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company (including voting securities equivalents) outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities, or voting securities equivalents, of the surviving entity) at least eighty percent (80%) of the total voting power represented by the voting securities of the Company or such surviving entity (including Voting securities equivalents) outstanding immediately after such merger or consolidation (for purposes of these determinations, common stock and equivalents held by Chemical Equity Associates and its transferees shall be considered voting securities, notwithstanding any provision to the contrary in the Certificate of Incorporation of the Company or of such surviving entity), or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (c) a change, during any period of two consecutive years, of a majority of the Board of Directors as constituted as of the beginning of such period unless the election of each director who was not a director at the beginning of such period was approved by the vote of at least two-thirds of the directors then in office who were directors at the beginning of such period. 1.06. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.07. "Commitment Period" means a 48 consecutive-month period beginning on the effective date of a Participant's Deferral Election during which the Participant must satisfy his commitment to defer compensation made through his Deferral Election. The Commitment Period of the Plan for a participant whose initial Deferral Election is effective November 1, 1990 shall be a 50 consecutive-month period beginning November 1, 1990 and ending December 31, 1994. 1.08. "Committee" means the Selective Deferred Compensation Plan Administrative Committee appointed and acting pursuant to Section 8.01. 2 7 1.09. "Company" means Whitmire Distribution Corporation, a Delaware corporation, its successors and assigns. 1.10. "Covered Compensation" means the excess of the sum of the annual base compensation paid to an Executive during a Plan Year and the annual bonus under the Company's Management Incentive Plan paid to an Executive during a Plan Year over the Social Security Taxable Wage Base for such Plan Year, excluding all other forms of remuneration paid or payable with respect to the Executive by the Employer during such period of time. 1.11. "Deferral Commitment" means the amount of Covered Compensation, not less than $10,000, which, as a result of the Participant's Deferral Election, will not be paid to the Participant but will instead be credited to his Deferred Compensation Account under the Plan throughout the Participant's Commitment Period. 1.12. "Deferral Election" means a Participant's election, made in writing on a form provided to the Participant by the Committee, (a) to have the amount of his Deferral Commitment during the Commitment Period credited to his account under the Plan; or (b) to defer payment of a stated amount of his Covered Compensation with respect to a stated time period, not less than $2,500 in any Plan Year, in order to satisfy his Deferral Commitment. 1.13. "Deferred Retirement Date" means the first day of any month after the month in which a Participant who has worked beyond his Normal Retirement Date terminates employment with the Employer. Consent of the Board of Directors shall be required for a Deferred Retirement Date beyond age 70. 1.14. "Disability" means Disability as defined in the Whitmire Distribution Corporation Retirement Savings Plan in effect from time to time. 1.15. "Early Retirement Date" means the date on which the Participant attains age 55 or completes 5 Years of Service, whichever occurs later. 1.16. "Effective Date" means November 1, 1990. 1.17. "Employer" means the Company, and those of its subsidiaries and other corporations or entities it controls 3 8 that have been approved by the Board of Directors for inclusion in the Plan. 1.18. "Entry Date" means the January 1 or July 1 of any year with respect to which a Participant may be admitted into the Plan in order to commence deferrals into the Plan, and with respect to which a Participant may change his investment election pertaining to his Accounts in accordance with Section 5.06. The initial Entry Date for Participants whose Commitment Period commences on November 1, 1990 shall be November 1, 1990. 1.19. "Executive" means a management or highly compensated employee of the Employer. 1.20. "In Pay Status" means, with respect to a benefit under the Plan, that a Participant or Beneficiary has met all of the requirements to receive such benefit and it is being paid or is about to be paid to such Participant or Beneficiary. 1.21. "Leave" means an approved leave of absence granted to an Executive by the Employer pursuant to its Leave of Absence Policy in effect from time to time. 1.22. "Normal Retirement Date" means the first day of the month following the month in which the Participant attains age 65. 1.23. "Participant" means an Executive who is eligible to participate in the Plan and whose eligibility has not been terminated as provided in Section 2.02 hereof. 1.24. "Plan" means this WHITMIRE DISTRIBUTION CORPORATION SELECTIVE DEFERRED COMPENSATION PLAN, as hereaf- ter amended. 1.25. "Plan Year" means the calendar year, which is the time frame with respect to which Plan records are kept. The initial Plan Year shall be the 14 consecutive-month period beginning November 1, 1990 and ending December 31, 1991. 1.26. "Pre-Retirement Survivor Benefit" means the benefit payable in the manner provided in Section 7.02. 1.27. "Post-Retirement Survivor Benefit" means the benefit payable in the manner provided in Section 7.03. 1.28. "Retirement Income Benefit" means the benefit described in Section 6. 4 9 1.29. "Year of Service" means a 12-consecutive month period during which the Participant has been in the continuous employ of the Company. SECTION 2. PARTICIPATION 2.01. ELIGIBILITY REQUIREMENTS. Any Executive shall become a Participant immediately upon his designation by the Chairman of the Board of Directors as a Participant. 2.02. TERMINATION OF PARTICIPATION. The participation of any Participant (other than a disabled Participant described in Section 6.05 hereof) may be terminated prospectively at any time upon written notice from the Chairman of the Board of Directors. Any provision of the Plan to the contrary notwithstanding, effective upon such termination, the Participant shall no longer be entitled to make any further deferrals or to be credited with any further Company matching contributions; no survivor benefits under Section 7 shall be payable with respect to such Participant; and he may continue to direct the investment of his Accounts until they are distributed in accordance with Section 6. SECTION 3. FUNDING OF BENEFITS 3.01. UNFUNDED PLAN. The Plan shall be unfunded. All benefits payable under the Plan shall be paid from the Employer's general assets. The Employer shall not be required to set aside or hold in trust any funds for the benefit of a Participant or Beneficiary, who shall have the status of a general unsecured creditor with respect to the Employer's obligation to make benefit payments pursuant to the Plan. Any assets of the Employer available to pay Plan benefits shall be subject to the claims of the Employer's general creditors and may be used by the Employer in its sole discretion for any purpose. SECTION 4. CLAIMS PROCEDURE 4.01. BENEFIT CLAIMS PROCEDURE. All applications for benefits under the Plan shall be submitted to a Committee member at the Employer's principal place of business. Applications for benefits must be in writing and must be signed by the Participant or, in the case of a Pre- Retirement Survivor Benefit, by the Beneficiary or legal 5 10 representative of the deceased Participant. The Committee reserves the right to require that the Participant furnish proof of his age prior to processing any application. Each application shall be acted upon and approved or disapproved within ninety (90) days following its receipt by the Committee. In the event any application for benefits is denied in whole or in part, the Committee shall notify the applicant in writing of such denial and of his right to a review by the Committee and shall set forth, in a manner calculated to be understood by the applicant, specific reasons for such denial, specific references to pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the applicant to perfect his application, an explanation of why such material or information is necessary, and an explanation of the Plan's review procedure. 4.02. APPEALS PROCEDURE. Any person or his duly authorized representative whose application for benefits is denied in whole or in part may appeal such denial to the Committee for a review of the decision by submitting to a Committee member within ninety (90) days after receiving written notice from the Committee of the denial of his claim a written statement (a) requesting a review by the Committee of his application for benefits; (b) setting forth all of the grounds upon which his request for review is based and any facts in support thereof; and (c) setting forth any issues or comments that the applicant deems pertinent to his application. The Committee shall regularly review appeals applications submitted to it. The Committee shall act upon each application within sixty (60) days after receipt of the applicant's request for review by the Committee. The Committee shall make a full and fair review of each such application and any written materials submitted by the applicant or the Employer in connection therewith and may require the Employer or the applicant to submit such additional facts, documents, or other evidence as the Committee in its sole discretion deems necessary or advisable in making such a review. On the basis of its review, the Committee shall make an independent determination of the applicant's eligibility for benefits under the Plan. The decision of the Committee on any application for benefits shall be final and conclusive upon 6 11 all persons, if supported by substantial evidence in the record. In the event that the Committee denies an application in whole or in part, the Committee shall give written notice of the Committee's decision to the applicant setting forth, in a manner calculated to be understood by the applicant, the specific reasons for such denial and specific references to the pertinent Plan provisions on which the Committee's decision was based. SECTION 5. DEFERRAL OF COMPENSATION 5.01. DEFERRAL ELECTION. Each Participant shall complete a Deferral Election form, setting forth the amount of his Deferral Commitment and the duration of his Commitment Period. The Deferral Election form shall also indicate the amount of Covered Compensation which will be deferred with respect to the remainder of the then current Plan Year (the "Initial Deferral Period"). In no event may such amount be less than the greater of $2,500 or 25% of the Deferral Commitment. In addition, the Deferral Form will indicate whether the deferrals will be made from base compensation, management incentive compensation, or both. Further, the Deferral Form will indicate whether the Participant wishes to receive distribution of benefits in a lump sum, or in reasonably level payments over a five, ten or fifteen year period. A Participant's deferrals will be credited to his Deferred Compensation Account, as described in Section 5.05, as of the last day of the calendar month in which the deferral occurs. A Participant shall be 100% vested in his Deferred Compensation Account at all times. 5.02. SUBSEQUENT YEARS. After the Initial Deferral Period, the Participant may select the amount of Covered Compensation he wishes to defer and the time period over which he wishes to defer it, by completing a new Deferral Election form. There is no requirement that a Participant make an election to defer compensation in a particular time period, so long as the entire Deferral Commitment is satisfied during the Commitment Period. 5.03. MAXIMUM DEFERRAL. A Participant may defer up to 50% of his annual base compensation during any Plan Year. In addition, a Participant may defer up to 100% of his management incentive bonus during any Plan Year. The 50% limitation shall be increased to 100% with respect to base compensation paid during November and December, 1990, provided that the entire deferral amount for the 14-month 7 12 begining November 1, 1990 does not exceed the 50% limitation. 5.04. EFFECTIVE DATES. A Participant's Deferral Election shall be effective for a particular Entry Date if it is filed with the Plan Committee no later than the 15th day of the month immediately preceding the month with respect to which it is to become effective. A Participant's Deferral Election with respect to the Plan Year commencing November 1, 1990 shall be effective if it is filed with the Plan Committee no later than Octobar 31, 1990. A Participant's Deferral Election for a Plan Year shall become irrevocable for the portion of the Plan Year to which it relates after the 15th day of the month immediately preceding the month with respect to which it is to become effective. 5.05. ESTABLISHMENT OF ACCOUNTS. Two separate accounts shall be established in the books and records of the Plan with respect to each Participant who files a Deferral Election form with the Plan Committee. Deferrals of compensation shall be credited to the Deferred Compensation Account, withdrawals or distributions shall be debited to this account, and (subject to Section 5.06) earnings or losses attributable to investment Elections shall be credited or debited to this account Company matching contributions, if any, shall be credited to the Company Matching Account, withdrawals, distributions or forfeitures shall be debited to this account, and (subject to Section 5.06) earnings or losses attributable to investment elections shall be credited or debited to this account 5.06. INVESTMENT DIRECTION. Each Participant shall be permitted, not more often than quarterly, to direct the Plan Committee in writing, utilizing a form to be furnished by the Committee, to credit or debit the Participant's account balance as though the account assets were actually invested in one or more mutual funds offered by the Equitable through The Hudson River Trust in the proportions indicated by the Participant Changes in such directions shall be effective on the first day of the calendar quarter following receipt by the Plan Committee of such written instruction provided it is so received not less than 30 days prior to such date. The earnings or losses will be credited or debited to a Participant's Accounts as if such Accounts were actually invested as directed by the Participant. Under no circumstance, however, will the Employer or the Committee by required to invest any portion of the Plan assets in accordance with the elections submitted by the Participants. The Employer may choose to do so in order to minimize its risk of loss, however. 5.07. COMPANY MATCHING CONTRIBUTION. Each year the Company will decide whether it will match a portion or all 8 13 of the deferrals of Participants for that year. If it chooses to do so, each affected Participant's Company Matching Account will be credited with the amount of the matching contribution properly allocable to it, as of the last day of the Plan Year to which the matching contribution relates. 5.08. VESTING OF COMPANY MATCHING CONTRIBUTION. Amounts credited to a participant's Company Matching Account will vest based on the following schedule: Completed Plan Year Vested Percentage ------------------- ------------------ 0 0 1 25% 2 50% 3 75% 4 or more 100% For purposes of this Section 5.08, a Completed Plan Year shall mean a Plan Year during which the Participant has been continuously employed by the Employer for a period that includes not less that 188 business days and ends on December 31 of such year. Amounts credited to a Participant's Company Matching Account shall be 100% vested upon the occurrence of a Change in Control. 5.09. INVESTMENT EXPERIENCE. Investment earnings or losses determined with reference to a Participant's investment elections shall be credited or debited to such participant's Accounts as of the last day of each calendar month. The Company may, in its sole discretion, make interim debits or credits in the event of a substantial shift in the investment marketplace, provided that such debits and credits are made uniformly to all similarly situated Participants. SECTION 6. RETIREMENT INCOME BENEFITS 6.01. NORMAL RETIREMENT BENEFIT. Each Participant who retires, or voluntarily or involuntarily terminates employment at his Normal Retirement Date shall be entitled to the distribution of a sum of money equal to the sum of his Deferred Compensation Account Balance and the vested portion of his Company Matching Account balance, in the manner specified in the Deferral Election form. The normal retirement benefit shall commence on the first day of the month following the month of retirement or such termination of employment. 9 14 6.02. EARLY RETIREMENT BENEFIT. Each Participant who retires, or voluntarily or involuntarily terminates employment prior to his Normal Retirement Date but on or after his Early Retirement Date shall be entitled to the distribution of a sum of money equal to the sum of his Deferred Compensation Account balance and the vested portion of his Company Matching Account balance, in the manner specified in the Deferral Election form. The early retirement benefit shall commence on the first day of the month following the month in which occurs the Participant's termination of employment. 6.03. DEFERRED RETIREMENT BENEFIT. Each Participant who retires, or voluntarily or involuntarily terminates employment at his Deferred Retirement Date shall be entitled to the distribution of a sum of money equal to the sum of his Deferred Compensation Account balance and the vested portion of his Company Matching Account balance, in the manner specified in the Deferral Election form. The deferred retirement benefit shall commence on the first day of the month following the month of retirement or such termination of employment. 6.04. CHANGE IN CONTROL BENEFIT. Each Participant who retires, or voluntarily or involuntarily terminates employment after a Change in Control, shall be entitled to the distribution of a sum of money equal to the sum of his Deferred Compensation and Company Matching Account balances, as vested in accordance with Section 5.08, in the manner specified in the Deferral Election form. The Change in Control benefit shall commence on the first day of the month following the month in which occurs the Participant's termination of employment. 6.05. DISABILITY. A Participant who suffers Disability shall be deemed to remain a Participant for the duration of the Disability, and his eligibility for Retirement Income Benefits and the eligibility of his Beneficiary for Pre- Retirement Survivor Benefits in the event of the Participant's death shall not be affected thereby. Without deducting such amount from his current compensation, if any, the Company shall continue to credit his Deferred Compensation Account throughout the entire period of his Disability (but not after December 31, 1994) with the minimum amount of deferrals necessary to satisfy his Deferral Commitment at the rate applicable on the date immediately preceding his date of Disability. During the period of his Disability (but not after December 31, 1994) a disabled Participant shall also be entitled to Company matching contributions, if any. A disabled Participant may request a hardship withdrawal under appropriate provisions of the Plan. 10 15 6.06. LEAVE. For purposes of Sections 5 through 7, a Participant who is on Leave shall be deemed to remain a Participant for the duration of the Leave. 6.07. SUICIDE. Any provision of the Plan to the contrary notwithstanding, no benefits attributable to Company matching contributions nor any benefits pursuant to Sections 7.02(b) or 7.03(b) shall be payable to a Participant or Beneficiary if the Participant dies as a result of suicide or self-inflicted injury within two (2) years of the later of his designation as a Participant and his execution of the benefit agreement described in Section 6.08 hereof. 6.08. BENEFIT AGREEMENT. The Committee shall provide to each Executive within sixty (60) days of the later of the Effective Date or the date on which the employee was designated an Executive a form of benefit agreement which shall set forth the Executive's acceptance of the benefits provided under Section 5 through 7 and his agreement to be bound by the provisions of the Plan. 6.09. NO DUPLICATION OF BENEFITS. The Pre-Retirement Survivor Benefit and the Retirement Income Benefit under the Plan shall be mutually exclusive with respect to each Plan Participant. Thus, a Participant who is In Pay Status with respect to the Retirement Income Benefit is not eligible for the Pre-Retirement Survivor Benefit, and vice versa. 6.10. HARDSHIP WITHDRAWALS. A Participant may apply to the Committee for a preretirement distribution as a result of severe financial hardship. The requirements for constituting a hardship are the same as those in the Whitmire Distribution Corporation Retirement Savings Plan. 6.11. SEPARATION FROM SERVICE. In the event of a Participant's termination of employment for a reason other than death, disability, or retirement, the amount of money equal to the Participant's balance in his Deferred Compensation Account and the vested portion, if any, of the Participant's Employer Matching Account shall be distributed to the Participant in a single sum distribution no later than 120 days after his termination from employment. 6.12. FAILURE TO COMPLETE DEFERRAL COMMITMENT. If a Participant fails to satisfy his Deferral Commitment within the Commitment Period, the participation of the Participant shall be suspended for a period commencing with such failure and ending on the Entry Date immediately following the anniversary of such date. During such suspension the Participant shall not be entitled to make any deferrals or to be credited with Company matching contributions; no 11 16 survivor benefits under Section 7 shall be payable with respect to such Participant; and he may continue to direct the investment of his Accounts until they are distributed in accordance with Section 6. Provided that the Participant's participation has not been terminated pursuant to Section 2.02, the Participant may re-enter the Plan as provided in Section 5 upon the termination of his suspension. SECTION 7. SURVIVOR BENEFITS 7.01. DESIGNATION OF BENEFICIARY. (a) A Participant or former Participant may designate a Beneficiary and contingent Beneficiary by the completion, execution and delivery to the Committee of a form for that purpose provided by the Committee at any time prior to his death and may revoke or change the Beneficiary or contingent Beneficiary designated therein without the Beneficiary's consent by completing, executing and delivering to the Committee a replacement form at any time, and from time to time, prior to his death; provided, however, that if a married Participant designates any person other than the person who is then his spouse, the Committee may require the Participant to furnish to the Committee the written consent of such spouse to such designation in such form as the Committee may require. (b) If such Participant or former Participant shall have failed to designate a Beneficiary for the receipt of death benefits hereunder or if no such Beneficiary shall survive him, then the following, in the order named, shall be designated Beneficiary and shall receive death benefits hereunder: (i) the person who is the spouse of the Participant at the Participant's death, or if none, (ii) the estate of the Participant. 7.02. PRE-RETIREMENT SURVIVOR BENEFIT. If a Participant dies prior to his retirement at his Early, Normal or Deferred Retirement Date, whichever is applicable: (a) his Beneficiary shall be entitled to a distribution of a sum of money equal to the sum of his Deferred Compensation and Company Matching Account balances in the manner specified by the Participant in his Deferral Election form; and (b) the Beneficiary shall be entitled to an annual benefit equal to 25% of the Participant's deferrals and 12 17 Company matching contributions, excluding earnings, to be paid over a ten-year period. (c) The Committee may direct, after consultation with the Beneficiary, that the pre-retirement survivor benefit be paid as a single lump sum distribution in lieu of the manner directed by the Participant. 7.03. POST-RETIREMENT SURVIVOR BENEFIT. If a participant dies at or after his retirement at his Early, Normal or Deferred Retirement Date, whichever is applicable: (a) his Beneficiary shall be entitled to receive the remainder, if any, of his Plan benefits at the rate they were payable to the Participant; and (b) after his Plan benefits are completely distributed, but no earlier than ten years after the Participant's retirement, the Participant's surviving spouse shall be entitled to an annual benefit equal to 50% of the annual benefit which the Participant would have received during his lifetime, had he elected the 15-year payout alternative, payable for the life of the surviving spouse. For purposes of computing the distributions to be made pursuant to this Section 7.03(b), if the Participant's spouse is more than five (5) years younger than the Participant, the distributions shall be reduced so that they are actuarially equivalent to distributions payable to a spouse who is five (5) years younger than the Participant. (c) The Committee may direct, after consultation with the Beneficiary, that the post-retirement survivor benefit be paid as a single lump sum distribution in lieu of the manner directed by the Participant. SECTION 8. ADMINISTRATION OF THE PLAN 8.01. APPOINTMENT OF COMMITTEE. The Board of Directors or a duly appointed committee thereof shall constitute the Selective Deferred Compensation Plan Administrative Committee. 8.02. DUTIES AND POWERS. The Committee shall be responsible for the general administration of the Plan and the proper execution of its provisions. It shall also be responsible for the interpretation of the Plan and the determination of all questions arising thereunder. It shall maintain all necessary books of accounts and records. It shall have power to establish, interpret, enforce, amend, and revoke, from time to time, such rules and regulations 13 18 for the administration of the Plan and the conduct of its business as it deems appropriate, including the right to remedy ambiguities, inconsistencies and omissions (provided such rules and regulations are uniformly applied to all persons similarly situated). Any action that the Committee is required or authorized to take shall be final and binding upon each and every person who is or may become a Plan Participant or Beneficiary. 8.03. CONDUCT OF ITS AFFAIRS. The Committee may act by a majority of its members in office from time to time. It may elect, from time to time, one of its own members to act as Chairman and a different person, who may but need not be a member of the Committee, to act as Secretary. It may authorize any one or more of its members to execute and deliver any documents on behalf of the Committee. A Committee member must absent himself from any vote on any matter which directly affects him. 8.04. ALLOCATION OF RESPONSIBILITIES. As provided above, the Board of Directors shall appoint the Committee, but the Board of Directors, unless acting as the Committee, shall have no responsibility for the operation and administration of the Plan. The Committee may, from time to time, allocate to one or more of its members and may delegate to any other person or organization any of its rights, powers, duties, and responsibilities with respect to the operation and administration of the Plan. Any such allocation and delegation shall be reviewed at least annually by the Committee and shall be terminable upon such notice as the Committee in its sole discretion deems reasonable and prudent under the circumstances. 8.05. EXPENSES OF THE COMMITTEE. The expenses of the Com- mittee properly and actually incurred in the performance of its duties under the Plan shall be paid by the Employer. 8.06. BONDING AND COMPENSATION. The members of the Committee shall serve without bond, and without compensation for their services as Committee members except as the Employer may provide in its discretion. 8.07. INFORMATION TO BE SUBMITTED TO THE COMMITTEE. To enable the Committee to perform its functions, the Employer shall supply full and timely information to the Committee on all matters relating to Executives and Participants as the Committee may require, and shall maintain such other records as the Committee may determine are necessary in order to determine the benefits due or which may become due to Participants or their Beneficiaries under the Plan. The Committee may rely on such records as conclusive with respect to the matters set forth therein. 14 19 8.08. NOTICES, STATEMENTS AND REPORTS. The Company shall be the "administrator" of the Plan as defined in Section 3(16)(A) of the Act for purposes of the reporting and disclosure requirements imposed by the Act and the Code. The Committee shall assist the Company, as requested, in complying with such reporting and disclosure requirements. 8.09. SERVICE OF PROCESS. The Committee may from time to time designate an agent of the Plan for the service of legal process. The Committee shall cause such agent to be identified in materials it distributes or causes to be distributed when such identification is required under applicable law. In the absence of such a designation, the Company shall be the agent of the Plan for the service of legal process. 8.10. INSURANCE. The Company, in its discretion, may obtain, pay for and keep current a policy or policies of insurance, insuring the Committee members, the members of the Board of Directors and other employees to whom any responsibility with respect to the administration of the Plan has been delegated against any and all costs, expenses and liabilities (including attorneys' fees) incurred by such persons as a result of any act, or omission to act, in connection with the performance of their duties, responsibilities and obligations under the Plan and any applicable law. 8.11. INDEMNITY. If the Company does not obtain, pay for and keep current the type of insurance policy or policies referred to in Section 8.10, or if such insurance is provided but any of the parties referred to in subsection 8.10 incur any costs or expenses which are not covered under such policies, then the Company shall indemnify and hold such parties harmless in the same manner and to the same extent as directors and officers of the Company pursuant to its Bylaws and Certificate of Incorporation. SECTION 9. AMENDMENT AND TERMINATION 9.01. RIGHT TO AMEND OR TERMINATE. The Company reserves the right to terminate or amend this Plan at any time; provided, however, that no such termination or amendment shall have the effect of reducing a Participant's Deferral Account or the vested portion of his Company Matching Account or of reducing any survivor benefit that is In Pay Status. 9.02. RIGHT TO ACCELERATE. The Board of Directors in its sole discretion may accelerate all vested Retirement Income 15 20 Benefits upon termination of the Plan, and may pay such benefits in a single lump sum. SECTION 10. MISCELLANEOUS 10.01. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in the Plan shall be construed as giving any person employed by the Employer the right to be retained in the Employer's employ, and nothing in the Plan shall be construed as altering in any manner any other terms or conditions of any person's employment relationship with the Employer. The Employer expressly reserves the right to dismiss any person at any time, with or without cause, without liability effect that such dismissal might have upon him as a Participant in the Plan. 10.02. PROHIBITION AGAINST ALIENATION. Except as otherwise provided in the Plan, no right or benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void. No such right or benefit shall be liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such right or benefit. 10.03. SAVINGS CLAUSE. If any provision of this instrument shall be finally held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. 10.04. PAYMENT OF BENEFIT OF INCOMPETENT. In the event the Committee finds that a Participant, former Participant, or Beneficiary is unable to care for his affairs because of his minority, illness, accident, or other reason, any benefits payable hereunder may, unless other claim has been made therefor by a duly appointed guardian, committee or other legal representative, be paid to a spouse, child, parent, or other blood relative or dependent or to any person found by the Committee to have incurred expenses for the support and maintenance of such Participant, former Participant, or Beneficiary; and any such payments so made shall be a complete discharge of all liability therefor. 10.05. WITHHOLDING. Benefit payments hereunder shall be subject to applicable federal, state and local withholding for taxes. 10.06. SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased 16 21 the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 10.07. SUCCESSORS. In the event of any consolidation, merger, acquisition or reorganization of the Employer, the obligations of the Employer under this Plan shall continue and be binding upon the Employer and its successors. 10.08. INSURANCE APPLICATION. Every Executive shall cooperate in signing all documents which the Employer believes are necessary for the acquisition of insurance connected with the provision of benefits under the Plan. 10.09. GENDER, TENSE AND HEADINGS. Whenever any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine gender in all cases where they would so apply. Whenever any words used herein are in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. Headings of Sections and subsections as used herein are inserted solely for convenience and reference and constitute no part of the Plan. SECTION 11. CONSTRUCTION 11.01. CHOICE OF LAW. This Plan shall be governed by and construed in accordance with the laws of the State of California to the extent not superseded by applicable federal statutes or regulations. IN WITNESS WHEREOF, WHITMIRE DISTRIBUTION CORPORATION has caused this Plan to be executed this day of , 1991. WHITMIRE DISTRIBUTION CORPORATION, a Delaware Corporation By: Patricia A. Kane ----------------- Title: Vice President - Administration -------------------------------- 17 22 FIRST AMENDMENT TO SELECTIVE DEFERRED COMPENSATION PLAN The Whitmire Distribution Corporation Selective Deferred Compensation Plan is hereby amended, effective as of June 1, 1993, as follows: 1. The following paragraph is added to Section 5.02: "The Participant may elect to defer Covered Compensation in addition to his Deferral Commitment (an "Additional Deferral") by notifying the Plan Committee in writing, on a form satisfactory to the Plan Committee, of the amount to be deferred. Such election shall be filed with the Plan Committee no later than the 15th day of the month immediately preceding the Entry Date on which it is to become effective and shall be irrevocable after the 15th day of the month immediately preceding such Entry Date. Anything in this Plan to the contrary notwithstanding, no Company matching contribution shall be made with respect to any Additional Deferral and all Survivor Benefits shall be determined without regard to any Additional Deferral (or earnings thereon)." 2. Section 7.02(b) is amended to read in its entirety as follows: "(b) the Beneficiary shall be entitled to an annual benefit equal to 25% of the Participant's deferrals (excluding, however, any Additional Deferrals) and Company matching contributions, excluding earnings, to be paid over a ten- year period." 3. The first sentence of Section 7.03(b) is amended to read in its entirety as follows: "after his Plan benefits are completely distributed, but no earlier than ten years after the Participant's retirement, the Participant's surviving spouse shall be entitled to an annual benefit equal to 3.3333% of the Participant's deferrals (excluding, however, any Additional Deferrals) and Company matching contributions, excluding earnings, payable for the life of the surviving spouse." WHITMIRE DISTRIBUTION CORPORATION By: Patricia A. Kane ------------------------- Title: Vice President ---------------- Dated: June 17, 1993 23 SPLIT DOLLAR AGREEMENT THIS Agreement entered into this 7th day of February, 1991, by and between Whitmire Distribution Corporation, a Delaware corporation (hereinafter sometimes referred to as the "Corporation") and Melburn Whitmire (hereinafter sometimes referred to as the "Executive"). 1. Purpose of Agreement -------------------- WHEREAS, the Executive is insured under Policy Number 41 209 276 (the "Policy") issued by Equitable Variable Life Insurance Company ("Equitable"); and WHEREAS, the owner of the Policy (the "Owner") shall be the Executive or the person or other entity to whom the Executive assigns the Policy pursuant to Section 6; and WHEREAS, the Corporation agrees to the payment of premiums under the Policy as provided in Section 3; and WHEREAS, the Executive has agreed to assign an interest in the Policy to the Corporation as collateral security for such premium payments, at the time of the first premium payment, on a form of agreement approved by Equitable (the "Collateral Assignment Agreement"); and WHEREAS, the parties desire to have a separate agreement outlining their respective interests and obligations in the Policy; NOW THEREFORE, in consideration of the promises and mutual covenants expressed herein by both parties, the Executive and the Corporation bind themselves and their respective successors and assigns, and hereby agree as follows: 2. Insurance Policy and Amounts ---------------------------- The Executive is the owner of the aforementioned Policy insuring his life. The Executive's initial portion of the total life insurance proceeds is $630,000.00 ("Amount of Insurance"). This amount is equivalent to three times the Executive's annualized base salary as of January 1, 1991 ("Anniversary Date"), rounded to the next higher $1,000. On each subsequent Anniversary Date the Amount of Insurance shall be adjusted to equal the amount determined under the above formula, based on the Executive's annualized base salary. If required, the Executive will do everything necessary to cause the policy and increases thereon to be issued by Equitable, including completion of applications, submission to medical examinations/laboratory tests and authorization to release medical information to Equitable. 24 3. Payment of Premiums ------------------- The Corporation shall pay the premiums on the Policy through the earlier of the Program Maturity Date and the termination of this Agreement under Section 7. The Program Maturity Date shall be the first day of the month next following the Executive's actual retirement from the Corporation. The Corporation may increase or decrease the scheduled premium for any year after the first year. Each premium for the Policy following execution of this Agreement will be remitted by the Corporation to Equitable within 31 days following the Anniversary Date. 4. Policy Beneficiary Designation ------------------------------ The right to designate and change the beneficiary of the Policy and to elect an optional mode of settlement is reserved to the person who would be the Owner of the Policy in the absence of the Collateral Assignment Agreement. Such Policy Owner shall have the right to designate and change the beneficiaries and contingent beneficiaries and to elect an optional mode of settlement subject to the interest of the Corporation as Assignee under the Collateral Assignment Agreement, and the Corporation will make the Policy available to the Owner, if required for endorsement of a change of beneficiary. 5. Payment of Policy Proceeds in Event of Death of Executive --------------------------------------------------------- If the Executive dies while the Policy and this Agreement are in force, the proceeds of the Policy will be payable as follows: (a) Part shall be payable to the beneficiary under the Policy equal to the Amount of Insurance determined under the formula in Section 2 of this Agreement. (b) The entire outstanding balance of the proceeds in excess of the part payable under (a) above shall be payable to the Corporation which amount is designed to reimburse the Corporation for the aggregate amount of the premium payments made by the Corporation pursuant to this Agreement, less any outstanding Policy loans received by the Corporation prior to the Executive's death. 6. Corporation's Exercise of Rights as Assignee -------------------------------------------- The Corporation, during the lifetime of the Executive and prior to the termination of this Agreement, may exercise any of its rights as Assignee of the policy without the consent of the Executive. If a Policy loan is made by the Corporation, it shall be responsible for the interest thereon and shall pay such interest as it becomes due. 2 25 Subject to Corporation's rights as Assignee, the Owner retains all rights as Owner of the Policy, including the right of assignment. The Owner agrees not to withdraw, surrender, borrow against, or pledge as security for a loan any portion of the Policy cash value while this Agreement is in effect. 7. Termination of Agreement ------------------------ This Agreement shall terminate if any of the following takes place: (a) Termination of the Executive's employment with the Corporation prior to the Executive's becoming eligible for disability benefits under the Whitmire Distribution Corporation Long-Term Disability Plan or prior to retirement; (b) The Program Maturity Date; (c) Demotion of the Executive to a position which is not part of the group of Executives eligible to participate in the Corporation's Executive Life Insurance Program as determined by the Corporation; (d) The bankruptcy of the Corporation; (e) The failure of the Corporation to pay the premium under Section 3 of this Agreement; (f) Payment to the Corporation by the Executive of the aggregate amount of the premiums paid by the Corporation pursuant to this Agreement; or (g) Termination of this Agreement pursuant to Section 9. In the event of termination of this Agreement, the aggregate of the premiums paid by the Corporation pursuant to this Agreement, less any outstanding Policy loans received by the Corporation prior to such termination (or, if less, the net cash value in the Policy), shall become due and payable to the Corporation. Upon recovery of such amount from the Executive's interest in the Policy, from prior borrowings from the Policy, or whatever other source, the Corporation shall execute a release of the Collateral Assignment Agreement and deliver such release and the Policy to the Owner. In no event shall an Executive be personally liable to the Corporation for any amounts due the Corporation pursuant to this paragraph 7. 8. Insurer Not A Party ------------------- Equitable shall not be deemed to be a party to this Agreement for any purpose nor shall it be deemed in any way responsible for its validity. Equitable shall not be obligated to inquire as to the distribution or application of any monies payable or paid by it under the Policy, and payments or other performance 3 26 of its contract obligations in accordance with the terms of the Policy shall fully discharge Equitable from any and all liability under the Policy. 9. Amendment and Assignment of Agreement ------------------------------------- (a) This Agreement shall not be modified or amended except in writing signed by the parties hereto. (b) This Agreement is binding upon the heirs, administrators or assigns of each party. (c) This Agreement may be terminated by either party by 30 days' written notice to the other. 10. State Law --------- This Agreement shall be subject to and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Whitmire Distribution Corporation Executive by: /s/ Patricia A. Kane /s/ Melburn G. Whitmire ----------------------------- ------------------------------- Vice President ----------------------------- (Title) Witness: /s/ Tracy Appleton ------------------------------- Tracy Appleton ------------------------------- (Print Name) WH9168 4 27 COLLATERAL ASSIGNMENT AGREEMENT A. For value received, the undersigned (the "Policyowner"), as owner of Policy Number 41 209 276 (the "Policy") issued by Equitable Variable Life Insurance Company (the "Insurer"), hereby assigns, sets over and transfers the Policy to Whitmire Distribution Corporation, a corporation organized under the laws of the State of Delaware (the "Assignee"), as collateral security for those liabilities as may arise under the terms of the Split Dollar Agreement between the Policyowner (or its assignor) and the Assignee dated as of January 1, 1991 (the "Split Dollar Agreement"), subject to the terms and conditions in the Policy and to all superior liens, if any, which the Insurer has or may have against the Policy. B. The collateral assignment being made pursuant to this Agreement is solely for the purpose of assuring the Assignee of payment of the liabilities that may become due under the terms of the Split Dollar Agreement. C. The Policyowner and the Assignee expressly agree, without detracting from the generality of the foregoing, that the following rights are included in this assignment and pass to the Assignee by virtue hereof: 1. The sole right to collect the net proceeds of the Policy from the Insurer when the Policy becomes a claim by death or maturity to the extent of the Assignee's interest as defined in the Split Dollar Agreement. 2. The sole right to surrender the Policy and receive the cash surrender value thereof pursuant to the Policy provisions. 3. The sole right to obtain one or more loans or advances on the Policy, and to pledge or assign the Policy as security for such loans or advances. In no event shall the total loans or advances exceed the Assignee's interest in the policy as set forth in paragraph 7 of the Split Dollar Agreement. 4. The sole right to assign, sell or convey the Policy, subject to the interest of the Assignee. D. The Policyowner and the Assignee expressly agree that as long as the Policy has not been surrendered, the following rights are reserved by the Policyowner and excluded from this assignment, and do not pass by virtue hereof: 1. The sole right to designate and change the beneficiary. 2. The sole right to elect any Optional Mode of Settlement permitted by the Policy or permitted by the Insurer. 28 E. The Assignee covenants and agrees with the Policyowner: 1. The amounts which are paid to the Assignee by the Insurer pursuant to the terms of the Policy and this Agreement and which are remaining after payment of the then existing liabilities of the Policyowner under the Split Dollar Agreement shall be paid by the Assignee to the persons entitled thereto under the Policy had this Agreement not been executed. 2. That the Assignee will not exercise either the right to surrender or withdraw from the Policy or the right to obtain Policy loans from the Insurer unless and until there has been a default in any of the liabilities under the Split Dollar Agreement, failure to pay a premium when due or the occurrence of any event under the Split Dollar Agreement which calls for the Assignee to recover amounts to which the Assignee is entitled under the Policy. In any event, the Assignee shall not exercise any of its rights under the Policy until 20 days after the Assignee shall have mailed, by first class mail, to the Policyowner at the address last supplied to the Assignee specifically referring to this assignment, notice of intention to exercise such right. Upon the full payment of all liabilities under the Split Dollar Agreement by the Policyowner to the Assignee, the Assignee shall execute an appropriate instrument of release of this assignment. The Insurer shall be fully protected and discharged from further obligation by paying in reliance upon the terms of the Policy and/or the terms of this assignment. The Insurer shall not be bound by the terms of the Split Dollar Agreement and may rely on any written assurance concerning such Agreement provided to the Insurer by the Policyowner or the Assignee. Any conflicts between this assignment and any other agreement, with respect to the rights of the Assignee under the Policy, shall be resolved in accordance with the terms of this assignment. Executed as of 2-7-91 . ------------------ /s/ Melburn G. Whitmire ---------------------------------------------------- Policyowner's Signature Melburn Whitmire 6190 Rose Court ---------------------------------------------------- Address Roseville, CA 95678 ---------------------------------------------------- ------------------------------------------------ / / / RECEIPT OF THIS DOCUMENT IS ACKNOWLEDGED / / / / Date: 3/5/93 / / --------------------------- / / / / By: Billie Velasco / / --------------------------- / / W.L.I.C. SERVICE DIV. / / / ------------------------------------------------ WH9190 29 SPLIT DOLLAR ENDORSEMENT AGREEMENT This Agreement entered into this 7th day of February, 1991 by and between Whitmire Distribution Corporation, a Delaware Corporation (hereinafter sometimes referred to as the "Corporation") and Melburn Whitmire (hereinafter sometimes referred to as the "Executive"). 1. Purpose of Agreement -------------------- WHEREAS, the Executive is insured under Policy Number 41 209 277 (the "Policy") issued by Equitable Variable Life Insurance Company ("Equitable"); and WHEREAS, the owner of the Policy (the "Owner") shall be the Corporation; and WHEREAS, the Corporation agrees to the payment of premiums under the policy as provided in Section 3; and WHEREAS, the Corporation wishes to provide to the Executive additional life insurance benefits by permitting the Executive to designate a beneficiary for a portion of the life insurance proceeds from the Policy as provided in Section 5; and WHEREAS, the parties desire to have a separate agreement outlining their respective interests and obligations in the Policy; NOW THEREFORE, in consideration of the promises and mutual covenants expressed herein by both parties, the Executive and the Corporation hereby agree as follows: 2. Insurance Policy and Amounts ---------------------------- The Corporation shall be the sole owner of the Policy, except that while in the employ of the Corporation, the Executive shall have the right to designate a beneficiary or beneficiaries for that portion of the life insurance proceeds from the policy in the initial amount of $420,000.00 ("Amount of Insurance"). This amount is equivalent to two times the Executive's annualized base salary as of January 1, 1991 ("Anniversary Date") rounded to the next higher $1,000. The Corporation will be the direct beneficiary of the balance of the Policy proceeds as of the date of death of the Executive, less any Policy indebtedness to the Equitable. On each subsequent Anniversary Date the Amount of Insurance shall be adjusted to equal the amount determined under the above formula based on the Executive's annualized base salary. 30 If required, the Executive will do everything necessary to cause the policy and increases therein to be issued by Equitable, including completion of Applications, submission to medical examinations/laboratory tests and authorization to release medical information to Equitable. 3. Payment of Premiums ------------------- The Corporation shall pay the premiums on the Policy through the earlier of the Program Maturity Date and the termination of this Agreement under Section 6. The Program Maturity Date shall be the first day of the month next following the Executive's actual retirement from the Corporation. The Corporation may increase or decrease the scheduled premium for any year after the first year. Each premium for the Policy following execution of this Agreement will be remitted by the Corporation to Equitable within 31 days following the Anniversary Date. 4. Policy Beneficiary Designation ------------------------------ The right to designate and change the beneficiary of the Policy and to elect an optional mode of settlement is reserved to the Executive and the Corporation with respect to their share of the Policy proceeds as stated in Section 2 of this Agreement. The Executive's beneficiary designation is indicated on the Split Dollar Policy Endorsement in the attached Appendix A to this Agreement. 5. Payment of Policy Proceeds in event of Death of Executive --------------------------------------------------------- If the Executive dies while the Policy and this Agreement are in force, the proceeds of the Policy will be payable as follows: (a) Part shall be payable to the Executive's beneficiary(ies) under the Policy pursuant to the Policy Endorsement in Appendix A equal to the Amount of Insurance determined under the formula in Section 2 of this Agreement. (b) The entire outstanding balance of the proceeds in excess the part payable under the above shall be payable to the Corporation. 2 31 6. Termination of Agreement ------------------------ This Agreement shall terminate if any of the following takes place: (a) Termination of the Executive's employment with the Corporation prior to the Executive's becoming eligible for disability benefits under the Whitmire Distribution Corporation Long-Term Disability Plan, or prior to retirement; (b) The Program Maturity Date as defined in Section 3; (c) Demotion of the Executive to a position which is not part of the group of Executives eligible to participate in this Program as determined by the Corporation; (d) The bankruptcy of the Corporation; or (e) Termination of this Agreement pursuant to Section 8. 7. Insurer Not a Party ------------------- Equitable shall be bound only by the provisions of and endorsements on the Policy, and any payments made or action taken by it in accordance therewith shall fully discharge if from all claims, suits, and demands of all persons whatsoever. It shall in no way be bound by or be deemed to have notice of the provisions of this Agreement. 8. Amendment and Assignment of Agreement ------------------------------------- (a) This Agreement shall not be modified or amended except in writing signed by the parties hereto. (b) This Agreement is binding upon the heirs, administrators, or assigns of each party and the beneficiary(ies) of the Executive. (c) This Agreement may be terminated by either party by 30 days written notice to the other. 9. State Law --------- This Agreement shall be subject to and construed in accordance with the laws of the State of California. 3 32 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Whitmire Distribution Corporation Executive by: /s/ Patricia A. Kane /s/ Melburn G. Whitmire ----------------------------- ------------------------------- Vice President ----------------------------- (Title) Witness: /s/ Tracy Appleton ------------------------------- Tracy Appleton ------------------------------- (Print Name) ------------------------------------------------ / / / RECEIPT OF THIS DOCUMENT IS ACKNOWLEDGED / / / / Date: 3/5/93 / / --------------------------- / / / / By: Billie Velasco / / --------------------------- / / W.L.I.C. SERVICE DIV. / / / ------------------------------------------------ WH9190 4 EX-10.14 9 EXHIBIT 10.14 1 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION PLAN EFFECTIVE April 7, 1994 2 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION PLAN (the "Plan") I PURPOSE ------- Cardinal Health, Inc. and its affiliates (collectively, the "Company") is willing to provide supplemental retirement benefits out of its general assets to certain key employees as an incentive for those individuals to continue their relationship with the Company and to provide the benefits such individuals could otherwise earn under the Cardinal Health, Inc. Profit Sharing and Retirement Savings Plan (the "Qualified Plan") if certain federal law restrictions did not apply. Only a select group of the Company's management or highly compensated employees will be eligible to participate in this program. The Company's goal is to retain and reward its key employees by helping them to accumulate benefits for a comfortable retirement. II ELIGIBILITY ----------- Selection of the Company employees eligible to participate in the Plan is within the sole discretion of the Chairman of Cardinal Health, Inc. Only high income or key management employees are eligible for selection by the Chairman. If you fall into one of these groups and are chosen by the Chairman to participate in the Plan, you will sign an Incentive Deferred Compensation Agreement which details the requirements you must satisfy to be eligible to receive this supplemental retirement benefit from the Company. The Chairman will review and determine his selections each year. Thus, selection in one year does not automatically confer a right to participate in succeeding years. III INCENTIVE DEFERRED COMPENSATION ACCUMULATIONS --------------------------------------------- The benefits provided to participants under their Incentive Deferred Compensation Agreements are paid from the Company's general assets. The program is, therefore, considered to be an "unfunded" arrangement as amounts are not set aside or held by the Company in a trust, escrow, or similar account or fiduciary relationship on your behalf. Each participant's rights to benefits under the Plan are equivalent to the rights of any unsecured general creditor of the Company. However, the Company may open accounts with one or more investment companies selected by the Chairman, in his discretion, including from among those used as -1- 3 investment options under the Qualified Plan, and may invest funds subject to this Plan in these mutual funds. Each participant may be permitted to direct how the portion of the Company's funds allocable to him or her is invested from among the available options, if such investment accounts are established. The Company currently expects any such options to be similar to those available under the Qualified Plan, but is not obligated to make these or any other particular investment options available. All investments shall at all times continue to be a part of the Company's general assets for all purposes. To measure the amount of the Company's obligations to a participant in this program, the Company will maintain a bookkeeping record or account of each participant's "Accumulations". There are three basic components of each participant's Accumulations: First, the Company may credit to your Accumulations each calendar year during which you are selected to participate in the Plan an amount equal to 3% of your compensation from the Company in excess of the compensation limit applicable to the Qualified Plan under the Internal Revenue Code (currently $150,000 per year) but not more than $250,000. For this purpose, your compensation includes salary, commission and bonus payments made for the year, but does not include other cash or noncash compensation, expense reimbursements or other benefits provided by the Company, other than your own salary deferrals into this Plan or the Qualified Plan. In addition, the Company may make an additional profit sharing contribution to the Plan for a year, in the Company's discretion, to be credited to your Accumulations. One of the purposes of these contributions is to make up the portion of automatic and special profit sharing contributions to the Qualified Plan that you are losing due to the capping of pay eligible for consideration under the Qualified Plan under Internal Revenue Code rules. All contributions under this provision to your Accumulations, as adjusted for earnings or losses (described below), are referred to as your "PROFIT SHARING VALUE." Second, to encourage each participant to invest in his or her own future, you may also elect (within 30 days of when you first become eligible to participate in the Plan for your initial year of participation or, for subsequent years, not later than the December 31 prior to each such year) to defer payment of a portion of your compensation to be earned during the balance of the current or next calendar year, as applicable, as a credit to your Accumulations. This second source of Accumulations, adjusted for earnings or losses as described below, is known as the "DEFERRAL VALUE." The -2- 4 minimum amount you may defer is 1% and the maximum is 15% (of the first $250,000 of your compensation), less the amount deferrable through the Qualified Plan. Also, who is eligible to participate in the deferral portion of the Plan is determined on a year to year basis by the Company. If you were a participant one year but are not eligible in a succeeding year, you will still be a participant, but will be treated as "inactive." Third, the Company will also match your deferral at the same rate it is generally matching 401(k) deferrals under the Qualified Plan for the period in question. Any "caps" on the match under the Qualified Plan will also apply to this Plan, with the match under this Plan being offset by the match to the Qualified Plan to the extent duplicative. For example, if the Qualified Plan match for the year is 75 cents on the dollar, up to the first 3% of salary deferrals, and you are eligible to defer 5% of the first $150,000 of pay to the Qualified Plan (under the special discrimination-testing rules of that plan), then only the first 3% of deferrals from the portion of your salary above $150,000 but less than $250,000 will be matched under this Plan. The amounts credited to your Accumulations on a matching basis, adjusted for earnings or losses as described below, are referred to as your "MATCHING VALUE." EARNINGS (OR LOSSES): At least once each calendar year while you have a credit balance in your Accumulations, the Company will credit your Accumulations with earnings (or losses), if any, for the period since the last such crediting and determine the value of your Accumulations at that time. The earnings (or losses) may either be credited on the basis of the earnings (or losses) allocable to your directed portion of the Company investments, if any, or on the basis of a hypothetical earnings rate, as determined by the Company in its sole discretion. The Company also reserves the right to adjust the earnings (or losses) credited to your Accumulations and to determine the value of your Accumulations as of any date by adjusting such earnings (or losses) or such fair market value for the Company's tax and other costs of providing this Plan. These earnings will compensate for the postponement of the receipt of the Accumulations and give you the benefit of tax- deferred growth of the accumulating amounts. Under current federal income tax rules, the amounts credited to your Accumulations, including earnings, will not be taxable income to you in the year they are credited to your account. You, or your beneficiaries in the event of your death, will generally be taxable on these amounts and the credited earnings only if and when benefits are actually paid to you. Thus, this program provides the opportunity to defer income and the payment of income taxes. -3- 5 IV BENEFITS -------- A. Vesting ------- If you participate in the deferral portion of the Plan, your Deferral Value will always be 100% "vested". This means you will always be entitled to receive benefits from this portion of your Accumulations. The portion of your Accumulations derived from the Profit Sharing Value and the Matching Value will not be fully vested until you complete 5 years of service for the Company. A "year of service" for this purpose means a period of 12 consecutive calendar months during which you were employed by the Company and worked at least 1,000 hours. Years of service are calculated from the date you were first hired as an employee by the Company, and anniversaries of that date. The schedule for vesting is as follows: Vested Years of Service Percentage ---------------- ---------- Less than 2 None 2 but less than 3 25% 3 but less than 4 50% 4 but less than 5 75% 5 or more 100% In addition, you also become 100% vested in your Accumulations upon your death or if you become permanently disabled prior to retirement or other termination of service with the Company, or upon a "Change in Control," regardless of your years of service. "Change in Control" means: (i) the purchase or other acquisition by any person, entity or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions), directly or indirectly, which results in beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of such person, entity or group of persons equalling 30 percent or more of either the outstanding common shares of Cardinal Health, Inc. ("Cardinal") or the combined voting power of the then-outstanding securities of Cardinal entitled to vote in the election of directors of Cardinal, or (ii) the approval by the shareholders of Cardinal of a reogranization, merger, or consolidation, with respect to which in each case persons who were shareholders of Cardinal immediately prior to such reorganization, merger or consolidation do not (solely because of their common shares of Cardinal owned immediately prior to such reorganization, merger, or consolidation) immediately thereafter, own more than 50 percent of the combined voting power entitled to vote -4- 6 in the election of directors of the then-outstanding securities of the reorganized, merged or consolidated company, or (iii) a liquidation or dissolution of Cardinal, or (iv) the sale of all or substantially all of Cardinal's assets. B. Forfeiture of Benefits ---------------------- If your employment with the Company terminates for any reason other than death, disability, or a Change in Control prior to the time you have completed 5 years of service, you will forfeit some or all (based on the above schedule) rights to receive benefits under the Plan, except that you will still be entitled to receive benefits based on your Deferral Value. C. Payment of Benefits. ------------------- 1. RETIREMENT BENEFITS. You will be eligible to receive retirement benefits under the plan upon your retirement after attaining age 65 with five years of service. Retirement benefits will generally be paid as a monthly benefit payable for 60 months. The amount of your benefit will equal the amount necessary to amortize your total Accumulations over the 60 month period. The amount payable each month will either be based on an approximately equal amortization of principal plus actual earnings (or less actual losses) or an amortization based on an assumed interest rate declared by the Company from time to time during the period of distribution. You must give the Company at least 30 days advance written notice of your intention to retire and receive retirement benefits. Actual benefit payments will begin on the first day of the second month following your satisfaction of all requirements for payment. 2. DISABILITY BENEFITS. If you become totally disabled before satisfying the requirements for retirement benefits, you will be eligible to receive payment of the amounts credited to your Accumulations as a monthly benefit commencing after six months of total disability and payable for 60 months. The amount of the benefit will be determined in the same manner as retirement benefits. For this purpose, "total disability" means a physical or mental condition which totally and presumably permanently prevents you from engaging in any substantially gainful activity. It is up to the Company to determine whether you qualify as being totally disabled and the Company may require you to submit to periodic medical examinations to confirm that you are, and continue to be, totally disabled. If your disability ends, your disability benefit payments will stop. However, you could continue to qualify for benefits under another provision of the Plan. 3. DEATH BENEFITS. In the event of your death while receiving benefit payments under the Plan, the Company will pay the beneficiary or beneficiaries designated by you any -5- 7 remaining payments due under the terms of your Incentive Deferred Compensation Agreement, using the same method of distribution in effect to you at the date of your death. In the event of death prior to beginning to receive benefits under the Incentive Deferred Compensation Agreement, the Company will pay any vested benefits to your beneficiary or beneficiaries, beginning as soon as practicable after your death. In this case, benefits will generally be paid as a monthly benefit payable for 60 months computed in the same manner as retirement benefits. The Company will provide you with the form for designating your beneficiary or beneficiaries. If you fail to make a beneficiary designation, or if your designated beneficiary predeceases you or cannot be located, any death benefits will be paid to your estate. 4. OTHER TERMINATION OF SERVICE. If your service with the Company terminates for any reason other than retirement, death, or total disability, then the vested portion of your Accumulations will be paid to you as a monthly benefit payable for 60 months computed in the same manner as retirement benefits, beginning as soon as administratively practicable after your employment terminates. 5. PAYMENT ALTERNATIVES. At the Company's election, or upon your request, benefits may be paid in a lump sum or over a shorter or longer period of time than the 60 months generally called for, as described above. However, no request by you or your beneficiaries for a different payment method will be binding on the Company, and any accelerated or deferred payment of benefits 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 discretion, for example, in order to avoid the loss of a deduction under Code Section 162(m). If the payment method is altered, the amount you or your beneficiaries will receive will be computed under one of the alternative methods for determining payment amounts provided for under the normal form of distribution for your Accumulations, determined by the Company in its discretion. 6. CHANGE IN CONTROL. If a Change in Control occurs, and your employment with the Company (or its successor) terminates within two years after the Change in Control occurred, then you shall be entitled to receive your Accumulations in a single lump sum within 30 days of your termination of employment, notwithstanding any other provision of this Plan or your Incentive Deferred Compensation Agreement. Also, following a Change in Control, the Company's discretion to alter the payment methodology (described in Section 5, above) is limited to accelerating your benefits; the Company cannot, after a Change in Control, defer the commencement of payments or extend the period of distribution beyond the normal periods described in the preceding sections (1-4). -6- 8 V MISCELLANEOUS PROVISIONS ------------------------ A. No Right to Company Assets. -------------------------- As explained previously, this Incentive Deferred Compensation Plan is an unfunded arrangement and the agreement you will enter into with the Company does not create a trust or any kind of a fiduciary relationship between the Company and you, your designated beneficiaries or any other person. To the extent you, your designated beneficiaries, or any other person acquires a right to receive payments from the Company under the Incentive Deferred Compensation Agreement, that right is no greater than the right of any unsecured general creditor of the Company. B. Modification or Revocation. -------------------------- Your Incentive Deferred Compensation Agreement will continue in effect until revoked, terminated, or all benefits are paid, even during any period of time when you are an "inactive" participant because you are not designated by the Company as eligible to accumulate additional benefits. However, the Incentive Deferred Compensation Agreement and this Plan may be amended or revoked at any time, in whole or in part, by the Company in its sole discretion. Unless you agree otherwise, you will still be entitled to the vested benefit, if any, that you have earned through the date of any amendment or revocation. Such benefits will be payable at the times and in the amounts provided for in the Incentive Deferred Compensation Agreement, or the Company may elect to accelerate distribution and pay all amounts due immediately. C. Rights Preserved. ----------------- Nothing in the Incentive Deferred Compensation Agreement or this Plan gives any employee the right to continued employment by the Company. The relationship between you and the Company shall continue to be "at will" and may be terminated at any time by the Company or you, with or without cause, except as may be specifically set forth in any separate written employment agreement between you and the Company. D. Controlling Documents. ---------------------- This is merely a summary of the key provisions of the Incentive Deferred Compensation Agreement currently in use by the Company. In the event of any conflict between the provisions of this Plan and the Incentive Deferred Compensation Agreement, the agreement shall in all cases control. -7- 9 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION AGREEMENT This agreement is made effective __________________, 19__, at Dublin, Ohio, by and between Cardinal Health, Inc., an Ohio corporation, and/or one of its affiliated companies (collectively the "Company"), and _____________________________, an employee of the Company ("Participant"). Background Information ---------------------- A. It is the desire of the Company to assist the Participant in providing for his retirement through the use of a deferred compensation arrangement, and to encourage the Participant to continue employment with the Company until retirement age. B. The Company is willing to provide such supplemental retirement benefits to the Participant out of its general assets, provided he satisfies the requirements of this agreement for such benefits, as an incentive for the Participant to continue his employment relationship with the Company. C. Participant also desires to defer and postpone a portion of the compensation to be earned for services to be rendered in the balance of the current year and in subsequent years of employment, and from time to time thereafter, and in consideration of the performance of future services for the Company by the Participant, the Company is willing to permit the Participant to defer and postpone a portion of such compensation, on the terms and subject to the conditions of this agreement. AGREEMENT --------- The Company and the Participant acknowledge the accuracy of the foregoing background information and agree as follows: ARTICLE I - EMPLOYMENT ---------------------- Section 1.1 EMPLOYMENT. The Company agrees to employ the Participant and the Participant agrees to serve the Company in such capacity as the Company may designate from time to time, and on such terms and conditions as the Company in its sole discretion may request, until terminated by either party, or on such terms as may be set forth in a separate written employment agreement between the parties, if any. During the term of his employment, the Participant shall devote all of his time, attention, skill, and efforts to the performance of his duties for the Company. 10 Section 1.2 COMPENSATION. The Company shall pay the Participant during the term of his employment hereunder such salary and such other compensation as may be specifically provided for under any written employment agreement between the parties, or, if none, as the Company may from time to time determine. As additional incentive compensation and supplemental retirement income, the Company shall also pay the benefits provided in Article III, below, to the Participant provided he satisfies all the requirements and conditions set forth in this agreement to be entitled to such benefits. Section 1.3 RIGHTS PRESERVED. Nothing in this agreement shall be construed to confer upon the Participant the right to continue in the employment of the Company, or to require the Company to continue the employment of the Participant. The employment relationship between the Company and the Participant shall be "at will" and may be terminated at any time by the Company or the Participant with or without cause, except as may otherwise be specifically provided in any written employment agreement between the parties. ARTICLE II - DEFERRED COMPENSATION ACCUMULATIONS ------------------------------------------------ Section 2.1 PROFIT SHARING VALUE. The Company may, in its discretion, credit to the Participant's Accumulations (as hereinafter defined) each calendar year an amount equal to 3% of the Participant's Compensation from the Company in excess of the dollar limitation in effect for the year under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), but not more than $250,000. For this purpose, "Compensation" includes only salary, commission, and bonus payments made to the Participant for personal services rendered to or for the Company during the year, or contributed to this Plan under Section 2.2 or to the Cardinal Health, Inc. Profit Sharing and Retirement Savings Plan (the "Qualified Plan") on behalf of the Participant pursuant to a salary deferral election, and does not include other cash or noncash compensation, expense reimbursements, or fringe benefits provided to the Participant. In addition, the Company may make an additional discretionary contribution for a year to the Participant's Accumulations, as determined by the Company in its discretion. All contributions to the Participant's Accumulations under this Section 2.1, as adjusted for real or hypothetical earnings or losses as set forth in Section 2.3 below, shall be referred to as the "Profit Sharing Value." Section 2.2 DEFERRAL AND MATCHING VALUES. Within 30 days of the effective date of this agreement, and not later than any subsequent December 31 of each year throughout the term of this agreement, the Participant and the Company may, by mutual written agreement, provide for deferred and postponed payment of a percentage of the -2- 11 Participant's Compensation which otherwise would be paid during the balance of the initial or next calendar year, as applicable, of employment for services to be rendered in that year. Whether the Participant is eligible to elect such a deferral during any calendar year is determined by the Company, in its discretion, and the eligibility of the Participant during one year does not affect eligibility in subsequent years. The Participant shall continue as a participant during any ineligible years, but shall be treated as inactive. The minimum amount which may be deferred by the Participant during an active year is 1% of Compensation (up to $250,000 per year) and the maximum amount which may be so deferred is 15% of Compensation (up to $250,000 per year), less the amount deferable through the Qualified Plan. The Company will credit the deferred compensation amount agreed to for the next calendar year to the Participant's Accumulations from time to time as the deferred amounts otherwise would have been earned by the Participant. Amounts credited to the Participant's Accumulations due to such voluntary deferral elections, as adjusted for real or hypothetical earnings or losses as set forth in Section 2.3 below, shall be referred to as the "Deferral Value." In addition, the Company will credit a matching amount to the Participant's Accumulations equal to the same rate of match applicable to salary deferrals under the Qualified Plan for the year, but only with respect to the portion of a Participant's Compensation deferrals that would be eligible to be matched under the Qualified Plan if the Participant were permitted to make such deferrals to that plan under the Code. The Company's matching amounts credited to the Participant's Accumulations, as adjusted for real or hypothetical earnings or losses as set forth in Section 2.3 below, shall be referred to as the "Matching Value." Section 2.3 RECORD OF ACCUMULATIONS. Solely for the purpose of measuring the amount of the Company's obligations to the Participant or his beneficiaries under this agreement, the Company will maintain a separate bookkeeping record of the Profit Sharing Value, the Deferral Value, and the Matching Value (jointly, the Participant's "Accumulations"). The Company, in its discretion, may either credit a hypothetical earnings rate to the Participant's balance of Accumulations for the year, or may actually invest an amount equal to the amount credited to the Participant's Accumulations 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 discretion. If such separate investments are made, the Participant may be permitted to direct the investment with such investment companies of the portion of the Company's accounts allocable to him under this agreement 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, including Company stock, may not -3- 12 be available options under this agreement. The Company is not obligated to make these or any other particular investment options available, however, if investments are in fact made. The Company will credit the Participant's Accumulations with hypothetical or actual earnings or losses at least annually 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 Accumulations based on the bookkeeping record or the fair market value of the portion of the Company's accounts representing the Participant's Accumulations. The determination of the earnings, losses or fair market value of the Participant's Accumulations may be adjusted by the Company to reflect its payroll, income or other taxes or costs associated with this agreement, as determined by the Company in its sole discretion. ARTICLE III - BENEFITS ---------------------- Section 3.1 ELIGIBILITY FOR BENEFITS - VESTING. The Participant or his beneficiaries shall be entitled to benefits from the Company as set forth in this Article III only upon satisfaction of the vesting requirements of this section. The Participant shall not be fully vested in and entitled to benefits hereunder until completion of five years of service for the Company. A "Year of Service" for vesting purposes means a period of twelve consecutive calendar months during which the Participant was employed by the Company and worked at least 1,000 hours, as determined by the Company. Years of Service shall be calculated from the Participant's hire date and anniversaries thereof. The Participant shall also become 100% vested in his Accumulations upon his death or Total Disability prior to retirement or other termination of service, or upon a Change in Control, regardless of his years of service for the Company. "Total Disability" under this agreement shall mean a physical or mental condition which totally and presumably permanently prevents the Participant from engaging in any substantially gainful activity. 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. "Change in Control" under this agreement shall mean: (i) the purchase or other acquisition by any person, entity or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions), directly or indirectly which results in the -4- 13 beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of such person, entity or group of persons equalling 30 percent or more of either the outstanding common shares of Cardinal Health, Inc. ("Cardinal") or the combined voting power of the then-outstanding securities of Cardinal entitled to vote in the election of directors of Cardinal, or (ii) the approval by the shareholders of Cardinal of a reorganization, merger, or consolidation, with respect to which in each case persons who were shareholders of Cardinal immediately prior to such reorganization, merger or consolidation do not (solely because of their common shares of Cardinal owned immediately prior to such reorganization, merger, or consolidation), immediately thereafter, own more than 50 percent of the combined voting power entitled to vote in the election of directors then-outstanding securities of the reorganized, merged or consolidated company, or (iii) a liquidation or dissolution of Cardinal, or (iv) the sale of all or substantially all of Cardinal's assets. If the Participant terminates employment with the Company for any reason other than death, Total Disability, or a Change in Control, prior to the date he has completed 5 Years of Service as defined above, all rights of the Participant, his designated beneficiaries, executors, administrators, or any other person to receive benefits under this agreement shall vest in accordance with the following schedule, with the unvested percentage being forfeited. Years of Service Percentage Vested ---------------- ----------------- Less than 2 None 2 but less than 3 25% 3 but less than 4 50% 4 but less than 5 75% 5 or more 100% If the Participant is subsequently re-employed by the Company, no benefits forfeited hereunder shall be reinstated, and the Participant shall not be given credit for his prior Years of Service with the Company under any incentive deferred compensation agreement entered into upon such re-employment unless, and then only to the extent that, the Company determines otherwise in its sole discretion. Notwithstanding the foregoing, the Participant shall always be 100% vested in the portion of his Accumulations attributable to his Deferral Value. Section 3.2 RETIREMENT BENEFITS. Upon retirement after attaining age 65 with 5 Years of Service as defined in Section 3.1, the Participant shall be eligible to receive payment of the amounts credited to the -5- 14 Participant's Accumulations as a monthly benefit payable for 60 months. The amount of this monthly benefit shall equal the amount necessary to amortize the Participant's Accumulations in approximately equal monthly installments of principal plus actual earnings (or less actual losses) during the period of distribution or, in the Company's sole discretion, the monthly distributions may instead be computed based on the amortization of the Participant's Accumulations as a monthly benefit payable for 60 substantially equal monthly installments computed using an interest rate declared by the Company in its sole discretion from time to time during such period of distribution. In the event the retirement benefits payable pursuant to this agreement are subject to taxation under the Federal Insurance Contributions Act, Federal Unemployment Tax Act or any similar present or future tax levied on employers for payments to employees, the amount payable hereunder shall be reduced by the Company's share of any such tax payable with respect to the retirement benefits. The Participant must provide the Company at least 30 days advance written notice of his intention to retire and receive benefits hereunder. Payment of benefits shall begin on the first day of the second month following satisfaction of all requirements for a benefit hereunder. Section 3.3 DEATH BENEFITS. In the event of the death of the Participant while receiving benefit payments under any provision of this agreement, the Company shall pay the beneficiary or beneficiaries designated by the Participant the remaining payments due under this agreement in 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 this agreement, the Company shall pay the vested portion of 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 a monthly payment equal to the amount necessary to amortize the Participant's Accumulations as a monthly benefit payable for 60 months, computed under one of the alternative methods provided for retirement benefits under Section 3.2, as selected by the Company in its sole discretion. Section 3.4 DISABILITY BENEFITS. Upon the Participant's Total Disability as defined in Section 3.1 prior to satisfying the requirements for a retirement benefit under Section 3.2, the Participant shall be eligible to receive payment of the amounts credited to his Participant's Accumulations as a monthly benefit commencing after six months of total disability and payable for 60 months. The amount of this monthly benefit shall equal the amount necessary to amortize the Participant's Accumulations as a monthly benefit payable for 60 months, computed under one of the alternative methods provided for retirement benefits under Section 3.2, as selected by the Company in its sole discretion. -6- 15 Disability shall be considered to have ended and entitlement to a disability benefit shall cease if the Participant (a) is reemployed by the Company, or (b) engages in any substantially 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 this agreement. Section 3.5 TERMINATION OF SERVICE FOR OTHER REASONS. If the Participant's service for the Company terminates for any reason other than retirement in accordance with Section 3.2, death, or Total Disability, then the vested portion of the Participant's Accumulations shall be paid, beginning as soon as administratively practicable, to the Participant as a monthly benefit payable for 60 months, computed under one of the alternative methods provided for retirement benefits under Section 3.2, as selected by the Company in its sole discretion. Notwithstanding anything in this agreement to the contrary, if the Participant's employment terminates within two years after a Change in Control occurred, then the Participant's Accumulations shall be payable in a single lump sum within 30 days after the termination of the Participant's employment. Section 3.6 PAYMENT ALTERNATIVES. At the Company's election, or upon request by the Participant or his designated beneficiary following the Participant's retirement, other termination of service, disability, or death, the entire vested balance of the Participant's Accumulations may be payable hereunder at any time in lump sum or over a shorter or longer period of time than the 60 months generally called for in the sections above, 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 Section 162(m). The amount of monthly payments to be made over a period of time other than 60 months 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 in 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 3.2-3.5, above. -7- 16 +SC3.7 BENEFICIARY DESIGNATION. The Participant shall designate one or more beneficiaries on a form to be supplied by the Company to receive any Accumulations payable in the event of his death. The Participant may change his beneficiary designation at any time (without the consent of any prior beneficiary) by executing a revised beneficiary designation form and delivering it to the Company before his death. In the absence of a beneficiary designation, or in the event the designated beneficiary predeceases the Participant or cannot be located, any death benefits provided under this agreement shall be paid to the Participant's estate. ARTICLE IV - MISCELLANEOUS -------------------------- Section 4.1 RIGHT TO ASSETS. Nothing contained in this agreement and no action taken pursuant to the provisions of this agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Participant, any designated beneficiary, or any other person. If the Company elects to invest any funds in connection with this agreement, all such investments shall continue for all purposes to be a part of the general assets of the Company, and no person other than the Company shall by virtue of the provisions of this agreement have any interest in such funds. To the extent the Participant, any designated beneficiary, or any other person acquires a right to receive payments from the Company under this agreement, such right shall be no greater than the right of any unsecured general creditor of the Company. Section 4.2 ASSIGNMENT AND ALIENATION PROHIBITED. Neither the Participant, his surviving spouse, nor other beneficiaries under this agreement shall have the power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber, in advance, any of the benefits payable hereunder, nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony, or separate maintenance owed by the Participant or his beneficiary, nor be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. In the event the Participant or any beneficiary attempts assignment, commutation, hypothecation, transfer, or disposal of the benefits hereunder, the Company's liabilities shall forthwith cease and terminate. Section 4.3 REVOCATION. This agreement shall continue in effect until revoked or terminated and, specifically shall continue in effect during any period when the Company, in the exercise of its discretion, decides that the Participant is not entitled to participate in any profit sharing, deferral, or matching contributions to his Accumulations. This agreement may be amended or revoked at any time or times, in whole or in part, by the Company in its sole discretion. However, unless the parties agree -8- 17 otherwise, in the event of a modification or revocation, the Participant shall be entitled to the vested benefits, if any, that have accrued through the date of such amendment or revocation. Such benefits shall be payable at such times and in such amounts as are provided in this agreement, or the Company may, in its sole discretion, elect to accelerate distribution and pay all vested amounts at any time after this agreement terminates. Section 4.4 EFFECT ON OTHER COMPANY BENEFIT PLANS. Nothing contained in this agreement shall affect the right of the Participant to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus, or other supplemental compensation or fringe benefit plan constituting a part of the Company's existing or future compensation structure. Should the amount of the Participant's benefits available under the Qualified Plan be reduced in any year by reason of the Participant's elective deferrals under this agreement, the Company may, in its discretion, increase the Participant's Accumulations hereunder to compensate for such reduction. Section 4.5 INTERPRETATION. The Board of Directors of the Company, or the Compensation Committee or the Chairman as its designee, shall have full power and authority to interpret, construe, and administer this agreement, and the interpretation and construction thereof and actions thereunder by the Board or its designee, including any valuation of the Participant's Accumulations or the amount or recipient of the payments to be made therefrom, shall be binding and conclusive on all persons for all purposes. No member of the Board of Directors nor any designee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this agreement, provided that the foregoing shall not relieve any person of liability for any action taken or omitted in bad faith. Whenever under this agreement monthly benefits may be payable in substantially equal monthly installments computed using an interest rate declared by the Company in its sole discretion from time to time during such period of distribution, the calculation of such monthly benefit payments shall be made under any method deemed reasonable by the Company, in its sole discretion. Section 4.6 BINDING EFFECT. This agreement shall be binding upon and inure to the benefit of the Company, its successors, and assigns and the Participant and his heirs, executors, administrators, and legal representatives. Section 4.7 ENTIRE AGREEMENT. This agreement and its exhibits, if any, represent and embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements and understandings relative to this subject matter. -9- 18 Section 4.8 GENDERS AND NUMBERS. Whenever permitted by the context each pronoun shall include other genders or numbers, and each noun shall include other numbers. Section 4.9 CAPTIONS. The captions at the beginnings of the several sections of this agreement are not part of the context of this agreement, but are merely labels to assist in locating those sections, and shall be ignored in construing this agreement. Section 4.10 APPLICABLE LAW. Cardinal Health, Inc. is an Ohio corporation and has its principal offices in the State of Ohio. This agreement has been negotiated and executed in the State of Ohio and the parties hereby agree that the validity, meaning, and performance of this agreement are to be determined, governed, and enforced under the laws of the State of Ohio, except that any applicable conflict or choice of laws principles of Ohio law that would result in the application of the laws of any other state or jurisdiction to the validity, meaning, or performance of this agreement shall not apply. COMPANY: ----------------------------------------------- By ____________________________________________ Title: ________________________________________ Participant: _______________________________________________ -10- 19 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION AGREEMENT CONFIRMATION OF 1994 DEFERRED COMPENSATION --------------------- Pursuant to the provisions and subject to the conditions of the Incentive Deferred Compensation Agreement between Cardinal Health, Inc. (the "Company") and the undersigned Participant, it is hereby agreed that the following percentage of the Participant's compensation which otherwise would be paid during the balance of the current year (if this is the initial year of the Participant's participation) or during the calendar year next following the date of this confirmation (for subsequent years) for services to be rendered in that year (or portion thereof) shall be deferred and postponed for payment until after retirement or other termination of service of the Participant as provided for in said Incentive Deferred Compensation Agreement: ______% of Compensation up to the dollar cap under the Incentive Deferred Compensation Agreement, with the deferral percentage on the portion of such Compensation up to the "Qualified Plan Limit" under Internal Revenue Code Section 401 (a)(17) reduced and offset by the deferral percentage elected by the Participant for the year under the Company's tax-qualified retirement plan. ____________________________ Date: ______________________ Accepted by CARDINAL HEALTH, INC. By: ____________________________ Title:__________________________ 20 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION AGREEMENT (THE "AGREEMENT") Designation of Beneficiary -------------------------- Participant's Name: ______________________________ SSN: _________________ I. Pursuant to the provisions of the Agreement permitting designation of a beneficiary or beneficiaries by a participant, I hereby designate the following person or persons as primary and secondary beneficiaries of any accumulations under the Agreement payable by reason of my death: Primary Beneficiary [include address, relationship and social security number, if [known]: _______________________________ ___________________________________________________________________ ___________________________________________________________________ Secondary Beneficiary [include address, relationship and social security number, if known]: ________________________________ ___________________________________________________________________ ___________________________________________________________________ I RESERVE THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION. I HEREBY REVOKE ALL PRIOR DESIGNATIONS (IF ANY) OF BENEFICIARIES AND SECONDARY BENEFICIARIES The Company shall pay all sums payable under the Agreement by reason of my death to the primary beneficiary, if he or she survives me, and if no primary beneficiary survives me, then to the secondary beneficiary. If no named beneficiary survives me, then the Company shall pay all amounts in accordance with the terms of the Agreement. NOTE: Unless you provide otherwise in completing this designation, the Company shall pay all sums payable to more than one beneficiary equally to the living beneficiaries. _____________________________ _____________________________________ Date of this Designation Signature of Participant EX-11.01 10 EXHIBIT 11.01 1 EXHIBIT 11.01 FORM 10-K CARDINAL HEALTH, INC. - - --------------------- COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - - ----------------------------------------------------------------------------------------
JUNE 30, MARCH 31, MARCH 31, 1994 1993 1992 -------- --------- --------- FULLY DILUTED - - ------------- Average shares outstanding 35,696 29,611 26,971 Net effect of dilutive stock options and warrants- based on the treasury stock method using the higher of the average or end of period market price 3,781 4,722 7,317 Assumed conversion of 7.25% convertible debentures 4,283 4,283 ------ ------ ------ Total 39,477 38,616 38,571 ====== ====== ====== Earnings available for Common Shares before cumulative effect of change in accounting principle $33,931 $37,671 $25,522 Add 7.25% convertible debenture interest net of income tax effect 3,264 3,264 ------- ------- ------- Fully diluted net earnings before cumulative effect of change in accounting principle 33,931 40,935 28,786 Cumulative effect of change in accounting principle (10,000) ------- -------- ------- Fully diluted net earnings $33,931 $30,935 $28,786 ======= ======= ======= Per share amounts: Earnings before cumulative effect of change in accounting principle $0.86 $1.06 $0.74 Cumulative effect of change in accounting principle (0.26) ------- ------ ------- Net earnings $0.86 $0.80 $0.74* ===== ===== ===== * Equals primary earnings per share since the effect of the dilutive securities would be to increase the primary earnings per share.
EX-21.01 11 EXHIBIT 21.01 1 Exhibit 21.01 SUBSIDIARIES OF THE REGISTRANT ------------------------------
NAME OF SUBSIDIARY STATE OF INCORPORATION - - ------------------ ---------------------- I. CDI Investments, Inc. Delaware II. Ellicott Drug Company New York III. Cardinal Syracuse, Inc. New York IV. Bailey Drug Company Delaware V. James W. Daly, Inc. Massachusetts VI. Marmac Distributors, Inc. Connecticut VII. Cardal, Inc. Ohio VIII. National PharmPak Services, Inc. Ohio IX. Phillipi Holdings, Inc. Ohio X. Cardinal Health Systems, Inc. Ohio XI. Ohio Valley-Clarksburg, Inc. Delaware XII. Chapman Drug Company Tennessee XIII. National Specialty Services, Inc. Tennessee XIV. Leader Drugstores, Inc. Delaware XV. Solomons Company Georgia XVI. Cardinal West, Inc. Nevada XVII. Cardinal Florida, Inc. Florida XVIII. Cardinal Mississippi, Inc. Mississippi XIX. PRN Services, Inc. Michigan XX. Whitmire Distribution Corporation Delaware
2 Exhibit 21.01 SUBSIDIARIES OF THE REGISTRANT ------------------------------
NAME OF SUBSIDIARY STATE OF INCORPORATION - - ------------------ ---------------------- XXI. Medical Strategies, Inc. Massachusetts XXII. Humiston-Keeling, Inc. Illinois XXIII. Behrens Inc. Texas
EX-23.01 12 EXHIBIT 23.01 1 Exhibit 23.01 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-62198 and No. 33-55093 of Cardinal Health, Inc. on Form S-3 and Registration Statements No. 33-20895, No. 33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-52537, and No. 33-52539 of Cardinal Health, Inc. on Form S-8 of our report dated August 16, 1994 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the method of accounting for income taxes) appearing in this Annual Report on Form 10-K of Cardinal Health, Inc. for the year ended June 30, 1994. DELOITTE & TOUCHE LLP Columbus, Ohio August 31, 1994 2 Exhibit 23.02 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10K, into the Company's previously filed Registration Statements File Nos. 33-62198, 33-55093, 33-20895, 33-38021, 33-38022, 33-52535, 33-52537, 33-52539 and 33-42357. /s/ Arthur Andersen & Co. Sacramento, California August 31, 1994 EX-27 13 EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. Exhibit 27
5 YEAR JUN-30-1994 JUN-30-1994 54,941,000 0 362,505,000 (21,594,000) 868,210,000 1,287,124,000 119,375,000 (59,346,000) 1,395,602,000 816,042,000 210,086,000 255,458,000 0 0 113,036,000 1,395,602,000 5,790,411,000 5,790,411,000 (5,435,239,000) (5,435,239,000) (233,305,000) 0 (18,140,000) 70,760,000 (35,624,000) 35,136,000 0 0 0 33,931,000 0.86 0.86
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