<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARDINAL HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OHIO 5122 31-0958666
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5555 GLENDON COURT
DUBLIN, OHIO 43016
(614) 717-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE H. BENNETT, JR., ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CARDINAL HEALTH, INC.
5555 GLENDON COURT
DUBLIN, OHIO 43016
(614) 717-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO
<TABLE>
<S> <C>
DAVID A. KATZ, ESQ. JOHN A. BICK, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ DAVIS POLK & WARDWELL
51 WEST 52ND STREET 450 LEXINGTON AVENUE
NEW YORK, NY 10019-6150 NEW YORK, NY 10017
(212) 403-1000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, without par value 81,547,500 shares $68.67 $5,600,250,000 $1,556,870
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 457(f)(1) and 457(c) promulgated under the Securities Act
of 1933, as amended, and estimated solely for purposes of calculating the
registration fee, the proposed maximum aggregate offering price is
$5,600,250,000, which equals the average of the high and low prices of the
common stock, par value $1.00 per share ("Allegiance Common Stock"), of
Allegiance Corporation ("Allegiance"), of $42.75, as reported on the New
York Stock Exchange on December 8, 1998, multiplied by the total number of
shares of Allegiance Common Stock (including shares issuable pursuant to the
exercise of outstanding options to purchase Allegiance Common Stock or
otherwise in connection with the Merger) to be canceled in the merger (the
"Merger") of a subsidiary of Cardinal Health, Inc. ("Cardinal") with and
into Allegiance. The proposed maximum offering price per share is equal to
the proposed maximum aggregate offering price determined in the manner
described in the preceding sentence divided by the maximum number of
Cardinal common shares, without par value, that could be issued in the
Merger based on an exchange ratio of 0.6225.
(2) Of which $917,585.46 was paid in connection with the filing by Cardinal
Health, Inc. on December 2, 1998 of preliminary proxy materials on Schedule
14A in connection with the Merger.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[Cardinal Health Logo] [Allegiance Logo]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Cardinal Health, Inc. and Allegiance Corporation have agreed on a merger
involving our two companies. By combining our companies, we will be joining
Cardinal's drug distribution and pharmaceutical related products and services
with Allegiance's health care products and cost savings services. We believe
that this combination will create a stronger, more diversified company that will
provide significant benefits to our shareholders and customers alike. For
example, we hope to sell our products and services to each other's current
customers, reduce duplicative administrative costs, and strengthen our position
as a competitor in the rapidly changing health care business.
Before we can complete the proposed merger, the shareholders of each of our
companies must approve the merger agreement. We are sending you this Joint Proxy
Statement/Prospectus to ask you to vote in favor of the proposed merger.
In the proposed merger, a new subsidiary of Cardinal will merge with and
into Allegiance. Allegiance, as the corporation surviving the merger, will then
become a wholly owned subsidiary of Cardinal, and stockholders of Allegiance
will receive 0.6225 of a Cardinal common share in return for each share of
Allegiance common stock they currently own. Allegiance stockholders will also
receive cash in lieu of fractional shares. Outstanding Cardinal common shares
will remain unchanged in the proposed merger. The Cardinal common shares,
including the shares issued to stockholders of Allegiance as a result of the
proposed merger, will continue to be listed on the New York Stock Exchange under
the trading symbol "CAH."
We cannot complete the proposed merger unless we obtain the necessary
governmental approvals and unless the shareholders of both of our companies
approve it. Each company will hold a special meeting of its shareholders to
consider and vote on the merger proposal. YOUR VOTE IS VERY IMPORTANT. Whether
or not you plan to attend your shareholder meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote, your proxy will be
counted as a vote FOR the proposed merger. If you do not return your card, or if
you do not instruct your broker how to vote any shares held for you in "street
name," the effect will be a vote against the proposed merger.
The dates, times and places of the special meetings are as follows:
<TABLE>
<S> <C>
FOR CARDINAL SHAREHOLDERS: FOR ALLEGIANCE STOCKHOLDERS:
Cardinal's Corporate Offices, at Allegiance's Corporate Offices, at
5555 Glendon Court 1450 Waukegan Road
Dublin, Ohio 43016 (the Brien Laing Building)
McGaw Park, Illinois 60085
January 21, 1999, 10:00 a.m., local time January 21, 1999, 10:30 a.m., local time
</TABLE>
This Joint Proxy Statement/Prospectus serves as a prospectus of Cardinal
relating to the issuance of up to 81,547,500 Cardinal common shares in
connection with the proposed merger and a joint proxy statement for both
Cardinal and Allegiance in connection with the solicitation of proxies by their
boards of directors for use at their special meetings of shareholders regarding
the merger agreement and the proposed merger. This Joint Proxy
Statement/Prospectus gives you detailed information about the proposed merger,
and it includes our merger agreement as Annex A. You can get more information
about our companies from publicly available documents we have filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully, including all its annexes, and WE ESPECIALLY ENCOURAGE YOU
TO READ THE SECTION ON "RISK FACTORS" BEGINNING ON PAGE 20.
We enthusiastically support this compelling combination of two of the
strongest health care related businesses in the United States, and we join with
the other members of our boards of directors in recommending that you vote in
favor of the proposed merger.
<TABLE>
<S> <C>
/s/ Robert D. Walter /s/ Lester B. Knight
Robert D. Walter Lester B. Knight
Chairman of the Board Chairman of the Board
and Chief Executive Officer and Chief Executive Officer
Cardinal Health, Inc. Allegiance Corporation
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER 14, 1998,
AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT DECEMBER 15, 1998.
<PAGE> 3
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus (including information included or
incorporated by reference into this document) contains certain forward-looking
statements (within the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995) with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of each of Allegiance and Cardinal, as well as certain information
relating to the proposed merger, including, without limitation, (1) statements
relating to the cost savings and estimated accretion/dilution to reported
earnings estimated to result from the proposed merger, (2) statements relating
to revenues estimated to result from the proposed merger, (3) statements
relating to integration costs estimated to be incurred in connection with the
proposed merger, and (4) statements preceded by, followed by or that include
"plans," "believes," "expects," "anticipates," "estimates" or similar words or
expressions.
These forward-looking statements involve both known and unknown risks and
uncertainties. Actual results or performance may differ materially from those
contemplated by these forward-looking statements due to the following factors
and events, among others, that might occur (the order of which does not
necessarily reflect their relative significance):
- - costs or difficulties related to the integration of the business of Allegiance
and Cardinal or other acquired businesses prove to be greater than expected;
- - expected cost savings from the proposed merger are not fully realized or are
not realized within the expected time frame or additional or unexpected costs
are incurred;
- - dependence on key personnel to manage the integration of the two companies;
- - difficulties related to the integration of Allegiance's and Cardinal's
management teams;
- - loss of key customer or supplier relationships;
- - technological changes (including "Year 2000" data systems compliance issues)
are more difficult or expensive than anticipated;
- - changes in the health care environment, including changes to alternative,
non-hospital points of care and continuing or increasing cost pressures;
- - revenues following the proposed merger are lower than expected;
- - competitive pressures in the industry or markets in which the companies
operate increase;
- - fluctuations in interest rates affecting the combined company's floating rate
debt;
- - changes in general economic and business conditions, or in political or
competitive forces;
- - changes in health care industry trends and customer profiles;
- - changes in securities markets;
- - foreign currency fluctuations;
- - changes in governmental regulations;
- - difficulties in obtaining regulatory approvals; and
- - risk that our analyses of these risks and forces are incorrect and/or that the
strategies developed to address them will be unsuccessful.
Because these forward-looking statements are subject to both known and
unknown risks and uncertainties, actual results or performance may differ
materially from those expressed or implied by these forward-looking statements.
Shareholders of Allegiance and Cardinal are cautioned not to place undue
reliance on these statements, which speak only as of the date of this Joint
Proxy Statement/Prospectus or, in the case of documents incorporated by
reference in this document, the date of such documents. Additional information
ii
<PAGE> 4
regarding these risks is contained in Allegiance and Cardinal filings with the
Securities and Exchange Commission and the exhibits to such filings.
All subsequent written and oral forward-looking statements attributable to
Allegiance or Cardinal or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither Allegiance nor Cardinal undertakes any obligation to
update publicly any forward-looking statements to reflect events, circumstances
or new information after the date of this Joint Proxy Statement/Prospectus or to
reflect the occurrence of unanticipated events.
REFERENCES TO ADDITIONAL INFORMATION
This Joint Proxy Statement/Prospectus incorporates important business and
financial information about Allegiance and Cardinal from documents that are not
included in or delivered with this Joint Proxy Statement/Prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus (other than certain exhibits to those documents) by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
<TABLE>
<S> <C>
Cardinal Health, Inc. Allegiance Corporation
5555 Glendon Court 1430 Waukegan Road
Dublin, Ohio 43016 McGaw Park, Illinois 60085
(614) 717-5000 (847) 578-4240
Director - Investor Relations Vice President - Investor
Relations
</TABLE>
If you would like to request documents, please do so by January 13, 1999 in
order to receive them before the applicable special shareholder meeting. See
"Where You Can Find More Information" on page 100.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE PROPOSED MERGER OR OUR COMPANIES THAT DIFFERS FROM OR
ADDS TO THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR
COMPANIES HAVE PUBLICLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT OR ADDITIONAL INFORMATION,
YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR SELL,
OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR, IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE INDICATED
ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT
ANOTHER DATE APPLIES.
WITH RESPECT TO THE INFORMATION CONTAINED IN THIS DOCUMENT, ALLEGIANCE HAS
SUPPLIED THE INFORMATION CONCERNING ALLEGIANCE, AND CARDINAL HAS SUPPLIED THE
INFORMATION CONCERNING CARDINAL AND BOXES MERGER CORP.
iii
<PAGE> 5
ALLEGIANCE CORPORATION
1430 WAUKEGAN ROAD
MCGAW PARK, ILLINOIS 60085
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 21, 1999
------------------------
To the Stockholders of Allegiance Corporation:
YOU ARE HEREBY GIVEN NOTICE that a special meeting of stockholders (the
"SPECIAL MEETING") of Allegiance Corporation, a Delaware corporation
("ALLEGIANCE"), will be held at Allegiance's corporate offices at 1450 Waukegan
Road (the Brien Laing Building), McGaw Park, Illinois on January 21, 1999 at
10:30 a.m., local time, for the following purposes:
- - To consider and vote on a proposal (the "ALLEGIANCE MERGER PROPOSAL") to
approve and adopt the Agreement and Plan of Merger, dated as of October 8,
1998 (the "MERGER AGREEMENT"), by and among Allegiance, Cardinal Health,
Inc., an Ohio corporation ("CARDINAL"), and Boxes Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Cardinal ("MERGER SUB"),
pursuant to which, among other things, (1) Merger Sub will be merged with and
into Allegiance (the "MERGER") with the result that Allegiance will become a
wholly owned subsidiary of Cardinal, and (2) each outstanding share (other
than shares held by Allegiance in treasury, if any, which will be canceled)
of Allegiance common stock, par value $1.00 per share ("ALLEGIANCE COMMON
STOCK"), will be converted into 0.6225 of a Cardinal common share, without
par value, with cash being paid in lieu of fractional shares.
- - To adjourn the Special Meeting, if necessary, to permit further solicitation
of proxies in the event that there are not sufficient votes at the time of
the Special Meeting to approve the Allegiance Merger Proposal (the
"ALLEGIANCE ADJOURNMENT PROPOSAL").
- - To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement of the Special Meeting.
Your Board of Directors has fixed the close of business on December 11,
1998, as the record date for the determination of the holders of Allegiance
Common Stock entitled to, notice of, and to vote at, the Special Meeting and any
adjournments or postponements of the Special Meeting. The Allegiance Merger
Proposal requires the affirmative vote of the holders of a majority of the
shares of Allegiance Common Stock outstanding and entitled to vote with respect
to the Allegiance Merger Proposal. The Allegiance Adjournment Proposal requires
the affirmative vote of the holders of a majority of the shares of Allegiance
Common Stock present in person or represented by proxy at the Special Meeting
and entitled to vote with respect to the Allegiance Adjournment Proposal.
Under certain circumstances, the Merger Agreement may be terminated prior
to the time the Merger becomes effective, whether before or after approval and
adoption of the Merger Agreement by Allegiance stockholders. Allegiance
stockholders will not be entitled to appraisal rights under Delaware law or any
other statute in connection with the Merger. A list of Allegiance stockholders
entitled to vote at the Special Meeting will be open to examination by any
Allegiance stockholder, for any purpose germane to the Special Meeting, during
ordinary business hours, ten days before the Special Meeting at Allegiance's
corporate offices at the address set forth above.
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes to the Joint Proxy
Statement/Prospectus, all of which are incorporated into this Notice by
reference and which form a part of this Notice.
IF YOU HAVE A TOUCH-TONE TELEPHONE, PLEASE UTILIZE OUR TOLL-FREE PROXY
VOTING SERVICE. TO REGISTER YOUR VOTE, SIMPLY CALL THE NUMBER LOCATED ON YOUR
PROXY CARD. IF YOU RESPOND BY TELEPHONE, DO NOT RETURN YOUR PROXY CARD; KEEP IT
FOR YOUR RECORDS. IF YOU CHOOSE TO VOTE BY MAILING YOUR PROXY CARD, PLEASE MARK,
SIGN, AND
iv
<PAGE> 6
DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT YOUR INTERESTS
BE REPRESENTED AT THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY (1) FILING
(INCLUDING BY TELEGRAM OR TELECOPY) WITH THE SECRETARY OF ALLEGIANCE BEFORE THE
TAKING OF THE VOTE AT THE SPECIAL MEETING A WRITTEN NOTICE OF REVOCATION BEARING
A LATER DATE THAN THE DATE OF THE PROXY OR A LATER-DATED PROXY RELATING TO THE
SAME SHARES, (2) VOTING BY TELEPHONE OR (3) ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO,
AND IN THE BEST INTERESTS OF, ALLEGIANCE AND THE STOCKHOLDERS OF ALLEGIANCE.
ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ALLEGIANCE
MERGER PROPOSAL AND THE ALLEGIANCE ADJOURNMENT PROPOSAL.
By order of the Board of Directors.
Sincerely,
/s/ Lester B. Knight
Lester B. Knight
Chairman of the Board and
Chief Executive Officer
/s/ William L. Feather
William L. Feather
Senior Vice President, Secretary
and General Counsel
McGaw Park, Illinois
December 14, 1998
PLEASE DO NOT SEND ANY ALLEGIANCE COMMON STOCK CERTIFICATES AT THIS TIME.
v
<PAGE> 7
CARDINAL HEALTH, INC.
5555 GLENDON COURT
DUBLIN, OHIO 43016
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 21, 1999
------------------------
To the Shareholders of Cardinal Health, Inc.:
YOU ARE HEREBY GIVEN NOTICE that a special meeting of shareholders (the
"SPECIAL MEETING") of Cardinal Health, Inc., an Ohio corporation ("CARDINAL"),
will be held at Cardinal's corporate offices at 5555 Glendon Court, Dublin, Ohio
on January 21, 1999, at 10:00 a.m., local time, for the following purposes:
- - To consider and vote on a proposal (the "CARDINAL MERGER PROPOSAL") to
approve, authorize and adopt the Agreement and Plan of Merger, dated as of
October 8, 1998 (the "MERGER AGREEMENT"), by and among Cardinal, Boxes Merger
Corp., a Delaware corporation and a wholly owned subsidiary of Cardinal
("MERGER SUB"), and Allegiance Corporation, a Delaware corporation
("ALLEGIANCE"), pursuant to which, among other things, (1) Merger Sub will be
merged with and into Allegiance (the "MERGER") with the result that
Allegiance will become a wholly owned subsidiary of Cardinal, and (2) each
outstanding share (other than shares held in treasury by Allegiance, if any,
which will be canceled) of Allegiance common stock, par value $1.00 per
share, will be converted into 0.6225 of a Cardinal common share, without par
value ("CARDINAL COMMON SHARES"), with cash being paid in lieu of fractional
shares.
- - To adjourn the Special Meeting, if necessary, to permit further solicitation
of proxies in the event that there are not sufficient votes at the time of
the Special Meeting to approve the Cardinal Merger Proposal (the "CARDINAL
ADJOURNMENT PROPOSAL").
- - To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement of the Special Meeting.
Your Board of Directors has fixed the close of business on December 11,
1998, as the record date for the determination of the holders of Cardinal Common
Shares entitled to notice of, and to vote at, the Special Meeting and
adjournments or postponements of the Special Meeting. The Cardinal Merger
Proposal requires the affirmative vote of the holders of a majority of the
Cardinal Common Shares outstanding and entitled to vote with respect to such
proposal. The Cardinal Adjournment Proposal requires the affirmative vote of the
holders of a majority of the Cardinal Common Shares entitled to vote and present
in person or represented by proxy at the Special Meeting.
Under certain circumstances, the Merger Agreement may be terminated prior
to the time the Merger becomes effective, whether before or after approval and
adoption of the Merger Agreement by Cardinal shareholders. As described in the
accompanying Joint Proxy Statement/Prospectus and the annexes to the Joint Proxy
Statement/Prospectus, Cardinal shareholders will be entitled to dissenters'
appraisal rights under Ohio law in connection with the Merger.
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes to the Joint Proxy
Statement/Prospectus, all of which are incorporated by reference into this
Notice and which form a part of this Notice.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IT IS IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE SPECIAL
MEETING. YOU MAY REVOKE YOUR PROXY BY (1) FILING (INCLUDING BY TELEGRAM OR
TELECOPY) WITH THE SECRETARY OF CARDINAL, BEFORE THE TAKING OF THE VOTE AT THE
SPECIAL MEETING, A WRITTEN NOTICE OF REVOCATION BEARING A LATER DATE THAN THE
DATE OF THE PROXY OR A LATER-DATED PROXY RELATING TO THE SAME SHARES, OR (2)
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
vi
<PAGE> 8
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO,
AND IN THE BEST INTERESTS OF, CARDINAL AND ITS SHAREHOLDERS. ACCORDINGLY, YOUR
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE
CARDINAL MERGER PROPOSAL AND THE CARDINAL ADJOURNMENT PROPOSAL.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ GEORGE H. BENNETT, JR.
GEORGE H. BENNETT, JR.
Secretary
Dublin, Ohio
December 14, 1998
vii
<PAGE> 9
To find any one of the principal sections of the Joint Proxy
Statement/Prospectus identified below, simply bend the document slightly to
expose the black tabs and open the document to the tab which corresponds to the
title of the section you wish to read. For your convenience, we have included an
index of frequently used capitalized terms in this Joint Proxy
Statement/Prospectus under the heading "Index of Defined Terms," which is
printed at the end of this document to help you locate it quickly.
TABLE OF CONTENTS
SUMMARY
RISK FACTORS
THE SPECIAL MEETINGS
THE MERGER
THE MERGER AGREEMENT
RIGHTS OF DISSENTING SHAREHOLDERS
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THE COMPANIES
FINANCIAL INFORMATION
COMPARISON OF SHAREHOLDER RIGHTS
DESCRIPTION OF CARDINAL CAPITAL STOCK
CERTAIN OTHER MATTERS
INDEX OF DEFINED TERMS
ANNEXES
viii
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FORWARD-LOOKING STATEMENTS........ ii
REFERENCES TO ADDITIONAL
INFORMATION..................... iii
ALLEGIANCE CORPORATION NOTICE OF
SPECIAL MEETING OF
STOCKHOLDERS.................... iv
CARDINAL HEALTH, INC. NOTICE OF
SPECIAL MEETING OF
SHAREHOLDERS.................... vi
QUESTIONS AND ANSWERS ABOUT THE
ALLEGIANCE/CARDINAL MERGER..... 1
SUMMARY........................... 4
The Companies................... 4
The Special Meetings............ 4
Record Date; Vote Required...... 5
Our Reasons for the Merger...... 5
The Merger...................... 5
Certain Differences in the
Rights of Shareholders....... 9
Comparative Per Share Market
Price Information............ 10
Regulatory Approvals............ 10
Forward-Looking Statements...... 10
Summary Historical and Unaudited
Pro Forma Financial
Information.................. 11
Comparative Per Share Data...... 16
Market Price and Dividend
Data......................... 18
RISK FACTORS...................... 20
Fixed Exchange Ratio Despite
Changes in Our Respective
Stock Prices................. 20
Uncertainties in Integrating Our
Business Operations.......... 20
Risks Generally Associated with
Acquisitions................. 20
Failure to Achieve Benefits..... 20
Interests of Certain Persons in
the Merger................... 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE SPECIAL MEETINGS.............. 22
General......................... 22
Matters to be Considered at the
Special Meetings............. 22
Record Date; Vote Required;
Voting at the Special
Meetings..................... 23
Voting of Proxies............... 24
Solicitation of Proxies......... 25
Recommendations of the Boards of
Directors.................... 25
Appraisal Rights................ 25
THE MERGER........................ 27
Background of the Merger........ 27
Reasons for the Merger;
Recommendations of the Boards
of Directors................. 29
Opinion of Allegiance's
Financial Advisor............ 32
Opinion of Cardinal's Financial
Advisor...................... 36
Interests of Certain Persons in
the Merger................... 40
Accounting Treatment............ 43
Regulatory Approvals............ 43
Federal Securities Law
Consequences................. 44
Stock Option Agreement.......... 45
Support/Voting Agreements....... 47
Allegiance Rights Plan
Amendment.................... 48
THE MERGER AGREEMENT.............. 49
The Merger...................... 49
Merger Consideration; Conversion
of Securities................ 49
Exchange Procedures............. 49
Representations and
Warranties................... 50
Covenants....................... 52
Acquisition Proposals and
Termination Right............ 55
Conditions...................... 57
Stock Options................... 59
Allegiance Employee Benefits and
Plans........................ 60
</TABLE>
TABLE OF CONTENTS
ix
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Termination..................... 61
Effect of Termination........... 62
Amendment and Waiver............ 63
Fees and Expenses............... 63
RIGHTS OF DISSENTING
SHAREHOLDERS.................... 65
Allegiance Stockholders......... 65
Cardinal Shareholders........... 65
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES......... 69
THE COMPANIES..................... 71
Business of Allegiance.......... 71
Business of Cardinal............ 72
Merger Sub...................... 73
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL
INFORMATION..................... 75
COMPARISON OF SHAREHOLDER
RIGHTS.......................... 87
Public Markets for the Shares... 87
Amendment of Charter
Documents.................... 87
Amendment and Repeal of Bylaws
and Regulations.............. 87
Removal of Directors............ 87
Vacancies on the Board.......... 88
Right to Call Special Meetings
of Shareholders.............. 88
Shareholder Action without a
Meeting...................... 88
Class Voting.................... 89
Cumulative Voting............... 89
Provisions Affecting Control
Share Acquisitions and
Business Combinations........ 89
Mergers, Acquisitions, Share
Purchases and Certain Other
Transactions................. 90
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Rights of Dissenting
Shareholders................. 90
Dividends....................... 91
Preemptive Rights of
Shareholders................. 91
Director Liability and
Indemnification.............. 91
Rights Agreement................ 92
DESCRIPTION OF CARDINAL CAPITAL
STOCK........................... 95
OTHER ACTION TO BE TAKEN AT THE
ALLEGIANCE SPECIAL MEETING...... 97
Allegiance Adjournment
Proposal..................... 97
OTHER ACTION TO BE TAKEN AT THE
CARDINAL SPECIAL MEETING........ 98
Cardinal Adjournment Proposal... 98
LEGAL MATTERS..................... 99
EXPERTS........................... 99
OTHER MATTERS..................... 99
SHAREHOLDER PROPOSALS............. 100
WHERE YOU CAN FIND MORE
INFORMATION..................... 100
INDEX OF DEFINED TERMS............ 103
Agreement and Plan of Merger,
dated as of October 8, 1998, by
and among Cardinal Health, Inc.,
Boxes Merger Corp. and
Allegiance Corporation.......... A-1
Opinion of Credit Suisse First
Boston Corporation, dated
October 8, 1998................. B-1
Opinion of Morgan Stanley & Co.
Incorporated, dated October 8,
1998............................ C-1
Section 1701.85 of the Ohio
Revised Code.................... D-1
</TABLE>
TABLE OF CONTENTS
x
<PAGE> 12
QUESTIONS AND ANSWERS ABOUT THE ALLEGIANCE/CARDINAL MERGER
WE INTEND THE FOLLOWING QUESTIONS AND ANSWERS TO PROVIDE BRIEF ANSWERS TO
FREQUENTLY ASKED QUESTIONS CONCERNING THE PROPOSED MERGER. THESE QUESTIONS AND
ANSWERS DO NOT, AND ARE NOT INTENDED TO, ADDRESS ALL THE QUESTIONS THAT MAY BE
IMPORTANT TO ALLEGIANCE STOCKHOLDERS AND CARDINAL SHAREHOLDERS. YOU SHOULD
CAREFULLY READ THE SUMMARY AND THE REMAINDER OF THIS DOCUMENT AS WELL AS ALL OF
THE ANNEXES AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS DOCUMENT.
Q: WHY ARE ALLEGIANCE AND CARDINAL MERGING?
A: Our companies are proposing to merge because we believe that by combining we
can create a stronger and more diversified company. We expect the combined
company to provide significant benefits to our shareholders and customers
alike by selling our products to each other's current customers, by reducing
duplicative administrative costs, and by strengthening our position as a
competitor in the rapidly changing heath care business. See "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors"
and "Forward-Looking Statements."
Q: WHAT HAPPENS TO MY SHARES OF ALLEGIANCE COMMON STOCK IN THE MERGER?
A: You will receive 0.6225 of a Cardinal common share for each share of
Allegiance common stock you own. You will also receive cash instead of any
fractional shares.
For example, a holder of 100 shares of Allegiance common stock will receive
62 Cardinal common shares, plus a cash payment with respect to the 0.25
fractional Cardinal common share.
The Cardinal common shares you will receive as a result of the merger will be
listed on the New York Stock Exchange.
Q: WHAT WILL HAPPEN TO MY CARDINAL COMMON SHARES IN THE MERGER?
A: Nothing. Each currently outstanding Cardinal common share will remain
outstanding as a Cardinal common share. Your Cardinal common shares will
remain unchanged in the merger.
Q: WILL DIVIDENDS BE PAID ON CARDINAL COMMON SHARES AFTER THE MERGER?
A: Cardinal currently expects that, after the merger is completed, it will
continue to pay quarterly cash dividends. Cardinal's current quarterly
dividend is $0.025 per share. The Cardinal board of directors, however, has
discretion to decide upon the timing and amount of any future dividends.
Whether or not Cardinal will pay such dividends (and, if so, how much such
dividends will be) will depend on Cardinal's future earnings, financial
condition, capital requirements and other factors. See "Summary -- Market
Price and Dividend Data" and "Comparison of Shareholder Rights -- Dividends."
Q: HOW DO THE RIGHTS OF CARDINAL SHAREHOLDERS COMPARE TO THOSE OF ALLEGIANCE
STOCKHOLDERS?
A: The rights of Cardinal shareholders are governed by the Ohio General
Corporation Law and Cardinal's Amended and Restated Articles of
Incorporation, as amended, and Restated Code of Regulations, as amended,
while the rights of Allegiance stockholders are governed by the Delaware
General Corporation Law and Allegiance's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws. For a summary of certain
differences between the rights of Cardinal shareholders and Allegiance
stockholders, see "Comparison of Shareholder Rights."
Q: ARE THERE RISKS ASSOCIATED WITH THE MERGER THAT I SHOULD CONSIDER IN DECIDING
HOW TO VOTE?
A: Yes. There are risks associated with all business combinations, including the
merger. In particular, you should be aware that the fractional number of
Cardinal common shares you will receive in return for each share of
Allegiance common stock you own is fixed and will not change as the market
prices of Cardinal common shares and Allegiance common stock fluctuate.
Accordingly, the value of the Cardinal common shares that Allegiance
stockholders will receive in return for their Allegiance common stock may be
either less than or more than the current market price of that number of
Cardinal common shares. In addition, there is a risk that we will not realize
the synergies we expect to obtain from the merger to the extent that, or as
promptly as, we currently anticipate. There are also a number of other risks
that are discussed in this document. You should review
<PAGE> 13
the section of this document entitled "Risk Factors" with particular care.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger as quickly as possible once all the
conditions to the merger, including obtaining the approvals of our respective
shareholders at the special meetings, are fulfilled. Fulfilling some of these
conditions, such as receiving certain governmental approvals, is not entirely
within our control. We currently expect to complete the merger in the first
half of 1999.
Q: WHAT DO I HAVE TO DO IN CONNECTION WITH THE MERGER?
A: We cannot complete the merger unless, among other things, the shareholders of
our respective companies vote to approve it. Each company will hold a special
meeting of shareholders at which such shareholders will be entitled to vote
on the merger. After carefully reviewing all the information contained in or
incorporated by reference into this document, please complete the enclosed
proxy card instructing us how to vote your shares and return it to us. THE
ALLEGIANCE BOARD OF DIRECTORS RECOMMENDS THAT ALLEGIANCE STOCKHOLDERS VOTE IN
FAVOR OF THE MERGER AT THE ALLEGIANCE SPECIAL MEETING AND THE CARDINAL BOARD
OF DIRECTORS RECOMMENDS THAT CARDINAL SHAREHOLDERS VOTE IN FAVOR OF THE
MERGER AT THE CARDINAL SPECIAL MEETING.
Q: SHOULD I SEND IN MY ALLEGIANCE STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions,
including a letter of transmittal, that explain how you should exchange your
Allegiance common stock for stock certificates representing Cardinal common
shares. Please do not send in any Allegiance stock certificates until you
receive these written instructions and the letter of transmittal.
Q: HOW DO I VOTE MY SHARES IF MY SHARES ARE HELD IN "STREET NAME"?
A: You should contact your broker. Your broker can give you directions on how to
vote your shares. Your broker will not vote your shares unless your broker
receives appropriate instructions from you.
Q: MAY I CHANGE MY VOTE EVEN AFTER RETURNING A PROXY CARD OR VOTING OTHERWISE?
A: Yes. If you are an Allegiance stockholder and want to change your vote, you
may do so at any time before the Allegiance special meeting by voting by
telephone or by sending to the Secretary of Allegiance either a written
notice (including by telegraph or telecopy) saying that you are revoking your
proxy or a later-dated proxy card showing your new vote; alternatively, you
can attend the Allegiance special meeting in person and vote your shares
yourself at the special meeting.
Similarly, if you are a Cardinal shareholder and want to change your vote,
you may do so at any time before the Cardinal special meeting by sending to
the Secretary of Cardinal either a written notice saying that you are
revoking your proxy or a later-dated proxy card showing your new vote;
alternatively, you can attend the Cardinal special meeting in person and vote
your shares yourself at the special meeting.
Allegiance stockholders who require assistance in changing or revoking a
proxy should contact Georgeson & Co. Inc., Allegiance's solicitation agent
for the merger, at Wall Street Plaza, New York, New York 10005. Georgeson &
Co. Inc.'s telephone number is (800) 223-2064.
Cardinal shareholders who require assistance in changing or revoking a proxy
should contact Morrow & Co., Inc., Cardinal's solicitation agent for the
merger, at 445 Park Avenue, New York, New York 10022. Morrow & Co., Inc.'s
telephone number is (800) 566-9061.
Q: WILL ALLEGIANCE STOCKHOLDERS HAVE TO PAY ADDITIONAL TAX BECAUSE OF THE
MERGER?
A: Stockholders of Allegiance generally will not recognize taxable gain or loss
for U.S. federal income tax purposes as a result of exchanging their shares
of Allegiance common stock for Cardinal common shares other than with respect
to any cash received in lieu of fractional shares. The holding period of
Cardinal common shares received by Allegiance stockholders in the merger,
which determines how any gain or loss should be treated for U.S. federal
income tax purposes upon future sales of such shares, will generally include
the holding period of the Allegiance common stock exchanged in the merger.
See "Certain U.S. Federal Income Tax Conse-
2
<PAGE> 14
quences." Nevertheless, the tax consequences to you of the merger will depend
on your individual circumstances and may differ from those explained here.
You should consult with your own tax advisor to ascertain the tax
consequences the merger will have for you.
Q: AM I ENTITLED TO EXERCISE ANY DISSENTERS' OR APPRAISAL RIGHTS IN CONNECTION
WITH THE MERGER?
A: Under Delaware law, Allegiance stockholders are not entitled to dissenters'
rights in connection with the merger. Under Ohio law, however, Cardinal
shareholders are entitled to exercise dissenters' rights provided they follow
all of the legal requirements. See "Rights of Dissenting Shareholders."
Q: IF I HAVE MORE QUESTIONS ABOUT THE MERGER, WHERE CAN I FIND ANSWERS?
A: In addition to reading this document, its annexes and the documents we have
incorporated by reference in this document, you can find more information
about the merger in our companies' filings with the Securities and Exchange
Commission, the New York Stock Exchange and, in the case of Allegiance, the
Chicago Stock Exchange. See "Where You Can Find More Information" on page
100.
3
<PAGE> 15
SUMMARY
This brief summary highlights selected information from the Joint Proxy
Statement/Prospectus and the documents incorporated by reference in this
document. It does not contain all of the information that is important to you.
You should carefully read this entire document and the other documents to which
this document refers to fully understand the merger. See "Where You Can Find
More Information" and "References to Additional Information." Each item in this
summary includes a page reference directing you to a more complete description
of that item in this document.
THE COMPANIES (PAGE 71)
ALLEGIANCE CORPORATION
1430 Waukegan Road
McGaw Park, Illinois 60085
(847) 689-8410
Allegiance is the United States' largest provider of non-pharmaceutical
health care products and cost savings services for hospitals and other health
care providers. Allegiance was incorporated in Delaware in June 1996 as a
subsidiary of Baxter International Inc. Baxter and its affiliates transferred to
Allegiance their U.S. health care distribution business, surgical and
respiratory therapy business and health care cost savings business, as well as
certain foreign operations. Baxter then distributed Allegiance common stock to
Baxter's stockholders on September 30, 1996. Since that time, Allegiance has
been an independent company.
CARDINAL HEALTH, INC.
5555 Glendon Court
Dublin, Ohio 43016
(614) 717-5000
Cardinal is one of the United States' leading health care service
companies. Cardinal provides innovative, cost-effective pharmaceutical services
that improve the medication use process to a broad base of customers nationwide.
These services include pharmaceutical distribution, hospital pharmacy
management, automated dispensing systems manufacturing, drug delivery systems,
pharmaceutical packaging, retail pharmacy franchising and clinical information
systems development.
BOXES MERGER CORP.
5555 Glendon Court
Dublin, Ohio 43016
(614) 717-5000
Boxes Merger Corp. is a wholly owned subsidiary of Cardinal formed solely
for the purpose of effecting the merger with Allegiance.
THE SPECIAL MEETINGS (PAGE 22)
Allegiance Stockholders. The Allegiance special meeting will be held on
January 21, 1999 at 10:30 a.m., local time, at Allegiance's corporate offices
located at 1450 Waukegan Road (the Brien Laing Building), McGaw Park, Illinois
60085. At the Allegiance special meeting, you will be asked:
- - to adopt a merger agreement that provides for the merger of Cardinal's
subsidiary Boxes Merger Corp. with and into Allegiance, thus making Allegiance
a wholly owned subsidiary of Cardinal, and for the issuance to stockholders of
Allegiance of 0.6225 of a Cardinal common share for each share of Allegiance
common stock they currently own (with cash paid in lieu of fractional shares);
- - to adjourn the special meeting, if necessary, to permit further solicitation
of proxies if there are not sufficient votes at the time of the special
meeting to approve the merger agreement; and
- - to act on any other matters that may be submitted to a vote at the Allegiance
special meeting.
Cardinal Shareholders. The Cardinal special meeting will be held on
January 21, 1999 at 10:00 a.m., local time, at Cardinal's corporate offices
located at 5555 Glendon Court, Dublin, Ohio 43016. At the Cardinal special
meeting, you will be asked:
- - to adopt a merger agreement that provides for the merger of Cardinal's
subsidiary Boxes Merger Corp. with and into Allegiance, thus making Allegiance
a wholly owned subsidiary of Cardinal, and for the issuance to stockholders of
Allegiance of 0.6225 of a Cardinal common share for each share of Allegiance
common stock they currently own (with cash paid in lieu of fractional shares);
- - to adjourn the special meeting, if necessary, to permit further solicitation
of proxies if there are not sufficient votes at the time of the special
meeting to approve the merger agreement; and
SUMMARY
4
<PAGE> 16
- - to act on any other matters that may be submitted to a vote at the Cardinal
special meeting.
RECORD DATE; VOTE REQUIRED (PAGE 23)
Allegiance Stockholders. You can vote at the Allegiance special meeting if
you owned Allegiance common stock at the close of business on December 11, 1998.
On that date, there were about 112,791,002 shares of Allegiance common stock
outstanding and entitled to vote. You can cast one vote for each share of
Allegiance common stock that you then owned. In order to adopt the merger
agreement, the holders of a majority of shares of Allegiance common stock must
vote in favor of doing so.
Cardinal Shareholders. You can vote at the Cardinal special meeting if you
owned Cardinal common shares at the close of business on December 11, 1998. On
that date, there were about 201,040,420 Cardinal common shares outstanding and
entitled to vote. You can cast one vote for each Cardinal common share that you
then owned. In order to adopt the merger agreement, the holders of a majority of
Cardinal common shares must vote in favor of doing so.
OUR REASONS FOR THE MERGER (PAGE 29)
Our companies are proposing to merge their operations because we believe
that by combining them we can create a stronger and more diversified company
that will provide significant benefits to our shareholders and customers alike.
For instance, we believe that, by bringing our various businesses together, we
can do a better job of growing our combined revenues than we could if we did not
merge, in particular by selling our products to each other's current customers.
We also believe that the merger will allow us to reduce duplicative
administrative costs in our businesses. We also believe that the merger will
strengthen our position as a competitor in the heath care business, which is
rapidly changing, consolidating and growing more competitive. To review our
reasons for the merger in greater detail, as well as to see how we came to agree
on the merger, please see pages 27 through 32.
THE MERGER (PAGE 49)
We have attached the merger agreement as Annex A to this document. Please
read all of the merger agreement. The merger agreement is the legal document
that governs the merger.
GENERAL
We propose a combination in which Allegiance will merge with Boxes Merger
Corp., a wholly owned subsidiary of Cardinal created for the purpose of
effecting the merger, with the result that, after the merger, Allegiance will
become a subsidiary of Cardinal. In exchange for shares of Allegiance common
stock, you will receive 0.6225 of a Cardinal common share for each share of
Allegiance common stock you own (with cash paid in lieu of fractional shares).
After the merger, Cardinal shareholders and Allegiance stockholders will both be
shareholders of Cardinal, which will own Allegiance as a wholly owned
subsidiary.
EXCHANGE OF SHARES (PAGE 49)
When we complete the merger, your shares of Allegiance common stock will
become Cardinal common shares.
Allegiance Stockholders. Each share of Allegiance common stock will
automatically be converted into 0.6225 of a Cardinal common share. You will
receive a total number of Cardinal common shares equal to the number of shares
of Allegiance common stock that you own multiplied by 0.6225, with cash being
paid in place of any fractional shares.
Because the number of Cardinal common shares that you will receive in the
merger is determined by the fixed exchange ratio of 0.6225, the value of the
Cardinal common shares you will receive in the merger will fluctuate as the
price of the Cardinal common shares changes.
Cardinal Shareholders. Each currently outstanding Cardinal common share
will remain issued and outstanding as one Cardinal common share. Cardinal common
shares will remain unchanged, although a greater number of common shares will be
outstanding after the merger.
ALLEGIANCE STOCK OPTIONS (PAGE 59)
Pursuant to their terms, and subject to certain exceptions, all stock
options to purchase Allegiance common stock outstanding will be automatically
vested upon Allegiance stockholder approval of the merger. When we complete the
merger, stock options to purchase Allegiance common stock granted to Allegiance
employees under Allegiance's stock option plans that are outstanding and not yet
exer-
SUMMARY
5
<PAGE> 17
cised before completing the merger will become options to purchase Cardinal
common shares. The number of shares of common stock subject to such stock
options and the exercise price of such stock options will be adjusted according
to the exchange ratio so that the stock options have the same value immediately
before and immediately after the merger. After the merger, these stock options
will continue to be governed by the terms of Allegiance's stock option plans, as
these may from time to time be amended.
MANAGEMENT AND OPERATIONS AFTER THE MERGER (PAGES 43 AND 49)
After the merger, the Cardinal board of directors will continue to manage
the business of Cardinal, which will then include the business of Allegiance as
a wholly owned subsidiary. In connection with the merger, however, Cardinal
will, as soon as the merger is completed, take all steps necessary to elect to
the Cardinal board of directors Lester B. Knight, the Chairman of the Board and
Chief Executive Officer of Allegiance, and two other independent directors of
Allegiance to be selected by the Chairman of Cardinal from among three of the
current members of the Allegiance board of directors named by the Allegiance
board of directors. After the merger, Allegiance will operate as a wholly owned
subsidiary of Cardinal and will generally retain its current management team,
its name and its headquarters in McGaw Park, Illinois.
OUR RECOMMENDATIONS TO SHAREHOLDERS (PAGE 29)
Allegiance stockholders. The Allegiance board of directors believes that
the merger is fair to you and in your best interests, and it unanimously
recommends that you vote "FOR" the proposal to approve and adopt the merger
agreement.
Cardinal shareholders. The Cardinal board of directors believes that the
merger is fair to you and in your best interests, and it unanimously recommends
that you vote "FOR" the proposal to approve and adopt the merger agreement.
OPINION OF ALLEGIANCE'S FINANCIAL ADVISOR (PAGE 32)
Credit Suisse First Boston Corporation, Allegiance's financial advisor,
delivered an opinion to the Allegiance board of directors to the effect that, as
of the date of the merger agreement, the exchange ratio is fair to the holders
of Allegiance common stock from a financial point of view. We have attached this
opinion as Annex B to this document. You should read this opinion completely to
understand the assumptions made, matters considered and limitations of the
review undertaken by Credit Suisse First Boston Corporation in providing this
opinion.
OPINION OF CARDINAL'S FINANCIAL ADVISOR (PAGE 36)
Morgan Stanley & Co. Incorporated, Cardinal's financial advisor, delivered
an opinion to the Cardinal board of directors to the effect that, as of the date
of the merger agreement, the exchange ratio is fair from a financial point of
view to Cardinal. We have attached this opinion as Annex C to this document. You
should read this opinion completely to understand the assumptions made, matters
considered and limitations of the review undertaken by Morgan Stanley & Co.
Incorporated in providing this opinion.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 57)
The completion of the merger depends on a number of conditions being met.
In addition to customary conditions relating to our compliance with the merger
agreement, these conditions include the following:
- - approval of the merger agreement by both Allegiance stockholders and Cardinal
shareholders;
- - the registration statement with respect to Cardinal common shares to be issued
in the merger, of which this document forms a part, being declared effective
by the Securities and Exchange Commission;
- - the New York Stock Exchange approving for listing the Cardinal common shares
to be issued in the merger;
- - Allegiance receiving from its legal counsel an opinion that, for U.S. federal
income tax purposes, your exchange of shares of Allegiance common stock for
Cardinal common shares generally will not cause you to recognize any gain or
loss other than in connection with any cash you receive in lieu of fractional
shares;
SUMMARY
6
<PAGE> 18
- - Cardinal receiving from its independent accountants a letter stating that the
merger will qualify for pooling-of-interests accounting treatment;
- - absence of any injunction or legal restraint blocking the merger, or of any
proceedings by a governmental authority to block the merger; and
- - Cardinal's being satisfied, in its sole discretion, that limitations placed on
Allegiance by one of its contracts with a third party will lapse or otherwise
not apply to Cardinal, Cardinal's subsidiaries or Allegiance after the merger.
Where the law permits, a party to the merger agreement could elect to waive
a condition to its obligation to complete the merger even though that condition
has not been satisfied. We cannot be certain when (or if) the conditions to the
merger will be satisfied or waived, or that the merger will be completed.
TERMINATION OF THE AGREEMENT; EXPENSES; TERMINATION FEE (PAGES 61, 62 and 63)
We can agree at any time to terminate the merger agreement without
completing the merger, even if the shareholders of both of our companies have
approved it. Also, either of us can decide, without the consent of the other, to
terminate the merger agreement in various circumstances, including the
following:
- - if there is any law or regulation that makes the merger illegal or if any
governmental authority issues a final, non-appealable order blocking the
merger;
- - if the merger has not been completed by May 15, 1999 (unless the failure to
complete the merger by that time is due to a violation of the merger agreement
by the party that wants to terminate the agreement);
- - if the other party breaches our agreement in a way that would entitle the
party seeking to terminate the agreement to not consummate the merger, and the
breaching party does not correct the breach promptly (as long as the party
seeking to terminate has not itself materially breached the agreement); or
- - if, at the Allegiance special meeting, the requisite vote of Allegiance
stockholders needed to approve the merger agreement is not obtained, or, if,
at the Cardinal special meeting, the requisite vote of Cardinal shareholders
needed to approve the merger agreement is not obtained.
In addition, Cardinal may, without the consent of Allegiance, decide to
terminate the merger agreement in various circumstances, including the
following:
- - if the Allegiance board of directors withdraws, modifies or changes its
recommendation in favor of the merger in a manner adverse to Cardinal, or if
the Allegiance board of directors approves a competing business combination or
similar transaction for Allegiance with a third party;
- - if Allegiance breaches any of its obligations under the stock option agreement
as described below; or
- - on five days notice to Allegiance, if at any time Deloitte & Touche LLP
advises Cardinal in writing that the merger cannot be accounted for as a
pooling of interests.
Allegiance may, without the consent of Cardinal, decide to terminate the
merger agreement if the Cardinal board of directors withdraws, modifies or
changes its recommendation in favor of the merger.
In addition, if the Allegiance board of directors determines in good faith,
after consultation with its financial and legal advisors, that a written
proposal from a third party for a competing business combination or similar
transaction with Allegiance (which Allegiance did not solicit or encourage) is
more favorable to Allegiance stockholders from a financial point of view than
the merger, then, provided that the Allegiance board of directors both
determines in good faith, after consultation with its legal counsel, that its
failure to enter into the competing business combination or similar transaction
with the third party would reasonably be expected to constitute a breach of its
fiduciary duties under applicable law and receives from its financial advisor a
written opinion that the competing business combination or similar transaction
is more favorable, from a financial point of view, to Allegiance stockholders,
Allegiance may terminate the merger agreement and enter into a transaction with
the third party proposing the competing business combination or similar
transaction. In such a case, Allegiance must pay Cardinal's costs related to the
merger and must pay Cardinal a termination fee of $155 million, and, in
addition, Cardinal shall be entitled to exercise its option as described below.
SUMMARY
7
<PAGE> 19
Allegiance is similarly required to pay Cardinal's costs related to the
merger and to pay Cardinal the termination fee of $155 million if the merger
agreement is terminated for any of the following reasons:
- - because the merger is not completed by May 15, 1999 as a result of a breach by
Allegiance of the merger agreement;
- - because Allegiance and Cardinal have agreed in writing to terminate the merger
agreement after public announcement of a competing business combination or
similar transaction involving Allegiance;
- - because the Allegiance board of directors has withdrawn or modified its
recommendation to the Allegiance stockholders in a manner adverse to Cardinal;
- - because the Allegiance board of directors has recommended a competing business
combination or similar transaction to Allegiance stockholders;
- - because Allegiance has breached its obligations under the stock option
agreement; or
- - because Allegiance stockholders do not approve the merger at the Allegiance
special meeting and at any time prior to such termination a third party had
made or disclosed a proposal for a competing business combination or similar
transaction with Allegiance, and within 12 months of the termination
Allegiance completes, or enters into an agreement with respect to, such a
competing business combination or similar transaction.
Except as stated above, we will each pay our own fees and expenses, except
that we will evenly divide the costs and expenses that we have incurred in
printing and mailing this document, and we will also evenly divide the fees that
we will have to pay to the Securities and Exchange Commission in connection with
the merger.
AMENDMENT AND WAIVER (PAGE 63)
We may jointly amend the merger agreement, and each of us may waive our
right to require the other party to adhere to the terms and conditions of the
merger agreement, to the extent legally permissible. However, we may amend the
merger agreement after Allegiance stockholders approve the merger only if the
amendment does not require the approval of Allegiance stockholders under
applicable law or Allegiance stockholders approve the amendment.
ACCOUNTING TREATMENT (PAGE 43)
We expect the merger to be treated as a pooling of interests. This means
that, for accounting and financial reporting purposes, we will treat our
companies as if they had always been one. We have conditioned our obligations to
complete the merger on Cardinal's receipt of a letter from its independent
accountants stating that the merger will qualify as a pooling of interests.
STOCK OPTION AGREEMENT (PAGE 45)
As an inducement to Cardinal to enter into the merger agreement, Allegiance
has entered into a stock option agreement with Cardinal that grants to Cardinal
an option to purchase shares of Allegiance common stock under certain
circumstances. The most shares of Allegiance common stock that Cardinal can
purchase if the option is exercised is 19.9% of the Allegiance common stock
outstanding at such time. The purchase price under the option granted by
Allegiance is $38.46, or the exchange ratio of the merger times the average of
the closing prices of Cardinal common shares for the five trading days before
the option is exercised, whichever is lower. In certain circumstances, Cardinal
may require Allegiance to repurchase the option (and/or any shares of Allegiance
common stock purchased under the option) at a predetermined price. In addition,
Allegiance may require Cardinal to sell the option (and/or any shares of
Allegiance common stock purchased under the option) back to Allegiance at a
price determined by a formula set forth in the stock option agreement.
Cardinal may not exercise the option unless certain events occur. These
events generally are business combinations or acquisition transactions relating
to Allegiance and certain related activities (other than the merger we are
proposing in this document), such as a merger or the sale of a substantial
amount of assets or stock. We do not know of any event that has occurred as of
the date of this document that would permit Cardinal to exercise the option.
Allegiance granted the option to Cardinal in part to increase the
likelihood that we would complete the merger. The stock option agreement could
discourage other companies from trying or propos-
SUMMARY
8
<PAGE> 20
ing to combine with Allegiance before we complete the merger.
INTERESTS OF CERTAIN PEOPLE IN THE MERGER THAT ARE DIFFERENT FROM YOUR INTERESTS
(PAGE 40)
Some of Allegiance's directors and officers have interests in the merger
that are different from, or in addition to, their interests as stockholders in
Allegiance. These interests exist because of rights these directors and officers
hold under employee benefit plans Allegiance has created. Under one such
employee benefit plan, if, during the 24-month period after Allegiance
stockholders approve the merger, Allegiance or Cardinal terminates the
employment of an individual covered by the employee benefit plan other than for
cause, death or disability (or if such individual terminates such individual's
employment in certain circumstances), the covered individual is entitled to
severance pay equal to one year's salary and target bonus or, in the case of Mr.
Knight, Joseph F. Damico (the President and Chief Operating Officer of
Allegiance) and Peter B. McKee (Senior Vice President and Chief Financial
Officer of Allegiance), three times the sum of one year's salary and target
bonus. In connection with the merger, Messrs. Knight and Damico have entered
into new agreements with Cardinal and Allegiance that extend the 24-month period
to 60 months and that modify the conditions under which they are entitled to
receive this severance pay, including limiting their ability to terminate their
employment for good reason and collect severance pay during the 12-month period
following the merger.
Subject to certain exceptions, pursuant to the terms of the Allegiance
stock incentive plans, each unvested stock option to purchase Allegiance common
stock will automatically vest upon approval of the merger by Allegiance
stockholders. As of December 10, 1998, the number of unexercised and effective
stock options to purchase Allegiance common stock held by the directors and
executive officers of Allegiance as a group was 5,144,022.
Also, following the merger, Cardinal will indemnify, and provide directors'
and officers' insurance for, the directors and officers of Allegiance for events
occurring before the merger, including events that are related to the merger
agreement. Additional interests of some of our directors and executive officers
are described elsewhere in this document. See "The Merger -- Interests of
Certain Persons in the Merger."
The members of our boards of directors knew about these additional
interests, and considered them, when they approved the merger agreement and the
merger.
APPRAISAL RIGHTS (PAGE 65)
Under Delaware law, Allegiance stockholders are not entitled to dissenters'
appraisal rights in the merger.
Under Ohio law, Cardinal shareholders are entitled to exercise dissenters'
rights in connection with the merger. See "Rights of Dissenting Shareholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 69)
Allegiance stockholders. We expect that, for U.S. federal income tax
purposes, your exchange of shares of Allegiance common stock for Cardinal common
shares generally will not cause you to recognize any gain or loss. You will,
however, have to recognize income or gain in connection with any cash received
instead of fractional shares.
We have conditioned the merger on Allegiance's receipt of a legal opinion
that the U.S. federal income tax treatment will be as we have described it in
this document. This opinion will not bind the Internal Revenue Service, which
could take a different view.
Cardinal shareholders. Since Cardinal common shares remain unchanged, the
merger will not cause you to recognize any gain or loss for purposes of the U.S.
federal income tax.
THIS TAX TREATMENT MAY NOT APPLY TO CERTAIN STOCKHOLDERS. DETERMINING THE
ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU MAY BE COMPLICATED. THEY WILL
DEPEND ON YOUR SPECIFIC SITUATION AND ON VARIABLES NOT WITHIN OUR CONTROL. YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE MERGER'S TAX
CONSEQUENCES FOR YOU.
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE 87)
The rights of Allegiance stockholders are currently governed by the
Delaware General Corporation Law and Allegiance's Amended and Restated
Certificate of Incorporation and Bylaws. The rights
SUMMARY
9
<PAGE> 21
of Cardinal shareholders are governed by the Ohio General Corporation Law and
Cardinal's Amended and Restated Articles of Incorporation, as amended, and Code
of Regulations, as amended and restated. Upon our completing the merger,
shareholders of Cardinal and stockholders of Allegiance will both be
shareholders of Cardinal, and your rights will be governed by the Ohio General
Corporation Law and by Cardinal's Amended and Restated Certificate of
Incorporation, as amended, and Code of Regulations, as amended and restated.
Neither Cardinal's Amended and Restated Certificate of Incorporation, as
amended, nor its Code of Regulations, as amended and restated, will be affected
by the merger.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Cardinal common shares are quoted on the New York Stock Exchange, and
shares of Allegiance common stock are quoted on both the New York Stock Exchange
and the Chicago Stock Exchange. On October 8, 1998, the last trading day before
we announced the merger, Cardinal common shares closed at $61.80 per share and
shares of Allegiance common stock closed at $23.00 per share. On December 11,
1998, Cardinal common shares closed at $71.44 per share and shares of Allegiance
common stock closed at $42.69 per share.
Based on the exchange ratio in the merger, which is 0.6225, the market
value of the consideration that Allegiance stockholders will receive in the
merger for each share of Allegiance common stock would be $38.47 per share based
on the closing price of Cardinal common shares on October 8, 1998, and $44.47
per share based on the closing price of Cardinal common shares on December 11,
1998. Of course, the market price of Cardinal common shares will fluctuate prior
to and after the merger, while the exchange ratio is fixed. You should obtain
current stock price quotations for shares of Allegiance common stock and
Cardinal common shares. See "--Market Price and Dividend Data."
REGULATORY APPROVALS (PAGE 43)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the regulations promulgated thereunder, we could not complete the merger
unless we made certain filings with the Antitrust Division of the U.S.
Department of Justice and the U.S. Federal Trade Commission and certain waiting
periods expired. On October 23, 1998, Allegiance and Cardinal submitted the
required filings to the Antitrust Division of the U.S. Department of Justice and
the U.S. Federal Trade Commission. The waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on November
22, 1998.
In addition, under the laws of certain foreign nations, we may not complete
the merger unless we make certain filings with these nations' antitrust
regulatory authorities and these authorities approve or clear the merger. In
particular, under the laws of the Federal Republic of Germany, we are required
to make a pre-merger notification filing with the German Federal Cartel Office,
and, under the laws of Canada, we are applying to the Director of Investigation
and Research of the Canadian Bureau of Competition Policy for an Advanced Ruling
Certificate. We expect that the merger will not violate any foreign antitrust
laws and that all the foreign antitrust regulatory authorities whose approval or
clearance we must seek will approve or clear the merger.
As we describe in this document, we will be required to make certain
filings with federal, state and foreign governmental authorities to complete the
merger. No other approvals or clearances will be required from any federal,
state or foreign agency.
FORWARD-LOOKING STATEMENTS
We have each made forward-looking statements in this document (and in
documents to which we refer you in this document) that are subject to known and
unknown risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of our operations or the
performance of the combined company after the merger is completed. Also, when we
use any of the words "plans," "believes," "expects," "anticipates," "estimates"
or similar expressions, we are making forward-looking statements. Many possible
events or factors could affect the future financial results and performance of
each of our companies and the combined company after the merger and could cause
those results or performance to differ materially from those expressed in our
forward-looking statements. See "Forward-Looking Statements" on page ii.
SUMMARY
10
<PAGE> 22
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
Allegiance Summary Historical Financial Information. We have derived the
summary historical financial information of Allegiance set forth below from the
information Allegiance included in the Allegiance annual report on Form 10-K
filed for the fiscal year ended December 31, 1997, from the quarterly reports
Allegiance has filed since then on Form 10-Q, and from other financial
information incorporated by reference in this document. You should read this
financial information in conjunction with the information in these reports by
Allegiance and in conjunction with the other information incorporated by
reference in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
AT OR FOR THE FISCAL YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------ -------------------
1993(1)(2) 1994(1) 1995(1) 1996(3) 1997 1997 1998
---------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales............................. $5,019.3 $5,108.6 $4,921.9 $4,387.2 $4,350.8 $3,214.2 $3,370.3
Income (loss) before cumulative effect
of accounting change................ (68.4) 214.9 272.6 (477.7) 90.9 66.0 92.0
Income (loss) before cumulative effect
of accounting change per Common
Share(4)(5):
Basic............................... $ (0.62) $ 1.96 $ 2.49 $ (4.35) $ 0.80 $ 0.58 $ 0.81
Diluted............................. (0.62) 1.96 2.49 (4.35) 0.78 0.57 0.78
Cash dividends declared per Common
Share(5):........................... n/a n/a n/a 0.05 0.20 0.15 0.15
BALANCE SHEET DATA:
Total assets.......................... $4,576.2 $4,031.4 $3,443.7 $2,799.2 $2,696.6 $2,693.3 $2,753.4
Long-term debt, less current
portion............................. -- -- -- 1,106.6 900.7 873.8 838.1
Stockholders' equity.................. 3,256.0 3,068.9 2,577.5 827.7 937.2 945.2 920.3
</TABLE>
- ---------------
(1) Data includes certain businesses that were divested in 1994 and 1995 as
discussed in Note 1 of "Notes to Consolidated Financial Statements" in the
1997 Allegiance Form 10-K.
(2) Loss before cumulative effect of accounting change includes a provision for
a restructuring charge of a pretax amount of $484.0 million.
(3) Loss before cumulative effect of accounting change for 1996 includes
non-recurring pretax charges of $550.0 million ($550.0 million, net of tax)
for the write-down of goodwill and $95.5 million ($62.8 million, net of tax)
primarily for facility consolidations and other asset write-downs.
(4) Per share data prior to 1996 assume the shares of Allegiance common stock
issued in connection with the spinoff of Allegiance from Baxter were
outstanding.
(5) Amounts have been adjusted retroactively to reflect a two-for-one common
stock split distributed in the form of a stock dividend, payable on August
25, 1998 to stockholders of record at the close of business August 10, 1998.
SUMMARY
11
<PAGE> 23
Cardinal Summary Historical Financial Information. We have derived the
summary historical financial information of Cardinal set forth below from the
Cardinal current report on Form 8-K/A filed on September 28, 1998, from the
quarterly reports Cardinal has filed on Form 10-Q, and from other financial
information of Cardinal, certain of which are incorporated by reference in this
document. You should read this financial information in conjunction with the
information in these reports by Cardinal and in conjunction with the other
information incorporated by reference in this document. See "Where You Can Find
More Information."
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
AT OR FOR THE FISCAL YEAR ENDED JUNE 30,(1)(2) SEPTEMBER 30,(1)(3)
-------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
-------- --------- --------- --------- --------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Revenue:
Operating Revenue................ $6,837.1 $ 9,021.1 $ 9,990.3 $11,567.8 $13,555.4 $3,022.4 $3,851.0
Bulk deliveries to customer
warehouses..................... 561.8 1,779.5 2,178.5 2,469.1 2,991.3 681.2 781.7
-------- --------- --------- --------- --------- -------- --------
Total revenue...................... $7,398.9 $10,800.6 $12,168.8 $14,036.9 $16,546.7 $3,703.6 $4,632.7
Net Earnings....................... 119.6 191.7 156.5 243.9 318.2 69.3 57.8
Earnings per Common Share(4):
Basic............................ $ 0.69 $ 1.04 $ 0.82 $ 1.25 $ 1.59 $ 0.35 $ 0.29
Diluted.......................... 0.65 1.00 0.80 1.22 1.57 0.34 0.28
Cash dividends declared per Common
Share(4)......................... $ 0.05 $ 0.05 $ 0.05 $ 0.06 $ 0.07 $ 0.017 $ 0.025
BALANCE SHEET DATA:
Total assets....................... $2,410.1 $ 3,073.6 $ 3,670.6 $ 3,825.2 $ 4,783.1 $4,025.3 $5,043.1
Long-term obligations, less current
portion.......................... 436.7 451.5 486.2 420.2 441.2 421.9 642.4
Shareholders' equity............... $ 832.0 $ 1,140.6 $ 1,394.6 $ 1,689.8 $ 2,024.1 $1,785.7 $2,100.7
</TABLE>
- ---------------
(1) Amounts reflect business combinations in fiscal 1994, 1995, 1996, 1997 and
1998 and the three months ended September 30, 1998. The most significant of
these business combinations have been accounted for as poolings-of-interests
transactions and, accordingly, prior period amounts have been restated to
retroactively reflect all such material combinations. For those business
combinations that were accounted for as purchase transactions, if these
transactions had occurred at the beginning of the respective periods, the
pro forma impact would not have been significantly different.
(2) The summary results for fiscal 1994, 1996, 1997 and 1998 include the impact
of certain merger-related costs and special charges as follows. In fiscal
1998, Cardinal recorded merger-related costs associated with the business
combination with MediQual Systems, Inc. in February 1998 ($2.3 million),
transaction costs and the related termination fee incurred to date in
connection with the proposed merger with Bergen Brunswig Corporation which
was terminated in August 1998 ($33.4 million), asset impairments ($3.8
million) and additional integration costs associated with the business
combinations with PCI Services, Inc. in October 1996, Owen Healthcare, Inc.
in March 1997, Pyxis Corporation in May 1996 and Medicine Shoppe
International, Inc. in November 1995 ($9.6 million). Also, during fiscal
1998, Cardinal recorded special charges totaling approximately $8.6 million,
primarily related to the rationalization of its distribution operations.
Lastly, as a result of a change in the tax status of a 51% owned subsidiary
in Germany, Cardinal's tax basis in the German subsidiary was adjusted,
resulting in a one-time tax refund of $4.6 million, as well as a reduction
in cash taxes to be paid in current and future years. Combined, these
factors resulted in a one-time reduction of fiscal 1998 income tax expense
of approximately $11.7 million.
In fiscal 1997, Cardinal recorded merger-related costs associated with the
business combinations with PCI Services, Inc. and Owen Healthcare, Inc.
($46.2 million) and additional integration costs related to the mergers with
Pyxis Corporation and Medicine Shoppe International, Inc. ($4.7 million).
SUMMARY
12
<PAGE> 24
In fiscal 1996, Cardinal recorded merger-related costs of approximately
$49.2 million in connection with the Medicine Shoppe International, Inc. and
Pyxis Corporation mergers. In addition, Cardinal recorded a special charge
related to the rationalization of its manufacturing and overhead structures
($33.8 million). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 of "Notes to Consolidated
Financial Statements" in the Cardinal Form 8-K/A (filed on September 28,
1998), incorporated by reference in this document, for analysis of the
impact of these merger-related costs.
In fiscal 1994, Cardinal recorded merger-related costs of approximately
$35.9 million in connection with the business combination of Cardinal and
Whitmire Distribution Corporation in February 1994.
(3) The summary results for the three months ended September 30, 1998 and 1997
include the impact of certain merger-related costs as follows. During the
three months ended September 30, 1998, Cardinal recorded merger-related
costs associated with the business combination with R.P. Scherer Corporation
in August 1998 ($34.8 million) and additional integration costs related to
integrating the operations of companies that previously merged with Cardinal
($1.8 million). Partially offsetting the charge recorded during the first
quarter of fiscal 1999 was a $2.2 million credit to adjust the estimated
Bergen Brunswig Corporation transaction and termination costs previously
recorded. During the three months ended September 30, 1997, Cardinal
recorded merger-related costs related to integrating the operations of
companies that previously merged with Cardinal ($2.2 million). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 6 of "Notes to Condensed Consolidated Financial
Statements" in the September 1998 Cardinal Form 10-Q, incorporated by
reference in this document, for analysis of the impact of these
merger-related costs.
(4) Earnings and cash dividends declared per share have been adjusted to give
retroactive effect for stock splits, including the three-for-two splits paid
on December 16, 1996 and on October 30, 1998.
SUMMARY
13
<PAGE> 25
UNAUDITED PRO FORMA CONDENSED COMBINED SUMMARY FINANCIAL INFORMATION
Cardinal's historical fiscal year ends on June 30, but Allegiance's
historical fiscal year ends on December 31. For purposes of combining
Allegiance's historical financial information with Cardinal's historical
financial information in the pro forma condensed combined statements of earnings
in this document, the financial information of Cardinal for the fiscal years
ended June 30, 1996, 1997 and 1998 have been combined with Allegiance's
financial information for the fiscal years ended December 31, 1995, 1996 and
1997, respectively. Cardinal's financial information for the three months ended
September 30, 1997 and 1998 have been combined with Allegiance's financial
information for the three months ended March 31, 1997 and September 30, 1998,
respectively.
The financial results of Allegiance for the six months ended June 30, 1998
are excluded from the pro forma financial statements. Allegiance's net revenues
and net earnings for the six months ended June 30, 1998 were approximately $2.2
billion and $59.0 million, respectively. We have included this unaudited pro
forma condensed combined summary information only for the purposes of
illustration, and it does not necessarily indicate what the operating results or
financial position would have been if the merger between Cardinal and Allegiance
had been completed at the dates indicated. Moreover, this information does not
necessarily indicate what the future operating results or financial position of
the combined company will be. You should read this unaudited pro forma condensed
combined summary financial information in conjunction with the "Unaudited Pro
Forma Condensed Combined Financial Information" included elsewhere in this
document. This unaudited pro forma condensed combined summary financial
information does not reflect any adjustments to conform accounting practices or
to reflect any cost savings or other synergies anticipated as a result of the
merger or any future merger-related expenses, as discussed in Note 4 below and
in Note 3 to the "Unaudited Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
FISCAL YEAR ENDED(1)(2) THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30, (2)
----------------------------------- --------------------
1996(3) 1997(3) 1998 1997 1998(1)
--------- --------- --------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Revenue:
Operating Revenue................. $14,912.2 $15,955.0 $17,906.2 $4,078.3 $4,998.1
Bulk deliveries to customer
warehouses..................... 2,178.5 2,469.1 2,991.3 681.2 781.7
--------- --------- --------- -------- --------
Total revenue....................... $17,090.7 $18,424.1 $20,897.5 $4,759.5 $5,779.8
Net earnings (loss), excluding
estimated merger expenses(4)...... 429.1 (233.8) 409.1 90.3 90.8
Net earnings (loss) per Common
Share, excluding estimated merger
expenses(4)(5)(6):
Basic.......................... $ 1.66 $ (0.89) $ 1.51 $ 0.34 $ 0.34
Diluted........................ 1.63 (0.87) 1.48 0.33 0.33
Cash dividends declared per Common
Share(7).......................... $ 0.05 $ 0.06 $ 0.07 $ 0.017 $ 0.025
BALANCE SHEET DATA:
Total assets........................ $7,796.5
Long-term obligations, less current
portion........................... $1,480.5
Shareholders' equity(4)............. $3,021.0
</TABLE>
- ---------------
(1) Amounts reflect business combinations in all periods presented.
(2) Amounts include the effect of merger-related costs and other special charges
recorded by Cardinal in fiscal years ended June 30, 1996, 1997 and 1998 and
the three-month periods ended September 30, 1997 and 1998 as discussed in
Notes 2 and 3 of "-- Summary Historical and Unaudited Pro Forma Financial
SUMMARY
14
<PAGE> 26
Information -- Cardinal Summary Historical Financial Information," and by
Allegiance in the fiscal year ended December 31, 1996 as discussed in Note 3
of "-- Summary Historical and Unaudited Pro Forma Financial
Information -- Allegiance Summary Historical Financial Information." The
impact of the merger-related costs and other special charges is to reduce
pro forma Net earnings by $60.0 million, $649.4 million and $24.1 million in
fiscal 1996, 1997 and 1998, respectively, and to reduce pro forma Net
earnings by $1.3 million and $27.8 million for the three-month periods ended
September 30, 1997 and 1998, respectively. The impact was also to reduce pro
forma Diluted Net earnings per Cardinal Common Share by $0.23, $2.42, $0.09,
$0.01 and $0.10 in fiscal 1996, 1997 and 1998, and the three months ended
September 30, 1997 and 1998, respectively.
(3) The unaudited pro forma combined summary financial information includes
certain businesses that were divested by Allegiance in 1995 and 1994 as
discussed in Note 1 of "Notes to Consolidated Financial Statements" in the
1997 Allegiance Form 10-K. Had the transactions effected by the distribution
of shares of Allegiance common stock in connection with the spinoff of
Allegiance from Baxter and significant divestitures discussed in Notes 1 and
3 of "Notes to Consolidated Financial Statements" in the 1997 Allegiance
Form 10-K occurred as of January 1, 1995, Total revenue, Net earnings
(loss), and Diluted Net earnings (loss) per Common Share would have been
$18.4 billion, $(305.8) million, and $(1.14), respectively for the year
ended June 30, 1997. For fiscal year 1996, Total revenue, Net earnings
(loss), and Diluted Net earnings per Common Share would have been $16.7
billion, $220.4 million, and $0.84, respectively.
(4) Amount does not reflect the pro forma effect of future expenses for the
merger. In connection with the merger, the companies expect to incur
investment banking, legal, accounting, and other related transaction costs
and fees. Additionally, the companies expect to incur other merger-related
costs associated with the integration of the separate companies and
institution of efficiencies anticipated as a result of the merger. The
merger-related expenses will be charged to expense in the period which the
merger is consummated or in subsequent periods when incurred. Since the
merger has not yet been consummated and transition plans are currently being
developed, the merger-related costs cannot be estimated at this time.
The accounting policies of Cardinal and Allegiance are currently being
studied from a conformity perspective. The impact of conforming accounting
policies (if any) is not presently estimable. If conforming adjustments are
required, they will be recorded as part of the restatement of prior periods,
as required by the pooling-of-interests accounting method.
(5) Net earnings (loss) per Common Share have been adjusted to give retroactive
effect for stock splits, including the three-for-two stock splits paid by
Cardinal in December 1996 and October 1998, all of which were effected
through a stock dividend.
(6) Net earnings per Common Share amounts assume the conversion of each share of
Allegiance common stock into 0.6225 of a Cardinal common share, based on the
exchange ratio. See "The Merger Agreement -- Merger Consideration;
Conversion of Securities."
(7) Cash dividends declared per Common Share represent the historical dividends
of Cardinal for the periods presented and exclude all dividends paid by
Allegiance and all entities with which Cardinal has merged. Cash dividends
declared per Common Share have been adjusted to give retroactive effect to
three-for-two stock splits paid by Cardinal in December 1996 and October
1998.
SUMMARY
15
<PAGE> 27
COMPARATIVE PER SHARE DATA
We have set forth below information concerning earnings, cash dividends
declared and book value per share data for Allegiance and Cardinal on both
historical and pro forma combined bases and on a per share equivalent pro forma
basis for Allegiance. We have derived the pro forma combined earnings per share
from the "Unaudited Pro Forma Condensed Combined Financial Information"
presented elsewhere in this document (which gives effect to the merger under the
pooling-of-interests accounting method). Pro forma combined cash dividends
declared per share reflect Cardinal cash dividends per share declared in the
periods indicated and exclude all dividends paid by Allegiance and all entities
with which Cardinal has merged. Book value per share for the pro forma combined
presentation is based upon outstanding Cardinal common shares, adjusted to
include the estimated number of Cardinal common shares to be issued in the
merger for outstanding shares of Allegiance common stock at the time the merger
is completed. The per share equivalent pro forma combined data for shares of
Allegiance common stock is based on the assumed conversion of each share of
Allegiance common stock into 0.6225 of a Cardinal common share based upon the
exchange ratio. See "The Merger Agreement -- Merger Consideration; Conversion of
Securities." You should read the information set forth below in conjunction with
the respective audited and unaudited financial statements of Cardinal and
Allegiance incorporated by reference in this document and the "Unaudited Pro
Forma Condensed Combined Financial Information" and the notes thereto presented
elsewhere in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE THREE MONTHS ENDED
FISCAL YEAR ENDED --------------------------
DECEMBER 31, MARCH 31, SEPTEMBER 30,
--------------------------- --------- -------------
1995(1) 1996(1) 1997 1997 1998
------- ------- ----- --------- -------------
<S> <C> <C> <C> <C> <C>
ALLEGIANCE -- HISTORICAL(2)
Net income (loss) per Common Share:
Basic.................................. $2.49 $(4.35) $0.80 $0.20 $ 0.29
Diluted................................ 2.49 (4.35) 0.78 0.19 0.28
Cash dividends declared per Common
Share.................................. n/a 0.05 0.20 0.05 0.0525
Book value per share..................... 8.24 8.17
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------------ ------------------
1996 1997 1998 1997 1998
----- ------ ----- ------- -------
<S> <C> <C> <C> <C> <C>
CARDINAL -- HISTORICAL(2)
Net earnings per Common Share:
Basic......................................... $0.82 $ 1.25 $1.59 $ 0.35 $ 0.29
Diluted....................................... 0.80 1.22 1.57 0.34 0.28
Cash dividends declared per Common Share........ 0.05 0.06 0.07 0.017 0.025
Book value per share............................ 10.11 10.47
CARDINAL AND ALLEGIANCE -- PRO FORMA
COMBINED(2)(3)(4):
Net earnings (loss) per Common Share, excluding
estimated Merger expenses:
Basic......................................... $1.66 $(0.89) $1.51 $ 0.34 $ 0.34
Diluted....................................... 1.63 (0.87) 1.48 0.33 0.33
Cash dividends declared per Common Share (5).... 0.05 0.06 0.07 0.017 0.025
Book value per share (3)........................ 10.93 11.16
EQUIVALENT PRO FORMA COMBINED PER ALLEGIANCE
SHARE(2)(3)(4)
Net earnings (loss) per Common Share, excluding
estimated Merger expenses:
Basic......................................... $1.03 $(0.55) $0.94 $ 0.21 $ 0.21
Diluted....................................... 1.01 (0.54) 0.92 0.21 0.21
Cash dividends declared per Common Share (5).... 0.03 0.04 0.04 0.01 0.02
Book value per share (3)........................ 6.80 6.95
</TABLE>
SUMMARY
16
<PAGE> 28
- ------------
(1) Allegiance's historical data for fiscal years ending December 31, 1995 and
1996 includes amounts related to certain businesses that were divested in
1995 and 1994 and to the distribution of shares of Allegiance common stock
in connection with the spinoff of Allegiance from Baxter in 1996. If the
distribution of shares of Allegiance common stock in connection with the
spinoff of Allegiance from Baxter and significant divestitures discussed in
Notes 1 and 3 of the "Notes to Consolidated Financial Statements" in the
1997 Allegiance Form 10-K had been completed as of January 1, 1995, the
fiscal 1997 Pro Forma Combined Basic and Diluted Net earnings (loss) per
Common Share would have been $(1.16) and $(1.14), respectively and the
fiscal 1996 Pro Forma Combined Basic and Diluted Net earnings per Common
Share would have been $0.85 and $0.84, respectively. In addition, for fiscal
1997, Equivalent Pro Forma Combined per Allegiance Share Basic and Diluted
Net earnings (loss) per Common Share would have been $(0.72) and $(0.71),
respectively and the Equivalent Pro Forma Combined per Allegiance Share
Basic and Diluted Net earnings per Common Share for fiscal 1996 would have
been $0.53 and $0.52, respectively.
(2) Allegiance's Historical Net income (loss) per Common Share, Cardinal's
Historical Net earnings per Common Share, Cardinal's and Allegiance's -- Pro
Forma Combined Net earnings (loss) per Common Share and the Equivalent Pro
Forma Combined Net earnings (loss) per Common Share reflect the effect of
merger-related costs and other special charges recorded by Cardinal in
fiscal years ended June 30, 1996, 1997 and 1998 and the three-month periods
ended September 30, 1997 and 1998 as discussed in Notes 2 and 3 of
"-- Summary Historical and Unaudited Pro Forma Financial
Information -- Cardinal Summary Historical Financial Information" and by
Allegiance in fiscal year ended December 31, 1996 as discussed in Note 3 of
"-- Summary Historical and Unaudited Pro Forma Financial
Information -- Allegiance Summary Historical Financial Information." The
effect of such merger-related costs and other special charges is to reduce
the Pro Forma Combined Diluted Net earnings per Common Share by $0.23, $2.42
and $0.09 in fiscal 1996, 1997 and 1998, respectively, and by $0.01 and
$0.10 in the three-month periods ended September 30, 1997 and 1998,
respectively. In addition, the effect of such merger-related costs and other
special charges is to reduce the Equivalent Pro Forma Combined per
Allegiance Share, Diluted Net earnings per Common Share by $0.14, $1.51 and
$0.05 in fiscal 1996, 1997 and 1998, respectively, and by $0.01 and $0.06 in
the three-month periods ended September 30, 1997 and 1998, respectively.
(3) The Pro Forma Combined and the Equivalent Pro Forma Combined information
(excluding the book value per share information) presents the combination of
Cardinal for the fiscal years ended June 30, 1996, 1997 and 1998 combined
with Allegiance for the fiscal years ending December 31, 1995, 1996 and
1997, respectively. In addition, the financial information of Cardinal for
the three months ended September 30, 1997 and 1998 is combined with that of
Allegiance for the three months ended March 31, 1997 and September 30, 1998,
respectively. The Book value per share information as of June 30, 1998 is
calculated based on the Cardinal balance sheet as of June 30, 1998 and
Allegiance balance sheet as of December 31, 1997. The Book value per share
information as of September 30, 1998 is calculated based on the Cardinal and
Allegiance balance sheets as of September 30, 1998.
(4) Amount does not reflect the pro forma effect of merger expenses for the
merger. In connection with the merger, the companies expect to incur
investment banking, legal, accounting, and other related transaction costs
and fees. Additionally, the companies expect to incur other costs associated
with the integration of the separate companies and institution of
efficiencies anticipated as a result of the merger. The merger-related
expenses will be charged to expense in the period in which the merger is
consummated or in subsequent periods when incurred. Since the merger has not
yet been consummated and transition plans are currently being developed, the
merger-related costs cannot be estimated at this time.
The accounting policies of Cardinal and Allegiance are currently being
studied from a conformity perspective. The impact of conforming accounting
policies (if any) is not presently estimable. If conforming adjustments are
required, they will be recorded as part of the restatement of prior periods,
as required by the pooling-of-interests accounting method.
(5) Pro Forma Combined Cash Dividends declared per Common Share represent the
historical dividends of Cardinal for all periods presented and exclude all
dividends paid by Allegiance and all entities with which Cardinal has
merged. Cardinal's and Allegiance's Pro Forma Combined Cash Dividends
declared per Common Share have been adjusted to give retroactive effect to
three-for-two stock splits paid by Cardinal in December 1996 and October
1998.
SUMMARY
17
<PAGE> 29
MARKET PRICE AND DIVIDEND DATA
On the table below, we present the range of the reported high and low
closing per share sale prices (as shown on the New York Stock Exchange Composite
Tape) of Cardinal common shares and Allegiance common stock, as well as the per
share dividends paid on such shares, for the calendar quarters indicated. We
have adjusted the information in the table to reflect retroactively all
applicable stock splits.
<TABLE>
<CAPTION>
CARDINAL COMMON SHARES ALLEGIANCE COMMON STOCK
----------------------------- -----------------------------
CALENDAR YEAR HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1996:
First quarter..................... $28.56 $23.33 $0.013 -- -- --
Second quarter.................... 33.44 26.78 0.013 -- -- --
Third quarter(1).................. 36.72 29.78 0.013 $ 9.32 $ 8.13 --
Fourth quarter.................... 38.92 34.61 0.013 13.94 8.50 --
1997:
First quarter..................... $42.75 $36.25 $0.017 $13.19 $11.06 0.05
Second quarter.................... 41.33 34.42 0.017 14.19 10.00 0.05
Third quarter..................... 47.38 36.42 0.017 15.82 13.22 0.05
Fourth quarter.................... 51.88 45.75 0.017 17.72 13.75 0.05
1998:
First quarter..................... $58.80 $46.67 $0.017 $20.12 $15.94 0.05
Second quarter.................... 64.17 57.08 0.020 25.62 18.50 0.05
Third quarter..................... 71.00 55.67 0.020 33.00 26.00 0.05
Fourth quarter (through November
30, 1998)....................... 70.13 54.83 0.025 41.63 23.00 0.0525
</TABLE>
- ---------------
(1) Allegiance stock traded on a "when issued" basis from September 24, 1996 to
September 30, 1996.
------------------------
On October 8, 1998, the last full trading day prior to our signing and
announcing the merger agreement, the closing price of Cardinal common shares was
$61.80 per share and the closing price of Allegiance common stock was $23.00 per
share, as reported on the New York Stock Exchange Composite Tape. Based on the
exchange ratio provided in the merger agreement, the value of Allegiance common
stock on October 8, 1998 was $38.47 per share. On December 11, 1998, the most
recent date prior to the mailing of this document to you, the last sale prices
of Cardinal common shares and Allegiance common stock were $71.44 per share and
$42.69 per share, respectively, as reported on the NYSE Composite Tape. We
encourage you to obtain current market quotations for Cardinal common shares and
Allegiance common stock.
Cardinal has filed an application with the New York Stock Exchange to list
on the exchange the Cardinal common shares that Allegiance stockholders will
receive in the merger.
On August 12, 1998, the Cardinal board of directors declared a dividend on
Cardinal common shares of $0.025 per share, payable on October 15, 1998 to
holders of record on October 1, 1998. On November 4, 1998, the Cardinal board of
directors declared a dividend on Cardinal common shares of $0.025 per share,
payable on January 15, 1999 to holders of record on January 1, 1999. Cardinal
anticipates that it will continue to pay quarterly cash dividends. The Cardinal
board of directors, however, has discretion to decide upon the timing and amount
of any future dividends, and whether or not Cardinal will pay such dividends
(and, if so, how much such dividends will be) will depend on Cardinal's future
earnings, financial condition, capital requirements and other factors.
SUMMARY
18
<PAGE> 30
On November 5, 1998, the Allegiance board of directors declared a dividend
on Allegiance common stock of $.0525 per share payable on January 4, 1999 to
holders of record on December 10, 1998. Other than regular quarterly dividends
on Allegiance common stock of $.0525 per share with record and payment dates
consistent with past practice, Allegiance agreed that, pursuant to the merger
agreement, until the merger is completed or the merger agreement is otherwise
terminated, Allegiance will not make, declare or pay any dividend or
distribution on Allegiance common stock.
19
<PAGE> 31
RISK FACTORS
In considering whether to vote in favor of the merger between our
companies, you should consider all the information we have included in this
document and its annexes and all the information included in the documents we
have incorporated by reference in this document. In addition, you should pay
particular attention to the following risk factors related to the merger. These
factors are important and we have not been able to quantify their potential
effects on the combined company that will result from the merger.
FIXED EXCHANGE RATIO DESPITE CHANGES IN OUR RESPECTIVE STOCK PRICES
The exchange ratio is a fixed ratio that will not be adjusted as a result
of any increase or decrease in the price of either Cardinal common shares or the
Allegiance common stock. The price of Cardinal common shares at the time the
merger is completed may be higher or lower than its price on the date of this
document or on the date of the special meetings of shareholders. Changes in the
business, operations or prospects of Cardinal or Allegiance, market assessments
of the likelihood that the merger will be completed, regulatory considerations,
general market and economic conditions, or other factors may affect the prices
of Cardinal common shares, Allegiance common stock or both. Most such factors
are beyond our control. Since the merger will be completed only after all the
conditions to the merger are satisfied, including the holding of the special
meetings of our shareholders, there is no way to be sure that the price of
Cardinal common shares on the date of the special meetings will be indicative of
their price at the time the merger is completed. We urge you to obtain current
market quotations for both Cardinal common shares and Allegiance common stock.
UNCERTAINTIES IN INTEGRATING OUR BUSINESS OPERATIONS
In deciding that the merger is in the best interests of our respective
shareholders, the Cardinal board of directors and the Allegiance board of
directors considered the potential complementary effects of combining our
companies, assets, personnel and operational expertise. Integrating businesses,
however, involves a number of special risks, including the possibility that
management may be distracted from regular business concerns by the need to
integrate operations, unforeseen difficulties in integrating operations and
systems, problems concerning assimilating and retaining the employees of the
acquired company, challenges in retaining customers and potential adverse
short-term effects on operating results.
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An important element of Cardinal's growth strategy is to pursue strategic
acquisitions that either expand or complement its business, and Cardinal
routinely reviews acquisition opportunities. Acquisitions involve a number of
special risks, including the risks pertaining to integrating acquired businesses
as noted under "-- Uncertainties in Integrating Our Business Operations" and
"-- Failure to Achieve Benefits." In addition, Cardinal may incur debt to
finance future acquisitions, and Cardinal may issue securities in connection
with future acquisitions that may dilute the holdings of current and future
Cardinal shareholders (including Allegiance stockholders who will be Cardinal
shareholders after the merger). If Cardinal is unable to successfully complete
and integrate strategic acquisitions in a timely manner, Cardinal's growth
strategy may be impaired.
FAILURE TO ACHIEVE BENEFITS
We believe that significant business opportunities and cost savings are
achievable as a result of the merger. Our estimates of cost savings are based
upon many assumptions, including future sales levels and other operating
results, availability of funds for capital expenditures, timing of certain
events, as well as general industry and business conditions and other matters,
many of which are beyond the control of the combined company. Our estimates are
also based on a management consensus as to what levels of sales and similar
efficiencies should be achievable by an entity the size of the combined company.
Our estimates of potential cost savings and revenue enhancements are
forward-looking statements that are inherently uncertain. The combined company's
actual cost savings and revenue enhancements, if any, could differ from those
projected and such differences could be material. Therefore, you should not
unduly rely on our estimates as
RISK FACTORS
20
<PAGE> 32
predictors of actual cost savings and revenue enhancements. We cannot assure you
that unforeseen costs and expenses or other factors (whether arising in
connection with the integration of the two companies' operations or otherwise)
will not offset the estimated cost savings and revenue enhancements or other
components of the combined company's plan or result in delays in the realization
of certain projected cost savings.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations in favor of the merger by the Allegiance
board of directors, you should be aware that certain directors and executive
officers of Allegiance may be deemed to have conflicts of interest with respect
to the merger. Some directors and officers of Allegiance will have positions
with Cardinal after the merger (or Allegiance, after it becomes a subsidiary of
Cardinal in the merger). Also, under certain employee benefit plans created by
Allegiance, some officers of Allegiance are entitled to accelerated vesting of
certain benefits as well as extra severance benefits if their employment is
terminated in certain circumstances within 24 months after the merger, and two
executive officers of Allegiance have entered into amendments to these
agreements that extend their terms from 24 to 60 months. The Allegiance board of
directors considered these interests, together with other relevant factors, in
deciding to recommend that you approve the merger. See "The Merger -- Interests
of Certain Persons in the Merger."
RISK FACTORS
21
<PAGE> 33
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to stockholders
("ALLEGIANCE STOCKHOLDERS") of Allegiance Corporation ("ALLEGIANCE") in
connection with the solicitation of proxies by the Board of Directors of
Allegiance (the "ALLEGIANCE BOARD") for use at a special meeting of Allegiance
Stockholders to be held on January 21, 1999, at Allegiance's corporate offices
located at 1450 Waukegan Road (the Brien Laing Building), McGaw Park, Illinois
60085, commencing at 10:30 a.m., local time, and at any adjournment or
postponement thereof (the "ALLEGIANCE SPECIAL MEETING").
This Joint Proxy Statement/Prospectus is also being furnished to
shareholders ("CARDINAL SHAREHOLDERS") of Cardinal Health, Inc. ("CARDINAL") in
connection with the solicitation of proxies by the Board of Directors of
Cardinal (the "CARDINAL BOARD") for use at a special meeting of Cardinal
Shareholders to be held on January 21, 1999, at Cardinal's corporate offices at
5555 Glendon Court, Dublin, Ohio 43016, commencing at 10:00 a.m., local time,
and at any adjournment or postponement thereof (the "CARDINAL SPECIAL MEETING"
and, together with the Allegiance Special Meeting, the "SPECIAL MEETINGS").
This Joint Proxy Statement/Prospectus, the Notice of the Allegiance Special
Meeting and the form of proxy for use at the Allegiance Special Meeting are
first being mailed to Allegiance Stockholders on or about December 15, 1998.
This Joint Proxy Statement/Prospectus, the Notice of the Cardinal Special
Meeting and the form of proxy for use at the Cardinal Special Meeting are first
being mailed to Cardinal Shareholders on or about December 15, 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
Allegiance Special Meeting. At the Allegiance Special Meeting, Allegiance
Stockholders will consider and vote on:
- - A proposal (the "ALLEGIANCE MERGER PROPOSAL") to approve and adopt the
Agreement and Plan of Merger, dated as of October 8, 1998, by and among
Cardinal, Boxes Merger Corp., a wholly owned subsidiary of Cardinal ("MERGER
SUB"), and Allegiance (the "MERGER AGREEMENT") pursuant to which, among other
things, first, Merger Sub will be merged with and into Allegiance (the
"MERGER") with the result that, at the effective time of the Merger (the
"EFFECTIVE TIME"), Allegiance (as the surviving corporation of the Merger, the
"SURVIVING CORPORATION") will become a wholly owned subsidiary of Cardinal,
and, second, each outstanding share (other than shares held in treasury by
Allegiance, if any, which will be canceled) of the common stock, $1.00 par
value of Allegiance ("ALLEGIANCE COMMON STOCK") will be converted into 0.6225
(the "EXCHANGE RATIO") of a Class A common share, without par value, of
Cardinal ("CARDINAL COMMON SHARE"), with cash paid in lieu of fractional
shares. A copy of the Merger Agreement is attached as Annex A to this Joint
Proxy Statement/Prospectus.
- - A proposal (the "ALLEGIANCE ADJOURNMENT PROPOSAL") for the adjournment of the
Allegiance Special Meeting, if necessary, to permit further solicitation of
proxies in the event that there are not sufficient votes at the time of the
Allegiance Special Meeting to approve the Allegiance Merger Proposal.
- - Such other business as may properly come before the Allegiance Special
Meeting.
Cardinal Special Meeting. At the Cardinal Special Meeting, Cardinal
Shareholders will consider and vote on:
- - A proposal (the "CARDINAL MERGER PROPOSAL") to approve, authorize and adopt
the Merger Agreement pursuant to which among other things, (1) Merger Sub will
be merged with and into Allegiance with the result that the Surviving
Corporation will be a wholly owned subsidiary of Cardinal, and (2) each
outstanding share (other than shares held in treasury by Allegiance, if any,
which will be canceled) of Allegiance Common Stock will be converted into
0.6225 of a Cardinal Common Share. A copy of the Merger Agreement is attached
as Annex A to this Joint Proxy Statement/Prospectus.
THE SPECIAL MEETINGS
22
<PAGE> 34
- - A proposal (the "CARDINAL ADJOURNMENT PROPOSAL") for the adjournment of the
Cardinal Special Meeting, if necessary, to permit further solicitation of
proxies in the event that there are not sufficient votes at the time of the
Cardinal Special Meeting to approve the Cardinal Merger Proposal.
- - Such other business as may properly come before the Cardinal Special Meeting.
RECORD DATE; VOTE REQUIRED; VOTING AT THE SPECIAL MEETINGS
Allegiance. The Allegiance Board has fixed December 11, 1998 as the record
date (the "ALLEGIANCE RECORD DATE") for determination of Allegiance Stockholders
entitled to notice of and to vote at the Allegiance Special Meeting.
Accordingly, only holders of Allegiance Common Stock of record at the close of
business on the Allegiance Record Date will be entitled to notice of and to vote
at the Allegiance Special Meeting. Each holder of record of Allegiance Common
Stock on the Allegiance Record Date is entitled to cast one vote per share,
exercisable in person, by telephone, or by a properly executed proxy, at the
Allegiance Special Meeting. As of the Allegiance Record Date, there were about
112,791,002 shares of Allegiance Common Stock outstanding and entitled to vote
that were held by approximately 37,340 holders of record.
Under applicable law, the affirmative vote of holders of a majority of the
outstanding shares of Allegiance Common Stock entitled to vote thereon is
required to approve and adopt the Allegiance Merger Proposal. The affirmative
vote of holders of a majority of the outstanding shares of Allegiance Common
Stock present in person or represented by proxy at the Allegiance Special
Meeting and entitled to vote thereon is required to approve the Allegiance
Adjournment Proposal. As of the Allegiance Record Date, the directors and
executive officers of Allegiance may be deemed to be beneficial owners of
approximately 5.7% of the outstanding shares of Allegiance Common Stock, and
each such person has advised Allegiance that such person intends to vote in
favor of the Allegiance Merger Proposal and the Allegiance Adjournment Proposal.
In the event that Allegiance has the right to terminate the Merger
Agreement for any reason, the Allegiance Board may, in the exercise of its
fiduciary duty, make determinations (1) whether to terminate the Merger
Agreement or to waive the condition that gives rise to such right to terminate
the Merger Agreement and proceed to consummate the Merger, and (2) if it waives
the condition giving rise to such right to terminate and proceeds to consummate
the Merger, whether or not to resolicit approval of the Allegiance Merger
Proposal. See "The Merger Agreement--Termination."
Cardinal. The Cardinal Board has fixed December 11, 1998 as the record
date (the "CARDINAL RECORD DATE") for determination of Cardinal Shareholders
entitled to notice of and to vote at the Cardinal Special Meeting. Accordingly,
only holders of Cardinal Common Shares of record at the close of business on the
Cardinal Record Date will be entitled to notice of and to vote at the Cardinal
Special Meeting. Each holder of record of Cardinal Common Shares on the Cardinal
Record Date is entitled to cast one vote per share, exercisable in person or by
a properly executed proxy, at the Cardinal Special Meeting. As of the Cardinal
Record Date, there were about 201,040,420 Cardinal Common Shares outstanding and
entitled to vote that were held by approximately about 3,012 holders of record.
Under applicable law and the rules of the New York Stock Exchange, Inc.
(the "NYSE"), (1) the affirmative vote of the holders of a majority of the
Cardinal Common Shares outstanding and entitled to vote thereon is required to
approve, authorize and adopt the Cardinal Merger Proposal, and (2) the
affirmative vote of a majority of the Cardinal Common Shares entitled to vote
thereon and present in person or represented by proxy at the Cardinal Special
Meeting is required to approve the Cardinal Adjournment Proposal. For additional
information regarding voting requirements of Cardinal Shareholders, see
"Comparison of Shareholder Rights." As of the Cardinal Record Date, the
directors and executive officers of Cardinal and certain of their affiliates may
be deemed to be beneficial owners of approximately 3.3% of the outstanding
Cardinal Common Shares, and each such person has advised Cardinal that such
person intends to vote in favor of the Cardinal Merger Proposal and the Cardinal
Adjournment Proposal.
In the event that Cardinal has the right to terminate the Merger Agreement
for any reason, the Cardinal Board may, in the exercise of its fiduciary duty,
make determinations (1) whether to terminate the Merger Agreement or to waive
the condition that gives rise to such right to terminate the Merger Agreement
and
THE SPECIAL MEETINGS
23
<PAGE> 35
proceed to consummate the Merger, and (2) if it determines to waive the
condition giving rise to such right to terminate and proceed to consummate the
Merger, whether or not to resolicit the approval of the Cardinal Merger
Proposal. See "The Merger Agreement--Termination."
VOTING OF PROXIES
All Allegiance Stockholders and Cardinal Shareholders who are entitled to
vote and are represented at the Allegiance Special Meeting (in the case of
Allegiance Stockholders) or at the Cardinal Special Meeting (in the case of
Cardinal Shareholders) by properly executed proxies received prior to or at such
Special Meeting and not duly and timely revoked will be voted at such Special
Meeting in accordance with the instructions indicated in such proxies. If no
instructions are indicated, such proxies will be voted, in the case of
Allegiance Stockholders, FOR approval and adoption of the Allegiance Merger
Proposal and the Allegiance Adjournment Proposal or, in the case of Cardinal
Shareholders, FOR approval and adoption of the Cardinal Merger Proposal and the
Cardinal Adjournment Proposal.
If any other matters are properly presented at the Allegiance Special
Meeting (in the case of Allegiance Stockholders) or at the Cardinal Special
Meeting (in the case of Cardinal Shareholders) for consideration, the persons
named in the enclosed form of proxy, and acting thereunder, will have discretion
to vote on such matters in accordance with their best judgment (unless
authorization to use such discretion is withheld). Neither Allegiance nor
Cardinal is aware of any matters expected to be presented at its respective
Special Meeting other than as described in its respective Notice of Special
Meeting.
Any proxy given pursuant to this solicitation (and for Allegiance
Stockholders only, any telephone vote) may be revoked by the person giving it at
any time before it is voted. Proxies may be revoked by (1) filing with the
Secretary of Allegiance or the Secretary of Cardinal, as the case may be, before
the taking of the vote at the relevant Special Meeting, a written notice of
revocation bearing a later date than the date of the proxy or a later-dated
proxy relating to the same shares, (2) attending the relevant Special Meeting
and voting in person, or (3) for Allegiance Stockholders only, voting by
telephone. In order to vote in person at either the Allegiance Special Meeting
or the Cardinal Special Meeting, Allegiance Stockholders and Cardinal
Shareholders, respectively, must attend the relevant Special Meeting and cast
their votes in accordance with the voting procedures established for such
Special Meeting. Attendance at a Special Meeting will not in and of itself
constitute a revocation of a proxy. Any written notice of revocation or
subsequent proxy must be sent so as to be delivered at or before the taking of
the vote at the Special Meeting as follows:
<TABLE>
<S> <C>
FOR CARDINAL SHAREHOLDERS: FOR ALLEGIANCE STOCKHOLDERS:
Cardinal Health, Inc. Allegiance Corporation
5555 Glendon Court 1430 Waukegan Road
Dublin, Ohio 43016 McGaw Park, Illinois 60085
Telecopy: (614) 717-8919 Telecopy: (847) 578-4448
Attention: Secretary Attention: Secretary
</TABLE>
Allegiance Stockholders who require assistance in changing or revoking a
proxy should contact Georgeson & Company, Inc., Allegiance's solicitation agent,
and Cardinal Shareholders who require assistance in changing or revoking a proxy
should contact Morrow & Co., Inc., Cardinal's solicitation agent, in each case,
at the addresses or phone numbers provided in this Joint Proxy Statement/
Prospectus. See "Where You Can Find More Information."
Pursuant to the Amended and Restated Bylaws of Allegiance (the "ALLEGIANCE
BYLAWS") and applicable law, broker non-votes and abstaining votes will not be
counted in favor of the Allegiance Merger Proposal or the Allegiance Adjournment
Proposal and will not be treated as votes cast with respect to such proposals.
Since the Allegiance Merger Proposal requires the affirmative vote of a majority
of the outstanding shares of Allegiance Common Stock entitled to vote thereon,
abstentions and broker non-votes will have the same effect as votes against the
Allegiance Merger Proposal. Since the Allegiance Adjournment Proposal requires
the vote of the holders of a majority of the outstanding shares of Allegiance
present in person or represented by proxy at the Allegiance Special Meeting and
entitled to vote thereon, abstentions will have the same effect as votes against
the Allegiance Adjournment Proposal.
THE SPECIAL MEETINGS
24
<PAGE> 36
Pursuant to the Amended and Restated Articles of Incorporation, as amended,
of Cardinal (the "CARDINAL ARTICLES") and applicable law, broker non-votes and
abstaining votes will not be counted in favor of the Cardinal Merger Proposal or
the Cardinal Adjournment Proposal and will not be treated as votes cast on such
proposals. Since the Cardinal Merger Proposal requires the affirmative vote of a
majority of the outstanding Cardinal Common Shares, abstentions and broker
non-votes will have the same effect as votes against the Cardinal Merger
Proposal. Since the Cardinal Adjournment Proposal requires the affirmative vote
of a majority of the votes cast by holders of Cardinal Common Shares entitled to
vote and present in person or represented by proxy at the Cardinal Special
Meeting, abstentions and broker non-votes will have the same effect as votes
against the Cardinal Adjournment Proposal.
SOLICITATION OF PROXIES
Each of Allegiance and Cardinal is responsible for the cost of its
respective solicitation for the Allegiance Special Meeting or the Cardinal
Special Meeting, respectively, subject to Allegiance's obligation to reimburse
Cardinal for its expenses under certain circumstances and subject to the
parties' obligations to share the costs of filing, printing and mailing this
Joint Proxy Statement/Prospectus. See "The Merger Agreement--Termination" and
"--Fees and Expenses." In addition to solicitation by mail, proxies may be
solicited by directors, officers and employees of Allegiance and Cardinal in
person or by telephone, telegram or other means. 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.
Allegiance has retained Georgeson & Co., Inc. at an estimated cost of $15,000,
plus reimbursement of expenses, to assist in its solicitation of proxies from
brokers, nominees, institutions and individuals. Cardinal has retained Morrow &
Co., Inc. at an estimated cost of $12,500, plus reimbursement of expenses, to
assist in its solicitation of proxies from brokers, nominees, institutions and
individuals. Arrangements will also be made by Allegiance and Cardinal with
custodians, nominees and fiduciaries for forwarding proxy solicitation materials
to beneficial owners of shares held of record by such custodians, nominees and
fiduciaries, and Cardinal and Allegiance will reimburse them for reasonable
expenses incurred in connection therewith.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Allegiance. The Allegiance Board has determined that the terms of the
Merger Agreement and the transactions contemplated thereby, including the
Merger, and the Stock Option Agreement and the transactions contemplated
thereby, taken together, are fair to, and in the best interests of, the
Allegiance Stockholders. Accordingly, the Allegiance Board recommends that
Allegiance Stockholders vote FOR the approval and adoption of the Allegiance
Merger Proposal and the Allegiance Adjournment Proposal.
Cardinal. The Cardinal Board has determined that the terms of the Merger
Agreement and the transactions contemplated thereby, including the Merger, taken
together, are fair to, and in the best interests of, Cardinal and the Cardinal
Shareholders. Accordingly, the Cardinal Board recommends that Cardinal
Shareholders vote FOR the approval and adoption of the Cardinal Merger Proposal
and the Cardinal Adjournment Proposal.
THE SPECIAL MEETINGS
25
<PAGE> 37
APPRAISAL RIGHTS
Allegiance Stockholders. Allegiance Stockholders will not be entitled to
any appraisal rights under the Delaware General Corporation Law (the "DELAWARE
LAW") or any other applicable law in connection with the Merger. See "Rights of
Dissenting Shareholders--Allegiance Stockholders."
Cardinal Shareholders. Pursuant to Section 1701.84 of the Ohio Revised
Code (the "OHIO LAW"), Cardinal Shareholders at the Cardinal Record Date who
follow certain statutory procedures set forth in Section 1701.85 of the Ohio Law
have the right to demand payment of the fair cash value of their Cardinal Common
Shares if the Merger is consummated. See "Rights of Dissenting
Shareholders--Cardinal Shareholders." Section 1701.85 of the Ohio Law is
attached as Annex D to this Joint Proxy Statement/Prospectus.
THE SPECIAL MEETINGS
26
<PAGE> 38
THE MERGER
BACKGROUND OF THE MERGER
As part of its strategy, Cardinal continually maintains a variety of
contacts with potential candidates for combination within the health care
industry. Allegiance, since its spinoff from Baxter International Inc.
("BAXTER") on September 30, 1996, has from time to time considered potential
candidates for acquisition within various segments of the health care products
and services industry and has made several smaller acquisitions. However,
because of applicable U.S. generally accepted accounting principles, Allegiance
could not effect any business combination as a pooling-of-interests transaction
within two years after its spinoff from Baxter. As a result, Allegiance
generally limited its contemplation of possible significant business
combinations to combinations that would not be accounted for as
pooling-of-interests transactions.
In approximately January 1998, aware that these accounting restrictions on
potential pooling-of-interests business transactions would expire on September
30, 1998, Allegiance began to consider certain additional potential acquisitions
that such accounting treatment would make possible. Allegiance was also aware
that such accounting treatment could make Allegiance more attractive to
potential acquirers and that the trend toward consolidation in the health care
products and services industry was intensifying. Therefore, in January 1998,
Allegiance began to review its antitakeover defense posture, and to identify and
evaluate companies that might want to discuss a business combination with
Allegiance. Also during this time, Mr. Knight met from time to time with
representatives of various participants in the health care industry, including
representatives of Cardinal, to discuss industry consolidation and business and
economic trends generally. In early August 1998, Allegiance entered into an
engagement letter dated as of July 21, 1998 with Credit Suisse First Boston
Corporation ("CREDIT SUISSE FIRST BOSTON"), its financial advisor, pursuant to
which, among other things, Credit Suisse First Boston agreed to act as its
financial advisor, and to advise Allegiance concerning potential candidates with
which Allegiance might combine.
In mid-August 1998, the Cardinal Board held a regular quarterly meeting and
discussed, among other things, various opportunities Cardinal had with respect
to business combinations with companies in the medical and surgical supplies
industry. At this meeting, the Cardinal Board also discussed the possibility of
approaching Allegiance regarding a potential business combination or strategic
venture.
A week after the Cardinal Board meeting, Robert D. Walter, the Chairman and
Chief Executive Officer of Cardinal, and John C. Kane, the President and Chief
Operating Officer of Cardinal, met in a social setting with Messrs. Knight and
Damico at which they discussed general matters pertaining to the drug
distribution, health services and health care industries, as well as general
matters pertaining to management philosophies and business strategies.
In late August 1998, the Allegiance Board reviewed recent developments in
the health care industry with Allegiance's senior management, Credit Suisse
First Boston and Allegiance's counsel. In the course of such review, the
Allegiance Board discussed with Allegiance's senior management various
possibilities, including certain strategic business combinations with third
parties and remaining an independent public company. Messrs. Knight and Damico
reviewed with the Allegiance Board their discussions with representatives of
Cardinal as well as other third parties. The Allegiance Board authorized members
of Allegiance's senior management to continue their discussions with such
parties and asked that Allegiance's management keep the Allegiance Board
informed of material developments.
Shortly following the Allegiance Board meeting, Messrs. Walter, Kane,
Knight and Damico met in Columbus, Ohio to discuss the possibility of a
potential business combination between Cardinal and Allegiance. These
preliminary discussions included an examination of the strategic implications of
such a business combination and respective business and management philosophies
and goals, and a preliminary review of the opportunities such a business
combination would afford the combined companies and their respective customers.
In addition, each of Cardinal and Allegiance began to identify the potential
efficiencies and cost savings that could be achieved through a combination of
Cardinal's and Allegiance's respective businesses. The parties also discussed
certain potential challenges associated with such a combination,
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including integration of the two management teams, retaining and motivating key
personnel, communicating to customers the significant benefits of such a
combination, identifying and implementing the best practices of the two
companies, combining management information systems, and effectively managing
the significantly larger organization and business operations that would result
from a combination of the two companies. These discussions continued in person
and by telephone throughout the remainder of August, September and early October
until the Merger Agreement was executed on October 8, 1998. These discussions
involved senior executives at each of Cardinal and Allegiance as well as,
beginning in late September, Cardinal's and Allegiance's respective financial
and legal advisors.
In mid-September 1998, Cardinal and Allegiance began to have more extensive
discussions regarding the potential fit between the two companies, and their
representatives set a proposed schedule to conduct certain due diligence in
advance of any discussions regarding a potential exchange ratio. Beginning in
mid-September and continuing through the execution of the Merger Agreement on
October 8, 1998, representatives of Cardinal's and Allegiance's respective
managements, as well as their respective financial and legal advisors, began
addressing potential financial and legal issues that could arise from a business
combination involving Cardinal and Allegiance. In addition, each of Cardinal and
Allegiance continued their examination of potential efficiencies, synergies and
cost savings that could result from a combination of the two companies.
Throughout September, senior executives of Cardinal and Allegiance met on
several occasions to discuss further the possibility of a business combination
and to begin the process of organizing and undertaking comprehensive financial,
legal and operational due diligence of each of the companies. Beginning in late
September and continuing through the execution of the Merger Agreement, members
of Cardinal's and Allegiance's respective management teams conducted
comprehensive financial, legal and operational due diligence and reported on the
results thereof.
On October 1, 1998, Cardinal and Allegiance executed a mutual
confidentiality agreement, and then their respective legal advisors began
discussions concerning a draft merger agreement as well as a draft stock option
agreement and draft voting/support agreements, which Cardinal informed
Allegiance were requirements for any transaction between the parties. On the
same date, Mr. Walter delivered to Mr. Knight a term sheet proposing certain key
elements of the proposed business combination, including a proposed exchange
ratio. Also, on October 1, 1998, Allegiance received a proposal from another
third party for a strategic business combination containing key elements similar
in nature to those proposed by Cardinal. Over the next several days, after
consultation with members of the Allegiance Board and Allegiance's legal and
financial advisors, Mr. Knight sought clarification with respect to certain
terms proposed by Cardinal and the other party.
On October 2, 1998, at the request of Cardinal's counsel, a special meeting
of the Cardinal Board was held at which the potential for a business combination
between Cardinal and Allegiance was discussed. At this meeting, Cardinal's
senior management and its financial and legal advisors provided the Cardinal
Board with an overview of Allegiance and its operations, updated the Cardinal
Board regarding the course of the contacts thus far between the parties, and
outlined the preliminary structure of a possible business combination then being
discussed by the companies, as well as certain legal issues that would be
involved in any such transaction.
Beginning on October 1, 1998 and continuing through the execution of the
Merger Agreement on October 8, 1998, Cardinal and Allegiance, and their
respective legal advisors, negotiated the terms of a definitive merger
agreement, stock option agreement and support/voting agreements. During this
period, there were a series of discussions between Messrs. Walter and Knight
concerning, among other matters, an appropriate exchange ratio for a possible
business combination. During this period, the parties and their respective legal
and financial advisors also continued their due diligence investigations of each
other's businesses.
On October 5, 1998, at the request of Allegiance's counsel, a special
meeting of the Allegiance Board was held at which the proposals regarding a
business combination made by Cardinal and another party were discussed. At this
meeting, Allegiance's senior management and its financial and legal advisors
discussed in detail with the Allegiance Board the terms and conditions of the
two proposals. The Allegiance Board received a detailed financial presentation
by Credit Suisse First Boston, and Credit Suisse First Boston indicated that,
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on a preliminary basis, it was prepared to render its opinion that each of the
two proposals was fair, from a financial point of view, to Allegiance
Stockholders. Allegiance's counsel reviewed with the Allegiance Board the
preliminary structure for a possible business combination with each of Cardinal
and the other party, as well as certain legal and regulatory issues that would
be involved in any such combination. After discussing in detail the two
proposals and after considering the relevant legal and regulatory issues
presented by the proposals, the Allegiance Board directed Allegiance senior
management to commence negotiations with Cardinal regarding its proposal.
On October 6, 1998, Cardinal executed an engagement letter with Morgan
Stanley & Co. Incorporated ("MORGAN STANLEY") pursuant to which, among other
things, Morgan Stanley agreed to advise Cardinal concerning a potential business
combination with Allegiance. On October 7, a special meeting of the Cardinal
Board was held to consider the terms of a possible transaction, which terms were
then still under negotiation. At that meeting, the Cardinal Board discussed in
detail the terms of a possible transaction, and Morgan Stanley provided the
Cardinal Board with its oral opinion concerning the fairness of a range of
possible exchange ratios. The Cardinal Board delegated to the executive
committee of the Cardinal Board the authority to approve the final exchange
ratio and other terms of the transaction.
On October 8, 1998, in a special meeting of the executive committee of the
Cardinal Board, the executive committee of the Cardinal Board received an update
from Cardinal's management and legal advisors, and approved a proposed exchange
ratio and other terms of the merger and related transactions subject to the
finalization of the remaining documentation.
At a special meeting of the Allegiance Board also held on October 8, 1998,
the Allegiance Board received updates from Allegiance's representatives and
management regarding the status of the continuing negotiations with Cardinal and
the terms and provisions of the merger agreement, the stock option agreement and
the support/voting agreements as negotiated by Allegiance's representatives,
including the exchange ratio. At that special meeting, the Allegiance Board
received presentations from Allegiance's financial and legal advisors, including
an update from its legal advisors on their due diligence review of Cardinal, and
received the opinion of Credit Suisse First Boston that the exchange ratio was
fair, from a financial point of view, to the Allegiance Stockholders. The
Allegiance Board then determined that the terms of the Merger Agreement and the
transactions contemplated thereby were fair to, and in the best interests of,
Allegiance and the Allegiance Stockholders, and accordingly, the Allegiance
Board unanimously approved the Rights Agreement Amendment, the Merger Agreement,
the Stock Option Agreement and the Support/Voting Agreements.
On October 8, 1998, Allegiance and the Rights Agent entered into the Rights
Agreement Amendment. Subsequently, Cardinal and Allegiance entered into the
Merger Agreement, the Stock Option Agreement and the Support/Voting Agreements.
Also on October 8, 1998, the Knight Amendment and the Damico Amendment were
executed. See "-- Interests of Certain Persons in the Merger."
On October 9, 1998, the parties issued a joint press release announcing the
Merger.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Allegiance. The Allegiance Board, in the course of reaching its decision
to approve the Merger Agreement and the transactions contemplated thereby,
consulted with Allegiance's legal and financial advisors as well as with
Allegiance's management, and considered a number of factors, including the
following material factors (the order of which does not necessarily reflect
their relative significance):
- - the fact that the per share consideration to be received by Allegiance
Stockholders in the Merger represents a substantial premium over the recent
market prices of Allegiance Common Stock prior to the announcement of the
execution of the Merger Agreement. Based upon the closing price of Cardinal
Common Shares on the last trading day before such announcement, the premium to
be received by Allegiance Stockholders was approximately 67% over the closing
price of the Allegiance Common Stock on such date, and approximately 35% over
the average closing price of the Allegiance Common Stock for the 90 trading
days prior to the date of the announcement;
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- - the Allegiance Board believes that Cardinal Common Shares represent an
attractive investment opportunity for the Allegiance Stockholders based on the
abilities and performance of Cardinal's senior management and Cardinal's long
track record of consistently generating significant sales and earnings growth
and stock price appreciation for Cardinal Shareholders. In the opinion of the
Allegiance Board and Allegiance's management, Cardinal's prospects for
continued significant growth in sales and earnings are strong and will be
enhanced as a result of the Merger;
- - the fact that the Merger will result in a financially stronger company,
providing a greater ability to fund research and development and acquisitions
of other health care related businesses and technologies;
- - the opportunity for Allegiance Stockholders to continue as shareholders of a
health care company that has greater financial and market strength than
Allegiance does alone, has a health care company focus on shareholder returns,
and has strategic objectives and an operating philosophy compatible with those
of Allegiance's management;
- - the presentation and opinion of Credit Suisse First Boston, Allegiance's
financial advisor, that, as of the date thereof and subject to the factors and
assumptions set forth therein, the Exchange Ratio is fair, from a financial
point of view, to Allegiance Stockholders;
- - the terms and conditions of the Merger Agreement, which the Allegiance Board
and Allegiance's management view as fair to, and in the best interests of,
Allegiance and Allegiance Stockholders;
- - the fact that the Merger is expected to be a tax-free transaction for
Allegiance Stockholders and that it is expected to be treated as a
pooling-of-interests transaction for financial reporting and accounting
purposes;
- - the combination of Allegiance's and Cardinal's seasoned management teams;
- - the combination will provide Allegiance an opportunity for growth in the
alternative-site segment, one of Cardinal's fastest growing segments, while
enabling Cardinal to capitalize on the strong relationships that Allegiance
has developed with hospital-based health care customers;
- - the complementary nature of Allegiance's service and product offerings
(generally involving medical/surgical supplies) and Cardinal's pharmaceutical
service and product offerings (such as pharmacy automation, pharmacy
management and specialty pharmaceutical packaging), enabling the combined
company to offer a broader choice to its customers and accelerating the number
of meaningful opportunities to cross-sell these ancillary products and
services;
- - the assessment of Allegiance's strategic alternatives to the Merger, including
remaining an independent public company, continuing its pursuit of
acquisitions, or merging or consolidating with a party or parties other than
Cardinal;
- - the fact that change in control agreements with certain employees provide
payments to such employees in the event such employee leaves Allegiance
following a change in control; and
- - the absence of any significant business overlaps and resulting absence of
significant risks of objections from any governmental authority.
The Allegiance Board has determined that the Merger is fair to, and in the
best interests of, the Allegiance Stockholders. However, all combinations,
including the Merger, also include certain risks and disadvantages. The material
potential risks and disadvantages to Allegiance Stockholders identified by the
Allegiance Board and management include the following (the order of which does
not necessarily reflect their relative significance):
- - the difficulties and management distractions inherent in completing the Merger
and then integrating two large and geographically dispersed operations that
operate in different segments of the health care industry;
- - the risk that the benefits sought from the Merger might not be fully achieved;
- - the risk that the Merger might not be consummated, and the possible associated
implications to investor relations and employee morale; and
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- - the time, management resources and expenses required to be incurred by
Allegiance in connection with the Merger.
Other than these disadvantages that the Allegiance Board considered in its
decision to enter into the Merger Agreement, the Allegiance Board did not
identify any other particular material risks to or material adverse effects on
Allegiance Stockholders. The Allegiance Board believed and continues to believe
that these potential risks and disadvantages are outweighed by the potential
benefits anticipated from the Merger.
The foregoing discussion of the material factors considered by the
Allegiance Board is not intended to be exhaustive. In view of the wide variety
of factors, risks and disadvantages considered in connection with its evaluation
of the Merger, the Allegiance Board did not find it practicable to, and did not,
quantify or assign any relative or specific weights to the foregoing matters,
and individual directors may have deemed different matters more significant than
others.
FOR THE REASONS DISCUSSED ABOVE, THE ALLEGIANCE BOARD HAS DETERMINED THAT
THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE
FAIR TO, AND IN THE BEST INTERESTS OF, ALLEGIANCE AND ALLEGIANCE STOCKHOLDERS.
ACCORDINGLY, THE ALLEGIANCE BOARD RECOMMENDS THAT ALLEGIANCE STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE ALLEGIANCE MERGER PROPOSAL AND THE
ALLEGIANCE ADJOURNMENT PROPOSAL.
Cardinal. In reaching its decision to approve the Merger Agreement, the
Cardinal Board consulted with its legal and financial advisors as well as with
Cardinal's management and considered a number of factors, including the
following material factors (the order of which does not necessarily reflect
their relative significance):
- - Allegiance is a recognized leader in the medical/surgical manufacturing and
distribution businesses, which is consistent with Cardinal's overall
acquisition strategy of aligning itself with established and successful
industry leaders;
- - the Merger will broaden the product and service offerings that Cardinal can
offer to its hospital and health system customers, and complement the
pharmaceutical distribution, pharmaceutical dispensing automation, hospital
pharmacy management, information and other services that Cardinal currently
offers to these important customers;
- - Allegiance's strong sales and marketing organization, which has established
relationships at the senior management level of hospitals, group purchasing
organizations and health systems, is expected to facilitate valuable
cross-selling opportunities for Cardinal's product and service offerings;
- - the success of Allegiance's self-manufactured products will strengthen
Cardinal's position in the supply channel, and is consistent with both
companies' strategy of integrating manufacturing, distribution and services to
bring greater quality, efficiency and value to the delivery of health care;
- - Allegiance operates a number of foreign manufacturing and distribution
businesses that will expand both companies' product and service offerings
internationally;
- - Allegiance's seasoned management team has manufacturing and distribution
expertise as well as significant customer and manufacturer contacts that
should provide additional management depth to the combined company;
- - Cardinal's management's belief that cross-selling opportunities and other
efficiencies from the Merger will have an accretive effect on the earnings and
cash flow of the combined company, as compared to Cardinal's stand-alone
earnings and cash flow expectations, resulting in the creation of significant
value for Cardinal Shareholders;
- - the Merger is an opportunity for Cardinal to continue its expansion into
higher margin manufacturing and distribution businesses;
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- - the presentation and opinion of Morgan Stanley, Cardinal's financial advisor,
that, as of the date of the Merger Agreement and subject to the factors and
assumptions set forth in the Merger Agreement, the Exchange Ratio is fair,
from a financial point of view, to Cardinal; and
- - the Merger is conditioned upon its being accounted for as a pooling of
interests for financial reporting and accounting purposes, which has the
result of minimizing the amount of goodwill added to Cardinal's balance sheet.
The Cardinal Board has determined that the Merger is fair to, and in the
best interests of, Cardinal Shareholders. However, all combinations, including
the Merger, also include certain risks and disadvantages. The material potential
risks and disadvantages to Cardinal Shareholders identified by the Cardinal
Board and Cardinal's management in considering the Merger include the following
(the order of which does not necessarily reflect their relative significance):
- - the time and resources required to complete the Merger, with the completion of
the Merger being subject to certain conditions (see "The Merger
Agreement -- Conditions");
- - the difficulties inherent in combining and integrating the two companies that
currently operate in different segments of the health care services business
and the potential distraction to management caused by a transaction of this
magnitude;
- - the greater emphasis Allegiance places on self-manufactured products, with the
associated product liability, capital investment and product neutrality issues
associated with such emphasis;
- - the fact that all of the conditions to the Merger may not be satisfied until
the first or second calendar quarter of 1999; and
- - the different financial performance profile of Allegiance as compared to
Cardinal, with a different sales growth profile and more emphasis on
increasing its product mix toward self-manufactured and other higher-margin
items.
The Cardinal Board believed and continues to believe that these potential
risks and disadvantages are greatly outweighed by the potential benefits
anticipated to result from the Merger.
This discussion of the factors considered by the Cardinal Board is not
intended to be exhaustive. Because of the wide variety of factors considered in
connection with its evaluation of the Merger, the Cardinal Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its conclusions. In
addition, individual directors may have given different weights to different
factors.
FOR THE REASONS DISCUSSED ABOVE, THE CARDINAL BOARD HAS DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR
TO, AND IN THE BEST INTERESTS OF, CARDINAL AND CARDINAL SHAREHOLDERS.
ACCORDINGLY, THE CARDINAL BOARD RECOMMENDS THAT CARDINAL SHAREHOLDERS VOTE FOR
THE APPROVAL AND ADOPTION OF THE CARDINAL MERGER PROPOSAL AND THE CARDINAL
ADJOURNMENT PROPOSAL.
OPINION OF ALLEGIANCE'S FINANCIAL ADVISOR
Allegiance retained Credit Suisse First Boston to act as its financial
advisor in connection with the Merger based upon Credit Suisse First Boston's
experience and expertise. Credit Suisse First Boston is an internationally
recognized investment banking and advisory firm. Credit Suisse First Boston, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. On October 8, 1998, Credit Suisse
First Boston delivered to the Allegiance Board its written opinion (the "CREDIT
SUISSE FIRST BOSTON OPINION") that, based upon and subject to the factors and
assumptions set forth therein, as of such date, the Exchange Ratio was fair from
a financial point of view to Allegiance Stockholders.
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THE FULL TEXT OF THE CREDIT SUISSE FIRST BOSTON OPINION, WHICH SETS FORTH
THE ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY CREDIT SUISSE FIRST BOSTON, IS ATTACHED AS ANNEX B TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
ALLEGIANCE STOCKHOLDERS ARE URGED TO READ THE CREDIT SUISSE FIRST BOSTON OPINION
IN ITS ENTIRETY AND TO CONSIDER IT CAREFULLY. THE CREDIT SUISSE FIRST BOSTON
OPINION WAS PROVIDED TO THE ALLEGIANCE BOARD FOR ITS INFORMATION AND RELATES
ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY ALLEGIANCE STOCKHOLDER OR CARDINAL
SHAREHOLDER AS TO HOW TO VOTE ON THE MERGER. THE SUMMARY OF THE CREDIT SUISSE
FIRST BOSTON OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE CREDIT SUISSE
FIRST BOSTON OPINION ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/
PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Credit Suisse First Boston Opinion or the
presentation made by Credit Suisse First Boston to the Allegiance Board. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Credit
Suisse First Boston did not attribute any particular weight to any analysis or
factor considered by it, but, rather, made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Credit
Suisse First Boston believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying the Credit Suisse First
Boston Opinion.
In performing its analyses, Credit Suisse First Boston evaluated industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Allegiance or Cardinal.
In such analyses, no company, transaction or business used as a comparison is
identical to Allegiance or Cardinal or the Merger, nor is an evaluation of the
results of such analyses entirely mathematical; rather, such analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. Any estimates contained in the analyses performed by Credit
Suisse First Boston are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the value of businesses or securities
do not purport to be appraisals or to reflect the prices at which such
businesses or securities might actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. In addition, the
Credit Suisse First Boston Opinion and Credit Suisse First Boston's presentation
to the Allegiance Board were among several factors taken into consideration by
the Allegiance Board in making its determination to approve the Merger.
Consequently, the Credit Suisse First Boston analyses described below should not
be viewed as, and were not, determinative of the opinion of the Allegiance Board
or Allegiance's management with respect to the Exchange Ratio.
In arriving at its Opinion, Credit Suisse First Boston reviewed certain
publicly available business and financial information relating to Allegiance and
Cardinal, as well as the Merger Agreement. Credit Suisse First Boston also
reviewed certain other information, including financial forecasts of Allegiance
provided to it by Allegiance, and met with the managements of Allegiance and
Cardinal to discuss the business and prospects of Allegiance and Cardinal. In
addition, Credit Suisse First Boston reviewed certain estimates provided to it
by Allegiance of the synergies and savings expected to result from the Merger,
and met with Allegiance's management to discuss such synergies and savings.
Credit Suisse First Boston also considered certain financial and stock market
data of Allegiance and Cardinal, compared that data with similar data for other
publicly held companies in businesses similar to those of Allegiance and
Cardinal, and considered the financial terms of certain other business
combinations and other transactions that have recently been effected. In
addition, Credit Suisse First Boston considered such other information,
financial studies, analyses and investigations, and financial, economic and
market criteria that it deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the foregoing
information and relied on such information being complete
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and accurate in all material respects. With respect to the financial forecasts
prepared by Allegiance's management and equity research analysts, Credit Suisse
First Boston assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and judgments of Allegiance's management or
equity research analysts, as applicable, as to the future financial performance
of Allegiance and Cardinal. Credit Suisse First Boston also relied, without
independent verification, upon the assessment by Allegiance's management as to
the cost savings and other potential synergies (including the amount, timing and
achievability thereof) anticipated to result from the Merger. Credit Suisse
First Boston was not requested to, and did not conduct, an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Allegiance or Cardinal, nor was it furnished with any such evaluations or
appraisals. Credit Suisse First Boston assumed that the Merger will be treated
as a pooling-of-interests business combination in accordance with U.S. generally
accepted accounting principles and will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"CODE"). Credit Suisse First Boston also assumed that the Merger will be
consummated generally in accordance with the terms set forth in the Merger
Agreement. The Credit Suisse First Boston Opinion is necessarily based upon
financial, economic, market and other conditions as they existed and could be
evaluated on the date thereof. Credit Suisse First Boston did not express any
opinion as to what the value of the Cardinal Common Shares actually will be when
issued to Allegiance Shareholders pursuant to the Merger or the prices at which
Cardinal Common Shares will trade subsequent to the Merger. In arriving at its
opinion, Credit Suisse First Boston was not requested to solicit, and did not
solicit, third-party indications of interest in acquiring all or part of
Allegiance, nor did Credit Suisse First Boston negotiate with any of the
parties, other than Cardinal, which expressed interest to Credit Suisse First
Boston in the possible acquisition of, or merger with, Allegiance.
Credit Suisse First Boston performed its analyses based on financial
forecasts provided to it by Allegiance's management (the "ALLEGIANCE MANAGEMENT
CASE") and based on such forecasts as adjusted for a conservative scenario (the
"CONSERVATIVE CASE"). The Allegiance Management Case reflects Allegiance's
current budget, including Allegiance's management's forecasts for fiscal years
1998 through 2000, and extrapolated by Credit Suisse First Boston through fiscal
year 2008. The Conservative Case adjusts the Allegiance Management Case to
exclude future annual acquisitions included in the Allegiance Management Case
and was reviewed by Allegiance's management. Credit Suisse First Boston also
utilized income statement and balance sheet projections published by Wall Street
equity research analysts and estimates of future earnings and earnings growth
published by First Call Corp. ("FIRST CALL") and I/B/E/S International, Inc.
("IBES"). First Call and IBES are on-line data services that monitor and publish
compilations of earnings estimates produced by selected research analysts on
certain public companies.
The following is a summary of the analyses performed by Credit Suisse First
Boston in connection with the preparation of the Credit Suisse First Boston
Opinion.
Comparative Stock Price Performance Analysis. Credit Suisse First Boston
reviewed the per share daily closing prices of Allegiance Common Stock and of
Cardinal Common Shares over the period from January 1, 1998 to October 2, 1998
compared with the performance of the Standard & Poor's 400 Index and the
Standard & Poor's Mid-Cap Medical Products Index.
Discounted Cash Flow Analysis. Credit Suisse First Boston performed a
discounted cash flow analysis for fiscal years 1998 to 2008 to estimate the
present value of the stand-alone unlevered free cash flows that Allegiance is
expected to generate if it performs in accordance with scenarios based on
certain financial forecasts. For purposes of this analysis, "unlevered free cash
flows" was defined as net income plus after-tax net interest expense plus
depreciation plus amortization plus deferred taxes less capital expenditures
less investment in working capital.
Credit Suisse First Boston calculated terminal values for Allegiance by
applying a range of multiples of earnings before interest, taxes, depreciation
and amortization ("EBITDA") to the fiscal year 2008 EBITDA from 10.0x to 13.0x
in each of the above scenarios. Those EBITDA multiples were based on
Allegiance's trading multiples on October 2, 1998 of 11.8x EBITDA for the
trailing 12-month period ended June 30, 1998 and 10.8x fiscal year 1998
estimated EBITDA. The unlevered free cash flow streams and terminal values were
then discounted using a range of discount rates from 9% to 12%. Based on this
analysis, the enterprise values
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for Allegiance ranged from $4.1 billion to $6.4 billion for the Allegiance
Management Case and $3.7 billion to $5.8 billion for the Conservative Case.
Credit Suisse First Boston calculated the implied equity value ranges for each
of these cases by subtracting from the enterprise value ranges the value of
Allegiance's debt of $888.8 million and adding the value of Allegiance's cash
and long-term investments of $35.0 million. Based on this analysis and assuming
approximately 119 million diluted Allegiance Common Shares, the implied equity
values for Allegiance ranged from $28 to $47 per share of Allegiance Common
Stock for the Management Case, and $24 to $42 per share of Allegiance Common
Stock for the Conservative Case.
Comparable Companies Analysis. Credit Suisse First Boston compared certain
financial and operating information data, including market value of common
equity ("EQUITY MARKET VALUE") and adjusted market value (Equity Market Value
plus preferred equity at liquidation value, short-term debt, long-term debt and
minority Interest, less cash and marketable securities) ("ADJUSTED MARKET
VALUE"), for Allegiance with the following companies (collectively, the
"ALLEGIANCE PUBLIC COMPARABLES"): Graham-Field Health Products, Inc., Owens and
Minor, Inc., AmeriSource Health Corporation ("AMERISOURCE"), Bergen Brunswig
Corporation ("BERGEN"), Bindley Western Industries, Inc., Cardinal, McKesson
Corporation ("MCKESSON"), Syncor International Corporation, Dentsply
International Inc., Henry Schein, Inc. ("HENRY SCHEIN"), Invacare Corporation,
Patterson Dental Company, PSS World Medical, Inc. and Tyco International Ltd.
("TYCO"). In performing the comparable companies analysis with respect to
Allegiance, Credit Suisse First Boston used calendar earnings estimates for the
Allegiance Public Comparables based on IBES data and calendar-year EBITDA
estimates based on published Wall Street equity research analyst reports. Credit
Suisse First Boston determined that, with respect to Adjusted Market Value as a
multiple of the estimated fiscal 1998 and fiscal l998 EBITDA for the Allegiance
Public Comparables, the median was 12.lx and 10.0x, compared to 10.8x and 9.9x
for Allegiance. Credit Suisse First Boston also determined that, with respect to
price to earnings ("P/E") ratios for the Allegiance Public Comparables, the
median was 23.lx for estimated 1998 and 17.9x for estimated 1999, compared to
28.lx for estimated 1998 and 24.1x for estimated 1999 for Allegiance. Credit
Suisse First Boston also determined that, with respect to (1) the First Call
five-year projected earnings per share ("EPS") growth rate for the Allegiance
Public Comparables, the median was 18.8%, compared to 17.8% for Allegiance, and
(2) the ratio of IBES five-year projected P/E to projected EPS growth rate for
the Allegiance Public Comparables, the median was 97.3%, compared to 135.9% for
Allegiance. Based on this analysis, the implied value per share of Allegiance
Common Stock ranged from $22 to $35.
Comparable Acquisitions Ana1ysis. Credit Suisse First Boston also reviewed
the financial terms of 12 announced acquisitions in the health care distribution
and medical products industries (the "SELECTED ACQUISITIONS") consisting of the
following (aquiror/target): (1) McKesson/Red Line HealthCare Corporation; (2)
McKesson/Baker APS; (3) Tyco/United States Surgical Corporation; (4)
Cardinal/R.P. Scherer Corporation ("SCHERER"); (5) Tyco/Sherwood-Davis & Geck;
(6) Physicians Sales & Service Inc./Gulf South Medical Supply, Inc.; (7)
McKesson/AmeriSource (ultimately terminated); (8) Cardinal/Bergen (ultimately
terminated); (9) Henry Schein/Sullivan Dental Products, Inc.; (10) MallincKrodt,
Inc./Nellcor Puriton-Bennett Incorporated; (11) McKesson/General Medical
Corporation; and (12) Cardinal/Pyxis Corporation ("PYXIS"). Credit Suisse First
Boston analyzed ratios comparing Equity Market Value and Adjusted Market Value
of these announced acquisitions to various financial data. Credit Suisse First
Boston determined that, with respect to (1) the ratio of Adjusted Market Value
to trailing 12-months sales, the median was 1.8x, (2) Adjusted Market Value as a
multiple of trailing 12-months EBITDA, the median was 14.7x, and (3) Adjusted
Market Value as a multiple of trailing 12-months earnings before interest and
taxes ("EBIT"), the median was 19.4x. The implied value per share of Allegiance
Common Stock according to this analysis ranged from $31 to $43.
Future Share Price Analysis. Credit Suisse First Boston calculated the
implied net present value of Allegiance Common Stock based on projected fiscal
year 2000 EPS estimates from the Allegiance Management Case and extrapolated to
fiscal year 2001 using the IBES projected EPS growth rate, and, after adjusting
such estimates by 10%, positively and negatively. Credit Suisse First Boston
applied P/E multiples from 18.lx to 26.lx to the projected EPS. These implied
share prices were then discounted by 10% and 12%. Based on this analysis, the
implied net present value per share of Allegiance Common Stock using fiscal year
2000 EPS ranged from $26 to $46, and using fiscal year 2001 EPS ranged from $27
to $49.
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Contribution Analysis. Credit Suisse First Boston performed a contribution
analysis and determined the respective contributions of Cardinal and Allegiance
to the projected pro forma combined EBIT, assuming no synergies or transaction
adjustments. Credit Suisse First Boston noted that Allegiance Stockholders would
account for approximately 26% of the combined company's common equity on a
fully-diluted basis. Based on the Allegiance Management Case for Allegiance and
First Call estimates for Cardinal, Credit Suisse First Boston estimated that
Allegiance would contribute approximately 29% in fiscal year 1998, 28% in fiscal
year 1999 and 27% in fiscal year 2000 to the combined company's projected pro
forma EBIT.
Pursuant to a letter agreement, dated as of July 21, 1998, between
Allegiance and Credit Suisse First Boston, Allegiance agreed to pay Credit
Suisse First Boston for services rendered thereunder (1) a fee of $200,000 upon
signing the letter agreement and (2) an additional fee of $13.3 million to be
paid upon the closing of the Merger. Allegiance also agreed to reimburse Credit
Suisse First Boston for all out-of-pocket expenses, including the fees and
expenses of its legal counsel and any other advisor retained by Credit Suisse
First Boston resulting from or arising out of the engagement. Allegiance further
agreed to indemnify Credit Suisse First Boston and certain related individuals
and entities for certain losses, claims, damages or liabilities (including
actions or proceedings in respect thereof) related to or arising out of, among
other things, its engagement as financial advisor. In the past, Credit Suisse
First Boston has performed certain investment banking services for Allegiance
and Cardinal and has received customary fees for such services. In the ordinary
course of business, Credit Suisse First Boston and its affiliates may actively
trade the debt and equity securities of both Allegiance and Cardinal for their
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
OPINION OF CARDINAL'S FINANCIAL ADVISOR
Morgan Stanley was retained by Cardinal to provide an opinion in connection
with the Merger and related matters based upon Morgan Stanley's experience and
expertise. At the October 7, 1998 meeting of the Cardinal Board, Morgan Stanley
rendered to the Cardinal Board an oral opinion, confirmed in writing on October
8, 1998, to the effect that, as of such date and based on and subject to certain
matters stated therein, the Exchange Ratio was fair from a financial point of
view to Cardinal Shareholders.
THE FULL TEXT OF THE MORGAN STANLEY OPINION DATED OCTOBER 8, 1998, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. CARDINAL
SHAREHOLDERS SHOULD READ THE MORGAN STANLEY OPINION CAREFULLY IN ITS ENTIRETY.
THE MORGAN STANLEY OPINION IS DIRECTED TO THE CARDINAL BOARD AND THE FAIRNESS OF
THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO CARDINAL SHAREHOLDERS, AND
IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY CARDINAL SHAREHOLDER AS TO HOW TO VOTE AT THE CARDINAL
SPECIAL MEETING OR ANY ALLEGIANCE STOCKHOLDER AS TO HOW TO VOTE AT THE
ALLEGIANCE SPECIAL MEETING. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH
IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE NUMBERS PRESENTED IN THIS
SECTION HAVE BEEN ADJUSTED TO REFLECT RETROACTIVELY CARDINAL'S THREE-FOR-TWO
STOCK SPLIT, THE RECORD DATE FOR WHICH WAS OCTOBER 9, 1998.
In arriving at its opinion, Morgan Stanley:
- - reviewed certain publicly available financial statements and other information
of Allegiance and Cardinal;
- - reviewed certain internal financial statements and other financial and
operating data concerning Allegiance prepared by Allegiance's management;
- - analyzed certain financial projections prepared by Allegiance's management;
- - discussed the past and current operations and financial condition and the
prospects of Allegiance with senior executives of Allegiance;
- - analyzed certain financial and operating data concerning Cardinal prepared by
Cardinal's management;
- - discussed the past and current operations and financial condition and the
prospects of Cardinal with senior executives of Cardinal, and analyzed the pro
forma impact of the Merger on Cardinal;
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<PAGE> 48
- - reviewed the reported prices and trading activity for Allegiance Common Stock
and Cardinal Common Shares;
- - compared the financial performance of Allegiance and Cardinal and the prices
and trading activity of Allegiance Common Stock and Cardinal Common Shares
with that of certain other comparable publicly-traded companies and their
securities;
- - reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
- - reviewed the Merger Agreement and certain related documents; and
- - performed such other analyses and considered such factors as it deemed
appropriate.
Morgan Stanley has assumed and relied upon without independent verification
the accuracy and completeness of the information it reviewed for the purposes of
its opinion. With respect to the financial projections, Morgan Stanley has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Allegiance. Morgan Stanley has relied upon, without independent verification
and with the consent of Cardinal, the assumptions of the management of Cardinal
and Allegiance regarding cost savings and other synergies that will result from
the Merger. Morgan Stanley has not made any independent valuation or appraisal
of the assets or liabilities of Allegiance or Cardinal, nor has it been
furnished with any such appraisals. Morgan Stanley has assumed that the Merger
will be treated as a pooling-of-interests business combination in accordance
with U.S. generally accepted accounting principles and will qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the Code.
Morgan Stanley has also assumed that the Merger will be consummated generally in
accordance with the terms set forth in the Merger Agreement. Morgan Stanley's
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to Morgan Stanley as of, the date
its opinion was rendered.
The following is a brief summary of the material analyses performed by
Morgan Stanley and reviewed with the Cardinal Board in connection with the
preparation of the Morgan Stanley opinion dated October 8, 1998 and with its
oral presentations to the Cardinal Board on October 2, 1998 and October 7, 1998.
Historical Stock Performance. Morgan Stanley compared the trading price of
Cardinal Common Shares and Allegiance Common Stock. This stock performance
review indicated that for Cardinal's and Allegiance's latest twelve months
("LTM") ended October 5, 1998, the high and low closing prices for Cardinal
Common Shares and Allegiance Common Stock were $71.50 and $44.71 and $34.25 and
$13.19, respectively. Morgan Stanley observed that the implied price per share
of Allegiance Common Stock of $40.88 (assuming an Exchange Ratio of 0.6225 of a
Cardinal Common Share for each share of Allegiance Common Stock and a Cardinal
Common Share price of $65.67) represented a premium to the LTM low and high
price of Allegiance Common stock of 210.0% and 19.4%, respectively.
Comparable Company Trading Analysis. Morgan Stanley performed a comparable
public company trading analysis pursuant to which it compared certain publicly
available financial and operating data, projections of future financial
performance and market statistics based upon the closing stock prices on October
5, 1998 of Allegiance and Cardinal and of Henry Schein, Owens & Minor, Inc.,
Patterson Dental Company, PSS World Medical, Inc., Sybron International Corp.,
AmeriSource, Bergen and McKesson (collectively, the "SELECTED COMPARABLE
COMPANIES"). These companies were selected because of their comparability to
Cardinal and Allegiance, each being a publicly-traded distributor of
pharmaceutical or medical products. Morgan Stanley compared: (1) the closing
stock price of the Selected Comparable Companies as a multiple of estimated 1998
and 1999 EPS based upon information from IBES; and (2) the aggregate value
(consisting of market capitalization and total debt) as a multiple of each LTM
EBITDA and EBIT.
For the Selected Comparable Companies, such an analysis indicated: (1)
median price to estimated 1998 EPS multiple of 23.2x; (2) median price to
estimated 1999 EPS multiple of 18.5x; (3) median aggregate value to LTM EBITDA
multiple of 13.9x; and (4) median aggregate value to LTM EBIT multiple of l8.0x.
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Morgan Stanley calculated an estimated fully-diluted aggregate value of
each of Cardinal and Allegiance (assuming a Cardinal Common Share price of
$65.67 and an Allegiance Common Stock price of $29.44) of $13,511 million and
$4,182 million, respectively, as a multiple of each of their respective LTM
EBITDA and EBIT. The multiples yielded by such calculation were: (1) with
respect to EBITDA, 20.3x and 1l.8x, respectively; and (2) with respect to EBIT,
23.6x and 18.0x, respectively.
Morgan Stanley also calculated the ratio of price per share to IBES
estimated 1998 and 1999 EPS for each of Cardinal and Allegiance. Allegiance's
ratio of price to IBES estimated earnings for 1998 and 1999 was 28.0 and 24.5,
respectively (assuming an Allegiance Common Stock price of $29.44), and a
Cardinal Common Share price to IBES estimated earnings for 1998 and 1999 was
calculated to be 35.3 and 28.8, respectively (assuming a Cardinal Common Share
price of $65.67).
Morgan Stanley also calculated the implied value per share of Allegiance
Common Stock according to the following multiple ranges. With respect to LTM
EBITDA, EBIT and earnings, Morgan Stanley assumed multiple ranges of 13.0x to
18.0x, 18.0x to 21.0x and 29.0x to 35.0x, respectively. With respect to 1998 and
1999 earnings, Morgan Stanley assumed multiple ranges of 20.0 to 30.0 and 16.0
to 25.0, respectively. Assuming Allegiance parameters of LTM EBITDA of $355
million, LTM EBIT of $232 million, LTM earnings of $0.91, 1998 earnings of $1.05
and 1999 earnings of $1.20, these multiple ranges yielded an implied value per
share of Allegiance Common Stock range of $25.00 to $34.00.
Morgan Stanley applied a control premium of 30% to 40% to the implied
publicly-traded value per share of Allegiance Common Stock range above. This
calculation resulted in an implied value per share of Allegiance Common Stock
range of $32.50 to $47.60.
In evaluating the Selected Comparable Companies, Morgan Stanley took into
account industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Cardinal
and Allegiance, such as the impact of competition on Cardinal, Allegiance and
the industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Cardinal, Allegiance or the
industry or in the financial markets in general.
Comparable Precedent Transaction Analysis. Morgan Stanley reviewed certain
publicly available information regarding 14 selected transactions from 1992 to
1997 involving the acquisition of distributors of pharmaceutical or medical
products with sales, distribution and marketing characteristics determined to be
comparable to Allegiance, and for each transaction, calculated, where available,
the aggregate value (consisting of market capitalization and total debt) as a
multiple of each of LTM EBITDA and EBIT and the premium to the unaffected stock
price of the target company. Such analysis indicated that aggregate value as a
multiple of LTM EBITDA ranged from 8.6x to 23.6x, with a mean of 16.5x and a
median of 17.1x. Such analysis also indicated that aggregate value as a multiple
of EBIT ranged from 11.9x to 31.4x, with a mean of 20.3x and median of 17.1x.
With respect to Allegiance, the aggregate value as a multiple of EBITDA and the
aggregate value as a multiple of EBIT were 11.8x and 18.0x, respectively. The
analysis also indicated that the premium to the unaffected price ranged from
12.7% to 70.0%, with a mean of 42.3% and median of 37.7%.
Morgan Stanley calculated the implied value per share of Allegiance Common
Stock assuming multiple ranges for LTM EBITDA, EBIT and the premium to
unaffected price of Allegiance shares of 16.0x to 20.0x, 17.0x to 23.0x and
30.0% to 60.0%, respectively. The implied value per share of Allegiance Common
Stock according to this methodology ranged from $34.00 to $48.00.
No transaction utilized in the comparable transaction analysis is identical
to the Merger. In evaluating the precedent transactions, Morgan Stanley
considered factors with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Allegiance, such as the impact of competition on the
business of Allegiance and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Allegiance or the industry or in the financial markets in general.
Mathematical analysis (such as determining the mean or median) is not in itself
a meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis to calculate a present value of the stand-alone unlevered free
cash flows that Allegiance is expected to generate if
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<PAGE> 50
Allegiance performs in accordance with certain assumed scenarios. Morgan Stanley
analyzed two scenarios that were based on publicly available information and
discussions with Allegiance management: (1) an Allegiance case without
synergies; and (2) an Allegiance case with synergies. For each scenario, Morgan
Stanley discounted the estimated unlevered free cash flows from 1999 to 2003
using discount rates between 9.5% and 10.5%. Morgan Stanley added to the present
values of the cash flows a terminal value for Allegiance in the year 2003, and
discounted the terminal value using the discount rates between 9.5% and 10.5%.
The terminal value was calculated using a multiple of year 2003 EBITDA, assuming
a range of multiples between 13.0x and 15.0x for Allegiance. Based on this
analysis, Morgan Stanley calculated a per share equity value of Allegiance
ranging from $35.00 to $43.00 and $40.00 to $49.00 using the Allegiance case
without synergies and with synergies, respectively.
Historical Exchange Ratio Analysis. Morgan Stanley analyzed the historical
exchange ratio between Cardinal Common Shares and Allegiance Common Stock over
several time periods. For each time period selected, the average exchange ratio
was calculated. The time periods as of October 5, 1998 selected for the analysis
were as follows: last two years, last twelve months, last six months, and
closing price on October 5, 1998. The average exchange ratio for each
aforementioned time period was 0.350, 0.377, 0.429, and 0.449, respectively.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portion of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying the Morgan Stanley opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Cardinal or Allegiance.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Cardinal or Allegiance.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness of the Exchange Ratio from a financial point
of view to Cardinal Shareholders and were provided to the Cardinal Board in
connection with the delivery of the Morgan Stanley opinion. The analyses do not
purport to be appraisals or to reflect the prices at which Cardinal or
Allegiance might actually be sold. In addition, as described above, the Morgan
Stanley opinion, including Morgan Stanley's presentation to the Cardinal Board,
was one of many factors taken into consideration by the Cardinal Board in making
its determination to approve the Merger.
The Cardinal Board retained Morgan Stanley based upon Morgan Stanley's
experience and expertise. Morgan Stanley is an internationally recognized
investment banking and financial advisory firm. Morgan Stanley, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Morgan Stanley is a full-service securities firm engaged in
securities trading and brokerage activities, as well as providing investment
banking and financial advisory services. In the ordinary course of its trading
and brokerage activities, Morgan Stanley or its affiliates may at any time hold
long or short positions, and may trade or otherwise effect transactions, for its
own account or the accounts of customers, in securities of Cardinal or
Allegiance.
Pursuant to a letter agreement dated October 1, 1998, Cardinal has agreed
to pay Morgan Stanley a transaction fee equal to $10 million plus an additional
amount subject to the discretion of Cardinal, payable upon consummation of the
Merger. In certain circumstances, in the event that the transaction is not
consummated, Cardinal has agreed to pay Morgan Stanley a termination fee equal
to $3 million. In addition to the foregoing compensation, Cardinal has agreed to
indemnify Morgan Stanley for liabilities and expenses
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<PAGE> 51
arising out of the engagement and the transactions in connection therewith,
including liabilities under U.S. federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Allegiance Board with respect to
the Merger Agreement, Allegiance Stockholders and Cardinal Shareholders should
be aware that certain officers and directors of Allegiance (or its affiliates)
have interests in the Merger that are different from and in addition to the
interests of Allegiance Stockholders generally. The Allegiance Board was aware
of these interests and took them into account in approving the Merger Agreement
and the transactions contemplated by it.
Change in Control Plan. Immediately prior to Allegiance's becoming an
independent company in the spinoff from Baxter, on September 30, 1996,
Allegiance adopted a change in control plan (the "CHANGE IN CONTROL PLAN") that
provides certain additional severance benefits to eligible executive or
management employees whose employment is terminated within 24 months following a
"CHANGE IN CONTROL" (as defined in the Change in Control Plan) of Allegiance.
Approval by Allegiance Stockholders of the Merger will constitute a Change in
Control. Thus, if the Allegiance Stockholders approve the Merger and Cardinal
should, in certain circumstances within 24 months of such approval, terminate
the employment of any of the Allegiance employees covered by the Change in
Control Plan (or if such an employee terminates his or her employment in certain
circumstances within 24 months of such approval), such employees would be
entitled to receive certain severance benefits from Allegiance as more fully set
forth below.
Under the Change in Control Plan, three Allegiance employees, Messrs.
Knight, Damico and McKee, entered into agreements with Allegiance (each a
"CHANGE IN CONTROL AGREEMENT") which provide that, if, within 24 months
following a Change in Control, Allegiance terminates their employment other than
as a result of the employee's death or disability or for cause or if the
employee terminates his employment for good reason then, (1) the employee is
entitled to receive from Allegiance his base salary (at the greater of the rate
in effect at the time the Change in Control occurred or the rate in effect when
notice of the termination of employment is given) (the employee's "BASE SALARY")
through the date of termination, plus 100% of the target bonus he was eligible
to earn under Allegiance's Annual Incentive Plan for the current year (the
employee's "TARGET ANNUAL BONUS"); (2) the employee is entitled to receive from
Allegiance a severance benefit equal to three times the sum of his Base Salary
plus his Target Annual Bonus, payable over three years in equal installments
according to Allegiance's normal payroll schedule; (3) any outstanding
Allegiance Option the employee may hold will immediately vest and become
exercisable in full in accordance with their terms and the provisions of
Allegiance's 1996 and 1998 Incentive Compensation Programs; (4) Allegiance will
ensure that the employee is paid in cash his benefit under the Allegiance Excess
Benefit Plan or any successor plan; and (5) Allegiance will pay the costs of
reasonable outplacement services until the employee is employed on a full time
basis. In addition, if any payment that the employee receives from Allegiance is
subject to the excise tax imposed on certain payments under Section 4999 of the
Code, then, subject to certain limitations, Allegiance will make an additional
payment to the employee to ensure that, after the payment of all taxes on such
additional payment, the employee retains an amount equal to the excise tax thus
imposed. As of the date hereof, the annual base salaries of Messrs. Knight,
Damico and McKee were $500,000, $408,000 and $315,000, and their Target Annual
Bonuses were $700,000, $500,000 and $225,000, respectively.
For the purposes of the Change in Control Agreements, an employee is
terminated for "CAUSE" if the termination is by reason of the employee's
willfully engaging in conduct demonstrably and materially injurious to
Allegiance, the employee's being convicted of or confessing to a crime involving
dishonesty or moral turpitude, or the employee's willful and continued failure
for a significant period of time to perform his duties after a demand for
substantial performance has been delivered to him by the Allegiance Board, which
demand specifically identifies the manner in which the Allegiance Board believes
that the employee has not substantially performed his duties. Except as modified
by the Knight Amendment and the Damico Amendment, an employee, pursuant to a
Change in Control Agreement, will have terminated his employment for "GOOD
REASON" if his termination is by reason of the occurrence of any of the
following events within 24 months following a Change in Control without the
employee's express written consent: (1) any significant change in the employee's
title, authorities, responsibilities (including reporting responsibilities)
that, in the
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employee's reasonable judgment, represents an adverse change, or the assignment
to the employee of any significant duties or work responsibilities that, in his
reasonable judgment, are inconsistent with such title, authorities or
responsibilities, or any removal of the employee from, or failure to reappoint
or reelect him to, any of such positions (except if such changes are because of
disability, retirement or cause); (2) a reduction in or failure to pay any
portion of the employee's Base Salary as in effect on the date of the Change in
Control as the same may be increased from time to time thereafter; (3) the
failure by Allegiance to provide the employee with compensation and benefits
(including incentive and other compensation plans and any vacation, medical,
hospitalization, life insurance, dental or disability benefit plan), or cash
compensation in lieu thereof, which are, in the aggregate, no less favorable
than those provided by Allegiance to the employee immediately prior to the
Change in Control; (4) any breach by Allegiance of the Change in Control
Agreement; or (5) the failure by Allegiance to obtain a satisfactory agreement
from any successor or assign of Allegiance to assume and agree to perform the
Change in Control Agreement as required by the Change in Control Agreement.
The Change in Control Agreements also provide that, during the 24-month
period following the termination of his or her employment, the employee will not
(1) solicit on the employee's behalf or on behalf of another, any employee of
Allegiance for employment with any person, firm, corporation or entity which
competes with Allegiance (the "NON-SOLICITATION PROVISION"), or (2), subject to
certain permitted passive investments, invest in, counsel, advise or be employed
by any person, firm, corporation or entity engaged in or conducting business
which is the same as, or competing with, the business being conducted by
Allegiance or its subsidiaries, operating divisions or affiliates in any area or
territory in which Allegiance or such other entity is conducting business (the
"NON-COMPETITION PROVISION").
In addition to Messrs. Knight, Damico and McKee, 26 other executives of
Allegiance have entered into similar agreements with Allegiance under the Change
in Control Plan, as amended, that are similar to those of Messrs. Knight, Damico
and McKee, except that, under these agreements, the severance benefit to which
the employee is entitled is an amount equal to the sum of such employee's Base
Salary plus such employee's Target Annual Bonus (rather than three times this
sum, as provided for in the agreements of Messrs. Knight, Damico and McKee). In
addition, such other agreements do not reimburse the executive for the excise
tax under Section 4999 of the Code. The Allegiance Board also approved, in
connection with the approval of the Merger Agreement on October 8, 1998, a
proposal to implement a plan to make each individual including both individuals
covered by and not covered by Change in Control Agreements, in addition to
Messrs. Knight, Damico and McKee, who may be subject to excise tax under section
4999 of the Code in connection with payments and accelerated vesting of
Allegiance Options resulting from the Merger, whole with respect to the payment
of such excise taxes, subject to a maximum aggregate payment for all individuals
other than Messrs. Knight, Damico and McKee of $5 million.
In connection with the execution of the Merger Agreement, Mr. Knight,
Allegiance and Cardinal entered into an amendment on October 8, 1998 to Mr.
Knight's Change in Control Agreement (the "KNIGHT AMENDMENT"). Pursuant to the
Knight Amendment, the term of Mr. Knight's Change in Control Agreement has been
extended until a date 60 months following the end of the month in which the
Merger is completed. Further, the provision of the Change in Control Agreement
relating to the accelerated vesting of Allegiance Options shall not apply to any
Cardinal stock options granted to Mr. Knight after the Merger. The Knight
Amendment modifies the definition of "good reason" used in Mr. Knight's Change
in Control Agreement. Under the amended definition, Mr. Knight's termination
shall be considered to have been for "GOOD REASON" only if his termination is by
reason of the occurrence of any of the following events within 12 months after
the end of the month in which the Merger is consummated (the "MINIMUM TRANSITION
PERIOD") without Mr. Knight's express written consent: a significant adverse
change in his title or duties, which change is inconsistent with Mr. Knight's
position as Vice-Chairman of Cardinal following the Cardinal Merger, or the
removal of Mr. Knight as a director of Cardinal without Cause; a reduction in or
failure to pay any portion of Mr. Knight's Annual Base Salary as in effect on
the date of the Change in Control or as the same may be increased from time to
time thereafter; the failure by Allegiance to provide Mr. Knight with
compensation and benefits (including, without limitation, annual and long-term
incentives and other compensation plans and any vacation, medical,
hospitalization, life insurance, dental or disability benefit plan), or cash
compensation in lieu thereof, which are, in the aggregate, no less favorable
than those provided by Allegiance to Mr. Knight
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immediately prior to the occurrence of the Change in Control; any material
breach by Allegiance of the Change in Control Agreement, as amended by the
Knight Amendment; and the failure of Allegiance to obtain a satisfactory
agreement from any successor or assign of Allegiance to assume and agree to
perform the Change in Control Agreement, as amended by the Knight Amendment.
Following the Minimum Transition Period, any termination of Mr. Knight's
employment (other than a termination by Allegiance for cause, or a termination
by reason of Mr. Knight's disability, retirement or death) during the remainder
of the term of this Change in Control Agreement shall be treated as a
termination by Mr. Knight for good reason (as redefined in the Knight Amendment)
and he will be entitled to all of the benefits described above, including
separation pay equal to three time base salary and Target Bonus.
The Knight Amendment also modifies the Non-Solicitation Provision of Mr.
Knight's Change in Control Agreement. The Non-Solicitation Provision applies for
the greater of the 12-month period following the date of the termination of Mr.
Knight's employment and the 24-month period following the end of the month in
which the Merger is consummated. The Knight Amendment also amends the
Non-Competition Provision of Mr. Knight's Change in Control Agreement by
limiting the prohibition therein to a list of specific entities that Mr. Knight
may not, directly or indirectly invest in, counsel, advise or be employed by.
Mr. Knight is bound by the Non-Competition Provision, as amended by the Knight
Amendment, for a period of 24 months following his date of termination with
Allegiance.
In connection with the execution of the Merger Agreement, Mr. Damico,
Allegiance and Cardinal entered into an amendment on October 8, 1998 to Mr.
Damico's Change in Control Agreement (the "DAMICO AMENDMENT"). The terms of the
Damico Amendment are similar to those of the Knight Amendment, except that Mr.
Damico may terminate his employment for "GOOD REASON" if there has been, absent
his express written consent, a significant adverse change in his title or
duties, which change is inconsistent with Mr. Damico's positions following the
Merger as President of Allegiance Corporation and Executive Vice President of
Cardinal (rather than, in the case of Mr. Knight, Mr. Knight's positions
following the Merger as Vice-Chairman and director of Cardinal).
Stock Options. Cardinal and Allegiance covenant in the Merger Agreement to
take, prior to the Effective Time, all such actions as may be necessary to cause
each option issued by Allegiance on Allegiance Common Stock (each an "ALLEGIANCE
OPTION") pursuant to Allegiance stock plans (the "ALLEGIANCE STOCK PLANS") to be
converted at the Effective Time into an option on Cardinal Common Shares (a
"CARDINAL EXCHANGE OPTION"), with appropriate adjustments to reflect the
Exchange Ratio. See "The Merger Agreement -- Stock Options." Subject to certain
exceptions, pursuant to the terms of the Allegiance Stock Plans, unvested
Allegiance Stock Options will automatically vest upon approval of the Merger by
the Allegiance Stockholders. As of December 10, 1998 the number of unexercised
and effective Allegiance Options held by Allegiance's Chief Executive Officer
and the other four most highly compensated executive officers was 3,889,612,
distributed as follows: Mr. Knight, 1,667,298; Mr. Damico, 1,066,744; Mr. McKee,
499,400; Kathy Brittain White, 418,164; and William L. Feather, 238,006. As of
the same date, the number of unexercised and effective Allegiance Options held
by the directors and executive officers of Allegiance as a group was 5,144,022.
Following the Merger, to the extent permitted by applicable law and the
NYSE, Cardinal may use for future option grants under the Allegiance Corporation
1996 and 1998 Incentive Compensation Programs assumed by Cardinal in the Merger,
the number of Cardinal Common Shares equal to the number of reserved shares of
Allegiance Common Stock available for awards as of the Effective Time under the
Allegiance Corporation 1996 and 1998 Incentive Compensation Programs, but not
subject to an award under such program as of the Effective Time, multiplied by
the Exchange Ratio. As of December 11, 1998, the number of Cardinal Common
Shares which would be available for future grant would be approximately
2,375,565, which is equal to approximately 3,816,169 shares of Allegiance Common
Stock multiplied by the Exchange Ratio.
Directors' and Officers' Indemnification and Insurance. Pursuant to the
terms of the Merger Agreement, from and after the Effective Time, Cardinal shall
cause the Surviving Corporation to indemnify and hold harmless the present and
former officers and directors of Allegiance in respect of acts or omissions
occurring prior to the Effective Time to the extent provided under the Amended
and Restated Certificate of
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Incorporation of Allegiance (the "ALLEGIANCE CERTIFICATE") and the Allegiance
Bylaws. In addition, Cardinal shall use all reasonable efforts to cause the
Surviving Corporation to maintain, with certain limitations, for a period of six
years after the Effective Time policies of directors' and officers' liability
insurance with respect to acts or omissions occurring prior to the Effective
Time, comparable to those currently maintained by Allegiance. See "The Merger
Agreement -- Covenants."
Board of Directors. Pursuant to the terms of the Merger Agreement, after
the Effective Time, the Cardinal Board shall take all necessary action to elect
to the Cardinal Board Mr. Knight and two other independent directors of
Allegiance to be selected by the Chairman of Cardinal from among three of the
current members of the Allegiance Board named by the Allegiance Board.
Arthur Golden, who is a director of Allegiance, is also a partner of Davis
Polk & Wardwell, which is acting as legal counsel to Allegiance in connection
with the Merger and which will receive a fee in connection with its provision of
such services.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned on
Cardinal's receipt of a letter, in form and substance reasonably satisfactory to
Cardinal, from Deloitte & Touche LLP ("D&T"), dated the closing date of the
Merger (the "CLOSING DATE"), stating that D&T concurs with the conclusion of
Cardinal's management that the Merger will qualify as a transaction to be
accounted for by Cardinal in accordance with the pooling-of-interests method of
accounting. In addition, pursuant to the Merger Agreement, Cardinal and
Allegiance agree that they shall not, and shall not permit any of their
respective subsidiaries to, take any actions that would, or would be reasonably
likely to, prevent Cardinal from accounting for the Merger in accordance with
the pooling-of-interests method of accounting.
Under the pooling-of-interests method of accounting, the recorded assets
and liabilities of Cardinal and Allegiance will be carried forward to the
combined company at their historical recorded amounts, income of the combined
company will include income of Allegiance and Cardinal for the entire fiscal
year in which the combination occurs, and the reported income of the separate
companies for previous periods will be combined and restated as income of the
combined company. See "The Merger Agreement -- Conditions" and
"Summary -- Summary Historical and Unaudited Pro Forma Financial Information."
Pursuant to the Merger Agreement, Allegiance is required to obtain written
undertakings ("AFFILIATE LETTERS") from each person who may be at the Effective
Time or was on the date of the Merger Agreement an "affiliate" of Allegiance for
purposes of Rule 145 under the Securities Act of 1933, as amended (the
"SECURITIES ACT") to the effect that, among other things, such person will not
sell, transfer or otherwise dispose of, or direct or cause the sale, transfer or
other disposition of, any shares of Allegiance Common Stock or Cardinal Common
Shares or Allegiance Options beneficially owned by such person during the 30
days prior to the Effective Time and will not sell, transfer or otherwise
dispose of, or direct or cause the sale, transfer or other disposition of, any
Cardinal Common Shares or Cardinal Exchange Options (or Cardinal Common Shares
issuable upon exercise thereof) beneficially owned by such person as a result of
the Merger or otherwise until after such time as Cardinal shall have publicly
released a report in the form of a quarterly earnings report, registration
statement filed with the Securities and Exchange Commission (the "COMMISSION"),
a report filed with the Commission or any other public filing, statement or
announcement that includes the combined financial results of Cardinal and
Allegiance for a period of at least 30 days of combined operations of Cardinal
and Allegiance following the Effective Time.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT"), and the regulations promulgated thereunder, the Merger may not
be consummated unless certain filings have been submitted to the Antitrust
Division of the U.S. Department of Justice (the "ANTITRUST DIVISION") and the
U.S. Federal Trade Commission (the "FTC"), and certain waiting period
requirements have expired or are otherwise earlier terminated by the Antitrust
Division and the FTC. On October 23, 1998, Allegiance and
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Cardinal submitted the required filings to the Antitrust Division and the FTC.
The waiting period under the HSR Act expired on November 22, 1998 without being
extended by a Request for Additional Information or Documentary Materials.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the consummation of the Merger, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking the divestiture of substantial assets of Allegiance or Cardinal.
Allegiance and Cardinal believe that the consummation of the Merger will not
violate the antitrust laws. There can be no assurance, however, that a challenge
to the Merger on antitrust grounds will not be made, or, if such a challenge is
made, what the result will be.
In addition, under the laws of certain foreign nations, the Merger may not
be consummated unless certain filings are made with these nations' antitrust
regulatory authorities and these authorities approve or clear the Merger. In
particular, under the laws of the Federal Republic of Germany, a pre-merger
notification filing must be made with the German Federal Cartel Office. In
addition, under the laws of Canada, Allegiance and Cardinal are applying to the
Director of Investigation and Research of the Canadian Bureau of Competition for
an Advanced Ruling Certificate, which, if granted, will prevent certain
subsequent challenges to the Merger. Allegiance and Cardinal expect that the
Merger will not violate any foreign antitrust laws and that all the foreign
antitrust regulatory authorities whose approval or clearance is required will
approve or clear the Merger.
As we describe in this Joint Proxy Statement/Prospectus, we will be
required to make certain filings with federal, state and foreign governmental
authorities to complete the Merger. No other approvals or clearances will be
required from any federal, state or foreign agency.
FEDERAL SECURITIES LAW CONSEQUENCES
All Cardinal Common Shares issued in connection with the Merger will be
freely transferable, except that any Cardinal Common Shares received by persons
who are deemed to be "AFFILIATES" (as defined under the Securities Act) of
Cardinal or Allegiance prior to the Merger may be sold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act with respect to affiliates of Cardinal or Allegiance, or Rule 144 under the
Securities Act with respect to persons who are or become affiliates of Cardinal,
or as otherwise permitted under the Securities Act. Persons who may be deemed to
be affiliates of Cardinal or Allegiance generally include individuals or
entities that control, are controlled by or are under common control with,
Cardinal or Allegiance, as the case may be, and generally include the executive
officers and directors of the companies as well as their principal shareholders.
Affiliates may not sell their Cardinal Common Shares acquired in connection
with the Merger, except pursuant to an effective registration under the
Securities Act covering such shares or in compliance with Rule 145 under the
Securities Act (or Rule 144 under the Securities Act, in the case of persons who
become affiliates of Cardinal) or another applicable exemption from the
registration requirements of the Securities Act. In general, Rule 145 under the
Securities Act provides that for one year following the completion of the
Merger, an affiliate (together with certain related persons) would be entitled
to sell Cardinal Common Shares acquired in connection with the Merger only
through unsolicited "broker transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 under the Securities Act may not
exceed the greater of 1% of the outstanding Cardinal Common Shares or the
average weekly trading volume of Cardinal Common Shares during the four calendar
weeks preceding such sale. Rule 145 under the Securities Act will remain
available to affiliates if Cardinal remains current with its informational
filings with the Commission under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). One year after the Effective Time, an affiliate
will be able to sell such Cardinal Common Shares without being subject to such
manner of sale or volume limitations, provided that Cardinal is current with its
Exchange Act informational filings and such affiliate is not then an affiliate
of Cardinal. Two years after the Effective Time,
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an affiliate will be able to sell such Cardinal Common Shares without any
restrictions so long as such affiliate had not been an affiliate of Cardinal for
at least three months prior to the date of such sale. See "-- Accounting
Treatment."
Under the Affiliate Letters, Cardinal has agreed that, for so long as any
affiliate agreeing to an Affiliate Letter holds any Cardinal Common Shares as to
which such affiliate is subject to the limitations of Rule 145 under the
Securities Act, Cardinal will use its reasonable efforts to file all reports
required to be filed by it pursuant to the Exchange Act and the rules and
regulations thereunder so as to satisfy the requirements of paragraph (c) of
Rule 144 under the Securities Act that there be available current public
information with respect to Cardinal, and, to that extent, to make available to
such affiliate the exemption afforded by Rule 145 under the Securities Act with
respect to the sale, transfer or other disposition of the Cardinal Common
Shares. See "-- Accounting Treatment."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, Cardinal and
Allegiance entered into the Stock Option Agreement, dated October 8, 1998 (the
"STOCK OPTION AGREEMENT"), pursuant to which Allegiance granted Cardinal an
option (the "OPTION") to purchase from Allegiance, under certain circumstances
and subject to certain adjustments, up to 22,284,538 authorized and unissued
shares of Allegiance Common Stock at a price per share equal to the lower of (1)
$38.46 or (2) the Exchange Ratio multiplied by the average of the closing prices
(or, if such securities should not trade on any trading day, the average of the
bid and asked prices therefor on such day) of Cardinal Common Shares (the
"PURCHASE PRICE") as reported on the NYSE Composite Tape during the five
consecutive trading days ending on (and including) the trading day immediately
prior to the date of exercise (or, if such Cardinal Common Shares are not traded
on the NYSE, on such other exchange or quotation system on which such Cardinal
Common Shares are then traded).
The Option is exercisable, in whole or in part, at any time or from time to
time if a Purchase Event has occurred and the Merger Agreement has been
terminated; provided, however, that, to the extent the Option shall not have
been exercised, it shall terminate and be of no further force and effect upon
the earliest to occur of: (1) the Effective Time; (2) if no Purchase Event has
occurred and the Merger Agreement is terminated in accordance with its terms
pursuant to Section 7.1(a), Section 7.1(b), Section 7.1(c) (if the termination
is by Allegiance because of a failure by Cardinal or an affiliate of Cardinal to
perform any material covenant or obligation under the Merger Agreement, which
failure has been the cause of, or resulted in, the failure of the Merger to
occur on or before May 15, 1999), Section 7.1(f), Section 7.1(i), Section
7.l(j), or Section 7.1(k) of the Merger Agreement, then at the time of such
termination; (3) if a Purchase Event has occurred pursuant to Section 3(b)(iv)
of the Stock Option Agreement and the Merger Agreement is terminated in
accordance with its terms pursuant to Section 7.1(e) of the Merger Agreement,
then at 5:00 p.m. New York City time on the date which is 12 months after such
termination; or (4) if a Purchase Event occurs other than pursuant to Section
3(b)(iv) of the Stock Option Agreement, then at 5:00 p.m. New York City time, on
the date that is 135 days following the occurrence of the earliest Purchase
Event; and provided, further, that, if the Option cannot be exercised before its
date of termination as a result of any injunction, order or similar restraint
issued by a court of competent jurisdiction, the Option shall expire on the
tenth business day after such injunction, order or restraint shall have been
dissolved or when such injunction, order or restraint shall have become
permanent and no longer subject to appeal, as the case may be, but in no event
later than 12 months after the occurrence of a Purchase Event. As of the date
hereof, the Option is not exercisable.
Under the Stock Option Agreement, a "PURCHASE EVENT" means: (1) any person
(other than Cardinal or any of its subsidiaries) shall (a) become the beneficial
owner, or shall acquire the right to become the beneficial owner, of 15% or more
of either the then-outstanding Allegiance Common Stock or any class of
then-outstanding voting securities of Allegiance or any of its subsidiaries, or
(b) purchase, lease or otherwise acquire 30% or more of the assets of Allegiance
and its subsidiaries, taken as a whole (except that the inadvertent acquisition
by any person of beneficial ownership of 15% or more of Allegiance Common Stock
shall not be a Purchase Event if such person divests as promptly as practicable
(but in any event, within ten business days of notice from Allegiance to such
person) a sufficient number of shares of Allegiance Common
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Stock so that such person would then be the beneficial owner of less than 15% of
the then-outstanding Allegiance Common Stock); (2) Allegiance or any of its
subsidiaries shall enter into, authorize, recommend, propose or publicly
announce an intention to enter into, any agreement, arrangement or understanding
with any person (other than Cardinal or any of its subsidiaries) pursuant to
which such person shall (a) become the beneficial owner, or shall acquire the
right to become the beneficial owner, of 15% or more of either the
then-outstanding Allegiance Common Stock or any class of then-outstanding voting
securities of Allegiance or any of its subsidiaries, or (b) purchase, lease or
otherwise acquire 30% or more of the assets of Allegiance and its subsidiaries,
taken as a whole; (3) the Allegiance Board shall withdraw, modify or change the
Allegiance Board Recommendation in a manner adverse to Cardinal, or shall
approve or recommend any Competing Transaction; (4) the Merger Agreement shall
be terminated pursuant to Section 7.1(e) of the Merger Agreement and at any time
prior to such termination there shall have been made to Allegiance or publicly
disclosed a Competing Transaction with respect to Allegiance; or (5) the Merger
Agreement shall have been terminated pursuant to Section 7.1(c) (if the
termination is by Cardinal because of a failure by Allegiance or an affiliate of
Allegiance to perform any material covenant or obligation under the Merger
Agreement, which failure has been the cause of or resulted in the failure of the
Merger to occur on or before May 15, 1999), Section 7.1(d) (termination by
Cardinal if the Allegiance Board shall withdraw, modify or change the Allegiance
Board Recommendation in a manner adverse to Cardinal or if the Allegiance Board
approves or recommends any Competing Transaction), Section 7.1(g) (termination
by Allegiance pursuant to Section 5.3(e) of the Merger Agreement, which provides
that Allegiance may terminate the Merger Agreement in certain circumstances
related to proposals from third parties for business combinations or similar
transactions with Allegiance; see "The Merger Agreement -- Acquisition Proposals
and Termination Right"), or Section 7.1(h) (termination by Cardinal if
Allegiance shall have breached any of its obligations under the Stock Option
Agreement) of the Merger Agreement.
At the request of Cardinal, at any time during the Cardinal Repurchase
Period, Allegiance (or any successor entity thereof) shall repurchase the Option
from Cardinal together with all (but not less than all) shares of Allegiance
Common Stock purchased by Cardinal pursuant thereto with respect to which
Cardinal then has beneficial ownership, at a price (the "REPURCHASE PRICE")
equal to the sum of: (1) the difference between (a) the Market/Tender Offer
Price for shares of Allegiance Common Stock and (b) the Purchase Price (subject
to adjustment as provided in Section 6 of the Stock Option Agreement),
multiplied by the number of shares of Allegiance Common Stock with respect to
which the Option has not been exercised, but only if such Market/Tender Offer
Price is greater than such exercise price; (2) the exercise price paid by
Cardinal for any shares of Allegiance Common Stock pursuant to the Option; and
(3) the difference between the Market/Tender Offer Price and the exercise price
paid by Cardinal for any shares of Allegiance Common Stock purchased pursuant to
the exercise of the Option, multiplied by the number of shares of Allegiance
Common Stock so purchased, but only if such Market/Tender Offer Price is greater
than such exercise price.
Except to the extent that Cardinal shall have previously exercised its
rights described in the preceding paragraph, at the request of Allegiance during
the six-month period commencing 135 days following the first occurrence of a
Purchase Event, Allegiance may repurchase from Cardinal, and Cardinal shall sell
to Allegiance, all (but not less than all) of the Allegiance Common Stock
acquired by Cardinal pursuant to the Option and with respect to which Cardinal
has beneficial ownership at the time of such repurchase at a price per share
equal to the greater of (1) 110% of the Market/Tender Offer Price per share
(calculated in the manner described above but utilizing the period beginning on
the occurrence of a Purchase Event and ending on the date Allegiance exercises
its repurchase right), (2) the Per Share Repurchase Price or (3) the sum of (a)
the aggregate Purchase Price of the shares of Allegiance Common Stock so
repurchased, plus (b) interest on the aggregate Purchase Price paid for the
shares of Allegiance Common Stock so repurchased from the date of purchase by
Cardinal to the date of repurchase at the highest rate of interest announced by
Bank One, Columbus, NA as its prime or base lending or reference rate during
such period, less any dividends received on the shares of Allegiance Common
Stock so repurchased.
Pursuant to the Stock Option Agreement, at any time after a closing of the
purchase and sale pursuant to the Option, Allegiance will be obligated, under
certain circumstances, to file a registration statement under the Securities Act
if necessary in order to permit the sale or other disposition of the shares of
Allegiance Common
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Stock that have been acquired upon exercise of the Option. Allegiance is not
required to file more than two such registration statements under the Stock
Option Agreement.
For purposes of the foregoing description of the Stock Option Agreement:
- - The "CARDINAL REPURCHASE PERIOD" is any time from and after the occurrence of
a Purchase Event and ending 135 days immediately thereafter;
- - The "PER SHARE REPURCHASE PRICE" is the Repurchase Price calculated on a per
share basis;
- - The "MARKET/TENDER OFFER PRICE" is the higher of (1) the highest price per
share at which a tender or exchange offer has been made for shares of
Allegiance Common Stock or (2) the highest closing price per share of
Allegiance Common Stock as reported by the NYSE Composite Tape for any day
within that portion of the Cardinal Repurchase Period that precedes the date
Cardinal gives notice of the required repurchase as described in the foregoing
description of the Stock Option Agreement.
The foregoing is a summary of the material provisions of the Stock Option
Agreement, a copy of which is filed as an exhibit to the Registration Statement.
This summary is qualified in its entirety by reference to the Stock Option
Agreement, which is incorporated herein by reference.
SUPPORT/VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, Cardinal executed
with each of Messrs. Knight and Damico a support/voting agreement (the "KNIGHT
SUPPORT/VOTING AGREEMENT" and the "DAMICO SUPPORT/VOTING AGREEMENT,"
respectively, and, together, the "SUPPORT/VOTING AGREEMENTS") pursuant to which
each of Messrs. Knight and Damico (each a "STOCKHOLDER") agreed that: (1) the
Stockholder will not, and will not permit any company, trust or other entity
controlled by the Stockholder to, and will not permit any of its controlled
affiliates (its "CONTROLLED AFFILIATES," "controlled" and "affiliate" as defined
under the Exchange Act) to, contract to sell, sell or otherwise transfer or
dispose of any of the shares of Allegiance Common Stock beneficially owned by
them (the "SHARES") or any interest therein or securities convertible thereinto
or any voting rights with respect thereto, other than (a) pursuant to the
Merger, (b) with Cardinal's prior written consent, or (c) to the extent
contractually required as of the time immediately preceding the execution of the
Support/Voting Agreement, to the extent such contractual requirement is
disclosed in a schedule to the Support/Voting Agreement; (2) the Stockholder
will cause any company, trust or other entity controlled by the Stockholder to,
and will cause its Controlled Affiliates to, cooperate fully with Cardinal in
connection with the Merger Agreement and the transactions contemplated thereby;
(3) during the term of the Support/Voting Agreement, the Stockholder will not,
and will not permit any such company, trust or other entity to, and will not
permit any of its Controlled Affiliates to, directly or indirectly (including
through its directors, officers, employees or other representatives), solicit,
initiate, encourage or facilitate, or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving Allegiance, or acquisition of any capital stock (other than upon
exercise of Allegiance Options that are outstanding as of the date of the
Support/Voting Agreements) or 30% or more of the assets of Allegiance and its
subsidiaries, taken as a whole, in a single transaction or a series of related
transactions, or any acquisition by Allegiance of any material assets or capital
stock of any other person, or any combination of the foregoing (a "COMPETING
DEAL"), or negotiate, explore or otherwise engage in discussions with any person
(other than Cardinal, Merger Sub or their respective directors, officers,
employees, agents and representatives) with respect to any Competing Deal or
enter into any agreement, arrangement or understanding with respect to any
Competing Deal or agree to or otherwise assist in the effectuation of any
Competing Deal; provided, however, that nothing shall prevent the Stockholder
from taking any action, after having notified Cardinal thereof, or omitting to
take any action solely as a member of the Allegiance Board required so as not to
violate such Stockholder's fiduciary obligations as a director of Allegiance
after consultation with outside counsel; (4) the Stockholder agrees that all of
the Shares beneficially owned by the Stockholder or its Controlled Affiliates
(except, in each case, Shares subject to unexercised Allegiance Options), or
over which the Stockholder or any of its Controlled Affiliates has voting power
or control, directly or indirectly (including any shares of Allegiance Common
Stock acquired after the date of the Support/Voting Agreements), at the record
date for any
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meeting of Allegiance Stockholders called to consider and vote to approve the
Merger and the Agreement and/or the transactions contemplated thereby and/or any
Competing Deal will be voted by the Stockholder or its Controlled Affiliates in
favor of the Merger and the Merger Agreement and the transactions contemplated
thereby, and (5) that neither the Stockholder nor any of its Controlled
Affiliates will vote such Shares in favor of any Competing Deal during the term
of the Support/Voting Agreement.
Each of the Knight Support/Voting Agreement and Damico Support/Voting
Agreement may be terminated at the option of any party to the Support Voting
Agreement at any time upon the earlier of (1) the date on which the Merger
Agreement is terminated and (2) the Effective Time. The number of shares of
Allegiance Common Stock beneficially owned by Mr. Knight as of December 11, 1998
was 2,029,291 shares, which represents approximately 1.8% of the outstanding
Allegiance Common Stock as of such date. The number of shares of Allegiance
Common Stock beneficially owned by Mr. Damico as of December 11, 1998 was
1,332,562 shares, which represents approximately 1.2% of the outstanding
Allegiance Common Stock as of such date.
The foregoing is a summary of the material provisions of the Knight
Support/Voting Agreement and the Damico Support/Voting Agreement, copies of
which are filed as exhibits to the Registration Statement. This summary is
qualified in its entirety by reference to the Knight Support/Voting Agreement
and the Damico Support/Voting Agreement which are incorporated herein by
reference.
ALLEGIANCE RIGHTS PLAN AMENDMENT
In connection with the execution of the Merger Agreement, Allegiance and
First Chicago Trust Company of New York, a New York corporation, as Rights Agent
(the "RIGHTS AGENT"), executed the First Amendment to the Rights Agreement,
dated as of October 8, 1998 (the "RIGHTS AGREEMENT AMENDMENT"), amending the
Rights Agreement between Allegiance and the Rights Agent, dated as of September
30, 1996 (the "RIGHTS AGREEMENT"), so as to provide that neither Cardinal nor
Merger Sub will become an Acquiring Person and that no Stock Acquisition Date,
Distribution Date or Triggering Event will occur as a result of the consummation
of the Merger or any other transaction contemplated by the Merger Agreement. See
"Comparison of Shareholder Rights -- Rights Agreement."
The foregoing is a summary of the material provisions of the Rights
Agreement Amendment, a copy of which is filed as an exhibit to the Registration
Statement. This summary is qualified in its entirety by reference to the Rights
Agreement Amendment which is incorporated herein by reference.
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THE MERGER AGREEMENT
The following is a summary of material provisions of the Merger Agreement,
a copy of which is attached as Annex A to this Joint Proxy Statement/Prospectus.
This summary is qualified in its entirety by reference to the Merger Agreement,
which is incorporated herein by reference.
THE MERGER
The Merger Agreement provides that Merger Sub will be merged with and into
Allegiance, with the result that Allegiance, as the Surviving Corporation, will
be a wholly owned subsidiary of Cardinal, subject to the requisite approvals of
Cardinal Shareholders and Allegiance Stockholders and the satisfaction or waiver
of the other conditions to the Merger. See "-- Conditions." The Merger will
become effective at the Effective Time upon the filing of a duly executed
certificate of merger with the Delaware Secretary of State or at such later time
as shall be specified in the certificate of merger. This filing will be made as
promptly as possible on the Closing Date, which shall occur as soon as
practicable (but in any event within ten business days) following the date upon
which all conditions set forth in the Merger Agreement have been satisfied or
waived, or such other date as agreed to by Allegiance and Cardinal. It is
currently anticipated that the Effective Time will occur shortly after the date
of the later to occur of the Special Meetings, assuming the Merger Agreement and
the Merger are approved at the Special Meetings and all other conditions to the
Merger have been satisfied or waived.
MERGER CONSIDERATION; CONVERSION OF SECURITIES
Exchange Ratio. Upon consummation of the Merger, pursuant to the Merger
Agreement, each share of Allegiance Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Allegiance Common
Stock held in treasury by Allegiance, if any, which will be canceled and
retired) will be converted into and represent 0.6225, the Exchange Ratio, of a
Cardinal Common Share. (On the date the Merger Agreement was executed, the
Exchange Ratio was 0.4150, but, as a result of Cardinal's previously announced
three-for-two stock split, the record date for which was October 9, 1998 and the
payment date for which was October 30, 1998, the Exchange Ratio was adjusted to
be equal to 0.6225 in accordance with the terms of the Merger Agreement.)
Fractional Shares. No certificates for fractional Cardinal Common Shares
will be issued in the Merger, and, to the extent that an outstanding share of
Allegiance Common Stock would otherwise have become a fractional Cardinal Common
Share, the holder thereof will be entitled to receive a cash payment therefor in
an amount equal to the value (determined with reference to the closing price of
Cardinal Common Shares on the NYSE Composite Tape on the last full trading day
immediately prior to the Closing Date) of such fractional interest.
Conversion of Merger Sub Common Stock. Each share of common stock, $0.01
par value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time will be converted into one share of common stock, $0.01 par
value per share, of the Surviving Corporation. Such newly issued shares will,
thereafter, constitute all of the issued and outstanding capital stock of the
Surviving Corporation.
EXCHANGE PROCEDURES
HOLDERS OF SHARES OF ALLEGIANCE COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, a letter of transmittal
will be mailed to each holder of record of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of
Allegiance Common Stock whose shares were converted into the right to receive
Cardinal Common Shares (the "CERTIFICATES"). This letter of transmittal must be
used in forwarding Certificates for surrender in exchange for certificates
evidencing Cardinal Common Shares to which a holder of shares of Allegiance
Common Stock prior to the Effective Time has become entitled and, if applicable,
cash in lieu of any fractional Cardinal Common Share. Such letter of transmittal
will be accompanied by instructions specifying
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other details of the exchange. After receipt of such letter of transmittal, each
holder of Certificates should surrender such Certificates to First Chicago, the
exchange agent for the Merger, pursuant to and in accordance with the
instructions accompanying such letter of transmittal. Each such holder will
receive in exchange for such Certificates a certificate evidencing the whole
number of Cardinal Common Shares to which such holder is entitled and a check
representing the amount of cash payable in lieu of any fractional Cardinal
Common Share, if any, and unpaid dividends and distributions, if any, which such
holder has the right to receive pursuant to the Merger Agreement, after giving
effect to any required withholding tax. Shares of uncertificated Allegiance
Common Stock will be exchanged using similar procedures. Certificates
surrendered for exchange by any person constituting an "affiliate" of Allegiance
for purposes of Rule 145(c) under the Securities Act shall not be exchanged
until Cardinal has received an executed Affiliate Letter from such person as
prescribed under the Merger Agreement.
After the Effective Time, each Certificate, until so surrendered and
exchanged, will be deemed, for all purposes, to represent only the right to
receive, upon surrender, a certificate representing Cardinal Common Shares and
cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, as provided above. The holder of such Certificates will
not be entitled to receive any dividends or other distributions declared or made
by Cardinal having a record date on or after the Effective Time until the
Certificate is surrendered. Subject to applicable law, upon surrender of such
Certificates, such dividends and distributions, if any, will be paid only with
respect to whole Cardinal Common Shares without interest and less the amount of
any withholding taxes that may be required thereon.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties.
These customary representations and warranties made by each of Cardinal, Merger
Sub and Allegiance relate to:
- - corporate organization and good standing;
- - corporate power and authority to enter into the Merger Agreement;
- - capitalization;
- - the absence of certain conflicts between the Merger Agreement on the one hand
and governing corporate documents, credit agreements and other contracts, and
laws and regulations on the other hand;
- - consents and approvals required to enter into the Merger Agreement or to
consummate the transactions contemplated thereby;
- - brokerage and finder's fees;
- - absence of actions that would prevent the parties from using the
pooling-of-interests method to account for the Merger or prevent the Merger
from receiving certain tax treatment under the Code;
- - the accuracy of information contained in certain filings with the Commission;
- - the accuracy of information supplied for inclusion in the Registration
Statement;
- - compliance with applicable laws, where material;
- - the absence of undisclosed material litigation;
- - required board votes and recommendations to shareholders in connection with
the Merger Agreement; and
- - the absence, since the filing of certain documents with the Commission, of
undisclosed liabilities that would have a Material Adverse Effect on the
representing and warranting party, except for liabilities incurred in the
ordinary course of business consistent with prior practice and not prohibited
by the Merger Agreement.
In addition, Allegiance makes representations and warranties relating to,
among other things, its subsidiaries, taxes, employee benefit plans,
intellectual property, certain material contracts, labor matters, environmental
matters and employment agreements.
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Each of Cardinal and Allegiance also represents and warrants that, except
as disclosed in the Merger Agreement or in documents filed with the Commission
prior to the date of the Merger Agreement, since the end of its last fiscal
year, there has been no material adverse change in the business, results of
operations or financial condition of the representing and warranting party and
its subsidiaries, taken as a whole, other than any change relating to the
economy, the securities markets in general or the industries generally in which
each party and its subsidiaries operate, or any event, occurrence or development
that would reasonably be expected to have a Material Adverse Effect on the
representing or warranting party or a material adverse effect on such party's
ability to consummate the transactions contemplated by the Merger Agreement.
The representations and warranties made by the parties to the Merger
Agreement will not survive the Effective Time, although it is a condition of
each of Cardinal's and Merger Sub's, on the one hand, and Allegiance's, on the
other hand, obligations under the Merger Agreement that the other parties'
representations and warranties shall be true and correct in all respects (but
without regard to any materiality qualifications or references to "Material
Adverse Effect" contained in any specific representation or warranty) on the
date of the Merger Agreement and on and as of the Determination Date as though
made on and as of the Determination Date (except for representations and
warranties made as of a specified date, the accuracy of which will be determined
as of the specified date), except where any such failure of the representations
and warranties in the aggregate to be true and correct in all respects would not
reasonably be expected to have a Material Adverse Effect on the representing or
warranting party.
For purposes of the Merger Agreement:
- - a "MATERIAL ADVERSE EFFECT" with respect to any party to the Merger Agreement
shall be deemed to occur if (1) in any individual representation or warranty
in the Merger Agreement, the aggregate consequences of breaches and
inaccuracies of such representation and warranty would have a material adverse
effect on the business, results of operations or financial condition of such
party and its subsidiaries taken as a whole, and (2) elsewhere in the Merger
Agreement, the aggregate consequences of all breaches and inaccuracies of
covenants and representations of such party under the Merger Agreement, when
read without any exception or qualification for a material adverse effect,
would have a material adverse effect on the business, results of operations or
financial condition of such party and its subsidiaries taken as a whole;
provided, however, that a Material Adverse Effect with respect to any party
shall not include any change in or effect upon the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise), or results of operations of such party or any of its
subsidiaries, directly or indirectly, arising out of or attributable to the
economy, the securities markets in general or the industries generally in
which a party and its subsidiaries operate, or to any decrease in the market
price of Cardinal Common Shares in the case of Cardinal or Allegiance Common
Stock in the case of Allegiance (but, in either case, not any change or effect
underlying such decrease to the extent such change or effect would otherwise
constitute a Material Adverse Effect on such party).
- - the "DETERMINATION DATE" is the earlier of the Closing Date or the tenth
business day after the satisfaction of all of the conditions set forth in
Article VI of the Merger Agreement, other than those conditions that by their
nature are to be satisfied at the closing of the Merger, and other than those
conditions related to inaccuracies of representations and warranties or
related to the Subject Contract.
- - the term "SUBSIDIARY" when used with respect to any party means any
corporation or other organization, incorporated or unincorporated, (1) of
which such party or another subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any subsidiary of such party do not have 50% or more of the
voting interests in such partnership) or (2) 50% or more of the securities or
other interests of which having by their terms ordinary voting power to elect
at least 50% of the board of directors or others performing similar functions
with respect to such corporation or other organization is, directly or
indirectly, owned or controlled by such party or one or more of its
subsidiaries (or, if there are no such voting securities or interests, 50% or
more of the equity interests of which is, directly or indirectly, owned or
controlled by such party or by one or more of its subsidiaries).
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COVENANTS
Mutual Covenants. Pursuant to the Merger Agreement, each of Cardinal,
Allegiance and Merger Sub has agreed that:
- - Each of Cardinal and Allegiance shall: (1) make or cause to be made the
filings required of such party or any of its subsidiaries or affiliates under
the HSR Act with respect to the transactions contemplated by the Merger
Agreement as promptly as practicable and in any event within 15 business days
after the date of the Merger Agreement and comply at the earliest practicable
date with any request under the HSR Act for additional information, documents,
or other materials received by such party or any of its subsidiaries from the
FTC or the Antitrust Division or any other governmental authority in respect
of such filings or such transactions; (2) use its reasonable best efforts to
resolve such objections, if any, as may be asserted by any governmental
authority with respect to the transaction contemplated by the Merger Agreement
under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended,
the Federal Trade Commission Act, as amended, and any other federal, state or
foreign statutes, rules, regulations, orders, decrees, administrative or
judicial doctrines or other laws that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint
of trade; (3) use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger and other transactions contemplated by the Merger Agreement, including
(a) the obtaining of all other necessary actions or nonactions, waivers,
consents, licenses, permits, authorizations, orders and approvals from
governmental authorities and the making of all other necessary registrations
and filings, (b) the obtaining of all consents, approvals or waivers from
third parties related to or required in connection with the Merger that are
necessary to consummate the Merger and the transactions contemplated by the
Merger Agreement or required to prevent a Material Adverse Effect on Cardinal
or Allegiance from occurring prior to or after the Effective Time, and (c)
taking all action necessary to ensure that it is a poolable entity eligible to
participate in a transaction to be accounted for as a pooling of interests for
financial reporting purposes; and (4) notwithstanding anything to the contrary
in the Merger Agreement, no party to the Merger Agreement nor any of its
subsidiaries shall be required to hold separate (including by trust or
otherwise) or to divest any of their respective businesses or assets, or to
take or agree to take any action or agree to any limitation that could
reasonably be expected to have a Material Adverse Effect on it and its
subsidiaries taken as a whole or a material adverse effect on the assets,
liabilities, results of operations or financial condition of Cardinal combined
with the Surviving Corporation after the Effective Time.
- - Each of the parties shall not, and shall not permit any of its subsidiaries
to, take any actions that would, or would be reasonably likely to, prevent
Cardinal from accounting, and shall use its reasonable best efforts
(including, without limitation, providing appropriate representation letters
to Cardinal's accountants) to allow Cardinal to account, for the Merger in
accordance with the pooling of interests method of accounting, and to obtain a
letter, in form and substance reasonably satisfactory to Cardinal, from D&T
dated the Closing Date stating that they concur with management's conclusion
that the Merger will qualify as a transaction to be accounted for by Cardinal
in accordance with the pooling of interests method of accounting.
- - Each of the parties shall use its reasonable best efforts to cause the Merger
to constitute a tax-free "reorganization" under Section 368(a) of the Code and
to cooperate with one another in obtaining an opinion from Davis Polk &
Wardwell, counsel to Allegiance, to the effect that (1) the Merger will
constitute a "reorganization" under Section 368(a) of the Code, (2)
Allegiance, Cardinal and Merger Sub will each be a party to such
reorganization, and (3) no gain or loss will be recognized by Allegiance
Stockholders upon the receipt of Cardinal Common Shares in exchange for shares
of Allegiance Common Stock pursuant to the Merger, except with respect to cash
received in lieu of fractional share interests in Cardinal Common Shares. In
connection therewith, each of Cardinal and Allegiance shall deliver to Davis
Polk & Wardwell representation letters and Allegiance shall use all reasonable
efforts to obtain representation letters from appropriate Allegiance
Stockholders and shall deliver any such letters obtained to Davis Polk &
Wardwell, in each case, in form and substance reasonably satisfactory to Davis
Polk & Wardwell.
THE MERGER AGREEMENT
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- - Unless otherwise required by applicable laws or requirements of the NYSE (and,
in that event, only if time does not permit), at all times prior to the
earlier of the Effective Time or termination of the Merger Agreement, Cardinal
and Allegiance shall consult with each other before issuing any press release
with respect to the Merger and shall not issue any such press release prior to
such consultation.
Covenants of Cardinal. Cardinal has covenanted in the Merger Agreement:
- - to take, in accordance with applicable law and the Cardinal Articles and the
Cardinal Code of Regulations, as amended and restated (the "CARDINAL
REGULATIONS"), all action necessary to convene and hold the Cardinal Special
Meeting on the earliest practical date and to obtain the consent and approval
of Cardinal Shareholders with respect to the Merger Agreement and the
transactions contemplated thereby, to take all lawful action to solicit the
approval of the Merger Agreement and the transactions contemplated thereby by
the Cardinal Shareholders, and to have the Cardinal Board recommend approval
of the Merger Agreement by the Cardinal Shareholders.
- - to prepare and file with the Commission this Joint Proxy Statement/Prospectus,
and to prepare and file with the Commission a registration statement
pertaining to the Cardinal Common Shares to be issued in connection with the
Merger (the "REGISTRATION STATEMENT") as soon as is reasonably practicable
following clearance of this Joint Proxy Statement/Prospectus by the Commission
and shall use its reasonable best efforts to have the Registration Statement
declared effective by the Commission as promptly as practicable and to
maintain the effectiveness of the Registration Statement through the Effective
Time;
- - to use reasonable efforts to cause the Cardinal Common Shares issuable
pursuant to the Merger (including pursuant to Cardinal Exchange Options) to be
approved for listing on the NYSE, subject to official notice of issuance,
prior to the Effective Time;
- - to permit representatives of Allegiance to have appropriate access at all
reasonable times to Cardinal's premises, properties, books, records,
contracts, documents, customers and suppliers; and
- - to use its reasonable best efforts during the period from the date of the
Merger Agreement to the Effective Time to maintain and preserve its business
organization and to retain the services of its officers and key employees and
maintain relationships with customers, suppliers and other third parties to
the end that their goodwill and ongoing business shall not be impaired in any
material respect.
Cardinal has also agreed in the Merger Agreement not to perform the
following actions during the period from the date of the Merger Agreement to the
Effective Time:
- - make any amendment to the Cardinal Articles that changes the fundamental
attributes of the Cardinal Common Shares;
- - make any material changes to the Certificate of Incorporation of Merger Sub;
- - make, declare or pay any extraordinary cash dividend, other than extraordinary
dividends between Cardinal and a subsidiary of Cardinal and non-extraordinary
dividends;
- - permit or cause any subsidiaries to do any of the foregoing or agree or commit
to any of the foregoing; or
- - agree in writing or otherwise to take any of the foregoing actions.
From and after the Effective Time, Cardinal has agreed to cause the
Surviving Corporation to indemnify and hold harmless the present and former
officers and directors of Allegiance in respect of acts or omissions occurring
prior to the Effective Time to the extent provided under the Allegiance
Certificate or the Allegiance Bylaws, and to use all reasonable efforts to cause
the Surviving Corporation or Cardinal to obtain and maintain in effect for a
period of six years after the Effective Time policies of directors' and
officers' liability insurance at no cost to the beneficiaries thereof with
respect to acts or omissions occurring prior to the Effective Time with
substantially the same coverage and containing substantially similar terms and
conditions as existing policies, subject to certain limitations set forth in the
Merger Agreement.
Cardinal has agreed to take all action necessary to cause Merger Sub to
perform its obligations under the Merger Agreement and to consummate the Merger
on the terms and conditions set forth in the Merger
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Agreement. Merger Sub has covenanted in the Merger Agreement that, prior to the
Effective Time, Merger Sub shall not conduct any business or make any
investments other than as specifically contemplated by the Merger Agreement and
will not have any assets (other than a de minimis amount of cash paid to Merger
Sub for the issuance of its stock to Cardinal) or any material liabilities.
Cardinal has agreed that the Cardinal Board shall take all action necessary
immediately following the Effective Time to elect as directors of Cardinal Mr.
Knight and two other independent directors who are currently members of the
Allegiance Board chosen by the Chairman of Cardinal from three directors of
Allegiance proposed by the Allegiance Board prior to the Effective Time, for a
term expiring at Cardinal's next annual meeting of shareholders following the
Effective Time at which the term of the class to which such director is elected
expires.
Covenants of Allegiance. Allegiance has covenanted in the Merger Agreement
that, during the period from the date of the Merger Agreement to the Effective
Time, it will not (except as expressly contemplated or permitted by the Merger
Agreement or to the extent that Cardinal shall otherwise consent in writing):
- - do or effect any of the following actions with respect to its securities: (1)
adjust, split, combine or reclassify its capital stock, (2) make, declare or
pay any dividend (other than regular quarterly dividends on Allegiance Common
Stock of $0.0525 per share with record and payment dates consistent with past
practice) or distribution on, or, directly or indirectly, redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock, (3) grant any person any right or option to acquire any shares of its
capital stock, (4) issue, deliver or sell or agree to issue, deliver or sell
any additional shares of its capital stock or any securities or obligations
convertible into or exchangeable or exercisable for any shares of its capital
stock or such securities (except pursuant to the exercise of Allegiance
Options that are outstanding as of the date of the Merger Agreement or the
exercise of ESPP Rights), or (5) enter into any agreement, understanding or
arrangement with respect to the sale, voting, registration or repurchase of
its capital stock;
- - directly or indirectly, sell, transfer, lease, pledge, mortgage, encumber or
otherwise dispose of any of its property or assets other than in the ordinary
course of business;
- - make or propose any changes in the Allegiance Certificate or the Allegiance
Bylaws;
- - merge or consolidate with any other person;
- - acquire a material amount of assets or capital stock of any other person;
- - amend or modify, or propose to amend or modify, the Allegiance Rights
Agreement, as amended by the Rights Agreement Amendment, as of the date of the
Merger Agreement;
- - incur, create, assume or otherwise become liable for any indebtedness for
borrowed money or assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other individual,
corporation or other entity, other than in the ordinary course of business,
consistent with past practice;
- - create any subsidiaries;
- - enter into or modify any employment, severance, termination or similar
agreements or arrangements with, or grant any bonuses, salary increases,
severance or termination pay to, any officer, director, consultant or employee
other than in the ordinary course of business consistent with past practice
(except for change-in-control severance agreements, which, in all cases, shall
require the prior written consent of Cardinal), or otherwise increase the
compensation or benefits provided to any officer, director, consultant or
employee except as may be required by applicable law or in the ordinary course
of business consistent with past practice, or grant, reprice, or accelerate
the exercise or payment of any Allegiance Options or other equity-based
awards;
- - enter into, adopt or amend any employee benefit or similar plan, except as may
be required by applicable law;
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- - take any action that could give rise to a right to severance benefits pursuant
to any Change in Control Agreement;
- - change any method or principle of accounting in a manner that is inconsistent
with past practice except to the extent required by U.S. generally accepted
accounting principles as advised by Allegiance's regular independent
accountants;
- - settle any actions, whether now pending or hereafter made or brought
involving, individually or in the aggregate, an amount in excess of $l
million;
- - modify, amend or terminate, or waive, release or assign any material rights or
claims with respect to any confidentiality agreement to which Allegiance is a
party;
- - enter into any confidentiality agreements or arrangements other than in the
ordinary course of business consistent with past practice (other than as
permitted in the Merger Agreement);
- - write up, write down or write off the book value of any assets, individually
or in the aggregate, in excess of $1 million except for depreciation and
amortization in accordance with U.S. generally accepted accounting principles
consistently applied;
- - incur or commit to any capital expenditures other than pursuant to the
Allegiance Corporation Operating Plan as in effect on the date of the Merger
Agreement, provided that no individual capital expenditure will be in excess
of $5 million;
- - make any payments in respect of policies of directors' and officers' liability
insurance (premiums or otherwise) other than premiums paid in respect of its
current policies not in excess of the amount paid prior to the date of the
Merger Agreement;
- - take any action to exempt or make not subject to (1) the provisions of Section
203 of the Delaware Law or (2) any other state takeover law or state law that
purports to limit or restrict business combinations or the ability to acquire
or vote shares, any person or entity (other than Cardinal or its subsidiaries)
or any action taken thereby, which person, entity or action would have
otherwise been subject to the restrictive provisions thereof and not exempt
therefrom;
- - take any action that would likely result in the representations and warranties
set forth in the Merger Agreement becoming false or inaccurate in any material
respect;
- - enter into or carry out any other transaction other than in the ordinary and
usual course of business;
- - permit or cause any subsidiary to do any of the foregoing or agree or commit
to do any of the foregoing; or
- - agree in writing or otherwise to take any of the foregoing actions.
ACQUISITION PROPOSALS AND TERMINATION RIGHT
Pursuant to the Merger Agreement, Allegiance has agreed that, during the
term of the Merger Agreement, it shall not, and shall not authorize or permit
any of its subsidiaries or any of its or its subsidiaries' directors, officers,
employees, agents or representatives, directly or indirectly, to solicit,
initiate, encourage or knowingly facilitate, or furnish or disclose non-public
information in furtherance of, any inquiries or the making of any proposal with
respect to any recapitalization, merger, consolidation or other business
combination involving Allegiance, or acquisition of any capital stock (other
than upon exercise of Allegiance Options that were outstanding as of the date of
the Merger Agreement) or 15% or more of the assets of Allegiance and its
subsidiaries, taken as a whole, in a single transaction or a series of related
transactions, or any combination of the foregoing (a "COMPETING TRANSACTION"),
or negotiate, explore or otherwise engage in discussions with any person (other
than Cardinal, Merger Sub or their respective directors, officers, employees,
agents and representatives) with respect to any Competing Transaction or enter
into any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
contemplated by the Merger Agreement; provided that, at any time prior to the
approval of the Merger by the Allegiance Stockholders, Allegiance may furnish
information to, and negotiate
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or otherwise engage in discussions with, any party who delivers a written
proposal for a Competing Transaction that was not solicited or encouraged after
the date of the Merger Agreement if and so long as the Allegiance Board
determines in good faith by resolution duly adopted after consultation with its
outside counsel (who may be its regularly engaged outside counsel) that the
failure to take such action would reasonably be expected to constitute a breach
of its fiduciary duties under applicable law and determines that such a proposal
is, after consulting with Credit Suisse First Boston (or any other nationally
recognized investment banking firm), more favorable to Allegiance Stockholders
from a financial point of view than the transactions contemplated by the Merger
Agreement (including any adjustment to the terms and conditions proposed by
Cardinal in response to such Competing Transaction) (a "SUPERIOR PROPOSAL").
Allegiance has also agreed that, from the date of the Merger Agreement, it will
cease all activities, discussions and negotiations with any parties conducted
theretofore with respect to any proposal for a Competing Transaction and request
the return of all confidential information regarding Allegiance provided to any
such parties prior to the date of the Merger Agreement pursuant to the terms of
any confidentiality agreements or otherwise. In the event that, prior to the
approval of the Merger by the Allegiance Stockholders, the Allegiance Board
receives a Superior Proposal that was not solicited or encouraged after the date
of the Merger Agreement, and the Allegiance Board determines in good faith by
resolution duly adopted after consultation with its outside counsel (who may be
its regularly engaged outside counsel) that the failure to take such action
would reasonably be expected to constitute a breach of its fiduciary duties
under applicable law, the Allegiance Board may (subject to this and the
following sentences) withdraw, modify or change, in a manner adverse to
Cardinal, the Allegiance Board's recommendation to Allegiance Stockholders to
approve the Merger Agreement and the transactions contemplated thereby,
including the Merger (the "ALLEGIANCE BOARD RECOMMENDATION") and/or comply with
Rule 14e-2 promulgated under the Exchange Act with respect to a Competing
Transaction, provided that Allegiance gives Cardinal three business days' prior
written notice of its intention to do so (provided that the foregoing shall in
no way limit or otherwise affect Cardinal's right to terminate the Merger
Agreement if the Allegiance Board withdraws, modifies or changes the Allegiance
Board Recommendation in a manner adverse to Cardinal, if the Allegiance Board
approves or recommends any Competing Transaction). Any such withdrawal,
modification or change of the Allegiance Board Recommendation shall not change
the approval of the Allegiance Board for purposes of causing any state takeover
statute or other state law to be inapplicable to the transactions contemplated
by the Merger Agreement, including the Merger, the Stock Option Agreement or the
Support/Voting Agreements or change the obligation of Allegiance to present the
Merger for approval at a duly called Allegiance Special Meeting on the earliest
practicable date determined in consultation with Cardinal. From and after the
execution of the Merger Agreement, Allegiance shall promptly (but in any event
within one calendar day) advise Cardinal in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations or proposals relating to
a Competing Transaction (including the specific terms thereof and the identity
of the other party or parties involved) and promptly furnish to Cardinal a copy
of any such written proposal in addition to any information provided to or by
any third party relating thereto. In addition, Allegiance shall promptly (but in
any event within one calendar day) advise Cardinal, in writing, if the
Allegiance Board shall make any determination as to any Competing Transaction.
If, prior to the approval of the Merger by the Allegiance Stockholders, the
Allegiance Board shall determine in good faith, after consultation with its
financial and legal advisors, that any written proposal from a third party for a
Competing Transaction received after the date of the Merger Agreement that was
not solicited or encouraged by Allegiance or any of its subsidiaries or
affiliates in violation of the Merger Agreement is more favorable to the
Allegiance Stockholders from a financial point of view than the transactions
contemplated by the Merger Agreement (including any adjustment to the terms and
conditions of such transaction proposed in writing by Cardinal in response to
such Competing Transaction) and is in the best interest of the Allegiance
Stockholders and (x) the Allegiance Board has determined in good faith by
resolution duly adopted after consultation with its outside counsel (who may be
its regularly engaged outside counsel) that the failure to enter into such a
Competing Transaction would reasonably be expected to constitute a breach of its
fiduciary duties under applicable law and (y) Allegiance has received a written
opinion (a copy of which has been delivered to Cardinal) from Credit Suisse
First Boston (or any other nationally recognized investment banking firm) that
the Competing Transaction is more favorable from a financial point of view to
the Allegiance Stockholders than the transactions contemplated by the Merger
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Agreement (including any adjustment to the terms and conditions of such
transaction proposed in writing by Cardinal), Allegiance may terminate the
Merger Agreement and enter into a letter of intent, agreement-in-principle,
acquisition agreement or other similar agreement with respect to such Competing
Transaction (each, an "ACQUISITION AGREEMENT"), provided that, prior to any such
termination, (1) Allegiance has provided Cardinal written notice that it intends
to terminate the Merger Agreement, identifying the Competing Transaction then
determined to be more favorable and the parties thereto and delivering a copy of
the Acquisition Agreement for such Competing Transaction in the form to be
entered into, and (2) at least three full business days after Allegiance has
provided the notice referred to in clause (1) above (provided that the
resolution referred to in clause (x) above and the opinion referred to in clause
(y) above shall continue in effect without revision or modification), Allegiance
delivers to Cardinal (a) a written notice of termination of the Merger Agreement
pursuant to the Merger Agreement, (b) a check in the amount of Cardinal's costs
as the same may have been estimated by Cardinal in good faith prior to the date
of such delivery (subject to an adjustment payment between the parties upon
Cardinal's definitive determination of such costs), plus the amount of the
termination fee as provided in Section 7.2 of the Merger Agreement (see
"-- Termination" and "-- Effect of Termination"), (c) a written acknowledgment
from Allegiance that (i) the termination of the Merger Agreement and the entry
into the Acquisition Agreement for the Competing Transaction will be a Purchase
Event and (ii) the Stock Option Agreement shall be honored in accordance with
its terms and (d) a written acknowledgment from each other party to such
Competing Transaction that it is aware of the substance of Allegiance's
acknowledgment under clause (c) above and waives any right it may have to
contest the matters thus acknowledged by Allegiance.
CONDITIONS
Mutual Conditions. The obligations of Cardinal, Merger Sub and Allegiance
to effect the Merger are subject to satisfaction of the following conditions:
- - The Merger Agreement and the transactions contemplated by the Merger Agreement
having been approved and adopted by Allegiance Stockholders in the manner
required by any applicable law.
- - The Share Issuance having been approved by Cardinal Shareholders in the manner
required by applicable law and applicable rules of the NYSE.
- - Any applicable waiting periods under the HSR Act relating to the Merger and
the transactions contemplated by the Merger Agreement shall have expired or
been terminated and any other approvals of any governmental authority shall
have been obtained.
- - No provision of any applicable law or regulation and no judgment, injunction,
order or decree shall prohibit or enjoin the consummation of the Merger or the
transactions contemplated by the Merger Agreement or limit the ownership or
operation by Cardinal, Allegiance or any of their respective subsidiaries of
any material portion of the business or assets of Cardinal or Allegiance.
- - There shall not be pending any action instituted by any governmental authority
challenging or seeking to restrain or prohibit the consummation of the Merger
or any of the other transactions contemplated by the Merger Agreement.
- - The Commission shall have declared the Registration Statement effective under
the Securities Act, and no stop order or similar restraining order suspending
the effectiveness of the Registration Statement shall be in effect and no
proceedings for such purpose shall be pending before or threatened by the
Commission or any state securities administrator.
- - Cardinal Common Shares to be issued in the Merger (including pursuant to
Cardinal Exchange Options) shall have been approved for listing on the NYSE,
subject to official notice of issuance.
- - Cardinal shall have received a letter, in form and substance reasonably
satisfactory to Cardinal, from D&T dated the date of the Effective Time
stating that they concur with Cardinal's management's conclusion that the
Merger will qualify as a transaction to be accounted for by Cardinal in
accordance with the pooling-of-interests method of accounting.
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Conditions to Obligations of Allegiance to Consummate the Merger. The
obligations of Allegiance to effect the Merger and the transactions contemplated
by the Merger Agreement are subject to the satisfaction of, or waiver by
Allegiance of, the following conditions:
- - Each of the representations and warranties of each of Cardinal and Merger Sub
set forth in the Merger Agreement shall be true and correct in all respects
(but without regard to any materiality qualifications or references to
"Material Adverse Effect" contained in any specific representation or
warranty) on the date of the Merger Agreement (or as otherwise specified in
the Merger Agreement), except where any such failure of the representations
and warranties in the aggregate to be true and correct in all respects would
not reasonably be expected to have a Material Adverse Effect on Cardinal.
- - Each of Cardinal and Merger Sub shall have performed in all material respects
all obligations and agreements and shall have complied in all material
respects with all covenants to be performed and complied with by it under the
Merger Agreement at or prior to the Effective Time.
- - Each of Cardinal and Merger Sub shall have furnished Allegiance with a
certificate dated the Closing Date signed on behalf of it by the chairman or
president of Cardinal or Merger Sub, as the case may be, to the effect that
certain conditions set forth in the Merger Agreement have been satisfied.
- - Allegiance shall have received the opinion of Davis Polk & Wardwell, dated on
or prior to the effective date of the Registration Statement, to the effect
that (1) the Merger will constitute a "reorganization" under Section 368(a) of
the Code, (2) Allegiance, Cardinal and Merger Sub will each be a party to such
reorganization, and (3) no gain or loss will be recognized by Allegiance
Stockholders upon the receipt of Cardinal Common Shares in exchange for shares
of Allegiance Common Stock pursuant to the Merger except with respect to cash
received in lieu of fractional share interests in Cardinal Common Shares.
Conditions to Obligations of Cardinal and Merger Sub to Consummate the
Merger. The obligations of Cardinal and Merger Sub to effect the Merger are
subject to the satisfaction of, or waiver by Cardinal, of the following
conditions:
- - Each of the representations and warranties of Allegiance set forth in the
Merger Agreement (other than the representations and warranties of Allegiance
regarding its capitalization) shall be true and correct in all respects (but
without regard to any materiality qualifications or references to Material
Adverse Effect contained in any specific representation or warranty) on the
date of the Merger Agreement (or as otherwise specified in the Merger
Agreement), except where any such failure of the representations and
warranties in the aggregate to be true and correct in all respects would not
reasonably be expected to have a Material Adverse Effect on Allegiance.
- - The representations and warranties of Allegiance regarding its capitalization
shall be true and correct in all material respects on the date of the Merger
Agreement and on and as of the Closing Date as though made on and as of the
Closing Date (except for representations and warranties made as of a specified
date, the accuracy of which will be determined as of the specified date).
- - Allegiance shall have performed in all material respects all obligations and
agreements and shall have complied in all material respects with all covenants
to be performed and complied with by it under the Merger Agreement at or prior
to the Effective Time.
- - Allegiance shall have furnished Cardinal with a certificate dated the Closing
Date signed on its behalf by its Chairman or President to the effect that
certain conditions set forth in the Merger Agreement have been satisfied.
- - Cardinal's being satisfied, in its sole discretion, that certain limitations
contained in the Subject Contract shall not apply to the business or
operations of Cardinal, Cardinal's subsidiaries or the Surviving Corporation
from and after the time the Merger is consummated. The "SUBJECT CONTRACT"
referenced in the Merger Agreement is a contract between Allegiance and a
third party that was entered into when Allegiance terminated the relationship
with the third party and discontinued the line of business it was in with the
third party. The Subject Contract limits the ability of Allegiance and certain
related parties to compete in these discontinued businesses, but only through
a defined period ending on April 21, 1999 when
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the contract restriction expires in accordance with its terms. Allegiance is
currently in compliance with the Subject Contract. The condition to closing
set forth in this clause provides that Cardinal is to determine, in its sole
discretion, whether certain limitations set forth in the Subject Contract
apply to the business or operations of Cardinal, Cardinal's subsidiaries or
the Surviving Corporation from and after the Effective Time.
- - There shall not have been a breach of the Stock Option Agreement.
- - The Knight Amendment and the Damico Amendment (see "The Merger--Interests of
Certain Persons in the Merger") shall be in full force and effect and shall
not have been terminated.
STOCK OPTIONS
Cardinal and Allegiance have covenanted in the Merger Agreement to take all
such actions as may be necessary to cause each unexpired and unexercised
outstanding Allegiance Option in effect on the date of the Merger Agreement to
be automatically converted at the Effective Time into a Cardinal Exchange Option
by multiplying the number of shares of Allegiance Common Stock subject to the
Allegiance Option by the Exchange Ratio and dividing the exercise price of the
Allegiance Option by the Exchange Ratio; provided that, with respect to any
Allegiance Option that is an "incentive stock option" within the meaning of
Section 422 of the Code, the foregoing conversion shall be carried out in a
manner satisfying the requirements of Section 424(a) of the Code.
Prior to the Effective Time, Cardinal and Allegiance shall take all such
actions as may be necessary to cause all rights outstanding under the Allegiance
Employee Stock Purchase Plan (the "ESPP") as of the Effective Time to purchase
shares of Allegiance Common Stock (each, an "ESPP RIGHT") to be automatically
converted at the Effective Time into a right to purchase Cardinal Common Shares
(a "CARDINAL RIGHT") by multiplying the number of shares of Allegiance Common
Stock subject to the ESPP Right by the Exchange Ratio (and rounding down to the
nearest share) and dividing the subscription price by the Exchange Ratio (and
rounding up to the nearest cent); provided that the foregoing conversion shall
be carried out in a manner satisfying the requirements of Section 424(a) of the
Code. For purposes of the foregoing sentence, an outstanding right to purchase
shares of Allegiance Common Stock includes any right to purchase shares with
amounts held in a participant's Payroll Deduction Account (as defined in the
ESPP) as a result of prior payroll deductions and not any future commitments to
purchase shares of Allegiance Common Stock pursuant to any outstanding
subscription agreement.
Cardinal has made no commitment under the Merger Agreement to continue to
maintain the ESPP for the benefit of Allegiance employees after the Effective
Time, and employees of Allegiance have no right to continue their current
subscriptions under the ESPP following the Effective Time.
In connection with the issuance of Cardinal Exchange Options and Cardinal
Rights, Cardinal shall (1) reserve for issuance the number of Cardinal Common
Shares that will become subject to Cardinal Exchange Options and Cardinal Rights
pursuant to the Merger Agreement and (2) from and after the Effective Time, upon
exercise of Cardinal Exchange Options and Cardinal Rights, make available for
issuance all Cardinal Common Shares covered thereby, subject to the terms and
conditions applicable thereto. Cardinal has also agreed to use its reasonable
efforts to file with the Commission, within 30 days after the Closing Date, a
registration statement on Form S-8 or other appropriate form under the
Securities Act to register Cardinal Common Shares issuable upon exercise of
Cardinal Exchange Options and Cardinal Rights and to use its reasonable efforts
to cause such registration statement to remain effective until the exercise or
expiration of such Cardinal Exchange Options and Cardinal Rights. See "The
Merger--Interests of Certain Persons in the Merger."
Following the Merger, to the extent permitted by applicable law and the
NYSE, Cardinal is planning to use for future option grants under the Allegiance
Corporation 1996 and 1998 Incentive Compensation Programs assumed by Cardinal in
the Merger, the number of Cardinal Common Shares equal to the number of reserved
shares of Allegiance Common Stock available for awards as of the Effective Time
under the Allegiance Corporation 1996 and 1998 Incentive Compensation Programs,
but not subject to an award under
THE MERGER AGREEMENT
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such program as of the Effective Time, multiplied by the Exchange Ratio. As of
December 11, 1998, the number of Cardinal Common Shares which would be available
for future grant would be approximately 2,375,565, which is equal to
approximately 3,816,169 shares of Allegiance Common Stock multiplied by the
Exchange Ratio.
ALLEGIANCE EMPLOYEE BENEFITS AND PLANS
Cardinal has agreed in the Merger Agreement that, for a period of one year
following the Effective Time, Cardinal will, or will cause the Surviving
Corporation and each subsidiary of the Surviving Corporation to, continue to
maintain for the benefit of individuals who are employees of Allegiance and its
subsidiaries who continue to be employed following the Effective Time
("CONTINUING ALLEGIANCE EMPLOYEES") compensation and benefit plans, programs,
arrangements and policies that provide compensation and benefits that are
substantially comparable, in the aggregate, to those provided by Allegiance or
any subsidiary of Allegiance, if applicable, for the benefit of such Continuing
Allegiance Employees immediately prior to the Effective Time; provided that
termination or amendment of the ESPP shall not be deemed to violate such
covenant. Cardinal has agreed further in the Merger Agreement to treat all
service by Continuing Allegiance Employees with Allegiance prior to the
Effective Time for all purposes as service with Cardinal (except for purposes of
benefit accrual under defined benefit pension plans or to the extent such
treatment would result in duplicative accrual on or after the Closing Date of
benefits for the same period of service), and, with respect to any medical or
dental plan in which Continuing Allegiance Employees participate after the
Effective Time, Cardinal agrees to waive or cause to be waived any pre-existing
condition exclusions and actively-at-work requirements (provided, however, that
no such waiver shall apply to a pre-existing condition of any Continuing
Allegiance Employee who was, as of the Effective Time, excluded from
participation in an Allegiance plan by virtue of such pre-existing condition),
and shall provide that any covered expenses incurred on or before the Effective
Time during the plan year of the applicable Allegiance plan in which the
Effective Time occurs by a Continuing Allegiance Employee or such employee's
covered dependent shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions after
the Effective Time to the same extent as such expenses are taken into account
for the benefit of similarly situated employees of Cardinal.
Cardinal has also agreed in the Merger Agreement to pay to any individual
who is employed by Allegiance or any subsidiary of Allegiance immediately prior
to the Effective Time that is terminated by Cardinal at the Effective Time or
during the one-year period following the Effective Time, severance pay, and
ensure benefit continuation, including coverage by any relevant group medical or
life insurance benefits, on a basis no less favorable to such individual than
under the severance policies of Allegiance in existence immediately prior to the
Effective Time, based on the salary of such individual in effect on his or her
termination date, with appropriate credit for accumulated service with
Allegiance, its affiliates and Cardinal, and during any period of salary
continuation.
Cardinal has agreed to, or to cause the Surviving Corporation to continue
to, provide certain transition benefits specified in the Allegiance Retirement
Plan to all eligible Allegiance employees in the same amounts, at the same times
and pursuant to the same terms and conditions as specified in the Allegiance
Retirement Plan prior to the Effective Time.
Cardinal has agreed in the Merger Agreement not to terminate any Allegiance
employee who is prohibited from selling Cardinal Common Shares or shares of
Allegiance Common Stock pursuant to restrictions in connection with the pooling
of interests method of accounting under APB No. 16 or any other restrictions
under federal or state securities laws during the time period such employee is
prohibited from selling such shares pursuant to such restrictions; provided,
that the foregoing shall not prevent Cardinal from terminating any such employee
(i) for cause, as determined by Cardinal in good faith or (ii) at any time after
the expiration of six months after the Effective Time; and provided further,
that there shall not be taken into account for purposes of the foregoing any
restrictions under federal or state securities laws that arise as a result of
actions of the Allegiance employee in question after the Effective Time.
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The Allegiance Board, in connection with the approval of the Merger
Agreement on October 8, 1998, approved a plan to make each individual, in
addition to Messrs. Knight, Damico and McKee who may be subject to excise tax
under Section 4999 of the Code in connection with payments and accelerated
vesting of options resulting from the Merger whole with respect to the payment
of such excise tax, subject to a maximum aggregate payment for all individuals
other than Messrs. Knight, Damico and McKee of $5 million.
Cardinal has agreed further, in connection with Allegiance's Shared
Investment Program, to cooperate and use its best efforts to cause The First
National Bank of Chicago ("FIRST NATIONAL") to waive the provisions for early
prepayment upon the occurrence of a Change of Control as set forth in Section
2(a) of the Form of Master Promissory Note under the Facility and Guaranty
Agreement dated as of May 2, 1997 by and between Allegiance, the Lenders
thereunder and First National (the "FACILITY AGREEMENT"). Cardinal agrees
further that if no waiver as described in the foregoing sentence is obtained, it
shall assume the obligations of Allegiance under the Facility Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by Allegiance Stockholders and Cardinal Shareholders):
- - by mutual written consent of Cardinal and Allegiance;
- - by either Cardinal or Allegiance if there shall be any law or regulation that
makes consummation of the Merger illegal or otherwise prohibited, or if any
judgment, injunction, order or decree of a court or other competent
governmental authority (which the parties shall have used all reasonable
efforts to resist, resolve or lift, as applicable, in accordance with the
Merger Agreement) enjoining Cardinal or Allegiance from consummating the
Merger shall have been entered and such judgment, injunction, order or decree
shall have become final and nonappealable;
- - by either Cardinal or Allegiance if the Merger shall not have been consummated
before May 15, 1999, provided, however, that such termination right shall not
be available to any party whose failure or whose affiliate's failure to
perform any material covenant or obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of the Merger to occur on or
before such date;
- - by Cardinal if the Allegiance Board shall withdraw, modify or change the
Allegiance Board Recommendation in a manner adverse to Cardinal, or if the
Allegiance Board approves or recommends any Competing Transaction;
- - by Cardinal or Allegiance if, at the Allegiance Special Meeting, the requisite
vote of Allegiance Stockholders to approve the Merger and the transactions
contemplated by the Merger Agreement shall not have been obtained;
- - by Cardinal or Allegiance if, at the Cardinal Special Meeting, the requisite
vote of Cardinal Shareholders to approve the Merger shall not have been
obtained;
- - by Allegiance pursuant to termination rights outlined in Section 5.3(e) of the
Merger Agreement regarding Competing Transactions;
- - by Cardinal if Allegiance shall have breached any of its obligations under the
Stock Option Agreement;
- - by Cardinal if at any time Cardinal shall have been advised in writing by D&T
that the condition set forth in Section 6.1(g) of the Merger Agreement
regarding the Merger qualifying as a transaction to be accounted for by
Cardinal in accordance with the pooling-of-interests method of accounting is
not capable of being satisfied, provided that Cardinal has given Allegiance at
least five business days' prior notice;
- - by Cardinal or Allegiance if there shall have been a material breach by the
other of any of its covenants or agreements contained in the Merger Agreement
and such breach shall not have been cured within 30 days after notice thereof
shall have been received by the party alleged to be in breach; or
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- - by Allegiance if the Cardinal Board shall withdraw, modify or change its
recommendation to Cardinal Shareholders that they approve the Merger.
EFFECT OF TERMINATION
In the Merger Agreement, Cardinal and Allegiance have agreed that, in the
event of the termination of the Merger Agreement for any reason outlined above,
the Merger Agreement, except for the provisions in Section 5.2(g) and Section
5.3(g) of the Merger Agreement regarding the confidentiality of information
obtained by each party remaining subject to the terms of a confidentiality
agreement, Section 7.2 of the Merger Agreement regarding the effect of
termination and Section 8.11 of the Merger Agreement regarding expenses, shall
become void and have no effect, without any liability on the part of any party
or its directors, officers or stockholders. Notwithstanding the foregoing,
nothing in Section 7.2 of the Merger Agreement shall relieve any party to the
Merger Agreement of liability for a material breach of any provision of the
Merger Agreement, and, if it shall be judicially determined that the termination
of the Merger Agreement was caused by an intentional breach of the Merger
Agreement, then, in addition to other remedies at law or equity for breach of
the Merger Agreement, the party so found to have intentionally breached the
Merger Agreement shall indemnify and hold harmless the other parties to the
Merger Agreement for their respective out-of-pocket costs, fees and expenses of
their counsel, accountants, financial advisors and other experts and advisors as
well as for their respective fees and expenses incident to negotiation,
preparation and execution of the Merger Agreement and related documentation and
Special Meetings and consents ("COSTS"). If the Merger Agreement is terminated
(1) by mutual written consent of Allegiance and Cardinal after public
announcement of a Competing Transaction, (2) because the Merger has not been
consummated before May 15, 1999 because of Allegiance's failure to perform a
material covenant or obligation under the Merger Agreement, (3) because the
Allegiance Board withdraws, modifies or changes the Allegiance Board
Recommendation in a manner adverse to Cardinal, or the Allegiance Board approves
or recommends any Competing Transaction, (4) by Allegiance pursuant to Section
5.3(e) of the Merger Agreement, (5) because Allegiance has breached any of its
obligations under the Stock Option Agreement, or (6) because the requisite vote
of the Allegiance Stockholders to approve the Merger and the transactions
contemplated by the Merger Agreement shall not have been obtained and at any
time prior to such termination there shall have been made to Allegiance or
publicly disclosed a Competing Transaction with respect to Allegiance, and
within 12 months after the date of termination Allegiance enters into an
Acquisition Agreement for a Business Combination or consummates a Business
Combination, then Allegiance will, in the case of a termination by Cardinal,
within three business days following any such termination or, in the case of a
termination by Allegiance (except, in each case, if the termination is pursuant
to Section 7.1(e) of the Merger Agreement regarding termination due to the
requisite vote of Allegiance Stockholders to approve the Merger and the
transactions contemplated by the Merger Agreement not being obtained, then,
prior to the earlier of the consummation of a Business Combination or execution
of a definitive agreement with respect thereto), concurrently with such
termination, pay to Cardinal in cash by wire transfer in immediately available
funds to an account designated by Cardinal (1) in reimbursement for Cardinal's
expenses an amount in cash equal to the aggregate amount of Cardinal's Costs
incurred in connection with pursuing the transactions contemplated by the Merger
Agreement, including, without limitation, legal, accounting and investment
banking fees, up to but not in excess of an amount equal to $5 million in the
aggregate, and (2) a termination fee in an amount equal to $155 million.
"BUSINESS COMBINATION" means (1) a merger, consolidation, share exchange,
business combination or similar transaction involving Allegiance as a result of
which the Allegiance Stockholders prior to such transaction, in the aggregate,
cease to own at least 60% of the voting securities of the entity surviving or
resulting from such transaction (or the ultimate parent entity thereof), (2) a
sale, lease, exchange, transfer or other disposition of more than 30% of the
assets of Allegiance and its subsidiaries, taken as a whole, in a single
transaction or a series of related transactions, or (3) the acquisition by a
person (other than Cardinal or any affiliate thereof) or group (as such term is
defined under Section 13(d) of the Exchange Act) of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of more than 20% of Allegiance
Common Stock, whether by tender or exchange offer or otherwise.
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AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties to the Merger
Agreement, by action taken or authorized by their respective Boards of
Directors, at any time before or after adoption of the Merger Agreement by
Allegiance Stockholders, but after any such approval, no amendment shall be made
that by law requires further approval or authorization by Allegiance
Stockholders without such further approval or authorization.
At any time prior to the Effective Time, Cardinal (with respect to
Allegiance) and Allegiance (with respect to Cardinal and Merger Sub) by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (1) extend the time for the performance of any of the
obligations or other acts of such party, (2) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement, and (3) waive compliance
with any of the agreements or conditions contained in the Merger Agreement. Any
agreement on the part of a party to the Merger Agreement to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party.
FEES AND EXPENSES
Except as described under "--Termination" and "--Effect of Termination,"
all Costs incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such Costs, except that
those expenses incurred in connection with filing, printing and mailing the
Registration Statement and this Joint Proxy Statement/Prospectus (including
filing fees related thereto) will be shared equally by Cardinal and Allegiance.
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THE MERGER AGREEMENT
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RIGHTS OF DISSENTING SHAREHOLDERS
ALLEGIANCE STOCKHOLDERS
Allegiance Stockholders are not entitled to dissenters' appraisal rights
under Delaware Law or any other statute in connection with the Merger. See
"Comparison of Shareholder Rights -- Rights of Dissenting Shareholders."
CARDINAL SHAREHOLDERS
Section 1701.84 of the Ohio Law provides that all Cardinal Shareholders
entitled to vote on the Cardinal Merger Proposal may exercise dissenters' rights
with respect to the Merger. The following is a summary of the principal steps a
Cardinal Shareholder must take to perfect dissenters' rights under Section
1701.85 of the Ohio Law. This summary is not intended to be complete, and it is
qualified in its entirety by reference to Section 1701.85 of the Ohio Law, a
copy of which is attached as Annex D to this Proxy Statement/Prospectus. Any
Cardinal Shareholder considering exercising such Cardinal Shareholder's
dissenters' rights should carefully review these provisions and should consult
an attorney since such Cardinal Shareholders will lose their dissenters' rights
if they do not fully and precisely satisfy the procedural requirements under
Section 1701.85 of the Ohio Law. To perfect dissenters' rights, a Cardinal
Shareholder must satisfy each of the following conditions:
- - No Vote in Favor of the Cardinal Merger Proposal. Cardinal Common Shares held
by dissenting Cardinal Shareholders (each, a "DISSENTING CARDINAL
SHAREHOLDER") must not be voted in favor of the Cardinal Merger Proposal at
the Cardinal Special Meeting. See "The Special Meetings -- Matters to be
Considered at the Special Meetings." Dissenting Cardinal Shareholders can
satisfy this requirement by: (1) returning to Cardinal a signed proxy with
instructions to vote against the Cardinal Merger Proposal, (2) abstaining from
voting on the Cardinal Merger Proposal, (3) not returning a proxy and not
casting a vote in favor of the Cardinal Merger Proposal at the Cardinal
Special Meeting, or (4) revoking a proxy and subsequently either abstaining
from voting on the Cardinal Merger Proposal or voting against the Cardinal
Merger Proposal. A vote in favor of the Cardinal Merger Proposal at the
Cardinal Special Meeting constitutes a waiver of dissenters' rights. A proxy
that is returned signed but on which no voting preference is indicated will be
voted in favor of the Cardinal Merger Proposal and will constitute a waiver of
dissenters' rights. A Dissenting Cardinal Shareholder may revoke such
Dissenting Cardinal Shareholder's proxy at any time before its exercise by (1)
filing with the Secretary of Cardinal at or before the taking of the vote at
the Cardinal Special Meeting a notice of revocation bearing a later date than
the proxy or a later-dated proxy relating to the same shares, (2) giving
notice of revocation in open meeting or (3) attending the Cardinal Special
Meeting and voting in person. See "The Special Meetings -- Voting of Proxies."
- - Filing Written Demand. Not later than ten days after the taking of the vote
on the Cardinal Merger Proposal, a Dissenting Cardinal Shareholder must
deliver to Cardinal a written demand (the "CARDINAL DEMAND") for payment of
the fair cash value of such Dissenting Cardinal Shareholder's Cardinal Common
Shares ("DISSENTING CARDINAL SHARES"). The Cardinal Demand should be delivered
to Cardinal at 5555 Glendon Court, Dublin, Ohio 43016, Attention: Secretary.
It is recommended, although not required, that the Cardinal Demand be sent by
registered or certified mail, return receipt requested. Voting against the
Cardinal Merger Proposal will not of itself constitute a demand. Cardinal will
not send any further notice to Cardinal Shareholders as to the date on which
such ten-day period expires.
The Cardinal Demand must identify the name and address of the holder of record
of the Dissenting Cardinal Shares covered thereby, the number of Dissenting
Cardinal Shares and the amount claimed as the fair cash value of such
Dissenting Cardinal Shares. A beneficial owner of Dissenting Cardinal Shares
must, in all cases, have the record holder submit the Cardinal Demand in
respect of such beneficial owner's Dissenting Cardinal Shares. The Cardinal
Demand must be signed by the shareholder of record (or by the duly authorized
representative of the shareholder) exactly as the shareholder's name appears
on the shareholder records of Cardinal. A Cardinal Demand with respect to
Dissenting Cardinal Shares owned
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jointly by more than one person must identify and be signed by all of the
holders of record. Any person signing a Cardinal Demand on behalf of a
partnership or corporation or in any other representative capacity (such as an
attorney-in-fact, executor, administrator, trustee or guardian) must indicate
the nature of the representative capacity and, if requested, must furnish
written proof of this capacity and such individual's authority to sign the
demand.
Because only Cardinal Shareholders of record on the Cardinal Record Date may
exercise dissenters' rights, any person who beneficially owns Cardinal Common
Shares that are held of record by a broker, fiduciary, nominee, or other
holder and who wishes to exercise dissenters' rights must instruct the record
holder of the shares to satisfy the conditions outlined above. If a record
holder does not satisfy, in a timely manner, all of the conditions outlined in
this section entitled "Rights of Dissenting Shareholders," the dissenters'
rights for all of the shares held by that shareholder will be lost.
From the time the Cardinal Demand is given until either the termination of the
rights and obligations arising from such Cardinal Demand or the purchase of
the Dissenting Cardinal Shares related thereto by Cardinal, all rights
accruing to the Dissenting Cardinal Shareholder, including voting and dividend
or distribution rights, will be suspended. If any dividend or distribution is
paid on Cardinal Common Shares during the suspension, an amount equal to the
dividend or distribution that would have been payable on the Dissenting
Cardinal Shares, but for such suspension, shall be paid to the holder of
record of Dissenting Cardinal Shares as a credit upon the fair cash value of
such Dissenting Cardinal Shares. If the right to receive the fair cash value
is terminated otherwise than by the purchase of the Dissenting Cardinal Shares
by Cardinal, all rights will be restored to Dissenting Cardinal Shareholders
and any distribution that would have been made to the holder of record of
Dissenting Cardinal Shares, but for the suspension, will be made at the time
of the termination.
- - Petitions to be Filed in Court. Within three months after the service of the
Cardinal Demand, if Cardinal and the Dissenting Cardinal Shareholder do not
reach an agreement on the fair cash value of such Dissenting Cardinal
Shareholder's Dissenting Cardinal Shares, the Dissenting Cardinal Shareholder
or Cardinal may file a complaint in the Court of Common Pleas of Franklin
County, Ohio (the "COMMON PLEAS COURT"), or join or be joined in an action
similarly brought by another Dissenting Cardinal Shareholder, for a judicial
determination of the fair cash value of the Dissenting Cardinal Shares.
Cardinal does not intend to file any complaint for a judicial determination of
the fair cash value of any Dissenting Cardinal Shares.
Upon motion of the complainant, the Common Pleas Court will hold a hearing to
determine whether the Dissenting Cardinal Shareholder is entitled to be paid
the fair cash value of such shareholder's Dissenting Cardinal Shares. If the
Common Pleas Court finds that a Dissenting Cardinal Shareholder is so
entitled, the Common Pleas Court may appoint one or more appraisers to receive
evidence by which to recommend a decision on the amount of such value. The
Common Pleas Court is required to make a finding as to the fair cash value of
Dissenting Cardinal Shares and to render a judgment against Cardinal for the
payment thereof, with interest at such rate and from such date as the Common
Pleas Court considers equitable. Costs of the proceedings, including
reasonable compensation to the appraiser or appraisers, which will be fixed by
the Common Pleas Court, are to be apportioned or assessed as the Common Pleas
Court considers equitable. Payment of the fair cash value of Dissenting
Cardinal Shares is required to be made within thirty days after the date of
final determination of such value or the Effective Time, whichever is later,
only upon surrender to Cardinal of the Certificates representing the
Dissenting Cardinal Shares for which payment is made.
"FAIR CASH VALUE" is the amount that a willing seller, under no compulsion
to sell, would be willing to accept, and that a willing buyer, under no
compulsion to purchase, would be willing to pay, but in no event may the fair
cash value exceed the amount specified in the Cardinal Demand. The fair cash
value is to be determined as of the day prior to the day of the vote on the
Cardinal Merger Proposal. In computing the fair cash value, any appreciation or
depreciation in the market value of Dissenting Cardinal Shares resulting from
the Merger is excluded.
RIGHTS OF DISSENTING SHAREHOLDERS
66
<PAGE> 78
The dissenters' rights of any Dissenting Cardinal Shareholder will
terminate if, among other things, (1) such Dissenting Cardinal Shareholder has
not complied with Section 1701.85 of the Ohio Law (unless the Cardinal Board
waives compliance), (2) the Merger is abandoned or otherwise not carried out or
such Dissenting Cardinal Shareholder withdraws its Cardinal Demand with the
consent of the Cardinal Board, or (3) no agreement has been reached between
Cardinal and the Dissenting Cardinal Shareholder with respect to the fair cash
value of such shareholder's Dissenting Cardinal Shares and no complaint has been
timely filed in the Common Pleas Court.
RIGHTS OF DISSENTING SHAREHOLDERS
67
<PAGE> 79
PAGE INTENTIONALLY LEFT BLANK
RIGHTS OF DISSENTING SHAREHOLDERS
68
<PAGE> 80
CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material U.S. federal income tax
consequences of the Merger and does not purport to be a complete analysis or
listing of all potential tax effects relative to a decision whether to vote for
the approval of the Merger. The discussion does not address all aspects of U.S.
federal income taxation that may be applicable to certain Allegiance
Stockholders subject to special U.S. federal income tax treatment, including,
without limitation, foreign persons, insurance companies, tax-exempt entities,
retirement plans and persons who acquired their Allegiance Common Stock pursuant
to the exercise of employee stock options or otherwise as compensation. The
discussion addresses neither the effect of applicable state, local or foreign
tax laws, nor the effect of any U.S. federal tax laws other than those
pertaining to U.S. federal income tax. The discussion below applies to
Allegiance Stockholders who hold their shares of Allegiance Common Stock as a
capital asset within the meaning of Section 1221 of the Code.
In the opinion of Davis Polk & Wardwell, counsel to Allegiance, if the
Merger occurs in accordance with the Merger Agreement, the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and each of Allegiance, Cardinal and Merger Sub will be a party to the
"reorganization" within the meaning of Section 368(b) of the Code. This opinion
is based on the Code, regulations and rulings now in effect or proposed
thereunder, current administrative rulings and practice and judicial precedent,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences discussed herein. The opinion is
also based on certain assumptions regarding the factual circumstances that will
exist at the Effective Time, including, without limitation, certain
representations made by Cardinal and Allegiance. If any of these factual
assumptions is inaccurate, the tax consequences of the Merger could differ from
those described herein. Allegiance's obligation to consummate the Merger is
conditioned upon the receipt by Allegiance of an opinion to the same effect from
Davis Polk & Wardwell dated on or prior to the effective date of this Joint
Proxy Statement/Prospectus.
If, in accordance with the opinion referred to above, the Merger
constitutes a "reorganization" within the meaning of Section 368(a) of the Code,
and Cardinal, Allegiance and Merger Sub are each a party to the "reorganization"
within the meaning of Section 368(b) of the Code, the following is a summary of
the general U.S. federal income tax consequences of the Merger to an Allegiance
Stockholder, and to Cardinal, Allegiance and Merger Sub. No gain or loss will be
recognized by Allegiance Stockholders with respect to Cardinal Common Shares
received in the Merger. The tax basis of Cardinal Common Shares received by an
Allegiance Stockholder in the Merger will be equal to the tax basis of the
shares of Allegiance Common Stock exchanged therefor, reduced by any amount of
basis allocable to fractional share interests for which cash is received. For
purposes of determining whether or not gain or loss on the subsequent
disposition of Cardinal Common Shares received in the Merger is long-term or
short-term, the holding period of such Cardinal Common Shares received by
Allegiance Stockholders will include the holding period of the shares of
Allegiance Common Stock exchanged therefor. Capital gains of individuals derived
in respect of capital assets held for more than one year are eligible for
reduced rates of taxation depending upon the holding period of such capital
assets.
The receipt of cash in lieu of a fractional Cardinal Common Share by an
Allegiance Stockholder pursuant to the Merger will generally result in taxable
gain or loss to such stockholder for U.S. federal income tax purposes based on
the difference between the amount of cash received by such shareholder and such
shareholder's basis in such fractional share as set forth above. Such gain or
loss will be a capital gain or loss.
No gain or loss will be recognized by Cardinal, Allegiance or Merger Sub as
a result of the Merger.
Allegiance Stockholders will be required to retain records and file with
their U.S. federal income tax returns a statement setting forth certain facts
relating to the Merger.
THE FOREGOING DISCUSSION OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. THE OPINION OF
DAVIS POLK & WARDWELL IS NOT BINDING ON THE INTERNAL
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
69
<PAGE> 81
REVENUE SERVICE. BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX
CONSEQUENCES OF THE MERGER FOR ANY PARTICULAR ALLEGIANCE STOCKHOLDER MAY BE
AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH ALLEGIANCE STOCKHOLDER IS URGED
TO CONSULT SUCH ALLEGIANCE STOCKHOLDER'S OWN TAX ADVISER WITH RESPECT TO SUCH
ALLEGIANCE STOCKHOLDER'S OWN PARTICULAR CIRCUMSTANCES AND WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH ALLEGIANCE STOCKHOLDER,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS,
ESTATE TAX LAWS AND PROPOSED CHANGES IN APPLICABLE TAX LAWS.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
70
<PAGE> 82
THE COMPANIES
BUSINESS OF ALLEGIANCE
Allegiance, through its operating subsidiaries, is the United States'
largest provider of non-pharmaceutical health care products and cost-saving
services for hospitals and other-health care providers. These integrated
businesses recorded sales of approximately $4.4 billion in 1997. Allegiance,
which was incorporated in Delaware in June, 1996, was spun off from Baxter on
September 30, 1996 when Baxter and its subsidiaries transferred to Allegiance
their United States health care distribution business, surgical and respiratory
therapy business and health care cost saving business as well as certain foreign
operations.
The economics of health care continue to change at a rapid pace,
particularly in the United States, which is Allegiance's largest current market.
In the past, doctors and nurses were paid for their services with few cost
constraints. Today, large employers, insurance companies and HMOs are
negotiating set fees for patient care. For U.S. hospitals and health systems,
Allegiance's main customers, the pressure to reduce costs has never been
greater. At the same time, the demand for health services continues to climb
with the growth of aging populations in the United States and throughout much of
the industrialized world. This environment offers opportunities for Allegiance,
which has invested in integrated product and service programs that help medical
professionals cope with health care's economic and demographic trends.
This changing health care environment has resulted in the growth of managed
care and increased consolidation among health care providers which has caused
the health care distribution market to experience intense competition and
erosion in margins. Allegiance has responded and stabilized its margins by
integrating its market-leading distribution capabilities with a broad product
offering, high levels of customer service and innovative cost-saving services.
Thus while Allegiance offers the industry's broadest range of medical and
laboratory products, representing more than 2,800 suppliers in addition to its
own line of surgical and respiratory therapy products, Allegiance also works
with health care professionals to reduce the variety and number of products that
they buy under agreements that provide incentives for Allegiance to help
customers save money. As a result of these combined services, customers purchase
a greater portion of their supplies from Allegiance.
Allegiance operates 22 domestic and international manufacturing plants.
Allegiance manufactures several major product lines at these plants, most of
which hold leading sales positions. All of Allegiance's products are made and
managed with an emphasis on efficiency in the entire supply chain from raw
materials to the point of patient care. Products manufactured by Allegiance
include:
- - Custom-Sterile(TM) products and PBDS(TM) Pathways product lines, which are
customer-designated packages that contain supplies for specific procedures.
Custom-Sterile(TM) packs contain sterile, disposable supplies made by
Allegiance and other manufacturers. PBDS(TM) modules contain
Custom-Sterile(TM) packs along with non-sterile supplies;
- - Convertors(R), which is a leading brand of single-use surgical drapes, gowns,
and apparel;
- - Medi-Vac(R), which consists of disposable suction canisters and liners,
suction tubing, and supporting hardware and accessories;
- - Respiratory therapy products, which include ventilator circuits (tubing used
to connect patients to ventilator machines), oxygen masks, cannulae, and
suction catheters used to clear the trachea, as well as products that are used
widely in patients' homes, nursing homes and hospitals to treat asthma,
pneumonia, emphysema, bronchitis and other respiratory conditions; and
- - the V. Mueller product portfolio, which comprises a broad range of specialty
surgical instruments, instrument reprocessing products, and sterilization
packaging, including the Genesis(TM) Container System.
Allegiance also manufactures several special procedure products and a range
of other leading products, including the broadest available line of medical and
surgical gloves.
THE COMPANIES
71
<PAGE> 83
In addition to its manufacturing capabilities, Allegiance is a leading
distributor of medical, surgical and laboratory products in the United States.
Allegiance has 48 U.S. distribution centers and has the capability to supply any
of more than 300,000 different products to its customers. Allegiance has
expanded its distribution operations through several acquisitions. In late 1997,
one of Allegiance's international subsidiaries combined distribution operations
with MDS Inc. of Toronto to create a new company, Source Medical Corporation,
which is now Canada's largest supplier of non-pharmaceutical medical products.
Also in 1997, Allegiance through an international subsidiary, purchased the
manufacturing and distribution companies of SOHO Holding B.V., a leading
supplier of medical and surgical products in the Netherlands. In October 1998,
Allegiance, through an international subsidiary, purchased the manufacturing and
distribution companies of International Medical Products Group, B.V., a leading
supplier of disposable medical products in the Netherlands and Germany.
Given Allegiance's size and scope, advanced information systems, and
balance of self-manufactured and externally supplied products, Allegiance is
well-positioned to maximize service to customers and minimize inventory levels
and variability. To accelerate this process, Allegiance is making major
investments in information technology that uses electronic data interchange to
exchange purchasing and inventory data with its suppliers and customers.
Allegiance's management believes this integrated distribution and product
offering strengthens Allegiance's financial and competitive position. In 1995,
Allegiance opened a National Drop Ship Center in McGaw Park, Illinois, from
which it distributes less frequently ordered items. By consolidating such
products in one facility, the amount of regional inventory variability has
decreased and Allegiance has achieved lower system-wide inventory levels.
Allegiance has assisted its customers in reducing costs while improving
quality of care in a variety of ways including: making significant investments
in technology, developing ValueLink, a stockless inventory service providing
just-in-time delivery of products, and pursuing strategic supplier
relationships. Consistent with its strategic direction of providing cost-saving
services, Allegiance provides a range of professional consulting services to its
customers. To enhance its consulting services, Allegiance acquired West Hudson &
Co. Inc., a privately-owned health care consulting firm in January 1997 and all
of the assets of Higman Healthcare Inc., a leading surgical health care
consulting company in March 1998.
Additional information concerning Allegiance and it subsidiaries is
included in the Allegiance documents filed with the Commission, which are
incorporated herein by reference. See "Where You Can Find More Information."
Allegiance has its principal executive offices at 1430 Waukegan Road, McGaw
Park, Illinois 60085, and its telephone number is (847) 689-8410.
BUSINESS OF CARDINAL
Cardinal, a holding company operating through a number of operating
subsidiaries, is a leading health care service company, offering an array of
value-added pharmaceutical distribution services and pharmaceutical-related
products and services to a broad base of customers. It is one of the United
States' largest wholesale distributors of pharmaceutical and related health care
products to independent and chain drug stores, hospitals, alternative care
centers and pharmacy departments of supermarkets and mass merchandisers located
throughout the continental United States. Through its Pyxis subsidiary, Cardinal
develops, manufactures, leases, sells and services unique point-of-use systems
that automate the distribution, management and control of medications and
supplies in hospitals and alternative care facilities. Cardinal is also the
largest franchisor of independent retail pharmacies in the United States through
its Medicine Shoppe International, Inc. subsidiary. In addition, through its
Owen Healthcare, Inc. ("OWEN") subsidiary, Cardinal provides pharmacy management
and information services to hospitals. PCI Services Inc., another one of
Cardinal's subsidiaries, is a leading international provider of integrated
packaging services to pharmaceutical manufacturers. Cardinal's Scherer
subsidiary is an international developer and manufacturer of drug delivery
systems.
As a full-service wholesale distributor, Cardinal complements its
distribution activities by offering a broad range of value-added support
services to assist Cardinal's customers and suppliers in maintaining and
THE COMPANIES
72
<PAGE> 84
improving their market positions and to strengthen Cardinal'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. Cardinal's proprietary software systems
feature customized databases specially designed to help its customers order more
efficiently, contain costs and monitor their purchases that are covered by group
contract purchasing arrangements.
Cardinal operates several specialty health care businesses that offer
value-added services to Cardinal's customers and suppliers while providing
Cardinal with additional opportunities for growth and profitability. For
example, Cardinal operates a pharmaceutical repackaging program for both
independent and chain drugstore customers and serves as a distributor of
therapeutic plasma products and other specialty pharmaceuticals to hospitals,
clinics and other managed care facilities on a nationwide basis through the
utilization of telemarketing and direct mail programs. These specialty
distribution activities are part of Cardinal's overall strategy of developing
diversified products and services to enhance the profitability of its business
and that of its customers and suppliers.
Additional information concerning Cardinal and its subsidiaries is included
in the Cardinal documents filed with the Commission, which are incorporated
herein by reference. See "Where You Can Find More Information."
Cardinal and Merger Sub each have their principal executive offices at 5555
Glendon Court, Dublin, Ohio 43016, and their telephone number is (614) 717-5000.
MERGER SUB
Merger Sub is a newly formed subsidiary of Cardinal formed solely for the
purpose of effecting the Merger.
THE COMPANIES
73
<PAGE> 85
PAGE INTENTIONALLY LEFT BLANK
74
<PAGE> 86
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of Cardinal and Allegiance, which are
incorporated herein by reference. The unaudited pro forma information is
presented for illustration purposes only in accordance with the assumptions set
forth below, and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
nor is it necessarily indicative of future operating results or financial
position of the combined enterprise. The unaudited pro forma condensed combined
financial information does not reflect any adjustments to conform accounting
practices or to reflect any cost savings or other synergies anticipated as a
result of the Merger or any merger-related expenses. See Note 3 of the "Notes to
Pro Forma Condensed Combined Financial Information" for further discussion.
FINANCIAL INFORMATION
75
<PAGE> 87
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited pro forma condensed combined balance sheet
presents, under the pooling-of-interests accounting method, the consolidated
balance sheets of Cardinal and Allegiance combined as of September 30, 1998.
<TABLE>
<CAPTION>
CARDINAL AND
CARDINAL ALLEGIANCE ALLEGIANCE
SEPT. 30, SEPT. 30, PRO FORMA PRO FORMA
1998 1998 ADJUSTMENTS BALANCES(1)
--------- ---------- ----------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................. $ 332.7 $ 37.4 $ -- $ 370.1
Trade receivables -- net.......................... 1,039.2 468.4 -- 1,507.6
Current portion of net investment in sales-type
leases......................................... 86.9 19.5 -- 106.4
Merchandise inventories(4)........................ 2,062.3 655.3 -- 2,717.6
Prepaid expenses and other........................ 149.0 153.3 -- 302.3
-------- -------- -------- ---------
Total Current assets.............................. 3,670.1 1,333.9 -- 5,004.0
-------- -------- -------- ---------
Property and equipment -- at cost................. 1,114.7 1,498.0 -- 2,612.7
Accumulated depreciation and amortization......... (377.8) (768.4) -- (1,146.2)
-------- -------- -------- ---------
Property and equipment -- net..................... 736.9 729.6 -- 1,466.5
Other assets:
Net investment in sales-type lease, less current
portion........................................ 251.4 34.9 -- 286.3
Goodwill and other intangibles.................... 281.3 557.6 -- 838.9
Other............................................. 103.4 97.4 -- 200.8
-------- -------- -------- ---------
Total............................................... $5,043.1 $2,753.4 $ -- $ 7,796.5
======== ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- banks............................ $ 25.8 $ -- $ -- $ 25.8
Current portion of long-term obligations.......... 10.1 -- -- 10.1
Accounts payable.................................. 1,696.8 482.9 -- 2,179.7
Other accrued liabilities(3)...................... 282.1 320.3 -- 602.4
-------- -------- -------- ---------
Total current liabilities......................... 2,014.8 803.2 -- 2,818.0
-------- -------- -------- ---------
Long-term obligations -- less current portion..... 642.4 838.1 -- 1,480.5
Deferred tax and other liabilities................ 285.2 191.8 -- 477.0
Shareholders' equity:
Common Shares -- without par value................ 957.0 118.0 -- 1,075.0
Retained earnings(3).............................. 1,186.3 910.7 -- 2,097.0
Common Shares in treasury, at cost................ (10.1) (106.5) -- (116.6)
Cumulative foreign currency adjustment............ (27.6) (1.9) -- (29.5)
Other............................................. (4.9) -- -- (4.9)
-------- -------- -------- ---------
Total shareholders' equity........................ 2,100.7 920.3 -- 3,021.0
-------- -------- -------- ---------
Total............................................... $5,043.1 $2,753.4 $ -- $ 7,796.5
======== ======== ======== =========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
FINANCIAL INFORMATION
76
<PAGE> 88
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
The following unaudited pro forma condensed combined statements of earnings
present, under the pooling-of-interests accounting method, the consolidated
statements of earnings of Cardinal for the fiscal years ended June 30, 1998,
1997 and 1996 combined with the statements of earnings of Allegiance for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively. Cardinal's
financial information for the three months ended September 30, 1998 and 1997
have been combined with Allegiance's financial information for the three months
ended September 30, 1998 and March 31, 1997, respectively.
The financial results of Allegiance for the six months ended June 30, 1998
are excluded from the pro forma data. Allegiance's net revenue and net earnings
for the six months ended June 30, 1998 were approximately $2.2 billion and $59.0
million, respectively.
FINANCIAL INFORMATION
77
<PAGE> 89
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JUNE 30, 1998 DECEMBER 31, 1997 PRO
------------- ----------------- FORMA PRO FORMA
CARDINAL ALLEGIANCE ADJUSTMENTS RESULTS(1)
------------- ----------------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Operating revenue.................... $13,555.4 $4,350.8 $ -- $17,906.2
Bulk deliveries to customer
warehouses........................ 2,991.3 -- -- 2,991.3
--------- -------- ------- ---------
Total revenue(4)....................... 16,546.7 4,350.8 -- 20,897.5
Cost of products sold:
Operating cost of products sold...... 12,296.4 3,442.6 -- 15,739.0
Cost of products sold -- bulk
deliveries........................ 2,991.4 -- -- 2,991.4
--------- -------- ------- ---------
Total cost of products sold(4)......... 15,287.8 3,442.6 -- 18,730.4
--------- -------- ------- ---------
Gross margin........................... 1,258.9 908.2 -- 2,167.1
Selling, general and administrative
expenses............................. 675.4 690.0 -- 1,365.4
Special charges:
Merger-related costs -- prior
mergers(5)........................ 49.1 -- -- 49.1
Other special charges................ 8.6 -- -- 8.6
Other (income) expense................. 36.1 75.2 -- 111.3
--------- -------- ------- ---------
Earnings before income taxes........... 489.7 143.0 -- 632.7
Provision for income taxes............. 171.5 52.1 -- 223.6
--------- -------- ------- ---------
Net Earnings -- excluding estimated
Merger expenses(3)(5)................ $ 318.2 $ 90.9 $ -- $ 409.1
========= ======== ======= =========
Earnings per Common Share, excluding
estimated Merger expenses(3)(5)(6):
Basic................................ $ 1.59 $ 1.51
Diluted.............................. $ 1.57 $ 1.48
Weighted average number of Common
Shares outstanding(6):
Basic................................ 199.5 270.4
Diluted.............................. 203.1 275.6
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
FINANCIAL INFORMATION
78
<PAGE> 90
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------- PRO FORMA PRO FORMA
CARDINAL ALLEGIANCE(2) ADJUSTMENTS RESULTS(1)
--------- ------------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Operating revenue......................... $11,567.8 $4,387.2 $ -- $15,955.0
Bulk deliveries to customer warehouses.... 2,469.1 -- -- 2,469.1
--------- -------- ------ ---------
Total revenue(4).................. 14,036.9 4,387.2 -- 18,424.1
Cost of products sold:
Operating cost of products sold........... 10,462.2 3,479.2 -- 13,941.4
Cost of products sold -- bulk
deliveries............................. 2,469.1 -- -- 2,469.1
--------- -------- ------ ---------
Total cost of products sold(4).... 12,931.3 3,479.2 -- 16,410.5
--------- -------- ------ ---------
Gross margin................................ 1,105.6 908.0 -- 2,013.6
Selling, general and administrative
expenses.................................. 614.3 712.3 -- 1,326.6
Special charges:
Merger-related costs -- prior
mergers(5)............................. 50.9 -- -- 50.9
Other special charges..................... -- 645.5 -- 645.5
Other (income) expense...................... 43.6 (21.9) -- 21.7
--------- -------- ------ ---------
Earnings (loss) before income taxes......... 396.8 (427.9) -- (31.1)
Provision for income taxes.................. 152.9 49.8 -- 202.7
--------- -------- ------ ---------
Net Earnings (loss) -- excluding estimated
Merger expenses(3)(5)..................... $ 243.9 $ (477.7) $ -- $ (233.8)
========= ======== ====== =========
Earnings (loss) per Common Share, excluding
estimated Merger expenses(3)(5)(6):
Basic..................................... $ 1.25 $ (0.89)
Diluted................................... $ 1.22 $ (0.87)
Weighted average number of Common Shares
outstanding(6):
Basic..................................... 194.9 263.3
Diluted................................... 199.6 267.9
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
FINANCIAL INFORMATION
79
<PAGE> 91
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JUNE 30, 1996 DECEMBER 31, 1995
------------- ----------------- PRO FORMA PRO FORMA
CARDINAL ALLEGIANCE(2) ADJUSTMENTS RESULTS(1)
------------- ----------------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Operating revenue.................... $9,990.3 $4,921.9 $ -- $14,912.2
Bulk deliveries to customer
warehouses........................ 2,178.5 -- -- 2,178.5
-------- -------- ------- ---------
Total revenue(4)....................... 12,168.8 4,921.9 -- 17,090.7
Cost of products sold:
Operating cost of products sold...... 8,975.9 3,877.7 -- 12,853.6
Cost of products sold -- bulk
deliveries........................ 2,178.0 -- -- 2,178.0
-------- -------- ------- ---------
Total cost of products sold(4)......... 11,153.9 3,877.7 -- 15,031.6
-------- -------- ------- ---------
Gross margin........................... 1,014.9 1,044.2 -- 2,059.1
Selling, general and administrative
expenses............................. 620.7 794.0 -- 1,414.7
Special charges:
Merger-related costs -- prior
mergers(5)........................ 49.2 -- -- 49.2
Other special charges................ 33.8 -- -- 33.8
Other (income) expense................. 42.8 (225.8) -- (183.0)
-------- -------- ------- ---------
Earnings before income taxes........... 268.4 476.0 -- 744.4
Provision for income taxes............. 111.9 203.4 -- 315.3
-------- -------- ------- ---------
Net Earnings -- excluding estimated
Merger expenses(3)(5)................ $ 156.5 $ 272.6 $ -- $ 429.1
======== ======== ======= =========
Earnings per common share, excluding
estimated Merger expenses(3)(5)(6):
Basic................................ $ 0.82 $ 1.66
Diluted.............................. $ 0.80 $ 1.63
Weighted average number of Common
Shares outstanding(6):
Basic................................ 189.8 258.0
Diluted.............................. 195.9 264.1
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
FINANCIAL INFORMATION
80
<PAGE> 92
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------ PRO FORMA PRO FORMA
CARDINAL ALLEGIANCE ADJUSTMENTS RESULTS(1)
------------------ ------------------ ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Operating revenue................... $3,851.0 $1,147.1 $ -- $4,998.1
Bulk deliveries to customer
warehouses....................... 781.7 -- -- 781.7
-------- -------- -------- --------
Total revenue(4)...................... 4,632.7 1,147.1 -- 5,779.8
Cost of products sold:
Operating cost of products sold..... 3,529.9 886.3 -- 4,416.2
Cost of products sold -- bulk
deliveries....................... 781.7 -- -- 781.7
-------- -------- -------- --------
Total cost of products sold(4)........ 4,311.6 886.3 -- 5,197.9
-------- -------- -------- --------
Gross margin.......................... 321.1 260.8 -- 581.9
Selling, general and administrative
expenses............................ 178.2 190.4 -- 368.6
Merger-related costs -- prior
mergers(5).......................... 34.4 -- -- 34.4
Other (income) expense................ 6.3 18.0 -- 24.3
-------- -------- -------- --------
Earnings before income taxes.......... 102.2 52.4 -- 154.6
Provision for income taxes............ 44.4 19.4 -- 63.8
-------- -------- -------- --------
Net Earnings -- excluding estimated
Merger expenses(3)(5)............... $ 57.8 $ 33.0 $ -- $ 90.8
======== ======== ======== ========
Earnings per Common Share, excluding
estimated Merger expenses (3)(5)(6):
Basic............................... $ 0.29 $ 0.34
Diluted............................. $ 0.28 $ 0.33
Weighted average number of Common
Shares outstanding(6):
Basic............................... 200.5 270.6
Diluted............................. 204.0 277.8
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
FINANCIAL INFORMATION
81
<PAGE> 93
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
------------------ -------------- PRO FORMA PRO FORMA
CARDINAL ALLEGIANCE ADJUSTMENTS RESULTS(1)
------------------ -------------- ----------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Operating revenue.................. $ 3,022.4 $1,055.9 $ -- $ 4,078.3
Bulk deliveries to customer
warehouses...................... 681.2 -- -- 681.2
--------- -------- ------- ---------
Total revenue(4)..................... 3,703.6 1,055.9 -- 4,759.5
Cost of products sold:
Operating cost of products sold.... 2,744.8 836.1 -- 3,580.9
Cost of products sold -- bulk
deliveries...................... 681.2 -- -- 681.2
--------- -------- ------- ---------
Total cost of products sold(4)....... 3,426.0 836.1 -- 4,262.1
--------- -------- ------- ---------
Gross margin......................... 277.6 219.8 -- 497.4
Selling, general and administrative
expenses........................... 160.3 168.3 -- 328.6
Merger-related costs -- prior
mergers(5)......................... 2.2 -- -- 2.2
Other (income) expense............... 4.7 19.1 -- 23.8
--------- -------- ------- ---------
Earnings before income taxes......... 110.4 32.4 -- 142.8
Provision for income taxes........... 41.1 11.4 -- 52.5
--------- -------- ------- ---------
Net Earnings -- excluding estimated
Merger expenses(3)(5).............. $ 69.3 $ 21.0 $ -- $ 90.3
========= ======== ======= =========
Earnings per Common Share, excluding
estimated Merger expenses(3)(5)(6):
Basic.............................. $ 0.35 $ 0.34
Diluted............................ $ 0.34 $ 0.33
Weighted average number of Common
Shares outstanding(6):
Basic.............................. 198.6 267.5
Diluted............................ 202.2 272.4
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
FINANCIAL INFORMATION
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NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(1) CARDINAL AND ALLEGIANCE HISTORICAL FISCAL YEARS
Cardinal's historical fiscal year ends on June 30 and Allegiance's
historical fiscal year ends on December 31. For purposes of combining
Allegiance's historical financial information with Cardinal's financial
information in the pro forma condensed combined statements of earnings herein,
the financial information of Cardinal for the fiscal years ended June 30, 1998,
1997 and 1996 has been combined with Allegiance's financial information for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively. Cardinal's
financial information for the three months ended September 30, 1998 and 1997 has
been combined with Allegiance's financial information for the three months ended
September 30, 1998 and March 31, 1997, respectively.
The financial results of Allegiance for the six months ended June 30, 1998
are excluded in the pro forma data. Allegiance's net revenues and net earnings
for the six months ended June 30, 1998 were approximately $2.2 billion and $59.0
million, respectively.
In addition, certain amounts in the historical financial statements of
Allegiance have been reclassified for the pro forma presentation.
(2) DIVESTITURES
The unaudited pro forma condensed combined statement of earnings includes
certain businesses that were divested by Allegiance in 1995 and 1994 as
discussed in Note 1 of "Notes to Consolidated Financial Statements" to the 1997
Allegiance Form 10-K. If the distribution of shares of Allegiance Common Stock
in connection with the spinoff of Allegiance from Baxter and significant
divestitures discussed in Notes 1 and 3 of "Notes to Consolidated Financial
Statements" to the 1997 Allegiance Form 10-K had occurred as of January 1, 1995,
Total revenue, Net earnings (loss), and Diluted Net Earnings (loss) per Common
Share would have been $18.4 billion, $(305.8) million, and $(1.14), respectively
for the fiscal year ended June 30, 1997. For fiscal year 1996, pro forma Total
revenue, Net earnings (loss) and Diluted Net Earnings per Common Share would
have been $16.7 billion, $220.4 million, and $0.84, respectively.
(3) MERGER-RELATED EXPENSES
In connection with the Merger, the companies expect to incur investment
banking, legal, accounting and other related transaction costs and fees.
Additionally, the companies expect to incur other merger-related costs
associated with the integration of the separate companies and institution of
efficiencies anticipated as a result of the Merger. The merger-related expenses
will be charged to expense in the period in which the Merger is consummated, or
in subsequent periods when incurred. Since the Merger has not yet been
consummated and transition plans are currently being developed, the
merger-related costs cannot be estimated at this time.
The accounting policies of Cardinal and Allegiance are currently being
studied from a conformity perspective. The impact of conforming accounting
policies (if any) is not presently estimable. If conforming adjustments are
required, they will be recorded as part of the restatement of prior periods as
required by the pooling-of-interests accounting method.
(4) TRANSACTION BETWEEN CARDINAL AND ALLEGIANCE
Cardinal purchased medical products from Allegiance during the period
covered by the pro forma financial statements. At September 30, 1998, Cardinal's
unsold inventory related to purchases from Allegiance was not significant. The
amounts arising from these transactions are not material and, accordingly, the
unaudited pro forma condensed combined statements of earnings do not include
adjustments for these items.
FINANCIAL INFORMATION
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<PAGE> 95
(5) EFFECT OF MERGER-RELATED COSTS AND OTHER SPECIAL CHARGES
Amounts include the effect of merger-related costs and other special
charges recorded by Cardinal in the fiscal years ended June 30, 1998, 1997 and
1996 and the three months ended September 30, 1998 and 1997, and by Allegiance
in the fiscal year ended December 31, 1996. During the fiscal year ended June
30, 1998, Cardinal recorded $49.1 million ($30.6 million, net of tax) related to
various mergers, $2.3 million related to transaction costs incurred in
connection with the merger transaction with MediQual Systems, Inc., $33.4
million related to transaction costs and the termination fee incurred in
connection with the proposed merger with Bergen that was terminated in August
1998, $3.8 million related to asset impairments and the remaining $9.6 million
related to integrating the operations of companies that previously merged with
Cardinal. In addition, during fiscal 1998, Cardinal recorded a special charge of
approximately $8.6 million ($5.2 million, net of tax) related to the
rationalization of its distribution operations. Lastly, as a result of a change
in tax status of a 51% owned subsidiary in Germany, Cardinal's tax basis in the
German subsidiary was adjusted, resulting in a one-time tax refund of $4.6
million, as well as a reduction in cash taxes to be paid in current and future
years. Combined, these factors resulted in a one-time reduction of fiscal 1998
income tax expense of approximately $11.7 million. The effect of the special
charges on the 1998 unaudited pro forma combined results was to reduce pro forma
Net Earnings by $24.1 million to $409.1 million and to reduce pro forma Diluted
earnings per Cardinal Common Share by $0.09 per share to $1.48 per share.
During the fiscal year ended June 30, 1997, Cardinal recorded
merger-related charges associated with prior mergers totaling $50.9 million
($36.6 million, net of tax). Allegiance, during fiscal year ended December 31,
1996, recorded non-recurring charges of $550.0 million ($550.0, net of tax) for
the write-down of goodwill and $95.5 million ($62.8 million, net of tax)
primarily for facility consolidations and other asset write-downs. The effect of
the special charges on the 1997 unaudited pro forma combined results was to
reduce pro forma Net Earnings by $649.4 million to $(233.8) million and to
reduce pro forma Diluted Earnings per Cardinal Common Share by $2.42 per share
to $(.87) per share.
During the fiscal year ended June 30, 1996, Cardinal recorded charges to
reflect the estimated MSI and Pyxis merger-related costs of approximately $49.2
million ($36.9 million, net of tax). Cardinal also recorded a charge of
approximately $33.8 million ($23.1 million, net of tax) related to restructuring
and facility consolidation charges. The effect of the special charges on the
1996 unaudited pro forma combined results was to reduce pro forma net Earnings
by $60.0 million to $429.1 million and to reduce pro forma Diluted Earnings per
Cardinal Common Share by $0.23 per share to $1.63 per share.
During the three months ended September 30, 1998, Cardinal recorded
merger-related costs of approximately $34.4 million ($27.8 million, net of tax)
related to various mergers. $34.8 million related to transaction costs incurred
in connection with the business combination with Scherer, and $1.8 million
related to additional integration costs related to integrating the operations of
companies which previously merged with Cardinal. Partially offsetting the charge
recorded during the three months ending September 30, 1998 was a $2.2 million
credit to adjust the estimated Bergen transaction and termination costs
previously recorded. The effect of merger-related charges recorded during the
three months ended September 30, 1998 was to reduce pro forma Net Earnings by
$27.8 million to $90.8 million and to reduce pro forma Diluted Earnings per
Common Share by $0.10 per share to $0.33 per share.
During the three months ended September 30, 1997, Cardinal recorded
merger-related charges associated with prior mergers totaling $2.2 million ($1.3
million, net of tax). The effect of the merger-related costs on the three months
ended September 30, 1997 unaudited pro forma combined results was to reduce pro
forma Net Earnings by $1.3 million to $90.3 million and to reduce pro forma
Diluted Earnings per Cardinal Common Share by $0.01 per share to $0.33 per
share.
(6) EARNINGS PER SHARE
The pro forma Net Earnings per Common Share reflect: (a) the weighted
average number of Cardinal Common Shares that would have been outstanding had
the Merger occurred at the beginning of the periods
FINANCIAL INFORMATION
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<PAGE> 96
presented based upon the Exchange Ratio of 0.6225 of a Cardinal Common Share to
be issued for each share of Allegiance Common Stock outstanding (excluding
Allegiance Common Stock held in treasury, which will be canceled or retired),
and (b) the dilutive impact of stock options and warrants using the treasury
stock method. All Allegiance Options are assumed to be converted into Cardinal
Exchange Options at the Exchange Ratio of 0.6225 Cardinal Common Shares for each
share of Allegiance Common Stock before application of the treasury stock
method.
FINANCIAL INFORMATION
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FINANCIAL INFORMATION
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COMPARISON OF SHAREHOLDER RIGHTS
As a result of the Merger, Allegiance Stockholders will receive Cardinal
Common Shares in exchange for their shares of Allegiance Common Stock. The
following is a summary of certain material differences between the rights of
holders of Allegiance Common Stock and the rights of holders of Cardinal Common
Shares. These differences arise in part from the differences between the
Delaware Law and the Ohio Law. Additional differences arise from the governing
instruments of the two companies (in the case of Allegiance, the Allegiance
Certificate, the Allegiance Bylaws, and, in the case of Cardinal, the Cardinal
Articles and the Cardinal Regulations. Although it is impractical to compare all
of the aspects in which the Delaware Law and the Ohio Law and Allegiance's and
Cardinal's governing instruments differ with respect to stockholders' rights,
the following discussion summarizes certain significant differences between
them.
PUBLIC MARKETS FOR THE SHARES
Cardinal Common Shares are quoted on the NYSE, and shares of Allegiance
Common Stock are quoted on the NYSE and the Chicago Stock Exchange, Inc. After
the Merger, Cardinal Common Shares, including those issued in connection with
the Merger, will be quoted on the NYSE.
AMENDMENT OF CHARTER DOCUMENTS
Unless a certificate of incorporation otherwise provides, the Delaware Law
requires approval by holders of a majority of the voting power of a corporation
in order to amend a corporation's certificate of incorporation. The Allegiance
Certificate does not so provide. To amend an Ohio corporation's articles of
incorporation, the Ohio Law requires the approval of shareholders holding
two-thirds of the voting power of the corporation or, in cases in which class
voting is required, of shareholders holding two-thirds of the voting power of
such class, unless otherwise specified in such corporation's articles of
incorporation. The Cardinal Articles specify that the holders of a majority of
the voting power of Cardinal, or, when appropriate, any class of shareholders,
may amend the Cardinal Articles.
AMENDMENT AND REPEAL OF BYLAWS AND REGULATIONS
The Delaware Law provides that holders of a majority of the voting power of
a corporation, and, when provided in the certificate of incorporation, the
directors of the corporation, have the power to adopt, amend and repeal the
bylaws of the corporation. The Allegiance Certificate grants the directors of
Allegiance such power.
The Ohio Law provides that only shareholders of a corporation have the
power to amend and repeal a corporation's code of regulations. The Cardinal
Regulations require that such amendments be approved by the affirmative vote of
the holders of a majority of the voting power entitled to vote on such matter,
except that the affirmative vote of the holders of not less than 75% of the
shares having voting power is required to amend, change, adopt any provision
inconsistent with, or repeal provisions of the Cardinal Regulations regarding
the number and classification of directors, the term of office of directors, the
removal of directors or amendments to the Cardinal Regulations.
REMOVAL OF DIRECTORS
The Delaware Law provides that directors may be removed from office with or
without cause, by the holders of a majority of the voting power of all
outstanding voting stock of a corporation, unless the corporation has a
classified board or its governing documents provide otherwise. The Allegiance
Certificate provides that a director may be removed only for cause and only by
the affirmative vote of a majority of the then-outstanding shares entitled to
vote for the election of such director.
The Ohio Law provides that directors may be removed, with or without cause,
by the affirmative vote of the holders of a majority of the voting power of a
corporation, except that, unless all the directors or all the directors of a
particular class are removed, no individual director may be removed if the votes
of a sufficient number of shares are cast against such director's removal that,
if cumulatively voted at an election of all the
COMPARISON OF SHAREHOLDER RIGHTS
87
<PAGE> 99
directors, or all the directors of a particular class, as the case may be, would
be sufficient to elect at least one director unless the corporation's governing
documents provide otherwise. The Cardinal Regulations provide that removal of a
director requires the affirmative votes of holders of at least 75% of such
voting power. In addition, the Cardinal Regulations provide that any director
may be removed by the Cardinal Board for certain causes specified in Section
1701.58(B) of the Ohio Law (if a director is found by order of court to be of
unsound mind, if such director is adjudicated a bankrupt or if such director
fails to meet any qualifications for office).
VACANCIES ON THE BOARD
The Delaware Law provides that vacancies and newly created directorships
resulting from a resignation or any increase in the authorized number of
directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office, unless
the governing documents of a corporation provide otherwise. The Allegiance
Certificate does not otherwise provide.
The Ohio Law provides that vacancies on a corporation's board of directors
may be filled by a majority of the remaining directors of the corporation unless
the governing documents of the corporation provide otherwise. The Cardinal
Regulations provide that vacancies on the Cardinal Board may be filled by the
Cardinal Board until Cardinal Shareholders hold a meeting to fill such vacancy.
In addition, Cardinal Shareholders may elect a director to fill a vacancy
(including any vacancy that previously has been filled by the directors) at any
meeting of Cardinal Shareholders called for that purpose.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
The Delaware Law permits special meetings of stockholders to be called by a
board of directors and such other persons, including stockholders, as a
certificate of incorporation or bylaws may provide. The Delaware Law does not
require that stockholders be given the right to call special meetings. The
Allegiance Bylaws provide that special meetings may be called by the Chairman of
the Allegiance Board and Chief Executive Officer or Secretary of Allegiance upon
a request in writing signed by a majority of the directors or by resolution of
the directors of Allegiance, and shall be called by the Chairman of the
Allegiance Board and Chief Executive Officer or Secretary if directed by the
Allegiance Board or requested in writing by the holders of not less than 25% of
Allegiance Common Stock.
The Ohio Law provides that holders of at least 25% of the outstanding
shares of a corporation, unless the corporation's code of regulations specifies
another percentage, which may in no case be greater than 50%, the directors by
action at a meeting or a majority of the directors acting without a meeting, the
Chairman of the Board, the President or, in case of the President's death or
disability, the Vice President authorized to exercise the authority of the
President have the authority to call special meetings of shareholders. The
Cardinal Regulations expressly provide that special meetings of Cardinal
Shareholders may be called by the Chairman of the Board, the President, a
majority of directors acting with or without a meeting or the holders of at
least 25% of the outstanding Cardinal Common Shares.
SHAREHOLDER ACTION WITHOUT A MEETING
The Delaware Law provides that any action that may be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if the holders of common stock having not less than the minimum number of
votes otherwise required to approve such action at a meeting of stockholders
consent in writing, unless otherwise provided by a corporation's certificate of
incorporation. The Allegiance Certificate specifically denies to Allegiance
Stockholders the power to consent in writing without a meeting to the taking of
any action.
The Ohio Law and the Cardinal Regulations provide that any action that may
be taken by shareholders of a corporation at a meeting of shareholders may be
taken without a meeting with the unanimous written consent of all shareholders
entitled to vote at such meeting.
COMPARISON OF SHAREHOLDER RIGHTS
88
<PAGE> 100
CLASS VOTING
The Delaware Law requires voting by separate classes only with respect to
amendments to a corporation's certificate of incorporation that adversely affect
the holders of those classes or that increase or decrease the aggregate number
of authorized shares or the par value of the shares of any of those classes.
The Ohio Law provides that holders of a particular class of shares are
entitled to vote as a separate class if the rights of that class are affected in
certain respects by mergers, consolidations or amendments to the articles of
incorporation.
CUMULATIVE VOTING
The Delaware Law provides that stockholders of a corporation do not have
the right to cumulate their votes in the election of directors unless such right
is granted in the certificate of incorporation of the corporation. The
Allegiance Certificate does not grant such right. The Ohio Law provides that
each shareholder of a corporation has the right to vote cumulatively in the
election of directors if certain notice requirements are satisfied unless the
articles of incorporation of a corporation are amended to eliminate cumulative
voting for directors following their initial filing with the Ohio Secretary of
State. The Cardinal Articles have not been amended to eliminate the rights of
Cardinal Shareholders to vote cumulatively in the election of directors.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
Section 203 of the Delaware Law provides generally that any person who
acquires 15% or more of a corporation's voting stock (thereby becoming an
"interested stockholder") may not engage in a wide range of "business
combinations" with the corporation for a period of three years following the
date the person became an interested stockholder, unless (1) the board of
directors of the corporation has approved, prior to that acquisition date,
either the business combination or the transaction that resulted in the person
becoming an interested stockholder, (2) upon consummation of the transaction
that resulted in the person becoming an interested stockholder, that person owns
at least 85% of the corporation's voting stock outstanding at the time the
transaction commenced (excluding shares owned by persons who are directors and
also officers and shares owned by employee stock plans in which participants do
not have the right to determine confidentially whether shares will be tendered
in a tender or exchange offer), or (3) the business combination is approved by
the board of directors and authorized by the affirmative vote (at an annual or
special meeting and not by written consent) of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
These restrictions on interested stockholders do not apply under certain
circumstances, including, but not limited to, the following (1) if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203 of the Delaware Law, or (2)
if the corporation, by action of its stockholders, adopts an amendment to its
bylaws or certificate of incorporation expressly electing not to be governed by
Section 203 of the Delaware Law, with such amendment to be effective 12 months
thereafter. Neither the Allegiance Certificate nor the Allegiance Bylaws contain
a provision electing not to be governed by Section 203 of the Delaware Law.
Like Section 203 of the Delaware Law, Chapter 1704 of the Ohio Law
prohibits an interested shareholder from engaging in a wide range of business
combinations similar to those prohibited by Section 203 of the Delaware Law.
However, in contrast to Section 203 of the Delaware Law, under Chapter 1704 of
the Ohio Law, an "interested shareholder" includes a shareholder who, directly
or indirectly, exercises or directs the exercise of 10% or more of the voting
power of the corporation. Chapter 1704 restrictions do not apply under certain
circumstances, including, but not limited to, the following (1) if directors of
a corporation have approved the transactions or the interested shareholder's
acquisition of shares of the corporation was prior to the date the interested
shareholder became an interested shareholder, and (2) if a corporation, by
action of its shareholders holding at least 66 2/3% of the voting power of the
corporation, adopts an amendment to its articles of incorporation specifying
that Chapter 1704 of the Ohio Law shall not be applicable to the corporation. No
such amendment has been adopted by Cardinal.
COMPARISON OF SHAREHOLDER RIGHTS
89
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Under Section 1701.831 of the Ohio Law, unless the articles of
incorporation or code of regulations of a corporation otherwise provide, any
control share acquisition of an issuing public corporation can only be made with
the prior approval of the shareholders of the corporation. A "control share
acquisition" is defined as any acquisition of shares of a corporation that, when
added to all other shares of that corporation owned by the acquiring person,
would enable a person to exercise levels of voting power in any of the following
ranges: at least 20% but less than 33 1/3%; at least 33 1/3% but less than 50%;
50% or more. The Cardinal Articles expressly provide that the provisions of
Section 1701.831 of the Ohio Law shall not apply.
MERGERS, ACQUISITIONS, SHARE PURCHASES AND CERTAIN OTHER TRANSACTIONS
The Delaware Law requires approval of mergers, consolidations and
dispositions of all or substantially all of a corporation's assets (other than
so-called "parent-subsidiary" mergers) by a majority of the voting power of the
corporation, unless the corporation's certificate of incorporation specifies a
different percentage. The Allegiance Certificate does not provide for a
different percentage. The Delaware Law does not require stockholder approval for
majority share acquisitions or for combinations involving the issuance of less
than 20% of the voting power of the corporation, except for business
combinations subject to Section 203 of the Delaware Law.
The Ohio Law generally requires approval of mergers, dissolutions,
dispositions of all or substantially all of a corporation's assets, and majority
share acquisitions and combinations involving issuance of shares representing
one-sixth or more of the voting power of the corporation immediately after the
consummation of the transaction (other than so-called "parent-subsidiary"
mergers), by two-thirds of the voting power of a corporation, unless the
articles of incorporation specify a different proportion (not less than a
majority). The Cardinal Articles provide that the vote of a majority of the
voting power of Cardinal is required to approve such actions.
Section 1701.59 of the Ohio Law permits a director of a corporation, in
determining what such director reasonably believes to be in the best interests
of the corporation, to consider, in addition to the interests of the
corporation's shareholders, any of the following (1) the interests of the
corporation's employees, suppliers, creditors, and customers, (2) the economy of
the state and nation, (3) community and societal considerations, and (4) the
long-term as well as short-term interests of the corporation and the
corporation's shareholders, including the possibility that these interests may
be best served by the continued independence of the corporation. The Delaware
Law contains no comparable provision.
The Allegiance Bylaws require approval by a majority of the voting power of
Allegiance for the purchase of Allegiance Common Stock by Allegiance at a price
that Allegiance knows to be above market price.
Neither the Cardinal Regulations nor Ohio Law contain a comparable
requirement.
RIGHTS OF DISSENTING SHAREHOLDERS
The Delaware Law provides that appraisal rights are available to dissenting
stockholders in connection with certain mergers or consolidations. However,
unless a corporation's certificate of incorporation otherwise provides, the
Delaware Law does not provide for appraisal rights (1) if the shares of the
corporation are listed on a national securities exchange or designated as a
national market systems security on an interdealer quotations system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 stockholders (as long as the stockholders receive in the merger shares of
the surviving corporation or of any other corporation the shares of which are
listed on a national securities exchange or designated as a national market
systems security on an interdealer quotations system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 stockholders)
or (2) if the corporation is the surviving Corporation and no vote of its
stockholders is required for the merger. The Allegiance Certificate does not
provide otherwise. See "The Special Meetings -- Appraisal Rights." The Delaware
Law does not provide appraisal rights to stockholders who dissent from the sale
of all or substantially all of a corporation's assets or an amendment to a
corporation's certificate of incorporation, although a corporation's certificate
of incorporation may so provide.
COMPARISON OF SHAREHOLDER RIGHTS
90
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Under the Ohio Law, dissenting shareholders are entitled to appraisal
rights in connection with the lease, sale, exchange, transfer or other
disposition of all or substantially all of the assets of a corporation and in
connection with certain amendments to a corporation's articles of incorporation.
Shareholders of an Ohio corporation being merged into or consolidated with
another corporation are also entitled to appraisal rights. In addition,
shareholders of an acquiring corporation are entitled to appraisal rights in any
merger, combination or "majority share acquisition" in which such shareholders
are entitled to voting rights. The Ohio Law provides shareholders of an
acquiring corporation with voting rights if the acquisition involves the
transfer of shares of the acquiring corporation entitling the recipients thereof
to exercise one-sixth or more of the voting power of such acquiring corporation
immediately after the consummation of the transaction.
The Delaware Law provides, among other procedural requirements, that a
stockholder's written demand for appraisal of shares must be received before the
taking of the vote on the matter giving rise to appraisal rights.
The Ohio Law provides that a shareholder's written demand must be delivered
to a corporation not later than ten days after the taking of the vote on the
matter giving rise to appraisal rights.
DIVIDENDS
Both the Delaware Law and the Ohio Law provide that dividends may be paid
in cash, property or shares of a corporation's capital stock. The Delaware Law
provides that a corporation may pay dividends out of any surplus, and, if it has
no surplus, out of any net profits for the fiscal year in which the dividend was
declared or for the preceding fiscal year (provided that such payment will not
reduce capital below the amount of capital represented by all classes of shares
having a preference upon the distribution of assets).
The Ohio Law provides that a corporation may pay dividends out of surplus
and must notify its shareholders if a dividend is paid out of capital surplus.
PREEMPTIVE RIGHTS OF SHAREHOLDERS
The Delaware Law provides that no stockholder shall have any preemptive
rights to purchase additional securities of a corporation unless the
corporation's certificate of incorporation expressly grants such rights. The
Allegiance Certificate does not provide for preemptive rights.
The Ohio Law provides that, subject to certain limitations and conditions
contained in the Ohio Law and unless a corporation's articles of incorporation
provide otherwise, a corporation's shareholders shall have preemptive rights to
purchase additional securities of the corporation. The Cardinal Articles
expressly eliminate any preemptive rights.
DIRECTOR LIABILITY AND INDEMNIFICATION
The Delaware Law allows a corporation to include in its certificate of
incorporation, and the Allegiance Certificate contains, a provision eliminating
the liability of a director for monetary damages for a breach of such director's
fiduciary duties as a director, except liability (1) for any breach of the
director's duty of loyalty to Allegiance or Allegiance Stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or
knowing violation of law, (3) under Section 174 of the Delaware Law (which deals
generally with unlawful payments of dividends, stock repurchases and
redemptions), and (4) for any transaction from which the director derived an
improper personal benefit.
The Ohio Law provides no comparable provision limiting the liability of
officers, employees or agents of a corporation and the Cardinal Articles contain
no such provision. However, under the Ohio Law, a director is not liable for
monetary damages unless it is proved by clear and convincing evidence that such
director's action or failure to act was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation.
Delaware Law permits a Delaware corporation to indemnify directors,
officers, employees and agents under certain circumstances, and mandates
indemnification under certain circumstances. The Delaware Law
COMPARISON OF SHAREHOLDER RIGHTS
91
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permits a corporation to indemnify an officer, director, employee or agent for
fines, judgments, or settlements, as well as for expenses in the context of
actions other than derivative actions, if such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to the best
interests of the corporation or, in the case of a criminal proceeding, if such
person had no reasonable cause to believe that such person's conduct was
unlawful. Indemnification against expenses incurred by a director, officer,
employee or agent in connection with a proceeding against such person for
actions in such capacity is mandatory to the extent that such person has been
successful on the merits. If a director, officer, employee or agent is
determined to be liable to the corporation, indemnification for expenses is not
allowable, subject to limited exceptions when a court deems the award of
expenses appropriate. The Allegiance Bylaws, however, do not contain
indemnification provisions. The Delaware Law grants express power to a Delaware
corporation to purchase liability insurance for its directors, officers,
employees and agents, regardless of whether any such person is otherwise
eligible for indemnification by the corporation. Advancement of expenses is
permitted, but a person receiving such advances must repay those expenses if it
is ultimately determined that he is not entitled to indemnification.
The Ohio Law provides that a corporation may indemnify directors, officers,
employees and agents within prescribed limits, and must indemnify them under
certain circumstances. The Ohio Law does not authorize payment by a corporation
of judgments against a director, officer, employee or agent after a finding of
negligence or misconduct in a derivative suit absent a court order.
Indemnification is required, however, to the extent such person succeeds on the
merits. In all other cases, if it is determined that a director, officer,
employee, or agent acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
indemnification is discretionary, except as otherwise provided by a
corporation's articles of incorporation, or code of regulations, or by contract,
except with respect to the advancement of expenses to directors (as discussed in
the next paragraph). The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, purchase insurance to
indemnify such persons.
The Ohio Law provides that a director (but not an officer, employee, or
agent) is entitled to mandatory advancement of expenses, including attorneys'
fees, incurred in defending any action, including derivative actions, brought
against the director, provided that the director agrees to cooperate with the
corporation concerning the matter and to repay the amount advanced if it is
proved by clear and convincing evidence that such director's act or failure to
act was done with deliberate intent to cause injury to the corporation or with
reckless disregard for the corporation's best interests.
The Cardinal Regulations provide for indemnification by Cardinal to the
fullest extent expressly permitted by the Ohio Law of any person made or
threatened to be made a party to any action, suit, or proceeding by reason of
the fact that such person is or was a director, officer, employee or agent of
Cardinal or of any other corporation for which such person was serving as a
director, officer, employee, or agent at the request of Cardinal. See also "The
Merger -- Interests of Certain Persons in the Merger."
RIGHTS AGREEMENT
On September 16, 1996, the Allegiance Board declared a dividend
distribution of one right (a "RIGHT") for each outstanding share of Allegiance
Common Stock to stockholders of record at the close of business on September 30,
1996. Each Right entitles the registered holders to purchase from Allegiance a
unit consisting of one one-hundredth of a share (a "UNIT") of Series A Junior
Participating Preferred Stock, par value $.01 per share ("ALLEGIANCE PREFERRED
STOCK"), at a purchase price of $65 per Unit ("ALLEGIANCE PREFERRED STOCK
PURCHASE PRICE"), subject to adjustment.
At present, Rights are represented by Allegiance Common Stock certificates
representing outstanding shares, and no separate Rights certificates have been
distributed. Rights will separate from the Common Stock and the "DISTRIBUTION
DATE" will occur upon the earlier of (1) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"ACQUIRING PERSON") has acquired or obtained the right to acquire beneficial
ownership of 15% or more of the outstanding shares of Allegiance Common Stock
(the "STOCK ACQUISITION DATE"), or (2) ten business days (or such later date as
may be determined by action
COMPARISON OF SHAREHOLDER RIGHTS
92
<PAGE> 104
of the Allegiance Board prior to such time as any person or group becomes an
Acquiring Person) following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of
outstanding shares of Allegiance Common Stock. Until the Distribution Date, (1)
Rights will be evidenced by Allegiance Common Stock certificates, (2) new
Allegiance Common Stock certificates issued on or after September 30, 1996 will
contain a notation incorporating the Rights Agreement by reference and (3) the
surrender for transfer of any certificates for Allegiance Common Stock
outstanding will also constitute the transfer of the Rights associated with
Allegiance Common Stock represented by such Allegiance Common Stock certificate.
Pursuant to the Rights Agreement, Allegiance reserves the right to require,
prior to the occurrence of a Triggering Event, that, upon any exercise of
Rights, a number of Rights be exercised so that only whole shares of Allegiance
Preferred Stock will be issued.
Rights are not exercisable until the Distribution Date and will expire at
the close of business on September 30, 2006 unless redeemed earlier by
Allegiance as described below.
As soon as practicable after the Distribution Date, Rights certificates
will be mailed to holders of record of Allegiance Common Stock as of the close
of business on the Distribution Date and, thereafter, the separate Rights
certificates alone will represent Rights. Except as otherwise provided in the
Rights Agreement, only shares of Allegiance Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that, at any time following the Stock Acquisition Date, any
person or group becomes an Acquiring Person, each holder of a Right will
thereafter have the right to receive, upon exercise, Allegiance Common Stock
having a value equal to two times the exercise price of such Right. If an
insufficient number of shares of Allegiance Common Stock is authorized for
issuance, then the Allegiance Board would be required to substitute cash,
property or other securities of Allegiance for Allegiance Common Stock.
Notwithstanding any of the foregoing, following the occurrence of the event set
forth in this paragraph, all Rights that are or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person will be null and void. However, Rights are not exercisable following the
occurrence of the event set forth in this paragraph until such time as the
Rights are no longer redeemable by Allegiance as set forth below.
In the event that, at any time following the Stock Acquisition Date, (1)
Allegiance is acquired in a merger or other business combination transaction in
which Allegiance is not the surviving corporation, or (2) 50% or more of
Allegiance's assets or earning power is sold or transferred, each holder of a
Right (except Rights that previously have been void as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of such
Right. The events set forth in this paragraph and in the preceding paragraph are
referred to as the "TRIGGERING EVENTS". In addition, Rights may be exchanged, in
whole or in part, for shares of Allegiance Common Stock, or shares of Allegiance
Preferred Stock having essentially the same value or economic rights as such
shares.
The purchase price payable and the number of Units of Allegiance Preferred
Stock or other securities or property issuable, upon exercise of Rights are
subject to adjustment from time to time to prevent dilution (1) in the event of
a stock dividend on, or a subdivision, combination or reclassification of,
Allegiance Preferred Stock, (2) if holders of Allegiance Preferred Stock are
granted certain rights or warrants to subscribe for Allegiance Preferred Stock
or convertible securities at less than the current market price of Allegiance
Preferred Stock, or (3) upon the distribution to holders of the Allegiance
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of Allegiance Preferred Stock on the
last trading date prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of Allegiance Common Stock, the Allegiance Board may exchange Rights
(other than Rights owned by such person or group, which will have become void),
in whole or in part, at an exchange ratio of one share of Allegiance Common
Stock, or one one-hundredth of a
COMPARISON OF SHAREHOLDER RIGHTS
93
<PAGE> 105
share of Allegiance Preferred Stock (or of a share of a class or series of
Allegiance's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
In general, Allegiance may redeem Rights in whole, but not in part, at a
price of $.01 per Right (payable in cash, Allegiance Common Stock or other
consideration deemed appropriate by the Allegiance Board) at any time until ten
days following the Stock Acquisition Date. Immediately upon the action of the
Allegiance Board authorizing any redemption, the Rights will terminate and the
only right of the holders of Rights will be to receive the redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as an Allegiance Stockholder, including, without limitation, the right to
vote or to receive dividends. While the distribution of Rights will not result
in the recognition of taxable income by Allegiance Stockholders or Allegiance,
Allegiance Stockholders may, depending on the circumstances, recognize taxable
income in the event that Rights become exercisable for Allegiance Common Stock
(or other consideration of Allegiance) or for common stock of the acquiring
company as set forth above.
The terms of Rights may be amended by the Allegiance Board without the
consent of the holders of Rights, including an amendment to lower certain
thresholds described above to not less than the greater of (1) the sum of .001%
and the largest percentage of the outstanding shares of Allegiance Common Stock
then known to Allegiance to be beneficially owned by any person or group or
affiliated or associated persons and (2) 10%, except that, from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of Rights.
In connection with the execution of the Merger Agreement, Allegiance and
Rights Agent executed the Rights Agreement Amendment amending the Rights
Agreement so as to provide that neither Cardinal nor Merger Sub will become an
Acquiring Person and that no Stock Acquisition Date, Distribution Date, or
Triggering Event will occur as a result of the consummation of the Merger or any
other transaction contemplated by the Merger Agreement. See "The
Merger -- Allegiance Rights Plan Amendment."
The Rights are designed to protect Allegiance Stockholders in the event of
unsolicited offers or attempts to acquire Allegiance, including offers that do
not treat all Allegiance Stockholders equally, acquisitions in the open market
of shares constituting control without offering fair value to all Allegiance
Stockholders, and other coercive or unfair takeover tactics that could impair
the Allegiance Board's ability to represent Allegiance Stockholders' interests
fully.
Cardinal has not adopted a rights plan and has not declared a stock
purchase right dividend with respect to Cardinal Common Shares.
COMPARISON OF SHAREHOLDER RIGHTS
94
<PAGE> 106
DESCRIPTION OF CARDINAL CAPITAL STOCK
As of December 11, 1998, Cardinal's authorized capital stock consisted of:
(1) 500,000,000 Cardinal Common Shares of which (a) 201,040,420 shares were
issued and outstanding, (b) 299,289 shares were issued and held in treasury, and
(c) 13,114,970 shares were reserved for issuance upon the exercise or conversion
of options, warrants or convertible securities granted or issuable by Cardinal,
(2) 5,000,000 Class B common shares, without par value ("CARDINAL CLASS B COMMON
SHARES"), none of which were issued and outstanding or reserved for issuance,
and (3) 500,000 nonvoting preferred shares, without par value ("PREFERRED
SHARES"), none of which were issued and outstanding or reserved for issuance.
From time to time, Cardinal may issue additional authorized but unissued
Cardinal Common Shares for share dividends, stock splits, employee benefit
programs, financing and acquisition transactions, and other general corporate
purposes. Such Cardinal Common Shares will be available for issuance without
action by Cardinal Shareholders, unless such action is required by applicable
law (see "Comparison of Shareholder Rights -- Mergers, Acquisitions, Share
Purchases and Certain Other Transactions") or the rules of the NYSE or any other
stock exchange on which Cardinal Common Shares may be listed in the future.
Cardinal Shareholders do not have preemptive rights and have no rights to
convert their Cardinal Common Shares into any other security other than into
Cardinal Class B Common Shares in certain limited circumstances. All Cardinal
Common Shares are entitled to participate equally and ratably in dividends on
Cardinal Common Shares as may be declared by the Cardinal Board. In the event of
the liquidation of Cardinal, holders of Cardinal Common Shares are entitled to
share ratably in assets remaining after payment of all liabilities, subject to
prior distribution rights of any Preferred Shares then outstanding. Holders of
Cardinal 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 Cardinal Class B Common Shares, none of which is issued and
outstanding, are entitled to one-fifth of one vote per share upon all matters on
which Cardinal Class B Common shareholders are entitled to vote. Under certain
circumstances, holders of Cardinal Class B Common Shares have a separate class
vote. Cardinal Shareholders are afforded the right to vote their Cardinal Common
Shares cumulatively for the election of nominees to fill the particular class of
directors to be elected at each annual meeting, subject to compliance with
certain procedural requirements.
The Cardinal Articles provide that the Cardinal Board is authorized to
approve the issuance of Preferred Shares from time to time in one or more series
without future authorization of Cardinal Shareholders. The Cardinal Board is
authorized to adopt amendments to the Cardinal Articles from time to time fixing
or changing the terms and designations of Preferred Shares, including (1) the
division of such Preferred Shares into series and the designation and authorized
number of Preferred Shares of each series, (2) the dividend rate, (3) the dates
of payment of dividends and the dates from which they are cumulative, (4) the
liquidation price, (5) the redemption rights and price, (6) sinking fund
requirements, (7) conversion rights, and (8) restrictions on the issuance of
such Preferred Shares. Holders of Preferred Shares will have no voting rights,
except as required by law. Holders of Preferred Shares will have no preemptive
rights to subscribe to or for any additional capital shares of Cardinal.
Cardinal has no present plans to issue any Preferred Shares.
The Cardinal Regulations provide that the Cardinal Board shall consist of
that number of directors as determined by action of the Cardinal Board, but in
no case fewer than nine or more than 16 members, divided into three classes, and
require that any proposal to either remove a director during such director's
term of office or to further amend the Cardinal Regulations relating to the
classification, number 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 such proposal. The Cardinal Board may fill any vacancy on the
Cardinal Board with an individual who shall serve until the Cardinal
Shareholders hold an election to fill the vacancy. The purpose of these
provisions is to prevent directors from being removed from office prior to the
expiration of their respective terms, thus protecting the safeguards inherent in
the classified board structure unless dissatisfaction with the performance of
one or more directors is widely shared by Cardinal Shareholders. However, these
provisions could also have the effect of increasing from one year to two or
three years (depending upon the number of Cardinal Common Shares held) the
amount of time required for an acquiror to obtain control of Cardinal by
electing a majority of the Cardinal Board and may also make the removal of
incumbent
DESCRIPTION OF CARDINAL CAPITAL STOCK
95
<PAGE> 107
management more difficult and discourage or render more difficult certain
mergers, tender offers, proxy contests, or other potential takeover proposals.
To the extent that these provisions have the effect of giving management more
bargaining power in negotiations with a potential acquiror, they could result in
management's using the bargaining power not only to try to negotiate a favorable
price for an acquisition, but also to negotiate more favorable terms for
management.
Pursuant to the Merger Agreement, Cardinal has agreed that, immediately
following the Effective Time, the Cardinal Board will take all action necessary
to elect as directors of Cardinal Mr. Knight, and two other independent
directors who are currently members of the Allegiance Board chosen by the
Chairman of Cardinal from three directors of Allegiance proposed by the
Allegiance Board prior to the Effective Time. See "The Merger
Agreement -- Covenants."
DESCRIPTION OF CARDINAL CAPITAL STOCK
96
<PAGE> 108
OTHER ACTION TO BE TAKEN AT THE ALLEGIANCE SPECIAL MEETING
ALLEGIANCE ADJOURNMENT PROPOSAL
Allegiance is submitting to Allegiance Stockholders a proposal to authorize
the named attorneys-in-fact to vote in favor of the Allegiance Adjournment
Proposal at the Allegiance Special Meeting in the event that there are not
sufficient votes to approve the Allegiance Merger Proposal at the time of the
Allegiance Special Meeting. Even though a quorum may be present at the
Allegiance Special Meeting, it is possible that Allegiance may not have received
sufficient votes to approve the Allegiance Merger Proposal at the time of the
Allegiance Special Meeting. In that event, the Allegiance Merger Proposal could
not be approved unless the Allegiance Special Meeting were adjourned in order to
permit further solicitation of proxies.
In order to allow the proxies that have been received by Allegiance at the
time of the Allegiance Special Meeting to be voted for such adjournment, if
necessary, Allegiance has submitted the question of adjournment under such
circumstances, and only under such circumstances, to Allegiance Stockholders for
their consideration. A majority of the issued and outstanding shares of
Allegiance Common Stock present in person or represented by proxy at the
Allegiance Special Meeting and entitled to vote thereon is required in order to
approve any such adjournment.
The Allegiance Board recommends that Allegiance Stockholders vote their
proxies in favor of the Allegiance Adjournment Proposal so that their proxies
may be used for such purpose, should it become necessary. Properly executed
proxies will be voted in favor of the Allegiance Adjournment Proposal unless
otherwise noted thereon. If it is necessary to adjourn the Allegiance Special
Meeting, no notice of the time and place of the adjourned meeting is required to
be given to Allegiance Stockholders other than an announcement of such time and
place at the Allegiance Special Meeting. The Allegiance Adjournment Proposal
relates only to an adjournment occurring for purposes of soliciting additional
proxies for approval of the Allegiance Merger Proposal in the event that there
are insufficient votes to approve the Allegiance Merger Proposal at the
Allegiance Special Meeting. Any other adjournment (e.g., an adjournment required
because of the absence of a quorum) would be voted upon pursuant to the
discretionary authority granted by the proxy.
The Allegiance Board retains full authority to postpone the Allegiance
Special Meeting prior to such Allegiance Special Meeting being convened without
the consent of any stockholder.
THE ALLEGIANCE BOARD RECOMMENDS THAT ALLEGIANCE STOCKHOLDERS VOTE FOR THE
ALLEGIANCE ADJOURNMENT PROPOSAL.
CERTAIN OTHER MATTERS
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OTHER ACTION TO BE TAKEN AT THE CARDINAL SPECIAL MEETING
CARDINAL ADJOURNMENT PROPOSAL
Cardinal is submitting to Cardinal Shareholders a proposal to authorize the
named attorneys-in-fact to vote in favor of the adjournment of the Cardinal
Special Meeting in the event that there are not sufficient votes to approve the
Cardinal Merger Proposal at the time of the Cardinal Special Meeting. Even
though a quorum may be present at the Cardinal Special Meeting, it is possible
that Cardinal may not have received sufficient votes to approve the Cardinal
Merger Proposal at the time of the Cardinal Special Meeting. In that event, such
proposals could not be approved unless the Cardinal Special Meeting were
adjourned in order to permit further solicitation of proxies.
In order to allow the proxies that have been received by Cardinal at the
time of the Cardinal Special Meeting to be voted for the Cardinal Adjournment
Proposal, if necessary, Cardinal has submitted the question of adjournment under
such circumstances, and only under such circumstances, to Cardinal Shareholders
for their consideration. A majority of the Cardinal Common Shares represented
and present in person or represented by proxy at the Cardinal Special Meeting is
required in order to approve the Cardinal Adjournment Proposal.
The Cardinal Board recommends that the Cardinal Shareholders vote their
proxies in favor of the Cardinal Adjournment Proposal so that their proxies may
be used for such purpose should it become necessary. Properly executed proxies
will be voted in favor of the Cardinal Adjournment Proposal unless otherwise
noted thereon. If it is necessary to adjourn the Cardinal Special Meeting, no
notice of the time and place of the adjourned meeting is required to be given to
Cardinal Shareholders other than an announcement of such time and place at the
Cardinal Special Meeting. The Cardinal Adjournment Proposal relates only to an
adjournment occurring for purposes of soliciting additional proxies for approval
of the Cardinal Merger Proposal in the event that there are insufficient votes
to approve such proposal at the Cardinal Special Meeting. Any other adjournment
(e.g., an adjournment required because of the absence of a quorum) would be
voted upon pursuant to the discretionary authority granted by the proxy.
The Cardinal Board retains full authority to postpone the Cardinal Special
Meeting prior to such Cardinal Special Meeting being convened without the
consent of any Cardinal Shareholder.
THE CARDINAL BOARD RECOMMENDS THAT CARDINAL SHAREHOLDERS VOTE FOR THE
CARDINAL ADJOURNMENT PROPOSAL.
CERTAIN OTHER MATTERS
98
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LEGAL MATTERS
The validity of the Cardinal Common Shares to be issued in the Merger will
be passed upon for Cardinal by Wachtell, Lipton, Rosen & Katz, special counsel
to Cardinal.
Davis Polk & Wardwell, counsel to Allegiance, has rendered the opinion
referred to under "Certain United States Federal Income Tax Consequences."
EXPERTS
The supplemental consolidated financial statements and the related
supplemental financial statement schedule of Cardinal and its consolidated
subsidiaries as of June 30, 1998 and 1997, and for each of the three years in
the period ended June 30, 1998, have been incorporated in this Joint Proxy
Statement/Prospectus by reference from Cardinal's Current Report on Form 8-K/A
filed September 28, 1998 ("FORM 8-K/A"). Such supplemental consolidated
financial statements and schedule of Cardinal and its subsidiaries, except the
financial statements of Scherer, for each of the three years in the period ended
June 30, 1998, and of Pyxis and Owen, for the year ended June 30, 1996, have
been audited by D&T as stated in their report (which report expresses an
unqualified opinion that such financial statements are in conformity with
generally accepted accounting principles applicable after consolidated financial
statements are issued for a period which includes the date of consummation of
the business combination of Cardinal and Scherer) which is incorporated herein
by reference from the Form 8-K/A. The financial statements of Scherer for each
of the three years in the period ended June 30, 1998 and of Pyxis and Owen for
the year ended June 30, 1996 have been audited by Arthur Andersen LLP, Ernst &
Young LLP and PricewaterhouseCoopers LLP, respectively, as stated in their
reports which are incorporated herein by reference from the Form 8-K/A.
The consolidated financial statements and the financial statement schedule
of Allegiance as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 incorporated herein by reference to the
Allegiance 1997 Annual Report on Form 10-K, have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
Such supplemental consolidated financial statements of Cardinal and its
consolidated subsidiaries and of Allegiance and its consolidated subsidiaries
are incorporated herein by reference in reliance upon the respective reports of
such firms given upon their authority as experts in accounting and auditing. All
of the foregoing firms are independent auditors.
OTHER MATTERS
Representatives of D&T are expected to be present at the Cardinal Special
Meeting with the opportunity to make statements if they so desire.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Allegiance Special Meeting with the opportunity to make statements if they so
desire. In each case, such representatives are also expected to be available to
respond to appropriate questions.
The Allegiance Board knows of no matters to be presented at the Allegiance
Special Meeting other than the ones set forth in the Allegiance Notice of
Special Meeting of Stockholders. However, if any other matters do come before
the Allegiance Special Meeting, it is intended that the holders of the proxies
will vote thereon in their discretion.
The Cardinal Board knows of no matters to be presented at the Cardinal
Special Meeting other than the ones set forth in the Cardinal Notice of Special
Meeting of Stockholders. However, if any other matters do come before the
Cardinal Special Meeting, it is intended that the holders of the proxies will
vote thereon in their discretion.
CERTAIN OTHER MATTERS
99
<PAGE> 111
SHAREHOLDER PROPOSALS
Any Cardinal Shareholder who intends to present a proposal at Cardinal's
1999 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 Cardinal at its principal executive offices not later than May 31,
1999. Cardinal 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 Commission.
Any Allegiance Stockholder who intends to present a proposal at
Allegiance's 1999 Annual Meeting of Stockholders for inclusion in the proxy
statement and form of proxy relating to that meeting is advised that the
proposal must be received by Allegiance at its principal executive offices not
later than January 15, 1999. Allegiance will not be required to include in its
proxy statement a form of proxy or stockholder proposal which is received after
that date or which otherwise fails to meet the requirements for stockholder
proposals established by regulations of the Commission. If the Merger is
consummated before the date of Allegiance's 1999 Annual Meeting of Stockholders,
there will be no such meeting.
In addition, Allegiance Stockholders may present proposals that are proper
subjects for consideration at an annual stockholders meeting, even if the
proposal is not submitted by the deadline for inclusion in the proxy statement.
To do so, an Allegiance Stockholder must comply with the procedures specified in
the Allegiance Bylaws. The Allegiance Bylaws require that all Allegiance
Stockholders who intend to make proposals at an annual Allegiance Stockholders'
meeting submit their proposals to Allegiance during the period 60 to 90 days
before the anniversary date of the previous year's annual meeting, provided,
however, that, in the event that the annual meeting of Allegiance Stockholders
is called for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder in order to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting of Allegiance Stockholders was
made, whichever comes first. Since it is anticipated that the date of mailing
will be May 17, 1999, to be eligible for consideration at Allegiance's 1999
Annual Meeting of Stockholders, proposals which have not been submitted by the
deadline for inclusion in the proxy statement must be received by Allegiance by
May 27, 1999.
WHERE YOU CAN FIND MORE INFORMATION
Cardinal has filed with the Commission a Registration Statement under the
Securities Act that registers the distribution to Allegiance Stockholders of the
Cardinal Common Shares to be issued in connection with the Merger. The
Registration Statement, including the attached exhibits and schedules, contains
additional relevant information about Cardinal and Allegiance. The rules and
regulations of the Commission allow us to omit certain information included in
the Registration Statement from this Joint Proxy Statement/Prospectus.
In addition, Cardinal and Allegiance file reports, proxy statements and
other information with the Commission under the Exchange Act. Please call the
Commission at l-800-SEC-0330 for further information on the public reference
rooms. You may read and copy this information at the following locations of the
Commission:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20539 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains an
Internet world wide web site that contains reports, proxy statements and other
information about issuers, like Cardinal and Allegiance, who file electronically
with the Commission. The address of that site is http://www.sec.gov. You can
also inspect reports, proxy statements and other information about Cardinal and
Allegiance at the offices of the NYSE, 20 Broad Street, New York, New
CERTAIN OTHER MATTERS
100
<PAGE> 112
York 10005. With respect to Allegiance only, you can inspect reports, proxy
statements and other information at the Chicago Stock Exchange, Inc., 444 South
LaSalle Street, Chicago, Illinois 60605.
The Commission allows Cardinal and Allegiance to "incorporate by reference"
information into this Joint Proxy Statement/Prospectus. This means that the
companies can disclose important information to you by referring you to another
document filed separately with the Commission. The information incorporated by
reference is considered to be a part of this Joint Proxy Statement/Prospectus,
except for any information that is superseded by information that is included
directly in this document.
This Joint Proxy Statement/Prospectus incorporates by reference the
documents listed below that Cardinal and Allegiance have previously filed with
the Commission. They contain important information about our companies and their
financial condition. Some of these filings have been amended by later filings,
which are also listed.
<TABLE>
<CAPTION>
CARDINAL COMMISSION FILINGS (FILE NO. 0-12591) DESCRIPTION OR PERIOD/AS OF DATE
---------------------------------------------- --------------------------------
<S> <C>
Annual Report on Form 10-K (excluding Items 7 Year ended June 30, 1998
and 8)
Quarterly Reports on Form 10-Q September 30, 1998
Current Reports on Form 8-K September 28, 1998; October 13, 1998; November 24, 1998
(and amendments thereto)
Proxy Statement The information contained in Cardinal's Proxy Statement
for its 1998 annual meeting of shareholders held
November 23, 1998 that has been incorporated by
reference in its Form 10-K for the year ended June 30,
1998.
Registration Statement on Form 8-A, dated August Description of Cardinal Common Shares contained therein
19, 1994 and any amendment or report filed for the purpose of
updating such description.
</TABLE>
<TABLE>
<CAPTION>
ALLEGIANCE COMMISSION FILINGS (FILE NO. 1-11885) PERIOD/AS OF DATE
- ------------------------------------------------ -----------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q March 31, 1998; June 30, 1998; September 30, 1998
Current Report on Form 8-K October 13, 1998
Proxy Statement For Allegiance's annual meeting of stockholders held
May 7, 1998
Information Statement on Form 10 dated June 28, Description of Rights under the Allegiance Rights
1996, as amended August 22, 1996, September 6, Agreement
1996, September 9, 1996, September 20, 1996, and
October 1, 1996, and as amended by the
Registration Statement on Form 8-A/A dated
October 13,1998
Registration Statement on Form 8-A12B/A, dated Description of Allegiance Common Stock contained
October 13, 1998 therein and any amendment or report filed for the
purpose of updating such description
</TABLE>
Cardinal and Allegiance incorporate by reference additional documents that
either company may file with the Commission between the date of this Joint Proxy
Statement/Prospectus and the dates of the Cardinal Special Meeting and the
Allegiance Special Meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document through Cardinal or Allegiance as the case may be, or from the
Commission through the Commission's worldwide web site at the address described
above. Documents incorporated by reference are available from the companies
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference in this Joint Proxy Statement/Prospectus.
You can obtain documents incorporated by reference as an exhibit
CERTAIN OTHER MATTERS
101
<PAGE> 113
in this Joint Proxy Statement/Prospectus by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
FOR CARDINAL SHAREHOLDERS: FOR ALLEGIANCE STOCKHOLDERS:
Cardinal Health, Inc. Allegiance Corporation
5555 Glendon Court 1430 Waukegan Road
Dublin, Ohio 43016 McGaw Park, Illinois 60085
Telephone: (614) 717-5000 Telephone: (847) 578-4405
Attention: Director - Investor Relations Attention: Vice President - Investor Relations
</TABLE>
If you would like to request documents, please do so by January 13, 1999 to
receive them before the Special Meetings. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
Shareholders who require assistance in changing or revoking a proxy should
contact the solicitation agents Cardinal and Allegiance have hired in connection
with the Special Meetings:
<TABLE>
<S> <C>
FOR CARDINAL SHAREHOLDERS: FOR ALLEGIANCE STOCKHOLDERS:
Morrow & Co., Inc. Georgeson & Co., Inc.
445 Park Avenue Wall Street Plaza
New York, New York 10022 New York, New York 10005
Telephone: (800) 566-9061 Telephone: (800) 223-2064
</TABLE>
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT DIFFERS FROM OR ADDS TO
THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS OUR COMPANIES
HAVE PUBLICLY FILED WITH THE COMMISSION. THEREFORE, IF ANYONE SHOULD GIVE YOU
ANY DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU LIVE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR BUY, THE SECURITIES OFFERED BY THIS
DOCUMENT, OR TO ASK FOR PROXIES, OR IF YOU ARE A PERSON TO WHOM IT IS UNLAWFUL
TO DIRECT SUCH ACTIVITIES, THEN THE OFFER PRESENTED BY THIS DOCUMENT DOES NOT
EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE
INDICATED ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
WITH RESPECT TO THE INFORMATION CONTAINED IN THIS DOCUMENT, CARDINAL HAS
SUPPLIED THE INFORMATION CONCERNING CARDINAL AND BOXES MERGER SUB, AND
ALLEGIANCE HAS SUPPLIED THE INFORMATION CONCERNING ALLEGIANCE.
CERTAIN OTHER MATTERS
102
<PAGE> 114
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Acquiring Person................... 92
Acquisition Agreement.............. 57
Adjusted Market Value.............. 35
affiliates......................... 44
Affiliate Letters.................. 43
Allegiance......................... 22
Allegiance Adjournment Proposal.... 22
Allegiance Board................... 22
Allegiance Board Recommendation.... 56
Allegiance Bylaws.................. 24
Allegiance Certificate............. 43
Allegiance Common Stock............ 22
Allegiance Management Case......... 34
Allegiance Merger Proposal......... 22
Allegiance Option.................. 42
Allegiance Preferred Stock......... 92
Allegiance Preferred Stock Purchase
Price............................ 92
Allegiance Public Comparables...... 35
Allegiance Record Date............. 23
Allegiance Special Meeting......... 22
Allegiance Stock Plans............. 42
Allegiance Stockholders............ 22
AmeriSource........................ 35
Antitrust Division................. 43
Base Salary........................ 40
Baxter............................. 27
Bergen............................. 35
Business Combination............... 62
Cardinal........................... 22
Cardinal Adjournment Proposal...... 23
Cardinal Articles.................. 25
Cardinal Board..................... 22
Cardinal Class B Common Shares..... 95
Cardinal Common Share.............. 22
Cardinal Demand.................... 65
Cardinal Exchange Option........... 42
Cardinal Merger Proposal........... 22
Cardinal Record Date............... 23
Cardinal Regulations............... 53
Cardinal Repurchase Period......... 47
Cardinal Right..................... 59
Cardinal Shareholders.............. 22
Cardinal Special Meeting........... 22
cause.............................. 40
Certificates....................... 49
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Change in Control.................. 40
Change in Control Agreement........ 40
Change in Control Plan............. 40
Closing Date....................... 43
Code............................... 34
Commission......................... 43
Common Pleas Court................. 66
Competing Deal..................... 47
Competing Transaction.............. 55
Conservative Case.................. 34
Continuing Allegiance Employees.... 60
Controlled Affiliates.............. 47
Costs.............................. 62
Credit Suisse First Boston......... 27
Credit Suisse First Boston
Opinion.......................... 32
D&T................................ 43
Damico Amendment................... 42
Damico Support/Voing Agreement..... 47
Delaware Law....................... 26
Determination Date................. 51
Dissenting Cardinal Shareholder.... 65
Dissenting Cardinal Shares......... 65
Distribution Date.................. 92
EBIT............................... 35
EBITDA............................. 34
Effective Time..................... 22
EPS................................ 35
Equity Market Value................ 35
ESPP............................... 59
ESPP Right......................... 59
Exchange Act....................... 44
Exchange Ratio..................... 22
Facility Agreement................. 61
fair cash value.................... 66
First Call......................... 34
First National..................... 61
Form 8K/A.......................... 99
FTC................................ 43
good reason........................ 40, 41
Henry Schein....................... 35
HSR Act............................ 43
IBES............................... 34
Knight Amendment................... 41
Knight Support/Voting Agreement.... 47
LTM................................ 37
Market/Tender Offer Price.......... 47
</TABLE>
INDEX OF DEFINED TERMS
103
<PAGE> 115
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Material Adverse Effect............ 51
McKesson........................... 35
Merger............................. 22
Merger Agreement................... 22
Merger Sub......................... 22
Minimum Transition Period.......... 41
Morgan Stanley..................... 29
Non-Competition Provision.......... 41
Non-Solicitation Provision......... 41
NYSE............................... 23
Ohio Law........................... 26
Option............................. 45
Owen............................... 72
P/E................................ 35
Per Share Repurchase Price......... 47
Preferred Shares................... 95
Purchase Event..................... 45
Purchase Price..................... 45
Pyxis.............................. 35
Registration Statement............. 53
Repurchase Price................... 46
Right.............................. 92
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Rights Agent....................... 48
Rights Agreement................... 48
Rights Agreement Amendment......... 48
Scherer............................ 35
Securities Act..................... 43
Selected Acquisitions.............. 35
Selected Comparable Companies...... 37
Shares............................. 47
Special Meetings................... 22
Stock Acquisition Date............. 92
Stockholder........................ 47
Stock Option Agreement............. 45
Subject Contract................... 58
subsidiary......................... 51
Superior Proposal.................. 56
Support/Voting Agreements.......... 47
Surviving Corporation.............. 22
Target Annual Bonus................ 40
Triggering Events.................. 93
Tyco............................... 35
Unit............................... 92
</TABLE>
INDEX OF DEFINED TERMS
104
<PAGE> 116
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CARDINAL HEALTH, INC.
("Cardinal"),
BOXES MERGER CORP.
A WHOLLY OWNED DIRECT SUBSIDIARY OF CARDINAL
("Subcorp"),
and
ALLEGIANCE CORPORATION
("Allegiance")
October 8, 1998
ANNEXES
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PRELIMINARY STATEMENTS..................................................... 1
AGREEMENT.................................................................. 1
ARTICLE I. THE MERGER.................................................. 1
1.1 The Merger.................................................. 1
1.2 Effective Time.............................................. 1
1.3 Effects of the Merger....................................... 2
1.4 Certificate of Incorporation and Bylaws..................... 2
1.5 Directors and Officers of the Surviving Corporation......... 2
1.6 Additional Actions.......................................... 2
ARTICLE II. CONVERSION OF SECURITIES.................................... 2
2.1 Conversion of Capital Stock................................. 2
2.2 Exchange Ratio; Fractional Shares; Adjustments.............. 3
2.3 Exchange of Certificates.................................... 3
(a) Exchange Agent......................................... 3
(b) Exchange Procedures.................................... 3
(c) Distributions with Respect to Unexchanged Shares....... 4
(d) No Further Ownership Rights in Allegiance Common
Stock.................................................. 4
(e) Termination of Exchange Fund........................... 4
(f) No Liability........................................... 5
(g) Investment of Exchange Fund............................ 5
(h) Withholding Rights..................................... 5
2.4 Treatment of Stock Options and Employee Stock Purchase
Plan........................................................ 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CARDINAL AND SUBCORP...... 6
3.1 Organization and Standing................................... 6
3.2 Corporate Power and Authority............................... 6
3.3 Capitalization of Cardinal and Subcorp...................... 6
3.4 Conflicts; Consents and Approval............................ 7
3.5 Brokerage and Finder's Fees................................. 8
3.6 Accounting Matters; Reorganization.......................... 8
3.7 Cardinal SEC Documents...................................... 8
3.8 Registration Statement; Joint Proxy Statement............... 8
3.9 Compliance with Law......................................... 8
3.10 Litigation.................................................. 9
3.11 Board Recommendation; Required Vote......................... 9
3.12 No Material Adverse Change.................................. 9
3.13 Undisclosed Liabilities..................................... 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ALLEGIANCE................ 9
4.1 Organization and Standing................................... 9
4.2 Subsidiaries................................................ 10
</TABLE>
ANNEXES
A-i
<PAGE> 118
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.3 Corporate Power and Authority............................... 10
4.4 Capitalization of Allegiance................................ 10
4.5 Conflicts; Consents and Approvals........................... 11
4.6 No Material Adverse Change.................................. 12
4.7 Allegiance SEC Documents.................................... 12
4.8 Taxes....................................................... 12
4.9 Compliance with Law......................................... 13
4.10 Intellectual Property....................................... 13
4.11 Registration Statement; Joint Proxy Statement............... 14
4.12 Litigation; Products Liability.............................. 14
4.13 Brokerage and Finder's Fees................................. 14
4.14 Accounting Matters; Reorganization.......................... 15
4.15 Employee Benefit Plans...................................... 15
4.16 Contracts................................................... 17
4.17 Labor Matters............................................... 17
4.18 Undisclosed Liabilities..................................... 17
4.19 Permits; Compliance......................................... 17
4.20 Environmental Matters....................................... 18
4.21 Opinion of Financial Advisor................................ 19
4.22 Board Recommendation; Required Vote......................... 19
4.23 Section 203 of DGCL; Rights Agreement....................... 19
4.24 Employee Agreements......................................... 19
ARTICLE V. COVENANTS OF THE PARTIES.................................... 19
5.1 Mutual Covenants............................................ 19
(a) HSR Act Filings; Reasonable Best Efforts;
Notification........................................... 19
(b) Pooling-of-Interests................................... 21
(c) Tax-Free Treatment..................................... 21
(d) Public Announcements................................... 21
5.2 Covenants of Cardinal.................................. 21
(a) Cardinal Shareholders Meeting.......................... 21
(b) Preparation of Registration Statement.................. 22
(c) Conduct of Cardinal's Operations....................... 22
(d) Indemnification; Directors' and Officers' Insurance.... 23
(e) Merger Sub............................................. 23
(f) NYSE Listing........................................... 23
(g) Access................................................. 23
(h) Board of Directors of Cardinal......................... 23
(i) Employees and Employee Benefits........................ 23
(j) Restrictions on Termination of Employees Benefits...... 24
(k) SIP.................................................... 24
</TABLE>
ANNEXES
A-ii
<PAGE> 119
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.3 Covenants of Allegiance..................................... 24
(a) Allegiance Stockholders Meeting........................ 24
(b) Information for the Registration Statement and
Preparation of Joint Proxy Statement................... 25
(c) Conduct of Allegiance's Operations..................... 25
(d) No Solicitation........................................ 27
(e) Termination Right...................................... 28
(f) Affiliates of Allegiance............................... 28
(g) Access................................................. 29
(h) Subsequent Financial Statements........................ 29
ARTICLE VI. CONDITIONS.................................................. 29
6.1 Conditions to the Obligations of Each Party................. 29
6.2 Conditions to Obligations of Allegiance..................... 29
6.3 Conditions to Obligations of Cardinal and Subcorp........... 30
ARTICLE VII. TERMINATION AND AMENDMENT................................... 31
7.1 Termination................................................. 31
7.2 Effect of Termination....................................... 31
7.3 Amendment................................................... 32
7.4 Extension; Waiver........................................... 32
ARTICLE VIII. MISCELLANEOUS............................................... 32
8.1 Survival of Representations and Warranties.................. 32
8.2 Notices..................................................... 33
8.3 Interpretation.............................................. 33
8.4 Counterparts................................................ 34
8.5 Entire Agreement............................................ 34
8.6 Third-Party Beneficiaries................................... 34
8.7 Governing Law............................................... 34
8.8 Consent to Jurisdiction; Venue.............................. 34
8.9 Specific Performance........................................ 34
8.10 Assignment.................................................. 34
8.11 Expenses.................................................... 35
</TABLE>
ANNEXES
A-iii
<PAGE> 120
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") is made and entered
into as of the 8th day of October, 1998, by and among Cardinal Health, Inc., an
Ohio corporation ("CARDINAL"), Boxes Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Cardinal ("SUBCORP"), and Allegiance Corporation, a
Delaware corporation ("ALLEGIANCE").
PRELIMINARY STATEMENTS
A. Cardinal desires to combine its businesses with the businesses operated
by Allegiance through the merger of Subcorp with and into Allegiance, with
Allegiance as the surviving corporation (the "MERGER"), pursuant to which each
share of Allegiance Common Stock (as defined in Section 4.4(a)) outstanding at
the Effective Time (as defined in Section 1.2) will be converted into the right
to receive Cardinal Common Shares (as defined in Section 3.3(a)) as more fully
provided herein.
B. The Board of Directors of Allegiance has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of
Allegiance and Allegiance desires to combine its businesses with the businesses
operated by Cardinal and for the holders of shares of Allegiance Common Stock
("ALLEGIANCE STOCKHOLDERS") to have a continuing equity interest in the combined
Cardinal/Allegiance businesses through the ownership of Cardinal Common Shares.
C. The parties intend that the Merger constitute a tax-free
"reorganization" within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "CODE"), by reason of Section 368(a)(2)(E)
of the Code.
D. The parties intend that the Merger be accounted for as a pooling-of-
interests for financial reporting purposes.
E. The respective Boards of Directors of Cardinal, Subcorp and Allegiance
have determined the Merger in the manner contemplated herein to be desirable and
in the best interests of their respective shareholders and, by resolutions duly
adopted, have approved and adopted this Agreement.
AGREEMENT
Now, therefore, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), Subcorp shall be merged with and into Allegiance at the Effective Time.
As a result of the Merger, the separate corporate existence of Subcorp shall
cease and Allegiance shall continue its existence under the laws of the State of
Delaware. Allegiance, in its capacity as the corporation surviving the Merger,
is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 Effective Time. As promptly as possible on the Closing Date (as
defined below), the parties shall cause the Merger to be consummated by filing
with the Secretary of State of the State of Delaware (the "DELAWARE SECRETARY OF
STATE") a certificate of merger (the "CERTIFICATE OF MERGER") in such form as is
required by and executed in accordance with Section 251 of the DGCL. The Merger
shall become effective (the "EFFECTIVE TIME") when the Certificate of Merger has
been filed with the Delaware Secretary of State or at such later time as shall
be agreed upon by Cardinal and Allegiance and specified in the Certificate of
Merger. Prior to the filing referred to in this Section 1.2, a closing (the
"CLOSING") shall be held at the offices of Cardinal, 5555 Glendon Court, Dublin,
Ohio 43016, or such other place as the parties may agree as soon as practicable
(but in any event within ten business days) following the date upon which all
conditions set forth
ANNEXES
A-1
<PAGE> 121
in Article VI have been satisfied or waived, or at such other date as Cardinal
and Allegiance may agree; provided, that the conditions set forth in Article VI
have been satisfied or waived at or prior to such date. The date on which the
Closing takes place is referred to herein as the "CLOSING DATE." For all tax
purposes, the Closing shall be effective at the end of the day on the Closing
Date.
1.3 Effects of the Merger. From and after the Effective Time, the Merger
shall have the effects set forth in Section 259 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The Certificate of Merger
shall provide that at the Effective Time (i) the Certificate of Incorporation of
the Surviving Corporation as in effect immediately prior to the Effective Time
shall be amended as of the Effective Time so as to contain the provisions, and
only the provisions, contained immediately prior thereto in the Certificate of
Incorporation of Subcorp, except for Article I thereof, which shall continue to
read "The name of the corporation is "ALLEGIANCE CORPORATION", and (ii) the
Bylaws of Subcorp in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation; in each case, until amended in accordance
with the DGCL.
1.5 Directors and Officers of the Surviving Corporation. From and after
the Effective Time, the officers of Allegiance shall be the officers of the
Surviving Corporation and the directors of Subcorp shall be the directors of the
Surviving Corporation, in each case, until their respective successors are duly
elected and qualified. On or prior to the Closing Date, Allegiance shall deliver
to Cardinal evidence satisfactory to Cardinal of the resignations of the
directors of Allegiance, such resignations to be effective as of the Effective
Time.
1.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable to
(a) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Allegiance, or (b) otherwise carry out the provisions of
this Agreement, Allegiance and its officers and directors shall be deemed to
have granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such deeds, assignments or assurances in law and to take
all acts necessary, proper or desirable to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the provisions of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of Allegiance
or otherwise to take any and all such action.
ARTICLE II.
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Cardinal, Subcorp or Allegiance or
their respective shareholders:
(a) Each share of common stock, $0.01 par value, of Subcorp ("SUBCORP
COMMON STOCK") issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, $0.01 par value, of the
Surviving Corporation. Such newly issued shares shall thereafter constitute all
of the issued and outstanding capital stock of the Surviving Corporation.
(b) Subject to the other provisions of this Article II, each share of
Allegiance Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into and represent a number of Cardinal Common
Shares equal to the Exchange Ratio (as defined in Section 2.2(a)).
(c) Each share of capital stock of Allegiance held in the treasury of
Allegiance shall be cancelled and retired and no payment shall be made in
respect thereof.
ANNEXES
A-2
<PAGE> 122
2.2 Exchange Ratio; Fractional Shares; Adjustments.
(a) The "EXCHANGE RATIO" shall be equal to 0.4150.*
(b) No certificates for fractional Cardinal Common Shares shall be issued
as a result of the conversion provided for in Section 2.1(b) and such fractional
share interests will not entitle the owner thereof to vote or have any rights of
a Cardinal Shareholder (as defined in Section 3.2) or a holder of Cardinal
Common Shares.
(c) In lieu of any such fractional Cardinal Common Shares, the holder of a
certificate previously evidencing Allegiance Common Stock, upon presentation of
such fractional interest represented by an appropriate certificate for
Allegiance Common Stock to the Exchange Agent (as defined in Section 2.3(a)
pursuant to Section 2.3, shall be entitled to receive a cash payment therefor in
an amount equal to the value (determined with reference to the closing price of
Cardinal Common Shares as reported on the New York Stock Exchange ("NYSE")
Composite Tape ("NYSE COMPOSITE TAPE") on the last full trading day immediately
prior to the Closing Date) of such fractional interest. Such payment with
respect to fractional shares is merely intended to provide a mechanical rounding
off of, and is not a separately bargained for, consideration. If more than one
certificate representing shares of Allegiance Common Stock shall be surrendered
for the account of the same holder, the number of Cardinal Common Shares for
which certificates have been surrendered shall be computed on the basis of the
aggregate number of shares represented by the certificates so surrendered.
(d) In the event that prior to the Effective Time Cardinal shall declare a
stock dividend or other distribution payable in Cardinal Common Shares or
securities convertible into Cardinal Common Shares, or effect a stock split,
reclassification, combination or other change with respect to Cardinal Common
Shares, the Exchange Ratio set forth in this Section 2.2 shall be adjusted to
reflect such dividend, distribution, stock split, reclassification, combination
or other change.
2.3 Exchange of Certificates.
(a) Exchange Agent. Promptly following the Effective Time, Cardinal shall
deposit with ChaseMellon Stockholder Services, Inc. or such other exchange agent
as may be designated by Cardinal (the "EXCHANGE AGENT"), for the benefit of
Allegiance Stockholders, for exchange in accordance with this Section 2.3,
certificates representing Cardinal Common Shares issuable pursuant to Section
2.1 in exchange for outstanding shares of Allegiance Common Stock and shall from
time-to-time deposit cash in an amount reasonably expected to be paid pursuant
to Section 2.2 (such Cardinal Common Shares and cash, together with any
dividends or distributions with respect thereto, the "EXCHANGE FUND").
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates (the "CERTIFICATES") that immediately prior to the Effective Time
represented outstanding shares of Allegiance Common Stock whose shares were
converted into the right to receive Cardinal Common Shares pursuant to Section
2.1(b), (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent, and shall be in such form
and have such other customary provisions as Cardinal may reasonably specify) and
(ii) instructions for effecting the surrender of the Certificates in exchange
for certificates representing Cardinal Common Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal, the holder of such Certificate shall be entitled
to receive in exchange therefor (i) a certificate or certificates representing
that whole number of Cardinal Common Shares which such holder has the right to
receive pursuant to Section 2.1 in such denominations and registered in such
names as such holder may request and (ii) a check representing the amount of
cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive pursuant to
the provisions of this Article II, after giving effect to any required
withholding tax. The shares represented by the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on the cash in lieu
of fractional shares, if any,
- ---------------
* In light of record date of October 9, 1998 for 3-2 stock split of RED Common
Shares, Exchange Ratio will thereafter be adjusted to 0.6225.
ANNEXES
A-3
<PAGE> 123
and unpaid dividends and distributions, if any, payable to holders of shares of
Allegiance Common Stock. In the event of a transfer of ownership of shares of
Allegiance Common Stock that is not registered on the transfer records of
Allegiance, a certificate representing the proper number of Cardinal Common
Shares, together with a check for the cash to be paid in lieu of fractional
shares, if any, and unpaid dividends and distributions, if any, may be issued to
such transferee if the Certificate representing such shares of Allegiance Common
Stock held by such transferee is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.3, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon surrender a
certificate representing Cardinal Common Shares and cash in lieu of fractional
shares, if any, and unpaid dividends and distributions, if any, as provided in
this Article II. If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Cardinal, the
posting by such person of a bond in such reasonable amount as Cardinal may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will deliver in exchange for such lost,
stolen or destroyed Certificate, a certificate representing the proper number of
Cardinal Common Shares, together with a check for the cash to be paid in lieu of
fractional shares, if any, with respect to the shares of Allegiance Common Stock
formerly represented thereby, and unpaid dividends and distributions on Cardinal
Common Shares, if any, as provided in this Article II.
(c) Distributions with Respect to Unexchanged Shares. Notwithstanding any
other provisions of this Agreement, no dividends or other distributions declared
or made after the Effective Time with respect to Cardinal Common Shares having a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate, and no cash payment in lieu of fractional shares
shall be paid to any such holder, until the holder shall surrender such
Certificate as provided in this Section 2.3. Subject to the effect of Applicable
Laws (as defined in Section 3.9), following surrender of any such Certificate,
there shall be paid to the holder of the certificates representing whole
Cardinal Common Shares issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
whole Cardinal Common Shares and not paid, less the amount of any withholding
taxes that may be required thereon, and (ii) at the appropriate payment date
subsequent to surrender, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Cardinal Common
Shares, less the amount of any withholding taxes which may be required thereon.
(d) No Further Ownership Rights in Allegiance Common Stock. All Cardinal
Common Shares issued upon surrender of Certificates in accordance with the terms
hereof (including any cash paid pursuant to this Article II) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Allegiance Common Stock represented thereby, and, as of the Effective Time, the
stock transfer books of Allegiance shall be closed and there shall be no further
registration of transfers on the stock transfer books of Allegiance of shares of
Allegiance Common Stock outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Section 2.3. Certificates surrendered for exchange by any person
constituting an "affiliate" of Allegiance for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (together with the rules and regulations
thereunder, the "SECURITIES ACT"), shall not be exchanged until Cardinal has
received written undertakings from such person in the form attached as Exhibit A
to this Agreement.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to Allegiance Stockholders six months after the date of
the mailing required by Section 2.3(b) shall be delivered to Cardinal, upon
demand thereby, and holders of Certificates previously representing shares of
Allegiance Common Stock who have not theretofore complied with this Section 2.3
shall thereafter look only to Cardinal for payment of any claim to Cardinal
Common Shares, cash in lieu of fractional shares thereof, or dividends or
distributions, if any, in respect thereof.
ANNEXES
A-4
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(f) No Liability. None of Cardinal, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares of
Allegiance Common Stock (or dividends or distributions with respect thereto) or
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificates shall
not have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any cash, any cash in lieu of
fractional shares or any dividends or distributions with respect to whole shares
of Allegiance Common Stock in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Authority (as defined in
Section 3.4(d))), any such cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by Applicable Laws, become the
property of Cardinal, free and clear of all claims or interest of any person
previously entitled thereto.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Cardinal, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Cardinal upon termination of the Exchange Fund pursuant to Section 2.3(e).
(h) Withholding Rights. Each of the Surviving Corporation and Cardinal
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Allegiance Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Cardinal, as the
case may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Allegiance Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Cardinal, as the case may be.
2.4 Treatment of Stock Options and Employee Stock Purchase Plan.
(a) Prior to the Effective Time, Cardinal and Allegiance shall take all
such actions as may be necessary to cause each unexpired and unexercised
outstanding option granted or issued under stock option plans of Allegiance in
effect on the date hereof (each, an "ALLEGIANCE OPTION") to be automatically
converted at the Effective Time into an option (a "CARDINAL EXCHANGE OPTION") to
purchase that number of Cardinal Common Shares equal to the number of shares of
Allegiance Common Stock subject to the Allegiance Option immediately prior to
the Effective Time (without regard to any actual restrictions on
exerciseability) multiplied by the Exchange Ratio (and rounded to the nearest
share), with an exercise price per share equal to the exercise price per share
that existed under the corresponding Allegiance Option divided by the Exchange
Ratio (and rounded to the nearest cent), and with other terms and conditions
that are the same as the terms and conditions of such Allegiance Option
immediately before the Effective Time; provided that with respect to any
Allegiance Option that is an "incentive stock option" within the meaning of
Section 422 of the Code, the foregoing conversion shall be carried out in a
manner satisfying the requirements of Section 424(a) of the Code.
(b) Prior to the Effective Time, Cardinal and Allegiance shall take all
such actions as may be necessary to cause all rights outstanding under the
Allegiance Employee Stock Purchase Plan (the "ESPP") as of the Effective Time to
purchase shares of Allegiance Common Stock (each, an "ESPP RIGHT") to be
automatically converted at the Effective Time into a right (a "CARDINAL RIGHT")
to purchase that number of Cardinal Common Shares equal to the number of shares
of Allegiance Common Stock subject to the ESPP Right immediately prior to the
Effective Time (without regard to any actual restrictions on exerciseability)
multiplied by the Exchange Ratio (and rounded down to the nearest share), with a
Subscription Price (as defined in the ESPP) equal to the Subscription Price that
existed under the corresponding ESPP Right divided by the Exchange Ratio (and
rounded up to the nearest cent), and with other terms and conditions that are
the same as the terms and conditions of such ESPP Right immediately before the
Effective Time; provided that the foregoing conversion shall be carried out in a
manner satisfying the requirements of Section 424(a) of the Code.
(c) In connection with the issuance of Cardinal Exchange Options and
Cardinal Rights, Cardinal shall (i) reserve for issuance the number of Cardinal
Common Shares that will become subject to Cardinal Exchange Options and Cardinal
Rights pursuant to this Section 2.4 and (ii) from and after the Effective
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Time, upon exercise of Cardinal Exchange Options and Cardinal Rights, make
available for issuance all Cardinal Common Shares covered thereby, subject to
the terms and conditions applicable thereto.
(d) Allegiance agrees to issue treasury shares of Allegiance, to the extent
available, upon the exercise of Allegiance Options and ESPP Rights prior to the
Effective Time.
(e) Cardinal agrees to use its reasonable efforts to file with the
Securities and Exchange Commission (the "COMMISSION") within 30 days after the
Closing Date a registration statement on Form S-8 or other appropriate form
under the Securities Act to register Cardinal Common Shares issuable upon
exercise of the Cardinal Exchange Options and Cardinal Rights and to use its
reasonable efforts to cause such registration statement to remain effective
until the exercise or expiration of such options and rights.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF CARDINAL AND SUBCORP
In order to induce Allegiance to enter into this Agreement, Cardinal and
Subcorp hereby represent and warrant to Allegiance that the statements contained
in this Article III are true, correct and complete.
3.1 Organization and Standing. Each of Cardinal and Subcorp is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full corporate power and authority to own,
lease, use and operate its properties and to conduct its business as and where
now owned, leased, used, operated and conducted. Each of Cardinal and Subcorp is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of the business conducted by it or the property it owns, leases
or operates, requires it to so qualify, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a Material
Adverse Effect (as defined in Section 8.3) on Cardinal or Subcorp, as the case
may be. Cardinal is not in default in the performance, observance or fulfillment
of any provision of the Cardinal Amended and Restated Articles of Incorporation,
as amended (the "CARDINAL ARTICLES"), or the Cardinal Code of Regulations, as
amended and restated (the "CARDINAL CODE OF REGULATIONS"), and Subcorp is not in
default in the performance, observance or fulfillment of any provisions of its
Certificate of Incorporation or Bylaws. Cardinal has heretofore furnished to
Allegiance a complete and correct copy of (i) the Cardinal Articles and the
Cardinal Code of Regulations, each as in effect as of the date of this Agreement
and as proposed to be amended in the manner described in Cardinal's proxy
statement dated September 28, 1998, and (ii) the Certificate of Incorporation of
Subcorp.
3.2 Corporate Power and Authority. Each of Cardinal and Subcorp has all
requisite corporate power and authority to enter into and deliver this
Agreement, subject to approval of the issuance of Cardinal Common Shares
issuable in the Merger and the transactions contemplated hereby by the holders
of Cardinal Common Shares (the "CARDINAL SHAREHOLDERS") (the "SHARE ISSUANCE"),
to perform its obligations hereunder and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Cardinal and Subcorp
have been duly authorized by all necessary corporate action on the part of each
of Cardinal and Subcorp, subject to approval by the Cardinal Shareholders of the
Share Issuance. This Agreement has been duly executed and delivered by each of
Cardinal and Subcorp, and constitutes the legal, valid and binding obligation of
each of Subcorp and Cardinal enforceable against each of them in accordance with
its terms.
3.3 Capitalization of Cardinal and Subcorp.
(a) As of October 7, 1998, Cardinal's authorized capital stock
consisted solely of (A) 300,000,000 common shares, without par value
("CARDINAL COMMON SHARES"), of which (i) 133,797,688 shares were issued and
outstanding, (ii) 289,434 shares were issued and held in treasury (which
does not include Cardinal Common Shares reserved for issuance as set forth
in clause (a)(iii) below) and (iii) 6,984,410 shares were reserved for
issuance upon the exercise or conversion of options, warrants or
convertible securities granted or issuable by Cardinal, (B) 5,000,000 Class
B common shares, without par value, none of which was issued and
outstanding or reserved for issuance, and (C) 500,000 Non-Voting Preferred
Shares, without par value, none of which was issued and outstanding or
reserved for issuance. Each outstanding share of Cardinal capital stock is,
and all Cardinal Common Shares to be issued in connection with the Merger
will be, duly authorized and validly issued, fully paid and nonassessable,
and
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each outstanding share of Cardinal capital stock has not been, and all
Cardinal Common Shares to be issued in connection with the Merger will not
be, issued in violation of any preemptive or similar rights. As of the date
hereof, other than as set forth in the first sentence hereof or in Section
3.3 to the disclosure schedule delivered by Cardinal to Allegiance and
dated the date hereof (the "CARDINAL DISCLOSURE SCHEDULE"), there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating
to the issuance, sale, repurchase, transfer or registration by Cardinal of
any equity securities of Cardinal, nor are there outstanding any securities
that are convertible into or exchangeable for any shares of capital stock
of Cardinal and Cardinal has no obligation of any kind to issue any
additional securities. The Cardinal Common Shares (including those Cardinal
Common Shares to be issued in the Merger) are registered under the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "EXCHANGE ACT"). Except as set forth in Section
3.3 to the Cardinal Disclosure Schedule, as of the date hereof, Cardinal
has not agreed to register any securities under the Securities Act or under
any state securities law or granted registration rights to any person or
entity (which rights are currently exerciseable).
(b) Subcorp's authorized capital stock consists solely of 1,000 shares
of Subcorp Common Stock, of which, as of the date hereof, 100 were issued
and outstanding and none were reserved for issuance. As of the date hereof,
all of the outstanding shares of Subcorp Common Stock are owned free and
clear of any liens, claims or encumbrances by Cardinal.
3.4 Conflicts; Consents and Approval. Neither the execution and delivery
of this Agreement by Cardinal or Subcorp nor the consummation of the
transactions contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the
Cardinal Articles or the Cardinal Code of Regulations or the Certificate of
Incorporation or Bylaws of Subcorp, subject to approval by the Cardinal
Shareholders of the amendment to the Cardinal Articles set forth in
Cardinal's proxy statement dated September 28, 1998;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event that, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Cardinal or any of its
subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease or other instrument or obligation to which Cardinal or any
of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Cardinal or any of its subsidiaries or any of
their respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Cardinal or any of its affiliates with, any third
party or any local, domestic, foreign or multi-national court, arbitral
tribunal, administrative agency or commission or other governmental or
regulatory body, agency, instrumentality or authority (a "GOVERNMENTAL
AUTHORITY"), other than (i) approval by the Cardinal Shareholders of the
Share Issuance, (ii) authorization for inclusion of the Cardinal Common
Shares to be issued in the Merger and the transactions contemplated hereby
on the NYSE, subject to official notice of issuance, (iii) actions required
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(together with the rules and regulations thereunder, the "HSR ACT"), (iv)
registrations or other actions required under federal and state securities
laws as are contemplated by this Agreement, or (v) consents or approvals of
any Governmental Authority set forth in Section 3.4 to the Cardinal
Disclosure Schedule;
except in the case of clauses (b), (c) and (d) for any of the foregoing that
would not, individually or in the aggregate, have a Material Adverse Effect on
Cardinal or a material adverse effect on the ability of the parties to
consummate the transactions contemplated hereby.
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3.5 Brokerage and Finder's Fees. Except as set forth in Section 3.5 of the
Cardinal Disclosure Schedule, neither Cardinal nor any shareholder, director,
officer or employee thereof has incurred or will incur on behalf of Cardinal any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement.
3.6 Accounting Matters; Reorganization. To the best knowledge of Cardinal
(including its executive officers and directors) after due investigation,
neither Cardinal nor any of its affiliates has taken or agreed to take any
action that (without giving effect to any actions taken or agreed to be taken by
Allegiance or any of its affiliates) would (a) prevent Cardinal from accounting
for the business combination to be effected by the Merger as a
pooling-of-interests for financial reporting purposes or (b) prevent the Merger
from constituting a "reorganization" qualifying under the provisions of Section
368(a) of the Code.
3.7 Cardinal SEC Documents. Cardinal has timely filed with the Commission
all forms, reports, schedules, statements and other documents required to be
filed by it since January 1, 1996 under the Exchange Act or the Securities Act
(such documents, as supplemented and amended since the time of filing,
collectively, the "CARDINAL SEC DOCUMENTS"). The Cardinal SEC Documents,
including, without limitation, any financial statements or schedules included
therein, at the time filed (and, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively and, in the case of any Cardinal SEC Document amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
amending or superseding filing) (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (b) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act, as the case may be. The financial statements of Cardinal included in the
Cardinal SEC Documents at the time filed (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and the dates of
mailing, respectively, and, in the case of any Cardinal SEC Document amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing) complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q of
the Commission), and fairly present (subject, in the case of unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of Cardinal and its consolidated subsidiaries as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended.
3.8 Registration Statement; Joint Proxy Statement. None of the information
provided in writing by Cardinal for inclusion in the registration statement on
Form S-4 (such registration statement as amended, supplemented or modified, the
"REGISTRATION STATEMENT") to be filed with the Commission by Cardinal under the
Securities Act, including the prospectus relating to Cardinal Common Shares to
be issued in the Merger (as amended, supplemented or modified, the "PROSPECTUS")
and the joint proxy statement and form of proxies relating to the vote of
Allegiance Stockholders with respect to the Merger and the vote of Cardinal
Shareholders with respect to the Share Issuance (as amended, supplemented or
modified, the "JOINT PROXY STATEMENT"), at the time the Registration Statement
becomes effective or, in the case of the Joint Proxy Statement, at the date of
mailing and at the date of the Allegiance Stockholders Meeting (as defined in
Section 5.3(a)) or the Cardinal Shareholders Meeting (as defined in Section
5.2(a)) to consider the Merger and the transactions contemplated thereby, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement and Joint Proxy Statement, except for
such portions thereof that relate only to Allegiance, will each comply as to
form in all material respects with the provisions of the Securities Act and the
Exchange Act.
3.9 Compliance with Law. Except as set forth in Section 3.9 to the
Cardinal Disclosure Schedule, Cardinal is in compliance, and at all times since
October 1, 1996 has been in compliance, with all applicable laws, statutes,
orders, rules, regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered by any Governmental Authority (collectively,
"APPLICABLE LAWS") relating to Cardinal or its business
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or properties, except where the failure to be in compliance with such Applicable
Laws, individually or in the aggregate, would not reasonably be expected to have
a Material Adverse Effect on Cardinal. Except as set forth in Section 3.9 to the
Cardinal Disclosure Schedule, no investigation or review by any Governmental
Authority with respect to Cardinal or its subsidiaries is pending, or, to the
knowledge of Cardinal, threatened, nor has any Governmental Authority indicated
in writing an intention to conduct the same, other than those the outcome of
which would not reasonably be expected to have a Material Adverse Effect on
Cardinal.
3.10 Litigation. Except as set forth in Section 3.10 to the Cardinal
Disclosure Schedule or in the Cardinal SEC Documents, there is no suit, claim,
action, proceeding, hearing, notice of violation, demand letter or investigation
(an "ACTION") pending or, to the knowledge of Cardinal (or its executive
officers or directors), threatened against Cardinal or any executive officer or
director of Cardinal that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Cardinal or a material adverse
effect on the ability of Cardinal to consummate the transactions contemplated
hereby. Cardinal is not subject to any outstanding order, writ, injunction or
decree that, individually or in the aggregate, insofar as can be reasonably
foreseen, would have a Material Adverse Effect on Cardinal or a material adverse
effect on the ability of Cardinal to consummate the transactions contemplated
hereby. Except as set forth in Section 3.10 to the Cardinal Disclosure Schedule,
since October 1, 1996, Cardinal has not been subject to any outstanding order,
writ, injunction or decree relating to Cardinal's method of doing business or
its relationship with past, existing or future users or purchasers of any goods
or services of Cardinal.
3.11 Board Recommendation; Required Vote. The Board of Directors of
Cardinal, at a meeting duly called and held, has by unanimous vote of those
directors present (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, taken together, are fair to and in
the best interests of Cardinal and the Cardinal Shareholders, and (ii) resolved
to recommend that the Cardinal Shareholders approve and authorize the Share
Issuance. The affirmative vote of holders of a majority of the Cardinal Common
Shares outstanding to approve the Share Issuance is the only vote of the
Cardinal Shareholders necessary to adopt this Agreement and approve the
transactions contemplated hereby.
3.12 No Material Adverse Change. Except as set forth in Section 3.12 to
the Cardinal Disclosure Schedule, or as disclosed in the Cardinal SEC Documents
filed prior to the date of this Agreement, since June 30, 1998, there has been
no material adverse change in the business, results of operations or financial
condition of Cardinal and its subsidiaries taken as a whole other than any
change relating to the economy, the securities markets in general or the
industries generally in which Cardinal and its subsidiaries operate, or any
event, occurrence or development that would reasonably be expected to have a
Material Adverse Effect on Cardinal or a material adverse effect on the ability
of Cardinal to consummate the transactions contemplated hereby.
3.13 Undisclosed Liabilities. Except (i) as and to the extent disclosed
or reserved against on the balance sheet of Cardinal as of June 30, 1998
included in the Cardinal SEC Documents, (ii) as incurred after the date thereof
in the ordinary course of business consistent with prior practice and not
prohibited by this Agreement, or (iii) as set forth in Section 3.13 to the
Cardinal Disclosure Schedule, Cardinal does not have any liabilities or
obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, that, individually or
in the aggregate, have had or would reasonably be expected to have a Material
Adverse Effect on Cardinal.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF ALLEGIANCE
In order to induce Subcorp and Cardinal to enter into this Agreement,
Allegiance hereby represents and warrants to Cardinal and Subcorp that the
statements contained in this Article IV are true, correct and complete.
4.1 Organization and Standing. Allegiance is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease, use and operate
its properties and to conduct its business as and where now owned, leased, used,
operated and
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conducted. Each of Allegiance and each subsidiary of Allegiance is duly
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it or the property it owns, leases or
operates requires it to so qualify, except where the failure to be so qualified
or in good standing in such jurisdiction would not have a Material Adverse
Effect on Allegiance. Allegiance is not in default in the performance,
observance or fulfillment of any provision of its Amended and Restated
Certificate of Incorporation (the "ALLEGIANCE CERTIFICATE"), or its Bylaws, as
in effect on the date hereof (the "ALLEGIANCE BYLAWS"). Allegiance has
heretofore furnished to Cardinal a complete and correct copy of the Allegiance
Certificate and the Allegiance Bylaws. Listed in Section 4.1 to the disclosure
schedule delivered by Allegiance to Cardinal and dated the date hereof (the
"ALLEGIANCE DISCLOSURE SCHEDULE") is each jurisdiction in which Allegiance or a
subsidiary of Allegiance is qualified to do business and, whether Allegiance (or
the subsidiaries of Allegiance) is in good standing as of the date of the
Agreement.
4.2 Subsidiaries. Allegiance does not own, directly or indirectly, any
equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise, except for (i) those that, individually
or in the aggregate, are immaterial and (ii) the subsidiaries set forth in
Section 4.2 to the Allegiance Disclosure Schedule. Except as set forth in
Section 4.2 to the Allegiance Disclosure Schedule, Allegiance is not subject to
any obligation or requirement to provide funds to or make any investment (in the
form of a loan, capital contribution or otherwise) in any such entity or any
other person. Except as set forth in Section 4.2 to the Allegiance Disclosure
Schedule, and except for those that are, individually or in the aggregate,
immaterial, Allegiance owns, directly or indirectly, each of the outstanding
shares of capital stock (or other ownership interests having by their terms
ordinary voting power to elect a majority of directors or others performing
similar functions with respect to such subsidiary) of each of Allegiance's
subsidiaries. Each of the outstanding shares of capital stock of each of
Allegiance's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned, directly or indirectly, by Allegiance free and
clear of all liens, pledges, security interests, claims or other encumbrances.
The following information for each subsidiary of Allegiance (other than those
that are, individually or in the aggregate, immaterial) is set forth in Section
4.2 to the Allegiance Disclosure Schedule, as applicable: (i) its name and
jurisdiction of incorporation or organization; (ii) its authorized capital stock
or share capital; and (iii) the number of issued and outstanding shares of
capital stock or share capital and the record owner(s) thereof. Other than as
set forth in Section 4.2 to the Allegiance Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer of any securities of any subsidiary of Allegiance
(other than those that are, individually or in the aggregate, immaterial), nor
are there outstanding any securities that are convertible into or exchangeable
for any shares of capital stock of any subsidiary of Allegiance, and neither
Allegiance nor any subsidiary of Allegiance has any obligation of any kind to
issue any additional securities or to pay for or repurchase any securities of
any subsidiary of Allegiance or any predecessor thereof.
4.3 Corporate Power and Authority. Allegiance has all requisite corporate
power and authority to enter into and deliver this Agreement, to perform its
obligations hereunder and, subject to authorization of the Merger and the
transactions contemplated hereby by Allegiance Stockholders, to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Allegiance have been duly authorized by all necessary corporate
action on the part of Allegiance, subject to authorization of the Merger and the
transactions contemplated hereby by Allegiance Stockholders. This Agreement has
been duly executed and delivered by Allegiance and constitutes the legal, valid
and binding obligation of Allegiance enforceable against it in accordance with
its terms.
4.4 Capitalization of Allegiance. As of September 30, 1998, Allegiance's
authorized capital stock consisted solely of (a) 200,000,000 shares of common
stock, par value $1.00 per share ("ALLEGIANCE COMMON STOCK"), of which (i)
111,982,604 shares were issued and outstanding, (ii) 4,249,117 shares were
issued and held in treasury (which does not include shares of Allegiance Common
Stock reserved for issuance set forth in clause (iii) below), (iii) 17,962,765
shares were reserved for issuance upon the exercise of outstanding Allegiance
Options, and (iv) 22,284,538 shares of Allegiance Common Stock were reserved for
future issuance under the Stock Option Agreement dated October 8, 1998 between
Cardinal and Allegiance (the "ALLEGIANCE STOCK OPTION AGREEMENT"); and (b)
20,000,000 shares of preferred stock, par value $.01 per
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share ("ALLEGIANCE PREFERRED STOCK"), of which (i) none was issued and
outstanding, and (ii) 2,000,000 shares have been designated as Series A Junior
Participating Preferred Stock (the "SERIES A PREFERRED STOCK") reserved for
issuance pursuant to the rights issued under the Allegiance Rights Agreement (as
defined in Section 4.23). Since September 30, 1998, Allegiance has not issued
any additional shares of capital stock except for the issuance of Allegiance
Common Stock in connection with the exercise of Allegiance Options or ESPP
Rights. Each outstanding share of Allegiance capital stock is duly authorized
and validly issued, fully paid and nonassessable, and has not been issued in
violation of any preemptive or similar rights. Other than as set forth in the
first sentence hereof, in Section 4.4 to the Allegiance Disclosure Schedule or
as contemplated by the Allegiance Stock Option Agreement, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale, repurchase or transfer of any securities of Allegiance, nor
are there outstanding any securities which are convertible into or exchangeable
for any shares of capital stock of Allegiance, and neither Allegiance nor any
subsidiary of Allegiance has any obligation of any kind to issue any additional
securities or to pay for or repurchase any securities of Allegiance or any
predecessor. The issuance and sale of all of the shares of capital stock
described in this Section 4.4 have been in compliance with federal and state
securities laws. Allegiance has previously provided Cardinal with a schedule
setting forth the names of, and the number of shares of each class (including
the number of shares issuable upon exercise of Allegiance Options and the
exercise price and vesting schedule with respect thereto) and the number of
options held by, all holders of options to purchase Allegiance capital stock.
Section 4.4 to the Allegiance Disclosure Schedule sets forth the average
exercise price for outstanding Allegiance Options. Except as set forth in
Section 4.4 to the Allegiance Disclosure Schedule, Allegiance has not agreed to
register any securities under the Securities Act or under any state securities
law or granted registration rights to any person or entity; copies of all such
agreements have previously been provided to Cardinal.
4.5 Conflicts; Consents and Approvals. Neither the execution and delivery
of this Agreement or the Allegiance Stock Option Agreement by Allegiance, nor
the consummation of the transactions contemplated hereby or thereby will:
(a) conflict with, or result in a breach of any provision of, the
Allegiance Certificate or the Allegiance Bylaws;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event that, with the giving of notice,
the passage of time or otherwise, would constitute a default) under, or
entitle any party (with the giving of notice, the passage of time or
otherwise) to terminate, accelerate, modify or call a default under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Allegiance or any of
its subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, contract,
undertaking, agreement, lease or other instrument or obligation to which
Allegiance or any of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Allegiance or any of its subsidiaries or any of
their respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Allegiance or any of its affiliates with, any
third party or any Governmental Authority, other than (i) authorization of
the Merger and the transactions contemplated hereby by Allegiance
Stockholders, (ii) actions required by the HSR Act, (iii) registrations or
other actions required under federal and state securities laws as are
contemplated by this Agreement and (iv) consents or approvals of any
Governmental Authority set forth in Section 4.5 to the Allegiance
Disclosure Schedule;
except in the case of clause (b) which is set forth in Section 4.5(b) to the
Allegiance Disclosure Schedule or, individually or in the aggregate, are
otherwise immaterial, and in the case of clauses (c) and (d) for any of the
foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect on Allegiance or a material adverse effect on the ability of the
parties to consummate the transaction contemplated hereby.
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4.6 No Material Adverse Change. Except as set forth in Section 4.6 to the
Allegiance Disclosure Schedule or disclosed in the Allegiance SEC Documents (as
defined in Section 4.7 hereof) filed prior to the date of this Agreement, since
December 31, 1997, there has been no material adverse change in the business,
results of operations or financial condition of Allegiance and its subsidiaries
taken as a whole other than any change relating to the economy, the securities
markets in general or the industries in which Allegiance and its subsidiaries
operate, or any event, occurrence or development that would reasonably be
expected to have a Material Adverse Effect on Allegiance or a material adverse
effect on the ability of Allegiance to consummate the transactions contemplated
hereby.
4.7 Allegiance SEC Documents. Allegiance has timely filed with the
Commission all forms, reports, schedules, statements and other documents
required to be filed by it since June 1, 1996 under the Exchange Act or the
Securities Act (such documents, as supplemented and amended since the time of
filing, collectively, the "ALLEGIANCE SEC DOCUMENTS"). The Allegiance SEC
Documents, including, without limitation, any financial statements or schedules
included therein, at the time filed (and, in the case of registration statements
and proxy statements, on the dates of effectiveness and the dates of mailing,
respectively and, in the case of any Allegiance SEC Document amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing) (a) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be. The financial statements of Allegiance
included in the Allegiance SEC Documents at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively, and, in the case of any Allegiance SEC
Document amended or superseded by a filing prior to the date of this Agreement,
then on the date of such amending or superseding filing) complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission), and fairly present (subject, in the case of unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of Allegiance and its consolidated subsidiaries as at the dates thereof
and the consolidated results of their operations and cash flows for the periods
then ended. No subsidiary of Allegiance is subject to the periodic reporting
requirements of the Exchange Act or required to file any form, report or other
document with the Commission, the NYSE, any other stock exchange or any other
comparable Governmental Authority.
4.8 Taxes.
(a) Allegiance and its subsidiaries have duly filed all material federal,
state, local and foreign income, franchise, excise, real and personal property
and other Tax Returns (as defined below) and reports (including, but not limited
to, those filed on a consolidated, combined or unitary basis) required to have
been filed by Allegiance or its subsidiaries prior to the date hereof. All of
the foregoing Tax Returns and reports are true and correct (except for such
inaccuracies that are, individually or in the aggregate, immaterial), and
Allegiance and its subsidiaries have within the time and manner prescribed by
Applicable Law paid or, prior to the Effective Time, will pay all Taxes (as
defined below), interest and penalties required to be paid in respect of the
periods covered by such returns or reports or otherwise due to any federal,
state, foreign, local or other taxing authority. Except as disclosed on Section
4.8 to the Allegiance Disclosure Schedule, neither Allegiance nor any of its
subsidiaries have any material liability for any Taxes in excess of the amounts
so paid or reserves so established and neither Allegiance nor any of its
subsidiaries is delinquent in the payment of any material Tax. None of them has
requested or filed any document having the effect of causing any extension of
time within which to file any returns in respect of any fiscal year which have
not since been filed. No deficiencies for any material Tax have been proposed in
writing, asserted or assessed (tentatively or definitely), in each case, by any
taxing authority, against Allegiance or any of its subsidiaries for which there
are not adequate reserves. Neither Allegiance nor any of its subsidiaries is the
subject of any currently ongoing Tax audit except for those that are,
individually or in the aggregate, immaterial. As of the date of this Agreement,
there are no pending
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requests for waivers of the time to assess any material Tax, other than those
made in the ordinary course and for which payment has been made or there are
adequate reserves. Neither Allegiance nor any of its subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency. There are no liens with respect
to Taxes upon any of the properties or assets, real or personal, tangible or
intangible of Allegiance or any of its subsidiaries (other than liens for Taxes
not yet due). To the knowledge of Allegiance, no claim has ever been made in
writing by an authority in a jurisdiction where none of Allegiance and its
subsidiaries files Tax Returns that Allegiance or any of its subsidiaries is or
may be subject to taxation by that jurisdiction. Allegiance has not filed an
election under Section 341(f) of the Code to be treated as a consenting
corporation.
(b) Except as set forth in Section 4.8 to the Allegiance Disclosure
Schedule, neither Allegiance nor any of its subsidiaries is obligated by any
contract, agreement or other arrangement to indemnify any other person with
respect to material Taxes. Except as set forth in Section 4.8 to the Allegiance
Disclosure Schedule, neither Allegiance nor any of its subsidiaries are now or
have ever been a party to or bound by any agreement or arrangement (whether or
not written and including, without limitation, any arrangement required or
permitted by law) binding Allegiance or any of its subsidiaries that (i)
requires Allegiance or any of its subsidiaries to make any Tax payment to or for
the account of any other person, (ii) affords any other person the benefit of
any net operating loss, net capital loss, investment Tax credit, foreign Tax
credit, charitable deduction or any other credit or Tax attribute which could
reduce Taxes (including, without limitation, deductions and credits related to
alternative minimum Taxes) of Allegiance or any of its subsidiaries, or (iii)
requires or permits the transfer or assignment of income, revenues, receipts or
gains to Allegiance or any of its subsidiaries, from any other person.
(c) Allegiance and its subsidiaries have withheld and paid all material
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder or other
third party.
(d) "TAX RETURNS" means returns, reports and forms required to be filed
with any Governmental Authority of the United States or any other jurisdiction
responsible for the imposition or collection of Taxes.
(e) "TAXES" means (i) all Taxes (whether federal, state, local or foreign)
based upon or measured by income and any other Tax whatsoever, including,
without limitation, gross receipts, profits, sales, use, occupation, value
added, ad valorem, transfer, franchise, withholding, payroll, employment,
excise, or property Taxes, together with any interest or penalties imposed with
respect thereto and (ii) any obligations under any agreements or arrangements
with respect to any Taxes described in clause (i) above.
4.9 Compliance with Law. Allegiance is in compliance, and at all times
since October 1, 1996 has been in compliance, with all Applicable Laws relating
to Allegiance or its business or properties, except where the failure to be in
compliance with such Applicable Laws (individually or in the aggregate) would
not reasonably be expected to have a Material Adverse Effect on Allegiance. No
investigation or review by any Governmental Authority with respect to Allegiance
is pending, or, to the knowledge of Allegiance, threatened, nor has any
Governmental Authority indicated in writing an intention to conduct the same,
other than those the outcome of which would not reasonably be expected to have a
Material Adverse Effect on Allegiance.
4.10 Intellectual Property.
(a) "INTELLECTUAL PROPERTY" shall mean all intellectual property or other
proprietary rights of every kind, including, all domestic or foreign patents,
domestic or foreign patent applications, inventions (whether or not patentable),
processes, products, technologies, discoveries, copyrightable and copyrighted
works, apparatus, trade secrets, trademarks, trademark registrations and
applications, service marks, service mark registrations and applications, trade
names, trade dress, copyright registrations, customer lists, marketing and
customer information, licenses, technical information (whether confidential or
otherwise), software, and all documentation thereof.
(b) Except as would not reasonably be expected to have a Material Adverse
Effect on Allegiance, Allegiance has the defensible right to use, whether
through ownership, licensing or otherwise, all Intellectual Property necessary
for the operation of the business of Allegiance in substantially the same manner
as such
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business is presently conducted. Except as set forth in Section 4.10 to the
Allegiance Disclosure Schedule (i) to the knowledge of Allegiance, no written
claim of invalidity or ownership with respect to any material Intellectual
Property has been made by a third party and such Intellectual Property is not
the subject of any threatened or pending Action; (ii) no person or entity has
given written notice to Allegiance that, with respect to the material
Intellectual Property, Allegiance or a licensee of Allegiance is infringing or
has infringed any domestic or foreign patent, trademark, service mark, trade
name, or copyright or design right, or has misappropriated or improperly used or
disclosed any trade secret, confidential information or know-how; (iii) the
making, using, selling, manufacturing, marketing, licensing, reproduction,
distribution, or publishing of any process, machine, manufacture, composition of
matter, or material related to any material Intellectual Property, does not and
will not infringe in any material respect any domestic or foreign patent,
trademark, service mark, trade name, copyright or other intellectual property
right of any third party, and does not and will not involve the misappropriation
or improper use or disclosure of any trade secrets, confidential information or
know-how of any third party; (iv) to Allegiance's knowledge, no valid foreign or
domestic patents or patent applications exist that are adverse to the material
interests of Allegiance; (v) to Allegiance's knowledge there exists no (A) prior
act that would void or invalidate any material Intellectual Property or (B)
conduct or use by Allegiance or any third party that would void or invalidate
any material Intellectual Property; and (vi) the execution, delivery and
performance of this Agreement by Allegiance, and the consummation of the
transactions contemplated thereby, will not breach, violate or conflict with any
material instrument or agreement governing or contained within any material
Intellectual Property, will not cause the forfeiture or termination or give rise
to a right of forfeiture or termination of any of the material Intellectual
Property or in any way impair the right of Cardinal or the Surviving Corporation
to make, use, sell, license or dispose of, or to bring any action for the
infringement of, any material Intellectual Property.
4.11 Registration Statement; Joint Proxy Statement. None of the
information provided in writing by Allegiance for inclusion in the Registration
Statement at the time it becomes effective or, in the case of the Joint Proxy
Statement, at the date of mailing and at the date of the Allegiance Stockholders
Meeting or the Cardinal Shareholders Meeting, will contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Registration
Statement and Joint Proxy Statement, except for such portions thereof that
relate only to Cardinal and its subsidiaries, will each comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act.
4.12 Litigation; Products Liability. Except as set forth in Section 4.12
to the Allegiance Disclosure Schedule, there is no Action pending or, to the
knowledge of Allegiance (or its executive officers or directors), threatened
against Allegiance or any executive officer or director of Allegiance that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Allegiance or a material adverse effect on the
ability of Allegiance to consummate the transactions contemplated hereby.
Allegiance is not subject to any outstanding order, writ, injunction or decree
that, individually or in the aggregate, insofar as can be reasonably foreseen,
would have a Material Adverse Effect on Allegiance or a material adverse effect
on the ability of Allegiance to consummate the transactions contemplated hereby.
Except as set forth in Section 4.12 to the Allegiance Disclosure Schedule, since
October 1, 1996, Allegiance has not been subject to any outstanding order, writ,
injunction or decree relating to Allegiance's method of doing business or its
relationship with past, existing or future users or purchasers of any goods or
services of Allegiance. Except as set forth in Section 4.12 to the Allegiance
Disclosure Schedule, there is no Action presently pending or, to the knowledge
of Allegiance (or its executive officers or directors), threatened against
Allegiance relating to any alleged hazard or alleged defect in design,
manufacture, materials or workmanship, including, without limitation, any
failure to warn or alleged breach of express or implied warranty or
representation, relating to any product manufactured, distributed or sold by or
on behalf of Allegiance, which if adversely determined, would have a Material
Adverse Effect on Allegiance.
4.13 Brokerage and Finder's Fees. Except for Allegiance's obligations to
Credit Suisse First Boston Corporation ("CSFB") (copies of all agreements
relating to such obligations having previously been provided to Cardinal),
neither Allegiance nor any stockholder, director, officer or employee thereof,
has incurred or will
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incur on behalf of Allegiance, any brokerage, finder's or similar fee in
connection with the transactions contemplated by this Agreement.
4.14 Accounting Matters; Reorganization. To the best knowledge of
Allegiance (including its executive officers and directors) after due
investigation, neither Allegiance nor any of its affiliates has taken or agreed
to take any action that (without giving effect to any actions taken or agreed to
be taken by Cardinal or any of its affiliates) would (a) prevent Cardinal from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests for financial reporting purposes or (b) prevent the Merger
from constituting a "reorganization" qualifying under the provisions of Section
368(a) of the Code.
4.15 Employee Benefit Plans.
(a) For purposes of this Section 4.15, the following terms have the
definitions given below:
"CONTROLLED GROUP LIABILITY" means any and all liabilities under (i)
Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971
of the Code, (iv) the continuation coverage requirements of section 601 et
seq. of ERISA and section 4980B of the Code, and (v) corresponding or
similar provisions of foreign laws or regulations, in each case other than
pursuant to the Plans listed in Section 4.15 of the Allegiance Disclosure
Schedule.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA AFFILIATE" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or
that is a member of the same "controlled group" as the first entity, trade
or business pursuant to Section 4001(a)(14) of ERISA.
"PLANS" means all employee benefit plans, programs and other
arrangements providing benefits to any employee or former employee in
respect of services provided to Allegiance or beneficiary or dependent
thereof, and whether covering one person or more than one person, sponsored
or maintained by Allegiance or any of its subsidiaries or to which
Allegiance or any of its subsidiaries contributes or is obligated to
contribute. Without limiting the generality of the foregoing, the term
"Plans" includes any defined benefit or defined contribution pension plan,
profit sharing plan, stock ownership plan, deferred compensation agreement
or arrangement, vacation pay, sickness, disability or death benefit plan
(whether provided through insurance, on a funded or unfunded basis or
otherwise), employee stock option or stock purchase plan, bonus or
incentive plans or programs, severance pay plan policy, practice or
agreement, employment agreement, retiree medical benefits plan and each
other employee benefit plan, program or arrangement including, without
limitation, each "employee benefit plan" within the meaning of Section 3(3)
of ERISA.
(b) Section 4.15 to the Allegiance Disclosure Schedule lists all Plans
covering individuals who are or were employed in the United States. With respect
to each Plan, Allegiance has made available to Cardinal a true, correct and
complete copy of the following (where applicable): (i) each writing constituting
a part of such Plan, including without limitation all plan documents, benefit
schedules, trust agreements, and insurance contracts and other funding vehicles;
(ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule,
if any; (iii) the current summary plan description, if any; (iv) the most recent
annual financial report, if any; and (v) the most recent determination letter
from the Internal Revenue Service, if any.
(c) The Internal Revenue Service has issued a favorable determination
letter with respect to each Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "QUALIFIED PLAN") and there
are no existing circumstances nor any events that have occurred that could
adversely affect the qualified status of any Qualified Plan or the related
trust.
(d) All contributions required to be made to any Plan by Applicable Laws or
by any plan document or other contractual undertaking, and all premiums due or
payable with respect to insurance policies funding any Plan, for any period
through the date hereof have been timely made or paid in full and through the
Closing Date will be timely made or paid in full.
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(e) Allegiance and its subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the Code and
all laws and regulations applicable to the Plans. Each Plan has been operated in
material compliance with its terms. There is not now, and there are no existing
circumstances that could reasonably be expected to give rise to, any requirement
for the posting of security with respect to a Plan or the imposition of any lien
on the assets of Allegiance or any of its subsidiaries under ERISA or the Code.
(f) No Plan is subject to Title IV or Section 302 of ERISA or Section 412
or 4971 of the Code. No Plan is a "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN") or a plan that has two or
more contributing sponsors at least two of whom are not under common control,
within the meaning of Section 4063 of ERISA (a "MULTIPLE EMPLOYER PLAN"). None
of Allegiance, its subsidiaries nor any of their respective ERISA Affiliates
has, at any time since October 1, 1996, contributed to or been obligated to
contribute to any Multiemployer Plan or Multiple Employer Plan.
(g) There does not now exist, and to the knowledge of Allegiance, there are
no existing circumstances that could reasonably be expected to result in any
material Controlled Group Liability that would be a liability of Allegiance or
any of its subsidiaries following the Closing.
(h) Except for health continuation coverage as required by Section 4980B of
the Code or Part 6 of Title I of ERISA and except as set forth in Section
4.15(h) to the Allegiance Disclosure Schedule, neither Allegiance nor any of its
subsidiaries has any material liability for life, health, medical or other
welfare benefits to former employees or beneficiaries or dependents thereof
which are not reflected in the financial statement included in the Allegiance
SEC Documents. To the knowledge of Allegiance, there has been no communication
to employees of Allegiance or its subsidiaries that could reasonably be expected
to promise or guarantee such employees retiree health or life insurance benefits
or other retiree death benefits on a permanent basis.
(i) Except as disclosed in Section 4.15(i) to the Allegiance Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in, cause the
accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee, officer, director or consultant of
Allegiance or any of its subsidiaries. Without limiting the generality of the
foregoing, except as set forth in Section 4.15(i) to the Allegiance Disclosure
Schedule, no amount paid or payable by Allegiance or any of its subsidiaries in
connection with the transactions contemplated hereby either solely as a result
thereof or as a result of such transactions in conjunction with any other events
will be an "excess parachute payment" within the meaning of Section 280G of the
Code.
(j) Except as disclosed in Section 4.15(j) to the Allegiance Disclosure
Schedule, there are no pending or to the knowledge of Allegiance threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the Plans, any
fiduciaries thereof with respect to their duties to the Plans or the assets of
any of the trusts under any of the Plans that could reasonably be expected to
result in any material liability of Allegiance or any of its subsidiaries to the
Pension Benefit Guaranty Corporation, the Department of Treasury, the Department
of Labor or any Multiemployer Plan.
(k) Allegiance has disclosed to Cardinal in writing the following
information for each executive officer of Allegiance and each other employee who
is a party to an agreement pursuant to the Allegiance Change in Control Plan (a
"CHANGE IN CONTROL AGREEMENT"): such individual's current cash compensation
(including, without limitation, salary and target annual bonus) and a
description or other documentation of such individual's material non-cash
compensation. Except as set forth in Section 4.15(k) to the Allegiance
Disclosure Schedule, no officer, director, or employee of Allegiance or any
other affiliate of Allegiance, or any immediate family member of any of the
foregoing, provides or causes to be provided to Allegiance any material assets,
services or facilities and Allegiance does not provide or cause to be provided
to any such officer, director, employee or affiliate, or any immediate family
member of any of the foregoing, any material assets, services or facilities.
(l) All Plans subject to the laws of any jurisdiction outside of the United
States (i) have been maintained in accordance with all applicable requirements,
(ii) if they are intended to qualify for special tax treatment,
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meet all requirements for such treatment, and (iii) if they are intended to be
funded and/or book-reserved, are actually fully funded and/or book-reserved, as
appropriate, based upon reasonable actuarial assumptions.
4.16 Contracts. Section 4.16 to the Allegiance Disclosure Schedule lists
as of the date hereof all written or oral contracts, agreements, guarantees,
leases and executory commitments other than Plans (each a "CONTRACT") to which
Allegiance is a party and that fall within any of the following categories: (a)
joint venture, partnership and like agreements, other than those that are,
individually or in the aggregate, immaterial, (b) Contracts containing covenants
purporting to limit the freedom of Allegiance to compete in any line of business
in any geographic area or to hire any individual or group of individuals, other
than those that are, individually or in the aggregate, immaterial (c) Contracts
that after the Effective Time would have the effect of limiting the freedom of
Cardinal or its subsidiaries (other than Allegiance and its subsidiaries) to
compete in any line of business in any geographic area or to hire any individual
or group of individuals, (d) Contracts that contain requirements or other terms
that restrict or limit the purchasing relationships of Allegiance or its
affiliates, other than those that are, individually or in the aggregate,
immaterial, (e) Contracts with any labor organization or union, (f) Contracts
involving annual revenues to the business of Allegiance in excess of 2.5% of
Allegiance's annual revenues, (g) Contracts providing for "earn-outs", "savings
guarantees", "performance guarantees", or other contingent payments by
Allegiance involving more than $1,000,000 over the term of the Contract, and (h)
Contracts with or for the benefit of any affiliate of Allegiance or immediate
family member thereof (other than subsidiaries of Allegiance) involving more
than $60,000 in the aggregate per affiliate. All such Contracts are valid and
binding obligations of Allegiance and, to the knowledge of Allegiance, the valid
and binding obligation of each other party thereto except such Contracts that if
not so valid and binding would not, individually or in the aggregate, have a
Material Adverse Effect on Allegiance. Neither Allegiance nor, to the knowledge
of Allegiance, any other party thereto is in violation of or in default in
respect of, nor has there occurred an event or condition that with the passage
of time or giving of notice (or both) would constitute a default under or permit
the termination of, any such Contract except such violations or defaults under
or terminations that, individually or in the aggregate, would not have a
Material Adverse Effect on Allegiance. Set forth in Section 4.16 to the
Allegiance Disclosure Schedule is the amount of the annual premium currently
paid by Allegiance for its directors' and officers' liability insurance.
4.17 Labor Matters. Allegiance does not have any labor contracts or
collective bargaining agreements with any persons employed by Allegiance or any
persons otherwise performing services primarily for Allegiance. Except as set
forth in Section 4.17 to the Allegiance Disclosure Schedule, there is no labor
strike, dispute or stoppage pending or, to the knowledge of Allegiance,
threatened against Allegiance, and Allegiance has not experienced any labor
strike, dispute or stoppage or other material labor difficulty involving its
employees since October 1, 1996. Except as set forth in Section 4.17 to the
Allegiance Disclosure Schedule, to the knowledge of Allegiance, since October 1,
1996, no campaign or other attempt for recognition has been made by any labor
organization or employees with respect to employees of Allegiance or any of its
subsidiaries.
4.18 Undisclosed Liabilities. Except (i) as and to the extent disclosed
or reserved against on the balance sheet of Allegiance as of December 31, 1997
included in the Allegiance SEC Documents, or (ii) as incurred after the date
thereof in the ordinary course of business consistent with prior practice and
not prohibited by this Agreement, Allegiance does not have any liabilities or
obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, that, individually or
in the aggregate, have had or would reasonably be expected to have a Material
Adverse Effect on Allegiance.
4.19 Permits; Compliance.
(a) Allegiance is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "ALLEGIANCE PERMITS"), and there is no Action pending or, to
the knowledge of Allegiance, threatened regarding any of the Allegiance Permits.
Allegiance is not in conflict with, or in default or violation of any of the
Allegiance
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Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on Allegiance.
(b) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Allegiance:
(i) all necessary clearances or approvals from Governmental
Authorities for all drug and device products which are manufactured and/or
sold by Allegiance and its subsidiaries have, to the knowledge of
Allegiance, been obtained, and Allegiance and its subsidiaries are in
substantial compliance with the most current form of each applicable
clearance or approval with respect to the manufacture, storage,
distribution, promotion and sale by Allegiance and its subsidiaries of such
products;
(ii) none of Allegiance, or any of its officers, employees or agents
(during the term of such person's employment by Allegiance or while acting
as an agent of Allegiance, or, to Allegiance's actual knowledge, prior to
such employment) has made any untrue statement of a material fact or
fraudulent statement to the Food & Drug Administration, (the "FDA") or any
similar Governmental Authorities, failed to disclose a material fact
required to be disclosed to the FDA or similar Governmental Authorities, or
committed an act, made a statement or failed to make a statement that could
reasonably be expected to provide a basis for the FDA or similar
Governmental Authorities to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities" or similar
governmental policy, rule, regulation or law;
(iii) as to each article of drug, device, cosmetic or vitamin
manufactured (directly or indirectly) and/or, to the knowledge of
Allegiance, distributed by Allegiance, such article is not adulterated or
misbranded within the meaning of the Food, Drug and Cosmetic Act or any
similar governmental act or law of any jurisdiction; and
(iv) none of Allegiance or any of its officers, employees or agents
(during the term of such person's employment by Allegiance or while acting
as an agent of Allegiance, or, to Allegiance's knowledge, prior to such
employment), subsidiaries or affiliates has been convicted of any crime or
engaged in any conduct for which debarment or similar punishment is
mandated or permitted by any Applicable Law.
4.20 Environmental Matters. Except as disclosed in the Allegiance SEC
Documents, (i) the properties, operations and activities of Allegiance and its
subsidiaries are in compliance with all applicable Environmental Laws (as
defined below) and all past noncompliance of Allegiance or any Allegiance
subsidiary with any Environmental Laws or Environmental Permits (as defined
below), has been resolved without any pending, ongoing or future obligation,
cost or liability; (ii) Allegiance and its subsidiaries and the properties and
operations of Allegiance and its subsidiaries are not subject to any existing,
pending or, to the knowledge of Allegiance, threatened Action by or before any
court or Governmental Authority under any Environmental Law; (iii) there has
been no release of any hazardous substance, pollutant or contaminant into the
environment by Allegiance or its subsidiaries or in connection with their
properties or operations; and (iv) there has been no exposure of any person or
property to any hazardous substance, pollutant or contaminant in connection with
the properties, operations and activities of Allegiance and its subsidiaries, in
each case, other than those matters that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Allegiance. The term "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution, or protection of human health from Hazardous
Materials (as defined below) or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS")
into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, injunctions,
judgments, licenses, notices, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder. "ENVIRONMENTAL PERMIT" means any
permit, approval, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
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4.21 Opinion of Financial Advisor. Allegiance has received the written
opinion of CSFB, its financial advisor, to the effect that, as of the date of
this Agreement, the Exchange Ratio is fair to the Allegiance Stockholders from a
financial point of view. Allegiance has heretofore provided copies of such
opinion to Cardinal and such opinion has not been withdrawn or revoked or
modified in any material respect.
4.22 Board Recommendation; Required Vote. The Board of Directors of
Allegiance, at a meeting duly called and held, has by unanimous vote of those
directors present (who constituted 100% of the directors then in office) (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger, and the Allegiance Stock Option Agreement and the
transactions contemplated thereby, taken together, are fair to and in the best
interests of the Allegiance Stockholders, and (ii) resolved to recommend that
the holders of the shares of Allegiance Common Stock approve this Agreement and
the transactions contemplated herein, including the Merger (the "ALLEGIANCE
BOARD RECOMMENDATION"). The affirmative vote of holders of a majority of the
outstanding shares of Allegiance Common Stock to approve the Merger is the only
vote of the holders of any class or series of Allegiance Common Stock necessary
to adopt the Agreement and approve the transactions contemplated hereby.
4.23 Section 203 of DGCL; Rights Agreement. Prior to the date hereof, the
Board of Directors of Allegiance has taken all action necessary to exempt under
or make not subject to (x) the provisions of Section 203 of the DGCL and (y) any
other state takeover law or state law that purports to limit or restrict
business combinations or the ability to acquire or vote shares: (i) the
execution of this Agreement, the Allegiance Stock Option Agreement and the
Support/Voting Agreements dated as of October 8, 1998 between Cardinal and
certain Allegiance Stockholders (collectively, the "SUPPORT AGREEMENTS"), (ii)
the Merger and (iii) the transactions contemplated hereby and by the Allegiance
Stock Option Agreement and the Support Agreements. The Rights Agreement, dated
as of September 30, 1996 (the "ALLEGIANCE RIGHTS AGREEMENT"), between Allegiance
and First Chicago Trust Company of New York, a New York banking corporation, has
been amended so that Cardinal and Subcorp are each exempt from the definition of
"Acquiring Person" contained in the Allegiance Rights Agreement, no "Stock
Acquisition Date" or "Distribution Date" or "Triggering Event" (as such terms
are defined in the Allegiance Rights Agreement) will occur as a result of the
execution of this Agreement or the Allegiance Stock Option Agreement or the
consummation of the Merger pursuant to this Agreement or the acquisition or
transfer of shares of Allegiance Common Stock by Cardinal pursuant to the
Allegiance Stock Option Agreement and the Allegiance Rights Agreement will
expire immediately prior to the Effective Time, and the Allegiance Rights
Agreement, as so amended, has not been further amended or modified. Copies of
all such amendments to the Allegiance Rights Agreement have been previously
provided to Cardinal.
4.24 Employee Agreements. Each of the two employees of Allegiance
specified in Section 4.24 to the Allegiance Disclosure Schedule has duly
executed and delivered an amendment to such employee's Change in Control
Agreement with Allegiance, and such amendments have not been further amended or
terminated. Allegiance has previously provided to Cardinal copies of all such
amendments.
ARTICLE V.
COVENANTS OF THE PARTIES
The parties hereto agree that:
5.1 Mutual Covenants.
(a) HSR Act Filings; Reasonable Best Efforts; Notification.
(i) Each of Cardinal and Allegiance shall (A) make or cause to be made
the filings required of such party or any of its subsidiaries or affiliates
under the HSR Act with respect to the transactions contemplated hereby as
promptly as practicable and in any event within fifteen business days after
the date of this Agreement, (B) comply at the earliest practicable date
with any request under the HSR Act for additional information, documents,
or other materials received by such party or any of its subsidiaries from
the Federal Trade Commission or the Department of Justice or any other
Governmental Authority
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in respect of such filings or such transactions, and (C) cooperate with the
other party in connection with any such filing (including, with respect to
the party making a filing, providing copies of all such documents to the
non-filing party and its advisors prior to filing (other than documents
containing confidential business information that shall be shared only with
outside counsel to the non-filing party) and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection
therewith) and in connection with resolving any investigation or other
inquiry of any such agency or other Governmental Authority under any
Antitrust Laws (as defined in Section 5.1(a)(ii)) with respect to any such
filing or any such transaction. Each party shall use its reasonable best
efforts to furnish to each other all information required for any
application or other filing to be made pursuant to any Applicable Law in
connection with the Merger and the other transactions contemplated by this
Agreement. Each party shall promptly inform the other party of any
communication with, and any proposed understanding, undertaking, or
agreement with, any Governmental Authority regarding any such filings or
any such transaction. Neither party shall independently participate in any
meeting with any Governmental Authority in respect of any such filings,
investigation, or other inquiry without giving the other party prior notice
of the meeting and, to the extent permitted by such Governmental Authority,
the opportunity to attend and/or participate. The parties hereto will
consult and cooperate with one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the HSR Act or other
Antitrust Laws.
(ii) Each of Cardinal and Allegiance shall use its reasonable best
efforts to resolve such objections, if any, as may be asserted by any
Governmental Authority with respect to the transaction contemplated by this
Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act,
as amended, the Federal Trade Commission Act, as amended, and any other
federal, state or foreign statues, rules, regulations, orders, decrees,
administrative or judicial doctrines or other laws that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "ANTITRUST LAWS"). In
connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust
Law, each of Cardinal and Allegiance shall cooperate and use its reasonable
best efforts vigorously to contest and resist any such action or
proceeding, including any legislative, administrative or judicial action,
and to have vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order whether temporary, preliminary or permanent (each
an "ORDER"), that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any other transactions contemplated by this
Agreement, including, without limitation, by vigorously pursuing all
available avenues of administrative and judicial appeal and all available
legislative action, unless by mutual agreement Cardinal and Allegiance
decide that litigation is not in their respective best interests.
Notwithstanding the foregoing or any other provision of this Agreement,
nothing in this Section 5.1(a) shall limit a party's right to terminate
this Agreement pursuant to Section 7.1, so long as such party has up to
then complied in all material respects with its obligations under this
Section 5.1(a). Each of Cardinal and Allegiance shall use all reasonable
efforts to take such action as may be required to cause the expiration of
the notice periods under the HSR Act or other Antitrust Laws with respect
to such transactions as promptly as possible after the execution of this
Agreement.
(iii) Each of the parties agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (A) the obtaining of all other
necessary actions or nonactions, waivers, consents, licenses, permits,
authorizations, orders and approvals from Governmental Authorities and the
making of all other necessary registrations and filings (including other
filings with Governmental Authorities, if any), (B) the obtaining of all
consents, approvals or waivers from third parties related to or required in
connection with the Merger that are necessary to consummate the Merger and
the transactions contemplated by this Agreement or required to prevent a
Material Adverse Effect on Cardinal or Allegiance from occurring prior to
or after the Effective Time, (C) the preparation of the Joint Proxy
Statement, the Prospectus and the
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Registration Statement, (D) the taking all action necessary to ensure that
it is a "poolable entity" eligible to participate in a transaction to be
accounted for as a pooling-of-interests for financial reporting purposes,
and (E) the execution and delivery of any additional instruments necessary
to consummate the transaction contemplated by, and to fully carry out the
purposes of, this Agreement.
(iv) Notwithstanding anything to the contrary in this Agreement, (A)
neither Cardinal nor any of its subsidiaries shall be required to hold
separate (including by trust or otherwise) or to divest any of their
respective businesses or assets, or to take or agree to take any action or
agree to any limitation that could reasonably be expected to have a
Material Adverse Effect on Cardinal and its subsidiaries taken as a whole
or a material adverse effect on the assets, liabilities, results of
operations or financial condition of Cardinal combined with the Surviving
Corporation after the Effective Time, (B) prior to the Effective Time,
neither Allegiance nor its subsidiaries shall be required to hold separate
(including by trust or otherwise) or to divest any of their respective
businesses or assets, or to take or agree to take any other action or agree
to any limitation that could reasonably be expected to have a Material
Adverse Effect on Allegiance and its subsidiaries taken as a whole, (C)
neither party nor their respective subsidiaries shall be required to take
any action that would reasonably be expected to substantially impair the
overall benefits expected, as of the date hereof, to be realized from
consummation of the Merger and (D) neither party shall be required to waive
any of the conditions to the Merger set forth in Article VI as they apply
to such party.
(b) Pooling-of-Interests. Each of the parties agrees that it shall not,
and shall not permit any of its subsidiaries to, take any actions (regardless of
whether such action would otherwise be permitted or not prohibited hereunder)
that would, or would be reasonably likely to, prevent Cardinal from accounting,
and shall use its reasonable best efforts (including, without limitation,
providing appropriate representation letters to Cardinal's accountants) to allow
Cardinal to account, for the Merger in accordance with the pooling-of-interests
method of accounting under the requirements of Opinion No. 16 "Business
Combinations" of the Accounting Principles Board of the American Institute of
Certified Public Accountants, as amended by applicable pronouncements by the
Financial Accounting Standards Board, and all related published rules,
regulations and policies of the Commission ("APB NO. 16"), and to obtain a
letter, in form and substance reasonably satisfactory to Cardinal, from Deloitte
& Touche LLP dated the Closing Date stating that they concur with management's
conclusion that the Merger will qualify as a transaction to be accounted for by
Cardinal in accordance with the pooling-of-interests method of accounting under
the requirements of APB No. 16.
(c) Tax-Free Treatment. Each of the parties shall use its reasonable best
efforts to cause the Merger to constitute a tax-free "reorganization" under
Section 368(a) of the Code and to cooperate with one another in obtaining an
opinion from Davis Polk & Wardwell, counsel to Allegiance, as provided for in
Section 6.2(d). In connection therewith, each of Cardinal and Allegiance shall
deliver to Davis Polk & Wardwell representation letters and Allegiance shall use
all reasonable efforts to obtain representation letters from appropriate
shareholders of Allegiance and shall deliver any such letters obtained to Davis
Polk & Wardwell, in each case, in form and substance reasonably satisfactory to
Davis Polk & Wardwell.
(d) Public Announcements. The initial press release concerning the Merger
and the transactions contemplated hereby shall be a joint press release. Unless
otherwise required by Applicable Laws or requirements of the NYSE (and, in that
event, only if time does not permit), at all times prior to the earlier of the
Effective Time or termination of this Agreement pursuant to Section 7.1,
Cardinal and Allegiance shall consult with each other before issuing any press
release with respect to the Merger and shall not issue any such press release
prior to such consultation.
5.2 Covenants of Cardinal.
(a) Cardinal Shareholders Meeting. Cardinal shall take all action in
accordance with the federal securities laws, the Ohio Revised Code, the Cardinal
Articles and the Cardinal Code of Regulations, necessary to duly call, give
notice of, convene and hold a special meeting of Cardinal Shareholders (the
"CARDINAL SHAREHOLDERS MEETING") to be held on the earliest practical date
determined in consultation with Allegiance, and to obtain the consent and
approval of Cardinal Shareholders with respect to the Share Issuance and the
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transactions contemplated hereby. Cardinal shall take all lawful action to
solicit the approval of the Share Issuance by the Cardinal Shareholders and the
Board of Directors of Cardinal shall recommend approval of the Share Issuance by
the Cardinal Shareholders.
(b) Preparation of Registration Statement. Cardinal shall, as soon as is
reasonably practicable, prepare the Joint Proxy Statement for filing with the
Commission on a confidential basis (unless Cardinal shall reasonably determine,
in consultation with Allegiance, that it is appropriate to file the Joint Proxy
Statement with the Commission on a non-confidential basis as the Registration
Statement) and shall file the Joint Proxy Statement. Consistent with the timing
for the Cardinal Shareholders Meeting and the Allegiance Stockholders Meeting as
determined by Cardinal after consultation with Allegiance, Cardinal shall
prepare and file the Registration Statement with the Commission as soon as is
reasonably practicable following clearance of the Joint Proxy Statement by the
Commission and shall use its reasonable best efforts to have the Registration
Statement declared effective by the Commission as promptly as practicable and to
maintain the effectiveness of the Registration Statement through the Effective
Time. If, at any time prior to the Effective Time, Cardinal shall obtain
knowledge of any information pertaining to Cardinal contained in or omitted from
the Registration Statement that would require an amendment or supplement to the
Registration Statement or the Joint Proxy Statement, Cardinal will so advise
Allegiance in writing and will promptly take such action as shall be required to
amend or supplement the Registration Statement and/or the Joint Proxy Statement.
Cardinal shall promptly furnish to Allegiance all information concerning it as
may be required for supplementing the Joint Proxy Statement. Cardinal shall
cooperate with Allegiance in the preparation of the Joint Proxy Statement in a
timely fashion and shall use its reasonable best efforts to assist Allegiance in
clearing the Joint Proxy Statement with the Staff of the Commission. Consistent
with the timing of the Cardinal Shareholders Meeting and the Allegiance
Stockholder Meeting, Cardinal shall use all reasonable best efforts to mail at
the earliest practicable date to Cardinal Shareholders the Joint Proxy
Statement, which Joint Proxy Statement shall include all information required
under Applicable Law to be furnished to Cardinal Shareholders in connection with
the Share Issuance and shall include the recommendation of the Cardinal Board of
Directors that the Cardinal Shareholders approve the Share Issuance. Cardinal
shall also take such other reasonable actions (other than qualifying to do
business in any jurisdiction in which it is not so qualified) required to be
taken under any applicable state securities laws in connection with the issuance
of Cardinal Common Shares in the Merger. No filing of, or amendment or
supplement to, the Registration Statement or to the Joint Proxy Statement will
be made by Cardinal without providing Allegiance the opportunity to review and
comment thereon. Cardinal will advise Allegiance, promptly after it receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, the issuance of any stop order,
the suspension of the qualification of Cardinal Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the Commission for amendment of the Joint Proxy Statement or the
Registration Statement or comments thereon and responses thereto or requests by
the Commission for additional information. Cardinal will hold the Cardinal
Shareholders Meeting no later than the date of the Allegiance Stockholder
Meeting and as soon as practicable after the date hereof.
(c) Conduct of Cardinal's Operations. During the period from the date of
this Agreement to the Effective Time, Cardinal shall use its reasonable best
efforts to maintain and preserve its business organization and to retain the
services of its officers and key employees and maintain relationships with
customers, suppliers and other third parties to the end that their goodwill and
ongoing business shall not be impaired in any material respect. During the
period from the date of this Agreement to the Effective Time, Cardinal shall not
(i) make any amendment to the Cardinal Articles that changes the fundamental
attributes of the Cardinal Common Stock, (ii) make any material changes to the
Certificate of Incorporation of Subcorp, (iii) make, declare or pay any
extraordinary cash dividend, other than extraordinary dividends between Cardinal
and a subsidiary of Cardinal and non-extraordinary dividends, (iv) permit or
cause any subsidiaries to do any of the foregoing or agree or commit to any of
the foregoing, or (v) agree in writing or otherwise to take any of the foregoing
actions.
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(d) Indemnification; Directors' and Officers' Insurance.
(i) From and after the Effective Time, Cardinal shall cause, the
Surviving Corporation to indemnify and hold harmless the present and former
officers and directors of Allegiance in respect of acts or omissions
occurring prior to the Effective Time to the extent provided under the
Allegiance Certificate or the Allegiance Bylaws, and
(ii) Cardinal shall use all reasonable efforts to cause the Surviving
Corporation or Cardinal to obtain and maintain in effect for a period of
six years after the Effective Time policies of directors' and officers'
liability insurance at no cost to the beneficiaries thereof with respect to
acts or omissions occurring prior to the Effective Time with substantially
the same coverage and containing substantially similar terms and conditions
as existing policies; provided, however, that neither the Surviving
Corporation nor Cardinal shall be required to pay an aggregate premium for
such insurance coverage in excess of 150% of the amount set forth in
Section 4.16 to the Allegiance Disclosure Schedule.
(e) Merger Sub. Prior to the Effective Time, Subcorp shall not conduct any
business or make any investments other than as specifically contemplated by this
Agreement and will not have any assets (other than a de minimis amount of cash
paid to Subcorp for the issuance of its stock to Cardinal) or any material
liabilities. Cardinal will take all action necessary to cause Subcorp to perform
its obligations under this Agreement and to consummate the Merger on the terms
and conditions set forth in this Agreement.
(f) NYSE Listing. Cardinal shall use its reasonable efforts to cause the
Cardinal Common Shares issuable pursuant to the Merger (including pursuant to
Cardinal Exchange Options) to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Effective Time.
(g) Access. Cardinal shall permit representatives of Allegiance to have
appropriate access at all reasonable times to Cardinal's premises, properties,
books, records, contracts, documents, customers and suppliers. Information
obtained by Allegiance pursuant to this Section 5.2 shall be subject to the
provisions of the confidentiality agreement between Cardinal and Allegiance
dated October 1, 1998 (the "CONFIDENTIALITY AGREEMENT"), which agreement remains
in full force and effect. No investigation conducted pursuant to this Section
5.2 shall affect or be deemed to modify any representation or warranty made in
this Agreement.
(h) Board of Directors of Cardinal. The Board of Directors of Cardinal
shall take all action necessary immediately following the Effective Time to
elect as directors of Cardinal Mr. Lester Knight, and two other independent
directors who are currently members of the Board of Directors of Allegiance
chosen by the Chairman of Cardinal from three directors of Allegiance proposed
by the Board of Directors of Allegiance prior to the Effective Time, for a term
expiring at Cardinal's next annual meeting of shareholders following the
Effective Time at which the term of the class to which such director is elected
expires, subject to being renominated as a director of Cardinal at the
discretion of Cardinal's Board of Directors, provided, however, that not more
than one of such directors will be in the class whose term expires at Cardinal's
1999 annual meeting of shareholders.
(i) Employees and Employee Benefits.
(A) From and after the Effective Time, Cardinal shall treat all
service by Allegiance Employees (as defined below) with Allegiance and
their respective predecessors prior to the Effective Time for all purposes
as service with Cardinal (except for purposes of benefit accrual under
defined benefit pension plans or to the extent such treatment would result
in duplicative accrual on or after the Closing Date of benefits for the
same period of service), and, with respect to any medical or dental benefit
plan in which Allegiance Employees participate after the Effective Time,
Cardinal shall waive or cause to be waived any pre-existing condition
exclusions and actively-at-work requirements (provided, however, that no
such waiver shall apply to a pre-existing condition of any Allegiance
Employee who was, as of the Effective Time, excluded from participation in
an Allegiance Plan by virtue of such pre-existing condition), and shall
provide that any covered expenses incurred on or before the Effective Time
during the plan year of the applicable Allegiance Plan in which the
Effective Time occurs by an Allegiance Employee or an Allegiance Employee's
covered dependent shall be taken into account for purposes of satisfying
applicable deductible, coinsurance and maximum out-of-pocket provisions
after the Effective Time to the
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same extent as such expenses are taken into account for the benefit of
similarly situated employees of Cardinal and subsidiaries of Cardinal. For
purposes of this Section 5.2(i), "ALLEGIANCE EMPLOYEES" shall mean persons
who are, as of the Effective Time, employees of Allegiance.
(B) For a period of one year following the Effective Time, Cardinal
agrees that it will, or will cause the Surviving Corporation and each
subsidiary of the Surviving Corporation to, continue to maintain for the
benefit of individuals who are employees of Allegiance and its subsidiaries
who continue to be employed following the Effective Time ("CONTINUING
ALLEGIANCE EMPLOYEES") compensation and benefit plans, programs,
arrangements and policies which provide compensation and benefits that are
substantially comparable, in the aggregate, to those provided by Allegiance
or any subsidiary of Allegiance, if applicable, for the benefit of such
Continuing Allegiance Employees immediately prior to the Effective Time;
provided that termination or amendment of the ESPP shall not be deemed to
violate this sentence.
(C) If any individual who is employed by Allegiance or any subsidiary
of Allegiance immediately prior to the Effective Time is terminated by
Cardinal at the Effective Time or during the one-year period following the
Effective Time, Cardinal shall pay to such individual severance pay, and
ensure benefit continuation, including coverage by any relevant group
medical or life insurance benefits, on a basis no less favorable to such
individual than under the severance policies of Allegiance in existence
immediately prior to the Effective Time, based on the salary of such
individual in effect on his or her termination date, with appropriate
credit for accumulated service with Allegiance, its Affiliates and
Cardinal, and during any period of salary continuation.
(D) Cardinal agrees to, or to cause the Surviving Corporation to
continue to, provide the transition benefit specified under subsection 4.3
of the Allegiance Retirement Plan to all eligible Allegiance Employees in
the same amounts, at the same times and pursuant to the same terms and
conditions as specified in the Allegiance Retirement Plan prior to the
Effective Time.
(j) Restrictions on Termination of Employees. Cardinal shall not terminate
any Allegiance Employee who is prohibited from selling Cardinal Common Shares or
shares of Allegiance Common Stock pursuant to the restrictions in connection
with the pooling-of-interests method of accounting under APB No. 16 or any other
restrictions under federal or state securities laws during the time period such
employee is prohibited from selling such shares pursuant to such restrictions;
provided, that the foregoing shall not prevent Cardinal from terminating any
such Allegiance Employee (i) for cause, as determined by Cardinal in good faith
or (ii) at any time after the expiration of six months after the Effective Time;
and provided, further, that there shall not be taken into account for purposes
of the foregoing any restrictions under federal or state securities laws that
arise as a result of actions of the Allegiance employee in question after the
Effective Time.
(k) SIP. If no waiver as described in the next sentence is obtained,
Cardinal shall assume the obligations of Allegiance under the Facility and
Guaranty Agreement (the "FACILITY AGREEMENT") dated as of May 2, 1997 by and
between Allegiance, the Lenders thereunder and The First National Bank of
Chicago ("FIRST NATIONAL"), individually and as Agent for the Lenders
thereunder. Cardinal shall cooperate and use its best efforts to cause First
National to waive the provisions for early repayment upon the occurrence of a
Change of Control set forth in Section 2(a) of the Form of Master Promissory
Note under the Facility Agreement.
5.3 Covenants of Allegiance.
(a) Allegiance Stockholders Meeting. Allegiance shall take all action in
accordance with the federal securities laws, the DGCL and the Allegiance
Certificate and the Allegiance Bylaws necessary to duly call, give notice of,
convene and hold a special meeting of Allegiance Stockholders (the "ALLEGIANCE
STOCKHOLDERS MEETING") to be held on the earliest practicable date determined in
consultation with Cardinal to consider and vote upon approval of the Merger,
this Agreement and the transactions contemplated hereby. Allegiance shall take
all lawful actions to solicit the approval of the Merger, this Agreement and the
transactions contemplated hereby, by the Allegiance Stockholders, and the Board
of Directors of Allegiance shall recommend approval of the Merger, this
Agreement and the transactions contemplated hereby by the Allegiance
Stockholders (to the extent not previously withdrawn pursuant to Section
5.3(d)).
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(b) Information for the Registration Statement and Preparation of Joint
Proxy Statement. Allegiance shall promptly furnish Cardinal with all
information concerning it as may be required for inclusion in the Joint Proxy
Statement and the Registration Statement. Allegiance shall cooperate with
Cardinal in the preparation of the Joint Proxy Statement and the Registration
Statement in a timely fashion and shall use all reasonable efforts to assist
Cardinal in having the Registration Statement declared effective by the
Commission as promptly as practicable consistent with the timing for the
Cardinal Shareholders Meeting and the Allegiance Stockholders Meeting as
determined by Cardinal after consultation with Allegiance. If, at any time prior
to the Effective Time, Allegiance obtains knowledge of any information
pertaining to Allegiance that would require any amendment or supplement to the
Registration Statement or the Joint Proxy Statement, Allegiance shall so advise
Cardinal and shall promptly furnish Cardinal with all information as shall be
required for such amendment or supplement and shall promptly amend or supplement
the Registration Statement and/or Joint Proxy Statement. Allegiance shall use
all reasonable efforts to cooperate with Cardinal in the preparation and filing
of the Joint Proxy Statement with the Commission on a confidential basis (except
to the extent determined pursuant to the terms of Section 5.2(b)). Consistent
with the timing for the Cardinal Shareholders Meeting and the Allegiance
Stockholders Meeting as determined by Cardinal after consultation with
Allegiance, Allegiance shall use all reasonable efforts to mail at the earliest
practicable date to Allegiance Stockholders the Joint Proxy Statement, which
shall include all information required under Applicable Law to be furnished to
Allegiance Stockholders in connection with the Merger and the transactions
contemplated thereby and shall include the Allegiance Board Recommendation to
the extent not previously withdrawn in compliance with Section 5.3(d) and the
written opinion of CSFB described in Section 4.21.
(c) Conduct of Allegiance's Operations. Allegiance shall conduct its
operations in the ordinary course except as expressly contemplated by this
Agreement and the transactions contemplated hereby and shall use its reasonable
best efforts to maintain and preserve its business organization and its material
rights and franchises and to retain the services of its officers and key
employees and maintain relationships with customers, suppliers, lessees,
licensees and other third parties, and to maintain all of its operating assets
in their current condition (normal wear and tear excepted), to the end that
their goodwill and ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, Allegiance shall not,
except as otherwise expressly contemplated by this Agreement and the
transactions contemplated hereby or as set forth in Section 5.3(c) to the
Allegiance Disclosure Schedule, without the prior written consent of Cardinal:
(i) do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock, (B)
make, declare or pay any dividend (other than regular quarterly dividends
on Allegiance Common Stock of $0.0525 per share with record and payment
dates consistent with past practice) or distribution on, or, directly or
indirectly, redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, (C) grant any person any
right or option to acquire any shares of its capital stock, (D) issue,
deliver or sell or agree to issue, deliver or sell any additional shares of
its capital stock or any securities or obligations convertible into or
exchangeable or exercisable for any shares of its capital stock or such
securities (except pursuant to the exercise of Allegiance Options that are
outstanding as of the date hereof or the exercise of ESPP Rights), or (E)
enter into any agreement, understanding or arrangement with respect to the
sale, voting, registration or repurchase of its capital stock;
(ii) directly or indirectly sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any of its property or assets other than
in the ordinary course of business;
(iii) make or propose any changes in the Allegiance Certificate or the
Allegiance Bylaws;
(iv) merge or consolidate with any other person;
(v) acquire a material amount of assets or capital stock of any other
person;
(vi) amend or modify, or propose to amend or modify, the Allegiance
Rights Agreement, as amended as of the date hereof;
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(vii) incur, create, assume or otherwise become liable for any
indebtedness for borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the obligations of any
other individual, corporation or other entity, other than in the ordinary
course of business, consistent with past practice;
(viii) create any subsidiaries;
(ix) enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant or employee other than in the ordinary course of business
consistent with past practice (except for change-of-control severance
agreements that in all cases shall require the prior written consent of
Cardinal), or otherwise increase the compensation or benefits provided to
any officer, director, consultant or employee except as may be required by
Applicable Law or in the ordinary course of business consistent with past
practice, or grant, reprice, or accelerate the exercise or payment of any
Allegiance Options or other equity-based awards;
(x) enter into, adopt or amend any employee benefit or similar plan,
except as may be required by Applicable Law;
(xi) take any action that could give rise to a right to severance
benefits pursuant to any Change in Control Agreement;
(xii) change any method or principle of accounting in a manner that is
inconsistent with past practice except to the extent required by United
States generally accepted accounting principles as advised by Allegiance's
regular independent accountants;
(xiii) settle any Actions, whether now pending or hereafter made or
brought involving, individually or in the aggregate, an amount in excess of
$1,000,000;
(xiv) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to any confidentiality agreement to
which Allegiance is a party;
(xv) enter into any confidentiality agreements or arrangements other
than in the ordinary course of business consistent with past practice
(other than as permitted, in each case, by Section 5.3(d));
(xvi) write up, write down or write off the book value of any assets,
individually or in the aggregate, in excess of $1 million except for
depreciation and amortization in accordance with generally accepted
accounting principles consistently applied;
(xvii) incur or commit to any capital expenditures other than pursuant
to the Allegiance Corporation Operating Plan as in effect on the date of
this Agreement, provided that no individual capital expenditure will be in
excess of $5 million;
(xviii) make any payments in respect of policies of directors' and
officers' liability insurance (premiums or otherwise) other than premiums
paid in respect of its current policies not in excess of the amount paid
prior to the date of this Agreement;
(xix) take any action to exempt or make not subject to (x) the
provisions of Section 203 of the DGCL or (y) any other state takeover law
or state law that purports to limit or restrict business combinations or
the ability to acquire or vote shares, any person or entity (other than
Cardinal or its subsidiaries) or any action taken thereby, which person,
entity or action would have otherwise been subject to the restrictive
provisions thereof and not exempt therefrom;
(xx) take any action that would likely result in the representations
and warranties set forth in Article IV becoming false or inaccurate in any
material respect;
(xxi) enter into or carry out any other transaction other than in the
ordinary and usual course of business;
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(xxii) permit or cause any subsidiary to do any of the foregoing or
agree or commit to do any of the foregoing; or
(xxiii) agree in writing or otherwise to take any of the foregoing
actions.
(d) No Solicitation. Allegiance agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives, directly or indirectly, to solicit, initiate,
encourage or knowingly facilitate, or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving Allegiance, or acquisition of any capital stock (other than upon
exercise of Allegiance Options that are outstanding as of the date hereof) or
15% or more of the assets of Allegiance and its subsidiaries, taken as a whole,
in a single transaction or a series of related transactions, or any combination
of the foregoing (a "COMPETING TRANSACTION"), or negotiate, explore or otherwise
engage in discussions with any person (other than Cardinal, Subcorp or their
respective directors, officers, employees, agents and representatives) with
respect to any Competing Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions contemplated by this Agreement; provided that,
at any time prior to the approval of the Merger by the Allegiance Stockholders,
Allegiance may furnish information to, and negotiate or otherwise engage in
discussions with, any party who delivers a written proposal for a Competing
Transaction which was not solicited or encouraged after the date of this
Agreement if and so long as the Board of Directors of Allegiance determines in
good faith by resolution duly adopted after consultation with its outside
counsel (who may be its regularly engaged outside counsel) that the failure to
take such action would reasonably be expected to constitute a breach of its
fiduciary duties under Applicable Law and determines that such a proposal is,
after consulting with CSFB (or any other nationally recognized investment
banking firm), more favorable to Allegiance Stockholders from a financial point
of view than the transactions contemplated by this Agreement (including any
adjustment to the terms and conditions proposed by Cardinal in response to such
Competing Transaction) (a "SUPERIOR PROPOSAL"). Allegiance will immediately
cease all existing activities, discussions and negotiations with any parties
conducted heretofore with respect to any proposal for a Competing Transaction
and request the return of all confidential information regarding Allegiance
provided to any such parties prior to the date hereof pursuant to the terms of
any confidentiality agreements or otherwise. In the event that prior to the
approval of the Merger by the Allegiance Stockholders the Board of Directors of
Allegiance receives a Superior Proposal that was not solicited or encouraged
after the date of this Agreement, and the Board of Directors of Allegiance
determines in good faith by resolution duly adopted after consultation with its
outside counsel (who may be its regularly engaged outside counsel) that the
failure to take such action would reasonably be expected to constitute a breach
of its fiduciary duties under Applicable Law, the Board of Directors of
Allegiance may (subject to this and the following sentences) withdraw, modify or
change, in a manner adverse to Cardinal, the Allegiance Board Recommendation
and/or comply with Rule 14e-2 promulgated under the Exchange Act with respect to
a Competing Transaction, provided that it gives Cardinal three business days'
prior written notice of its intention to do so (provided that the foregoing
shall in no way limit or otherwise affect Cardinal's right to terminate this
Agreement pursuant to Section 7.1(d) at such time as the requirements of such
subsection have been met). Any such withdrawal, modification or change of the
Allegiance Board Recommendation shall not change the approval of the Board of
Directors of Allegiance for purposes of causing any state takeover statute or
other state law to be inapplicable to the transactions contemplated hereby,
including the Merger, the Allegiance Stock Option Agreement or the Support
Agreements or change the obligation of Allegiance to present the Merger for
approval at a duly called Allegiance Stockholders Meeting on the earliest
practicable date determined in consultation with Cardinal. From and after the
execution of this Agreement, Allegiance shall promptly (but in any event within
one calendar day) advise Cardinal in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals relating
to a Competing Transaction (including the specific terms thereof and the
identity of the other party or parties involved) and promptly furnish to
Cardinal a copy of any such written proposal in addition to any information
provided to or by any third party relating thereto. In addition, Allegiance
shall promptly (but in any event within one calendar day) advise Cardinal, in
writing, if the Board of Directors of Allegiance shall make any determination as
to any Competing Transaction as contemplated by the proviso to the first
sentence of this Section 5.3(d).
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(e) Termination Right. If prior to the approval of the Merger by the
Allegiance Stockholders the Board of Directors of Allegiance shall determine in
good faith, after consultation with its financial and legal advisors, that any
written proposal from a third party for a Competing Transaction received after
the date hereof that was not solicited or encouraged by Allegiance or any of its
subsidiaries or affiliates in violation of this Agreement is more favorable to
the Allegiance Stockholders from a financial point of view than the transactions
contemplated by this Agreement (including any adjustment to the terms and
conditions of such transaction proposed in writing by Cardinal in response to
such Competing Transaction) and is in the best interest of the Allegiance
Stockholders and (x) the Board of Directors of Allegiance has determined in good
faith by resolution duly adopted after consultation with its outside counsel
(who may be its regularly engaged outside counsel) that the failure to enter
into such a Competing Transaction would reasonably be expected to constitute a
breach of the its fiduciary duties under Applicable Law and (y) Allegiance has
received a written opinion (a copy of which has been delivered to Cardinal) from
CSFB (or any other nationally recognized investment banking firm) that the
Competing Transaction is more favorable from a financial point of view to the
Allegiance Stockholders than the transactions contemplated by this Agreement
(including any adjustment to the terms and conditions of such transaction
proposed in writing by Cardinal), Allegiance may terminate this Agreement and
enter into a letter of intent, agreement-in-principle, acquisition agreement or
other similar agreement (each, an "ACQUISITION AGREEMENT") with respect to such
Competing Transaction provided that, prior to any such termination, (i)
Allegiance has provided Cardinal written notice that it intends to terminate
this Agreement pursuant to this Section 5.3(e), identifying the Competing
Transaction then determined to be more favorable and the parties thereto and
delivering a copy of the Acquisition Agreement for such Competing Transaction in
the form to be entered into, and (ii) at least three full business days after
Allegiance has provided the notice referred to in clause (i) above (provided
that the resolution referred to in clause (x) above and the opinion referred to
in clause (y) above shall continue in effect without revision or modification),
Allegiance delivers to Cardinal (A) a written notice of termination of this
Agreement pursuant to this Section 5.3(e), (B) a check in the amount of
Cardinal's Costs (as defined in Section 7.2) as the same may have been estimated
by Cardinal in good faith prior to the date of such delivery (subject to an
adjustment payment between the parties upon Cardinal's definitive determination
of such Costs), plus the amount of the termination fee as provided in Section
7.2, (C) a written acknowledgment from Allegiance that (x) the termination of
this Agreement and the entry into the Acquisition Agreement for the Competing
Transaction will be a "PURCHASE EVENT" (as defined in the Allegiance Stock
Option Agreement) and (y) the Allegiance Stock Option Agreement shall be honored
in accordance with its terms and (D) a written acknowledgment from each other
party to such Competing Transaction that it is aware of the substance of
Allegiance's acknowledgment under clause (C) above and waives any right it may
have to contest the matters thus acknowledged by Allegiance.
(f) Affiliates of Allegiance. Allegiance shall cause each such person who
may be at the Effective Time or was on the date hereof an "affiliate" of
Allegiance for purposes of Rule 145 under the Securities Act or applicable
accounting releases of the Commission with respect to pooling-of-interests
accounting treatment, to execute and deliver to Cardinal no less than 30 days
prior to the date of the Allegiance Stockholders Meeting, the written
undertakings in the form attached hereto as Exhibit A (the "ALLEGIANCE AFFILIATE
LETTER"). No later than 45 days prior to such date, Allegiance, after
consultation with its outside counsel, shall provide Cardinal with a letter
(reasonably satisfactory to outside counsel to Cardinal) specifying all of the
persons or entities who, in Allegiance's opinion, may be deemed to be
"affiliates" of Allegiance under the preceding sentence. The foregoing
notwithstanding, Cardinal shall be entitled to place legends as specified in the
Allegiance Affiliate Letter on the certificates evidencing any of the Cardinal
Common Shares to be received by (i) any such "affiliate" of Allegiance specified
in such letter or (ii) any person Cardinal reasonably identifies (by written
notice to Allegiance) as being a person who may be deemed an "affiliate" for
purposes of Rule 145 under the Securities Act or applicable accounting releases
of the Commission with respect to pooling-of-interests accounting treatment,
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Cardinal Common Shares, consistent
with the terms of the Allegiance Affiliate Letter, regardless of whether such
person has executed the Allegiance Affiliate Letter and regardless of whether
such person's name appears on the letter to be delivered pursuant to the
preceding sentence.
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(g) Access. Allegiance shall permit representatives of Cardinal to have
appropriate access at all reasonable times to Allegiance's premises, properties,
books, records, contracts, documents, customers and suppliers. Information
obtained by Cardinal pursuant to this Section 5.3(g) shall be subject to the
provisions of the Confidentiality Agreement, which agreement remains in full
force and effect. No investigation conducted pursuant to this Section 5.3(g)
shall affect or be deemed to modify any representation or warranty made in this
Agreement.
(h) Subsequent Financial Statements. Allegiance shall consult with
Cardinal prior to making publicly available its financial results for any period
after the date of this Agreement and prior to filing any Allegiance SEC
Documents after the date of this Agreement.
ARTICLE VI.
CONDITIONS
6.1 Conditions to the Obligations of Each Party. The obligations of
Allegiance, Cardinal and Subcorp to consummate the Merger shall be subject to
the satisfaction of the following conditions:
(a) (i) This Agreement, the Merger and the transactions contemplated hereby
shall have been approved and adopted by the Allegiance Stockholders in the
manner required by any Applicable Law, and (ii) the Share Issuance shall have
been approved by the Cardinal Shareholders in the manner required by any
Applicable Law and the applicable rules of the NYSE.
(b) Any applicable waiting periods under the HSR Act relating to the Merger
and the transactions contemplated by this Agreement shall have expired or been
terminated and any other approvals of any Governmental Authority shall have been
obtained.
(c) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger or the transactions contemplated by this Agreement or limiting the
ownership or operation by Cardinal, Allegiance or any of their respective
subsidiaries of any material portion of the business or assets of Cardinal or
Allegiance.
(d) There shall not be pending any Action instituted by any Governmental
Authority challenging or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by this Agreement.
(e) The Commission shall have declared the Registration Statement effective
under the Securities Act, and no stop order or similar restraining order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for such purpose shall be pending before or threatened by the
Commission or any state securities administrator.
(f) The Cardinal Common Shares to be issued in the Merger (including
pursuant to Cardinal Exchange Options) shall have been approved for listing on
the NYSE, subject to official notice of issuance.
(g) Cardinal shall have received a letter, in form and substance reasonably
satisfactory to Cardinal, from Deloitte & Touche LLP dated the date of the
Effective Time stating that they concur with management's conclusion that the
Merger will qualify as a transaction to be accounted for by Cardinal in
accordance with the pooling-of-interests method of accounting under the
requirements of APB No. 16.
6.2 Conditions to Obligations of Allegiance. The obligations of Allegiance
to consummate the Merger and the transactions contemplated hereby shall be
subject to the fulfillment of the following conditions unless waived by
Allegiance:
(a) Each of the representations and warranties of each of Cardinal and
Subcorp set forth in Article III shall be true and correct in all respects
(but without regard to any materiality qualifications or references to
Material Adverse Effect contained in any specific representation or
warranty) on the date of this Agreement and on and as of the Determination
Date (as defined in Section 8.3) as though made on and as of the
Determination Date (except for representations and warranties made as of a
specified date,
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the accuracy of which will be determined as of the specified date), except
where any such failure of the representations and warranties in the
aggregate to be true and correct in all respects would not reasonably be
expected to have a Material Adverse Effect on Cardinal.
(b) Each of Cardinal and Subcorp shall have performed in all material
respects all obligations and agreements and shall have complied in all
material respects with all covenants to be performed and complied with by
it hereunder at or prior to the Effective Time.
(c) Each of Cardinal and Subcorp shall have furnished Allegiance with
a certificate dated the Closing Date signed on behalf of it by the Chairman
or President to the effect that the conditions set forth in Sections 6.2(a)
and (b) have been satisfied.
(d) Allegiance shall have received the opinion of Davis Polk &
Wardwell, dated on or prior to the effective date of the Registration
Statement, to the effect that (i) the Merger will constitute a
reorganization under section 368(a) of the Code, (ii) Allegiance, Cardinal
and Subcorp will each be a party to that reorganization, and (iii) no gain
or loss will be recognized by the shareholders of Allegiance upon the
receipt of Cardinal Common Shares in exchange for shares of Allegiance
Common Stock pursuant to the Merger except with respect to cash received in
lieu of fractional share interests in Cardinal Common Shares.
6.3 Conditions to Obligations of Cardinal and Subcorp. The obligations of
Cardinal and Subcorp to consummate the Merger and the other transactions
contemplated hereby shall be subject to the fulfillment of the following
conditions unless waived by Cardinal:
(a) Each of the representations and warranties of Allegiance set forth
in Article IV (other than the representations and warranties of Allegiance
set forth in Section 4.4) shall be true and correct in all respects (but
without regard to any materiality qualifications or references to Material
Adverse Effect contained in any specific representation or warranty) on the
date of this Agreement and on and as of the Determination Date as though
made on and as of the Determination Date (except for representations and
warranties made as of a specified date, the accuracy of which will be
determined as of the specified date), except where any such failure of the
representations and warranties in the aggregate to be true and correct in
all respects would not reasonably be expected to have a Material Adverse
Effect on Allegiance. The representations and warranties of Allegiance set
forth in Section 4.4 of this Agreement shall be true and correct in all
material respects on the date of this Agreement and on and as of the
Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, the accuracy of
which will be determined as of the specified date).
(b) Allegiance shall have performed in all material respects all
obligations and agreements and shall have complied in all material respects
with all covenants to be performed and complied with by it hereunder at or
prior to the Effective Time.
(c) Allegiance shall have furnished Cardinal with a certificate dated
the Closing Date signed on its behalf by its Chairman or President to the
effect that the conditions set forth in Sections 6.3(a) and (b) have been
satisfied.
(d) Cardinal shall be satisfied, in its sole discretion, that the
limitations set forth in Section 1.1 of the agreement set forth in Section
6.3(d) of the Cardinal Disclosure Schedule shall not apply to the business
or operations of Cardinal, Cardinal's subsidiaries or the Surviving
Corporation from and after the Effective Time.
(e) There shall not have been a breach of the Allegiance Stock Option
Agreement.
(f) The amendments to the Change in Control Agreement, between
Allegiance and each employee of Allegiance set forth in Section 4.24 to the
Allegiance Disclosure Schedule, each as entered into as of the date of this
Agreement, shall be in full force and effect and shall not have been
terminated.
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ARTICLE VII.
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by Allegiance Stockholders and Cardinal Shareholders):
(a) by mutual written consent of Cardinal and Allegiance;
(b) by either Cardinal or Allegiance if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited, or if any judgment, injunction, order or decree of a court or
other competent Governmental Authority (which the parties shall have used
all reasonable efforts to resist, resolve or lift, as applicable, in
accordance with Section 5.1(a)) enjoining Cardinal or Allegiance from
consummating the Merger shall have been entered and such judgment,
injunction, order or decree shall have become final and nonappealable;
(c) by either Cardinal or Allegiance if the Merger shall not have been
consummated before May 15, 1999, provided, however, that the right to
terminate this Agreement under this Section 7.1(c) shall not be available
to any party whose failure or whose affiliate's failure to perform any
material covenant or obligation under this Agreement has been the cause of
or resulted in the failure of the Merger to occur on or before such date;
(d) by Cardinal if the Board of Directors of Allegiance shall
withdraw, modify or change the Allegiance Board Recommendation in a manner
adverse to Cardinal, if the Board of Directors of Allegiance approves or
recommends any Competing Transaction;
(e) by Cardinal or Allegiance if at the Allegiance Stockholders
Meeting (including any adjournment or postponement thereof) the requisite
vote of the Allegiance Stockholders to approve the Merger and the
transactions contemplated hereby shall not have been obtained;
(f) by Cardinal or Allegiance if at the Cardinal Shareholders Meeting
(including any adjournment or postponement thereof) the requisite vote of
the Cardinal Shareholders to approve the Share Issuance shall not have been
obtained;
(g) by Allegiance, pursuant to Section 5.3(e);
(h) by Cardinal if Allegiance shall have breached any of its
obligations under the Allegiance Stock Option Agreement;
(i) by Cardinal if at any time Cardinal shall have been advised in
writing by Deloitte & Touche LLP that the condition set forth in Section
6.1(g) is not capable of being satisfied, provided that Cardinal has given
Allegiance at least five business days' prior notice;
(j) by Cardinal or Allegiance if there shall have been a material
breach by the other of any of its covenants or agreements contained in this
Agreement and such breach shall not have been cured within 30 days after
notice thereof shall have been received by the party alleged to be in
breach; or
(k) by Allegiance if the Board of Directors of Cardinal shall
withdraw, modify or change its recommendation to Cardinal Shareholders that
they approve the Share Issuance
7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement, except for the provisions of
the second sentence of each of Section 5.2(g) and Section 5.3(g) and the
provisions of Sections 7.2 and 8.11, shall become void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders. Notwithstanding the foregoing, nothing in this Section 7.2 shall
relieve any party to this Agreement of liability for a material breach of any
provision of this Agreement and provided, further, however, that if it shall be
judicially determined that termination of this Agreement was caused by an
intentional breach of this Agreement, then, in addition to other remedies at law
or equity for breach of this Agreement, the party so found to have intentionally
breached this Agreement shall indemnify and hold harmless the other parties for
their respective out-of-pocket costs, fees and expenses of
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their counsel, accountants, financial advisors and other experts and advisors as
well as fees and expenses incident to negotiation, preparation and execution of
this Agreement and related documentation and shareholders' meetings and consents
("COSTS"). If this Agreement is terminated (A) for any reason pursuant to
Section 7.1 (other than a termination pursuant to Section 7.1(a) (prior to the
public announcement of a Competing Transaction), 7.1(b), 7.1(c) (other than a
termination by Cardinal pursuant to Section 7.1(c) if Allegiance's failure to
perform any material covenant or obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before May 15,
1999), 7.1(e), 7.1(f), 7.1(i), 7.1(j) or 7.1(k)) or (B) pursuant to Section
7.1(e) and at any time prior to such termination there shall have been made to
Allegiance or publicly disclosed a Competing Transaction with respect to
Allegiance, and within 12 months after the date of termination Allegiance enters
into an Acquisition Agreement for a Business Combination (as defined below) or
consummates a Business Combination, then Allegiance will, in the case of a
termination by Cardinal, within three business days following any such
termination or, in the case of a termination by Allegiance, (except in each
case, if the termination is pursuant to Section 7.1(e), then, prior to the
earlier consummation of a Business Combination or execution of a definitive
agreement with respect thereto) concurrently with such termination, pay to
Cardinal in cash by wire transfer in immediately available funds to an account
designated by Cardinal (i) in reimbursement for Cardinal's expenses an amount in
cash equal to the aggregate amount of Cardinal's Costs incurred in connection
with pursuing the transactions contemplated by this Agreement, including,
without limitation, legal, accounting and investment banking fees, up to but not
in excess of an amount equal to $5 million in the aggregate and (ii) a
termination fee in an amount equal to $155 million. For the purposes of this
Section 7.2, "BUSINESS COMBINATION" means (i) a merger, consolidation, share
exchange, business combination or similar transaction involving Allegiance as a
result of which the Allegiance Stockholders prior to such transaction in the
aggregate cease to own at least 60% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent entity
thereof), (ii) a sale, lease, exchange, transfer or other disposition of more
than 30% of the assets of Allegiance and its subsidiaries, taken as a whole, in
a single transaction or a series of related transactions, or (iii) the
acquisition, by a person (other than Cardinal or any affiliate thereof) or group
(as such term is defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of more than 20% of the Allegiance Common Stock whether
by tender or exchange offer or otherwise.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of this Agreement by Allegiance Stockholders, but after
any such approval, no amendment shall be made which by law requires further
approval or authorization by the Allegiance Stockholders without such further
approval or authorization. Notwithstanding the foregoing, this Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, Cardinal
(with respect to Allegiance) and Allegiance (with respect to Cardinal and
Subcorp) by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of such party, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The representations and
warranties made herein by the parties hereto shall not survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
hereto, which by its terms contemplates performance after the Effective Time or
after the termination of this Agreement.
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8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or dispatched by a nationally recognized overnight courier service to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Cardinal or Subcorp:
Cardinal Health, Inc.
5555 Glendon Court
Dublin, Ohio 43016
Attention: Robert D. Walter
Telecopy No.: (614) 717-8919
with a copy to
David A. Katz, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
(b) if to Allegiance:
Allegiance Corporation
1430 Waukegan Road
McGaw Park, Illinois 60085
Attention: Lester B. Knight
Telecopy No.: (847) 578-4448
with a copy to
John A. Bick, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy No: (212) 450-4800
8.3 Interpretation. When a reference is made in this Agreement to an
Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The headings and the table of contents
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When a reference is
made in this Agreement to Allegiance, such reference shall be deemed to include
any and all subsidiaries of Allegiance, individually and in the aggregate,
except for Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.8, 4.15, 4.21, 4.22 and
4.23. For the purposes of any provision of this Agreement, a "MATERIAL ADVERSE
EFFECT" with respect to any party shall be deemed to occur if (i) in any
individual representation or warranty in this Agreement, if the aggregate
consequences of breaches and inaccuracies of such representation and warranty
would have a material adverse effect on the business, results of operations or
financial condition of such party and its subsidiaries taken as a whole, and
(ii) elsewhere in the Agreement, the aggregate consequences of all breaches and
inaccuracies of covenants and representations of such party under this
Agreement, when read without any exception or qualification for a material
adverse effect, would have a material adverse effect on the business, results of
operations or financial condition of such party and its subsidiaries taken as a
whole; provided, however, that a Material Adverse Effect with respect to any
party shall not include any change in or effect upon the business, assets
(including intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise), or results of operations of such party or any of its
subsidiaries directly or indirectly arising out of or attributable to the
economy, the securities markets in general or the industries generally in which
a party and its subsidiaries operate, or to any decrease in the market price of
Cardinal Common Shares in the case of Cardinal or Allegiance Common Stock in the
case of Allegiance (but, in either case, not any change or effect underlying
such decrease to the extent such
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change or effect would otherwise constitute a Material Adverse Effect on such
party). For purposes of this Agreement, a "SUBSIDIARY" when used with respect to
any party means any corporation or other organization, incorporated or
unincorporated, (i) of which such party or another subsidiary of such party is a
general partner (excluding partnerships, the general partnership interests of
which held by such party or any subsidiary of such party do not have 50% or more
of the voting interests in such partnership) or (ii) 50% or more of the
securities or other interests of which having by their terms ordinary voting
power to elect at least 50% of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or one or more of its
subsidiaries (or if there are no such voting securities or interests, 50% or
more of the equity interests of which is directly or indirectly owned or
controlled by such party or one or more of its subsidiaries). For the purposes
of Section 6.2(a) and Section 6.3(a), the "Determination Date" shall be the
earlier of the Closing Date or the tenth business day after the satisfaction of
all of the conditions set forth in Article VI (other than those conditions that
by their nature are to be satisfied at the Closing, and other than the
conditions set forth in Sections 6.2(a), 6.3(a) and 6.3(d)).
8.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein), the Support Agreements, the Allegiance Stock
Option Agreement and the Confidentiality Agreement constitute the entire
agreement among the parties and supersede all prior agreements and
understandings, agreements or representations by or among the parties, written
and oral, with respect to the subject matter hereof and thereof.
8.6 Third-Party Beneficiaries. Except for the agreement set forth in
Section 5.2(d), nothing in this Agreement, express or implied, is intended or
shall be construed to create any third-party beneficiaries.
8.7 Governing Law. Except to the extent that the laws of the jurisdiction
of organization of any party hereto, or any other jurisdiction, are mandatorily
applicable to the Merger or to matters arising under or in connection with this
Agreement, this Agreement shall be governed by the laws of the State of
Delaware. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined in any state or federal court sitting in
the City of Wilmington, Delaware.
8.8 Consent to Jurisdiction; Venue.
(a) Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the state courts of Delaware and to the jurisdiction of the
United States District Court for the District of Delaware, for the purpose of
any action or proceeding arising out of or relating to this Agreement and each
of the parties hereto irrevocably agrees that all claims in respect to such
action or proceeding may be heard and determined exclusively in any Delaware
state or federal court sitting in the City of Wilmington, Delaware. Each of the
parties hereto agrees that a final judgment in any action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(b) Each of the parties hereto irrevocably consents to the service of any
summons and complaint and any other process in any other action or proceeding
relating to the Merger, on behalf of itself or its property, by the personal
delivery of copies of such process to such party. Nothing in this Section 8.8
shall affect the right of any party hereto to serve legal process in any other
manner permitted by law.
8.9 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided such party is
not in material default hereunder.
8.10 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written
ANNEXES
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consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8.11 Expenses. Subject to the provisions of Section 7.2, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, except that those expenses incurred in connection with filing,
printing and mailing the Registration Statement and the Joint Proxy Statement
(including filing fees related thereto) will be shared equally by Cardinal and
Allegiance.
IN WITNESS WHEREOF, Cardinal, Subcorp and Allegiance have signed this
Agreement as of the date first written above.
CARDINAL HEALTH, INC.
By: /s/ ROBERT D. WALTER
------------------------------------
Name: Robert D. Walter
Title: Chairman of the Board
and Chief Executive Officer
BOXES MERGER CORP.
By: /s/ ROBERT D. WALTER
------------------------------------
Name: Robert D. Walter
Title: Chairman of the Board
ALLEGIANCE CORPORATION
By: /s/ LESTER B. KNIGHT
------------------------------------
Name: Lester B. Knight
Title: Chairman of the Board
and Chief Executive Officer
ANNEXES
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[Page intentionally left blank.]
ANNEXES
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<PAGE> 156
ANNEX B
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
October 8, 1998
Board of Directors
Allegiance Corporation
1430 Waukegan Road
McGaw Park, Illinois 60085-6787
Dear Sirs and Madam:
You have asked us to advise you with respect to the fairness to the
stockholders of Allegiance Corporation (the "Company") from a financial point of
view of the consideration to be received by such stockholders pursuant to the
terms of the Agreement and Plan of Merger, dated as of October 8, 1998 (the
"Acquisition Agreement"), among the Company, Cardinal Health, Inc. (the
"Acquiror") and Boxes Merger Corp. (the "Sub"). The Acquisition Agreement
provides for the merger (the "Merger") of the Company with the Sub pursuant to
which the Company will become a wholly owned subsidiary of the Acquiror and each
outstanding share of common stock, par value $1.00 per share, of the Company
will be converted into 0.415 shares (the "Exchange Ratio") of common stock of
the Acquiror.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as the Acquisition Agreement. We have also reviewed certain other
information, including financial forecasts provided to us by the Company and
financial forecasts prepared by equity research analysts, and have met with the
Company's management to discuss the business and prospects of the Company.
We have also considered certain financial and stock market data of the
Company and the Acquiror, and we have compared those data with similar data for
other publicly held companies in businesses similar to the Company and the
Acquiror and we have considered the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts prepared by management of the Company and equity research
analysts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgements of the
Company's management or equity research analysts, as applicable, as to the
future financial performance of the Company and the Acquiror. We have also
relied, without independent verification, upon the assessment by the Company's
management as to the cost savings and other potential synergies (including the
amount, timing and achievability thereof) anticipated to result from the Merger.
In addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company or the Acquiror, nor have we been furnished with any
such evaluations or appraisals. Our opinion is necessarily based upon financial,
economic, market and other conditions as they exist and can be evaluated on the
date hereof. We are not expressing any opinion as to the actual value of the
common stock of the Acquiror when issued to the Company's stockholders pursuant
to the Merger or the prices at which such common stock will trade following the
date hereof or subsequent to the Merger. We were not requested to, and did not,
solicit third party indications of interest in acquiring all or any part of the
Company.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
CSFB has previously acted as financial advisor to Baxter International Inc.
in connection with the tax free spin off of Allegiance Corporation to Baxter
International shareholders, for which we received a fee for our services.
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<PAGE> 157
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company and the Acquiror for
our and such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Merger and is not to be quoted or referred to, in whole or
in part, in any registration statement, prospectus or proxy statement, or in any
other document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purposes, without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to such stockholders from a financial
point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ TODD E. WARNOCK
-------------------------------------------------------------
Todd E. Warnock
Managing Director
ANNEXES
B-2
<PAGE> 158
ANNEX C
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
1585 Broadway
New York, New York 10036
(212) 761-4000
October 8, 1998
CONFIDENTIAL
Board of Directors
Cardinal Health, Inc.
5555 Glendon Court
Dublin, OH 43016
Gentlemen and Madam:
We understand that Allegiance Corporation ("Allegiance" or the "Company"),
Cardinal Health, Inc. ("Cardinal") and Boxes Merger Corp., a wholly owned
subsidiary of Cardinal ("Merger Sub"), propose to enter into an Agreement and
Plan of Merger, dated as of October 8, 1998 (the "Merger Agreement"), which
provides, among other things, for the merger (the "Merger") of Merger Sub with
and into Allegiance. Pursuant to the Merger, Allegiance will become a wholly
owned subsidiary of Cardinal and each issued and outstanding share of common
stock, par value $1.00 per share (the "Allegiance Common Stock") of Allegiance,
other than shares held in treasury, will be converted into the right to receive
0.4150 shares (the "Exchange Ratio") shares of common stock, without par value
(the "Cardinal Common Stock"), of Cardinal. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to Cardinal.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of the Company and Cardinal;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by
the management of the Company;
(iii) analyzed certain financial projections prepared by the
management of the Company;
(iv) discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
(v) analyzed certain financial and operating data concerning
Cardinal prepared by the management of Cardinal;
(vi) discussed the past and current operations and financial
condition and the prospects of Cardinal with senior executives
of Cardinal, and analyzed the pro forma impact of the Merger on
Cardinal;
(vii) reviewed the reported prices and trading activity for the
Allegiance Common Stock and the Cardinal Common Stock;
(viii) compared the financial performance of the Company and Cardinal
and the prices and trading activity of the Allegiance Common
Stock and the Cardinal Common Stock with that of certain other
comparable publicly-traded companies and their securities;
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<PAGE> 159
(ix) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(x) reviewed the Merger Agreement and certain related documents; and
(xi) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have relied upon, without independent verification and with your
consent, the assumptions of the management of Cardinal and Allegiance regarding
cost savings and other synergies that will result from the Merger. We have not
made any independent valuation or appraisal of the assets or liabilities of the
Company or Cardinal, nor have we been furnished with any such appraisals. We
have assumed that the Merger will be treated as a "pooling-of-interests"
business combination in accordance with U.S. generally accepted accounting
principles and will qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986. We have also assumed that the
Merger will be consummated generally in accordance with the terms set forth in
the Merger Agreement. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Board of Directors of Cardinal in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of Cardinal only and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Cardinal in respect of the transaction with the Securities
and Exchange Commission. In addition, this opinion does not in any manner
address the prices at which the Allegiance Common Stock or Cardinal Common Stock
will trade following announcement or consummation of the Merger, and Morgan
Stanley expresses no opinion or recommendation as to how the shareholders of
Allegiance or Cardinal should vote at stockholder's or shareholder's meetings in
connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to Cardinal.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ MICHAEL J. BOUBLIK
------------------------------------
Michael J. Boublik
Principal
ANNEXES
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<PAGE> 160
ANNEX D
SECTION 1701.85 OF THE OHIO REVISED CODE
RELIEF FOR DISSENTING SHAREHOLDERS; QUALIFICATION; PROCEDURES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or
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was located when the proposal was adopted by the shareholders of the
corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505 of the Revised
Code. If, during the pendency of any proceeding instituted under this section, a
suit or proceeding is or has been instituted to enjoin or otherwise to prevent
the carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in division
(D) of this section is applicable, the fair cash value of the shares that is
agreed upon by the parties or fixed under this section shall be paid within
thirty days after the date of final determination of such value under this
division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption, of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
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(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1701.13(E) of the Ohio Revised Code (the "OHIO LAW") sets forth
conditions and limitations governing the indemnification of officers, directors,
and other persons.
Article 6 of the Cardinal Code of Regulations, as amended and restated (the
"CARDINAL REGULATIONS"), contains certain indemnification provisions adopted
pursuant to authority contained in Section 1701.13(E) of the Ohio Law. The
Cardinal Regulations provides for the indemnification of its officers,
directors, employees, and agents against all expenses with respect to any
judgments, fines, and amounts paid in settlement, or with respect to any
threatened, pending, or completed action, suit, or proceeding to which they were
or are parties or are threatened to be made parties by reason of acting in such
capacities, provided that it is determined, either by a majority vote of a
quorum of disinterested directors of Cardinal or the Cardinal Shareholders or
otherwise as provided in Section 1701.13(E) of the Ohio Law, that (1) they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interest of Cardinal; (2) in any action, suit, or proceeding by or
in the right of Cardinal, they were not, and have not been adjudicated to have
been, negligent or guilty of misconduct in the performance of their duties to
Cardinal; and (3) with respect to any criminal action or proceeding, that they
had no reasonable cause to believe that their conduct was unlawful. Section
1701.13(E) of the Ohio Law provides that, to the extent a director, officer,
employee or agent has been successful on the merits or otherwise in defense of
any such action, suit or proceeding, such individual shall be indemnified
against expenses reasonably incurred in connection therewith. At present there
are no material claims, actions, suits, or proceedings pending where
indemnification would be required under these provisions, and Cardinal does not
know of any such threatened claims, actions, suits, or proceedings that may
result in a request for such indemnification.
Cardinal has entered into indemnification contracts with each of its
directors and executive officers. These indemnification contacts generally: (1)
confirm the existing indemnity provided to them under the Cardinal Regulations
and assure that this indemnity will continue to be provided; (2) provide that,
if Cardinal does not maintain directors' and officers' liability insurance,
Cardinal will, in effect, become a self-insurer of the coverage; (3) provide
that, in addition, the directors and officers shall be indemnified to the
fullest extent permitted by law against all expenses (including legal fees),
judgments, fines and settlement amounts incurred by them in any action or
proceeding, on account of their service as a director, officer, employee or
agent of Cardinal, or at the request of Cardinal as a director, officer,
employee, trustee, fiduciary, manager, member or agent of another corporation,
partnership, trust, limited liability company, employee benefit plan or other
enterprise; and (4) provide for the mandatory advancement of expenses to the
executive officer or director in connection with the defense of any proceedings,
provided that the executive officer or director agrees to reimburse Cardinal for
that advancement if it is ultimately determined that the executive officer or
director is not entitled to indemnification for that proceeding under the
agreement. Coverage under the contracts is excluded: (1) on account of conduct
that is finally adjudged to be knowingly fraudulent, deliberately dishonest or
willful misconduct; or (2) if a final court of adjudication shall determine that
such indemnification is not lawful; or (3) in respect of any suit in which
judgment is rendered for violation of Section 16(b) of the Securities Exchange
Act of 1934, as amended, or provisions of any federal, state, or local statutory
law; or (4) on account of any remuneration paid that is finally adjudged to have
been in violation of law; or (5) on account of conduct occurring prior to the
time the executive officer or director became an officer, director, employee, or
agent of Cardinal or its subsidiaries (but in no event earlier than the time
such entity became a subsidiary of Cardinal); or (6) with respect to proceedings
initiated or brought voluntarily by the executive officer or director and not by
way of defense, except for proceedings brought to enforce rights under the
indemnification contract.
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<PAGE> 164
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
2.01 Agreement and Plan of Merger, dated as of October 8, 1998,
by and among the Registrant, Boxes Merger Corp., and
Allegiance Corporation.(1)
2.02 Stock Option Agreement, dated as of October 8, 1998, by and
between the Registrant and Allegiance Corporation.(2)
2.03 Voting/Support Agreement, dated as of October 8, 1998, by
and between the Registrant and Lester B. Knight.(2)
2.04 Voting/Support Agreement, dated as of October 8, 1998, by
and between the Registrant and Joseph F. Damico.(2)
2.05 Amendment to Rights Agreement, dated as of October 8, 1998,
by and between Allegiance Corporation and First Chicago
Trust Company of New York.(3)
2.06 Amendment to Change in Control Agreement, dated as of
October 8, 1998, by and among the Registrant, Allegiance
Corporation and Lester B. Knight.
2.07 Amendment to Change in Control Agreement, dated as of
October 8, 1998, by and among the Registrant, Allegiance
Corporation and Joseph F. Damico.
3.01 Amended and Restated Articles of Incorporation of the
Registrant, as amended.(4)
3.02 Restated Code of Regulations of the Registrant, as
amended.(4)
4.01 Specimen Certificate for the Registrant's Class A Common
Shares.(5)
5 Opinion of Wachtell, Lipton, Rosen & Katz as to the legality
of the shares being issued.
8 Opinion of Davis Polk & Wardwell as to certain tax matters.
23.01 Consent of Deloitte & Touche LLP (Cardinal).
23.02 Consent of PricewaterhouseCoopers LLP (Allegiance).
23.03 Consent of Ernst & Young LLP (Cardinal).
23.04 Consent of PricewaterhouseCoopers LLP (Cardinal).
23.05 Consent of Arthur Andersen LLP (Cardinal).
23.06 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5).
23.07 Consent of Davis Polk & Wardwell (included in Exhibit 8).
23.08 Consent of Credit Suisse First Boston Corporation.
23.09 Consent of Morgan Stanley & Co. Incorporated.
24 Power of Attorney.
99.01 Form of Proxy Card of the Registrant.
99.02 Form of Proxy Card of Allegiance Corporation.
</TABLE>
- ---------------
(1) Included as Annex A in the Prospectus included as part of this Registration
Statement.
(2) Included as an exhibit to the Registrant's Schedule 13D (Commission File No.
5-48909).
(3) Included as an exhibit to Amendment No. 1 to the Registration Statement on
Form 8-A/A filed October 9, 1998 of Allegiance Corporation.
(4) Included as an exhibit to the Registrant's 8-K filed November 24, 1998
(Commission File No. 0-12591).
(5) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 and incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Accounts (incorporated by reference
from the Registrant's Current Report on Form 8-K/A filed September 28,
1998).
II-2
<PAGE> 165
(c) REPORT, OPINION OR APPRAISAL.
Not Applicable.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section l0(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 166
(g) The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
2. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Registration Statement on Form S-4 and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dublin, State of Ohio, on
the 11th day of December, 1998.
CARDINAL HEALTH, INC.
By: /s/ Robert D. Walter
------------------------------------
Robert D. Walter
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on the 11th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Robert D. Walter Chairman and Chief Executive Officer (principal
- ------------------------------------------------ executive officer) and Director
Robert D. Walter
/s/ Richard J. Miller Vice President, Acting Chief Financial Officer,
- ------------------------------------------------ Controller and Principal Accounting Officer
Richard J. Miller
/s/ Aleksander Erdeljan Director
- ------------------------------------------------
Aleksander Erdeljan
/s/ John F. Finn Director
- ------------------------------------------------
John F. Finn
/s/ Robert L. Gerbig Director
- ------------------------------------------------
Robert L. Gerbig
/s/ John F. Havens Director
- ------------------------------------------------
John F. Havens
/s/ Regina E. Herzlinger Director
- ------------------------------------------------
Regina E. Herzlinger
/s/ John C. Kane Director
- ------------------------------------------------
John C. Kane
/s/ J. Michael Losh Director
- ------------------------------------------------
J. Michael Losh
/s/ George R. Manser Director
- ------------------------------------------------
George R. Manser
</TABLE>
II-5
<PAGE> 168
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ John B. McCoy Director
- ------------------------------------------------
John B. McCoy
/s/ Jerry E. Robertson Director
- ------------------------------------------------
Jerry E. Robertson
/s/ L. Jack Van Fossen Director
- ------------------------------------------------
L. Jack Van Fossen
/s/ Melburn G. Whitmire Director
- ------------------------------------------------
Melburn G. Whitmire
</TABLE>
II-6
<PAGE> 169
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
2.01 Agreement and Plan of Merger, dated as of October 8, 1998,
by and among the Registrant, Boxes Merger Corp., and
Allegiance Corporation.(1)
2.02 Stock Option Agreement, dated as of October 8, 1998, by and
between the Registrant and Allegiance Corporation.(2)
2.03 Voting/Support Agreement, dated as of October 8, 1998, by
and between the Registrant and Lester B. Knight.(2)
2.04 Voting/Support Agreement, dated as of October 8, 1998, by
and between the Registrant and Joseph F. Damico.(2)
2.05 Amendment to Rights Agreement, dated as of October 8, 1998,
by and between Allegiance Corporation and First Chicago
Trust Company of New York.(3)
2.06 Amendment to Change in Control Agreement, dated as of
October 8, 1998, by and among the Registrant, Allegiance
Corporation and Lester B. Knight.
2.07 Amendment to Change in Control Agreement, dated as of
October 8, 1998, by and among the Registrant, Allegiance
Corporation and Joseph F. Damico.
3.01 Amended and Restated Articles of Incorporation of the
Registrant, as amended.(4)
3.02 Restated Code of Regulations of the Registrant, as
amended.(4)
4.01 Specimen Certificate for the Registrant's Class A Common
Shares.(5)
5 Opinion of Wachtell, Lipton, Rosen & Katz as to the legality
of the shares being issued.
8 Opinion of Davis Polk & Wardwell as to certain tax matters.
23.01 Consent of Deloitte & Touche LLP (Cardinal).
23.02 Consent of PricewaterhouseCoopers LLP (Allegiance).
23.03 Consent of Ernst & Young LLP (Cardinal).
23.04 Consent of PricewaterhouseCoopers LLP (Cardinal).
23.05 Consent of Arthur Andersen LLP (Cardinal).
23.06 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5).
23.07 Consent of Davis Polk & Wardwell (included in Exhibit 8).
23.08 Consent of Credit Suisse First Boston Corporation.
23.09 Consent of Morgan Stanley & Co. Incorporated.
24 Power of Attorney.
99.01 Form of Proxy Card of the Registrant.
99.02 Form of Proxy Card of Allegiance Corporation.
</TABLE>
- ---------------
(1) Included as Annex A in the Prospectus included as part of this Registration
Statement.
(2) Included as an exhibit to the Registrant's Schedule 13D (Commission File No.
5-48909).
(3) Included as an exhibit to Amendment No. 1 to the Registration Statement on
Form 8-A/A filed October 9, 1998 of Allegiance Corporation.
(4) Included as an exhibit to the Registrant's 8-K filed November 24, 1998
(Commission File No. 0-12591).
(5) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 2.06
AMENDMENT TO CHANGE
IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made as of October 8, 1998, by and between
Allegiance Corporation, a Delaware corporation ("Company"), Cardinal Health,
Inc., an Ohio corporation ("Cardinal"), and Lester B. Knight ("Employee").
WHEREAS, Company and Employee have entered into a change in control
severance agreement under the Allegiance Corporation Change in Control Plan,
effective as of October 1, 1996 (the "Change in Control Agreement");
WHEREAS, Company has entered into an Agreement and Plan of Merger
Among Cardinal, BOXES Merger Corp. and Company, dated as of October 8, 1998 (the
"Merger Agreement");
WHEREAS, Company wishes to encourage the retention of Employee
following consummation of the merger contemplated by the Merger Agreement; and
WHEREAS, in connection with Company entering into the Merger
Agreement, Company and Employee have determined to amend the Change in Control
Agreement to, among other things, provide that certain modifications to
Employee's employment status following the consummation of the merger
contemplated by the Merger Agreement will not be treated as a basis for a "Good
Reason" termination by Employee under the Change in Control Agreement during the
Minimum Transition Period (as defined below) and to provide certain
modifications to the non-competition and non-solicitation provisions of the
Change in Control Agreement;
NOW, THEREFORE, in consideration of these mutual premises and the
mutual and dependent promises hereinafter set forth, the parties hereto agree as
follows:
1. Section 1 of the Change in Control Agreement is hereby amended by
deleting the second, third and fifth sentences of such Section, and by adding
the following sentences to the end of such Section:
Notwithstanding the foregoing, upon consummation of the merger (the
"Cardinal Merger") contemplated by the Agreement and Plan of Merger
Among Cardinal, BOXES Merger Corp. and Company, dated as of October
8, 1998 (the "Cardinal Merger Agreement"), the term of this
Agreement and Employee's Plan participation shall automatically be
extended for a period of sixty (60) months after the end of the
month in which the Cardinal Merger is consummated. Furthermore,
Employee may terminate this Agreement and his participation in the
Plan at any time by giving Company thirty (30) days' advance written
notice; provided, however, that in no case shall such termination of
this Agreement or participation in the Plan release Employee from
the provisions of Section 5 hereof.
<PAGE> 2
2. The first sentence of Section 2 of the Change in Control
Agreement is hereby amended by substituting the phrase "sixty (60) months after
the end of month in which the Cardinal Merger is consummated" for the phrase
"twenty-four (24) months following a Change in Control" in the introductory
paragraph to such Section.
3. Paragraph 2(c)(iii) of the Change in Control Agreement will not
apply to Cardinal stock options granted after the consummation of the Cardinal
Merger.
4. Section 5 of the Change in Control Agreement is hereby amended to
read in its entirety as follows:
5. NON-SOLICITATION AND NON-COMPETITION. In consideration for the
severance benefits called for under paragraph 2(c) and Section 3
above, Employee agrees that:
(a) during the greater of the twelve (12) month period following
his Date of Termination and the twenty-four (24) month period
following the end of the month in which the Cardinal Merger is
consummated, Employee will not, without the prior written consent
of Company, alone or in association with others, solicit on
behalf of Employee, or any other person, firm, corporation or
entity, any employee of Company, or any of its operating
divisions, subsidiaries or affiliates; provided, that Employee
shall be permitted to solicit one employee so long as such
solicitation does not interfere with any contractual relationship
of Company, or any of its operating divisions, subsidiaries or
affiliates; and
(b) during the twenty-four (24) month period following his Date
of Termination (the "Noncompete Period"), Employee will not,
without the prior written consent of Company, directly or
indirectly, engage or invest in, counsel or advise or be employed
by any of the entities set forth on Exhibit A attached to this
Agreement (the "Listed Entities"), or by any person, entity, firm
or corporation which is now an affiliate of any of the Listed
Entities, until such time during the Noncompete Period as such
Listed Entity is acquired or consolidated with any entity other
than any of the Listed Entities. Notwithstanding the foregoing,
Employee shall be entitled to passively own not more than four
and nine-tenths percent (4.9%) of any of the Listed Entities.
Should Employee fail to comply with the non-solicitation and/or
non-competition restrictions contained in this Section 5, this
Agreement shall immediately terminate and Employee shall forfeit any
remaining unpaid benefits under this Agreement and Company shall
have the right (in addition to, and not in lieu of, any other right
or remedy that may be available to it) to temporary and permanent
injunctive relief from a court of competent jurisdiction, without
posting any bond or other security and without the necessity of
proof of actual damage. With respect to any provision of this
Section 5 finally determined by a court of
2
<PAGE> 3
competent jurisdiction to be unenforceable, Employee and Company
hereby agree that such court shall have jurisdiction to reform this
Agreement or any provision hereof so that it is enforceable to the
maximum extent permitted by law, and the parties agree to abide by
such court's determination. If the non-solicitation or
noncompetition covenant of this Section 5 is determined to be wholly
or partially unenforceable in any jurisdiction, such determination
shall not be a bar to or in any way diminish Company's right to
enforce either such covenant in any other jurisdiction.
5. Section 8 of the Change in Control Agreement is hereby amended to
read in its entirety as follows:
8. TERMINATION FOR CAUSE AND GOOD REASON. Employee will be
considered to have been terminated for "Cause" if the termination is
by reason of Employee willfully engaging in conduct demonstrably and
materially injurious to Company, Employee being convicted of or
confessing to a crime involving dishonesty or moral turpitude or
Employee's willful and continued failure for a significant period of
time to perform Employee's duties after a demand for substantial
performance has been delivered to Employee by the Board of Directors
of Company which demand specifically identifies the manner in which
the Board believes that Employee has not substantially performed his
duties. Employee's termination shall be considered to have been for
"Good Reason" if Employee's termination is by reason of the
occurrence of any of the following events within twelve (12) months
after the end of the month in which the Cardinal Merger is
consummated (the "Minimum Transition Period") without Employee's
express written consent:
(a) a significant adverse change in the title or duties of
Employee, which change is inconsistent with Employee's position
as Vice-Chairman of Cardinal following the Cardinal Merger, or
the removal of Employee as a director of Cardinal without Cause;
(b) a reduction in or failure to pay any portion of Employee's
Annual Base Salary as in effect on the date of the Change in
Control or as the same may be increased from time to time
thereafter;
(c) the failure by Company to provide Employee with compensation
and benefits (including, without limitation, annual and long-term
incentives, bonus and other compensation plans and any vacation,
medical, hospitalization, life insurance, dental or disability
benefit plan), or cash compensation in lieu thereof, which are,
in the aggregate, no less favorable than those provided by
Company to Employee immediately prior to the occurrence of the
Change in Control;
(d) any material breach by Company of this Agreement; and
3
<PAGE> 4
(e) the failure of Company to obtain a satisfactory agreement
from any successor or assign of Company to assume and agree to
perform this Agreement (as amended), as required in Section 10 of
this Agreement.
If, during the Minimum Transition Period, Employee elects to
terminate Employee's employment for Good Reason, Employee shall so
notify Company in writing after the occurrence of the event
constituting Good Reason, specifying the basis for such termination.
If Company fails, within ten (10) days after receiving such written
notice, to remedy the facts and circumstances that provided Good
Reason, Employee's employment shall be deemed to have terminated for
Good Reason on the tenth day after Company receives such written
notice. If, during the Minimum Transition Period, Company does
remedy such facts and circumstances within such ten (10) days,
Employee shall be deemed to no longer have Good Reason, and shall
continue in the employ of Company as if no notice had been given.
Employee's continued employment after the longer of (i) the
expiration of sixty (60) days from any action which would constitute
Good Reason under paragraph 8(a) above and (ii) the expiration of
the Restricted Period (as defined below) shall constitute a waiver
of rights with respect to such action constituting Good Reason under
this Agreement. "Restricted Period" shall mean any period during
which Employee is prohibited from selling Cardinal common shares or
shares of Company common stock pursuant to the restrictions in
connection with the pooling-of-interests method of accounting under
APB No. 16 or any other restrictions under federal or state
securities law; provided, that the Restricted Period shall in no
event extend beyond the expiration of six (6) months after the
consummation of the Cardinal Merger; and provided, further, that
there shall not be taken into account for purposes of determining
the Restricted Period any restrictions under federal or state
securities laws that arise as a result of actions of Employee after
the consummation of the Cardinal Merger.
Following the Minimum Transition Period, any termination of
Employee's employment (other than a termination by Company for
Cause, or a termination by reason of Employee's disability,
retirement or death) during the remainder of the term of this
Agreement, shall be treated as a termination by Employee for Good
Reason.
6. This Agreement shall be effective upon execution of the Cardinal
Merger Agreement, and may not be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in writing and signed by each of
the parties. In the event of the termination of the Cardinal Merger Agreement
prior to the consummation of the Cardinal Merger, this Agreement shall be void
and of no further force or effect, and the Change in Control Agreement will
continue to remain in effect in accordance with its terms without amendment.
4
<PAGE> 5
EXHIBIT 2.06
IN WITNESS WHEREOF, Company, Cardinal and Employee have signed this
Agreement as of the date first written above.
ALLEGIANCE CORPORATION
By: ___________________________
Name:
Title:
CARDINAL HEALTH, INC.
By: ___________________________
Name:
Title:
______________________________
Lester B. Knight
<PAGE> 6
EXHIBIT A
AmeriSource
Bergen Brunswig (including Bergen Medical and any successor
in interest to the Bergen Medical business)
Bindley Western
C.D. Smith
D & K Healthcare
McKesson (including General Medical and any successor
in interest to the General Medical business)
Morris & Dickson
Neuman
Owens & Minor
Omnicell
PSS World Medical
Henry Schein
Medline
Diebold
ServiceMaster
Fischer Scientific
Maxxim
Safeskin
DeRoyal
VWR
<PAGE> 1
EXHIBIT 2.07
AMENDMENT TO CHANGE
IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT is made as of October 8, 1998, by and between
Allegiance Corporation, a Delaware corporation ("Company"), Cardinal Health,
Inc., an Ohio corporation ("Cardinal"), and Joseph F. Damico ("Employee").
WHEREAS, Company and Employee have entered into a change in
control severance agreement under the Allegiance Corporation Change in Control
Plan, effective as of October 1, 1996 (the "Change in Control Agreement");
WHEREAS, Company has entered into an Agreement and Plan of
Merger Among Cardinal, BOXES Merger Corp. and Company, dated as of October 8,
1998 (the "Merger Agreement");
WHEREAS, Company wishes to encourage the retention of Employee
following consummation of the merger contemplated by the Merger Agreement; and
WHEREAS, in connection with Company entering into the Merger
Agreement, Company and Employee have determined to amend the Change in Control
Agreement to, among other things, provide that certain modifications to
Employee's employment status following the consummation of the merger
contemplated by the Merger Agreement will not be treated as a basis for a "Good
Reason" termination by Employee under the Change in Control Agreement during the
Minimum Transition Period (as defined below) and to provide certain
modifications to the non-competition and non-solicitation provisions of the
Change in Control Agreement;
NOW, THEREFORE, in consideration of these mutual premises and
the mutual and dependent promises hereinafter set forth, the parties hereto
agree as follows:
1. Section 1 of the Change in Control Agreement is hereby
amended by deleting the second, third and fifth sentences of such Section, and
by adding the following sentences to the end of such Section:
Notwithstanding the foregoing, upon consummation of the merger
(the "Cardinal Merger") contemplated by the Agreement and Plan
of Merger Among Cardinal, BOXES Merger Corp. and Company,
dated as of October 8, 1998 (the "Cardinal Merger Agreement"),
the term of this Agreement and Employee's Plan participation
shall automatically be extended for a period of sixty (60)
months after the end of the month in which the Cardinal Merger
is consummated. Furthermore, Employee may terminate this
Agreement and his participation in the Plan at any time by
giving Company thirty (30) days' advance written notice;
provided, however, that in no case shall such termination of
this Agreement or
<PAGE> 2
participation in the Plan release Employee from the provisions
of Section 5 hereof.
2. The first sentence of Section 2 of the Change in Control
Agreement is hereby amended by substituting the phrase "sixty (60) months after
the end of month in which the Cardinal Merger is consummated" for the phrase
"twenty-four (24) months following a Change in Control" in the introductory
paragraph to such Section.
3. Paragraph 2(c)(iii) of the Change in Control Agreement will
not apply to Cardinal stock options granted after the consummation of the
Cardinal Merger.
4. Section 5 of the Change in Control Agreement is hereby
amended to read in its entirety as follows:
5. NON-SOLICITATION AND NON-COMPETITION. In consideration for
the severance benefits called for under paragraph 2(c) and
Section 3 above, Employee agrees that:
(a) during the greater of the twelve (12) month period
following his Date of Termination and the twenty-four (24)
month period following the end of the month in which the
Cardinal Merger is consummated, Employee will not, without
the prior written consent of Company, alone or in
association with others, solicit on behalf of Employee, or
any other person, firm, corporation or entity, any employee
of Company, or any of its operating divisions, subsidiaries
or affiliates; and
(b) during the twenty-four (24) month period following his
Date of Termination (the "Noncompete Period"), Employee
will not, without the prior written consent of Company,
directly or indirectly, engage or invest in, counsel or
advise or be employed by any of the entities set forth on
Exhibit A attached to this Agreement (the "Listed
Entities"), or by any person, entity, firm or corporation
which is now an affiliate of any of the Listed Entities,
until such time during the Noncompete Period as such Listed
Entity is acquired or consolidated with any entity other
than any of the Listed Entities. Notwithstanding the
foregoing, Employee shall be entitled to passively own not
more than four and nine-tenths percent (4.9%) of any of the
Listed Entities.
Should Employee fail to comply with the non-solicitation
and/or non-competition restrictions contained in this Section
5, this Agreement shall immediately terminate and Employee
shall forfeit any remaining unpaid benefits under this
Agreement and Company shall have the right (in addition to,
and not in lieu of, any other right or remedy that may be
available to it) to temporary and permanent injunctive relief
from a court of competent jurisdiction, without posting any
bond or other security and without the necessity of proof of
actual damage. With respect to any provision of this Section 5
finally determined by a court of
2
<PAGE> 3
competent jurisdiction to be unenforceable, Employee and
Company hereby agree that such court shall have
jurisdiction to reform this Agreement or any provision
hereof so that it is enforceable to the maximum extent
permitted by law, and the parties agree to abide by such
court's determination. If the non-solicitation or
noncompetition covenant of this Section 5 is determined to
be wholly or partially unenforceable in any jurisdiction,
such determination shall not be a bar to or in any way
diminish Company's right to enforce either such covenant in
any other jurisdiction.
5. Section 8 of the Change in Control Agreement is hereby
amended to read in its entirety as follows:
8. TERMINATION FOR CAUSE AND GOOD REASON. Employee will be
considered to have been terminated for "Cause" if the
termination is by reason of Employee willfully engaging in
conduct demonstrably and materially injurious to Company,
Employee being convicted of or confessing to a crime involving
dishonesty or moral turpitude or Employee's willful and
continued failure for a significant period of time to perform
Employee's duties after a demand for substantial performance
has been delivered to Employee by the Board of Directors of
Company which demand specifically identifies the manner in
which the Board believes that Employee has not substantially
performed his duties. Employee's termination shall be
considered to have been for "Good Reason" if Employee's
termination is by reason of the occurrence of any of the
following events within twelve (12) months after the end of
the month in which the Cardinal Merger is consummated (the
"Minimum Transition Period") without Employee's express
written consent:
(a) a significant adverse change in the title or duties of
Employee, which change is inconsistent with Employee's
position as President of Allegiance Corporation; Executive
Vice-President of Cardinal; Group President-Allegiance
Corporation following the Cardinal Merger;
(b) a reduction in or failure to pay any portion of
Employee's Annual Base Salary as in effect on the date of
the Change in Control or as the same may be increased from
time to time thereafter;
(c) the failure by Company to provide Employee with
compensation and benefits (including, without limitation,
annual and long-term incentives, bonus and other
compensation plans and any vacation, medical,
hospitalization, life insurance, dental or disability
benefit plan), or cash compensation in lieu thereof, which
are, in the aggregate, no less favorable than those
provided by Company to Employee immediately prior to the
occurrence of the Change in Control;
(d) any material breach by Company of this Agreement; and
3
<PAGE> 4
(e) the failure of Company to obtain a satisfactory
agreement from any successor or assign of Company to assume
and agree to perform this Agreement (as amended), as
required in Section 10 of this Agreement.
If, during the Minimum Transition Period, Employee elects to
terminate Employee's employment for Good Reason, Employee
shall so notify Company in writing after the occurrence of the
event constituting Good Reason, specifying the basis for such
termination. If Company fails, within ten (10) days after
receiving such written notice, to remedy the facts and
circumstances that provided Good Reason, Employee's employment
shall be deemed to have terminated for Good Reason on the
tenth day after Company receives such written notice. If,
during the Minimum Transition Period, Company does remedy such
facts and circumstances within such ten (10) days, Employee
shall be deemed to no longer have Good Reason, and shall
continue in the employ of Company as if no notice had been
given. Employee's continued employment after the longer of (i)
the expiration of sixty (60) days from any action which would
constitute Good Reason under paragraph 8(a) above and (ii) the
expiration of the Restricted Period (as defined below) shall
constitute a waiver of rights with respect to such action
constituting Good Reason under this Agreement. "Restricted
Period" shall mean any period during which Employee is
prohibited from selling Cardinal common shares or shares of
Company common stock pursuant to the restrictions in
connection with the pooling-of-interests method of accounting
under APB No. 16 or any other restrictions under federal or
state securities law; provided, that the Restricted Period
shall in no event extend beyond the expiration of six (6)
months after the consummation of the Cardinal Merger; and
provided, further, that there shall not be taken into account
for purposes of determining the Restricted Period any
restrictions under federal or state securities laws that arise
as a result of actions of Employee after the consummation of
the Cardinal Merger.
Following the Minimum Transition Period, any termination of
Employee's employment (other than a termination by Company for
Cause, or a termination by reason of Employee's disability,
retirement or death) during the remainder of the term of this
Agreement, shall be treated as a termination by Employee for
Good Reason.
6. This Agreement shall be effective upon execution of the
Cardinal Merger Agreement, and may not be modified, waived or discharged unless
such modification, waiver or discharge is agreed to in writing and signed by
each of the parties. In the event of the termination of the Cardinal Merger
Agreement prior to the consummation of the Cardinal Merger, this Agreement shall
be void and of no further force or effect, and the Change in Control Agreement
will continue to remain in effect in accordance with its terms without
amendment.
4
<PAGE> 5
IN WITNESS WHEREOF, Company, Cardinal and Employee have signed
this Agreement as of the date first written above.
ALLEGIANCE CORPORATION
By: ___________________________
Name:
Title:
CARDINAL HEALTH, INC.
By: ___________________________
Name:
Title:
______________________________
Joseph F. Damico
<PAGE> 6
EXHIBIT A
AmeriSource
Bergen Brunswig (including Bergen Medical and any successor
in interest to the Bergen Medical business)
Bindley Western
C.D. Smith
D & K Healthcare
McKesson (including General Medical and any successor
in interest to the General Medical business)
Morris & Dickson
Neuman
Owens & Minor
Omnicell
PSS World Medical
Henry Schein
Medline
Diebold
ServiceMaster
Fischer Scientific
Maxxim
Safeskin
DeRoyal
VWR
<PAGE> 1
EXHIBIT 5
[Letterhead of Wachtell, Lipton, Rosen & Katz]
December 11, 1998
Cardinal Health, Inc.
5555 Glendon Court
Dublin, Ohio 43016
Re: Registration Statement on Form S-4 of Cardinal Health, Inc.
Ladies & Gentlemen:
We are acting as special counsel to Cardinal Health, Inc., an Ohio
corporation ("Cardinal"), in connection with the Registration Statement being
filed by Cardinal with the Securities and Exchange Commission (the "Registration
Statement") with respect to up to 81,547,500 common shares, without par value
("Cardinal Common Shares"), of Cardinal proposed to be issued in connection with
the merger (the "Merger") of Boxes Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Cardinal ("Subcorp"), with and into Allegiance
Corporation, a Delaware corporation ("Allegiance"), as described in the Joint
Proxy Statement/Prospectus that is a part of the Registration Statement (the
"Joint Proxy Statement/Prospectus").
In connection with this opinion, we have reviewed the Registration
Statement and the exhibits thereto, and we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, agreements, certificates of public officials and of officers of
Cardinal and Subcorp, and other instruments, including an opinion of Ohio
counsel, and such matters of law and fact as we have deemed necessary to render
the opinion contained herein.
<PAGE> 2
Cardinal Health, Inc.
December 11, 1998
Page 2
Based upon and subject to the foregoing, we are of the opinion that
the Cardinal Common Shares being registered under the Registration Statement,
when issued pursuant to the Merger following approval of the Agreement and Plan
of Merger, dated as of October 8, 1998, by and among Cardinal, Subcorp and
Allegiance, by the requisite votes of the stockholders of Allegiance and the
shareholders of Cardinal, will be validly issued, fully paid and non-
assessable.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under the caption "LEGAL MATTERS" in the Joint Proxy
Statement/Prospectus contained therein. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
<PAGE> 1
Exhibit 8
[DAVIS POLK & WARDWELL]
[FORM OF OPINION]
212-450-4000
December __, 1998
Allegiance Corporation
1430 Waukegan Road
McGaw Park, Illinois 60005
Ladies and Gentlemen:
We have acted as counsel for Allegiance Corporation, a Delaware corporation
("ALLEGIANCE"), in connection with the merger (the "MERGER") of Boxers Merger
Corp., a Delaware corporation and a wholly-owned subsidiary of Cardinal Health,
Inc., an Ohio corporation ("CARDINAL"), with and into Allegiance pursuant to an
Agreement and Plan of Merger dated as of October 8, 1998 (the "AGREEMENT")(1),
among Allegiance, Cardinal and Boxes Merger Corp. Under the Agreement each
issued and outstanding share of Allegiance Common Stock(2) will be converted
into the right to receive 0.6225 of a Cardinal Common Share.
In that connection, you have requested, pursuant to Section 6.2(d) of the
Agreement, our opinion regarding certain federal income tax consequences of the
Merger. In providing our opinion, we have examined and relied upon the
Agreement, the Joint Proxy Statement/Prospectus dated December __, 1998 (the
"Joint Proxy Statement/Prospectus"), and such other documents and corporate
records as we have deemed necessary or appropriate for purposes of our opinion.
In addition, we have (i) assumed that the Merger will be consummated in
accordance with the provisions of the
- ----------------------
(1)References contained in this opinion to the Agreement include each
document attached as an exhibit or annex.
(2)Capitalized terms used herein and not otherwise defined have the
meanings set forth in the Agreement.
<PAGE> 2
Allegiance Corporation 2 December __, 1998
Agreement and (ii) relied on the representations made to us by Cardinal and
Allegiance in their respective letters to us dated December __, 1998, which
were delivered to us for purposes of this opinion, and which are represented to
be true, correct and complete.
Based upon and subject to the foregoing, in our opinion the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), Allegiance, Cardinal and Boxes Merger Corp. will each be a party to
that reorganization and, pursuant to Section 354 of the Code, no gain or loss
will be recognized by the stockholders of Allegiance upon their receipt of
Cardinal Common Shares in exchange for Allegiance Common Stock (except to the
extent that a stockholder receives cash in respect of fractional shares).
We are members of the Bar of the State of New York. The opinions expressed
herein are based upon existing statutory, regulatory and judicial authority,
any of which may be changed at any time with retroactive effect. In addition,
our opinions are based solely on the documents that we have examined, and the
statements contained in the letters from Cardinal and Allegiance referred to
above, which have been represented to be true, correct and complete as of the
dates thereof. Our opinions cannot be relied upon if any of the facts pertinent
to the federal income tax treatment of the Merger stated in such documents is,
or later becomes, inaccurate, or if any of the statements contained in the
letters from Cardinal or Allegiance referred to above are, or later become,
inaccurate or incomplete. Finally, our opinions are limited to the tax matters
specifically covered hereby, and we have not been asked to address, nor have we
addressed any other tax consequences of the Merger or any other transactions.
We are furnishing this opinion solely to you in connection with the
transactions contemplated by the Agreements, and it is not to be relied upon,
used, circulated, quoted, or otherwise referred to for any other purpose or by
any other party without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "Certain
United States Federal Income Tax Consequences" and "Legal Matters" in the Joint
Proxy Statement/Prospectus. The issuance of such consent does not concede that
we are an "expert" for the purposes of the Securities Act of 1933.
Very truly yours,
2
<PAGE> 1
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Cardinal Health, Inc. on Form S-4 of our report dated August 12, 1998 (which
report expresses an unqualified opinion that such financial statements are in
conformity with generally accepted accounting principles applicable after
consolidated financial statements are issued for a period which includes the
date of consummation of the business combination of Cardinal Health, Inc. and
R.P. Scherer Corporation), appearing in Cardinal Health, Inc's Current Report
on Form 8-K/A filed September 28, 1998, and to the reference to us under the
heading "Experts" in the Prospectus, which is part of such Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
December 11, 1998
<PAGE> 1
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement
constituting part of this Registration Statement on Form S-4 of Cardinal Health,
Inc. of our report dated January 26, 1998 which appears on page 27 of Allegiance
Corporation's 1997 Annual Report to Stockholders, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1997. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page S-1 of such Annual Report on
Form 10-K. We also consent to the reference to us under the heading "Experts" in
such Proxy Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
December 11, 1998
<PAGE> 1
EXHIBIT 23.03
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement of
Cardinal Health, Inc. (the "Company") on Form S-4 of our report, with respect
to the consolidated financial statements of Pyxis Corporation (not presented)
dated August 2, 1996, appearing in the Company's Current Report on Form 8-K/A
dated September 28, 1998.
We also consent to the reference to our firm under the caption "Experts" in the
Prospectus which is part of such Registration Statement.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
December 11, 1998
<PAGE> 1
EXHIBIT 23.04
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Cardinal Health, Inc. of our report dated January 30, 1997 related to
the financial statements of Owen Healthcare, Inc. which appears on page 5 of
Cardinal Health, Inc.'s Current Report on Form 8-K/A dated September 28, 1998.
We also consent to the reference to us under the heading "Experts" in such
Joint Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
December 11, 1998
<PAGE> 1
Exhibit 23.05
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of Cardinal Health, Inc. on Form S-4 of
our report with respect to R.P. Scherer Corporation dated April 27, 1998 (except
with respect to the matter discussed in Note 16, as to which the date is May 17,
1998) included in the Current Report on Form 8-K/A (Amendment No. 1, dated
September 28, 1998) of Cardinal Health, Inc. and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
Detroit, Michigan
December 10, 1998.
<PAGE> 1
EXHIBIT 23.08
CONSENT
OF
CREDIT SUISSE FIRST BOSTON CORPORATION
We hereby consent to the inclusion of our opinion letter, dated October 8, 1998,
to the Board of Directors of Allegiance Corporation (the "Company") as Annex B
to the Registration Statement of the Company on Form S-4 (the "Registration
Statement") relating to the proposed merger involving the Company and Cardinal
Health, Inc. and references made to such opinion in the Form S-4 referenced
herein. In giving such consent, we do not admit that we come within the category
of persons whose consent is required under, nor do we admit that we are
"experts" for purposes of, the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Todd E. Warnock
--------------------------------
Name: Todd E. Warnock
Title: Managing Director
December 10, 1998
<PAGE> 1
Exhibit 23.09
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
December 10, 1998
Cardinal Health, Inc.
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of
Cardinal Health, Inc. ("Cardinal"), relating to the proposed merger of a
subsidiary of Cardinal with and into Allegiance Corporation, of our opinion
letter in the Joint Proxy Statement/Prospectus which is a part of the
Registration Statement, and to the references of our firm name therein. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations adopted by the Securities and
Exchange Commission thereunder nor do we admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Michael J. Boublik
----------------------
Michael J. Boublik
Principal
<PAGE> 1
EXHIBIT 24
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
Each of the undersigned officers and directors of Cardinal
Health, Inc., an Ohio corporation (the "Company"), which proposes to file with
the Securities and Exchange Commission a Registration Statement on Form S-4 or
other appropriate form under the Securities Act of 1933, as amended, with
respect to the merger of Boxes Merger Corp. With and into Allegiance
Corporation, and the Common Shares of the Company issuable in connection
therewith, hereby constitutes and appoints Robert D. Walter, George H. Bennett,
Jr., and Brendan A. Ford and each of them, severally, as his/her
attorney-in-fact and agent, with full power of substitution and resubstitution,
in his/her name and on his/her behalf, to sign in any and all capacities such
Registration Statement and any and all amendments (including post-effective
amendments on Form S-4, Form S-8 or otherwise) and exhibits thereto, and any and
all applications and other documents relating thereto, with full power and
authority to perform and do any and all acts and things whatsoever which any
such attorney or substitute may deem necessary or advisable to be performed or
done in connection with any or all of the above-described matters, as fully as
each of the undersigned could do if personally present and acting, hereby
ratifying and approving all acts of any such attorney or substitute.
This Power of Attorney has been signed in the respective
capacities and on the respective dates indicated below.
<TABLE>
<CAPTION>
<S> <C>
/s/ John C. Kane
- -------------------------------------- --------------------------------------
Robert D. Walter John C. Kane
Chairman, Chief Executive Officer and Director , 199_
Director , 199_
/s/ J. Michael Losh
- -------------------------------------- --------------------------------------
Richard J. Miller J. Michael Losh
Vice President, Acting Chief Financial Officer, Director , 199_
Controller and Principal Accounting Officer
, 199_
/s/ Aleksander Erdeljan /s/ George R. Manser
- -------------------------------------- --------------------------------------
Aleksander Erdeljan George R. Manser
Director , 199_ Director , 199_
/s/ John F. Finn /s/ John B. McCoy
- -------------------------------------- --------------------------------------
John F. Finn John B. McCoy
Director , 199_ Director , 199_
/s/ Robert L. Gerbig /s/ Jerry E. Robertson
- -------------------------------------- --------------------------------------
Robert L. Gerbig Jerry E. Robertson
Director , 199_ Director , 199_
/s/ John F. Havens /s/ L. Jack Van Fossen
- -------------------------------------- --------------------------------------
John F. Havens L. Jack Van Fossen
Director , 199_ Director , 199_
/s/ Regina E. Herzlinger /s/ Melburn G. Whitmire
- -------------------------------------- --------------------------------------
Regina E. Herzlinger Melburn G. Whitmire
Director , 199_ Director , 199_
</TABLE>
<PAGE> 1
CARDINAL HEALTH, INC.
PROXY
5555 GLENDON COURT, DUBLIN, OHIO 43016
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CARDINAL
HEALTH, INC. ("CARDINAL") FOR THE SPECIAL MEETING OF SHAREHOLDERS OF CARDINAL TO
BE HELD ON JANUARY [_], 1999 (THE "CARDINAL SPECIAL MEETING").
The undersigned hereby appoints ROBERT D. WALTER and GEORGE H. BENNETT,
and each of them, the attorneys and proxies of the undersigned with full power
of substitution to vote as indicated herein all of the common shares, without
par value, of Cardinal held of record by the undersigned at the close of
business on December 11, 1998, at the Cardinal Special Meeting or any
postponements or adjournments thereof, with all the powers the undersigned would
possess if then and there personally present.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY THE
SHAREHOLDER. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED FOR EACH OF
THE FOLLOWING PROPOSALS, AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE CARDINAL SPECIAL MEETING OR ANY POSTPONEMENTS
OR ADJOURNMENTS THEREOF.
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE: [X]
1. Proposal to approve, authorize and adopt the Agreement and Plan of
Merger, dated as of October 8, 1998, by and among Cardinal, Allegiance
Corporation and Boxes Merger Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to adjourn the Cardinal Special Meeting, if necessary, to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the Cardinal Special Meeting to approve Proposal
1.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. By returning this proxy card you are conferring upon management the
authority to vote upon such other business as may properly come before the
Cardinal Special Meeting or any postponements or adjournments thereof.
(continued and to be signed on reverse side)
<PAGE> 2
RECEIPT OF NOTICE OF THE CARDINAL SPECIAL MEETING AND THE RELATED JOINT
PROXY STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREIN. IF SHARES ARE HELD
JOINTLY, ALL HOLDERS SHOULD 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.
Dated: ___________________________, 199__
__________________________________________
__________________________________________
__________________________________________
__________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
VOTES MUST BE INDICATED
[X] IN BLACK OR BLUE INK. [X]
SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE> 1
[Allegiance Wordmark]
PROXY
ALLEGIANCE CORPORATION
1430 Waukegan Road,
McGaw Park, Illinois 60085
This proxy is solicited on behalf of the board of directors of Allegiance
Corporation ("Allegiance") for the special meeting of stockholders of Allegiance
to be held on January 21, 1998 (the "Allegiance Special Meeting").
The undersigned hereby appoints Lester B. Knight, Joseph F. Damico and
William L. Feather, and each of them, the attorneys and proxies of the
undersigned with full power of substitution to vote as indicated herein all of
the shares of common stock, $1.00 par value per share, of Allegiance held of
record by the undersigned at the close of business on December 11, 1998, at the
Allegiance Special Meeting, or any postponements or adjournments thereof, with
all the powers the undersigned would possess if then and there personally
present. SEE REVERSE SIDE.
Please mark your votes as indicated in this example: [X]
This proxy, when properly executed, will be voted as specified by the
stockholder. If no specifications are made, this proxy will be voted FOR each of
the following proposals, and with discretionary authority on all other matters
that may properly come before the Allegiance Special Meeting or any
postponements or adjournments thereof.
1. Proposal to approve, authorize and adopt the Agreement and Plan of
Merger, dated as of October 8, 1998, by and among Allegiance, Cardinal Health,
Inc. and Boxes Merger Corp.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to adjourn the Allegiance Special Meeting, if necessary, to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the Allegiance Special Meeting to approve
Proposal 1.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, to vote upon such other business as may properly
come before the Allegiance Special Meeting or any postponements or adjournments
thereof.
Please mark this box if you plan to attend the Allegiance Special Meeting: [ ]
Receipt of Notice of the Allegiance Special Meeting and the related Joint
Proxy Statement/Prospectus is hereby acknowledged.
NOTE: Please sign exactly as your name appears herein. 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.
The signing stockholder hereby revokes all proxies heretofore given to
vote at the Allegiance Special Meeting or any postponement or adjournment
thereof.
___________________________________________
___________________________________________
___________________________________________
Signature(s) of Stockholder(s) Date
<PAGE> 2
* * * * *
Allegiance Corporation
Toll-Free Voting
Allegiance encourages you to take advantage of a convenient way of voting
your shares on matters to be covered at the Allegiance Special Meeting. Voting
your shares electronically through the telephone will eliminate the need to
return this proxy card.
Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, toll-free at 1-800-OK2-VOTE (1-800-652-8683). Have this proxy card in
hand when you call. Please enter the control number which is located in the box
above and follow the voice instructions on how to vote.
Your electronic vote authorizes the named proxies to vote in the same
manner as if you marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, please do not mail back
this proxy card.
<PAGE> 3
Allegiance Corporation
Special Meeting Of Stockholders
January 21, 1999
_______________
ADMITTANCE TICKET
_______________
Allegiance Corporation
1450 Waukegan Road
Brien Laing Building
McGaw Park, Illinois 60085
Thursday, January 21, 1999
10:30 a.m., local time
IMPORTANT: If you plan to attend the Allegiance Special Meeting, please
check the appropriate box on the proxy card or indicate your intent when you
vote by telephone. You must show this admittance ticket at the gate before
entering the Allegiance campus and at the registration desk on the day of the
Allegiance Special Meeting.
DIRECTIONS: Allegiance is located between the Tri-State Tollway
(I-294/I-94) and Route 41, just south of Route 120 (Belvidere Road) and north of
Route 137 (Buckley Road), on the west side of Route 43 (Waukegan Road). After
passing through the Allegiance campus gate house, follow the signs to parking.
[MAP]
