<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
Filed by the Registrant X
---
Filed by a Party other than the Registrant
---
Check the appropriate box:
X Preliminary Proxy Statement Confidential, for Use of the
- --- --- Commission Only (as permitted
by Rule 14a-6(e)(2))
Definitive Proxy Statement
- ---
Definitive Additional Materials
- ---
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
- ---
Cardinal Health, Inc.
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
NA
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
- --- or Item 22(a)(2) of Schedule 14A.
$500 per each party to the controversy pursuant to Exchange Act Rule
- --- 14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
- ---
(1) Title of each class of securities to which transaction applies:
_______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
_______________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
(5) Total fee paid:
_______________________________________________________________
Fee paid previously with preliminary materials.
- ---
Check box if any part of the fee is offset as provided by Exchange Act Rule
- --- 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_______________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_______________________________________________________________
(3) Filing Party:
_______________________________________________________________
(4) Date Filed:
_______________________________________________________________
<PAGE> 2
[CARDINAL HEALTH, INC. LOGO]
CARDINAL HEALTH, INC.
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 29, 1996
----------------------
Notice is hereby given that the Annual Meeting of Shareholders
of Cardinal Health, Inc., an Ohio corporation (the "Company"), will be held at
the Company's corporate offices at 5555 Glendon Court, Dublin, Ohio, on Tuesday,
October 29, 1996, at 8:00 a.m. local time, for the following purposes:
1. To elect four Directors, each to serve for a term of
three years and until his or her successor is duly
elected and qualified;
2. To vote on a proposal to adopt an amendment to the
Company's Articles of Incorporation to increase the
number of authorized Company Common Shares, without
par value, from one hundred million to one hundred
fifty million;
3. To vote on a proposal to approve the material terms
of the performance goals under the Cardinal Health,
Inc. Performance-Based Incentive Compensation Plan;
and
4. To transact such other business as may properly come
before the meeting or any adjournment or postponement
thereof.
Only shareholders of record on September 13, 1996, are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors.
GEORGE H. BENNETT, JR., Secretary
September __, 1996
SHAREHOLDERS, WHETHER OR NOT THEY EXPECT TO ATTEND THE MEETING
IN PERSON, ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 3
[CARDINAL HEALTH, INC. LOGO]
CARDINAL HEALTH, INC.
PROXY STATEMENT
This proxy statement is being furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Cardinal Health,
Inc., an Ohio corporation (the "Company"), for use at the Annual Meeting of the
shareholders of the Company (the "Annual Meeting") to be held on Tuesday,
October 29, 1996, at the Company's corporate offices at 5555 Glendon Court,
Dublin, Ohio, at 8:00 a.m. local time and at any adjournment or postponement
thereof. This proxy statement and the accompanying proxy, together with the
Company's Annual Report to Shareholders for the fiscal year ended June 30, 1996,
are first being sent to shareholders on or about _________________, 1996.
The close of business on September 13, 1996, has been fixed as the
record date for the determination of shareholders entitled to notice of and to
vote at the Annual Meeting. At that date, the Company had outstanding __________
common shares, without par value ("Common Shares"). Holders of Common Shares at
the record date are entitled to one vote per share for the election of Directors
and upon all matters on which shareholders are entitled to vote.
The address of the Company's principal executive office is 5555 Glendon
Court, Dublin, Ohio 43016.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of twelve members,
divided into three classes of four members each. The Company's Restated Code of
Regulations, as amended, provides 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.
At the meeting, Common Shares represented by proxies, unless otherwise
specified, will be voted for the election of the four nominees hereinafter
named, each to serve for a term of three years and until his or her successor is
duly elected and qualified. If, by reason of death or other unexpected
occurrence, any one or more of the nominees should not be available for
election, the proxies will be voted for the election of such substitute
nominee(s) as the Board of Directors may propose. Proxies may not be voted at
the Annual Meeting for a greater number of persons than the four nominees named
in this proxy statement, although additional nominations may be made by
shareholders at the meeting.
If notice in writing is given by any shareholder entitled to vote at
the Annual Meeting to the President, a Vice-President or the Secretary of the
Company not less than 48 hours before the time fixed for holding the meeting
that such shareholder desires that the voting for election of Directors be
cumulative, and if an announcement of the giving of such notice is made upon the
convening of such meeting by the Chairman or Secretary, or by or on behalf of
the shareholder giving such notice, each shareholder entitled to vote at the
Annual Meeting shall have the right to cumulate such voting power as he
possesses at such election and to give one nominee a number of votes equal to
the number of Directors to be elected multiplied by the number of shares he
holds, or to distribute his votes on the same basis among two or more nominees,
as he sees fit. If voting for the election of Directors is cumulative, the
persons named in the enclosed proxy will vote the shares represented thereby and
by other proxies held by them so as to elect as many of the four nominees named
below as possible.
<PAGE> 4
Under Ohio law and the Company's Articles of Incorporation, broker non-votes and
abstaining votes will not be counted in favor of or against election of any
nominee. The four nominees receiving the greatest number of votes will be
elected Directors.
Listed below are the names of those persons nominated for election as
Directors of the Company (each is currently a Director of the Company), and of
the Directors of the Company whose terms of office will continue after the
meeting, their principal occupations, other directorships (which are shown
parenthetically), ages as of the date of this proxy statement, the year in which
each first became a Director of the Company or the Company's predecessor in
interest, and the year in which each such Director's term as a Director will
expire:
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE PRINCIPAL OCCUPATION(1) SINCE EXPIRES
---- --- ----------------------- ----- -------
<S> <C> <C> <C> <C>
Regina E. Herzlinger.... 52 Professor, Harvard University Graduate 1995 1996
School of Business Administration (C.R.
Bard, Inc., Deere & Company, Manor
Care, Inc., Schering-Plough Corporation).
J. Michael Losh......... 50 Executive Vice President and Chief 1996(2) 1996
Financial Officer of General Motors
Corporation, an automobile manufacturing
company.
John C. Kane............ 56 President and Chief Operating Officer of 1993 1996
the Company. (3)
John B. McCoy........... 53 Chairman and Chief Executive Officer of 1987 1996
Banc One Corporation, a bank holding
company (Banc One Corporation, Federal
Home Loan Mortgage Corporation, Tenneco
Incorporated and Ameritech Corporation).
<CAPTION>
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
DIRECTOR TERM
NAME AGE PRINCIPAL OCCUPATION(1) SINCE EXPIRES
---- --- ----------------------- ----- -------
<S> <C> <C> <C> <C>
Robert L. Gerbig........ 51 President and Chief Executive Officer of 1975 1998
Gerbig, Snell/Weisheimer & Associates,
Inc., an advertising agency.
George R. Manser........ 65 Chairman of Uniglobe Travel (Capital 1977 1998
Cities) Inc., a travel planning services
company (AmeriLink Corporation, Checkfree
Corporation, Hallmark Financial Services,
Inc., and State Auto Financial Corporation).
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE PRINCIPAL OCCUPATION(1) SINCE EXPIRES
---- --- ----------------------- ----- -------
<S> <C> <C> <C> <C>
Jerry E. Robertson...... 63 Retired Executive Vice President of the Life 1991 1998
Sciences Sector and Corporate Services of
Minnesota Mining & Manufacturing
Company, a manufacturer of industrial
commercial, health care and consumer
products (Manor Care, Inc., Allianz Life
Insurance Company of North America,
Coherent, Inc., Haemonetics Corporation,
Life Technologies, Inc., and Steris
Corporation).
Melburn G. Whitmire..... 57 Vice Chairman of the Company. (3) 1994 1998
John F. Finn............ 48 Chairman and Chief Executive Officer 1994 1997
of Gardner, Inc., an outdoor power
equipment distributor.
John F. Havens.......... 69 Retired Chairman and Director Emeritus 1979 1997
of Banc One Corporation, a bank holding
company (Worthington Industries, Inc.).
L. Jack Van Fossen...... 59 Retired President and Chief Executive Officer 1983 1997
of Red Roof Inns, Inc., a lodging company
(The Scotts Company).
Robert D. Walter........ 51 Chairman and Chief Executive Officer 1971 1997
of the Company (Banc One Corporation,
Karrington Health, Inc., and
Westinghouse Electric Corporation). (3)
</TABLE>
(1) Each of the above Directors, except Messrs. Kane, Manser, Van Fossen,
and Whitmire, either has had the positions shown or has had other
executive positions with the same employer for more than five years.
Mr. Kane, prior to joining the Company in February 1993, was employed
by Abbott Laboratories, a pharmaceutical and health care products
manufacturer, where he served most recently as president of the Ross
Laboratories Division. Mr. Manser, prior to his retirement in June
1994, was a director and Chairman of the Board of North American
National Corporation, an insurance holding company. Mr. Van Fossen
retired from Red Roof Inns in June 1995. Prior to the Company's merger
transaction in February 1994 with Whitmire Distribution Corporation
("Whitmire"), Mr. Whitmire was Chairman, President, and Chief Executive
Officer of Whitmire. Mr. Whitmire presently serves as Vice Chairman of
the Company and Senior Chairman of Whitmire.
(2) Mr. Losh was appointed to a vacancy on the Board on May 15, 1996.
(3) Messrs. Kane, Walter and Whitmire are officers and directors of various
subsidiaries of the Company.
3
<PAGE> 6
Four regular meetings and three special meetings of the Company's Board
of Directors were held during the fiscal year ended June 30, 1996. Each
Director, except Dr. Robertson, attended 75% or more of the meetings of the
Board and Board committees on which he or she served.
Messrs. Manser, McCoy, Walter and Whitmire are the current members of
the Board's Executive Committee, which 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 to fill vacancies among the Directors or in any
committee of the Directors. The Executive Committee did not meet during the last
fiscal year, but acted numerous times by written action without a meeting
pursuant to Ohio law.
Messrs. Finn and Van Fossen, Mrs. Herzlinger and Dr. Robertson are the
current members of the Board's Audit Committee, which is empowered to exercise
all powers and authority of the Board of Directors with respect to the Company's
annual audit, accounting policies, financial reporting and internal controls.
The Audit Committee met four times during the last fiscal year.
Messrs. Havens, Losh, Manser, and McCoy are the current members of the
Board's Compensation and Personnel Committee, which 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, and
grants to employees of options to purchase stock in the Company. The
Compensation and Personnel Committee met four times during the last fiscal year
and acted several times by written action without a meeting pursuant to Ohio
law.
Messrs. Losh and McCoy and Dr. Robertson are the current members of the
Board's Nominating Committee, which is empowered to exercise all powers and
authority of the Board of Directors with respect to selection of nominees to
serve on the Board and its various committees. The Committee will consider
nominees recommended by shareholders upon submission in writing to the Secretary
of the Company of the names of such nominees, together with their qualifications
for service as a Director of the Company. The Nominating Committee was formed in
May 1996 and did not meet during the fiscal year ended June 30, 1996.
CERTAIN RELATIONSHIPS AND RELATED 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 Mr. Walter.
The Company has subleased this property to third parties at rentals
substantially in excess of the rentals it is required to pay to the limited
partnership. 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 limited partnership proposes to sell the premises to a third party.
During the fiscal year ended June 30, 1996, Gerbig, Snell/Weisheimer &
Associates, Inc., of which Mr. Gerbig, a Director of the Company, is President
and Chief Executive Officer, provided advertising services to the Company and
its subsidiaries for which the Company and its subsidiaries paid an aggregate of
approximately $241,790.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
All executive officers and Directors of the Company timely filed all
reports required under Section 16(a) of the Exchange Act. The Form 3 filed by
Gordon A. Troup, Executive Vice President - Northern Group, inadvertently
omitted 1,218 Company Common Shares held by Mr. Troup indirectly through the
Company's Profit Sharing and Retirement Savings Plan on the date he became a
Section 16 reporting person. Mr. Troup included such Common Shares on a
subsequently filed Form 5, amending his initial Form 3 filing.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Shares as of ______________, 1996,
by: (a) Company Directors; (b) each other person who is known by the Company to
own beneficially more than 5% of the outstanding 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 Common Shares set forth
opposite their names.
<TABLE>
<CAPTION>
Number of
Common Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
- ------------------------ ------------------ ----------------
<S> <C> <C>
Robert D. Walter (1) (2) (3) 3,134,946 ____%
Melburn G. Whitmire (3) (4) 750,134 *
John C. Kane (3) 149,018 *
George R. Manser (5)(6) 53,510 *
James F. Millar (3) 49,649 *
David Bearman (3) 45,932 *
Robert L. Gerbig (5) 40,662 *
John B. McCoy (5) (7) 31,767 *
L. Jack Van Fossen (5) 29,907 *
John F. Havens (5) 11,999 *
Jerry E. Robertson (5) 10,076 *
John F. Finn (5) (8) 9,000 *
J. Michael Losh (5) 2,547 *
Regina E. Herzlinger (5) 1,895 *
All Executive Officers and Directors as a 4,382,770 ____%
Group (9) (18 Persons)
</TABLE>
(1) Mr. Walter's address is 5555 Glendon Court, Dublin, Ohio 43016.
Includes 379,995 Common Shares held in Mr. Walter's grantor retained
annuity trust. Mr. Walter, Edward D. Esping and members of his family
(the "Espings"), and Michael E. 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 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 -
1,978,840 shares; the Espings - 118,505 shares; and Mr. Moritz -
517,498 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
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 1,978,840 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 1,978,840 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 Common Shares. Mr. Walter has no
voting or investment power over the Common Shares held in the Walter
Trusts. Common Shares listed as being
5
<PAGE> 8
beneficially owned by Mr. Walter exclude the 137,691 Common Shares
owned by the Walter Trusts, and Mr. Walter disclaims beneficial
ownership of such Common Shares.
(3) Common Shares and the percent of class listed as being beneficially
owned by the Company's named executive officers include outstanding
options to purchase Common Shares which are exercisable within 60 days
of _____________, 1996, as follows: Mr. Walter - 106,125 shares; Mr.
Kane - 93,750 shares; Mr. Millar - 29,139 shares; Mr. Bearman - 40,302
shares; and Mr. Whitmire - 0 shares.
(4) Includes 4,801 Common Shares held by Mr. Whitmire and his wife as
custodian for the benefit of their minor daughter.
(5) 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 Common Shares
which are exercisable under the Company's Directors' Stock Option Plan
and Equity Incentive Plan as follows: Dr. Robertson - 10,076 shares;
Mr. Finn - 2,865 shares; Mrs. Herzlinger - 1,895 shares; Mr. Losh -
1,547 shares; and each other listed Director (except for Messrs. Kane,
Walter and Whitmire) - 6,770 shares.
(6) Includes 20,000 Common Shares which are held in a Manser family trust.
(7) Includes 2,827 Common Shares which are held by Mr. McCoy in trust for
the benefit of his children, but does not include Common Shares owned
by Banc One Corporation or its subsidiaries (including the 137,691
Common Shares owned by the Walter Trusts).
(8) Includes 5,618 Common Shares held jointly by Mr. Finn and his wife, 306
Common Shares held in his wife's individual retirement account, and 62
Common Shares held for the benefit of each of Mr. Finn's two minor
children.
(9) 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
Mr. Moritz; and (b) outstanding options to purchase Common Shares which
are exercisable within 60 days of _______________, 1996, but do not
include any Common Shares beneficially owned by Banc One Corporation or
its subsidiaries (including the 137,691 Common Shares owned by the
Walter Trusts).
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation and Personnel Committee (the "Compensation Committee") of the
Company's Board of Directors, which has responsibility for reviewing all aspects
of the compensation program for the executive officers of the Company. The
Compensation Committee is comprised of Messrs. Havens, Losh, Manser and McCoy.
The Compensation Committee's primary objective with respect to executive
compensation is to establish programs which attract and retain key managers and
align their compensation with the Company's overall business strategies, values,
and performance. To this end, the Compensation Committee has established, and
the Board of Directors has endorsed, an executive compensation philosophy which
includes the following considerations:
- A "pay-for-performance" orientation that differentiates compensation
results based upon corporate, business unit, and individual
performance;
- An emphasis on stock incentives as a significant component of total
compensation in order to more closely align the interests of Company
executives with the long-term interests of shareholders;
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<PAGE> 9
- An emphasis on total compensation vs. cash compensation, under which
base salaries are generally set somewhat below competitive levels
but which motivates and rewards Company executives with total
compensation (including incentive programs) at or above competitive
levels, if performance is superior;
- Recognition that as an executive's level of responsibility
increases, a greater portion of the total compensation opportunity
should be based upon stock and other performance incentives and less
on salary and employee benefits; and
- An appropriate mix of short-term and long-term compensation which
facilitates retention of talented executives and encourages Company
stock ownership and capital accumulation.
The primary components of the Company's executive compensation program
are: (a) base salaries; (b) annual cash incentive opportunities; and (c)
long-term incentive opportunities in the form of stock options and restricted
shares. Each primary component of pay is discussed below.
Base Salaries. Base salaries for Company executives are generally
subject to annual review and adjustment on the basis of individual and company
performance, level of responsibility, and competitive, inflationary, and
internal equity considerations. The relative weights assigned to each factor
vary from executive to executive. The Compensation Committee generally attempts
to set base salaries of executive officers at a level which is below the
"market" rate, as determined from information gathered by the Company from
independent compensation surveys. The companies evaluated for this purpose
include but are not the same as those in the Peer Group utilized in the
Shareholder Performance Graph set forth on page __, and represent a broader
spectrum of wholesale, retail and manufacturing companies which the Compensation
Committee believes to be a more representative measure of the market for
competitive executive talent. With respect to the $543,325 base salary
established for Mr. Walter in May 1996 (a 3% increase from his previous base
salary determined in May 1995), the Compensation Committee took into account the
factors described above for other executive officers, weighting most heavily
Company performance and internal equity considerations.
Annual Cash Incentives. Company executives are eligible to receive
annual cash bonus awards to focus attention on achieving key goals, pursuant to
the Company's Management Incentive Plan ("MIP"). Maximum MIP incentive amounts
are established each year on an individualized basis, with such amounts varying
as a percentage of base salary depending upon each executive's level of
responsibility and function. Performance objectives are established for the
Company and for each significant business unit within the Company at the
beginning of each fiscal year, and are designed to provide competitive incentive
pay only for superior performance. These objectives include a specific target
for earnings growth, which target was partially met for the fiscal year ended
June 30, 1996. In addition, individual performance objectives are established
for each executive which include both specific performance goals and other, more
qualitative and developmental, criteria. For managers with primarily staff or
corporate responsibilities, 60% of the MIP amount is weighted to achievement of
the Company's corporate performance objectives and 40% to achievement of
individual performance objectives. For managers with primarily operating unit
responsibilities, 50% of the MIP amount is weighted to performance of the
relevant business unit, 30% to achievement of individual performance objectives,
and 20% to achievement of the Company's corporate performance objectives.
In determining Mr. Walter's annual bonus of $399,000 for the fiscal
year ended June 30, 1996, the Compensation Committee applied the same weighting
as described above for other managers with primarily corporate responsibilities
(i.e., 60% for Company performance and 40% for individual performance) and took
into account the Company's growth in fully diluted earnings per share compared
to the Company's targeted earnings growth for the period, certain qualitative
factors associated with the Company's financial performance (including selling,
general and administrative expense improvements and the Company's superior
performance relative to other industry participants), progress made in
diversifying into related health care service businesses and improving the
Company's strategic positioning, and achievement of other individual performance
objectives.
7
<PAGE> 10
Bonuses for the Company's other named executive officers were approved by the
Compensation Committee based on similar corporate, business unit, and individual
performance criteria.
Long-Term Stock Incentives. The Company's Stock Incentive Plan (the
"1987 Plan"), which was approved by the Company's shareholders in 1987, and the
Company's Equity Incentive Plan (the "1995 Plan"), which was approved by the
Company's shareholders in November 1995 and which replaced the 1987 Plan as to
ongoing grants, are designed to align a significant portion of the executive
compensation package with the long-term interests of Company shareholders by
providing an incentive that focuses attention on managing the Company from the
perspective of an owner with an equity stake in the business. The 1987 Plan and
1995 Plan provide for the grant of several types of equity-based awards,
including both stock options and restricted shares.
The Company makes annual grants of stock options to its management
personnel, including its executive officers. This annual grant program is
designed to provide Company managers, over a number of years, with multiple
stock options, each granted with an exercise price equal to the market price for
Company shares on the date of the grant. Individual option grants are determined
by the Compensation Committee based on a manager's current performance,
potential for future responsibility, and salary multiples designed to increase
the portion of the total compensation opportunity represented by stock
incentives as a manager's level of responsibility increases. Because a primary
intent of granting stock options is to encourage positive future performance,
when granting options, the Compensation Committee does not consider the number
of options granted to an individual in previous years. The Compensation
Committee places a relatively heavy emphasis on stock options as a percentage of
total compensation, consistent with its philosophy that stock incentives more
closely align the interests of Company managers with the long-term interests of
shareholders.
Grants of restricted shares are generally limited to the Company's
executive officers and other senior management personnel to reward exceptional
performance with a long-term benefit in lieu of cash, to facilitate stock
ownership, and to deter recruitment of key Company managers by competitors and
others. Unlike the Company's stock option program, restricted share grants are
not made on an annual or other regularly established basis. Recipients of
restricted share grants are subject to restrictions on the disposition of the
stock during a period determined by the Compensation Committee at the time of
grant. Restricted stock awards are forfeited by their terms if the recipient
terminates employment with the Company prior to the expiration of the restricted
period.
Consistent with the Company's philosophy of linking total compensation
to stock performance for all of its executive officers, a significant portion of
Mr. Walter's overall compensation package is comprised of stock incentives. In
March 1996 the Compensation Committee granted Mr. Walter options to purchase
26,431 Common Shares with an exercise price of $59.875 per share (the market
price on the date of grant) as part of the annual option grant normally made to
Company executives. In making these grants, the Compensation Committee
considered the target range established for the Company's most senior officers,
the improvement in the Company's strategic positioning, and Mr. Walter's
progress in accomplishing personal objectives. Mr. Walter's options vest on the
third anniversary of the grant date and are generally exercisable for a period
of seven years following the vesting date consistent with grants made to other
option recipients. No restricted share grants were made to Mr. Walter during the
fiscal year.
Impact of 1993 Tax Act Changes. The Budget Reconciliation Act of 1993
(the "Act") amended the Internal Revenue Code of 1986, as amended (the "Code")
to add Section 162(m), which prohibits a deduction to any publicly held
corporation for compensation paid to a "covered employee" in excess of $1
million per year (the "Dollar Limitation"). A covered employee is an employee
who, on the last day of the Company's taxable year, is the chief executive
officer of the Company or an employee who appears in the Summary Compensation
Table by reason of being one of the four most highly compensated executive
officers for the taxable year (other than the chief executive officer). As a
result of the amount of the Dollar Limitation, exclusions of certain
compensation under the 1987 Plan and 1995 Plan, and salary deferral elections by
Mr. Walter, the deductibility of compensation paid in 1996 was not affected by
the Act. It is anticipated that the deductibility of compensation paid to Mr.
Walter in fiscal 1997 and thereafter could be affected by the Act. Therefore, in
August 1996, the Company's Board of Directors adopted the Cardinal Health, Inc.
Performance-Based Incentive Compensation Plan (the "Performance-Based Plan"),
subject to shareholder approval of the material terms of the performance goals
thereunder. (See
8
<PAGE> 11
Proposal 2 for a description of the Performance-Based Plan.) Compensation paid
in accordance with the Performance-Based Plan generally will not be applied
toward the Dollar Limitation.
Conclusion. As described above, the Company's executive compensation
program provides a significant link between total compensation and the Company's
performance and long-term stock price appreciation consistent with the
compensation philosophies set forth above. This program has been established for
a number of years, and has been a significant factor in the Company's growth and
profitability and the resulting gains achieved by the Company's shareholders.
John B. McCoy, Chairman
John F. Havens
J. Michael Losh
George R. Manser
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
<TABLE>
<CAPTION>
========================================================================================================================
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)
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Robert D. Walter 1996 $531,456 $399,000 - $ -0- 26,431 $183,523 (3)
------------------------------------------------------------------------------------------
Chairman and Chief 1995 495,649 446,039 - -0- 40,330 162,340
------------------------------------------------------------------------------------------
Executive Officer 1994 463,458 333,705 - 336,563 73,963 153,306
------------------------------------------------------------------------------------------
John C. Kane 1996 420,732 TBD - -0- 17,437 26,136
------------------------------------------------------------------------------------------
President and Chief 1995 393,924 334,799 - -0- 27,000 9,705
------------------------------------------------------------------------------------------
Operating Officer 1994 360,789 255,472 - 251,850 51,225 22,298
------------------------------------------------------------------------------------------
James F. Millar 1996 262,241 TBD - -0- 13,123 28,065
------------------------------------------------------------------------------------------
Executive Vice President 1995 214,548 129,824 - -0- 11,200 19,100
------------------------------------------------------------------------------------------
& President - Cardinal 1994 201,375 110,515 106,451 65,244 22,225 22,224
Distribution
------------------------------------------------------------------------------------------
David Bearman 1996 261,555 TBD - -0- 10,048 26,840
------------------------------------------------------------------------------------------
Executive Vice President 1995 248,154 147,387 - -0- 12,420 9,705
------------------------------------------------------------------------------------------
& Chief Financial Officer 1994 239,989 127,754 - 73,950 24,425 23,545
------------------------------------------------------------------------------------------
Melburn G. Whitmire (4) 1996 217,135 TBD - -0- 13,350 625,315(5)
------------------------------------------------------------------------------------------
Vice Chairman 1995 333,750 283,609 - -0- 13,350 155,000(7)
------------------------------------------------------------------------------------------
1994 120,385 300,000 90,000(6) -0- -0- 103,530
------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
(1) Aggregate restricted share holdings and values at June 30, 1996 (based
upon the closing stock price on such date), for the named executive
officers are as follows: (i) Mr. Walter - 33,983 shares, $2,451,024; (ii)
Mr. Whitmire - 0 shares; (iii) Mr. Kane - 37,000 shares, $2,668,625; (iv)
Mr. Bearman - 2,125 shares, $153,266; and (v) Mr. Millar - 4,220 shares,
$304,368. Dividends are paid on restricted shares at the same rate as all
9
<PAGE> 12
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.
(2) Amounts shown represent Company contributions to the executive's account
under the Company's Profit Sharing and Retirement Savings Plan and the
Company's Incentive Deferred Compensation Plan for fiscal 1996 as follows:
Mr. Walter - $26,288, Mr. Kane - $26,136, Mr. Millar - $28,065,
Mr. Bearman - $26,840, and Mr. Whitmire - $25,315.
(3) Includes $157,235 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.
(4) Mr. Whitmire joined the Company in February 1994 following the merger of
Whitmire Distribution Corporation with the Company (the "Whitmire Merger").
Compensation included in the Summary Compensation Table for Mr. Whitmire
excludes all compensation paid by Whitmire prior to the Whitmire Merger.
(5) Includes $600,000 paid to Mr. Whitmire in consideration for noncompete
convenants contained in Mr. Whitmire's Employment Agreement (as described
below under "Employment Agreements").
(6) Includes $90,000 for previously accrued vacation time paid to Mr. Whitmire
in connection with the Whitmire Merger.
II. OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#)(1) YEAR(2) ($/SH) DATE 0%($) 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert D. Walter 26,431 4.80% $59.875 03/04/06 $-0- $995,261 $2,522,187
- -----------------------------------------------------------------------------------------------------------------------
John C. Kane 17,437 3.17 59.875 03/04/06 -0- 656,591 1,663,931
- -----------------------------------------------------------------------------------------------------------------------
James F. Millar 13,123 2.38 59.875 03/04/06 -0- 494,147 1,252,267
- -----------------------------------------------------------------------------------------------------------------------
David Bearman 10,048 1.82 59.875 03/04/06 -0- 378,358 958,834
- -----------------------------------------------------------------------------------------------------------------------
Melburn G. Whitmire 13,350 2.42 59.875 03/04/06 -0- 502,695 1,273,928
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options granted during the fiscal year to the named executives were
nonqualified stock options and are exercisable on and after March 4, 1999.
10
<PAGE> 13
(2) Based on 550,690 options granted to all employees during the fiscal year
ended June 30, 1996 under the stock plans of the Company.
(3) These amounts are based on hypothetical appreciation rates of 0%, 5% and
10% and are not intended to forecast the actual future appreciation of the
Company's stock price. No gain to optionees is possible without an actual
increase in the price of the Company's shares, which increase benefits all
of the Company's shareholders.
III. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
AT FY-END OPTIONS
(#) AT FY-END ($) (2)
-----------------------------------------
SHARES VALUE
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) (1) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert D. Walter -0- $-0- 71,625/140,724 $3,871,161/$3,853,856
- --------------------------------------------------------------------------------------------------------------
John C. Kane -0- -0- 68,750/95,662 3,528,594/2,641,796
- --------------------------------------------------------------------------------------------------------------
James F. Millar -0- -0- 19,141/46,548 1,037,272/1,199,250
- --------------------------------------------------------------------------------------------------------------
David Bearman -0- -0- 29,052/46,893 1,621,413/1,267,939
- --------------------------------------------------------------------------------------------------------------
Melburn G. Whitmire 157,333 $8,168,536 0/26,700 0/465,581
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value calculated as the difference between the fair market value of the
Common Shares on the date of exercise and the option exercise price.
(2) Value calculated as the difference between the fair market value of the
Common Shares on June 30, 1996 and the option exercise price.
SHAREHOLDER PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total return
of Common Shares with the cumulative total return of the Standard & Poor's
Composite - 500 Stock index and an index based on a "line of business" peer
group of companies (the "Peer Group"). Except as set forth in Note 2 below, the
graph assumes in each case an initial investment of $100 as of March 31, 1991
based on the market prices at the end of each fiscal year through and including
June 30, 1996, with the Peer Group investment weighted on the basis of market
capitalization at the beginning of each such fiscal year and assuming
reinvestment of dividends (and taking into account all stock splits). The
companies in the Peer Group are Amerisource Health Corporation (starting in
April 1995 when Amerisource's stock began trading publicly), Bergen Brunswig
Corporation, Bindley Western Industries, Inc., FoxMeyer Corporation, McKesson
Corporation, and Owens & Minor, Inc.
[insert graph in this area]
11
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Fiscal Year 1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 100.00 111.02 127.91 130.29 164.21 206.88
- -----------------------------------------------------------------------------------------------------
Peer Group 100.00 97.52 114.74 161.77 294.41 328.92
- -----------------------------------------------------------------------------------------------------
Cardinal Health, Inc. 100.00 108.55 105.33 174.11 210.27 321.76
- -----------------------------------------------------------------------------------------------------
</TABLE>
On March 1, 1994, the Company changed its fiscal year end from March 31 to June
30. The information presented in the graph and table above for the years 1991
through 1993 is as of March 31, and the same information for the years 1994
through 1996 is as of June 30.
EMPLOYMENT AGREEMENTS
In connection with the Whitmire Merger, Mr. Whitmire entered into an
employment agreement with Whitmire, the performance of which was guaranteed by
the Company. Mr. Whitmire, Whitmire, and the Company entered into an amendment
to the employment agreement dated as of November 14, 1995. The employment
agreement, as amended (the "Employment Agreement"), provides for an employment
term of five years commencing February 7, 1994. In addition to a base salary,
the Employment Agreement also provides for an annual bonus payable for fiscal
years covered by the Employment Agreement through June 30, 1996 under the bonus
plan in which other Company executive officers participate from time to time.
The Employment Agreement provides that Mr. Whitmire will be entitled to
participate in the Company's group health, life, and disability plans, as well
as the Company's profit sharing and retirement savings plan during the term of
the Employment Agreement. In addition, the Employment Agreement contains
noncompete covenants effective throughout the employment term, and for up to two
additional one year periods following the employment term. As consideration for
his noncompete covenants, Mr. Whitmire will receive two consecutive annual
payments of $600,000 each. The first such payment was made on March 7, 1996 and
the second such payment will be paid on or before March 7, 1997.
COMPENSATION OF DIRECTORS
The Company's non-employee Directors are paid $3,250 per quarter plus
$1,500 for each Board meeting attended in person and $750 for each Board meeting
attended telephonically. Non-employee Directors are also entitled to receive
$750 for each Committee meeting attended (in person or telephonically). The
Company also reimburses non-employee Directors for out-of-pocket travel expenses
incurred in connection with attendance at Board and Committee meetings. Employee
Directors do not receive additional compensation in their capacity as a
Director.
Pursuant to the Company's Equity Incentive Plan (the "1995 Plan"),
options to purchase that number of 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
Common Shares on the date of grant. In addition, options to purchase that number
of 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 Common
Shares on the date of grant. All grants to non-employee Directors under the 1995
Plan vest immediately, are exercisable 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 non-employee Director ceases to
serve as such then options previously granted under the 1995 Plan lapse unless
exercised within six months (twelve months in the case of a non-employee
Director's death). Options granted under the 1995 Plan are treated as
"nonqualified options" under the Code. During the fiscal year ended June 30,
1996, Messrs. Gerbig, Havens, Manser, McCoy, and Van Fossen and Dr. Robertson
each were granted an option to purchase 928 Common
12
<PAGE> 15
Shares; Mrs. Herzlinger was granted an option to purchase 1,895 Common Shares
upon her appointment to the Board; and Mr. Losh was granted an option to
purchase 1,547 Common Shares upon his appointment to the Board, in accordance
with the provisions of the 1995 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John F. Havens, J. Michael Losh, George R. Manser, and John B. McCoy
are the members of the Company's Compensation and Personnel 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.
PROPOSAL 1 - AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES
The Company's Board of Directors has unanimously approved an
amendment to Section 1 of Article Fourth of the Company's Articles of
Incorporation to increase the authorized number of Common Shares from one
hundred million to one hundred fifty million and recommends that the Company's
shareholders approve and adopt the amendment. The full text of Section 1 of
Article Fourth reflecting this amendment is attached to this Proxy Statement as
Exhibit A.
The additional Common Shares for which authorization is sought would
have the same rights and privileges as the Common Shares presently outstanding.
Holders of Common Shares have no preemptive rights to subscribe to or for any
additional shares of the Company.
As of September __, 1996, ________ Common Shares were outstanding,
_______ were issued and held in treasury, and _________ Common Shares were
reserved for issuance under stock incentive plans. As of such date, excluding
Common Shares already reserved as described above, a balance of _________
authorized Common Shares would have been available for issuance without
shareholder action. On July 24, 1996, the Company announced that it had signed a
merger agreement with PCI Services, Inc. ("PCI"), a provider of integrated
packaging services to the pharmaceutical industry. If the transaction is
consummated, PCI will become a wholly-owned subsidiary of the Company. Under the
terms of the transaction, shareholders of PCI will receive 0.336 of a Common
Share of the Company in exchange for each common share of PCI and the Company is
expected to issue approximately 2.1 million Common Shares in the transaction,
subject to adjustment as provided in the merger agreement. The Company has also
agreed to convert existing PCI stock options (approximately 470,000 shares) into
Company options at the same exchange rate described above (approximately 157,920
shares). The Company has an adequate number of authorized but unissued Common
Shares available to complete the PCI transaction without taking into account the
increase in authorized Common Shares described in this proposal.
Although the Company has no present plan, agreement or commitment for
the issuance of additional Common Shares other than those described above or
pursuant to employee benefit plans, the Company's Board of Directors believes
that the number of Common Shares available for issuance could be insufficient to
meet the future needs of the Company. The Company's Board of Directors believes
that it is desirable to have additional authorized but unissued Common Shares
available for possible future share dividends or splits, employee benefit
programs, financing and acquisition transactions, and other general corporate
purposes. For example, the Company issued shares pursuant to 25% stock splits in
September 1989, September 1990, September 1991 and June 1994; 2,012,500 shares
in a registered public offering in March 1991 and 1,866,949 shares in a
registered public offering in September 1994; 3,422,521 shares pursuant to the
conversion of outstanding debentures in July 1993; and approximately 35,995,700
shares and options to purchase shares in connection with acquisition
transactions completed since May 1, 1993. Although there can be no assurance
that similar transactions will occur in the future, the Board wishes to have
Common Shares available for such purposes if conditions warrant. Like the
presently authorized but unissued Common Shares, the additional Common Shares
would be available for issuance without further action by the Company's
shareholders, unless such action is required by applicable law or the rules of
the New York Stock Exchange on which the Common Shares are listed or any other
stock exchange on which the Company's securities may be listed in the future.
The authorization of additional Common Shares may enable
13
<PAGE> 16
the Company, as the need arises, to take timely advantage of market conditions
and the availability of favorable opportunities without the potential delay and
expense associated with the holding of a meeting of its shareholders, where the
issuance of such Common Shares would not otherwise require shareholder action.
Although a proposal to increase the authorized capital stock of a
company may be construed as having an anti-takeover effect, neither the
management of the Company nor its Board of Directors views this proposal in that
perspective. The proposal has not been prompted by an effort by anyone to gain
control of the Company and the Company is not aware of any such attempt.
However, the authorized and unissued Common Shares could be issued for the
purpose of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of Common Shares, to acquire control of the
Company with a view to effecting a merger, sale of the Company's assets, or
similar transaction, since the issuance of Common Shares could be used to dilute
the share ownership or voting rights of such a person or entity. Further, any of
such authorized but unissued Common Shares could be privately placed with
purchasers who might support incumbent management, making a change in control of
the Company more difficult.
Under Ohio law and the Company's Articles of Incorporation, the
affirmative vote of the holders of a majority of the outstanding Common Shares
is required for the approval of the proposal. Broker non-votes and abstentions
will have the same effect as votes against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 2 - APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE
CARDINAL HEALTH, INC. PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
INTRODUCTION
At the Annual Meeting, the Company's shareholders will be requested to
consider and act upon a proposal to approve the material terms of the
performance goals under the Cardinal Health, Inc. Performance-Based Incentive
Compensation Plan (the "Performance-Based Plan").
On August 14, 1996, the Board of Directors adopted the
Performance-Based Plan, subject to approval by the Company's shareholders of the
material terms of the performance goals thereunder. The purpose of the
Performance-Based Plan is to give the Company a competitive advantage in
attracting, retaining and motivating senior officers and key employees and to
provide the Company with the ability to provide incentive compensation that is
linked to the profitability of the Company's businesses and increases in
shareholder value, which incentive compensation is not subject to the deduction
limitation rules described below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE PERFORMANCE-BASED PLAN.
DESCRIPTION
Set forth below is a summary of certain important features of the
Performance-Based Plan and a description of the material terms of the
performance goals thereunder that shareholders are being asked to approve.
Administration. The Performance-Based Plan will be administered by the
Compensation Committee of the Board. Among other things, the Compensation
Committee will have the authority to select participants in the
Performance-Based Plan from among the Company's executive officers and to
determine the performance goals, target amounts and other terms and conditions
of awards under the Performance-Based Plan (subject to the terms of the
Performance-Based Plan). The Compensation Committee also will have the authority
to establish and amend rules and regulations relating to the Performance-Based
Plan and to make all other determinations necessary and advisable for the
administration of the Performance-Based Plan. All decisions made by the
14
<PAGE> 17
Compensation Committee pursuant to the Performance-Based Plan will be made in
the Compensation Committee's sole discretion and will be final and binding.
Eligibility. Executive officers of the Company designated by the
Compensation Committee are eligible to be granted awards under the
Performance-Based Plan.
Terms of Awards. Awards under the Performance-Based Plan will consist
of cash amounts payable upon the achievement, during a specified performance
period, of specified objective performance goals. At the beginning of a
performance period for a given award, the Compensation Committee will establish
the performance goal(s) and the target amount of the award, which will be earned
if the performance goal(s) are achieved in full, together with any lesser amount
that will be earned if the performance goal(s) are only partially achieved.
After the end of the performance period, the Compensation Committee will certify
the extent to which the performance goals are achieved and determine the amount
of the award that is payable; provided, that the Committee will have the
discretion to determine that the actual amount paid with respect to an award
will be less than (but not greater than) the amount earned.
Performance Goals; Maximum Award. The performance goals for awards will
be based upon the achievement of targeted measures of return on equity, earnings
per share, earnings from operations, and/or such other objective business
criteria as the shareholders may approve from time to time by the Company and/or
one or more operating groups of the Company. The maximum award that may be paid
to any participant for any performance period is $1 million times the number of
twelve-month periods contained within the performance period. For example, if
the performance period for an award is two years, the maximum award would be $2
million, and if the performance period is six months, the maximum award would be
$500,000.
Termination of Employment. A participant whose employment terminates
because of death or disability during the performance period for an award will
receive a pro rata portion of the award, based upon the extent to which the
performance goals had been achieved before such termination, unless the
Compensation Committee determines otherwise. A participant whose employment
terminates for any other reason before the end of the performance period for an
award will not be entitled to any payment with respect to the award.
Amendment and Discontinuance. The Performance-Based Plan may be
amended, modified or terminated by the Compensation Committee at any time, but
no such amendment, modification or termination will affect the payment of any
award for a performance period that has already ended or increase the amount of
any award.
INITIAL AWARD TO MR. WALTER
On August 13, 1996, the Compensation Committee approved an award to Mr.
Walter under the Performance-Based Plan (the "Initial Award"), subject to
shareholder approval of the material terms of the performance goals under the
Performance-Based Plan. The target amount of the Initial Award is $700,000,
which will be paid (subject to the exercise of negative discretion by the
Compensation Committee) if the Company attains certain targets established by
the Compensation Committee based upon growth of earnings per share and return on
shareholders equity for fiscal 1997.
REASON FOR SHAREHOLDER APPROVAL
The Performance-Based Plan has been designed to take into account
certain limits on the ability of a public corporation to claim tax deductions
for compensation paid to certain highly compensated executives. Internal Revenue
Code (the "Code") Section 162(m) generally denies a corporate tax deduction for
annual compensation exceeding $1 million paid to the chief executive officer and
the four other most highly compensated officers of a public corporation. (See
"Executive Compensation -- Compensation Committee Report -- Impact of 1993 Tax
Act Changes", above.) However, "qualified performance-based compensation" is
exempt from this limitation. Qualified performance-based compensation is
compensation paid based solely upon the achievement of objective performance
goals, the material terms of which are approved by the shareholders of the
paying corporation. The
15
<PAGE> 18
shareholders of the Company are thus being asked to approve the material terms
of the performance goals under the Performance-Based Plan, as described above.
It should be noted that awards paid after the death or disability of
any participant may not be exempt from the limitations imposed by Code Section
162(m).
VOTE REQUIRED
Approval of the performance goals under the Cardinal Health, Inc.
Performance-Based Incentive Compensation Plan requires the affirmative approval
of the holders of a majority of the Cardinal Common Shares present in person, or
by proxy, at the Annual Meeting. Broker non-votes and abstentions will have the
same effect as votes against the proposal.
THE BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE PERFORMANCE GOALS
UNDER THE PERFORMANCE-BASED PLAN IS IN THE BEST INTERESTS OF ALL SHAREHOLDERS
AND, ACCORDINGLY, RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the Company's 1997
Annual Meeting of Shareholders for inclusion in the proxy statement and form of
proxy relating to that meeting is advised that the proposal must be received by
the Company at its principal executive offices not later than ________, 1997.
The Company will not be required to include in its proxy statement a form of
proxy or shareholder proposal which is received after that date or which
otherwise fails to meet the requirements for shareholder proposals established
by regulations of the Securities and Exchange Commission.
SELECTION OF INDEPENDENT AUDITORS
On August 14, 1996, the Company's Board of Directors selected Deloitte
& Touche LLP to serve as the independent auditors for the Company and its
subsidiaries for the fiscal year ending June 30, 1997. The selection of Deloitte
& Touche LLP as the auditors for the Company was recommended to the Company's
Board of Directors by the Audit Committee of the Board. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting, with the
opportunity to make a statement about the Company's financial condition, if they
desire to do so, and to respond to appropriate questions.
OTHER MATTERS
This solicitation of proxies is made by and on behalf of the Board of
Directors. The cost of the solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited by Directors,
officers and employees of the Company in person or by telephone, telegraph, or
other means of communication. These persons will receive no additional
compensation for solicitation of proxies but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. The Company has
retained Morrow & Co., Inc. at an estimated cost of $________, plus
reimbursement of expenses, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Arrangements will also be made
by the Company with custodians, nominees, and fiduciaries for forwarding of
proxy solicitation materials to beneficial owners of shares held of record by
such custodians, nominees and fiduciaries, and the Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
If the enclosed proxy is executed and returned, the shares represented
thereby will be voted in accordance with any specifications made by the
shareholder. In the absence of any such specification, such proxies will be
voted: FOR adoption of the amendment to the Company's Articles of Incorporation
to increase the number of authorized Common Shares from one hundred million to
one hundred fifty million; and FOR approval of the performance goals under the
Cardinal Health, Inc. Performance-Based Incentive Compensation Plan. With
respect
16
<PAGE> 19
to the election of Directors, proxies returned without specifications made by
the shareholder will be voted to elect four Directors as set forth under
"Election of Directors" above. Although management does not presently anticipate
cumulating votes pursuant to proxies it obtains as a result of this
solicitation, it reserves the right to cumulate such votes and vote for less
than all of the Director nominees named herein.
The presence of any shareholder at the Annual Meeting will not operate
to revoke his or her proxy. A proxy may be revoked at any time insofar as it has
not been exercised by giving written notice to the Company or in open meeting or
by executing and forwarding a later-dated proxy to the Company.
If any other matters shall properly come before the Annual Meeting, the
persons named in the proxy, or their substitute, will vote thereon in accordance
with their judgment. The Board of Directors does not know of any other matters
which will be presented for action at the Annual Meeting.
By order of the Board of Directors.
GEORGE H. BENNETT, JR., Secretary
September __, 1996
17
<PAGE> 20
EXHIBIT A
AMENDED SECTION 1 TO ARTICLE FOURTH
Resolved, that Section 1 of Article FOURTH of the Amended and Restated
Articles of Incorporation, as amended, of Cardinal Health, Inc. be, and the same
hereby is, deleted in its entirety and there is substituted therefor the
following:
FOURTH: Section l. Authorized Shares. The maximum aggregate number of
shares which the corporation is authorized to have outstanding is 155,500,000,
consisting of 150,000,000 common shares, without par value ("Class A Common
Shares"), 5,000,000 Class B common shares, without par value ("Class B Common
Shares") (the Class A Common Shares and the Class B Common Shares are sometimes
referred to herein collectively as the "Common Shares"), and 500,000 nonvoting
preferred shares, without par value.
18
<PAGE> 21
CARDINAL HEALTH, INC.
PROXY
5555 GLENDON COURT
DUBLIN, OHIO 43016
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert D. Walter and George H. Bennett, Jr., and
each of them, the attorneys and proxies of the undersigned with full power of
substitution to vote as indicated herein, all the common shares, without par
value, of Cardinal Health, Inc. held of record by the undersigned on September
13, 1996, at the annual meeting of shareholders to be held on October 29, 1996,
or any postponements or adjournments thereof, with all the powers the
undersigned would possess if then and there personally present.
1. [ ] WITH or [ ] WITHOUT authority to vote (except as marked to the
contrary below) for the election of each of the nominees listed below:
Regina E. Herzlinger, J. Michael Losh, John C. Kane, John B. McCoy
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. [ ] FOR or [ ] AGAINST or [ ] ABSTAIN -- Proposal to amend the
Articles of Incorporation of Cardinal Health, Inc. to increase the authorized
number of common shares, without par value.
3. [ ] FOR or [ ] AGAINST or [ ] ABSTAIN -- Proposal to approve the
material terms of the performance goals under the Cardinal Health, Inc.
Performance-Based Incentive Compensation Plan.
4. In their discretion, to vote upon such other business as may properly come
before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE SHAREHOLDER.
IF NO SPECIFICATIONS ARE MADE, THE PROXY WILL BE VOTED TO ELECT THE NOMINEES
DESCRIBED IN ITEM 1 ABOVE, FOR PROPOSALS 2 AND 3, AND WITH DISCRETIONARY
AUTHORITY ON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING
OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
<PAGE> 22
Receipt of Notice of Annual Meeting of Shareholders and the related Proxy
Statement is hereby acknowledged.
Dated ________________________________, 1996
________________________________
________________________________
________________________________
Signature(s) of Shareholder(s)
Please sign as your name appears
hereon. If shares are held jointly, all
holders must sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title. If a corporation, please
sign in full corporate name by
president or other authorized officer.
If a partnership, please sign in
partnership name by authorized person,
indicating where proper, official
position or representative capacity.
2
<PAGE> 23
APPENDIX A
TO PRELIMINARY PROXY
MATERIALS FILING
[CARDINAL HEALTH, INC. LOGO]
CARDINAL HEALTH, INC.
PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of the Cardinal Health, Inc. Performance-Based Incentive
Compensation Plan (the "Plan") is to advance the interests of Cardinal Health,
Inc. and its shareholders by providing certain of its key executives with
incentive compensation which is tied to the achievement of pre-established and
objective performance goals. The Plan is intended to provide participants with
incentive compensation which is not subject to the deduction limitation rules
prescribed under Section 162(m) ("Section 162(m)") of the Internal Revenue Code
of 1986, as amended from time to time (the "Code"), and should be construed to
the extent possible as providing for remuneration which is performance-based
compensation within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2. DEFINITIONS. Whenever used herein, the following terms shall have their
respective meanings set forth below:
a. "Award" means the amount payable to a Participant in accordance with
Section 6 of the Plan.
b. "Committee" means the Compensation and Personnel Committee (the
"Committee") of the Board of Directors of Cardinal Health, Inc. The Committee
shall be comprised of two or more "outside directors" as that term is defined in
Section 162(m) of the Code and the regulations promulgated thereunder, as
amended from time to time.
c. "Company" means Cardinal Health, Inc. and its subsidiaries.
d. "Effective Date" means the date set forth in Section 9(a) of the Plan.
e. "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
f. "Participant" means an individual eligible to participate hereunder, as
determined by the Committee, each of whom shall be an executive officer of the
Company.
g. "Performance Period" means any time period established by the Committee
for which the attainment of Performance Goal(s) relating to an Award will be
determined.
h. "Performance Goal" means any performance goal determined by the Committee
in accordance with Section 5 of the Plan.
i. "Target Award" means the amount of any Award as established by the
Committee that would be payable to a Participant for any Performance Period if
the
<PAGE> 24
Performance Goals for the Performance Period were fully (100%) achieved and no
negative discretion was exercised by the Committee in regard to that Award
pursuant to the last sentence of Section 6.
3. ADMINISTRATION. The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee will have full authority to interpret
the Plan, to establish and amend rules and regulations relating to it, to
determine the terms and provisions for making Awards and to make all other
determinations necessary or advisable for the administration of the Plan. All
decisions made by the Committee pursuant to the provisions hereof shall be made
in the Committee's sole discretion and shall be final and binding on all
persons.
4. ELIGIBILITY. The Committee shall designate the Participants eligible to
receive Awards for each Performance Period and establish the Performance Goals
applicable to each Participant for each Performance Period. An individual who
becomes eligible to participate in the Plan during the Performance Period may be
approved by the Committee for a partial period of participation. In such case,
the Participant's Target Award and Award will be based upon performance during
the portion of the Performance Period during which the Participant participates
in the Plan, and the amount of the Target Award will be pro-rated based on the
percentage of time the Participant participates in the Plan during the
Performance Period.
5. ESTABLISHMENT OF TARGET AWARDS, PERFORMANCE PERIODS AND PERFORMANCE GOALS.
For each Performance Period established by the Committee, the Committee shall
establish a Target Award for each Participant. Awards shall be earned based upon
the financial performance of the Company or one or more operating groups of the
Company during a Performance Period; provided, however, the maximum Award that
may be paid to any single Participant for any Performance Period is the product
of $1 million multiplied by the number of 12-month periods contained within the
relevant Performance Period. As to each Performance Period, within such time as
established by Section 162(m) of the Code, the Committee will establish in
writing Performance Goals based on one or more of the following performance
measures of the Company (and/or one or more operating groups of the Company, if
applicable) over the Performance Period: (i) return on equity, (ii) earnings per
share, (iii) earnings from operations, and/or (iv) any other objective business
criteria approved by the shareholders of Cardinal Health, Inc. in accordance
with the requirements for "qualified performance-based compensation" within the
meaning of the regulations under Section 162(m). Except as otherwise provided
herein, the extent to which the Performance Goals are satisfied will determine
the amount of the Award, if any, that will be earned by each Participant. The
Performance Goals may vary for different Performance Periods and need not be the
same for each Participant eligible for an Award for a Performance Period.
6. EARNING OF AWARDS. At the end of each Performance Period, the Award will be
computed for each Participant. Payment of Awards, if any, will be made in cash,
subject to applicable tax withholding. Prior to payment of any Award, the
Committee shall certify in writing the extent to which the established
Performance Goals have been achieved. If the Performance Goals are not satisfied
to the fullest extent, a recipient may earn less than the full Target Award or
no Award at all. In addition, the Committee may in its sole discretion reduce
individual Awards otherwise payable pursuant to the Performance Goals.
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<PAGE> 25
7. TERMINATION OF EMPLOYMENT. In the event the employment of a Participant is
terminated by reason of death or disability during a Performance Period, unless
determined otherwise by the Committee, the Participant or his legal
representative, as applicable, shall receive a prorated payout with respect to
the Award relating to such Performance Period. The prorated payout shall be
based upon the length of time that the Participant was employed by the Company
during the Performance Period and the progress toward achievement of the
established Performance Goal(s) during the portion of the Performance Period
during which the Participant was employed by the Company. Payment of the Award,
if any, shall be made at the same time payments are made to Participants who did
not terminate employment during the applicable Performance Period. In the event
of a Participant's termination of employment by the Company for any other reason
prior to the end of the Performance Period with respect to an Award, the
Participant shall not be entitled to any payment with respect to such Award.
8. AMENDMENT AND TERMINATION. The Committee may amend, modify or terminate the
Plan at any time and from time to time. Shareholder approval of such actions
will be required only as required by applicable law. Notwithstanding the
foregoing, no amendment, modification or termination shall affect the payment of
an Award for a Performance Period that has already ended or increase the amount
of any Award.
9. GENERAL PROVISIONS.
a. Effective Date. The Plan shall become effective as of July 1, 1996,
subject to its approval by the shareholders of Cardinal Health, Inc.
b. Non-Transferability. Any interest of any Participant under the Plan may
not be sold, transferred, alienated, assigned or encumbered, other than by will
or pursuant to the laws of descent and distribution, and any attempt to take any
such action shall be null and void.
c. Severability. In the event any provision of the Plan is held to be illegal
or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Plan, and the Plan shall be construed and enforced
as if such illegal or invalid provisions had never been contained in the Plan.
d. Additional Arrangements. Nothing contained in this Plan shall prevent the
Company from adopting other or additional compensation arrangements for any
Participant.
e. No Right to Award or Employment; Uniformity. No person shall have any
claim or right to be granted an Award under this Plan and the grant of an Award
shall not confer upon any Participant any right to be retained as an employee of
Cardinal Health, Inc. or any of its subsidiaries, nor shall it interfere in any
way with the right of Cardinal Health, Inc. or any subsidiary to terminate the
employment of any Participant at any time or to increase or decrease the
compensation of any Participant. There is no obligation for uniformity of
treatment of Participants.
3
<PAGE> 26
f. Tax Withholding. The Company shall have the right to withhold or require
Participants to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such Award.
g. Beneficiaries. The Committee may establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid. If no
beneficiary is designated, the right of the Participant to receive any payment
under this Plan will pass to the Participant's estate.
h. Laws Governing. The Plan and all Awards made and action taken hereunder
shall be governed by and construed in accordance with the laws of the State of
Ohio, except to the extent superseded by federal law.
i. Government Regulation. Notwithstanding any provisions of the Plan or any
agreement made pursuant to the Plan, the Company's obligations under the Plan
and 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.
j. Unfunded Status of Plan. The Plan is intended to constitute an unfunded
plan for incentive compensation. With respect to any payments not yet made by
the Company to a Participant or beneficiary, nothing contained herein shall give
any such Participant or beneficiary any rights that are greater than those of a
general creditor of the Company.
4
