<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</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 AND GENERAL COUNSEL
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. PHILIP T. RUEGGER III, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SIMPSON THACHER & BARTLETT
51 WEST 52ND STREET 425 LEXINGTON AVENUE
NEW YORK, NY 10019-6150 NEW YORK, NY 10017
(212) 403-1000 (212) 455-2000
</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
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Shares, without par
value shares.............. 25,261,131 $85.625 $2,162,984,342
==========================================================================================================
<CAPTION>
============================ ========================
TITLE OF EACH AMOUNT OF
CLASS OF SECURITIES REGISTRATION
TO BE REGISTERED FEE
- ---------------------------- ------------------------
<S> <C>
Common Shares, without par
value shares.............. $638,081
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</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
$2,162,984,342, which equals the average of the high and low prices of the
common stock, par value $.01 per share, of R.P. Scherer Corporation
("Scherer Common Stock"), of $81.34375, as reported on the New York Stock
Exchange on June 8, 1998, multiplied by the total number of shares of
Scherer Common Stock (including shares issuable pursuant to the exercise of
outstanding options to purchase Scherer Common Stock) to be canceled in the
merger (the "Merger") of a subsidiary of Cardinal Health, Inc. ("Cardinal")
with and into R.P. Scherer Corporation ("Scherer"). 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 0.95.
------------------------
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
SUBJECT TO COMPLETION, JUNE 12, 1998
[R.P. SCHERER CORPORATION LETTERHEAD]
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Stockholders of
R.P. Scherer Corporation ("Scherer") to be held at The Marriott Hotel, 200 West
Big Beaver Road, Troy, Michigan, on , , 1998, at 10:00 a.m.,
local time.
At the Special Meeting you will be asked to vote on a proposal to approve
and adopt an Agreement and Plan of Merger, dated as of May 17, 1998 (the "Merger
Agreement"), providing for the merger (the "Merger") of a wholly owned
subsidiary of Cardinal Health, Inc. ("Cardinal") with and into Scherer. Upon
consummation of the Merger, Scherer will become a wholly owned subsidiary of
Cardinal, and Scherer stockholders will be entitled to receive 0.95 of a
Cardinal common share for each share of Scherer common stock held by them (the
"Exchange Ratio").
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE MERGER AGREEMENT IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
THERETO, WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY. A COPY OF THE
MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
The Board of Directors of Scherer has carefully considered the terms and
conditions of the proposed Merger. In addition, in connection with its approval
of the transaction with Cardinal, the Board of Directors of Scherer has received
a written opinion from its financial advisor, Lehman Brothers Inc. ("Lehman
Brothers"), to the effect that the Exchange Ratio is fair, from a financial
point of view, to the holders of Scherer common stock. A copy of Lehman
Brothers' written opinion, which sets forth a description of the assumptions
made, matters considered and limits of its review, is attached to the
accompanying Joint Proxy Statement/Prospectus as Annex B, and Scherer
stockholders are urged to read carefully the opinion in its entirety.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS
OF THE PROPOSED MERGER AND HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS
OF, SCHERER AND THE SCHERER STOCKHOLDERS. ACCORDINGLY, THE BOARD RECOMMENDS THAT
SCHERER STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Approval of the Merger Agreement and the Merger requires the affirmative
vote of holders of a majority of the outstanding shares of Scherer common stock
entitled to vote thereon. As of , 1998, the executive officers and
directors of Scherer may be deemed to be beneficial owners of less than 1% of
the outstanding Scherer common stock, and each such person has advised Scherer
that such person intends to vote in favor of the Merger.
In view of the significance of the action to be taken at this important
Special Meeting of Scherer stockholders, we urge you to review carefully the
accompanying Notice of Special Meeting of Stockholders and the Joint Proxy
Statement/Prospectus, including the annexes thereto, which also include
information on Cardinal and Scherer. Whether or not you expect to attend the
Special Meeting, please complete, sign and date the enclosed proxy and return it
as promptly as possible.
Very truly yours,
Aleksandar Erdeljan
Chairman
<PAGE> 3
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
R.P. SCHERER CORPORATION
2301 WEST BIG BEAVER ROAD
P.O. BOX 7060
TROY, MICHIGAN 48007-7060
------------------------
TO BE HELD , 1998
------------------------
To the Stockholders of R.P. Scherer Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of R.P. Scherer Corporation, a Delaware corporation ("Scherer"), will
be held at The Marriott Hotel, 200 West Big Beaver Road, Troy, Michigan, on
, , 1998 at 10:00 a.m., local time, for the following purposes:
1. To consider and vote on a proposal (the "Scherer Merger Proposal")
to approve and adopt the Agreement and Plan of Merger, dated as of May 17,
1998 (the "Merger Agreement"), by and among Scherer, Cardinal Health, Inc.,
an Ohio corporation ("Cardinal"), and GEL Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Cardinal ("Merger Sub"),
pursuant to which, among other things, (i) Merger Sub will be merged with
and into Scherer with the result that Scherer will become a wholly owned
subsidiary of Cardinal, and (ii) each outstanding share (other than shares
held by Cardinal, Merger Sub or Scherer, if any, which will be canceled) of
Scherer common stock, par value $.01 per share ("Scherer Common Stock"),
will be converted into 0.95 of a Cardinal common share, without par value.
2. 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 foregoing proposal (the
"Scherer Adjournment Proposal").
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on ,
1998, as the record date for the determination of the holders of Scherer Common
Stock entitled to notice of, and to vote at, the Special Meeting and any
adjournments or postponements thereof. The Scherer Merger Proposal requires the
affirmative vote of the holders of a majority of the shares of Scherer Common
Stock outstanding and entitled to vote thereon. 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 Scherer stockholders. Scherer stockholders will not be entitled to appraisal
rights under Delaware law or any other statute in connection with the Merger. A
list of Scherer stockholders entitled to vote at the Special Meeting will be
open to the examination of any Scherer stockholder, for any purpose germane to
the Special Meeting, during ordinary business hours, 10 days before the Special
Meeting at Scherer's headquarters located 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 thereto, 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 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 (i) FILING WITH THE SECRETARY OF SCHERER
BEFORE THE TAKING OF THE VOTE AT THE 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 (ii) ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THE BOARD OF DIRECTORS OF SCHERER HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE
<PAGE> 4
FAIR TO, AND IN THE BEST INTERESTS OF, SCHERER AND THE SCHERER STOCKHOLDERS.
ACCORDINGLY, THE SCHERER BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
SCHERER MERGER PROPOSAL AND THE SCHERER ADJOURNMENT PROPOSAL.
By Order of the Board of Directors
Nicole S. Williams
Secretary
Troy, Michigan
, 1998
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
2
<PAGE> 5
SUBJECT TO COMPLETION, JUNE 12, 1998
[CARDINAL HEALTH, INC. LETTERHEAD]
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Cardinal Health, Inc. ("Cardinal") to be held at Cardinal's corporate offices at
5555 Glendon Court, Dublin, Ohio, on , , 1998, at 10:00 a.m.,
local time.
At the Special Meeting you will be asked to vote on a proposal (the
"Cardinal Merger Proposal") to approve, authorize and adopt an Agreement and
Plan of Merger, dated as of May 17, 1998 (the "Merger Agreement"), providing for
the merger (the "Merger") of a wholly owned subsidiary of Cardinal with and into
R.P. Scherer Corporation ("Scherer"). Upon consummation of the Merger, Scherer
will become a wholly owned subsidiary of Cardinal, and Scherer stockholders will
be entitled to receive 0.95 of a Cardinal common share, without par value
("Cardinal Common Shares"), for each share of Scherer common stock held by them
(the "Exchange Ratio"). As a result of the Merger and the transactions
contemplated by the Merger Agreement, it is currently contemplated that Cardinal
will issue approximately 22.3 million additional Cardinal Common Shares in
exchange for outstanding Scherer common stock in the Merger, and will issue
additional Cardinal Common Shares upon the exercise of outstanding Scherer stock
options following the Merger.
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE MERGER AGREEMENT IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
THERETO, WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS
OF THE PROPOSED MERGER AND 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 ITS SHAREHOLDERS. ACCORDINGLY, YOUR BOARD RECOMMENDS THAT YOU
VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
IF APPROVAL BY CARDINAL SHAREHOLDERS OF THE CARDINAL MERGER PROPOSAL IS
REQUIRED BY APPLICABLE LAW OR THE RULES OF THE NEW YORK STOCK EXCHANGE (THE
"NYSE"), APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF
THE CARDINAL COMMON SHARES OUTSTANDING AND ENTITLED TO VOTE THEREON. IF
APPLICABLE LAW AND THE RULES OF THE NYSE DO NOT REQUIRE APPROVAL OF THE CARDINAL
SHAREHOLDERS, THE SPECIAL MEETING OF CARDINAL SHAREHOLDERS WILL NOT BE HELD, AND
NO VOTE ON THE CARDINAL MERGER PROPOSAL WILL BE TAKEN.
In view of the importance of the action to be taken at this important
Special Meeting of Cardinal Shareholders, if required to be held, we urge you to
review carefully the accompanying Notice of Special Meeting of Shareholders and
the Joint Proxy Statement/Prospectus, including the annexes thereto, which also
include information on Cardinal and Scherer. Whether or not you expect to attend
the Special Meeting, please complete, sign and date the enclosed proxy and
return it as promptly as possible.
Very truly yours,
Robert D. Walter
Chairman
<PAGE> 6
CARDINAL HEALTH, INC.
5555 GLENDON COURT
DUBLIN, OHIO 43016
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1998
------------------------
To the Shareholders of Cardinal Health, Inc.:
NOTICE IS HEREBY GIVEN 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
, , 1998, at 10:00 a.m., local time, for the following
purposes:
1. 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 May 17, 1998 (the "Merger Agreement"), by and among Cardinal, GEL
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Cardinal ("Merger Sub"), and R.P. Scherer Corporation, a Delaware
corporation ("Scherer"), pursuant to which, among other things, (i) Merger
Sub will be merged with and into Scherer with the result that Scherer will
become a wholly owned subsidiary of Cardinal, and (ii) each outstanding
share (other than shares held by Cardinal, Merger Sub or Scherer, if any,
which will be canceled) of Scherer common stock, par value $.01 per share,
will be converted into 0.95 of a Cardinal common share, without par value
("Cardinal Common Shares"). A copy of the Merger Agreement is attached as
Annex A to the accompanying Joint Proxy Statement/Prospectus.
2. 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 any of the foregoing proposals
(the "Cardinal Adjournment Proposal").
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on ,
1998, as the record date for the determination of the holders of Cardinal Common
Shares entitled to notice of, and to vote at, the meeting and adjournments or
postponements thereof. The Cardinal Merger Proposal requires the affirmative
vote of the holders of a majority of the Cardinal Common Shares outstanding and
entitled to vote thereon if required by applicable law and the rules of the
NYSE. 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.
IF APPLICABLE LAW AND THE RULES OF THE NEW YORK STOCK EXCHANGE (THE "NYSE")
DO NOT REQUIRE APPROVAL OF THE CARDINAL MERGER PROPOSAL BY SHAREHOLDERS OF
CARDINAL, THE SPECIAL MEETING OF CARDINAL SHAREHOLDERS WILL NOT BE HELD, AND NO
VOTE ON THE CARDINAL MERGER PROPOSAL OR THE CARDINAL ADJOURNMENT PROPOSAL WILL
BE TAKEN.
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 thereto, Cardinal
shareholders will be entitled to dissenters' appraisal rights under Ohio law in
connection with the Merger if approval of the Cardinal Merger Proposal by
Cardinal shareholders is required by applicable law.
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IT IS IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT
<PAGE> 7
THE MEETING. YOU MAY REVOKE YOUR PROXY BY (i) FILING WITH THE SECRETARY OF
CARDINAL AT OR BEFORE THE TAKING OF THE VOTE AT THE MEETING A NOTICE OF
REVOCATION BEARING A LATER DATE THAN THE PROXY OR A LATER-DATED PROXY RELATING
TO THE SAME SHARES, (ii) GIVING NOTICE OF REVOCATION IN OPEN MEETING OR (iii)
ATTENDING THE MEETING AND VOTING IN PERSON.
THE BOARD OF DIRECTORS OF CARDINAL 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 ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD
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
George H. Bennett, Jr.
Secretary
Dublin, Ohio
, 1998
2
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, JUNE 12, 1998
[CARDINAL LOGO] [SCHERER LOGO]
CARDINAL HEALTH, INC.
AND
R.P. SCHERER CORPORATION
PRELIMINARY JOINT PROXY STATEMENT
------------------------
CARDINAL HEALTH, INC.
PRELIMINARY PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of common stock, $.01 par value per share ("Scherer Common Stock"), of
R.P. Scherer Corporation, a Delaware corporation ("Scherer"), in connection with
the solicitation of proxies by the Board of Directors of Scherer (the "Scherer
Board") for use at the Special Meeting of Scherer Stockholders to be held on
, , 1998, at The Marriott Hotel, 200 West Big
Beaver Road, Troy, Michigan, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "Scherer Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
common shares, without par value ("Cardinal Common Shares"), of Cardinal Health,
Inc., an Ohio corporation ("Cardinal"), in connection with the solicitation of
proxies by the Board of Directors of Cardinal (the "Cardinal Board") for use at
the Special Meeting of Cardinal Shareholders to be held on ,
, 1998, at Cardinal's corporate offices at 5555 Glendon Court,
Dublin, Ohio, commencing at 10:00 a.m., local time, and at any adjournment or
postponement thereof (the "Cardinal Special Meeting").
At the Scherer Special Meeting and the Cardinal Special Meeting, if held,
holders of Scherer Common Stock ("Scherer Stockholders") and holders of Cardinal
Common Shares ("Cardinal Shareholders") as of the close of business on the
Scherer Record Date and Cardinal Record Date (each as defined below),
respectively, will be asked to consider and vote on proposals relating to the
Agreement and Plan of Merger, dated as of May 17, 1998 (together with the
exhibits thereto, the "Merger Agreement"), providing for the merger (the
"Merger") of GEL Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Cardinal ("Merger Sub"), with and into Scherer. The Merger will be
consummated on the terms and subject to the conditions set forth in the Merger
Agreement, as a result of which (i) Scherer will become a wholly owned
subsidiary of Cardinal and (ii) Scherer Stockholders will be entitled to 0.95 of
a Cardinal Common Share for each outstanding share of Scherer Common Stock (the
"Exchange Ratio") held by them (with cash paid in lieu of fractional shares).
See "The Merger Agreement -- Merger Consideration." At the Cardinal Special
Meeting, if held, Cardinal Shareholders also will be asked to consider and vote
on proposals 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 the Merger. At the
Scherer Special Meeting, Scherer Stockholders also will be asked to consider and
vote on a proposal for the adjournment of the Scherer Special Meeting, if
necessary, to permit further solicitation of proxies in the event that there are
not sufficient votes at the time of the Scherer Special Meeting to approve the
Merger. 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 Scherer Stockholders and/or Cardinal
Shareholders.
IF APPLICABLE LAW AND THE RULES OF THE NEW YORK STOCK EXCHANGE (THE "NYSE")
DO NOT REQUIRE APPROVAL OF THE MERGER AGREEMENT BY CARDINAL SHAREHOLDERS, THE
CARDINAL SPECIAL MEETING WILL NOT BE HELD, AND NO VOTE OF CARDINAL SHAREHOLDERS
ON THE MERGER AGREEMENT OR ADJOURNMENT OF THE CARDINAL SPECIAL MEETING WILL BE
TAKEN.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Cardinal with respect to the Cardinal Common Shares to be issued by Cardinal in
the Merger in exchange for the outstanding shares of Scherer Common Stock.
Cardinal Common Shares are quoted on the NYSE under the symbol "CAH." On
, 1998, the closing price of Cardinal Common Shares on the NYSE
Composite Tape was $ . Scherer Common Stock is quoted on the NYSE under the
symbol "SHR." On , 1998,
<PAGE> 9
the last sale price of Scherer Common Stock on the NYSE Composite Tape was
$ . Cardinal Shareholders and Scherer Stockholders should obtain
current quotes for the Cardinal Common Shares and Scherer Common Stock.
SEE "RISK FACTORS" ON PAGE 22 FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED BY SCHERER STOCKHOLDERS AND CARDINAL SHAREHOLDERS IN
CONNECTION WITH THE MERGER.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus with respect to Cardinal has been supplied by Cardinal. All
information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus with respect to Scherer has been supplied by Scherer.
This Joint Proxy Statement/Prospectus, the Letter to Scherer Stockholders,
the Notice of the Scherer Special Meeting and the form of proxy for use at the
Scherer Special Meeting are first being mailed to Scherer Stockholders on or
about , 1998. This Joint Proxy Statement/Prospectus, the Letter
to Cardinal Shareholders, 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 , 1998. Any Scherer Stockholder
or Cardinal Shareholder who has given his, her or its proxy may revoke it at any
time prior to its use. See "The Special Meetings -- Voting of Proxies."
------------------------
The date of this Joint Proxy Statement/Prospectus
is , 1998.
ii
<PAGE> 10
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF CARDINAL COMMON SHARES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CARDINAL OR SCHERER SINCE THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME AFTER THE DATE OF
THIS JOINT PROXY STATEMENT/PROSPECTUS.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes and incorporates by
reference forward-looking statements based on current plans and expectations of
Scherer, Cardinal and Merger Sub, relating to, among other matters, analyses of
value, including an opinion from an independent financial advisor to the Scherer
Board of Directors as to the fairness, from a financial point of view, of the
Exchange Ratio to Scherer Stockholders in the Merger, forecasts of future
results, and estimates of amounts (including Merger-related expenses) that are
not yet determinable. Such forward-looking statements are contained in the
sections entitled "Summary," "Risk Factors," "The Merger," "Certain Federal
Income Tax Consequences," "The Companies," "Unaudited Pro Forma Combined
Financial Information" and other sections of this Joint Proxy
Statement/Prospectus. Such statements involve risks and uncertainties which may
cause actual future activities and results of operations to be materially
different from that suggested, projected or implied in this Joint Proxy
Statement/ Prospectus, including, among others, fluctuations in Scherer's and
Cardinal's quarterly operating results, Scherer's and Cardinal's dependence on
their current management, potential conflicts of interests of certain persons,
difficulties relating to integration of acquired businesses, the loss of one or
more key customer or supplier relationships, currency fluctuations, changes in
the outsourcing pattern for pharmaceutical products and/or services, and the
costs and other effects of legal and administrative proceedings, including those
with respect to the proposed merger of Cardinal and Bergen Brunswig Corporation
("Bergen"), as well as other factors described elsewhere in this Joint Proxy
Statement/Prospectus.
AVAILABLE INFORMATION
Each of Cardinal and Scherer is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by either Cardinal or Scherer with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at its principal office at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048, and Chicago Regional Office, Citicorp Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates, or, with respect to
certain of such material, through the Commission's World Wide Web site
(http://www.sec.gov). The Cardinal Common Shares and the Scherer Common Stock
are listed on the NYSE, and such reports, proxy statements and other information
concerning Cardinal or Scherer are available for inspection and copying at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
Cardinal has filed with the Commission a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Cardinal Common Shares to be issued in the Merger (the
"Registration Statement"). This Joint Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and related
iii
<PAGE> 11
exhibits for further information with respect to Cardinal, Scherer and the
securities offered hereby. Statements contained herein concerning the provisions
of any document are necessarily summaries of such documents and not complete,
and, in each instance, reference is made to the copy of such document attached
hereto or filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.
CARDINAL SHAREHOLDERS AND SCHERER STOCKHOLDERS WHO HAVE ANY QUESTIONS ABOUT
EXECUTING, CHANGING OR REVOKING A PROXY, SHOULD CONTACT THE FOLLOWING:
<TABLE>
<CAPTION>
CARDINAL SHAREHOLDERS R.P. SCHERER STOCKHOLDERS
- --------------------- -------------------------
<S> <C>
MORROW & CO., INC. MACKENZIE PARTNERS, INC.
909 Third Avenue 156 Fifth Avenue
20th Floor New York, New York 10010
New York, New York 10022 (212) 929-5500
(800) 566-9061
</TABLE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Cardinal (Commission File No. 0-12591) and
by Bergen (Commission File No. 1-5110) with the Commission pursuant to the
Exchange Act are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. The description of Cardinal Common Shares contained in Cardinal's
Registration Statement on Form 8-A dated August 19, 1994, and any amendment
or report filed for the purpose of updating such description;
2. Cardinal's Annual Report on Form 10-K for the fiscal year ended
June 30, 1997, filed with the Commission on September 29, 1997, as amended
by Form 10-K/A (Amendment No. 1) filed with the Commission on January 7,
1998 (the "1997 Cardinal Form 10-K");
3. Cardinal's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997, filed with the Commission on November 14, 1997,
as amended by Form 10-Q/A (Amendment No. 1) filed with the Commission on
January 7, 1998;
4. Cardinal's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1997, filed with the Commission on February 11, 1998;
5. Cardinal's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998, filed with the Commission on May 13, 1998 (the "March
1998 Cardinal Form 10-Q");
6. Cardinal's Current Report on Form 8-K dated August 23, 1997 (as
amended by Form 8-K/A (Amendment No. 1) filed with the Commission on August
27, 1997);
7. Cardinal's Current Report on Form 8-K dated February 18, 1998;
8. Cardinal's Current Report on Form 8-K dated March 17, 1998;
9. Cardinal's Current Report on Form 8-K dated May 17, 1998;
10. The historical financial statements for Bergen included in
Bergen's Annual Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 24, 1997;
11. The historical financial statements for Bergen included in
Bergen's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1997, filed with the Commission on February 11, 1998; and
12. The historical financial statements for Bergen included in
Bergen's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, filed with the Commission on May 15, 1998.
iv
<PAGE> 12
The following documents filed by Scherer with the Commission pursuant to
the Exchange Act (Commission File No. 33-30999) are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. The description of Scherer Common Stock contained in Scherer's
Registration Statement on Form S-1 filed with the Commission on August 23,
1991, and any amendment or report filed for the purpose of updating such
description;
2. Scherer's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, filed with the Commission on June 11, 1998 (the "1998
Scherer Form 10-K"); and
3. Scherer's Current Report on Form 8-K dated May 17, 1998.
All reports and other documents filed with the Commission by Cardinal or
Scherer pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Joint Proxy Statement/Prospectus and prior to the Cardinal
Special Meeting and the Scherer Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the respective
dates of filing of such reports and other documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained herein or in any other subsequently filed
document that is also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WITH RESPECT TO CARDINAL, BERGEN AND SCHERER THAT ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS OR HEREIN) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST
TO THE FOLLOWING:
<TABLE>
<CAPTION>
CARDINAL DOCUMENTS SCHERER DOCUMENTS
- ------------------ -----------------
<S> <C>
Cardinal Health, Inc. R.P. Scherer Corporation
5555 Glendon Court 2301 West Big Beaver Road
Dublin, Ohio 43016 P.O. Box 7060
Attention: David Bearman Troy, Michigan 48007-7060
Executive Vice President Attention: Nicole S. Williams
and Chief Financial Officer Executive Vice President, Finance,
Chief Financial Officer and
Secretary
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR DOCUMENTS SHOULD BE
MADE BY [INSERT DATE THAT IS FIVE BUSINESS DAYS PRIOR TO THE DATE OF THE
MEETINGS], 1998.
v
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<S> <C>
FORWARD-LOOKING STATEMENTS.............. iii
AVAILABLE INFORMATION................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................. iv
SUMMARY................................. 1
UNAUDITED PRO FORMA CONDENSED COMBINED
SUMMARY FINANCIAL INFORMATION......... 15
COMPARATIVE PER SHARE DATA.............. 18
MARKET PRICE AND DIVIDEND DATA.......... 21
RISK FACTORS............................ 22
Fixed Exchange Ratio Despite Change in
Relative Stock Prices.............. 22
Uncertainties in Integrating Business
Operations......................... 22
Risks Generally Associated with
Acquisitions....................... 22
Interests of Certain Persons in the
Merger............................. 23
THE SPECIAL MEETINGS.................... 24
General............................... 24
Matters to Be Considered at the
Special Meetings................... 24
Record Date; Vote Required; Voting at
the Meetings....................... 25
Voting of Proxies..................... 26
Solicitation of Proxies............... 27
Recommendations of the Boards of
Directors.......................... 27
Appraisal Rights...................... 27
THE MERGER.............................. 27
Background of the Merger.............. 27
Reasons for the Merger;
Recommendations of the Boards of
Directors.......................... 29
Opinion of Scherer's Financial
Advisor............................ 32
Interests of Certain Persons in the
Merger............................. 36
Accounting Treatment.................. 38
Regulatory Approvals.................. 39
Federal Securities Law Consequences... 40
THE MERGER AGREEMENT.................... 41
The Merger............................ 41
Merger Consideration.................. 41
Exchange Procedures................... 41
Representations and Warranties........ 42
Covenants............................. 42
Acquisition Proposals and Termination
Right.............................. 46
Conditions............................ 48
Stock Options......................... 49
Scherer Employee Benefits and Plans... 49
Termination........................... 50
Amendment and Waiver.................. 51
Fees and Expenses..................... 51
RIGHTS OF DISSENTING SHAREHOLDERS....... 51
Scherer Stockholders.................. 51
Cardinal Shareholders................. 52
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES.......................... 54
THE COMPANIES........................... 55
Business of Scherer................... 55
Business of Cardinal.................. 55
Merger Sub............................ 56
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION................. 57
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET......................... 58
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF EARNINGS................ 59
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION (Unaudited)..... 70
COMPARISON OF SHAREHOLDER RIGHTS........ 73
Amendment of Charter Documents........ 73
Amendment and Repeal of Bylaws and
Regulations........................ 73
Removal of Directors.................. 73
Vacancies on the Board................ 74
Right to Call Special Meetings of
Shareholders....................... 74
Shareholder Action Without a
Meeting............................ 74
Class Voting.......................... 74
Cumulative Voting..................... 74
Provisions Affecting Control Share
Acquisitions and Business
Combinations....................... 75
Mergers, Acquisitions and Certain
Other Transactions................. 75
Rights of Dissenting Stockholders..... 76
Dividends............................. 76
</TABLE>
vi
<PAGE> 14
<TABLE>
<S> <C>
Preemptive Rights of Shareholders..... 77
Director Liability and
Indemnification.................... 77
DESCRIPTION OF CARDINAL CAPITAL STOCK... 78
OTHER ACTION TO BE TAKEN AT THE SCHERER
SPECIAL MEETING....................... 79
Scherer Adjournment Proposal.......... 79
OTHER ACTION TO BE TAKEN AT THE CARDINAL
SPECIAL MEETING....................... 80
Cardinal Adjournment Proposal......... 80
LEGAL MATTERS........................... 80
EXPERTS................................. 80
OTHER MATTERS........................... 81
SHAREHOLDER PROPOSALS................... 81
Agreement and Plan of Merger, dated
May 17, 1998, by and among Cardinal
Health, Inc., GEL Acquisition Corp.
and R.P. Scherer Corporation.......... Annex A
Opinion of Lehman Brothers Inc., dated
May 17, 1998.......................... Annex B
Section 1701.85 of the Ohio Revised
Code.................................. Annex C
</TABLE>
vii
<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and the Annexes hereto (the "Joint Proxy
Statement/Prospectus"). This summary is not intended to be complete and is
qualified in its entirety by the more detailed information and financial
statements appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. Cardinal Shareholders and Scherer Stockholders are urged
to read and consider carefully all of the information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus, including the Annexes.
THE COMPANIES
SCHERER
Scherer, an international developer and manufacturer of drug delivery
systems, is the world's largest producer of soft gelatin capsules. Scherer is
currently developing and commercializing a variety of advanced drug delivery
systems. Scherer's proprietary drug delivery systems improve the efficacy of
drugs by regulating the dosage so as to ease administration, increase
absorption, enhance bio-availability and control time and place of release.
Scherer has a global network of 19 facilities and 3,600 employees in 12
countries. The principal executive offices of Scherer are located at 2301 West
Big Beaver Road, Troy, Michigan 48084, and its telephone number is (248)
649-0900. See "The Companies -- Business of Scherer."
CARDINAL AND MERGER SUB
Cardinal is one of the country's leading health care service companies. It
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, pharmaceutical packaging, retail pharmacy
franchising and clinical information systems development.
Merger Sub is a newly-formed, wholly owned subsidiary of Cardinal formed
for the purpose of effecting the Merger.
The principal executive offices of Cardinal and Merger Sub are located at
5555 Glendon Court, Dublin, Ohio 43016, and their telephone number is (614)
717-5000. See "The Companies -- Business of Cardinal."
THE SPECIAL MEETINGS
SCHERER SPECIAL MEETING
Date, Time and Place of Scherer Special Meeting. The Scherer Special
Meeting will be held at The Marriott Hotel, 200 West Big Beaver Road, Troy,
Michigan, on , 1998, at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote on a proposal (the "Scherer Merger Proposal")
to approve and adopt the Merger Agreement, pursuant to which, among other
things, (i) Merger Sub will be merged with and into Scherer with the result
that Scherer will become a wholly owned subsidiary of Cardinal, and (ii)
each outstanding share (other than shares held by Cardinal, Merger Sub and
Scherer, if any, which will be canceled) of Scherer Common Stock will be
converted into 0.95 of a Cardinal Common Share. The Merger Agreement is
attached to this Joint Proxy Statement/Prospectus as Annex A.
2. To adjourn the Scherer Special Meeting, if necessary, to permit
further solicitation of proxies in the event that there are not sufficient
votes at the time of the Scherer Special Meeting to approve the foregoing
proposal (the "Scherer Adjournment Proposal").
3. Such other matters as may properly come before the Scherer Special
Meeting.
<PAGE> 16
Record Date; Required Vote. Only Scherer Stockholders of record at the
close of business on , 1998 (the "Scherer Record Date"), will be
entitled to notice of and to vote at the Scherer Special Meeting. On the Scherer
Record Date, there were shares of Scherer Common Stock
outstanding held by approximately holders of record. The Scherer
Merger Proposal requires the affirmative vote of the holders of a majority of
the shares of Scherer Common Stock outstanding and entitled to vote thereon. See
"The Special Meetings -- Record Date; Vote Required; Voting at the Meetings --
Scherer."
If, in a proxy submitted on behalf of a Scherer Stockholder by a person
acting solely in a representative capacity, the proxy is marked clearly to
indicate that the shares represented thereby are not being voted with respect to
the Scherer Merger Proposal or the Scherer Adjournment Proposal, then such proxy
will be counted as present for the purpose of establishing a quorum at the
Scherer Special Meeting, and, because the Scherer Merger Proposal requires the
affirmative vote of a majority of the shares outstanding and entitled to vote
thereon, such "non-votes" will have the effect of a negative vote with respect
to such proposal. Additionally, proxies submitted abstaining with respect to the
Scherer Merger Proposal or the Scherer Adjournment Proposal will be counted as
present for the purpose of establishing a quorum at the Scherer Special Meeting,
and such abstentions will have the effect of a vote against such proposals.
In the event that Scherer has the right to terminate the Merger Agreement
for any reason, the Scherer Board may, in the exercise of its fiduciary duty,
make determinations (i) 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 the consummation of the Merger, and (ii) if it determines to
waive the condition giving rise to such right to terminate and proceed to the
consummation of the Merger, whether or not to resolicit the approval of the
Scherer Merger Proposal. See "The Merger Agreement -- Termination."
RECOMMENDATION OF THE BOARD OF DIRECTORS. THE SCHERER BOARD OF DIRECTORS
HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF, SCHERER AND THE
SCHERER STOCKHOLDERS. ACCORDINGLY, THE SCHERER BOARD OF DIRECTORS RECOMMENDS
THAT SCHERER STOCKHOLDERS VOTE FOR THE SCHERER MERGER PROPOSAL AND THE SCHERER
ADJOURNMENT PROPOSAL.
Scherer Common Stock Owned by Directors and Executive Officers of
Scherer. As of the Scherer Record Date, the directors and executive officers of
Scherer may be deemed to be beneficial owners of less than 1% of the outstanding
Scherer Common Stock, and each such person has advised Scherer that such person
intends to vote in favor of the Scherer Merger Proposal and the Scherer
Adjournment Proposal. See "The Special Meetings -- Record Date; Vote Required;
Voting at the Meetings -- Scherer."
Proxies. All shares of Scherer Common Stock that are entitled to vote and
are represented at the Scherer Special Meeting by properly executed proxies
received prior to the vote at the Scherer Special Meeting, and not duly and
timely revoked, will be voted at the Scherer Special Meeting in accordance with
the instructions indicated thereon. If no instructions are indicated, such
proxies will be voted FOR the Scherer Merger Proposal and the Scherer
Adjournment Proposal.
If any other matters incidental to the Merger are properly presented for
consideration at the Scherer Special Meeting (or any adjournments or
postponements thereof), the persons named in the enclosed form of Proxy and
voting thereunder will have discretion to vote on such matters in accordance
with their best judgment, unless authorization to use such discretion is
withheld.
Revocability of Proxies. Any proxy given pursuant to this solicitation may
be revoked by (i) filing (including by telegram or telecopy) with the Secretary
of Scherer, before the taking of the vote at the Scherer 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 (ii) attending the Scherer
Special Meeting and voting in person. Scherer
2
<PAGE> 17
Stockholders who require assistance in changing or revoking a proxy should
contact Scherer's proxy solicitor, MacKenzie Partners, Inc., by mail at 156
Fifth Avenue, New York, New York 10010, or by telephone at (212) 929-5500.
Appraisal Rights. Under Delaware law or any other statute, Scherer
Stockholders will not be entitled to any appraisal rights in connection with the
Merger. See "Rights of Dissenting Shareholders -- Scherer Stockholders."
CARDINAL SPECIAL MEETING
Date, Time and Place of Cardinal Special Meeting. The Cardinal Special
Meeting will be held at Cardinal's corporate offices at 5555 Glendon Court,
Dublin, Ohio 43016, on , 1998, at 10:00 a.m., local time, for the
following purposes:
1. To consider and vote on a proposal (the "Cardinal Merger Proposal")
to approve, authorize and adopt the Merger Agreement which provides, among
other things, that (i) Merger Sub will be merged with and into Scherer with
the result that Scherer will become a wholly owned subsidiary of Cardinal,
and (ii) each outstanding share (other than shares held by Cardinal, Merger
Sub and Scherer, if any, which will be canceled) of Scherer Common Stock
will be converted into 0.95 of a Cardinal Common Share. The Merger
Agreement is attached to this Joint Proxy Statement/Prospectus as Annex A.
2. 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 the foregoing
proposals (the "Cardinal Adjournment Proposal").
3. Such other matters as may properly come before the Cardinal Special
Meeting.
IF APPLICABLE LAW AND THE RULES OF THE NYSE DO NOT REQUIRE APPROVAL OF THE
CARDINAL MERGER PROPOSAL BY CARDINAL SHAREHOLDERS, THE CARDINAL SPECIAL MEETING
WILL NOT BE HELD, AND NO VOTE OF CARDINAL SHAREHOLDERS ON THE CARDINAL MERGER
PROPOSAL OR THE CARDINAL ADJOURNMENT PROPOSAL WILL BE TAKEN.
Record Date; Required Vote. Only Cardinal Shareholders of record at the
close of business on , 1998 (the "Cardinal Record Date"), will be
entitled to notice of and to vote at the Cardinal Special Meeting. On the
Cardinal Record Date, there were Cardinal Common Shares
outstanding held by approximately holders of record. If
applicable law or the rules of the NYSE require approval of the Cardinal Merger
Proposal by the Cardinal Shareholders, the Cardinal Merger Proposal will require
the affirmative vote of the holders of a majority of the Cardinal Common Shares
outstanding and entitled to vote thereon. 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 Cardinal Special Meeting. See "The Special Meetings -- Record Date; Vote
Required; Voting at the Meetings -- Cardinal."
If, in a proxy submitted on behalf of a Cardinal Shareholder by a person
acting solely in a representative capacity, the proxy is marked clearly to
indicate that the shares represented thereby are not being voted with respect to
the Cardinal Merger Proposal or the Cardinal Adjournment Proposal, then such
proxy will be counted as present for the purpose of establishing a quorum at the
Cardinal Special Meeting, and, because such proposal requires the affirmative
vote of the holders of a majority of the Cardinal Common Shares outstanding (or
in the case of the Cardinal Adjournment Proposal, a majority of the Cardinal
Common Shares entitled to vote and present in person or represented by proxy at
the Cardinal Special Meeting), such "non-votes" will have the effect of a
negative vote with respect to such proposal. Additionally, proxies submitted
abstaining with respect to the Cardinal Merger Proposal or the Cardinal
Adjournment Proposal will be counted as present for the purpose of establishing
a quorum at the Cardinal Special Meeting, and such abstentions will have the
effect of a vote against such 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 (i) whether to terminate the Merger Agreement or to waive
the condition that gives rise to such right to terminate the Merger Agreement
and
3
<PAGE> 18
proceed to the consummation of the Merger, and (ii) if it determines to waive
the condition giving rise to such right to terminate and proceed to the
consummation of the Merger, whether or not to resolicit the approval of the
Cardinal Merger Proposal. See "The Merger Agreement -- Termination."
RECOMMENDATION OF THE BOARD OF DIRECTORS. THE CARDINAL BOARD OF DIRECTORS
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 THE
CARDINAL SHAREHOLDERS. ACCORDINGLY, THE CARDINAL BOARD OF DIRECTORS RECOMMENDS
THAT CARDINAL SHAREHOLDERS VOTE FOR THE APPROVAL OF THE CARDINAL MERGER PROPOSAL
AND THE CARDINAL ADJOURNMENT PROPOSAL.
Cardinal Common Shares Owned by Directors and Executive Officers of
Cardinal. 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 % of the outstanding Cardinal Common Shares, and
each such person has advised Cardinal that he, she or it intends to vote in
favor of each of the Cardinal Merger Proposal and the Cardinal Adjournment
Proposal. See "The Special Meetings -- Record Date; Vote Required; Voting at the
Meetings -- Cardinal."
Proxies. All Cardinal Common Shares that are entitled to vote and are
represented at the Cardinal Special Meeting by properly executed proxies
received prior to the vote at the Cardinal Special Meeting, and not duly and
timely revoked, will be voted at the Cardinal Special Meeting in accordance with
the instructions indicated thereon. If no instructions are indicated, such
proxies will be voted FOR each of the Cardinal Merger Proposal and the Cardinal
Adjournment Proposal.
If any other matters incidental to the Merger are properly presented for
consideration at the Cardinal Special Meeting (or any adjournments or
postponements thereof), the persons named in the enclosed form of proxy and
voting thereunder will have discretion to vote on such matters in accordance
with their best judgment, unless authorization to use such discretion is
withheld.
Revocability of Proxies. Any proxy given pursuant to this solicitation may
be revoked by (i) filing (including by telegram or telecopy) with the Secretary
of Cardinal, before the taking of the vote at the Cardinal Special Meeting, a
written notice of revocation bearing a later date than the date of the proxy or
by giving notice of revocation in open meeting, (ii) duly executing a
later-dated proxy relating to the same shares and delivering (including by
telegram or telecopy) it to the Secretary of Cardinal before the taking of the
vote at the Cardinal Special Meeting or (iii) attending the Cardinal Special
Meeting and voting in person. Cardinal Shareholders who require assistance in
changing or revoking a proxy should contact Cardinal's proxy solicitor, Morrow &
Co., Inc., by mail at 909 Third Avenue, New York, New York 10022, or by
telephone at (800) 566-9061.
Appraisal Rights. If Ohio law requires that Cardinal Shareholders approve
the Merger Agreement, Cardinal Shareholders will be entitled to dissenters'
appraisal rights in connection with the Merger. See "Rights of Dissenting
Shareholders -- Cardinal Shareholders" and "Comparison of Shareholder Rights --
Rights of Dissenting Shareholders."
THE MERGER
GENERAL; EXCHANGE RATIO
Pursuant to the Merger Agreement, each share of Scherer Common Stock issued
and outstanding immediately prior to the Effective Time (as defined below),
other than shares held by Cardinal, Merger Sub and Scherer, if any, which will
be canceled, will be converted into and represent 0.95 of a Cardinal Common
Share.
4
<PAGE> 19
SCHERER OPTIONS
At the Effective Time, each unexpired and unexercised option (each, a
"Scherer Option") to purchase shares of Scherer Common Stock issued pursuant to
Scherer's 1990 Nonqualified Stock Option Plan, Scherer's 1990 Nonqualified
Performance Stock Option Plan A, Scherer's 1990 Nonqualified Performance Stock
Option Plan B, Scherer's 1992 Stock Option Plan, Scherer's 1997 Stock Option
Plan and each of Scherer's agreements with its directors existing on the date of
the Merger Agreement relating to the grant of stock options to such directors
and disclosed in Scherer's publicly filed documents or otherwise provided to
Cardinal (collectively, the "Scherer Stock Plans") will be automatically
converted into an option (a "Cardinal Exchange Option") to purchase that number
of Cardinal Common Shares equal to the number of shares of Scherer Common Stock
issuable immediately prior to the Effective Time upon exercise of the Scherer
Option (without regard to actual restrictions on exercisability) multiplied by
the Exchange Ratio, with an exercise price per share equal to the exercise price
per share which existed under the corresponding Scherer Option divided by the
Exchange Ratio, and with other terms and conditions that are the same as the
terms and conditions of such Scherer Option immediately before the Effective
Time (taking into account any acceleration of vesting, if any, that would result
from the Merger under the terms of the Scherer Stock Plans as in effect on the
date of the Merger Agreement). As of the Scherer Record Date,
shares of Scherer Common Stock were issuable upon the exercise of outstanding
Scherer Options, which options, if not exercised or canceled prior to the
Effective Time, will be converted to become approximately
Cardinal Exchange Options at the Effective Time. The weighted average exercise
price per share of all Scherer Options outstanding as of the Scherer Record Date
is $ per share. Following the Merger and based on an Exchange Ratio of 0.95
and the Scherer Options outstanding as of the Scherer Record Date, the weighted
average exercise price per share of Cardinal Exchange Options issued in
connection with the Merger will be approximately $ per share. Substantially
all of the executive officers and directors of Scherer currently hold Scherer
Options which, if not exercised prior to the Effective Time, will become
Cardinal Exchange Options. See "The Merger -- Interests of Certain Persons in
the Merger" and "The Merger Agreement -- Stock Options."
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective (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 is specified in the certificate of merger. This filing will
be made as soon as practicable following the closing of the Merger which will
occur on the date (the "Closing Date") which is the tenth business day following
the date upon which all conditions set forth in the Merger Agreement have been
satisfied or waived, as the case may be, or such other time as Cardinal and
Scherer may mutually agree. See "The Merger Agreement -- Conditions."
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Cardinal, Merger Sub and Scherer to effect the Merger
are subject to satisfaction or waiver of the following conditions: (i) the
Merger Agreement shall have been approved by the Scherer Stockholders and the
Cardinal Shareholders, if required; (ii) no laws shall have been adopted or
promulgated, and no temporary restraining order, preliminary or permanent
injunction or other order issued by a court or other governmental entity shall
be in effect, having the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger, and no actions, suits, claims,
proceedings or investigations ("Actions") shall be instituted by any
governmental entity which seeks to prevent consummation of the Merger or seeks
material damages in connection with the transactions contemplated hereby which
continues to be outstanding; (iii) the waiting period (and any extension
thereof) applicable to the Merger under the Hart-Scott-Rodino Act of 1976, as
amended (the "HSR Act"), shall have been terminated or shall have expired; (iv)
there shall have been received all required consents, authorizations, clearances
and/or approvals from German competition and any similar German authorities
necessary to consummate the Merger and the transactions contemplated by the
Merger Agreement to the extent required by German law; (v) the Cardinal Common
Shares to be issued in the Merger and such other shares to be reserved for
issuance in connection with the Merger shall have been approved upon official
notice of issuance for listing on the NYSE; (vi) the
5
<PAGE> 20
Registration Statement shall have been declared effective by the Commission
under the Securities Act, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceedings for that purpose shall have been initiated or threatened by the
Commission; and (vii) Cardinal shall have received a letter, in form and
substance reasonably satisfactory to Cardinal, from Deloitte & Touche LLP,
Cardinal's independent auditors ("D&T"), dated the Closing Date, stating that
they concur 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.
The obligations of Cardinal and Merger Sub to effect the Merger are further
subject to the receipt of certain closing certificates and the satisfaction of,
or waiver by Cardinal, of the following conditions: (i) each of the
representations and warranties of Scherer, other than those relating to
capitalization, shall have been true and correct on the date of the Merger
Agreement and shall be true and correct on and as of the Closing Date as though
made on and as of the Closing Date (except for such 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 such 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 (as defined below) on
Scherer (disregarding the Material Adverse Effect qualification in any single
representation and warranty); (ii) the representations and warranties of Scherer
relating to capitalization shall have been true and correct in all material
respects on the date of the Merger Agreement and shall be true and correct in
all material respects on the Closing Date as though made as of the Closing Date
(except for such representations and warranties made as of a specified date, the
accuracy of which will be determined as of the specified date); and (iii)
Scherer shall have performed or complied with all agreements and covenants
required to be performed by it under the Merger Agreement at or prior to the
Closing Date that are qualified as to materiality and shall have performed or
complied in all material respects with all other agreements and covenants
required to be performed by it under the Merger Agreement at or prior to the
Closing Date that are not so qualified as to materiality.
The obligations of Scherer to effect the Merger are further subject to the
receipt of certain closing certificates and the satisfaction of, or waiver by
Scherer, of the following conditions: (i) each of the representations and
warranties of Cardinal and Merger Sub set forth in the Merger Agreement shall
have been true and correct on the date of the Merger Agreement and shall be true
and correct on and as of the Closing Date as though made on and as of the
Closing Date (except for such 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 Cardinal (disregarding the
Material Adverse Effect qualification in any single representation and warranty;
(ii) Cardinal shall have performed or complied with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date that are qualified as to materiality and shall have performed or complied
in all material respects with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
not so qualified as to materiality; (iii) the opinion, dated on or about the
date of and referred to in this Proxy Statement/Prospectus, based on appropriate
representations of Scherer and Cardinal, of Simpson Thacher & Bartlett, counsel
to Scherer, to Scherer to the effect that (a) the Merger will be treated for
U.S. 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"),
and (b) Cardinal, Merger Sub and Scherer will each be a party to the
reorganization within the meaning of Section 368(b) of the Code, shall have been
rendered; (iv) an opinion, dated as of the Closing Date, based on appropriate
representations of Scherer and Cardinal, of Simpson Thacher & Bartlett, counsel
to Scherer, substantially identical to the opinion referred to in the
immediately preceding clause (iii), shall have been rendered; and (v) on or
after the date of the Merger Agreement, Cardinal shall not have undergone a
change of control.
See "The Merger -- Accounting Treatment," "-- Interests of Certain Persons
in the Merger," and "-- Regulatory Approvals" and "The Merger Agreement --
Representations and Warranties," "-- Covenants" and "-- Conditions."
6
<PAGE> 21
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any required approval of the matters presented in
connection with the Merger by the Scherer Stockholders or the Cardinal
Shareholders: (i) by mutual written consent of Cardinal and Scherer, by action
of their respective Boards of Directors; (ii) by either Scherer or Cardinal if
the Effective Time shall not have occurred on or before November 30, 1998,
provided, that the right to terminate the Merger Agreement pursuant to the
provisions described in this clause (ii) is not available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before such
date; (iii) by either Scherer or Cardinal if any governmental entity (a) issues
an order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the Merger
Agreement, and such order, decree, ruling or other action becomes final and
nonappealable or (b) fails to issue an order, decree or ruling or to take any
other action, in the case of each of (a) and (b) which is necessary to fulfill
the closing conditions described under "-- Conditions" above and such denial of
a request to issue such order, decree, ruling or take such other action becomes
final and nonappealable; (iv) by either Scherer or Cardinal if (x) the approval
by the Scherer Stockholders is not obtained by reason of the failure to obtain
the requisite vote of Scherer Stockholders or (y) the approval by the Cardinal
Shareholders, if required, is not obtained by reason of the failure to obtain
the requisite vote of Cardinal Shareholders, in each case upon the taking of
such vote at a duly held meeting; (v) by Cardinal if the Scherer Board of
Directors (1) shall withdraw or modify in any adverse manner the approval of the
Merger Agreement and the transactions contemplated thereby by the Scherer Board
of Directors, (2) shall approve or recommend any Acquisition Proposal (as
defined below) or (3) shall resolve to take any of the actions described in
subclauses (1) or (2) of this clause (v); (vi) by Scherer if it determines to
enter into an Acquisition Agreement (as defined below) with a third party
pursuant to the provisions described in the second paragraph under "The Merger
Agreement -- Acquisition Proposals and Termination Right;" or (vii) by Scherer
if the Cardinal Board of Directors (a) shall withdraw or modify in any adverse
manner the approval of the Merger Agreement and the transactions contemplated
thereby by the Cardinal Board of Directors or (b) shall resolve to take the
action specified in subclause (a) of this clause (vii).
Under certain circumstances described in detail below (see "The Merger
Agreement -- Termination"), in the event of termination of the Merger Agreement,
Cardinal and Scherer have agreed that Scherer will pay to Cardinal (A) an amount
in cash equal to the aggregate amount of Cardinal's fees and expenses incurred
in connection with pursuing the transactions contemplated by the Merger
Agreement, up to but not in excess of an amount equal to $4 million in the
aggregate and (B) a termination fee in an amount equal to $75 million (such
amounts collectively, the "Termination Fee").
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,
among other matters, Cardinal's receipt of a letter, in form and substance
reasonably satisfactory to Cardinal, from D&T to the effect that the Merger will
qualify as a pooling-of-interests. See "The Merger -- Accounting Treatment."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Scherer. The Scherer Board of Directors, in the course of reaching its
decision to approve the Merger Agreement and the transactions contemplated
thereby, consulted with Scherer's legal and financial advisors as well as with
Scherer's management and considered a number of factors, including the following
material factors (the order does not necessarily reflect the relative
significance):
X The fact that the per share consideration to be received by Scherer
Stockholders in the Merger represents a substantial premium over the
recent market prices of Scherer Common Stock prior to the announcement of
the signing 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 Scherer Stockholders was approximately 18%
over the closing price of the Scherer Common Stock on
7
<PAGE> 22
such date, and approximately 41% over the average closing price of the Scherer
Common Stock for the 90 trading days prior to the date of the announcement;
X Cardinal Common Shares are believed by the Scherer Board of Directors to
represent an attractive investment opportunity for the Scherer
Stockholders based on Cardinal's long track record of consistently
generating significant sales and earnings growth, and stock price
appreciation for its Shareholders. In the opinion of the Scherer Board of
Directors and management, Cardinal's prospects for continued significant
growth in sales and earnings are strong and will be enhanced as a result
of the Merger;
X Cardinal's extensive relationships with major pharmaceutical and
biotechnology companies are expected to provide Scherer with greater
access to the key decision makers of these companies, bringing additional
commercial opportunities to Scherer;
X Cardinal possesses important supply chain information concerning product
demand, movement and pricing. This information will be valuable in
establishing Scherer's business strategies and determining how to
maximize the value placed on Scherer's technologies and services;
X Cardinal's contract packaging capabilities combined with Scherer's drug
delivery technologies and manufacturing resources will provide
opportunities to offer customers a more complete and cost-effective
package of services, enabling Scherer to further distinguish itself from
its competitors and gain additional business;
X The fact that the Merger will result in a financially stronger company,
providing a greater ability to fund research and development and
acquisitions of drug delivery businesses and technologies;
X The ability to collaborate with other Cardinal businesses to provide a
one-stop service from formulation through distribution of finished
products on behalf of marketers of pharmaceutical and other products;
X The opportunity for Scherer Stockholders to continue as shareholders of a
healthcare company that has greater financial and market strength than
Scherer alone, and has a focus on shareholder returns, strategic
objectives and an operating philosophy compatible with those of Scherer's
management;
X The presentation and opinion of Lehman Brothers, Scherer'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 Scherer Stockholders;
X The terms and conditions of the Merger Agreement, which the Scherer Board
of Directors and management view as fair to, and in the best interests
of, Scherer and the Scherer Stockholders; and
X The fact that the Merger is expected to be a tax-free transaction for
Scherer Stockholders and that it is expected to be treated as a
pooling-of-interests transaction for financial reporting and accounting
purposes.
The Scherer Board of Directors also considered a number of potential risks
and disadvantages relating to the Merger, including the following material risks
or material adverse effects on Scherer Stockholders (the order does not
necessarily reflect the relative significance):
X The difficulties and management distractions inherent in completing the
Merger and then integrating two large and geographically dispersed
operations which operate in different segments of the pharmaceutical
services industry, and the risk that the benefits sought from the Merger
might not be fully achieved;
X The risk that the Merger might not be consummated, and the possible
associated implications to investor relations and employee morale; and
X The time, management resources and expenses required to be incurred by
Scherer in connection with the Merger transaction.
The Scherer Board believed that these potential risks and disadvantages
were outweighed by the potential benefits anticipated to be realized from the
Merger.
8
<PAGE> 23
The foregoing discussion of the material factors considered by the Scherer
Board is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of the Merger, the Scherer 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. See "The Merger --
Reasons for the Merger; Recommendations of the Boards of Directors -- Scherer."
THE SCHERER BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST
INTERESTS OF, SCHERER AND THE SCHERER STOCKHOLDERS. ACCORDINGLY, THE SCHERER
BOARD OF DIRECTORS RECOMMENDS THAT SCHERER STOCKHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE SCHERER MERGER PROPOSAL AND THE SCHERER ADJOURNMENT
PROPOSAL.
Cardinal. In the course of reaching its decision to approve the Merger
Agreement and the transactions contemplated thereby, the Cardinal Board of
Directors consulted with Cardinal's legal advisors as well as with Cardinal's
management, and considered a number of factors, including the following material
factors (the order does not necessarily reflect the relative significance):
X Scherer's long-standing reputation within the pharmaceutical industry for
providing quality drug delivery system technologies to pharmaceutical
manufacturers, which is consistent with Cardinal's strategy of aligning
itself with established and recognized industry leaders and is expected
to strengthen Cardinal's position as an important supplier of
pharmaceutical services along the supply channel;
X The combination of Scherer's upstream connectivity with the manufacturer
with Cardinal's downstream supply chain presence and market knowledge,
which Cardinal believes will create an unmatched service offering for
manufacturers;
X The opportunity for Cardinal to continue to expand into higher margin
service businesses;
X Scherer's substantial international operations, which complement
Cardinal's identification of international markets as an area of future
growth;
X Scherer's extensive pipeline of new products that are expected to be
introduced in upcoming years;
X The addition of Scherer's seasoned management team, with their technical
expertise and significant manufacturer contacts;
X The opportunity to combine Scherer's drug development and manufacturing
expertise with Cardinal's existing contract packaging and distribution
capabilities, enabling the combined company to create a streamlined drug
delivery/packaging/distribution system that would eliminate wasted steps,
save costs and shorten lead times; and
X That it is a condition to the consummation of the Merger that the Merger
be treated as a pooling-of-interests for financial reporting and
accounting purposes, therefore adding no goodwill to Cardinal's balance
sheet.
Although the Cardinal Board of Directors has determined that the Merger is
fair to, and in the best interests of, Cardinal Shareholders, all business
combinations, including the Merger, also include risks and disadvantages. With
respect to the Merger, potential risks or disadvantages to Cardinal Shareholders
identified by the Cardinal Board of Directors and management include (the order
does not necessarily reflect the relative significance):
X The time and resources required to complete the Merger, with consummation
of the Merger being subject to certain conditions (see "The Merger
Agreement -- Conditions");
X The difficulties inherent in combining and integrating the two companies,
which currently operate in different segments of the pharmaceutical
services business; and
X The potential distraction caused by a transaction of this magnitude and
the attendant lost opportunities resulting from management's focus on
completing the Merger and integrating Cardinal's and Scherer's
businesses.
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<PAGE> 24
The Cardinal Board of Directors believed that these potential risks and
disadvantages were outweighed by the potential benefits anticipated to be
realized from the Merger.
The foregoing discussion of the material factors considered by the Cardinal
Board of Directors is not intended to be exhaustive. In view of the wide variety
of factors considered in connection with its evaluation of the Merger, the
Cardinal Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative or specific weights to the
specific factors considered in reaching its determinations. In addition,
individual directors may have given different weights to different factors. See
"The Merger -- Reasons for the Merger; Recommendations of the Boards of
Directors -- Cardinal."
THE CARDINAL BOARD OF DIRECTORS 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 THE CARDINAL SHAREHOLDERS. ACCORDINGLY, THE CARDINAL
BOARD OF DIRECTORS RECOMMENDS THAT CARDINAL SHAREHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE CARDINAL ADJOURNMENT PROPOSAL.
OPINION OF SCHERER'S FINANCIAL ADVISOR
On May 17, 1998, Lehman Brothers delivered to the Scherer Board of
Directors its written opinion (the "Lehman Opinion") to the effect that the
Exchange Ratio is fair, from a financial point of view, to Scherer Stockholders.
A copy of the Lehman Opinion, which sets forth a description of the assumptions
made, matters considered and limits of its review, is attached to this Joint
Proxy Statement/Prospectus as Annex B. Scherer Stockholders are urged to read
carefully the Lehman Opinion in its entirety. See "The Merger -- Opinion of
Scherer's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Scherer Board of Directors with
respect to the Merger Agreement, Scherer Stockholders should be aware that
certain officers and directors of Scherer (or their affiliates) have employment
agreements, stock options, directors' and officers' indemnification and
insurance policies and employment opportunities, and that Mr. Frederick Frank
and Mr. James A. Stern, each a director of Scherer, are a Vice Chairman and the
Chairman, respectively, of Scherer's financial advisors for the Merger, which
give them interests in the Merger that are different from and in addition to the
interests of Scherer Stockholders generally. See "The Merger -- Interests of
Certain Persons in the Merger."
The Scherer Board of Directors recognized these interests and took these
interests into account in approving the Merger Agreement and the transactions
contemplated thereby.
REGULATORY APPROVALS
Under the HSR Act and the rules that have been promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Merger may not be consummated
unless certain filings have been submitted to the Antitrust Division of the
United States Department of Justice (the "Antitrust Division") and the FTC and
certain waiting period requirements have been satisfied. On May 22, 1998,
Cardinal and Scherer submitted the required filings to the FTC and the Antitrust
Division. The waiting period under the HSR Act is currently scheduled to expire
on June 21, 1998.
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 Scherer or Cardinal. Private
parties and state attorneys general may also bring actions under the antitrust
laws under certain circumstances. Scherer 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.
Consummation of the Merger is also subject to clearance by the German
Federal Cartel Office (the "Cartel Office") under the German competition laws.
The initial waiting period under German competition
10
<PAGE> 25
laws is one month (unless sooner terminated), extendable for another three
months if the Cartel Office seeks to further investigate the Merger. Cardinal
and Scherer will be submitting the required filings to the Cartel Office.
Other than as described in this Joint Proxy Statement/Prospectus,
consummation of the Merger does not require the approval of any federal, state
or foreign agency. Certain state, federal and foreign filings will be required
in connection with consummation of the Merger.
EXCHANGE PROCEDURES
If the Merger is consummated, as soon as practicable after the Effective
Time, a letter of transmittal will be mailed or delivered to each Scherer
Stockholder to be used in forwarding certificates evidencing such holder's
shares of Scherer Common Stock for surrender and exchange for certificates
evidencing Cardinal Common Shares to which such holder has become entitled and,
if applicable, cash in lieu of fractional Cardinal Common Shares. After receipt
of such letter of transmittal, each holder of certificates formerly representing
shares of Scherer Common Stock should surrender such certificates to ChaseMellon
Shareholder Services LLC, the exchange agent for the Merger, pursuant to and in
accordance with the instructions accompanying such letter of transmittal, and
each holder will receive in exchange therefor certificates evidencing the whole
number of Cardinal Common Shares to which he is entitled and any cash which may
be payable in lieu of fractional Cardinal Common Shares. See "The Merger
Agreement -- Merger Consideration." Such letter of transmittal will be
accompanied by instructions specifying other details of the exchange. SCHERER
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER
OF TRANSMITTAL.
RISK FACTORS
Cardinal Shareholders and Scherer Stockholders should consider carefully
the factors discussed under "Risk Factors" and elsewhere in this Joint Proxy
Statement/Prospectus in evaluating the proposed Merger and the transactions
contemplated thereby.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization so that no gain or
loss will be recognized by Scherer Stockholders (except to the extent such
holders receive cash in lieu of fractional Cardinal Common Shares), Scherer or
Cardinal for United States federal income tax purposes. Scherer has received an
opinion, dated the date hereof, of Simpson Thacher & Bartlett to the effect that
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, and that each of Scherer, Cardinal and Merger Sub will be a party
to the reorganization within the meaning of Section 368(b) of the Code.
Scherer's obligation to consummate the Merger is conditioned upon the receipt by
Scherer of an opinion to the same effect from Simpson Thacher & Bartlett dated
as of the Closing Date. See "Certain United States Federal Income Tax
Consequences."
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the Merger, shares of Scherer Common Stock, which are
governed by Delaware Law (as defined below) and Scherer's Certificate of
Incorporation (the "Scherer Certificate") and Bylaws (the "Scherer Bylaws"),
will be converted into the right to receive Cardinal Common Shares, which are
governed by Ohio Law (as defined below), Cardinal's Amended and Restated
Articles of Incorporation, as amended (the "Cardinal Articles"), and Cardinal's
Restated Code of Regulations, as amended (the "Cardinal Regulations"). There are
differences between the rights of Scherer Stockholders and the rights of
Cardinal Shareholders. These differences result from differences between
Delaware Law and Ohio Law and differences between the governing instruments of
Scherer and Cardinal. For a discussion of the various differences between the
rights of Scherer Stockholders and Cardinal Shareholders, see "Comparison of
Shareholder Rights."
11
<PAGE> 26
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
SCHERER SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary historical financial information of Scherer set forth below has
been derived from and should be read in conjunction with the 1998 Scherer Form
10-K and other financial information of Scherer incorporated by reference in
this Joint Proxy Statement/Prospectus. See "Incorporation of Certain Documents
by Reference."
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
-------- ----------- ----------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................... $449,297 $536,682 $571,710 $588,699 $620,716
Cost of sales........................... 287,389 339,923 375,088 391,648 409,162
Selling and administrative expenses..... 61,427 71,661 72,485 72,752 78,187
Research and development expenses....... 13,090 21,276 23,387 19,979 25,386
Restructuring and other charges(1)...... 4,478 -- 33,804 -- --
Operating income(1)..................... 82,913 103,822 66,946 104,320 107,981
Interest expense........................ 22,480 13,758 12,595 11,693 9,263
Net income from continuing operations... 30,914 44,859 30,703 56,968 69,746
Net income(2)........................... 15,094 44,859 30,703 56,968 69,746
Depreciation and amortization(3)........ 25,314 27,449 29,944 31,153 27,414
Capital additions....................... 39,503 54,076 56,195 69,887 87,921
PER COMMON SHARE(4):
Basic earnings from continuing
operations............................ $ 1.33 $ 1.93 $ 1.31 $ 2.42 $ 2.89
Basic earnings.......................... $ 0.69 $ 1.93 $ 1.31 $ 2.42 $ 2.89
Diluted earnings from continuing
operations(1)......................... $ 1.27 $ 1.83 $ 1.25 $ 2.31 $ 2.81
Diluted earnings........................ $ 0.62 $ 1.83 $ 1.25 $ 2.31 $ 2.81
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(5)...................... $ 89,681 $113,656 $110,794 $113,854 $127,338
Total assets............................ 613,414 711,373 707,381 728,245 821,597
Long-term debt, including current
portion............................... 189,277 185,410 169,000 142,630 168,654
Minority interests...................... 35,354 42,706 37,268 35,762 25,157
Shareholders' equity.................... 214,710 273,646 300,360 353,029 398,877
</TABLE>
- ---------------
(1) For the year-ended March 31, 1996, includes restructuring and other charges
totaling $33.8 million before tax effects ($0.94 per diluted share after tax
effects). Those charges include approximately $17.1 million of cash
expenses, primarily for severance and other termination benefits and
approximately $16.7 million for fixed asset write-downs and other non-cash
costs primarily in connection with certain facility closures. For the year
ended March 31, 1994, includes charges totaling $4.5 million for the accrual
of a settlement of Paco Development Partners (PDP II) litigation, which had
been outstanding since 1990 and the write-down of buildings and property
related to the relocation of operations in Australia.
(2) Includes extraordinary loss of $15.8 million from debt extinguishment for
the year ended March 31, 1994.
(3) Includes amortization of deferred financing costs and debt discount of $0.4
million, $0.3 million, $0.4 million, $0.5 million and $1.3 million for the
years ended March 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(4) Basic and diluted earnings per common share has replaced primary and fully
diluted earnings per common share, respectively, in accordance with
Statement of Accounting Standards No. 128, "Earnings per Share".
12
<PAGE> 27
(5) Includes notes payable but does not include current portion of long-term
debt.
CARDINAL SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary historical financial information of Cardinal set forth below
has been derived from and should be read in conjunction with the 1997 Cardinal
Form 10-K and other financial information of Cardinal incorporated by reference
in this Joint Proxy Statement/Prospectus. See "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1)(2) NINE MONTHS ENDED
--------------------------------------------------------------- MARCH 31,(1)(3)
MARCH 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net revenues.................. $5,102,513 $6,374,734 $8,472,302 $9,407,591 $10,968,042 $8,177,382 $9,381,955
Earnings available for Common
Shares before cumulative
effect of change in
accounting principle........ 73,124 88,884 146,587 127,240 184,599 122,833 176,532
Earnings per Common Share
before cumulative effect of
change in accounting
principle(4):
Basic..................... $ 0.91 $ 0.97 $ 1.46 $ 1.22 $ 1.72 $ 1.15 $ 1.61
Diluted................... 0.80 0.89 1.40 1.20 1.69 1.13 1.58
Cash dividends declared per
Common Share(4)............. $ 0.05 $ 0.07 $ 0.08 $ 0.08 $ 0.095 $ 0.07 $ 0.08
BALANCE SHEET DATA:
Total assets.................. $1,411,323 $1,789,455 $2,363,752 $2,959,401 $ 3,091,750 $3,039,959 $3,973,029
Long-term obligations, less
current portion............. 305,337 247,715 267,677 320,327 277,766 279,539 273,267
Redeemable preferred stock.... 20,400 -- -- -- -- -- --
Shareholders' equity.......... $ 444,291 $ 617,464 $ 866,474 $1,095,225 $ 1,334,730 $1,261,442 $1,547,402
</TABLE>
- ---------------
(1) Amounts reflect business combinations in all periods presented. 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 which were accounted for as purchase
transactions, the pro forma effect as if these transactions had occurred at
the beginning of the respective periods would not have been significantly
different.
(2) The Summary results for fiscal 1993, 1994, 1996 and 1997 include the impact
of certain mergers-related costs and special charges as follows: In fiscal
1997, Cardinal recorded mergers-related costs associated with the business
combinations with PCI Services, Inc. ("PCI") in October 1996 (the "PCI
Merger"), and Owen Healthcare, Inc. ("Owen") in March 1997 (the "Owen
Merger") ($46.2 million) and additional integration costs related to the
mergers with Pyxis Corporation ("Pyxis") in May 1996 (the "Pyxis Merger")
and Medicine Shoppe International, Inc. ("MSI") in November 1995 (the "MSI
Merger") ($4.7 million). In fiscal 1996, Cardinal recorded mergers-related
costs of approximately $49.2 million in connection with the MSI and Pyxis
mergers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 of "Notes to Consolidated Financial
Statements" in the 1997 Cardinal Form 10-K, incorporated by reference in
this Joint Proxy Statement/Prospectus, for analysis of the impact of these
mergers-related costs. In fiscal 1994, Cardinal recorded mergers-related
costs of approximately $35.9 million in connection with the business
combination of Cardinal and Whitmire Distribution Corporation ("Whitmire")
in February 1994 (the "Whitmire Merger"). During fiscal 1993, Cardinal
received a termination fee of approximately $13.5 million, resulting from
the termination by Durr-Fillauer Medical, Inc. of its agreement to merge
with Cardinal. During fiscal 1993, Cardinal also recorded special charges
totaling approximately $13.7 million, primarily related to the closing of
certain non-core operations and the restructuring of certain distribution
13
<PAGE> 28
operations. In addition, the modifications of the terms of certain Whitmire
stock options in fiscal 1993 resulted in a one-time stock option
compensation charge of approximately $5.2 million.
(3) The Summary results for the nine months ended March 31, 1998 and 1997
include the impact of certain mergers-related costs and special charges as
follows: During the nine months ended March 31, 1998, Cardinal recorded
mergers-related costs associated with the business combinations with
MediQual Systems, Inc. ("MediQual") in February 1998 (the "MediQual Merger")
($2.3 million), transaction costs incurred to date in connection with the
pending merger with Bergen (the "Bergen Merger") ($13.3 million) and
additional integration costs related to the various mergers effected in
fiscal 1997 and 1996 ($10.9 million). During the nine months ended March 31,
1998, Cardinal also recorded special charges totaling approximately $8.6
million, primarily related to the rationalization of its distribution
operations. During the nine months ended March 31, 1997, transaction costs
associated with the PCI and Owen mergers were recorded as well as costs
related to integrating the operations of the merged companies as a result of
the various mergers effected in fiscal 1997 and 1996. These costs totaled
approximately $49.1 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 5 of "Notes to Consolidated Financial Statements" in
the March 1998 Cardinal Form 10-Q, incorporated by reference in this Joint
Proxy Statement/Prospectus, for analysis of the impact of these
mergers-related costs.
(4) Earnings and cash dividends per share have been adjusted to give retroactive
effect for stock splits, including the three-for-two split paid on December
16, 1996.
14
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED COMBINED SUMMARY FINANCIAL INFORMATION
The impact of the MediQual Merger, which was completed on February 18,
1998, is not significant on an historical basis and Cardinal's historical prior
period financial statements have not been restated. Upon consummation of either
the Merger or the Bergen Merger, Cardinal's historical financial statements will
be restated for the historical results of MediQual, as part of the restatement
required for either of those mergers.
Cardinal's historical fiscal year ends on June 30, MediQual's historical
fiscal year ended on December 31, Scherer's historical fiscal year ends on March
31 and Bergen's historical fiscal year ends on September 30. For purposes of
combining MediQual's, Scherer's and Bergen's historical financial information
with Cardinal's in the pro forma condensed combined statements of earnings
herein, the financial information of Cardinal for the fiscal years ended June
30, 1997, 1996 and 1995 have been combined with MediQual's financial information
for the twelve months ended June 30, 1997 and fiscal years ended December 31,
1996 and 1995, Scherer's financial information for the fiscal years ended March
31, 1997, 1996 and 1995 and Bergen's financial information for the fiscal years
ended September 30, 1997, 1996 and 1995, respectively. Cardinal's financial
information for the nine months ended March 31, 1998 and 1997 have been combined
with MediQual's financial information for the eight and nine months ended
February 28, 1998 and March 31, 1997, respectively, Scherer's financial
information for the nine months ended March 31, 1998 and December 31, 1996,
respectively, and Bergen's financial information for the nine months ended March
31, 1998 and June 30, 1997, respectively. MediQual's financial information for
the month of March 1998 has been consolidated in Cardinal's financial results
for that period as a result of the completion of the MediQual Merger in February
1998.
The financial results of MediQual for the six months ended December 31,
1996 are included in the pro forma financial statements for both fiscal years
ended June 30, 1997 and 1996. MediQual's net revenues and net earnings for the
six months ended December 31, 1996 were approximately $5.3 million and $0.9
million, respectively. Scherer's financial information for the three months
ended June 30, 1997 is excluded from the pro forma financial statements.
Scherer's net revenues and net earnings for the three months ended June 30, 1997
were approximately $149.1 million and $14.2 million, respectively. In addition,
the financial results of Bergen for the quarter ended September 30, 1997 are
included in the pro forma financial statements for both the fiscal year ended
June 30, 1997 and the nine months ended March 31, 1998. Bergen's net revenues
and net earnings for the three months ended September 30, 1997 were
approximately $3.0 billion and $20.8 million, respectively. The unaudited pro
forma condensed combined summary financial information is presented for
illustration purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the MediQual Merger,
the Merger and the Bergen Merger had been consummated at such time, nor is it
necessarily indicative of future operating results or financial position. The
unaudited pro forma condensed combined summary financial information should be
read in conjunction with the "Unaudited Pro Forma Condensed Combined Financial
Information" included elsewhere in this Joint Proxy Statement/ Prospectus. The
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 any of these mergers or
any future merger-related expenses, as discussed in Note 6 below and in Note 2
to the "Unaudited Pro Forma Condensed Combined Financial Information" herein.
15
<PAGE> 30
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED (1) -------------------------
--------------------------------------- MARCH 31, (1) (2)
JUNE 30, JUNE 30, JUNE 30, -------------------------
1995 1996 (2) 1997 (2) 1997 1998
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net revenues(7)................. $17,467,565 $19,933,000 $23,228,482 $17,264,853 $19,424,108
Net Earnings, excluding
estimated Future Merger
expenses(6)(7)................ $ 253,926 $ 233,775 $ 325,875 $ 225,900 $ 294,947
Earnings per Common Share,
excluding estimated Future
Merger expenses(3)(4)(6)(7):
Basic......................... $ 1.57 $ 1.41 $ 1.93 $ 1.34 $ 1.72
Diluted....................... 1.52 1.38 1.89 1.31 1.69
Cash dividends declared per
Common Share(5)(7)............ $ 0.08 $ 0.08 $ 0.095 $ 0.07 $ 0.08
BALANCE SHEET DATA:
Total Assets(7)................. $ 7,821,023
Long-term obligations, less
current portion(7)............ 1,044,679
Shareholders' equity(6)(7)...... $ 2,619,632
</TABLE>
- ---------------
(1) Amounts reflect business combinations in all periods presented.
(2) Amounts include the effect of mergers-related costs and other special
charges recorded by Cardinal in fiscal years ended June 30, 1996 and 1997
and the nine-month periods ended March 31, 1997 and 1998 as discussed in
Notes 2 and 3 of "-- Summary Historical and Unaudited Pro Forma Condensed
Combined Summary Financial Information -- Cardinal Summary Historical
Financial Information", by Scherer in fiscal year ended March 31, 1996 as
discussed in Note 1 of "-- Summary Historical and Unaudited Pro Forma
Condensed Combined Summary Financial Information -- Scherer Summary
Historical Financial Information", and by Bergen in fiscal year ended
September 30, 1997 and the nine months ended June 30, 1997 and March 31,
1998 as discussed in Note 4 of "Unaudited Pro Forma Condensed Combined
Financial Information -- Notes to Pro Forma Condensed Combined Financial
Information." The impact of the mergers-related costs and other special
charges is to reduce pro forma net earnings by $60.0 million and $40.0
million in fiscal 1996 and 1997, respectively, and to reduce pro forma net
earnings by $38.8 million and $36.8 million for the nine-month periods ended
March 31, 1997 and 1998, respectively. The impact was also to reduce pro
forma diluted earnings per Cardinal Common Share by $0.35 , $0.23, $0.23,
and $0.21 in fiscal 1996 and 1997, and the nine months ended March 31, 1997
and 1998, respectively.
(3) Earnings per Common Share have been adjusted to give retroactive effect for
stock splits, including the three-for-two stock split paid by Cardinal in
December 1996.
(4) Earnings per Common Share amounts assume the conversion of each share of
Scherer Common Stock into 0.95 Cardinal Common Shares, based on the Exchange
Ratio. See "The Merger Agreement -- Merger Consideration." In addition,
Earnings per Common Share amounts assume the conversion of each share of
common stock of Bergen into 0.775 Cardinal Common Shares. See "Unaudited Pro
Forma Condensed Combined Financial Information."
(5) Cash dividends declared per Common Share represent the historical dividends
of Cardinal for the period presented and exclude all dividends paid by all
entities with which Cardinal has merged. Cash dividends declared per Common
Share have been adjusted to give retroactive effect to the three-for-two
stock split paid by Cardinal in December 1996.
(6) Amount does not reflect the pro forma effect of future merger expenses for
the Merger or the Bergen Merger (collectively, the "Future Mergers"). In
connection with the Future Mergers, the companies expect to incur investment
banking, legal, accounting and other related transaction costs and fees.
16
<PAGE> 31
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 Future Mergers.
Based upon the information currently available, the total amount of the
merger-related charges to be recognized in connection with the Merger is
estimated to be between $ and $ million, after tax. 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, the merger expenses can only be
estimated at this time, and are subject to revision as further information
becomes available.
In connection with the Bergen Merger, the companies have incurred
investment banking, legal, accounting and other related transaction costs
and fees, and expect to incur additional such costs and fees in the future.
During the nine months ended March 31, 1998, Cardinal and Bergen expensed
$13.3 million ($13.1 million, net of tax) and $9.8 ($9.8 million, net of
tax), respectively, related to transaction costs incurred to date. In
addition to such incurred costs, 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
Bergen Merger. Based upon the information currently available, the total
amount of the merger-related charges to be recognized in connection with
the Bergen Merger (including those recorded to date) is estimated to be
between $100 and $130 million, after tax. These merger-related expenses
will be charged to expense in the period in which the Bergen Merger is
consummated, or in subsequent periods when incurred. Since the Bergen
Merger has not yet been consummated, the merger expenses can only be
estimated at this time, and are subject to revision as further information
becomes available.
The accounting policies of Cardinal, Scherer and Bergen 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.
(7) The following pro forma condensed combined summary financial information
gives effect to the Merger, including the restatement for the historical
results of MediQual. It does not reflect the impact of the Bergen Merger,
which is included in the information presented above. See the "Comparative
Per Share Data" and the "Unaudited Pro Forma Condensed Combined Financial
Information" and the notes thereto presented elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED ------------------------
--------------------------------------- MARCH 31,
JUNE 30, JUNE 30, JUNE 30, ------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net Revenues................ $9,019,958 $9,990,303 $11,567,987 $8,624,400 $9,861,446
Net Earnings, excluding
estimated merger
expenses.................. 189,984 160,242 244,196 164,993 234,030
Earnings per Common Share,
excluding estimated merger
expenses:
Basic..................... $ 1.54 $ 1.27 $ 1.88 $ 1.27 $ 1.76
Diluted................... 1.48 1.23 1.83 1.24 1.73
Cash dividends declared per
Common Share.............. $ 0.08 $ 0.08 $ 0.095 $ 0.07 $ 0.08
BALANCE SHEET DATA:
Total Assets................ $4,794,626
Long-term obligations, less
current portion........... 441,430
Shareholders' equity........ $1,946,279
</TABLE>
17
<PAGE> 32
COMPARATIVE PER SHARE DATA
Set forth below are earnings, cash dividends declared and book value per
share data for Cardinal and Scherer on both historical and pro forma combined
bases and on a per share equivalent pro forma combined basis for Scherer. Pro
forma combined earnings per share are derived from the "Unaudited Pro Forma
Condensed Combined Financial Information" presented elsewhere in this Joint
Proxy Statement/Prospectus, which gives effect to the Merger under the
pooling-of-interests accounting method, including the restatement for the
historical results of MediQual. 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 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 estimated Cardinal
Common Shares to be issued in the Merger for outstanding shares of Scherer
Common Stock at the Effective Time. The per share equivalent pro forma combined
data for shares of Scherer Common Stock is based on the assumed conversion of
each share of Scherer Common Stock into 0.95 Cardinal Common Shares based upon
the Exchange Ratio. See "The Merger Agreement -- Merger Consideration." The
information set forth below should be read in conjunction with the respective
audited and unaudited financial statements of Cardinal and Scherer incorporated
by reference and the "Unaudited Pro Forma Condensed Combined Financial
Information" and the notes thereto presented elsewhere herein. See
"Incorporation of Certain Documents by Reference." The information set forth
below does not reflect the impact of the Bergen Merger, which is included in the
information presented in the "Unaudited Pro Forma Condensed Combined Summary
Financial Information" and the "Unaudited Pro Forma Condensed Combined Financial
Information" and the notes thereto presented elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31,
------------------------
1996 1997 1998
----- ----- ------
<S> <C> <C> <C>
SCHERER -- HISTORICAL(1)
Earnings per share:
Basic..................................................... $1.31 $2.42 $ 2.89
Diluted................................................... 1.25 2.31 2.81
Book value per share........................................ 16.62
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, MARCH 31,
------------------------ ---------------
1995 1996 1997 1997 1998
----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
CARDINAL -- HISTORICAL(1)
Earnings per Common Share:
Basic.......................................... $1.46 $1.22 $ 1.72 $1.15 $ 1.61
Diluted........................................ 1.40 1.20 1.69 1.13 1.58
Cash dividends declared per Common Share......... 0.08 0.08 0.095 0.07 0.08
Book value per share............................. 12.26 14.05
CARDINAL AND SCHERER -- PRO FORMA
COMBINED(1)(2)(3)
Earnings per Common Share, excluding estimated
Future Merger expenses:
Basic.......................................... $1.54 $1.27 $ 1.88 $1.27 $ 1.76
Diluted........................................ 1.48 1.23 1.83 1.24 1.73
Cash dividends declared per Common Share(4)...... 0.08 0.08 0.095 0.07 0.08
Book value per share(2).......................... 12.84 14.64
</TABLE>
18
<PAGE> 33
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, MARCH 31,
------------------------ ---------------
1995 1996 1997 1997 1998
----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
EQUIVALENT PRO FORMA COMBINED PER SCHERER
SHARE(1)(2)(3)
Earnings per Common Share, excluding estimated
Future Merger expenses:
Basic.......................................... 1.46 1.21 1.79 1.21 1.67
Diluted........................................ 1.41 1.17 1.74 1.18 1.64
Cash dividends declared per Common Share(4)...... 0.08 0.08 0.09 0.07 0.08
Book value per share(2).......................... 12.20 13.91
</TABLE>
- ---------------
(1) Scherer's Historical Earnings per Common Share, Cardinal's Historical
Earnings per Common Share, the Pro Forma Combined Earnings per Common Share
and the Equivalent Pro Forma Combined Earnings Per Common Share reflect the
effect of mergers-related costs and other special charges recorded by
Scherer in its fiscal year ended March 31, 1996 as discussed in Note 1 of
"-- Summary Historical and Unaudited Pro Forma Condensed Combined Summary
Financial Information -- Scherer Summary Historical Financial Information"
and by Cardinal in fiscal years ended June 30, 1996 and 1997 and the
nine-month periods ended March 31, 1997 and 1998 as discussed in Notes 2 and
3 of "-- Summary Historical and Unaudited Pro Forma Condensed Combined
Summary Financial Information -- Cardinal Summary Historical Financial
Information". The effect of such mergers-related costs and other special
charges is to reduce the Cardinal and Scherer Pro Forma Combined Earnings
per Common Share, diluted Earnings per Common Share by $0.46 and $0.27 in
fiscal 1996 and 1997, respectively, and by $0.27 and $0.20 for the nine
months ended March 31, 1997 and 1998, respectively. The effect of such
mergers-related costs and other special charges is to reduce the Equivalent
Pro Forma Combined Per Scherer Share, diluted Earnings Per Common Share by
$0.44 and $0.26 in fiscal 1996 and 1997, respectively, and by $0.25 and
$0.19 for the nine months ended March 31, 1997 and 1998, respectively.
(2) 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, 1995, 1996 and 1997 combined
with Scherer for the fiscal years ending March 31, 1995, 1996 and 1997 and
MediQual for the fiscal years ended December 31, 1995 and 1996 and the
twelve months ended June 30, 1997, respectively. In addition, the financial
information of Cardinal for the nine months ended March 31, 1997 and 1998 is
combined with Scherer for the nine months ended December 31, 1996 and March
31, 1998 and MediQual for the nine months ended March 31, 1997 and the eight
months ended February 28, 1998, respectively. MediQual's financial
information for the month of March 1998 has been consolidated in Cardinal's
financial results for that period, as a result of the completion of the
MediQual Merger in February 1998. The book value per share information as of
June 30, 1997 is calculated based on Cardinal's balance sheet as of June 30,
1997, Scherer's balance sheet as of March 31, 1997 and MediQual's balance
sheet as of June 30, 1997. The book value per share information as of March
31, 1998 is calculated based on the Cardinal and Scherer balance sheets as
of March 31, 1998.
(3) Amounts do not reflect the pro forma effect of merger expenses for the
Future Mergers. In connection with the Future Mergers, 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
Future Mergers.
Based upon the information currently available, the total amount of the
merger-related charges to be recognized in connection with the Merger is
estimated to be between $ and $ million, after tax. 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,
19
<PAGE> 34
the merger expenses can only be estimated at this time, and are subject to
revision as further information becomes available.
The accounting policies of Cardinal and Scherer 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) 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 entities with which Cardinal has merged. Pro Forma
Combined Cash Dividends declared per Common Share have been adjusted to give
retroactive effect to the three-for-two stock split paid by Cardinal in
December 1996.
20
<PAGE> 35
MARKET PRICE AND DIVIDEND DATA
The following table reflects (i) the range of the reported high and low
closing sale prices of Cardinal Common Shares on the NYSE Composite Tape and the
per share dividends paid thereon and (ii) the range of the reported high and low
closing sale prices of Scherer Common Stock on the NYSE Composite Tape, in each
case for the calendar quarters indicated. No dividends were paid on the Scherer
Common Stock for the calendar quarters indicated. The information in the table
has been adjusted to reflect retroactively all applicable stock splits.
<TABLE>
<CAPTION>
CARDINAL SCHERER
COMMON SHARES COMMON STOCK
----------------------------- ----------------
CALENDAR YEAR HIGH LOW DIVIDENDS HIGH LOW
- ------------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C>
1995:
First quarter................................ $33.92 $29.50 $0.02 $50.25 $42.38
Second quarter............................... 31.67 28.17 0.02 50.25 41.13
Third quarter................................ 37.67 29.17 0.02 47.00 37.25
Fourth quarter............................... 38.58 34.08 0.02 49.13 40.13
1996:
First quarter................................ $42.83 $35.00 $0.02 $49.13 $37.75
Second quarter............................... 50.17 40.17 0.02 45.00 39.00
Third quarter................................ 55.08 44.67 0.02 50.63 39.50
Fourth quarter............................... 58.38 51.92 0.02 51.13 43.38
1997:
First quarter................................ $64.13 $54.38 $0.025 $62.00 $49.50
Second quarter............................... 62.00 51.63 0.025 56.50 44.50
Third quarter................................ 71.06 54.63 0.025 63.19 50.25
Fourth quarter............................... 77.81 70.00 0.025 65.50 55.19
1998:
First quarter................................ $88.19 $70.00 $0.03 $68.00 $57.06
Second quarter (through June , 1998)....... $0.03
</TABLE>
On May 15, 1998, the last full trading day prior to the execution, delivery
and public announcement of the Merger Agreement, the closing price of the
Cardinal Common Shares was $95.75 per share and the closing price of the Scherer
Common Stock was $77.44 per share, as reported on the NYSE Composite Tape. The
value of Scherer Common Stock at May 15, 1998, on an equivalent per share basis,
was $90.9625 (based on an Exchange Ratio of 0.95). On , 1998, the
most recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, the last sale prices of Cardinal Common Shares and Scherer
Common Stock were $ per share and $ per share, respectively, as reported
on the NYSE Composite Tape. Cardinal Shareholders and Scherer Stockholders are
encouraged to obtain current market quotations for Cardinal Common Shares and
Scherer Common Stock.
Cardinal has applied for the listing of the Cardinal Common Shares to be
issued in the Merger on the NYSE.
On May 13, 1998, the Cardinal Board of Directors declared a dividend on
Cardinal Common Shares of $0.03 per share, payable on July 15, 1998 to holders
of record on July 1, 1998. Cardinal anticipates that it will continue to pay
quarterly cash dividends. However, the timing and amount of any future dividends
remain within the discretion of the Cardinal Board of Directors and will depend
on Cardinal's future earnings, financial condition, capital requirements and
other factors.
Pursuant to the Merger Agreement, Scherer has agreed that, during the
period from the date of the Merger Agreement to the Effective Time, Scherer will
not make, declare or pay any dividend or distribution on the Scherer Common
Stock.
21
<PAGE> 36
RISK FACTORS
In considering whether to vote in favor of the Cardinal Merger Proposal or
the Scherer Merger Proposal, as the case may be, the Cardinal Shareholders and
Scherer Stockholders should consider, in conjunction with the other information
included or incorporated by reference in this Joint Proxy Statement/Prospectus,
the following matters (which Cardinal and Scherer are not able to quantify):
FIXED EXCHANGE RATIO DESPITE CHANGE IN RELATIVE STOCK PRICES
The Exchange Ratio is a fixed ratio and will not be adjusted in the event
of any increase or decrease in the price of either Cardinal Common Shares or
Scherer Common Stock. The price of Cardinal Common Shares at the Effective Time
may be higher or lower than its price at the date of this Joint Proxy Statement/
Prospectus or at the date of the Cardinal Special Meeting or the Scherer Special
Meeting. Such variations may be the result of changes in the business,
operations or prospects of Cardinal or Scherer, market assessments of the
likelihood that the Merger, or Cardinal's pending merger with Bergen, will be
consummated and the timing thereof, regulatory considerations, general market
and economic conditions or other factors. Most of such factors are beyond the
control of Cardinal or Scherer. Because the Effective Time will occur subsequent
to the Cardinal Special Meeting and the Scherer Special Meeting, there can be no
assurance that the price of Cardinal Common Shares on the date of the special
meetings will be indicative of its price at the Effective Time. Cardinal
Shareholders and Scherer Stockholders are urged to obtain current market
quotations for Cardinal Common Shares and Scherer Common Stock.
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS
In determining that the Merger is in the best interests of Cardinal or
Scherer, as the case may be, each of the Cardinal Board of Directors and the
Scherer Board of Directors considered the potential complementary effects of
combining the respective companies' assets, personnel and operational expertise.
The integration of businesses, however, involves a number of special risks,
including the potential diversion of management's attention from regular
business concerns to the assimilation of the combined operations, difficulties
in the integration of operations and systems, the assimilation and retention of
the personnel of the acquired company, challenges in retaining the customers of
the combined businesses and potential adverse short-term effects on operating
results.
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An important element of Cardinal's growth strategy is the pursuit of
strategic acquisitions that either expand or complement its business, and
Cardinal routinely reviews such potential acquisition opportunities.
Acquisitions involve a number of special risks, including the risks pertaining
to integration of the business acquired that are noted above under
"-- Uncertainties in Integrating Business Operations." In addition, Cardinal may
incur debt to finance future acquisitions, and Cardinal may issue securities in
connection with pending or future acquisitions which may have a dilutive effect
on current and future Cardinal Shareholders. The inability of Cardinal to
successfully complete and integrate strategic acquisitions in a timely manner
could adversely impact Cardinal's growth strategy.
On August 23, 1997, Cardinal signed a definitive merger agreement, as
amended (the "Bergen Merger Agreement") with Bergen, a distributor of
pharmaceuticals and medical-surgical supplies, pursuant to which Bergen will
become a wholly owned subsidiary of Cardinal in the stock-for-stock Bergen
Merger. Shareholders of both Cardinal and Bergen approved the transaction on
February 20, 1998. On March 9, 1998, the FTC filed a complaint in the United
States District Court for the District of Columbia seeking a preliminary
injunction to halt the Bergen Merger. On March 17, 1998, Bergen and Cardinal
announced that they would contest the FTC's attempt to challenge the
transaction. A court hearing began on June 9, 1998. No assurance can be given as
to the outcome of the FTC's challenge of the Bergen Merger. Cardinal and Bergen
have agreed not to consummate the Bergen Merger pending a decision on the
preliminary injunction, which is expected by the end of July 1998. If the
proposed Bergen Merger is not consummated, the opportunities to realize
synergies
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from the Bergen Merger will not be available to Cardinal and will not offset
costs incurred by Cardinal in connection with the proposed Bergen Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Merger by the Scherer Board of
Directors and the Cardinal Board of Directors, as applicable, the Cardinal
Shareholders and the Scherer Stockholders should be aware that certain directors
and executive officers of Scherer may be deemed to have conflicts of interest
with respect to the Merger in that, pursuant to new employment arrangements and
amendments to existing employment agreements entered into with Cardinal and
Scherer concurrently with the execution of the Merger Agreement, they will have
positions with Cardinal or the Surviving Corporation (as defined below) after
the Effective Time. In addition, certain executives of Scherer have employment
agreements pursuant to which they may receive benefits after the Merger. Such
interests, together with other relevant factors, were considered by the Scherer
Board of Directors in recommending the Merger to the Scherer Stockholders and
approving the Merger Agreement. See "The Merger -- Interests of Certain Persons
in the Merger."
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THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to Scherer
Stockholders in connection with the solicitation of proxies by the Board of
Directors of Scherer for use at the Scherer Special Meeting to be held on
, 1998, at The Marriott Hotel, 200 West Big Beaver Road,
Troy, Michigan, commencing at 10:00 a.m., local time, and at any adjournment or
postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to Cardinal
Shareholders in connection with the solicitation of proxies by the Board of
Directors of Cardinal for use at the Cardinal Special Meeting to be held on
, 1998, 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.
This Joint Proxy Statement/Prospectus, the Letter to Scherer Stockholders,
the Notice of the Scherer Special Meeting and the form of proxy for use at the
Scherer Special Meeting are first being mailed to Scherer Stockholders on or
about , 1998. This Joint Proxy Statement/Prospectus, the Letter
to Cardinal Shareholders, 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 , 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
Scherer Special Meeting. At the Scherer Special Meeting, Scherer
Stockholders will consider and vote on:
1. The Scherer Merger Proposal, which is a proposal to approve and
adopt the Merger Agreement, pursuant to which, among other things, (i)
Merger Sub will be merged with and into Scherer with the result that
Scherer will become a wholly owned subsidiary of Cardinal, and (ii) each
outstanding share (other than shares held by Cardinal, Merger Sub and
Scherer, if any, which will be canceled) of Scherer Common Stock will be
converted into 0.95 of a Cardinal Common Share. A copy of the Merger
Agreement is attached as Annex A to this Joint Proxy Statement/Prospectus.
2. The Scherer Adjournment Proposal, which is a proposal for the
adjournment of the Scherer Special Meeting, if necessary, to permit further
solicitation of proxies in the event that there are not sufficient votes at
the time of the Scherer Special Meeting to approve the foregoing proposal.
3. Such other business as may properly come before the Scherer Special
Meeting.
Cardinal Special Meeting. At the Cardinal Special Meeting, if held,
Cardinal Shareholders will consider and vote on:
1. The Cardinal Merger Proposal, which is a proposal to approve,
authorize and adopt the Merger Agreement pursuant to which among other
things, (i) Merger Sub will be merged with and into Scherer with the result
that Scherer will become a wholly owned subsidiary of Cardinal, and (ii)
each outstanding share (other than shares held by Cardinal, Merger Sub and
Scherer, if any, which will be canceled) of Scherer Common Stock will be
converted into 0.95 of a Cardinal Common Share. A copy of the Merger
Agreement is attached as Annex A to this Joint Proxy Statement/Prospectus.
2. The Cardinal Adjournment Proposal, which is a 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 foregoing
proposals.
3. Such other business as may properly come before the Cardinal
Special Meeting.
IF APPLICABLE LAW AND THE RULES OF THE NYSE DO NOT REQUIRE APPROVAL OF THE
CARDINAL MERGER PROPOSAL AGREEMENT BY THE CARDINAL SHAREHOLDERS, THE CARDINAL
SPECIAL MEETING WILL NOT BE HELD, AND NO VOTE OF CARDINAL SHAREHOLDERS ON THE
CARDINAL MERGER PROPOSAL OR THE CARDINAL ADJOURNMENT PROPOSAL WILL BE TAKEN.
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RECORD DATE; VOTE REQUIRED; VOTING AT THE MEETINGS
Scherer. The Scherer Board of Directors has fixed , 1998 as
the Scherer Record Date for determination of Scherer Stockholders entitled to
notice of and to vote at the Scherer Special Meeting. Accordingly, only holders
of Scherer Common Stock of record at the close of business on the Scherer Record
Date, will be entitled to notice of and to vote at the Scherer Special Meeting.
Each holder of record of Scherer Common Stock on the Scherer Record Date is
entitled to cast one vote per share, exercisable in person or by a properly
executed proxy, at the Scherer Special Meeting. As of the Scherer Record Date,
there were shares of Scherer Common Stock outstanding and
entitled to vote which were held by approximately holders of
record.
The affirmative vote of holders of a majority of the outstanding shares of
Scherer Common Stock entitled to vote thereon is required to approve and adopt
the Scherer Merger Proposal. As of the Scherer Record Date, the directors and
executive officers of Scherer may be deemed to be beneficial owners of less than
1% of the outstanding shares of Scherer Common Stock, and each such person has
advised Scherer that such person intends to vote in favor of the Scherer Merger
Proposal and the Scherer Adjournment Proposal.
In the event that Scherer has the right to terminate the Merger Agreement
for any reason, the Scherer Board may, in the exercise of its fiduciary duty,
make determinations (i) 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 the consummation of the Merger, and (ii) if it determines to
waive the condition giving rise to such right to terminate and proceed to the
consummation of the Merger, whether or not to resolicit the approval of the
Scherer Merger Proposal. See "The Merger Agreement -- Termination."
Cardinal. The Cardinal Board of Directors has fixed , 1998
as 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 Cardinal Common Shares outstanding and
entitled to vote which were held by approximately holders of record.
If applicable law or the rules of the NYSE require approval of the Cardinal
Merger Proposal by the Cardinal Shareholders, (i) the affirmative vote of the
holders of a majority of the Cardinal Common Shares outstanding and entitled to
vote thereon will be required to approve, authorize and adopt the Cardinal
Merger Proposal, and (ii) the affirmative vote of a majority of the Cardinal
Common Shares entitled to vote and present in person or represented by proxy at
the Cardinal Special Meeting will be 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 % of the outstanding Cardinal Common Shares, and each such
person has advised Cardinal that such person intends to vote in favor of the
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 (i) 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 the consummation of the Merger and (ii) if it determines to waive
the condition giving rise to such right to terminate and proceed to the
consummation of the Merger, whether or not to resolicit the approval of the
Cardinal Merger Proposal. See "The Merger Agreement -- Termination."
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VOTING OF PROXIES
All Scherer Stockholders and Cardinal Shareholders who are entitled to vote
and are represented at the Scherer Special Meeting (in the case of Scherer
Stockholders) or at the Cardinal Special Meeting (in the case of Cardinal
Shareholders) by properly executed proxies received prior to or at such meeting
and not duly and timely revoked will be voted at such meeting in accordance with
the instructions indicated in such proxies. If no instructions are indicated,
such proxies will be voted, in the case of Scherer Stockholders, FOR approval
and adoption of the Scherer Merger Proposal and the Scherer 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 Scherer Special Meeting
(in the case of Scherer 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 Scherer nor Cardinal is aware of any
matters expected to be presented at its respective meeting other than as
described in its respective Notices of Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
(including by telegram or telecopy) with the Secretary of Scherer or the
Secretary of Cardinal, as the case may be, before the taking of the vote at the
relevant 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 (ii)
attending the relevant meeting and voting in person. In order to vote in person
at either the Scherer Special Meeting or the Cardinal Special Meeting, Scherer
Stockholders and Cardinal Shareholders must attend the relevant meeting and cast
their votes in accordance with the voting procedures established for such
meeting. Attendance at a 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 meeting
as follows:
(i) in the case of Scherer Stockholders, to R.P. Scherer Corporation,
2301 West Big Beaver Road, Troy, Michigan 48007-7060, Telecopy: (248)
649-4238, Attention: Secretary; and
(ii) in the case of Cardinal Shareholders, to Cardinal Health, Inc.,
5555 Glendon Court, Dublin, Ohio 43016, Telecopy: (614) 717-8919,
Attention: Secretary.
Scherer Stockholders who require assistance in changing or revoking a proxy
should contact MacKenzie Partners, Inc., and Cardinal Shareholders who require
assistance in changing or revoking a proxy should contact Morrow & Co., Inc., in
each case at the addresses or phone numbers provided in this Joint Proxy
Statement/Prospectus under the caption "Available Information."
Pursuant to the Scherer Certificate and applicable law, broker non-votes
and abstaining votes will not be counted in favor of the Scherer Merger Proposal
or the Scherer Adjournment Proposal and will not be treated as votes cast with
respect to such proposals. Since the Scherer Merger Proposal requires the
affirmative vote of a majority of the outstanding shares of Scherer Common Stock
entitled to vote thereon, abstentions and broker non-votes will have the same
effect as votes against the Scherer Merger Proposal.
Pursuant to 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 each such 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.
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SOLICITATION OF PROXIES
The expenses of the respective solicitations for the Scherer Special
Meeting and the Cardinal Special Meeting will be borne by Scherer and Cardinal,
subject to Scherer'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 Scherer and Cardinal in person or by telephone, telegram or other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Scherer has retained MacKenzie
Partners, Inc. at an estimated cost of $7,500, 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 $9,500, plus reimbursement of expenses, to assist in its solicitation of
proxies from brokers, nominees, institutions and individuals. Arrangements will
also be made by Scherer and Cardinal with custodians, nominees and fiduciaries
for forwarding of proxy solicitation materials to beneficial owners of shares
held of record by such custodians, nominees and fiduciaries, and Scherer and
Cardinal will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Scherer. The Scherer Board of Directors has determined that the terms of
the Merger Agreement and the transactions contemplated thereby are fair to, and
in the best interests of, Scherer and the Scherer Stockholders. Accordingly, the
Scherer Board of Directors recommends that Scherer Stockholders vote FOR the
approval and adoption of the Scherer Merger Proposal and the Scherer Adjournment
Proposal.
Cardinal. The Cardinal Board of Directors 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 the Cardinal Shareholders. Accordingly,
the Cardinal Board of Directors recommends that Cardinal Shareholders vote FOR
the approval and adoption of the Cardinal Merger Proposal and the Cardinal
Adjournment Proposal.
APPRAISAL RIGHTS
Scherer Stockholders. Scherer Stockholders will not be entitled to any
appraisal rights under Delaware law or any other statute in connection with the
Merger. See "Rights of Dissenting Shareholders -- Scherer Stockholders."
Cardinal Shareholders. Pursuant to Section 1701.84 of the Ohio Revised
Code, if Ohio law requires Cardinal Shareholders to approve the Merger
Agreement, Cardinal Shareholders at the record date for the Cardinal Special
Meeting who follow certain statutory procedures set forth in Section 1701.85 of
the Ohio Revised Code 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
Revised Code is included in Annex C to this Joint Proxy Statement/Prospectus.
THE MERGER
BACKGROUND OF THE MERGER
In March 1998, a representative of Donaldson, Lufkin & Jenrette Securities
Corporation and affiliated or related entities ("DLJ") contacted an outside
director of Scherer regarding the potential for the merger of Scherer with
Cardinal. Following such initial contact, in late March 1998, Robert D. Walter,
Chairman and Chief Executive Officer of Cardinal, contacted Aleksandar Erdeljan,
Chairman and Chief Executive Officer of Scherer, and discussed the potential
benefits of a transaction involving Cardinal and Scherer. Subsequent to this
discussion, Mr. Walter and John Kane, President of Cardinal, visited Scherer to
meet with Mr. Erdeljan, George L. Fotiades, President of Scherer and Thomas J.
Stuart, Senior Vice President, Corporate Planning and Development of Scherer.
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On April 17, Cardinal executed a confidentiality agreement with Scherer
covering non-public due diligence information to be provided by Scherer in the
course of exploring a business combination. On April 23, Messrs. Walter,
Fotiades and Stuart met to continue discussing the possibility of a potential
transaction. On April 24, members of Cardinal's senior management joined members
of Scherer's senior management on a due diligence tour of Scherer's St.
Petersburg, Florida manufacturing facility.
The Scherer Board of Directors met on April 29, 1998 at a regularly
scheduled meeting to discuss, among other things, the potential transaction with
Cardinal and an overture Scherer had received from a third party regarding a
possible business combination transaction with such third party. While no action
was taken at such meeting regarding any potential transaction, the consensus of
the Scherer Board of Directors was that Scherer's management should continue to
review the possibility of a transaction with either Cardinal or such third
party.
On April 30, Messrs. Walter and Erdeljan met to further their discussions
of issues relating to a potential transaction. These discussions, as well as
preliminary due diligence discussions, were continued by members of senior
management of both Cardinal and Scherer at headquarters of Scherer and Cardinal
during the first week of May.
Between May 8 and 10, 1998, Messrs. Walter and Erdeljan discussed the
structure of a possible stock-for-stock merger transaction and the principal
terms thereof, including ranges of value for Scherer Common Stock. In this
connection, Mr. Walter indicated that any proposal Cardinal would be prepared to
make would require that Scherer provide Cardinal with appropriate protection
with respect to any possible competing transactions.
As a result of these discussions, a draft merger agreement was exchanged
between counsel for the parties on May 11. Also, on May 11, representatives of
Cardinal continued with more extensive financial, legal and operational due
diligence of Scherer.
The Cardinal Board of Directors met on May 13, 1998 at a regularly
scheduled meeting to discuss, among other things, the potential transaction with
Scherer. While no action was taken at such meeting regarding the potential
transaction, the consensus of the Cardinal Board was that Cardinal's management
should continue to pursue the possibility of merging with Scherer. Later that
day, members of Scherer's senior management met with members of Cardinal's
senior management at Cardinal's headquarters with regard to Cardinal's and
Scherer's due diligence and to discuss further the terms of a possible
transaction.
On May 14, 1998, negotiations with respect to the terms of a definitive
merger agreement, including a fixed exchange ratio, commenced and continued
through May 17, 1998.
On May 15, 1998, a special meeting of the Scherer Board of Directors was
held to discuss the potential transaction with Cardinal. Mr. Erdeljan reviewed
with the Scherer Board the status of the discussions to date with Cardinal and
extensive deliberations and discussions regarding a potential transaction
ensued. Mr. Erdeljan advised the Scherer Board that discussions with the third
party (discussed at the Scherer Board's prior meeting) were no longer active. In
response to Mr. Walter's request, Mr. Walter addressed the Scherer Board of
Directors regarding Cardinal and the potential benefits to Scherer and the
Scherer Stockholders of a business combination between Cardinal and Scherer. The
consensus of the Scherer Board was that Scherer's management should continue to
negotiate a potential transaction with Cardinal and that the Scherer Board
should reconvene on May 17 to discuss the results of such continued
negotiations. Following the Scherer Board meeting, Messrs. Walter and Erdeljan
met to discuss the specific terms of a proposed transaction, including the
exchange ratio Cardinal was prepared to offer, subject to obtaining appropriate
protection with respect to any possible competing transactions. Mr. Walter also
met with an outside director of Scherer to discuss certain employment
arrangements Cardinal wished to pursue with members of Scherer's senior
management. See "-- Interests of Certain Persons in the Merger."
The Cardinal Board of Directors and the Scherer Board of Directors each
held a meeting on May 17. At the meeting of the Cardinal Board, members of
Cardinal's senior management and Cardinal's counsel described the progress of
negotiations which had occurred since May 13 and the proposed terms and
conditions of the Merger Agreement and the transactions contemplated thereby.
Following extensive
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deliberations and discussions regarding the potential advantages and risks
associated with the Merger, the Cardinal Board of Directors approved and adopted
the Merger Agreement and the transactions contemplated thereby and the
Employment Agreements.
At the Scherer Board's meeting on May 17, members of Scherer's senior
management and Scherer's counsel described the progress of negotiations which
had occurred since May 13 and the proposed terms and conditions of the Merger
Agreement and the transactions contemplated thereby. Following a presentation by
Lehman Brothers, Scherer's financial advisor, regarding the Merger and extensive
deliberations and discussions by the Scherer Board regarding the potential
advantages and risks associated with the Merger, the Scherer Board of Directors
approved and adopted the Merger Agreement and the transactions contemplated
thereby and the Employment Agreements.
Following such meetings of the Cardinal Board of Directors and the Scherer
Board of Directors, Cardinal and Scherer executed the definitive Merger
Agreement and Employment Agreements, and on May 18, Cardinal and Scherer issued
a joint press release announcing the Merger.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Scherer. The Scherer Board of Directors, in the course of reaching its
decision to approve the Merger Agreement and the transactions contemplated
thereby, consulted with Scherer's legal and financial advisors as well as with
Scherer's management and considered a number of factors, including the following
material factors (the order does not necessarily reflect the relative
significance):
(i) The fact that the per share consideration to be received by
Scherer Stockholders in the Merger represents a substantial premium over
the recent market prices of Scherer Common Stock prior to the announcement
of the signing 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 Scherer Stockholders was approximately 18%
over the closing price of the Scherer Common Stock on such date, and
approximately 41% over the average closing price of the Scherer Common
Stock for the 90 trading days prior to the date of the announcement;
(ii) Cardinal Common Shares are believed by the Scherer Board of
Directors to represent an attractive investment opportunity for the Scherer
Stockholders based on Cardinal's long track record of consistently
generating significant sales and earnings growth, and stock price
appreciation for its Shareholders. In the opinion of the Scherer Board of
Directors and management, Cardinal's prospects for continued significant
growth in sales and earnings are strong and will be enhanced as a result of
the Merger;
(iii) Cardinal's extensive relationships with major pharmaceutical and
biotechnology companies are expected to provide Scherer with greater access
to the key decision makers of these companies, bringing additional
commercial opportunities to Scherer;
(iv) Cardinal possesses important supply chain information concerning
product demand, movement and pricing. This information will be valuable in
establishing Scherer's business strategies and determining how to maximize
the value placed on Scherer's technologies and services;
(v) Cardinal's contract packaging capabilities combined with Scherer's
drug delivery technologies and manufacturing resources will provide
opportunities to offer customers a more complete and cost-effective package
of services, enabling Scherer to further distinguish itself from its
competitors and gain additional business;
(vi) The fact that the Merger will result in a financially stronger
company, providing a greater ability to fund research and development and
acquisitions of drug delivery businesses and technologies;
(vii) The ability to collaborate with other Cardinal businesses to
provide a one-stop service from formulation through distribution of
finished products on behalf of marketers of pharmaceutical and other
products;
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(viii) The opportunity for Scherer Stockholders to continue as
shareholders of a healthcare company that has greater financial and market
strength than Scherer alone, and has a focus on shareholder returns,
strategic objectives and an operating philosophy compatible with those of
Scherer's management;
(ix) The presentation and opinion of Lehman Brothers 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 Scherer
Stockholders;
(x) The terms and conditions of the Merger Agreement, which the
Scherer Board of Directors and management view as fair to, and in the best
interests of, Scherer and the Scherer Stockholders; and
(xi) The fact that the Merger is expected to be a tax-free transaction
for Scherer Stockholders and that it is expected to be treated as a
pooling-of-interests transaction for financial reporting and accounting
purposes.
The Scherer Board of Directors also considered a number of potential risks
and disadvantages relating to the Merger, including the following material risks
or material adverse effects on Scherer Stockholders (the order does not
necessarily reflect the relative significance):
(i) The difficulties and management distractions inherent in
completing the Merger and then integrating two large and geographically
dispersed operations which operate in different segments of the
pharmaceutical services industry, and the risk that the benefits sought
from the Merger might not be fully achieved;
(ii) The risk that the Merger might not be consummated, and the
possible associated implications to investor relations and employee morale;
and
(iii) The time, management resources and expenses required to be
incurred by Scherer in connection with the Merger transaction.
The Scherer Board of Directors believed that these potential risks and
disadvantages were outweighed by the potential benefits anticipated to be
realized from the Merger.
The foregoing discussion of the material factors considered by the Scherer
Board of Directors is not intended to be exhaustive. In view of the wide variety
of factors considered in connection with its evaluation of the Merger, the
Scherer Board of Directors 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 SCHERER BOARD OF DIRECTORS HAS
DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF, SCHERER AND THE
SCHERER STOCKHOLDERS. ACCORDINGLY, THE SCHERER BOARD OF DIRECTORS RECOMMENDS
THAT SCHERER STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE SCHERER
MERGER PROPOSAL AND THE SCHERER ADJOURNMENT PROPOSAL.
Cardinal. In the course of reaching its decision to approve the Merger
Agreement and the transactions contemplated thereby, the Cardinal Board of
Directors consulted with Cardinal's legal advisors as well as with Cardinal's
management, and considered a number of factors, including the following material
factors (the order does not necessarily reflect the relative significance):
(i) Scherer's long-standing reputation within the pharmaceutical
industry for providing quality drug delivery system technologies to
pharmaceutical manufacturers, which is consistent with Cardinal's strategy
of aligning itself with established and recognized industry leaders and is
expected to strengthen Cardinal's position as an important supplier of
pharmaceutical services along the supply channel;
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(ii) The combination of Scherer's upstream connectivity with the
manufacturer with Cardinal's downstream supply chain presence and market
knowledge, which Cardinal believes will create an unmatched service
offering for manufacturers;
(iii) The opportunity for Cardinal to continue to expand into higher
margin service businesses;
(iv) Scherer's substantial international operations, which complement
Cardinal's identification of international markets as an area of future
growth;
(v) Scherer's extensive pipeline of new products that are expected to
be introduced in upcoming years;
(vi) The addition of Scherer's seasoned management team, with their
technical expertise and significant manufacturer contacts;
(vii) The opportunity to combine Scherer's drug development and
manufacturing expertise with Cardinal's existing contract packaging and
distribution capabilities, enabling the combined company to create a
streamlined drug delivery/packaging/distribution system that would
eliminate wasted steps, save costs and shorten lead times; and
(viii) That it is a condition to the consummation of the Merger that
the Merger be treated as a pooling-of-interests for financial reporting and
accounting purposes, therefore adding no goodwill to Cardinal's balance
sheet.
Although the Cardinal Board of Directors has determined that the Merger is
fair to, and in the best interests of, Cardinal Shareholders, all business
combinations, including the Merger, also include risks and disadvantages. With
respect to the Merger, potential risks or disadvantages to Cardinal Shareholders
identified by the Cardinal Board of Directors and management include (the order
does not necessarily reflect the relative significance):
(i) the time and resources required to complete the Merger, with the
consummation of the Merger being subject to certain conditions (see "The
Merger Agreement -- Conditions");
(ii) the difficulties inherent in combining and integrating the two
companies which currently operate in different segments of the
pharmaceutical services business, including management teams, information
systems, service offerings to manufacturers, and other programs, systems
and services; and
(iii) the potential distraction caused by a transaction of this
magnitude and the attendant lost opportunities resulting from management's
focus on completing the Merger and integrating Cardinal's and Scherer's
businesses.
Other than these disadvantages which the Cardinal Board considered in its
decision to enter into the Merger Agreement, the Cardinal Board of Directors did
not identify any other particular material risks or material adverse effects on
Cardinal Shareholders. The Cardinal Board of Directors believed that these risks
were outweighed by the potential benefits anticipated to be realized from the
Merger.
The foregoing discussion of the material factors considered by the Cardinal
Board of Directors is not intended to be exhaustive. In view of the wide variety
of factors considered in connection with its evaluation of the Merger, the
Cardinal Board of Directors 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 determinations. In addition, individual directors may
have given different weights to different factors.
FOR THE REASONS DISCUSSED ABOVE, THE CARDINAL BOARD OF DIRECTORS 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 THE
CARDINAL SHAREHOLDERS. ACCORDINGLY, THE CARDINAL BOARD OF DIRECTORS RECOMMENDS
THAT CARDINAL SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE CARDINAL
MERGER PROPOSAL AND THE CARDINAL ADJOURNMENT PROPOSAL.
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OPINION OF SCHERER'S FINANCIAL ADVISOR
Lehman Brothers has acted as financial advisor to Scherer in connection
with the Merger. As part of its role as financial advisor to Scherer, Lehman
Brothers rendered to the Scherer Board of Directors the Lehman Opinion as to the
fairness, from a financial point of view, of the Exchange Ratio to be offered to
the Scherer Stockholders in the Merger.
The full text of the Lehman Opinion, dated May 17, 1998, is attached as
Annex B to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference. Stockholders should read the Lehman Opinion for a discussion of
assumptions made, matters considered and limitations on the review undertaken by
Lehman Brothers in rendering its opinion. The summary of the Lehman Opinion set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
No limitations were imposed by Scherer on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that Lehman Brothers was not authorized to solicit, and did
not solicit, any indications of interest from any third party with respect to a
purchase of all or a part of Scherer's business. Lehman Brothers was not
requested to and did not make any recommendation to the Scherer Board as to the
form or amount of the consideration to be received by the holders of Scherer
Common Stock, which was determined through arm's-length negotiations between the
parties. In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of values to Scherer, but rather made its determination as to the
fairness, from a financial point of view, of the Exchange Ratio to be offered to
the holders of Scherer Common Stock in the Merger on the basis of the financial
and comparative analyses described below. The Lehman Opinion is for the use and
benefit of the Scherer Board and was rendered to the Scherer Board in connection
with the Scherer Board's consideration of the Merger. The Lehman Opinion is not
intended to be and does not constitute a recommendation to any stockholder of
Scherer as to how such stockholder should vote with respect to the Merger.
Lehman Brothers was not requested to opine as to, and the Lehman Opinion does
not address, Scherer's underlying business decision to proceed with or effect
the Merger.
In arriving at the Lehman Opinion, Lehman Brothers reviewed and analyzed:
(1) the Merger Agreement and the specific terms of the Merger; (2) publicly
available information concerning Scherer and Cardinal that Lehman Brothers
believed to be relevant to its analysis, including Scherer's and Cardinal's
Forms 10-K for the years ended March 31, 1997 and June 30, 1997, respectively,
Forms 10-Q for the quarters ended December 31, 1997 and March 31, 1998,
respectively, and Scherer's earnings press release for the three and twelve
month periods ended March 31, 1998; (3) financial and operating information with
respect to the business, operations and prospects of Scherer and Cardinal
furnished to it by Scherer and Cardinal; (4) a trading history of the Scherer
Common Stock from January 1, 1997 to the present and a comparison of such
trading history with those of other companies that Lehman Brothers deemed
relevant; (5) a trading history of the Cardinal Common Shares from January 1,
1997 to the present and a comparison of such trading history with those of other
companies that Lehman Brothers deemed relevant; (6) publicly available research
analyst reports regarding Scherer and its estimated future financial
performance; (7) publicly available research analyst reports regarding Cardinal
and its estimated future financial performance; (8) comparisons of the
historical financial results and present financial condition of Scherer with
those of other companies that Lehman Brothers deemed relevant; (9) comparisons
of the historical financial results and present financial condition of Cardinal
with those of other companies that Lehman Brothers deemed relevant; and (10) a
comparison of the financial terms of the Merger with the financial terms of
certain other transactions that Lehman Brothers deemed relevant. In addition,
Lehman Brothers had discussions with the managements of Scherer and Cardinal
concerning their respective businesses, operations, assets, financial conditions
and prospects and the strategic benefits expected by the managements of Scherer
and Cardinal to result from a combination of the businesses of Scherer and
Cardinal, and undertook such other studies, analyses and investigations as
Lehman Brothers deemed appropriate.
In arriving at the Lehman Opinion, Lehman Brothers assumed and relied upon
the accuracy and completeness of the financial and other information used by
Lehman Brothers without assuming any responsibility for independent verification
of such information and further relied upon the assurances of
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management of Scherer that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of Scherer, upon advice of Scherer, Lehman Brothers
assumed that such projections had been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of
Scherer as to the future financial performance of Scherer and that Scherer will
perform substantially in accordance with such projections. With respect to the
financial projections of Cardinal, upon the advice of Scherer and Cardinal,
Lehman Brothers assumed that the publicly available estimates of research
analysts were a reasonable basis upon which to evaluate and analyze the future
financial performance of Cardinal, and that Cardinal would perform substantially
in accordance with such estimates. In arriving at its opinion, Lehman Brothers
has not conducted a physical inspection of the properties and facilities of
Scherer and has not made or obtained any evaluations or appraisals of the assets
or liabilities of Scherer. In addition, the management of Scherer did not
authorize Lehman Brothers to solicit, and Lehman Brothers did not solicit, any
indications of interest from any third party with respect to the purchase of all
or a part of Scherer's business. Upon advice of the management of Scherer and
its legal and accounting advisors, Lehman Brothers assumed that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code and
therefore as a tax-free reorganization to the stockholders of Scherer. The
Lehman Opinion necessarily is based upon market, economic and other conditions
as they existed on, and could be evaluated as of, the date of the opinion.
In connection with the preparation and delivery of its opinion, Lehman
Brothers performed a variety of financial and comparative analyses, as described
below. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial and comparative
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Furthermore, in arriving at its opinion, Lehman Brothers 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, Lehman Brothers believes that its analyses
must be considered as a whole and that considering any portion of such analyses
and factors, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion. In its
analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Scherer and Cardinal. Any estimates or
projections contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Transaction Terms. The implied value to be received by Scherer
Stockholders in the Merger based upon the Exchange Ratio and the closing price
of Cardinal Common Shares on May 15, 1998 of $95.75, is $90.96 per share.
Historical Stock Price Performance of Scherer and Cardinal. Lehman
Brothers reviewed Scherer's stock price performance from January 1, 1997 through
the date of the Merger and noted that Scherer's stock price had fluctuated over
that period from a low of $44.50 to a high of $78.44, and was trading on May 15,
1998 at a price of $77.44, above where it traded on January 1, 1997. Lehman
Brothers also compared Scherer's stock price performance to a weighted average
of the stock prices of certain publicly traded companies and to the S&P 400
Index since January 1, 1997. The companies that Lehman Brothers considered
included Alza Corporation, Biovail Corporation International, Elan Corporation,
plc., and Forest Laboratories, Inc. (the "Comparable Public Drug Delivery
Companies"). Lehman Brothers noted that Scherer's stock price had increased
54.1%, compared to an increase of 89.1% for the Comparable Public Drug Delivery
Companies and an increase of 50.4% in the S&P 400 Index since January 1, 1997.
Lehman Brothers also compared Cardinal's stock price performance to a weighted
average of the stock prices of certain publicly traded drug distribution
companies and to the S&P 400 Index since January 1, 1997. The companies that
Lehman Brothers considered included AmeriSource Health Corporation, Bergen
Brunswig Corporation, Bindley Western Industries, Inc., and McKesson Corporation
(the "Comparable Public Drug Distribution Companies"). Lehman Brothers noted
that Cardinal's stock price had increased 64.4%, compared to an increase of
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94.0% for the Comparable Public Drug Distribution Companies and an increase of
50.4% in the S&P 400 Index since January 1, 1997.
Common Stock Trading Volume Analysis. Lehman Brothers analyzed the
historical daily trading volume of Scherer Common Stock from January 1, 1997
through the last trading day prior to the date of the Merger Agreement. Lehman
Brothers noted that 31,865,900 shares were traded. Of these shares, 8.5% of the
shares traded at $45.00 to $50.00; 25.8% of the shares traded at $50.00 to
$55.00; 30.7% of the shares traded at $55.00 to $60.00; 18.0% of the shares
traded at $60.00 to $65.00; 4.5% of the shares traded at $65.00 to $70.00; 6.3%
of the shares traded at $70.00 to $75.00; and 6.2% of the shares traded at
$75.00 to $80.00 per share.
Future Value Analysis. Lehman Brothers analyzed what the potential future
share price of Scherer stock could be by applying to Scherer's estimated
earnings per share (as estimated by Scherer's management) for fiscal 1999 the
current 1998 estimated price-to-earnings multiple for the Comparable Public Drug
Delivery Companies, resulting in a per share value of $89. In another scenario,
Lehman Brothers decreased the Scherer earnings estimate by 10%, and applied the
same multiple, for an estimated potential price per share of $80. In a final
scenario, Lehman Brothers discounted the Scherer earnings estimate by 10% and
discounted the multiple of the Comparable Public Drug Delivery Companies by 15%,
to result in an estimated potential price per share of $68.
Comparable Company Analysis. Lehman Brothers compared the historical
financial, operating and stock market performances of certain publicly traded
companies that it considered relevant with the historical financial and
operating performance of Scherer and Cardinal, based upon information provided
to Lehman Brothers by the managements of Scherer and Cardinal and information
that was publicly available. Lehman Brothers examined both the market value of
the total outstanding equity (the "Market Value") and the Market Value plus Debt
minus Cash (the "Enterprise Value") for the Comparable Public Drug Delivery
Companies and the Comparable Public Drug Distribution Companies. For purposes of
Lehman Brothers' analyses, "Cash" equals cash and cash equivalents plus
short-term marketable securities and "Debt" equals long- and short-term debt and
current portion of long-term debt and capital lease obligations.
For Scherer, the analysis indicated that the Enterprise Value of the
Comparable Public Drug Delivery Companies as a multiple of revenues for the
twelve months ended March 31, 1998 ("LTM Revenues") ranged from 5.8x to 14.8x
(median of 11.2x) and of earnings before interest and taxes for the twelve
months ended March 31, 1998 ("LTM EBIT") ranged from 24.1x to 40.3x (median of
31.9x). These multiples compared to public market trading multiples for Scherer
of LTM Revenues and LTM EBIT of 3.51x and 20.2x, respectively, based on
Scherer's May 15, 1998 closing price of $77.44, and LTM Revenues and LTM EBIT of
4.10x and 23.6x, respectively, based on the implied transaction price per share
of $90.96. The analysis also indicated that the composite share price of the
Comparable Public Drug Delivery Companies as a multiple of estimated 1998 and
estimated 1999 earnings per share ("EPS"), as published by First Call, ranged
from 20.7x to 39.2x (median of 33.0x) and 14.6x to 29.1x (median of 26.8),
respectively. These multiples compared to public trading multiples for Scherer
of estimated 1998 and estimated 1999 EPS (as estimated by management) of 30.0x
and 24.7x, respectively, based on Scherer's May 15, 1998 closing price of
$77.44, and 35.3x and 29.0x, respectively, based on the implied transaction
price per share of $90.96.
For Cardinal, the analysis indicated that the Enterprise Value of the
Comparable Public Drug Distribution Companies as a multiple of LTM Revenues
ranged from 0.10x to 0.40x (median of 0.22x) and LTM EBIT ranged from 12.7x to
28.6x (median of 13.9x). These multiples compared to public market trading
multiples for Cardinal of LTM Revenues and LTM EBIT of 0.92x and 24.7x,
respectively, based on Cardinal's May 15, 1998 closing price of $95.75. The
analysis also indicated that the composite share price of the Comparable Public
Drug Distribution Companies as a multiple of estimated 1998 and estimated 1999
EPS, as published by First Call, ranged from 18.4x to 33.7x (median of 21.1x)
and 15.3x to 26.5x (median of 18.5), respectively. These multiples compared to
public trading multiples for Cardinal of estimated 1998 and estimated 1999 EPS,
as published by First Call, of 34.8x and 28.8x, respectively, based on
Cardinal's May 15, 1998 closing price of $95.75.
Because of the inherent differences between the businesses, operations and
prospects of Scherer and Cardinal and the businesses, operations, and prospects
of the Comparable Public Drug Delivery Companies
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and the Comparable Public Drug Distribution Companies, as the case may be,
Lehman Brothers believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative results of the analysis, and accordingly also
made qualitative judgments concerning differences between the financial and
operating characteristics of Scherer and Cardinal and the Comparable Public Drug
Delivery Companies and Comparable Public Drug Distribution Companies, as the
case may be, that would affect the public trading values of Scherer and Cardinal
and such comparable companies.
Transaction Premium Analysis. Lehman Brothers calculated the percentage
premium to be paid to the Scherer Stockholders relative to the closing market
price of the Scherer Common Stock one day prior to announcement of the Merger,
thirty days prior to announcement of the Merger, for the average of the
preceding 90 trading days, at its high for the last twelve months, at its low
for the last twelve months, and the first trading day of 1998 (the "Transaction
Premium"). The Transaction Premium to be paid in the Merger relative to the
closing market prices at such times is 17.5%, 33.3%, 40.9%, 16.0%, 84.2% and
49.4%, respectively, based on a value of $90.96 in Cardinal Common Shares to be
received by Scherer Stockholders pursuant to the terms of the Merger Agreement.
For comparison, Lehman Brothers selected sixteen transactions that occurred
since 1987 in the generic and specialty drug industry which Lehman Brothers
deemed to be comparable to the Merger. The transactions considered by Lehman
Brothers in its analysis consisted of (identified by acquiror/acquiree): Watson
Pharmaceuticals, Inc./Royce Laboratories, Inc.; Jones Medical Industries,
Inc./Daniels Pharmaceuticals, Inc.; Teva Pharmaceuticals Industries
Ltd./Biocraft Laboratories, Inc.; Watson Pharmaceuticals, Inc./Circa
Pharmaceuticals, Inc.; IVAX Corporation/Zenith Laboratories, Inc.; A.L. Pharma
Inc./Apothekernes Laboratorium AS; IVAX Corporation/McGaw Inc.; Welsh, Carson,
Anderson & Stowe/Solopak division of Smith & Nephew plc; Medeva plc/Armstrong
Pharmaceuticals, Inc.; IVAX Corporation/LuChem Pharmaceuticals, Inc.; IVAX
Corporation/Solopak division of Smith & Nephew plc; IVAX Corporation/Willen Drug
Company; Yamanouchi Pharmaceutical Co., Ltd. Post/Roberts Pharmaceuticals
Corporation; IVAX Corporation/Harris Pharmaceuticals Ltd.; Fujisawa
Pharmaceuticals Co., Ltd./Lyphomed, Inc.; and A.L. Pharma Inc./Barre-National
Corporation division of Revco D.S., Inc. (collectively, the "Comparable
Transactions"). Lehman also reviewed the premia paid by the acquirors relative
to the stock price of the acquirees at certain times (the "Comparable
Transaction Premia"). The Comparable Transaction Premia were selected based on
the business of the acquiree, size and nature of the transaction and the form of
consideration, among other factors. The medians of the Comparable Transaction
Premia relative to closing share prices of the acquiree for one day prior to
announcement,thirty days prior to announcement, at the high for the twelve
months preceding announcement, and at the low for the twelve months preceding
announcement were 48.8%, 55.7%, 26.4% and 89.1%, respectively, and the means of
the Comparable Transaction Premia were 37.4%, 54.0%, 26.2% and 115.5%,
respectively.
Comparable Transaction Analysis. Lehman Brothers reviewed certain terms
and financial characteristics of the Comparable Transactions. The mean multiples
of Enterprise Value (using the transaction value for Market Value) to LTM
Revenues and LTM EBIT for the Comparable Transactions was 3.39x and 17.7x,
respectively. The median multiples of Enterprise Value (using the transaction
value for Market Value) to LTM Revenues and LTM EBIT for the Comparable
Transactions was 2.98x and 14.7x, respectively. This range compared to multiples
of Enterprise Value of Scherer (using the transaction value for Market Value) to
LTM Revenues and LTM EBIT of 4.10x and 23.6x, respectively, for the Merger.
Because the reasons for and circumstances surrounding each of the
Comparable Transactions analyzed were specific to each transaction and because
of the inherent differences between the business, operations and prospects of
Scherer and the businesses, operations and prospects of the acquired companies
included in the Comparable Transactions, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, but rather also made qualitative judgments concerning
differences between the characteristics of the Comparable Transactions and the
Merger that would affect the acquisition values of Scherer and such acquired
companies.
Discounted Cash Flow Analysis. Lehman Brothers performed a discounted cash
flow analysis on the projected financial information provided by Scherer's
management ("Management Case") and as adjusted to reflect a slower growth rate
in earnings before interest and taxes ("Adjusted Case"). Lehman Brothers
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discounted to present value the projected stream of after-tax cash flows and the
terminal value (the "Terminal Value") of the business. Terminal Value was based
upon a range of 14x to 18x projected earnings before interest and taxes ("EBIT")
in 2001. Lehman Brothers used discount rates ranging from 22% to 26%, which were
chosen based on factors such as the current level of inflation and interest
rates, the inherent business risk of Scherer and the drug delivery industry as a
whole, and the cost of capital to Scherer. The imputed value per share of
Scherer Common Stock resulting from these analyses, based on a diluted share
count, calculated using the treasury stock method, ranged from $69.69 to $96.26
for the Management Case and $57.52 to $79.82 for the Adjusted Case.
Pro Forma Combination Analysis. Lehman Brothers considered the effect the
Merger could have on the EPS of the combined company following the Merger as
compared with the EPS of Cardinal on a stand-alone basis. Taking into account
certain assumptions and considerations, excluding the realization of the
synergies, this analysis indicated that, based on forecasts for Scherer provided
by Scherer's management and consensus analyst estimates for Cardinal, the Merger
is estimated to be neither materially accretive nor materially dilutive in
calendar years 1998, 1999 and 2000.
Contribution Analysis. Lehman Brothers reviewed the relative financial
contribution of Scherer and Cardinal to the estimated EBIT, pretax income, and
net income of the combined company following the Merger, without taking into
consideration synergies, for 1998, 1999, 2000 and 2001. For this analysis,
Lehman Brothers used management projections of Scherer and estimates of
third-party research analysts for Cardinal. The analysis indicated that in 1998,
Scherer is estimated to contribute 18.7%, 18.0% and 17.4% of the estimated EBIT,
pretax income and net income of the combined company. In 1999, Scherer is
estimated to contribute 17.5%, 16.7% and 16.2% of the estimated EBIT, pretax
income and net income of the combined company. In 2000, Scherer is estimated to
contribute 18.4%, 17.7% and 17.0% of the estimated EBIT, pretax income and net
income of the combined company. In 2001, Scherer is estimated to contribute
20.1%, 19.6% and 19.1% of the estimated EBIT, pretax income and net income of
the combined company. Based on Scherer's and Cardinal's closing prices on May
15, 1998, Scherer Stockholders would own approximately 18.0% of the combined
company following the Merger on a diluted basis based on the latest
publicly-available share counts for each company.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Scherer Board selected Lehman
Brothers because of its expertise, reputation and familiarity with Scherer in
particular and the drug distribution and drug delivery industries in general and
because its investment banking professionals have substantial experience in
transactions similar to the Merger.
As compensation for its services in connection with the Merger, Scherer has
agreed to pay Lehman Brothers a fee of $6,000,000 for acting as financial
advisor in connection with the Merger, including rendering its opinion. In
addition, Scherer has agreed to reimburse Lehman Brothers for reasonable
out-of-pocket expenses incurred in connection with the Merger and to indemnify
Lehman Brothers and certain related persons for certain liabilities that may
arise out of its engagement by Scherer and the rendering of its opinion.
Lehman Brothers is acting as financial advisor to Scherer in connection
with the Merger. Lehman Brothers has also performed various investment banking
services for Scherer in the past and has received customary fees for such
services. Frederick Frank, a Vice Chairman of Lehman Brothers, is also a member
of the Board of Directors of Scherer. In the ordinary course of its business,
Lehman Brothers may actively trade in Scherer and Cardinal securities for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Scherer Board of Directors with
respect to the Merger Agreement, Scherer Stockholders should be aware that
certain officers and directors of Scherer (or their affiliates) have interests
in the Merger that are different from and in addition to the interests of
Scherer
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Stockholders generally. The Board of Directors of Scherer was aware of these
interests and took these interests into account in approving the Merger
Agreement and the transactions contemplated thereby.
Employment Agreements
Scherer entered into employment agreements with Mr. Erdeljan and Nicole S.
Williams, Executive Vice President, Finance, Chief Financial Officer and
Secretary of Scherer, in June 1994 and with Mr. Fotiades in January 1998
(collectively, the "Prior Agreements"), each of which will remain in effect
after the Effective Time. The Prior Agreements provide for an initial term of
employment of one year, automatically renewable thereafter for successive one
year periods, unless terminated by either party to the agreement. Pursuant to
the Prior Agreements, the annual salaries for Mr. Erdeljan, Ms. Williams and Mr.
Fotiades (collectively, the "Employees") as of June 1, 1998 were at $596,024,
$249,429 and $407,000, respectively, with further adjustments available at the
discretion of the Compensation Committee of the Scherer Board of Directors.
Pursuant to the Prior Agreements, if an Employee's employment is terminated
by Scherer without Cause (as defined below) or by the Employee for Good Reason
(as defined below) or Scherer expresses its intention to terminate the Prior
Agreement at the end of the term of such agreement, the Employee is to receive
(i) a monthly amount for 24 months equal to one-twelfth of the Employee's annual
average salary for the prior 12 months (the "Termination Benefit"), (ii) welfare
plan benefits for 24 months in accordance with the terms of such plans and (iii)
use of a company car for 12 months. In the event of an Employee's physical or
mental disability (as defined in the Prior Agreements) Scherer may terminate
employment and shall, subject to certain reductions, provide such Employee with
the Termination Benefit.
For purposes of the Prior Agreements, "Cause" means: (i) any act or acts of
the Employee constituting a felony or its equivalent; (ii) any material breach
by the Employee of any employment agreement with Scherer or its policies or the
willful and persistent failure or refusal of the Employee to perform his or her
duties of employment or comply with any lawful directives of the Scherer Board
of Directors; (iii) a course of conduct amounting to gross negligence, willful
misconduct or dishonesty; or (iv) any misappropriation of material property or a
corporate or business opportunity of Scherer.
For purposes of the Prior Agreements, "Good Reason" means: (i) any material
reductions of such Employee's duties, responsibilities or titles; (ii) subject
to certain exceptions, any involuntary removal of such Employee from any prior
position; (iii) voluntary termination by such Employee within six months after a
Change in Control (as defined in the Prior Agreements and which term encompasses
the Merger); or (iv) such other reasons as may be approved by Scherer, in its
sole discretion, from time to time.
The Prior Agreements contain confidentiality clauses as well as a
non-competition clause which provides that the Employee is not to compete with
Scherer for a period of two years after termination of employment.
Mr. Erdeljan, Scherer and Cardinal entered into an amendment (the "May 17
Amendment") on May 17, 1998 to Mr. Erdeljan's Prior Agreement. Pursuant to such
amendment, (i) if Mr. Erdeljan terminates his employment (x) prior to the 90th
day following the Effective Time (the "90th Day"), such termination shall not be
deemed to be for Good Reason and he shall not be entitled to any further
payments or welfare plan benefits, (y) after the 90th Day, he shall receive (1)
after payment of the Termination Benefit described above, termination payments
for an additional 12 month period, (2) for each of the three years following
termination, an amount equal to his annual bonus received immediately before
such termination and (3) welfare plan benefits for a total of 60 months and (ii)
the non-compete clause contained in the Prior Agreement shall have a five
(rather than two) year term.
On May 17, 1998, Mr. Fotiades, Scherer and Cardinal entered into an
amendment and restatement to Mr. Fotiades' Prior Agreement, and Scherer and
Cardinal entered into an employment agreement with Mr. Stuart pursuant to which
Mr. Stuart shall receive an annual salary of $230,000 (Mr. Fotiades' Prior
Agreement, as amended and restated, and Mr. Stuart's employment agreement,
collectively, the "Fotiades/ Stuart Employment Agreements" and, along with Mr.
Erdeljan's Prior Agreement, as amended pursuant to the May 17 Amendment,
collectively, the "Employment Agreements"), each to become effective at the
Effective Time. The Fotiades/Stuart Employment Agreements' terms differ from the
Prior Agreements in
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that pursuant to the Fotiades/Stuart Employment Agreements, Mr. Fotiades and Mr.
Stuart will receive a retention bonus ("Retention Bonus") of $500,000 and
$300,000, respectively, to be paid in four installments with the first to be
paid at the Effective Time and the last to be paid on the third anniversary
thereof provided that such payments shall be made, subject to the exception set
forth in clause (ii) of this paragraph, only for so long as Messrs. Fotiades and
Stuart, respectively, are employed by the Surviving Corporation. In addition, a
voluntary termination by Messrs. Fotiades or Stuart in connection with a Change
in Control shall be excluded from the definition of "Good Reason." If Messrs.
Fotiades or Stuart, respectively, terminates employment for Good Reason or his
employment is terminated without Cause he shall receive, in addition to amounts
described in the Prior Agreement, (i) for the two years after termination, an
amount equal to the average of the annual bonuses paid in the prior two years
and (ii) any remaining installments of the Retention Bonus.
Stock Options
Cardinal and Scherer covenant in the Merger Agreement to take, prior to the
Effective Time, all such actions as may be necessary to cause each Scherer Stock
Option issued pursuant to the Scherer Stock Plans to be converted at the
Effective Time into 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 Scherer Plans, unvested
Scherer Stock Options will automatically vest at the Effective Time. As of June
8, 1998, the number of unexercised and effective Scherer Options held by the
directors and executive officers of Scherer as a group was 1,512,707.
Directors' and Officers' Indemnification and Insurance
Pursuant to the terms of the Merger Agreement and subject to certain
limitations, for a period of six years from and after the Effective Time, the
surviving corporation in the Merger (the "Surviving Corporation") will indemnify
the present and former officers and directors of Scherer in respect of acts or
omissions occurring prior to the Effective Time to the fullest extent permitted
or provided under the Scherer Certificate and the Scherer Bylaws in effect on
the date of the Merger Agreement. In addition, the Surviving Corporation shall
maintain, with certain limitations, for a period of six years policies of
director's and officer's liability insurance and fiduciary liability insurance
comparable to those currently maintained by Scherer with respect to claims
arising from facts or events that occurred at or before the Effective Time. See
"The Merger Agreement -- Covenants."
Board of Directors
Pursuant to the Merger Agreement, the Cardinal Board of Directors, at or
immediately after the Effective Time, will take all necessary action to elect
Mr. Erdeljan as a member of the Cardinal Board of Directors.
Messrs. Frederick Frank and James A. Stern are directors of Scherer. Mr.
Frank is also a Vice Chairman of Lehman Brothers and Mr. Stern is Chairman of
The Cypress Group, LLC, each of which acted as a financial advisor to Scherer in
connection with the Merger and will receive fees in connection with such
services. Both Messrs. Frank and Stern abstained from voting on any matter
related to the Merger, including but not limited to the approval of the Merger
Agreement and the recommendation to the Scherer Stockholders to vote for the
Scherer Merger Proposal and for the Scherer Adjournment Proposal.
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 D&T, dated the Closing Date, and, if requested by Cardinal, dated
the date of this Proxy Statement/Prospectus, stating that they concur 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 Scherer agree that they shall not, and shall not permit
any of their respective Subsidiaries to, take any actions
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which 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 Scherer will be carried forward to the combined
company at their historical recorded amounts, income of the combined company
will include income of Scherer 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 -- Unaudited Pro
Forma Condensed Combined Summary Financial Information."
Pursuant to the Merger Agreement, Scherer 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 Scherer for
purposes of Rule 145 under 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 Scherer
Common Stock or Cardinal Common Shares or Scherer Options beneficially owned
thereby 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
thereby 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 Commission, a report filed with
the Commission or any other public filing, statement or announcement which
includes the combined financial results of Cardinal and Scherer for a period of
at least 30 days of combined operations of Cardinal and Scherer following the
Effective Time.
REGULATORY APPROVALS
Under the HSR Act and the rules that have been promulgated thereunder by
the FTC, the Merger may not be consummated unless certain filings have been
submitted to the Antitrust Division and the FTC and certain waiting period
requirements have been satisfied. On May 22, 1998, Cardinal and Scherer
submitted the required filings to the FTC and the Antitrust Division. The
waiting period under the HSR Act is currently scheduled to expire on June 21,
1998.
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 Scherer or Cardinal. Scherer
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.
Consummation of the Merger is also subject to clearance by the Cartel
Office under the German competition laws. The initial waiting period under
German competition laws is one month (unless sooner terminated), extendable for
another three months if the Cartel Office seeks to further investigate the
Merger. Cardinal and Scherer will be submitting the required filings to the
Cartel Office.
Other than as described in this Joint Proxy Statement/Prospectus,
consummation of the Merger does not require the approval of any Federal, state
or foreign agency. Certain state, Federal and foreign filings will be required
in connection with consummation of the Merger.
On August 23, 1997, Cardinal signed the Bergen Merger Agreement. On March
9, 1998, the FTC filed a complaint in the United States District Court for the
District of Columbia seeking a preliminary injunction to halt the Bergen Merger.
On March 17, 1998, Bergen and Cardinal announced that they would contest the
FTC's attempt to challenge the transaction. A court hearing began on June 9,
1998. Cardinal and Bergen have agreed not to consummate the Bergen Merger
pending a decision on the preliminary injunction, which is
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expected by the end of July 1998. Cardinal does not believe that the execution
of the Merger Agreement or the consummation of the transactions contemplated
thereby, including the Merger, will affect such litigation with the FTC.
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 such term is defined under the Securities
Act) of Cardinal or Scherer 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 Scherer, 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 Scherer generally include individuals or entities
that control, are controlled by or are under common control with, such person
and generally include the executive officers and directors of such person as
well as principal stockholders of such person.
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 Effective Time 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. 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 such
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 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, 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."
Pursuant to the Affiliate Letters, Cardinal has agreed that, for so long as
any affiliate party to an Affiliate Letter holds any Cardinal Common Shares as
to which such affiliate is subject to the limitations of Rule 145, 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 with respect to the sale, transfer or other disposition of the Cardinal
Common Shares. See "-- Accounting Treatment."
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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 Proxy Statement/Prospectus. This
summary is qualified in its entirety by reference to the Merger Agreement which
is incorporated herein by this reference.
THE MERGER
The Merger Agreement provides that Merger Sub will be merged with and into
Scherer, with the result that Scherer, as the Surviving Corporation, becomes a
wholly owned subsidiary of Cardinal, subject to the requisite approvals of
Cardinal Shareholders and Scherer Stockholders and the satisfaction or waiver of
the other conditions to the Merger. 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 soon as practicable following
the closing of the Merger which will occur on the Closing Date, which is the
tenth business day following the date upon which all conditions set forth in the
Merger Agreement have been satisfied or waived, or such other time or date as
agreed to by the parties. It is currently anticipated that the Effective Time
will occur shortly after the date of the Special Meetings assuming the Merger
Agreement and the Merger are approved at such meetings and all other conditions
to the Merger have been satisfied or waived.
MERGER CONSIDERATION
Exchange Ratio. Upon consummation of the Merger pursuant to the Merger
Agreement, each share of Scherer Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares held by Cardinal, Merger Sub or
Scherer, if any, which will be cancelled) will be converted into and represent
that number of Cardinal Common Shares equal to 0.950 Cardinal Common Shares.
Fractional Shares. No certificates for fractional Cardinal Common Shares
will be issued in the Merger, and to the extent that an outstanding share of
Scherer 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 and become one share of common stock,
$0.01 par value per share, of the Surviving Corporation. Such newly issued
shares will thereupon constitute all of the issued and outstanding capital stock
of the Surviving Corporation.
EXCHANGE PROCEDURES
HOLDERS OF SHARES OF SCHERER COMMON STOCK SHOULD NOT SEND IN THEIR SCHERER
STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
As soon as reasonably practicable after the Effective Time, a letter of
transmittal will be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Scherer Common Stock whose shares were
converted into the right to receive Cardinal Common Shares. 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 Scherer 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 other details of the
exchange. After receipt of such letter of transmittal, each holder of
Certificates should surrender such Certificates to ChaseMellon Shareholder
Services, Inc., the exchange agent for the Merger, pursuant to and in accordance
with the instructions accompanying such letter of transmittal, and each such
holder will receive in exchange therefor a certificate evidencing the whole
number of Cardinal Common
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Shares to which he 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. No interest will be paid or accrued on the cash in lieu of
fractional shares, if any, and unpaid dividends and distributions, if any,
payable to holders of Certificates. Certificates surrendered for exchange by any
person constituting an "affiliate" of Scherer 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 unexchanged
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 laws,
upon surrender of such unexchanged Certificates, such dividends and
distributions, if any, will be paid without interest and less the amount of any
withholding taxes which may be required thereon.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Cardinal, Scherer and Merger Sub. The representations and warranties made by the
parties in 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
Scherer's, on the other hand, obligations under the Merger Agreement that the
other parties' representations and warranties shall have been true and correct
on the date of the Merger Agreement and be true and correct on and as of the
Closing Date as though made on and as of the Closing Date (except for such
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; provided that the
representations and warranties of Scherer regarding its capitalization need be
true and correct in all material respects.
For purposes of the Merger Agreement, "Material Adverse Effect" means, with
respect to any entity, any adverse event, change, circumstance or effect that,
individually or in the aggregate with all other adverse events, changes,
circumstances and effects, is or is reasonably likely to be materially adverse
to the business, financial condition or results of operations of such entity and
its Subsidiaries taken as a whole, other than (i) any change, circumstance or
effect relating to the economy, foreign exchange rates or securities markets in
general or the industries generally in which Cardinal and its Subsidiaries or
Scherer and its Subsidiaries operate and not specifically relating to Cardinal
or Scherer and (ii) solely with respect to Cardinal (a) the consummation or
failure of consummation of the Bergen Merger, (b) the incurrence by Cardinal or
any affiliate thereof of costs, fees, and expenses relating to the consummation
or failure of consummation of the Bergen Merger and any write-off, accrual or
special charge taken or incurred by Cardinal or any affiliate thereof in
connection with such costs, fees and expenses (subject to certain limitations)
and (c) any write-off, accrual or special charge relating to certain
transactions described in Cardinal's Quarterly Report on Form 10-Q for the
period ended March 31, 1998 (subject to certain limitations).
COVENANTS
Mutual Covenants. Pursuant to the Merger Agreement, each of Cardinal,
Scherer and Merger Sub has agreed that:
(i) each party will use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
Merger and the other transactions contemplated by the Merger Agreement as
soon as practicable, including making an appropriate filing of a
Notification and Report Form pursuant to the
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HSR Act with respect to the transactions contemplated hereby as promptly as
practicable (which filing has been made) and supplying as promptly as
practicable any additional information and documentary material that may be
requested pursuant to the HSR Act and use all reasonable efforts to take
all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable;
(ii) each party will obtain all requisite approvals and authorizations
for the transactions contemplated by the Merger Agreement under the HSR Act
or any other Regulatory Law (as defined below), use all reasonable efforts
to (a) cooperate in all respects with each other in connection with any
filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party, (b)
promptly inform the other party of any communication received by such party
from, or given by such party to, the Antitrust Division or any other
governmental entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding
any of the transactions contemplated by the Merger Agreement, and (c)
permit the other party to review any communication given by it to, and make
all reasonable efforts to consult with each other in advance of any meeting
or conference with, the Antitrust Division or any such other governmental
entity or, in connection with any proceeding by a private party, with any
other entity, and to the extent permitted by the Antitrust Division or such
other applicable governmental entity or other entity, give the other party
the opportunity to attend and participate in such meetings and conferences,
in each case relating solely to the transactions contemplated by this
Agreement.
(iii) if any administrative or judicial action or proceeding,
including any proceeding by a private party, is instituted (or threatened
to be instituted) challenging any transaction contemplated by the Merger
Agreement as violative of any of the Sherman Act, as amended, the Clayton
Act, as amended, the HSR Act and any other federal, state and foreign,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization
or restraint of trade or lessening of competition through merger or
acquisition ("Regulatory Laws"), each party will cooperate in all respects
with each other and use all reasonable efforts to contest and resist any
such action or proceeding and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the transactions contemplated by the
Merger Agreement;
(iv) if any objections are asserted with respect to the transactions
contemplated by the Merger Agreement under any Regulatory Law or if any
suit is instituted by any governmental entity or any private party
challenging any of the transactions contemplated by the Merger Agreement as
violative of any Regulatory Law, each party will use all reasonable efforts
to resolve any such objections or challenge as such governmental entity or
private party may have to such transactions under such Regulatory Law so as
to permit consummation of the transactions contemplated by the Merger
Agreement.
(v) each party will use its best efforts to cause the Merger to
qualify, and will not (both before and after consummation of the Merger)
take any actions which to its knowledge could reasonably be expected to
prevent the Merger from qualifying as a reorganization under the provisions
of Section 368 of the Code; and
(vi) each party will not, and will not permit any of its Subsidiaries
(as defined below) to, take any actions which would, or would be reasonably
likely to, prevent Cardinal from accounting, and shall use its 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.
Notwithstanding anything to the contrary in the Merger Agreement, neither
Cardinal nor Scherer shall be required to (i) hold separate (including by trust
or otherwise) or divest any businesses or assets or (ii) take or agree to take
any other action or agree to any limitation that would reasonably be expected to
have a Material Adverse Effect on Cardinal or Scherer, or would reasonably be
expected to substantially impair the
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overall benefits expected, as of the date of the Merger Agreement, to be
realized from the consummation of the Merger.
For purposes of the Merger Agreement, "Subsidiary" when used (A) with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, (i) of which such party or any other 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 a majority of the voting interests in such partnership) or
(ii) at least a majority of the securities or other interests of which having by
their terms ordinary voting power to elect a majority 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 by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries and (B) with respect to Scherer, shall include R.P. Scherer
VerWaltungs GmbH, R.P. Scherer GmbH, R.P. Scherer GmbH & Co. KG, R.P. Scherer
S.p.A., R.P. Scherer S.A., R.P. Scherer Production S.A., Allcaps
Weichgelatinekapseln GmbH and R.P. Scherer K.K.
Covenants of Cardinal. Cardinal covenants in the Merger Agreement:
(i) to take certain actions with respect to this Joint Proxy
Statement/Prospectus, and to keep the Registration Statement effective as
long as is necessary to consummate the Merger;
(ii) that none of the information supplied by Cardinal for inclusion
or incorporation by reference in this Joint Proxy Statement/Prospectus and
each amendment or supplement hereto, at the time of mailing thereof and at
the time of each of the Cardinal Special Meeting and the Scherer Special
Meeting will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
(iii) to use all reasonable efforts to cause the Cardinal Common
Shares to be issued in the Merger and the Cardinal Common Shares to be
reserved for issuance upon exercise of the Converted Options to be approved
for listing, upon official notice of issuance, on the NYSE;
(iv) to provide the officers, employees, accountants, counsel and
financial advisors of Scherer reasonable access during normal business
hours, during the period prior to the Effective Time, to all its relevant
properties, books, contracts, commitments and records and all other
relevant information concerning its business, properties and personnel as
Scherer may reasonably request; and
(v) during the period from the date of the Merger Agreement and
continuing until the Effective Time, not to (except as expressly
contemplated or permitted by the Merger Agreement or to the extent that
Scherer shall otherwise consent in writing):
X except to the extent required to comply with its obligations
hereunder, required by law or required by the rules and regulations
of NYSE, make any amendment to the Cardinal Articles that would
adversely affect in any material respect the rights and preferences
of the holders of Cardinal Common Shares or make any changes in the
certificate of incorporation of Merger Sub;
X change any method or principle of accounting in a manner that is
inconsistent with past practice except to the extent required by
GAAP as advised by Cardinal's regular independent counsel;
X take any action, or permit any of its Subsidiaries to take any
action, that would prevent the Merger from qualifying as a
reorganization under Section 368 of the Code;
X make, declare or pay any extraordinary cash dividend, other than
dividends between Cardinal and a Subsidiary of Cardinal;
X permit or cause any Subsidiaries to do any of the foregoing or agree
or commit to do any of the foregoing; or
X agree in writing or otherwise to take any of the foregoing actions.
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For a period of six years from and after the Effective Time, Cardinal has
agreed to cause the Surviving Corporation to indemnify, defend and hold harmless
the present and former officers and directors of Scherer in respect of acts or
omissions occurring prior to the Effective Time to the fullest extent permitted
or provided under the Scherer Certificate and the Scherer Bylaws in effect on
the date of the Merger Agreement. The Surviving Corporation will, for a period
of six years and subject to certain limitations, maintain the current policies
of directors' and officers' liability insurance and fiduciary liability
insurance maintained by Scherer (provided, that the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred at or before the Effective Time.
In addition, Cardinal has agreed that, at or immediately prior to the
Effective Time, the Cardinal Board of Directors will take all necessary action
to elect Mr. Erdeljan as a director of Cardinal.
Covenants of Scherer. Scherer covenants in the Merger Agreement:
(i) that none of the information supplied by Scherer for inclusion or
incorporation by reference in this Proxy Statement/Prospectus and each
amendment or supplement hereto, at the time of mailing thereof and at the
time of each of the Cardinal Special Meeting and the Scherer Special
Meeting will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and
(ii) to provide the officers, employees, accountants, counsel,
financial advisors of Cardinal reasonable access during normal business
hours, during the period prior to the Effective Time, to all its relevant
properties, books, contracts, commitments and records and all other
relevant information concerning its business, properties and personnel as
Cardinal may reasonably request.
Scherer has also agreed in the Merger Agreement, that, during the period
from the date of the Merger Agreement and continuing until the Effective Time,
not to (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:
(a) adjust, split, combine or reclassify its capital stock, (b) make,
declare or pay any dividend 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, other than dividends, distributions,
redemptions, purchases or other acquisitions of shares between Scherer
and a wholly owned Subsidiary of Scherer and dividends by majority-owned
Subsidiaries of Scherer in the ordinary course of business consistent
with past practice (including increases in such amounts consistent with
past practice), (c) grant any person any right or option to acquire any
shares of its capital stock; provided that Scherer may grant options
under the Scherer 1997 Stock Option Plan with a fair market value
exercise price to purchase shares of Scherer Common Stock consistent with
the terms of the pre-established formula under Scherer's 1997 Stock
Option Plan with respect to Scherer's fiscal 1998 performance to
employees of Scherer in the ordinary course of business consistent with
past practice, (d) issue, deliver or sell or agree to issue, deliver or
sell any additional shares of its capital stock, indebtedness of Scherer
having the right to vote on any matters on which stockholders may vote or
any securities or obligations convertible into or exchangeable or
exercisable for any shares of its capital stock or such securities
(except (1) pursuant to the exercise of options which are outstanding as
of the date of the Merger Agreement in accordance with their existing
terms or (2) as and to the extent described in subclause (c) of this
clause), or (e) enter into any agreement, understanding or arrangement
with respect to the sale, purchase or voting of its capital stock (except
as and to the extent described in subclause (c) of this clause);
- directly or indirectly sell, transfer, lease, pledge, mortgage, encumber
or otherwise dispose of any of its material property or assets, other
than the sale of inventory and the disposition of obsolete or worn-out
equipment in the ordinary course of business consistent with past
practice;
- make or propose any changes in the Scherer Certificate or the Scherer
Bylaws;
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- merge or consolidate with any other person or acquire a material amount
of assets or capital stock of any other person, create any subsidiary
outside the ordinary course of business or enter into any confidentiality
agreement with any person outside the ordinary course of business;
- 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;
- except as previously disclosed to Cardinal, 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 salary
increases granted in the ordinary course of business consistent with past
practice, other than, without the consent of Cardinal, to employees who
are officers or directors of Scherer, or otherwise increase the
compensation or benefits provided to any officer, director, consultant or
employee except as may be required by law or a binding written contract
in effect on the date of the Merger Agreement;
- enter into, adopt or amend any employee benefit or similar plan;
- change any method or principle of accounting in a manner that is
inconsistent with past practice, except to the extent required by GAAP as
advised by Scherer's regular independent accountants;
- settle any actions, claims or proceedings, whether now pending or
hereafter made or brought involving an amount in excess of $500,000;
- write up, write down or write off the book value of any assets,
individually or in the aggregate, in excess of $500,000, except for
depreciation and amortization in accordance with GAAP consistently
applied;
- incur or commit to any capital expenditures, other than capital
expenditures provided for in Scherer's Profit Plan for fiscal 1999;
- take any action, or permit any of its Subsidiaries to take any action,
that would prevent the Merger from qualifying as a reorganization under
Section 368 of the Code;
- take any action that would reasonably be expected to result in any of the
representations and warranties of Scherer contained in the Merger
Agreement becoming false or inaccurate in any material respect;
- 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, Scherer has agreed that neither it nor
any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries will, and that it will direct and use its best efforts to cause its
and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or
knowingly facilitate (including by way of furnishing information) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving, or any purchase or
sale of all or any significant portion of the assets or 10% or more of the
equity securities of, it or any of its Subsidiaries (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"). Scherer has further
agreed that neither it nor any of its Subsidiaries nor any of the officers and
directors of it or its Subsidiaries shall, and that it shall direct and use its
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, have
any discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition
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Proposal or accept an Acquisition Proposal. Notwithstanding the foregoing, at
any time prior to the Scherer Special Meeting, Scherer or its Board of Directors
will be permitted to engage in any discussions or negotiations with, or provide
any information to, any Person in response to an unsolicited bona fide written
Acquisition Proposal by any such Person if: (i) the Scherer Board of Directors
concludes in good faith by a majority vote, after consulting with a nationally
recognized investment banking firm, that such Acquisition Proposal would, if
consummated, constitute a Superior Proposal, (ii) prior to providing any
information or data to any Person in connection with an Acquisition Proposal by
any such Person, the Scherer Board of Directors receives from such Person an
executed confidentiality agreement on terms substantially similar to those
contained in the confidentiality agreement in effect between Scherer and
Cardinal and (iii) prior to providing any information or data to any Person, the
Scherer Board of Directors notifies Cardinal promptly of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such Person and all of the material terms and conditions of any proposals or
offers. Scherer has agreed to keep Cardinal fully informed, on a current basis,
of the status and terms of any such proposals or offers and the status of any
such discussions or negotiations. In the event that the Scherer Board of
Directors determines in good faith by a majority vote, after consulting with a
nationally recognized investment banking firm, that an Acquisition Proposal
would, if consummated, constitute a Superior Proposal, the Board of Directors of
Scherer may withdraw, modify or change, in a manner adverse to Cardinal, the
approval of the Scherer Board of Directors of the Merger and, to the extent
applicable, comply with Rule 14e-2 promulgated under the Exchange Act with
respect to an Acquisition Proposal by disclosing such withdrawn, modified or
changed Scherer Board of Directors approval in connection with a tender or
exchange offer for Scherer Common Stock, provided that it uses all reasonable
efforts to give Cardinal two days' prior written notice of its intention to do
so. The Scherer Board of Directors will not, in connection with any such
withdrawal, modification or change of the Scherer Board approval, take any
action to change the approval of the Scherer Board of Directors for purposes of
causing any state takeover statute or other state law to become applicable to
the Merger or inapplicable to any Acquisition Proposal or transaction
contemplated thereby. Further, pursuant to the Merger Agreement, Scherer has
agreed to immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal.
If, prior to the approval of the Merger at the Scherer Special Meeting: (x)
the Scherer Board of Directors determines in good faith, after consultation with
its financial advisors, with respect to any written proposal from a third party
for an Acquisition Proposal received after the date hereof that was not
initiated, solicited, encouraged or knowingly facilitated by Scherer or any of
its Subsidiaries or their affiliates or agents in violation of this Agreement,
that such Acquisition Proposal would, if consummated, constitute a Superior
Proposal (after taking into account any adjustment to the terms and conditions
of the Merger offered in writing by Cardinal in response to such Acquisition
Proposal) and (y) Scherer has received from a nationally recognized investment
banking firm a written opinion (a copy of which is delivered to Cardinal) that
the Acquisition Proposal would, if consummated, constitute a Superior Proposal
(after taking into account any adjustment to the terms and conditions of such
transaction offered in writing by Cardinal), Scherer may terminate the Merger
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 Acquisition Proposal, provided that, prior to any such
termination, (i) Scherer has provided Cardinal written notice that it intends to
terminate this Agreement, identifying the Acquisition Proposal then determined
to be a Superior Proposal and delivering the information with respect to such
Acquisition Proposal required by the provisions of the Merger Agreement
described in the immediately preceding paragraph, and (ii) at least three full
business days after Scherer has provided the notice referred to in clause (i)
above (provided that the advice and opinion referred to in clauses (x) and (y)
above shall continue in effect without revocation, revision or modification),
(A) Scherer delivers to Cardinal a written notice of termination, (B) Cardinal
receives from Scherer a wire transfer in the aggregate amount of (I) Cardinal's
fees and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby as the same may have been estimated by
Cardinal in good faith prior to the date of such delivery (subject to an
adjustment payment, if any, between the parties upon Cardinal's definitive
determination of such fees and expenses), plus (II) the Termination Fee
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(less the amount of any Cardinal fees and expenses paid pursuant to the
provisions described in clause I) as described below under "--Termination," and
(C) Cardinal receives a written acknowledgment from Scherer and from the other
party to the Acquisition Proposal that Scherer and such other party have
irrevocably waived any right to contest such payment.
CONDITIONS
Mutual Conditions. The obligations of Cardinal, Merger Sub and Scherer to
effect the Merger are subject to satisfaction or waiver of the following
conditions:
- the Merger and the transactions contemplated by the Merger Agreement
shall have been approved by the Scherer Stockholders and the Cardinal
Shareholders, if required;
- no laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order
issued by a court or other governmental entity shall be in effect, having
the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger, and no Actions shall be instituted by any
governmental entity which seeks to prevent consummation of the Merger or
seeks material damages in connection with the transactions contemplated
by the Merger Agreement which continues to be outstanding;
- the waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have been terminated or shall have expired;
- there shall have been received all required consents, authorizations,
clearances and/or approvals from German competition and any similar
German authorities necessary to consummate the Merger and the
transactions contemplated hereby to the extent required by German law;
- the Cardinal Common Shares to be issued in the Merger and such other
shares to be reserved for issuance in connection with the Merger shall
have been approved upon official notice of issuance for listing on the
NYSE;
- the Registration Statement shall have been declared effective by the
Commission under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceedings for that purpose shall have been initiated
or threatened by the Commission; and
- Cardinal shall have received a letter, in form and substance reasonably
satisfactory to Cardinal, from D&T dated the Closing Date stating that
they concur 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.
Conditions to Obligations of Cardinal and Merger Sub to Consummate the
Merger. The obligations of Cardinal and Merger Sub to effect the Merger are
further subject to the receipt of certain closing certificates and the
satisfaction of, or waiver by Cardinal, of the following conditions:
- each of the representations and warranties of Scherer, other than those
relating to capitalization, shall have been true and correct on the date
of the Merger Agreement and shall be true and correct on and as of the
Closing Date as though made on and as of the Closing Date (except for
such 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 such 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 Scherer (disregarding the
Material Adverse Effect qualification in any single representation and
warranty);
- the representations and warranties of Scherer relating to capitalization
shall have been true and correct in all material respects on the date of
the Merger Agreement and shall be true and correct in all material
respects on the Closing Date as though made as of the Closing Date
(except for such
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representations and warranties made as of a specified date, the accuracy
of which will be determined as of the specified date); and
- Scherer shall have performed or complied with all agreements and
covenants required to be performed by it under the Merger Agreement at or
prior to the Closing Date that are qualified as to materiality and shall
have performed or complied in all material respects with all other
agreements and covenants required to be performed by it under the Merger
Agreement at or prior to the Closing Date that are not so qualified as to
materiality.
Conditions to Obligations of Scherer to Consummate the Merger. The
obligations of Scherer to effect the Merger are further subject to the receipt
of certain closing certificates and the satisfaction of, or waiver by Scherer,
of the following conditions:
- each of the representations and warranties of Cardinal and Merger Sub set
forth in the Merger Agreement shall have been true and correct on the
date of the Merger Agreement and shall be true and correct on and as of
the Closing Date as though made on and as of the Closing Date (except for
such 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 Cardinal (disregarding the
Material Adverse Effect qualification in any single representation and
warranty);
- Cardinal shall have performed or complied with all agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date that are qualified as to materiality and shall have
performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date that are not so qualified as to materiality;
- the opinion, dated on or about the date of and referred to in this Joint
Proxy Statement/Prospectus, based on appropriate representations of
Scherer and Cardinal, of Simpson, Thacher & Bartlett, counsel to Scherer,
to Scherer to the effect that (a) the Merger will be treated for U.S.
Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and (b) Cardinal, Merger Sub and Scherer will
each be a party to the reorganization within the meaning of Section
368(b) of the Code, shall have been rendered;
- an opinion, dated as of the Closing Date, based on appropriate
representations of Scherer and Cardinal, of Simpson, Thacher & Bartlett,
counsel to Scherer, substantially identical to the opinion referred to in
the immediately preceding clause, shall have been rendered; and
- on or after the date of the Merger Agreement, Cardinal shall not have
undergone a change of control.
STOCK OPTIONS
Cardinal and Scherer covenant in the Merger Agreement to take, prior to the
Effective Time, all such actions as may be necessary to cause each Scherer Stock
Option issued pursuant to the Scherer Stock Plans to be converted at the
Effective Time into a Cardinal Exchange Option to purchase Cardinal Common
Shares, with appropriate adjustments to reflect the Exchange Ratio; provided
that with respect to any Scherer Option that is an "incentive stock option"
within the meaning of Section 422 of the Code, the foregoing conversion will be
carried out in a manner satisfying the requirements of Section 424(a) of the
Code. See "The Merger -- Interests of Certain Persons in the Merger."
SCHERER 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 to, provide benefits to continuing or former employees of Scherer
and its Subsidiaries ("Scherer Employees") that, in the aggregate, are no less
favorable than the
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benefits provided, in the aggregate, under such Benefit Plans to the Scherer
Employees immediately prior to the Effective Time.
With respect to any benefit plans of Cardinal or its Subsidiaries in which
the Scherer Employees participate effective as of the Closing Date, Cardinal has
agreed to, or will cause the Surviving Corporation to: (A) waive any limitations
as to pre-existing conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Scherer Employees
under which any welfare Benefit Plan in which such employees may be eligible to
participate after the Effective Time (provided, however, that no such waiver
shall apply to a pre-existing condition of any Scherer Employee who was, as of
the Effective Time, excluded from participation in a Scherer Benefit Plan by
nature of such pre-existing condition), (B) provide each Scherer Employee with
credit for any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare Benefit Plan in which such employees may be eligible to participate
after the Effective Time, and (C) recognize all service of the Scherer Employees
with Scherer for all purposes (including, without limitation, purposes of
eligibility to participate, vesting credit, entitlement for benefits, and
benefit accrual) in any Benefit Plan in which such employees may be eligible to
participate after the Effective Time, except to the extent such treatment would
result in duplicative accrual on or after the Closing Date of benefits for the
same period of service.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any required approval of the matters presented in
connection with the Merger by the Scherer Stockholders or the Cardinal
Shareholders (i) by mutual written consent of Cardinal and Scherer, by action of
their respective Boards of Directors; (ii) by either Scherer or Cardinal if the
Effective Time shall not have occurred on or before November 30, 1998, provided,
that the right to terminate the Merger Agreement pursuant to the provisions
described in this clause (ii) will not be available to any party whose failure
to fulfill any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
(iii) by either Scherer or Cardinal if any governmental entity (a) issues an
order, decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the Merger
Agreement, and such order, decree, ruling or other action becomes final and
nonappealable or (b) fails to issue an order, decree or ruling or to take any
other action, in the case of each of (a) and (b) which is necessary to fulfill
the closing conditions described under "-- Conditions" above and such denial of
a request to issue such order, decree, ruling or take such other action becomes
final and nonappealable; (iv) by either Scherer or Cardinal if (x) the approval
by the Scherer Stockholders is not obtained by reason of the failure to obtain
the requisite vote of Scherer Stockholders or (y) the approval by the Cardinal
Shareholders, if required, is not obtained by reason of the failure to obtain
the requisite vote of Cardinal Shareholders, in each case upon the taking of
such vote at a duly held meeting or at any adjournment of such meeting; (v) by
Cardinal if the Board of Directors of Scherer (1) shall withdraw or modify in
any adverse manner the approval of the Merger Agreement and the transactions
contemplated thereby by the Scherer Board of Directors, (2) shall approve or
recommend any Acquisition Proposal or (3) shall resolve to take any of the
actions described in subclauses (1) or (2) of this clause (v); (vi) by Scherer
pursuant to the provisions described in the second paragraph under
"-- Acquisition Proposals and Termination Right"; or (vii) by Scherer if the
Cardinal Board of Directors (a) shall withdraw or modify in any adverse manner
the approval of the Merger Agreement and the transactions contemplated thereby
by the Cardinal Board of Directors or (b) shall resolve to take the action
specified in subclause (a) of this clause (vii).
Pursuant to the Merger Agreement, Cardinal and Scherer have agreed that (i)
if Scherer terminates this Agreement pursuant to the provisions described in the
second paragraph under "-- Acquisition Proposals and Termination Right" and in
clause (vi) of the immediately preceding paragraph, (ii) if Cardinal terminates
the Merger Agreement pursuant to the provisions described in clause (v) of the
immediately preceding paragraph or (iii) if (x) Scherer or Cardinal shall
terminate this Agreement pursuant to the provisions described in subclause (x)
of clause (iv) of the immediately preceding paragraph, (y) at any time prior to
such termination there shall have been made to Scherer or publicly disclosed an
Acquisition Proposal with respect
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to Scherer and (z) within twelve months of the termination of this Agreement,
Scherer enters into an Acquisition Agreement with respect to a Business
Combination or a Business Consummation is consummated, then Scherer shall pay to
Cardinal (1) an amount in cash equal to the aggregate amount of Cardinal's
Expenses incurred in connection with pursuing the transactions contemplated by
this Agreement, up to, but not in excess of, an amount equal to $4 million in
the aggregate and (2) a termination fee in an amount equal to $75 million (such
amounts collectively, the "Termination Fee"). For purposes of the Merger
Agreement, "Business Combination" means (i) a merger, consolidation, share
exchange, business combination or similar transaction involving Scherer as a
result of which the Scherer 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 Cardinal entity
thereof), (ii) a sale, lease, exchange, transfer or other disposition of at
least 50% of the assets of Scherer 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
of beneficial ownership of 25% or more of the Scherer Common Stock whether by
tender or exchange offer or otherwise.
The Termination Fee required to be paid pursuant to the provisions
described in clause (i) of the immediately preceding paragraph is to be paid
prior to termination of the Merger Agreement pursuant to the provisions
described in clause (vi) of the second preceding paragraph. The Termination Fee
required to be paid pursuant to the provisions described in clause (ii) of the
immediately preceding paragraph is to be paid to Cardinal within two Business
Days after the termination of this Agreement pursuant to provisions described in
clause (v) of the second preceding paragraph. Any other payment required to be
made pursuant to the provisions described in the preceding paragraph is to be
made to Cardinal prior to the entering into of an Acquisition Agreement with
respect to, or the consummation of, an Acquisition Proposal described therein,
as applicable.
AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties thereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the Scherer Stockholders and the Cardinal Shareholders, but, after any such
approval, no amendment may be made which by law or in accordance with the rules
of any relevant stock exchange requires further approval by such stockholders
without such further approval.
At any time prior to the Effective Time, the parties, by action taken or
authorized by their respective Boards of Directors, may in writing, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein.
FEES AND EXPENSES
Except as otherwise provided in the Merger Agreement, all fees and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such fees and expenses.
RIGHTS OF DISSENTING SHAREHOLDERS
SCHERER STOCKHOLDERS
Scherer Stockholders will not be entitled to dissenters' appraisal rights
under the Delaware Law or any other statute in connection with the Merger. See
"Comparison of Shareholder Rights -- Rights of Dissenting Shareholders."
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CARDINAL SHAREHOLDERS
Section 1701.84 of the Ohio Revised Code 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 Revised Code. This summary does not purport to
be complete and is qualified in its entirety by reference to Section 1701.85 of
the Code, a copy of which is attached as Annex C to this Joint Proxy
Statement/Prospectus. Any Cardinal Shareholder contemplating the exercise of
dissenters' rights is urged to review carefully such provisions and to consult
an attorney, since dissenters' rights will be lost if the procedural
requirements under Section 1701.85 of the Ohio Revised Code are not fully and
precisely satisfied. To perfect dissenters' rights, a Cardinal Shareholder must
satisfy each of the following conditions:
1. No Vote in Favor of the Cardinal Merger Proposal. Cardinal Common
Shares ("Dissenter's Cardinal Shares") held by the dissenting Cardinal
Shareholder (the "Dissenting Cardinal Shareholder") must not be voted at
the Cardinal Special Meeting in favor of the Cardinal Merger Proposal. See
"The Special Meetings -- Matters to Be Considered at the Special Meetings."
This requirement will be satisfied if a proxy is signed and returned with
instructions to vote against the Cardinal Merger Proposal or to abstain
from such vote, if no proxy is returned and no vote is cast at the Cardinal
Special Meeting in favor of the Cardinal Merger Proposal, or if the
Dissenting Cardinal Shareholder revokes a proxy, and thereafter abstains
from voting with respect to the Cardinal Merger Proposal or votes against
the Cardinal Merger Proposal at the Cardinal Special Meeting. 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 his proxy at any time
before its exercise by (i) 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, (ii) giving notice of revocation in open
meeting or (iii) attending the Cardinal Special Meeting and voting in
person. See "The Special Meetings -- Voting of Proxies."
2. 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 the Dissenter's 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 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 Dissenter's Cardinal Shares, the number of Dissenter's
Cardinal Shares and the amount claimed as the fair cash value thereof. A
beneficial owner must, in all cases, have the record holder submit the
Cardinal Demand in respect of the Dissenter's 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 shares owned 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 his authority to sign the demand.
Because only shareholders of record on the Cardinal Record Date may
exercise dissenters' rights, any person who beneficially owns 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
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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 Dissenter's Cardinal Shares related thereto by
Cardinal, all rights accruing to the holder of the Dissenter's Cardinal
Shares, 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 which would have been payable on the Dissenter's Cardinal
Shares, but for such suspension, shall be paid to the holder of record of
the Dissenter's Cardinal Shares as a credit upon the fair cash value of the
Dissenter's Cardinal Shares. If the right to receive the fair cash value is
terminated otherwise than by the purchase of the Dissenter's Cardinal
Shares by Cardinal, all rights will be restored to the Dissenting Cardinal
Shareholder and any distribution that would have been made to the holder of
record of the Dissenter's Cardinal Shares, but for the suspension, will be
made at the time of the termination.
3. 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 the
Dissenter's 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 Dissenter's Cardinal
Shares. Cardinal does not intend to file any complaint for a judicial
determination of the fair cash value of any Dissenter's 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 the Dissenter's Cardinal Shares.
If the Common Pleas Court finds that the Dissenting Cardinal Shareholder is
so entitled, it 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 the
Dissenter's 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 to 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 the
Dissenter's Cardinal Shares is required to be made within 30 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 Dissenter's Cardinal Shares for which payment is made.
Fair cash value is the amount which a willing seller, under no
compulsion to sell, would be willing to accept, and which 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 this value, any
appreciation or depreciation in the market value of the Dissenter's
Cardinal Shares resulting from the Merger is excluded.
The dissenters' rights of any Dissenting Cardinal Shareholder will
terminate if, among other things, (a) he has not complied with Section 1701.85
of the Ohio Revised Code (unless the Board of Directors of Cardinal waives
compliance), (b) the Merger is abandoned or otherwise not carried out or such
Dissenting Cardinal Shareholder withdraws his Cardinal Demand with the consent
of the Board of Directors of Cardinal, or (c) no agreement has been reached
between Cardinal and the Dissenting Cardinal Shareholder with respect to the
fair cash value of the Dissenter's Cardinal Shares and no complaint has been
timely filed in the Common Pleas Court.
NO DISSENTERS' RIGHTS WILL BE AVAILABLE IF OHIO LAW DOES NOT REQUIRE A VOTE
OF CARDINAL SHAREHOLDERS ON THE MERGER AGREEMENT.
53
<PAGE> 68
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary of the material
United States 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 United States federal income taxation that may be
applicable to certain Scherer Stockholders subject to special United States
federal income tax treatment, including, without limitation, foreign persons,
insurance companies, tax-exempt entities, retirement plans and persons who
acquired their Scherer 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
United States federal tax laws other than those pertaining to United States
federal income tax. The discussion below applies to Scherer Stockholders who
hold their shares of Scherer Common Stock as a capital asset within the meaning
of Section 1221 of the Code.
Scherer has received an opinion from Simpson Thacher & Bartlett, counsel to
Scherer, dated as of the date of this Joint Proxy Statement/Prospectus, to the
effect that, 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 that each of Scherer, Cardinal and Merger Sub will be a party to
the reorganization within the meaning of Section 368(b) of the Code. Such
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 Scherer. If any of these factual
assumptions is inaccurate, the tax consequences of the Merger could differ from
those described herein. Scherer's obligation to consummate the Merger is
conditioned upon the receipt by Scherer of an opinion to the same effect from
Simpson Thacher & Bartlett dated as of the Closing Date.
If, in accordance with the opinions referred to above, the Merger
constitutes a reorganization within the meaning of Section 368(a) of the Code,
and Cardinal, Scherer 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 United States federal income tax consequences of the Merger to a
Scherer Stockholder, and to Cardinal, Scherer and Merger Sub. No gain or loss
will be recognized by the Scherer Stockholders with respect to the Cardinal
Common Shares received in the Merger. The tax basis of the Cardinal Common
Shares received by a Scherer Stockholder in the Merger will be equal to the tax
basis of the shares of Scherer 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 the Scherer Stockholders will include the holding period of the
shares of Scherer Common Stock exchanged therefor.
The receipt of cash in lieu of a fractional Cardinal Common Share by a
Scherer Stockholder pursuant to the Merger will result in taxable gain or loss
to such stockholder for United States 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. 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.
No gain or loss will be recognized by Cardinal, Scherer or Merger Sub as a
result of the Merger.
Scherer Stockholders will be required to retain records and file with their
United States federal income tax returns a statement setting forth certain facts
relating to the Merger.
THE FOREGOING DISCUSSION OF MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. THE
OPINION OF SIMPSON THACHER & BARTLETT IS NOT BINDING ON THE INTERNAL REVENUE
SERVICE. BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX
54
<PAGE> 69
CONSEQUENCES OF ANY PARTICULAR STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT
DISCUSSED HEREIN, EACH SCHERER STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX
ADVISER WITH RESPECT TO HIS OWN PARTICULAR CIRCUMSTANCES AND WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED
CHANGES IN APPLICABLE TAX LAWS.
THE COMPANIES
BUSINESS OF SCHERER
The following is a brief description of the business of Scherer. Additional
information regarding Scherer is contained in its filings with the SEC pursuant
to the Exchange Act. See "Available Information" and "Incorporation of Certain
Documents by Reference."
Scherer is a leading international manufacturer and developer of drug
delivery systems and is the world's largest producer of soft gelatin capsules
and holds or is developing several other advanced drug delivery technologies.
Scherer's proprietary drug delivery systems improve the efficacy of drugs by
regulating the dosage so as to ease administration, increase absorption, enhance
bio-availability and control time and place of release.
Scherer has a broad domestic and international base of soft gelatin capsule
customers and has a global network of 19 facilities and 3,600 employees in 12
countries. Although soft gelatin capsules accounted for 86% of Scherer's fiscal
1998 sales, as part of its strategy of growth within the healthcare industry
Scherer is also focused on the development and commercialization of advanced
drug delivery systems and is managing the development and registration of new
pharmaceutical products which are based on the reformulation of off-patent
compounds and utilize Scherer's proprietary drug delivery technology.
Scherer has its principal executive offices at 2301 West Big Beaver Road,
Troy, Michigan and its telephone number is (248) 649-0900.
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 nation's
largest wholesale distributors of pharmaceutical and related health care
products to independent and chain drug stores, hospitals, alternate care centers
and the 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
which automate the distribution, management and control of medications and
supplies in hospitals and alternate care facilities. Cardinal is also the
largest franchisor of independent retail pharmacies in the United States through
its MSI subsidiary. In addition, through its Owen subsidiary, Cardinal provides
pharmacy management and information services to hospitals. PCI, another one of
Cardinal's subsidiaries, is also a leading international provider of integrated
packaging services to pharmaceutical manufacturers.
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
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 which are covered by
group contract purchasing arrangements.
Cardinal operates several specialty health care businesses which 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
55
<PAGE> 70
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.
On November 13, 1995, Cardinal completed a merger with MSI, a St. Louis,
Missouri-based franchisor of independent apothecary-style retail pharmacies in
the United States and abroad. On May 7, 1996, Cardinal completed a merger with
Pyxis, a San Diego, California-based designer, manufacturer, marketer and
servicer of unique, point-of-use systems which automate the distribution,
management and control of medications and supplies in hospitals and other
healthcare facilities. On October 11, 1996, Cardinal completed a merger with
PCI, a Philadelphia, Pennsylvania-based provider of integrated packaging
services to pharmaceutical manufacturers. On March 18, 1997, Cardinal completed
a merger with Owen, a Houston, Texas-based provider of fully integrated pharmacy
management and information services to hospitals. On February 18, 1998, Cardinal
completed its acquisition of MediQual, a leading supplier of clinical
information management systems and services to the healthcare industry. On
August 23, 1997, Cardinal signed a definitive merger agreement with Bergen, a
distributor of pharmaceuticals and medical-surgical supplies, pursuant to which
Bergen will become a wholly owned subsidiary of Cardinal. The Bergen Merger is
expected to be accounted for as a pooling-of-interests for financial reporting
purposes. Under the terms of the Bergen Merger, shareholders of Bergen will
receive 0.775 of a Cardinal Common Share in exchange for each outstanding common
share of Bergen. Cardinal expects to issue approximately 42 million Cardinal
Common Shares in the transaction and also expects to assume approximately $603
million in long-term debt. Shareholders of both Cardinal and Bergen approved the
transaction on February 20, 1998. On March 9, 1998, the FTC filed a complaint in
the United States District Court for the District of Columbia seeking a
preliminary injunction to halt the Bergen Merger. On March 17, 1998, Bergen and
Cardinal announced that they would contest the FTC's attempt to challenge the
transaction. A court hearing began on June 9, 1998. Cardinal and Bergen have
agreed not to consummate the Bergen Merger pending a decision on the preliminary
injunction, which is expected by the end of July 1998.
Additional information concerning Cardinal and its subsidiaries is included
in the Cardinal documents filed with the Commission, which are incorporated by
reference herein. See "Incorporation of Certain Documents by Reference."
MERGER SUB
Merger Sub is a newly formed, wholly owned subsidiary of Cardinal formed
for the purpose of effecting the Merger.
56
<PAGE> 71
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The impact of the MediQual Merger, which was completed on February 18,
1998, is not significant on a historical basis and Cardinal's historical prior
period financial statements have not been restated. Upon consummation of either
the Merger or the Bergen Merger, Cardinal's historical financial statements will
be restated for the historical results of MediQual, as part of the restatement
required for either of these mergers.
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, Scherer and Bergen which
are incorporated by reference in this Joint Proxy Statement/Prospectus. 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 MediQual Merger, the Merger and the Bergen 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 any of these mergers or any future merger-related
expenses. See Note 2 for further discussion.
57
<PAGE> 72
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, Scherer and Bergen combined as of March 31, 1998.
<TABLE>
<CAPTION>
CARDINAL
CARDINAL R.P. SCHERER HEALTH & BERGEN
HEALTH, INC. CORPORATION R.P. SCHERER BRUNSWIG
MARCH 31, MARCH 31, PRO FORMA PRO FORMA MARCH 31, PRO FORMA PRO FORMA
1998(1) 1998 ADJUSTMENTS BALANCES(1) 1998 ADJUSTMENTS BALANCES(1)
------------ ------------ ----------- ------------ ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents...... $ 90,151 $ 33,312 $ -- $ 123,463 $ -- $ -- $ 123,463
Marketable securities..... -- 2,662 2,662 2,267 4,929
Trade receivables......... 811,332 163,384 974,716 854,376 1,829,092
Current portion of net
investment in sales-type
leases.................. 70,779 -- 70,779 -- 70,779
Merchandise
inventories(3).......... 2,157,814 68,857 2,226,671 1,598,034 3,824,705
Prepaid expenses and
other................... 173,304 8,229 181,533 8,419 189,952
---------- --------- ----------- ---------- ---------- ----------- ----------
Total current assets.... 3,303,380 276,444 -- 3,579,824 2,463,096 -- 6,042,920
---------- --------- ----------- ---------- ---------- ----------- ----------
Property and
equipment -- at cost.... 537,672 497,970 1,035,642 266,343 -- 1,301,985
Accumulated depreciation
and amortization........ (222,825) (130,436) (353,261) (129,767) (483,028)
---------- --------- ----------- ---------- ---------- ----------- ----------
Property and equipment --
net..................... 314,847 367,534 -- 682,381 136,576 -- 818,957
Other assets:
Net investment in
sales-type lease, less
current portion......... 155,500 -- 155,500 -- 155,500
Goodwill and other
intangibles............. 120,745 160,476 281,221 347,348 628,569
Other..................... 78,557 17,143 95,700 79,377 175,077
---------- --------- ----------- ---------- ---------- ----------- ----------
Total................... $3,973,029 $ 821,597 $ -- $4,794,626 $3,026,397 $ -- $7,821,023
========== ========= =========== ========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- banks.... $ 85,941 $ -- $ -- $ 85,941 $ -- $ -- $ 85,941
Current portion of
long-term obligations... 6,847 1,294 8,141 -- 8,141
Accounts payable.......... 1,613,095 91,716 1,704,811 1,458,737 3,163,548
Other accrued
liabilities(2).......... 297,192 56,587 353,779 269,654 623,433
---------- --------- ----------- ---------- ---------- ----------- ----------
Total current
liabilities........... 2,003,075 149,597 -- 2,152,672 1,728,391 -- 3,881,063
---------- --------- ----------- ---------- ---------- ----------- ----------
Long-term obligations --less
current portion........... 273,267 168,163 441,430 603,249 1,044,679
Deferred tax and other
liabilities............... 149,285 104,960 254,245 21,404 275,649
Shareholders' equity:
Common Shares............. 700,603 233,442 934,045 240,266 1,174,311
Retained earnings(2)...... 861,454 192,419 1,053,873 520,608 1,574,481
Common Shares in treasury,
at cost................. (8,626) -- (8,626) (88,043) (96,669)
Other..................... (6,029) (26,984) (33,013) 522 (32,491)
---------- --------- ----------- ---------- ---------- ----------- ----------
Total shareholders'
equity................ 1,547,402 398,877 -- 1,946,279 673,353 -- 2,619,632
---------- --------- ----------- ---------- ---------- ----------- ----------
Total................... $3,973,029 $ 821,597 $ -- $4,794,626 $3,026,397 $ -- $7,821,023
========== ========= =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
58
<PAGE> 73
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, 1997,
1996 and 1995 combined with the statements of earnings of MediQual for the
twelve months ended June 30, 1997 and fiscal years ended December 31, 1996 and
1995, the consolidated statements of earnings of Scherer for the fiscal years
ended March 31, 1997, 1996 and 1995 and the consolidated statements of earnings
of Bergen for the fiscal years ended September 30, 1997, 1996 and 1995,
respectively. Cardinal's financial information for the nine months ended March
31, 1998 and 1997 have been combined with MediQual's financial information for
the eight and nine months ended February 28, 1998 and March 31, 1997,
respectively, Scherer's financial information for the nine months ended March
31, 1998 and December 31, 1996, respectively, and Bergen's financial information
for the nine months ended March 31, 1998 and June 30, 1997, respectively.
Cardinal completed a merger with MediQual on February 18, 1998. Accordingly,
MediQual's financial information for the month of March 1998 has been
consolidated in Cardinal's financial results for that period.
The financial results of MediQual for the six months ended December 31,
1996 are included in the pro forma financial statements for both fiscal years
ended June 30, 1997 and 1996. MediQual's net revenues and net earnings for the
six months ended December 31, 1996 were approximately $5.3 million and $0.9
million, respectively. Scherer's financial information for the three months
ended June 30, 1997 is excluded from the pro forma financial statements.
Scherer's net revenues and net earnings for the three months ended June 30, 1997
were approximately $149.1 million and $14.2 million, respectively. In addition,
the financial results of Bergen for the quarter ended September 30, 1997 are
included in the pro forma financial statements for both the fiscal year ended
June 30, 1997 and the nine months ended March 31, 1998. Bergen's net revenues
and net earnings for the three months ended September 30, 1997 were
approximately $3.0 billion and $20.8 million, respectively.
59
<PAGE> 74
<TABLE>
<CAPTION>
FISCAL YEAR TWELVE MONTHS FISCAL YEAR
ENDED ENDED ENDED
------------- ------------- --------------
JUNE 30, 1977 JUNE 30, 1997 MARCH 31, 1997
------------- ------------- --------------
CARDINAL MEDIQUAL R.P. SCHERER PRO FORMA PRO FORMA
HEALTH, INC. SYSTEMS INC. CORPORATION ADJUSTMENTS SUBTOTAL
------------- ------------- -------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues(3)............. $10,968,042 $11,246 $588,699 $ -- $11,567,987
Cost of products sold(3).... 10,068,384 2,780 391,648 10,462,812
----------- ------- -------- ----------- -----------
Gross margin................ 899,658 8,466 197,051 -- 1,105,175
Selling, general and
administrative expenses... 515,551 5,350 92,731 613,632
Mergers -- related costs --
prior mergers(4).......... (50,929) -- -- (50,929)
----------- ------- -------- ----------- -----------
Operating earnings.......... 333,178 3,116 104,320 -- 440,614
Other income (expense)...... (22,098) (420) (8,808) (31,326)
----------- ------- -------- ----------- -----------
Earnings before income taxes
and minority interest..... 311,080 2,696 95,512 -- 409,288
Provision for income
taxes..................... 126,481 67 26,275 152,823
Minority interests.......... -- -- 12,269 12,269
----------- ------- -------- ----------- -----------
Net Earnings -- excluding
estimated Future Merger
expenses(2)(4)............ $ 184,599 $ 2,629 $ 56,968 $ -- $ 244,196
=========== ======= ======== =========== ===========
Earnings per Common Share,
excluding estimated Future
Merger Expenses(2)(4)(5)
Basic.................. $ 1.72 $ 1.88
Diluted................ $ 1.69 $ 1.83
Weighted average number of
Common Shares
outstanding(5):
Basic.................. 107,152 130,029
Diluted................ 109,118 133,127
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
60
<PAGE> 75
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------
SEPTEMBER 30, 1997
------------------
PRO FORMA BERGEN BRUNSWIG PRO FORMA PRO FORMA
SUBTOTAL CORPORATION ADJUSTMENTS RESULTS(1)
----------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenues(3)..................... $11,567,987 $11,660,496 $ -- $23,228,483
Cost of products sold(3)............ 10,462,812 11,006,065 21,468,877
----------- ----------- ----------- -----------
Gross margin........................ 1,105,175 654,431 -- 1,759,606
Selling, general and administrative
expenses.......................... 613,632 479,399 1,093,031
Mergers -- related costs -- prior
mergers(4)........................ (50,929) (5,800) (56,729)
----------- ----------- ----------- -----------
Operating earnings.................. 440,614 169,232 -- 609,846
Other income(expense)............... (31,326) (30,793) (62,119)
----------- ----------- ----------- -----------
Earnings before income taxes and
minority interests................ 409,288 138,439 -- 547,727
Provision for income taxes.......... 152,823 56,760 209,583
Minority interests.................. 12,269 -- 12,269
----------- ----------- ----------- -----------
Net Earnings -- excluding estimated
Future Merger expenses(2)(4)...... $ 244,196 $ 81,679 $ -- $ 325,875
=========== =========== =========== ===========
Earnings per Common Share, excluding
estimated Future Merger
Expenses(2)(4)(5)
Basic.......................... $ 1.88 $ 1.93
Diluted........................ $ 1.83 $ 1.89
Weighted average number of Common
Shares outstanding(5):
Basic.......................... 130,029 168,939
Diluted........................ 133,127 172,430
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
61
<PAGE> 76
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
JUNE 30, 1996 DECEMBER 31, 1996 MARCH 31, 1996
------------- ----------------- --------------
CARDINAL MEDIQUAL R.P. SCHERER PRO FORMA PRO FORMA
HEALTH, INC. SYSTEMS INC. CORPORATION ADJUSTMENTS SUBTOTAL
------------- ----------------- -------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues(3)................ $9,407,591 $11,002 $571,710 $ -- $9,990,303
Cost of products sold(3)....... 8,597,878 2,067 375,088 8,975,033
---------- ------- -------- ----------- ----------
Gross margin................... 809,713 8,935 196,622 -- 1,015,270
Selling, general and
administrative expenses...... 514,879 6,058 95,872 616,809
Mergers -- related
costs -- prior mergers and
other special charges(4)..... (49,200) -- (33,804) (83,004)
---------- ------- -------- ----------- ----------
Operating earnings............. 245,634 2,877 66,946 -- 315,457
Other income (expense)......... (18,132) (463) (10,314) (28,909)
---------- ------- -------- ----------- ----------
Earnings before income taxes
and minority interests....... 227,502 2,414 56,632 -- 286,548
Provision for income taxes..... 100,262 115 11,655 112,032
Minority interests............. -- -- 14,274 14,274
---------- ------- -------- ----------- ----------
Net Earnings -- excluding
estimated Future Merger
expenses(2)(4)............... $ 127,240 $ 2,299 $ 30,703 $ -- $ 160,242
========== ======= ======== =========== ==========
Earnings per Common Share,
excluding estimated Future
Merger Expenses(2)(4)(5)
Basic..................... $ 1.22 $ 1.27
Diluted................... $ 1.20 $ 1.23
Weighted average number of
Common Shares outstanding(5):
Basic..................... 103,872 126,610
Diluted................... 106,808 130,695
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
62
<PAGE> 77
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------
SEPTEMBER 30, 1996
------------------
PRO FORMA BERGEN BRUNSWIG PRO FORMA PRO FORMA
SUBTOTAL CORPORATION ADJUSTMENTS RESULTS(1)
---------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenues(3)...................... $9,990,303 $9,942,697 $ -- $19,933,000
Cost of products sold(3)............. 8,975,033 9,368,893 18,343,926
---------- ---------- ----------- -----------
Gross margin......................... 1,015,270 573,804 -- 1,589,074
Selling, general and administrative
expenses........................... 616,809 418,364 1,035,173
Mergers -- related costs -- prior
mergers and other special
charges(4)......................... (83,004) -- (83,004)
---------- ---------- ----------- -----------
Operating earnings................... 315,457 155,440 -- 470,897
Other income (expense)............... (28,909) (30,170) (59,079)
---------- ---------- ----------- -----------
Earnings before income taxes and
minority interests................. 286,548 125,270 -- 411,818
Provision for income taxes........... 112,032 51,737 163,769
Minority interests................... 14,274 -- 14,274
---------- ---------- ----------- -----------
Net Earnings -- excluding estimated
Future Merger expenses(2)(4)....... $ 160,242 $ 73,533 $ -- $ 233,775
========== ========== =========== ===========
Earnings per Common Share, excluding
estimated Future Merger
expenses(2)(4)(5)
Basic........................... $ 1.27 $ 1.41
Diluted......................... $ 1.23 $ 1.38
Weighted average number of Common
Shares outstanding(5):
Basic........................... 126,610 165,340
Diluted......................... 130,695 169,696
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
63
<PAGE> 78
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
JUNE 30, 1995 DECEMBER 31, 1995 MARCH 31, 1995
--------------- ------------------- --------------
CARDINAL MEDIQUAL SYSTEMS R.P. SCHERER PRO FORMA PRO FORMA
HEALTH INC, INC. CORPORATION ADJUSTMENTS SUBTOTAL
--------------- ------------------- -------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues(3).............. $8,472,302 $10,974 $536,682 $ -- $9,019,958
Cost of products sold(3)..... 7,779,030 2,445 339,923 8,121,398
---------- ------- -------- ----------- ----------
Gross margin................. 693,272 8,529 196,759 -- 898,560
Selling, general and
administrative expenses.... 428,343 9,921 92,937 531,201
---------- ------- -------- ----------- ----------
Operating earnings........... 264,929 (1,392) 103,822 -- 367,359
Other income (expense)....... (15,665) (70) (12,235) (27,970)
---------- ------- -------- ----------- ----------
Earnings before income taxes
and minority interests..... 249,264 (1,462) 91,587 -- 339,389
Provision for income taxes... 102,677 -- 30,352 133,029
Minority interests........... -- -- 16,376 16,376
---------- ------- -------- ----------- ----------
Net Earnings -- excluding
estimated Future Merger
expenses(2)................ $ 146,587 $(1,462) $ 44,859 $ -- $ 189,984
========== ======= ======== =========== ==========
Earnings per Common Share,
excluding estimated Future
Merger expenses(2)(5)
Basic................... $ 1.46 $ 1.54
Diluted................. $ 1.40 $ 1.48
Weighted average number of
Common Shares
outstanding(5):
Basic................... 100,398 123,089
Diluted................. 104,730 128,559
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
64
<PAGE> 79
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------
SEPTEMBER 30, 1995
------------------
PRO FORMA BERGEN BRUNSWIG PRO FORMA PRO FORMA
SUBTOTAL CORPORATION ADJUSTMENTS RESULTS(1)
---------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenues(3)...................... $9,019,958 $8,447,607 $ -- $17,467,565
Cost of products sold(3)............. 8,121,398 7,944,396 16,065,794
---------- ---------- ----------- -----------
Gross margin......................... 898,560 503,211 -- 1,401,771
Selling, general and administrative
expenses........................... 531,201 363,179 894,380
---------- ---------- ----------- -----------
Operating earnings................... 367,359 140,032 -- 507,391
Other income (expense)............... (27,970) (30,542) (58,512)
---------- ---------- ----------- -----------
Earnings before income taxes and
minority interests................. 339,389 109,490 -- 448,879
Provision for income taxes........... 133,029 45,548 178,577
Minority interests................... 16,376 -- 16,376
---------- ---------- ----------- -----------
Net Earnings -- excluding estimated
Future Merger expenses(2).......... $ 189,984 $ 63,942 $ -- $ 253,926
========== ========== =========== ===========
Earnings per Common Share, excluding
estimated Future Merger
expenses(2)(5)
Basic........................... $ 1.54 $ 1.57
Diluted......................... $ 1.48 $ 1.52
Weighted average number of Common
Shares outstanding (5):
Basic........................... 123,089 161,440
Diluted......................... 128,559 167,116
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
65
<PAGE> 80
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------
DECEMBER 31,
MARCH 31, 1997 1996
--------------------------- ------------
CARDINAL MEDIQUAL R.P. SCHERER PRO FORMA PRO FORMA
HEALTH, INC. SYSTEMS INC. CORPORATION ADJUSTMENTS SUBTOTAL
------------ ------------ ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues(3).................. $8,177,382 $8,393 $438,625 $ -- $8,624,400
Cost of products sold(3)......... 7,513,038 1,886 294,640 7,809,564
---------- ------ -------- ----------- ----------
Gross margin..................... 664,344 6,507 143,985 -- 814,836
Selling, general and
administrative expenses........ 383,071 4,008 68,711 455,790
Mergers -- related costs -- prior
mergers(4)..................... (49,056) -- -- (49,056)
---------- ------ -------- ----------- ----------
Operating earnings............... 232,217 2,499 75,274 -- 309,990
Other income (expense)........... (17,080) (465) (6,794) (24,339)
---------- ------ -------- ----------- ----------
Earnings before income taxes and
minority interests............. 215,137 2,034 68,480 -- 285,651
Provision for income taxes....... 92,304 17 19,516 111,837
Minority interests............... -- -- 8,821 8,821
---------- ------ -------- ----------- ----------
Net Earnings -- excluding
estimated Future Merger
expenses(2)(4)................. $ 122,833 $2,017 $ 40,143 $ -- $ 164,993
========== ====== ======== =========== ==========
Earnings per Common Share,
excluding estimated Future
Merger Expenses(2)(4)(5)
Basic....................... $ 1.15 $ 1.27
Diluted..................... $ 1.13 $ 1.24
Weighted average number of Common
Shares outstanding(5):
Basic....................... 106,646 129,503
Diluted..................... 108,711 132,639
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
66
<PAGE> 81
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30, 1997
--------------
BERGEN
PRO FORMA BRUNSWIG PRO FORMA PRO FORMA
SUBTOTAL CORPORATION ADJUSTMENTS RESULTS(1)
---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues(3)......................... $8,624,400 $8,640,453 $ -- $17,264,853
Cost of products sold(3)................ 7,809,564 8,157,832 15,967,396
---------- ---------- ----------- -----------
Gross margin............................ 814,836 482,621 -- 1,297,457
Selling, general and administrative
expenses.............................. 455,790 350,284 806,074
Mergers -- related costs -- prior
mergers(4)............................ (49,056) (5,800) (54,856)
---------- ---------- ----------- -----------
Operating earnings...................... 309,990 126,537 -- 436,527
Other income (expense).................. (24,339) (23,305) (47,644)
---------- ---------- ----------- -----------
Earnings before income taxes and
minority interests.................... 285,651 103,232 -- 388,883
Provision for income taxes.............. 111,837 42,325 154,162
Minority interests...................... 8,821 -- 8,821
---------- ---------- ----------- -----------
Net Earnings -- excluding estimated
Future Merger expenses(2)(4).......... $ 164,993 $ 60,907 $ -- $ 225,900
========== ========== =========== ===========
Earnings per Common Share, excluding
estimated Future Merger
Expenses(2)(4)(5)
Basic.............................. $ 1.27 $ 1.34
Diluted............................ $ 1.24 $ 1.31
Weighted average number of Common Shares
outstanding (5):
Basic.............................. 129,503 168,361
Diluted............................ 132,639 171,854
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
67
<PAGE> 82
<TABLE>
<CAPTION>
NINE MONTHS EIGHT MONTHS NINE MONTHS
ENDED ENDED ENDED
-------------- ----------------- --------------
MARCH 31, 1998 FEBRUARY 28, 1998 MARCH 31, 1998
-------------- ----------------- --------------
CARDINAL MEDIQUAL R.P. SCHERER PRO FORMA PRO FORMA
HEALTH, INC. SYSTEMS INC. CORPORATION ADJUSTMENTS SUBTOTAL
-------------- ----------------- -------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues(3)............... $9,381,955 $7,866 $471,625 $ -- $9,861,446
Cost of products sold(3)...... 8,627,913 2,065 309,277 8,939,255
---------- ------ -------- ----------- ----------
Gross margin.................. 754,042 5,801 162,348 -- 922,191
Selling, general and
administrative expenses..... 412,372 3,748 79,639 495,759
---------- ------ -------- ----------- ----------
Special Charges:
Mergers -- related
costs -- prior mergers(4)... (26,529) -- -- (26,529)
Facilities closures and
employee severance(4)....... (8,634) -- -- (8,634)
---------- ------ -------- ----------- ----------
Operating earnings............ 306,507 2,053 82,709 -- 391,269
Other income (expense)........ (8,741) 11 (5,753) (14,483)
---------- ------ -------- ----------- ----------
Earnings before income taxes
and minority interests...... 297,766 2,064 76,956 -- 376,786
Provision for income taxes.... 121,234 96 9,467 130,797
Minority interests............ -- -- 11,959 11,959
---------- ------ -------- ----------- ----------
Net Earnings -- excluding
estimated Future Merger
expenses (2)(4)............. $ 176,532 $1,968 $ 55,530 $ -- $ 234,030
========== ====== ======== =========== ==========
Earnings per Common Share,
excluding estimated Future
Merger Expenses(2)(4)(5)
Basic.................... $ 1.61 $ 1.76
Diluted.................. $ 1.58 $ 1.73
Weighted average number of
Common Shares
outstanding(5):
Basic.................... 109,495 132,715
Diluted.................. 111,183 135,188
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
68
<PAGE> 83
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
MARCH 31, 1998
-----------------
PRO FORMA BERGEN BRUNSWIG PRO FORMA PRO FORMA
SUBTOTAL CORPORATION ADJUSTMENTS RESULTS(1)
---------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues(3)........................ $9,861,446 $9,562,662 $ -- $19,424,108
Cost of products sold(3)............... 8,939,255 9,029,381 17,968,636
---------- ---------- ----------- -----------
Gross margin........................... 922,191 533,281 -- 1,455,472
Selling, general and administrative
expenses............................. 495,759 385,245 881,004
---------- ---------- ----------- -----------
Special Charges:
Mergers -- related costs-prior
mergers(4)........................ (26,529) (9,800) (36,329)
Facilities closures and employee
severance(4)...................... (8,634) -- (8,634)
---------- ---------- ----------- -----------
Operating earnings..................... 391,269 138,236 -- 529,505
Other income (expense)................. (14,483) (28,177) (42,660)
---------- ---------- ----------- -----------
Earnings before income taxes and
minority interests................... 376,786 110,059 -- 486,845
Provision for income taxes............. 130,797 49,142 179,939
Minority interests..................... 11,959 -- 11,959
---------- ---------- ----------- -----------
Net Earnings -- excluding estimated
Future Merger expenses(2)(4)......... $ 234,030 $ 60,917 $ -- $ 294,947
========== ========== =========== ===========
Earnings per Common Share, excluding
estimated Future Merger
Expenses(2)(4)(5)
Basic............................. $ 1.76 $ 1.72
Diluted........................... $ 1.73 $ 1.69
Weighted average number of Common
Shares outstanding(5):
Basic............................. 132,715 171,858
Diluted........................... 135,188 174,913
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
information.
69
<PAGE> 84
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
(1) CARDINAL, MEDIQUAL, SCHERER AND BERGEN HISTORICAL FISCAL YEARS
Cardinal's historical fiscal year ends on June 30, MediQual's historical
fiscal year ended on December 31, Scherer's historical fiscal year ends on March
31 and Bergen's historical fiscal year ends on September 30. For purposes of
combining MediQual's, Scherer's and Bergen's historical financial information
with Cardinal's in the pro forma condensed combined statements of earnings
herein, the financial information of Cardinal for the fiscal years ended June
30, 1997, 1996 and 1995 have been combined with MediQual's financial information
for the twelve months ended June 30, 1997 and fiscal years ended December 31,
1996 and 1995, Scherer's financial information for the fiscal years ended March
31, 1997, 1996 and 1995 and Bergen's financial information for the fiscal years
ended September 30, 1997, 1996 and 1995, respectively. Cardinal's financial
information for the nine months ended March 31, 1998 and 1997 have been combined
with MediQual's financial information for the eight and nine months ended
February 28, 1998 and March 31, 1997, respectively, Scherer's financial
information for the nine months ended March 31, 1998 and December 31, 1996,
respectively, and Bergen's financial information for the nine months ended March
31, 1998 and June 30, 1997, respectively.
Cardinal completed the MediQual Merger on February 18, 1998. Accordingly,
MediQual's financial information for the month of March 1998 has been
consolidated in Cardinal's financial results for that period. The merger was
accounted for as a pooling-of-interests. The historical cost of MediQual's
assets combined was approximately $7.3 million and the total liabilities assumed
were approximately $1.6 million. The impact of the MediQual Merger, on a
historical basis, is not significant. Accordingly, prior period Cardinal
historical financial statements have not been restated for the MediQual Merger.
Upon consummation of either the Merger or the Bergen Merger, the Cardinal
historical financial statements will be restated for the historical results of
MediQual.
The financial results of MediQual for the six months ended December 31,
1996 are included in the pro forma financial statements for both fiscal years
ended June 30, 1997 and 1996. MediQual's net revenues and net earnings for the
six months ended December 31, 1996 were approximately $5.3 million and $0.9
million, respectively. Scherer's financial information for the three months
ended June 30, 1997 is excluded from the pro forma financial statements.
Scherer's net revenues and net earnings for the three months ended June 30, 1997
were approximately $149.1 million and $14.2 million, respectively. In addition,
the financial results of Bergen for the quarter ended September 30, 1997 are
included in the pro forma financial statements for both the fiscal year ended
June 30, 1997 and the nine months ended March 31, 1998. Bergen's net revenues
and net earnings for the three months ended September 30, 1997 were
approximately $3.0 billion and $20.8 million, respectively.
In addition, certain amounts in the historical financial statements of
Cardinal, MediQual, Scherer and Bergen have been reclassified for the pro forma
presentation.
(2) MERGER-RELATED EXPENSES
In connection with the Scherer and Bergen Mergers (the "Future Mergers"),
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 Future
Mergers.
Based upon the information currently available, the total amount of the
merger-related charges to be recognized in connection with the Merger is
estimated to be between $ and $ million, after tax. 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, the merger expenses can only be estimated at this time,
and are subject to revision as further information becomes available.
70
<PAGE> 85
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION -- (CONTINUED)
In connection with the Bergen Merger, Cardinal and Bergen have incurred
investment banking, legal, accounting, and other related transaction costs and
fees and expect to incur additional such costs and fees in the future. During
the nine months ended March 31, 1998, Cardinal and Bergen expensed $13.3 million
($13.1 million, net of tax) and $9.8 million ($9.8 million, net of tax),
respectively, related to transaction costs incurred. Based on information
currently available, the total amount of merger-related charges to be recognized
in connection with the Bergen Merger (including those recorded to date) is
estimated to be between $100 and $130 million, after tax. These merger-related
expenses will be charged to expense in the period when incurred. Since the
Bergen Merger has not yet been consummated, the merger expenses can only be
estimated at this time, and are subject to revision as further information
becomes available.
The accounting policies of Cardinal, Scherer and Bergen 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.
(3) TRANSACTIONS BETWEEN CARDINAL AND BERGEN
Owen, which became a subsidiary of Cardinal as a result of Cardinal's
merger with Owen, purchased pharmaceuticals from Bergen during the period
covered by the pro forma financial statements. At March 31, 1998, Owen's unsold
inventory related to purchases from Bergen was not significant. The amounts
arising from these transactions are not material and, accordingly, the unaudited
pro forma statements of earnings do not include adjustments for these items.
(4) EFFECT OF MERGERS-RELATED COSTS AND OTHER SPECIAL CHARGES
Amounts include the effect of mergers-related costs and other special
charges recorded by Cardinal in the fiscal years ended June 30, 1997 and 1996
and the nine months ended March 31, 1998 and 1997, by Scherer in the fiscal year
ended March 31, 1996 and by Bergen in the fiscal year ended September 30, 1997
and the nine months ended March 31, 1998 and June 30, 1997. 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). During
the fiscal year ended September 30, 1997, Bergen recorded a charge of
approximately $5.8 million ($3.4 million, net of tax) for expenses related to
the terminated merger with IVAX Corporation. The effect of the mergers-related
costs on the 1997 unaudited pro forma combined results was to reduce pro forma
net earnings by $40.0 million to $325.9 million and to reduce pro forma diluted
earnings per Common Share by $.23 per share to $1.89 per share.
During the fiscal year ended June 30, 1996, Cardinal recorded charges to
reflect the estimated MSI and Pyxis mergers-related costs of approximately $49.2
million ($36.9 million, net of tax). During the fiscal year ended March 31,
1996, Scherer 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 mergers-related costs and other special charges on the 1996
unaudited pro forma combined results was to reduce pro forma net earnings by
$60.0 million to $233.8 million and to reduce pro forma diluted earnings per
Common Share by $.35 per share to $1.38 per share.
During the nine months ended March 31, 1998, Cardinal recorded $26.5
million ($21.8 million, net of tax) related to various mergers. Of the amount
recorded, $13.3 million ($13.1 million, net of tax) related to transaction costs
incurred to date in connection with the pending Bergen Merger (See Note 2), $2.3
million ($2.1 million, net of tax) related to transaction costs incurred in
connection with the MediQual Merger (see Note 1), with the remaining $10.9
million ($6.6 million, net of tax) related to integrating the operations of
companies that previously merged with Cardinal. In addition during the nine
months ended March 31, 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. During the nine months ended March 31, 1998, Bergen
recorded
71
<PAGE> 86
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION -- (CONTINUED)
$9.8 million ($9.8 million, net of tax) related to transaction costs incurred to
date in connection with the pending Bergen Merger. The effect of the
mergers-related costs and special charges recorded during the nine months ended
March 31, 1998 was to reduce pro forma net earnings by $36.8 million to $294.9
million and to reduce pro forma diluted earnings per common share by $0.21 per
share to $1.69 per share.
During the nine months ended March 31, 1997, Cardinal recorded
mergers-related charges associated with prior mergers totaling $49.1 million
($35.4 million, net of tax). During the nine months ended June 30, 1997, Bergen
recorded a charge of approximately $5.8 million ($3.4 million, net of tax) for
expenses related to the terminated merger with IVAX Corporation. The effect of
the mergers-related costs on the nine months ended March 31, 1997 unaudited pro
forma combined results was to reduce pro forma net earnings by $38.8 million to
$225.9 million and to reduce pro forma diluted earnings per Common Share by $.23
per share to $1.31 per share.
(5) EARNINGS PER SHARE
The pro forma net earnings per share reflect: (i) the weighted average
number of Cardinal Common Shares that would have been outstanding if the
MediQual Merger occurred at the beginning of the periods presented based upon
the conversion of each share of MediQual common stock, MediQual Class B
preferred stock and MediQual Class C preferred stock into .0802 Cardinal Common
Shares, the conversion of each share of MediQual Class A preferred stock into
293.6356 Cardinal Common Shares (in each case, excluding the accretion of
preferred stock dividends because of the conversion of the preferred stock),
(ii) the weighted average number of Cardinal Common Shares that would have been
outstanding had the Merger occurred at the beginning of the periods presented
based upon an exchange ratio of 0.95 Cardinal Common Shares to be issued for
each share of Scherer Common Stock outstanding, (iii) the weighted average
number of Cardinal Common Shares that would have been outstanding had the Bergen
Merger occurred at the beginning of the periods presented based upon an exchange
ratio of 0.775 Cardinal Common Shares to be issued for each share of Bergen
Common Stock outstanding, and (iv) the dilutive impact of stock options and
warrants using the treasury stock method. All MediQual options are assumed to be
converted into options for Cardinal Common Shares, using a common equivalent
exchange ratio of .0802. All Scherer and Bergen options are assumed to be
converted into options for Cardinal Common Shares at an exchange ratio of 0.95
and 0.775 Cardinal Common Shares for each share of Scherer and Bergen Common
Stock, respectively, before application of the treasury stock method. Cardinal
expects to issue approximately 42 million and 23 million Cardinal Common Shares
in connection with the Bergen Merger and the Merger, respectively.
72
<PAGE> 87
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the Merger, Scherer Stockholders will receive common shares
of Cardinal, an Ohio corporation, in exchange for their shares of common stock
in Scherer, a Delaware corporation. The following is a summary of certain
material differences between the rights of holders of Scherer Common Stock and
the rights of holders of Cardinal Common Shares. These differences arise in part
from the differences between the Delaware General Corporation Law (the "Delaware
Law") and the Ohio Revised Code (the "Ohio Law"). Additional differences arise
from the governing instruments of the two companies (in the case of Scherer, the
Scherer Certificate and the Scherer 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 the
companies' governing instruments differ with respect to stockholders' rights,
the following discussion summarizes certain significant differences between
them.
AMENDMENT OF CHARTER DOCUMENTS
Unless the certificate of incorporation otherwise provides, the Delaware
Law requires approval by holders of a majority of the voting power of Scherer
Common Stock in order to amend the Scherer Certificate. The Scherer 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
Under the Delaware Law, 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 a corporation. The Scherer Certificate grants the directors of Scherer
such power.
The Ohio Law provides that only shareholders of a corporation have the
power to amend and repeal that 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 the provisions of the Cardinal Regulations dealing
with the number and classification of directors, the term of office of directors
or the removal of directors, or the provision relating to 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, unless the corporation has a classified board or its
certificate otherwise provides. The Scherer Certificate does not so provide.
The Ohio Law provides that, unless the governing documents of a corporation
provide otherwise, directors may be removed, with or without cause, by the
affirmative vote of the holders of a majority of the voting power of the
corporation with respect to the election of directors, 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 his removal which, if cumulatively voted at an election of all
the directors, of all the directors of a particular class, as the case may be,
would be sufficient to elect at least one director. The Cardinal Regulations
provide that such removal 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 Board of Directors 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 he is adjudicated a bankrupt or if he fails to meet
any qualifications for office).
73
<PAGE> 88
VACANCIES ON THE BOARD
The Delaware Law provides that unless the governing documents of a
corporation provide otherwise, 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. The
Scherer Certificate does not otherwise provide.
The Ohio Law provides that unless the governing documents of a corporation
provide otherwise, vacancies on the board of directors may be filled by a
majority of the remaining directors of a corporation. The Cardinal Regulations
provide that vacancies may be filled by the Board of Directors 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
the board of directors and such other persons, including stockholders, as the
certificate of incorporation or bylaws may provide. The Delaware Law does not
require that stockholders be given the right to call special meetings. The
Scherer Bylaws provide that special meetings may be called by the President, and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of Scherer.
Under the Ohio Law, the holders of at least 25% of the outstanding shares
of a corporation, unless the corporation's regulations specify 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 the 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, unless otherwise provided by the
certificate of incorporation, 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. The Scherer Certificate does not so provide. Under the Ohio
Law, any action that may be taken by shareholders at a meeting may be taken
without a meeting with the unanimous written consent of all shareholders
entitled to vote thereat.
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.
Under the Ohio Law, 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
Under the Delaware Law, stockholders do not have the right to cumulate
their votes in the election of directors unless such right is granted in the
certificate of incorporation. The Scherer Certificate does not grant such
rights. Under the Ohio Law, unless the articles of incorporation are amended to
eliminate cumulative voting for directors following their initial filing with
the Ohio Secretary of State, each shareholder has the right to vote cumulatively
in the election of directors if certain notice requirements are satisfied. The
Cardinal
74
<PAGE> 89
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 (i) 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, (ii) 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 (iii) 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 (i) 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
(ii) 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 such section, with such amendment to be effective twelve months thereafter.
Neither the Scherer Certificate nor the Scherer Bylaws contain a provision
electing not to be governed by such section.
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 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 (i) if directors of the corporation
have approved the transactions or the interested shareholder's acquisition of
shares of the corporation prior to the date the interested shareholder became a
shareholder of the corporation, and (ii) if the 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 shall not be applicable to the corporation. No such amendment has been
adopted by Cardinal.
Under Section 1701.831 of the Ohio Law, unless the articles of
incorporation or 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 corporation's shareholders. 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
that 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 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 certificate of incorporation specifies a different
percentage. The Scherer 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
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<PAGE> 90
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 the
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, in determining what he
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 (i) the interests of the corporation's employees, suppliers,
creditors, and customers, (ii) the economy of the state and nation, (iii)
community and societal considerations and (iv) the long-term as well as
short-term interests of the corporation and its 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.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the Delaware Law, appraisal rights are available to dissenting
stockholders in connection with certain mergers or consolidations. However,
unless the certificate of incorporation otherwise provides, the Delaware Law
does not provide for appraisal rights (i) 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. 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 (ii) if the
corporation is the surviving corporation and no vote of its stockholders is
required for the merger. The Scherer 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 the corporation's
certificate of incorporation, although a corporation's certificate of
incorporation may so provide.
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 the 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 (a "majority
share 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.
Under the Delaware Law, among other procedural requirements, 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. Under the Ohio
Law, a shareholder's written demand must be delivered to the 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.
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PREEMPTIVE RIGHTS OF SHAREHOLDERS
The Delaware Law provides that no stockholder shall have any preemptive
rights to purchase additional securities of the corporation unless the
certificate of incorporation expressly grants such rights. The Scherer
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 the articles of incorporation provide
otherwise, 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 Delaware corporation to include in its
certificate of incorporation, and the Scherer Certificate contains, a provision
eliminating the liability of a director for monetary damages for a breach of his
fiduciary duties as a director, except liability (i) for any breach of the
director's duty of loyalty to Scherer or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware Law (which deals
generally with unlawful payments of dividends, stock repurchases and
redemptions), and (iv) for any transaction from which the director derived an
improper personal benefit.
There is under the Ohio law no comparable provision limiting the liability
of officers, employees or agents of the 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
his 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.
The Scherer Bylaws provide for indemnification of Scherer current or former
directors or officers to the fullest extent permitted by the Delaware Law and
provide for such indemnity for current or former employees or agents of Scherer
at the discretion of the Scherer Board of Directors. The 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 permits a corporation to indemnify an officer,
director, employee or agent for fines, judgments, or settlements, as well as
expenses in the context of actions other than derivative actions, if such person
acted in good faith and in a manner he 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 his or her
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 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.
Under the Ohio Law, Ohio corporations are permitted to 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 he 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, code of regulations, or by contract, except with respect to the
advancement of expenses of 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 those
persons.
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<PAGE> 92
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 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 his 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 Articles 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 he is or was a director, officer, employee, or agent of Cardinal
or of any other corporation for which he was serving as a director, officer,
employee, or agent at the request of Cardinal. See also "The Merger -- Interest
Persons in the Merger."
DESCRIPTION OF CARDINAL CAPITAL STOCK
As of , 1998, the authorized capital stock of Cardinal
consisted of: (i) 300,000,000 Cardinal Common Shares, of which approximately
were issued and outstanding, were issued and held in
treasury, and approximately were reserved for issuance pursuant
to options outstanding under stock incentive plans (with approximately
additional Cardinal Common Shares available for issuance under
such plans), (ii) 5,000,000 Class B common shares, without par value ("Cardinal
Class B Common Shares"), none of which was issued and outstanding or reserved
for issuance, (iii) 500,000 Nonvoting Preferred Shares, without par value
("Preferred Shares"), none of which is 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's shareholders, unless such action is required by applicable
law (see "Comparison of Stockholder Rights -- Mergers, Acquisitions 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.
The holders of Cardinal Common Shares do not have preemptive rights and
have no rights to convert their shares into any other security. All Cardinal
Common Shares are entitled to participate equally, and ratably in dividends on
Cardinal Common Shares as may be declared by Cardinal's Board of Directors. 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 shares
cumulatively for the election of the 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 the Preferred Shares from time to time in one or more
series without future authorization of its shareholders. The Board of Directors
is authorized to adopt amendments to the Cardinal Articles from time to time
fixing or changing the terms and designations of the Preferred Shares, including
(i) the division of such shares into series and the designation and authorized
number of shares of each series, (ii) the dividend rate, (iii) the dates of
payment of dividends and the dates from which they are cumulative, (iv)
liquidation price, (v) redemption rights and price, (vi) sinking fund
requirements, (vii) conversion rights, and (viii) restrictions on the issuance
of such 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.
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<PAGE> 93
The Cardinal Regulations provide that the Board of Directors shall consist
of that number of directors as determined by action of the Board of Directors,
but in no case fewer than nine or more than fourteen members, divided into three
classes, and require that any proposal to either remove a director during his
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 Board of Directors may fill any vacancy with a
person 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 Board of Directors and
may also make the removal of incumbent 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, at or
immediately prior to the Effective Time, the Cardinal Board of Directors will
take all necessary action to elect Mr. Erdeljan as a director of Cardinal. See
"The Merger Agreement -- Covenants."
Pursuant to the Bergen Merger Agreement, Cardinal has agreed that, upon
consummation of the Bergen Merger, Mr. Walter will become Chairman of the
Executive Committee of the Board of Cardinal, Robert E. Martini, Chairman of
Bergen, will become Chairman of the Board of Cardinal, and Mr. Martini, Donald
R. Roden, President and Chief Executive Officer of Bergen, and two other Bergen
directors designated by Mr. Martini will become directors of Cardinal.
OTHER ACTION TO BE TAKEN AT THE SCHERER SPECIAL MEETING
SCHERER ADJOURNMENT PROPOSAL
Scherer is submitting to its stockholders a proposal to authorize the named
attorneys-in-fact to vote in favor of the adjournment of the Scherer Special
Meeting, in the event that there are not sufficient votes to approve the Scherer
Merger Proposal at the time of the Scherer Special Meeting. Even though a quorum
may be present at the Scherer Special Meeting, it is possible that Scherer may
not have received sufficient votes to approve the Scherer Merger Proposal at the
time of the Scherer Special Meeting. In that event, the Scherer Merger Proposal
could not be approved unless the Scherer Special Meeting were adjourned in order
to permit further solicitation of proxies.
In order to allow the proxies that have been received by Scherer at the
time of the Scherer Special Meeting to be voted for such adjournment, if
necessary, Scherer has submitted the question of adjournment under such
circumstances, and only under such circumstances, to its shareholders for their
consideration.
The Scherer Board recommends that the Scherer Stockholders vote their
proxies in favor of the Scherer 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 such adjournment unless otherwise noted thereon. If it
is necessary to adjourn the Scherer Special Meeting, no notice of the time and
place of the adjourned meeting is required to be given to shareholders other
than an announcement of such time and place at the Scherer Special Meeting. This
adjournment proposal relates only to an adjournment occurring for purposes of
soliciting additional proxies for approval of the Scherer Merger Proposal in the
event that there are insufficient votes to approve the Scherer Merger Proposal
at the Scherer Special Meeting. Any other adjournment (e.g.,
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<PAGE> 94
an adjournment required because of the absence of a quorum) would be voted upon
pursuant to the discretionary authority granted by the proxy.
The Scherer Board retains full authority to postpone the Scherer Special
Meeting prior to such meeting being convened, without the consent of any
Stockholder.
SCHERER'S BOARD OF DIRECTORS RECOMMENDS THAT SCHERER STOCKHOLDERS VOTE FOR
THE SCHERER ADJOURNMENT PROPOSAL.
OTHER ACTION TO BE TAKEN AT THE CARDINAL SPECIAL MEETING
CARDINAL ADJOURNMENT PROPOSAL
Cardinal is submitting to its 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 such adjournment, if
necessary, Cardinal has submitted the question of adjournment under such
circumstances, and only under such circumstances, to its shareholders for their
consideration. A majority of the shares of Cardinal Common Shares represented
and present in person or represented by proxy at the Cardinal Special Meeting is
required in order to approve any such adjournment.
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 such adjournment 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 shareholders other
than an announcement of such time and place at the Cardinal Special Meeting.
This 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 proposals 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 meeting being convened, without the consent of any
Cardinal Shareholder.
CARDINAL'S BOARD OF DIRECTORS RECOMMENDS THAT CARDINAL SHAREHOLDERS VOTE
FOR THE CARDINAL ADJOURNMENT PROPOSAL.
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.
Simpson Thacher & Bartlett has rendered the opinion referred to under the
caption "Certain Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Cardinal and its consolidated subsidiaries as of June 30, 1997 and
1996, and for each of the three years in the period ended
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June 30, 1997, have been incorporated in this Joint Proxy Statement/Prospectus
by reference from the 1997 Cardinal Form 10-K. Such consolidated financial
statements and schedule of Cardinal and its subsidiaries, except Pyxis and Owen
financial statements consolidated with Cardinal's financial statements for the
years ended June 30, 1996 and 1995, have been audited by Deloitte & Touche LLP
as stated in their report (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to the restatement of the financial
statements) which is incorporated herein by reference from the 1997 Cardinal
Form 10-K. The financial statements of Pyxis and Owen (consolidated with those
of Cardinal in the consolidated financial statements for the years ended June
30, 1996 and 1995) have been audited by Ernst & Young LLP and Price Waterhouse
LLP, respectively, as stated in their reports which are incorporated herein by
reference from the 1997 Cardinal Form 10-K.
The consolidated financial statements and schedule of Scherer and its
subsidiaries as of March 31, 1998 and 1997, and for each of the three years in
the period ended March 31, 1998, have been incorporated by reference in this
Joint Proxy Statement/Prospectus from the Scherer 1998 Form 10-K. Such
consolidated financial statements and schedule of Scherer and its subsidiaries,
have been audited by Arthur Andersen LLP as indicated in their report which is
incorporated herein by reference from the 1998 Scherer Form 10-K.
The consolidated financial statements of Bergen and its consolidated
subsidiaries as of September 30, 1997 and 1996, and for each of the three years
in the period ended September 30, 1997, which have been incorporated in this
Joint Proxy Statement/Prospectus by reference from the 1997 Bergen Form 10-K,
have been audited by Deloitte & Touche LLP, as stated in their report which is
incorporated herein by reference.
Such consolidated financial statements of Cardinal and its consolidated
subsidiaries, of Scherer and its subsidiaries and of Bergen and its consolidated
subsidiaries are incorporated 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 public accountants.
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 Arthur Andersen LLP are expected to be present at the Scherer
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.
SHAREHOLDER PROPOSALS
Any Cardinal Shareholder who intends to present a proposal at Cardinal's
1998 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 June 15,
1998. 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.
Scherer Shareholder proposals in respect of the 1998 Annual Meeting of
Scherer Stockholders were required to have been submitted to Scherer by April
24, 1998 for inclusion in the proxy statement and form of proxy relating to that
meeting. No such shareholder proposals were submitted to Scherer by that date.
If the Merger is consummated, there will be no 1998 Annual Meeting of Scherer
Stockholders.
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1997 Cardinal Form 10-K....................
1998 Scherer Form 10-K.....................
90th Day...................................
Actions....................................
Acquisition Agreement......................
Acquisition Proposal.......................
Adjusted Case..............................
Affiliate Letters..........................
Antitrust Division.........................
Bergen.....................................
Bergen Merger..............................
Bergen Merger Agreement....................
Business Combination.......................
Cardinal...................................
Cardinal Adjournment Proposal..............
Cardinal Articles..........................
Cardinal Board.............................
Cardinal Class B Common Shares.............
Cardinal Common Shares.....................
Cardinal Demand............................
Cardinal Exchange Option...................
Cardinal Merger Proposal...................
Cardinal Record Date.......................
Cardinal Regulations.......................
Cardinal Shareholders......................
Cardinal Special Meeting...................
Cartel Office..............................
Cash.......................................
Cause......................................
Certificates...............................
Closing Date...............................
Code.......................................
Commission.................................
Common Pleas Court.........................
Comparable Public Drug Delivery
Companies................................
Comparable Public Drug Distribution
Companies................................
Comparable Transaction Premia..............
Comparable Transactions....................
D&T........................................
Debt.......................................
Delaware Law...............................
Dissenter's Cardinal Shares................
Dissenting Cardinal Shareholder............
DLJ........................................
EBIT.......................................
Effective Time.............................
Employees..................................
Employment Agreements......................
Enterprise Value...........................
EPS........................................
Exchange Act...............................
Exchange Ratio.............................
Fotiades/Stuart Employment Agreements......
FTC........................................
Future Mergers.............................
Good Reason................................
HSR Act....................................
interested stockholder.....................
Joint Proxy Statement/Prospectus...........
Lehman Opinion.............................
LTM EBIT...................................
LTM Revenues...............................
majority share acquisition.................
Management Case............................
March 1998 Cardinal Form 10-Q..............
Market Value...............................
Material Adverse Effect....................
May 17 Amendment...........................
MediQual...................................
MediQual Merger............................
Merger.....................................
Merger Agreement...........................
Merger Sub.................................
MSI........................................
MSI Merger.................................
NYSE.......................................
Ohio Law...................................
Owen.......................................
Owen Merger................................
PCI........................................
PCI Merger.................................
Preferred Shares...........................
Prior Agreements...........................
Pyxis......................................
Pyxis Merger...............................
Registration Statement.....................
Regulatory Laws............................
Retention Bonus............................
Scherer....................................
Scherer Adjournment Proposal...............
Scherer Board..............................
Scherer Bylaws.............................
Scherer Certificate........................
Scherer Common Stock.......................
Scherer Employees..........................
Scherer Merger Proposal....................
Scherer Option.............................
Scherer Record Date........................
Scherer Special Meeting....................
Scherer Stock Plans........................
Scherer Stockholders.......................
Securities Act.............................
Subsidiary.................................
Surviving Corporation......................
Terminal Value.............................
Termination Fee............................
Transaction Premium........................
Whitmire...................................
Whitmire Merger............................
</TABLE>
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ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 17, 1998
AMONG
CARDINAL HEALTH, INC.,
GEL ACQUISITION CORP.
AND
R.P. SCHERER CORPORATION
================================================================================
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I THE MERGER.................................................. A-1
1.1 The Merger.................................................. A-1
1.2 Closing..................................................... A-1
1.3 Effective Time.............................................. A-2
1.4 Effects of the Merger....................................... A-2
1.5 Certificate of Incorporation................................ A-2
1.6 By-Laws..................................................... A-2
1.7 Officers and Directors of Surviving Corporation............. A-2
1.8 Effect on Capital Stock..................................... A-2
ARTICLE II EXCHANGE OF CERTIFICATES.................................... A-3
2.1 Exchange Fund............................................... A-3
2.2 Exchange Procedures......................................... A-3
2.3 Distributions with Respect to Unexchanged Shares............ A-3
2.4 No Further Ownership Rights in Target Common Stock.......... A-4
2.5 No Fractional Parent Common Shares.......................... A-4
2.6 Termination of Exchange Fund................................ A-4
2.7 No Liability................................................ A-4
2.8 Investment of the Exchange Fund............................. A-4
2.9 Lost Certificates........................................... A-4
2.10 Withholding Rights.......................................... A-5
2.11 Further Assurances.......................................... A-5
2.12 Stock Transfer Books........................................ A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES.............................. A-5
3.1 Representations and Warranties of Target.................... A-5
(a) Organization, Standing and Power............................ A-5
(b) Subsidiaries................................................ A-5
(c) Capital Structure........................................... A-6
(d) Authority; No Conflicts..................................... A-6
(e) Reports and Financial Statements............................ A-7
(f) Compliance with Law; Permits................................ A-8
(g) Intellectual Property....................................... A-8
(h) Litigation.................................................. A-8
(i) Information Supplied........................................ A-8
(j) Absence of Certain Changes or Events; Operations............ A-9
(k) Accounting Matters.......................................... A-9
(l) Board Approval.............................................. A-9
(m) Contracts................................................... A-9
(n) Labor Matters............................................... A-9
(o) Undisclosed Liabilities..................................... A-9
(p) Environmental Matters....................................... A-9
(q) Employee Benefit Matters.................................... A-10
(r) Taxes....................................................... A-11
(s) Vote Required............................................... A-12
(t) Brokers or Finders.......................................... A-12
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(u) Opinions of Financial Advisor............................... A-12
(v) DGCL Section 203............................................ A-12
3.2 Representations and Warranties of Parent.................... A-12
(a) Organization, Standing and Power............................ A-12
(b) Capital Structure........................................... A-13
(c) Authority; No Conflicts..................................... A-13
(d) Reports and Financial Statements............................ A-14
(e) Information Supplied........................................ A-14
(f) Absence of Certain Changes or Events........................ A-14
(g) Accounting Matters.......................................... A-14
(h) Board Approval.............................................. A-14
(i) Vote Required............................................... A-15
(j) Brokers or Finders.......................................... A-15
3.3 Representations and Warranties of Parent and Merger Sub..... A-15
(a) Organization and Corporate Power............................ A-15
(b) Corporate Authorization..................................... A-15
(c) Non-Contravention........................................... A-15
(d) No Business Activities...................................... A-15
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS................... A-15
4.1 Covenants of Target......................................... A-15
4.2 Covenants of Parent......................................... A-17
ARTICLE V ADDITIONAL AGREEMENTS....................................... A-17
Preparation of Proxy Statement; Target Stockholders
5.1 Meeting..................................................... A-17
5.2 Parent Board of Directors................................... A-18
5.3 Access to Information....................................... A-18
5.4 Reasonable Efforts.......................................... A-18
5.5 Acquisition Proposals....................................... A-20
Stock Options and Other Stock Plans; Employee Benefits
5.6 Matters..................................................... A-21
(b) Employee Benefits........................................... A-22
5.7 Fees and Expenses........................................... A-22
5.8 Directors\' and Officers\' Indemnification and Insurance.... A-22
5.9 Public Announcements........................................ A-23
5.10 Listing of Parent Common Shares............................. A-23
5.11 Affiliates.................................................. A-23
ARTICLE VI CONDITIONS PRECEDENT........................................ A-23
Conditions to Each Party's Obligation to Effect the
6.1 Merger...................................................... A-23
(a) Stockholder Approval........................................ A-23
(b) No Injunctions or Restraints, Illegality, Actions........... A-23
(c) HSR Act..................................................... A-24
(d) German Antitrust............................................ A-24
(e) NYSE Listing................................................ A-24
(f) Effectiveness of the Form S-4............................... A-24
(g) Pooling..................................................... A-24
Additional Conditions to Obligations of Parent and Merger
6.2 Sub......................................................... A-24
(a) Representations and Warranties.............................. A-24
(b) Performance of Obligations of Target........................ A-24
</TABLE>
ii
<PAGE> 100
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6.3 Additional Conditions to Obligations of Target.............. A-24
(a) Representations and Warranties.............................. A-24
(b) Performance of Obligations of Parent........................ A-25
(c) Tax Opinion................................................. A-25
(d) Closing Tax Opinion......................................... A-25
(e) Change of Control of Parent................................. A-25
ARTICLE VII TERMINATION AND AMENDMENT................................... A-25
7.1 Termination................................................. A-25
7.2 Effect of Termination....................................... A-26
7.3 Amendment................................................... A-26
7.4 Extension; Waiver........................................... A-27
ARTICLE VIII GENERAL PROVISIONS.......................................... A-27
Non-Survival of Representations, Warranties and
8.1 Agreements.................................................. A-27
8.2 Notices..................................................... A-27
8.3 Interpretation.............................................. A-28
8.4 Counterparts................................................ A-28
8.5 Entire Agreement; No Third Party Beneficiaries.............. A-28
8.6 Governing Law............................................... A-28
8.7 Severability................................................ A-28
8.8 Assignment.................................................. A-28
8.9 Submission to Jurisdiction; Waivers......................... A-29
8.10 Enforcement................................................. A-29
8.11 Definitions................................................. A-29
(a) Benefit Plan................................................ A-29
(b) Board of Directors.......................................... A-29
(c) Business Day................................................ A-29
(d) Controlled Group Liability.................................. A-29
(e) ERISA Affiliates............................................ A-29
(f) Intellectual Property....................................... A-29
(g) Material Adverse Effect..................................... A-30
(h) the other party............................................. A-30
(i) Person...................................................... A-30
(j) Proprietary Technology...................................... A-30
(k) subsidiary.................................................. A-30
(l) Superior Proposal........................................... A-30
(m) Target Benefit Plan......................................... A-30
(n) Withdrawal Liability........................................ A-30
</TABLE>
iii
<PAGE> 101
AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1998 (this "Agreement"),
among Cardinal Health, Inc., an Ohio corporation ("Parent"), GEL Acquisition
Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent
("Merger Sub"), and R.P. Scherer Corporation, a Delaware corporation ("Target").
W I T N E S S E T H:
WHEREAS, Parent desires to combine its businesses with the businesses
operated by Target through the merger of Merger Sub with and into Target (the
"Merger"), pursuant to which each share of common stock, par value $.01 per
share of Target ("Target Common Stock") issued and outstanding immediately prior
to the Effective Time (as defined in Section 1.3) other than shares owned or
held directly or indirectly by Parent or Merger Sub or directly by Target will
be converted into the right to receive common shares, without par value, of
Parent ("Parent Common Shares") as more fully provided herein;
WHEREAS, the Board of Directors (as defined in Section 8.11(b)) of Target
has determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Target and Target desires to combine its
businesses with the businesses operated by Parent and for the holders of shares
of Target Common Stock to have a continuing equity interest in the combined
Parent/Target businesses through the ownership of Parent Common Shares;
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
Target have each determined that the Merger is in the best interests of their
respective stockholders or shareholders, as the case may be, and such Boards of
Directors have approved the Merger, upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, Parent, Merger Sub and Target desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to prescribe various conditions to the
transactions contemplated hereby;
WHEREAS, Parent, Merger Sub and Target intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder; and
WHEREAS, Parent, Merger Sub and Target intend that the Merger be accounted
for as a pooling-of-interests for financial reporting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the provisions of Section 251 of the
Delaware General Corporation Law (the "DGCL"), Merger Sub shall be merged with
and into Target at the Effective Time. Following the Merger, the separate
corporate existence of Merger Sub shall cease and Target shall continue its
existence under the laws of the State of Delaware as the surviving corporation
(the "Surviving Corporation") under the name "R.P. Scherer Corporation."
1.2 Closing. The closing of the Merger (the "Closing") will take place on
the tenth Business Day (as defined in Section 8.11(c)) after the satisfaction or
waiver (subject to Applicable Laws) of the conditions (excluding conditions
that, by their terms, cannot be satisfied until the Closing) set forth in
Article VI (the "Closing Date") or such other time or date as is agreed to in
writing by the parties hereto. The Closing shall be held at the offices of
Parent, 5555 Glendon Court, Dublin, Ohio 43016 unless another place is agreed to
in
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writing by the parties hereto. For all Tax purposes, the Closing shall be
effective at the end of the day on the Closing Date.
1.3 Effective Time. As soon as practicable following the Closing, the
parties shall (i) file a certificate of merger (the "Delaware Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the DGCL and (ii) make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Delaware Certificate of Merger is duly filed with the Delaware Secretary of
State or at such subsequent time as Parent and Target shall agree and is
specified in the Delaware Certificate of Merger (the date and time the Merger
becomes effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger
will have the effects set forth in Sections 259 and 261 of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the property, rights, privileges, powers and franchises of Target and
Merger Sub shall be vested in the Surviving Corporation, and all debts,
liabilities and duties of Target and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation. The certificate of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation, until thereafter
changed or amended as provided therein or by applicable law, except that Article
I of the certificate of incorporation of the Surviving Corporation shall be
amended to read in its entirety as follows: "The name of the Corporation (which
is hereinafter referred to as the 'Corporation') is 'R.P. Scherer Corporation'."
1.6 By-Laws. The by-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
1.7 Officers and Directors of Surviving Corporation. The officers of
Target as of the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer or until their respective successors are duly elected
and qualified, as the case may be. The directors of Merger Sub as of the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or otherwise ceasing to be a director or
until their respective successors are duly elected and qualified. On or prior to
the Closing Date, Target shall deliver to Parent evidence satisfactory to Parent
of the resignations of the directors of Target, such resignations to be
effective as of the Effective Time.
1.8 Effect on Capital Stock. (a) At the Effective Time by virtue of the
Merger and without any action on the part of the holder thereof, each share of
Target Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares of Target Common Stock owned or held by Parent, Merger
Sub or Target, all of which shall be canceled as provided in Section 1.8(c))
shall be converted into the right to receive 0.950 (the "Exchange Ratio") Parent
Common Shares (the "Merger Consideration"). In the event that prior to the
Effective Time Parent shall declare a stock dividend or other distribution
payable in Parent Common Shares or securities convertible into Parent Common
Shares, or effect a stock split, reclassification, combination or other change
with respect to Parent Common Shares, the Exchange Ratio shall be adjusted to
reflect such dividend, distribution, stock split, reclassification, combination
or other change.
(b) As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Target Common Stock shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate which immediately prior to the Effective
Time represented any such shares of Target Common Stock (a "Certificate") (other
than Merger Sub, Parent and Target) shall thereafter cease to have any rights
with respect to such shares of Target Common Stock, except the right to receive
the applicable Merger Consideration in accordance with Article II upon the
surrender of such certificate.
(c) Each share of Target Common Stock issued and owned or held by Parent,
Merger Sub or Target at the Effective Time shall, by virtue of the Merger, cease
to be outstanding and shall be canceled and retired and no stock of Parent or
other consideration shall be delivered in exchange therefor.
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(d) Each share of common stock, par value $.01 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable share
of common stock, par value $.01 per share, of the Surviving Corporation as of
the Effective Time.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, Parent shall appoint
ChaseMellon Shareholder Services, Inc., or another party reasonably acceptable
to Target, to act as exchange agent hereunder for the purpose of exchanging
Certificates for the Merger Consideration (the "Exchange Agent"). At or promptly
after the Effective Time, Parent shall deposit with the Exchange Agent, in trust
for the benefit of holders of shares of Target Common Stock, certificates
representing the Parent Common Shares issuable pursuant to Section 1.8 in
exchange for outstanding shares of Target Common Stock. Parent agrees to make
available to the Exchange Agent from time to time as needed, cash sufficient to
pay cash in lieu of fractional shares pursuant to Section 2.5 and any dividends
and other distributions pursuant to Section 2.3. Any cash and certificates of
Parent Common Shares deposited with the Exchange Agent shall hereinafter be
referred to as the "Exchange Fund."
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of a Certificate (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
which letter shall be in customary form and have such other provisions as Parent
may reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
one or more Parent Common Shares representing, in the aggregate, the whole
number of shares that such holder has the right to receive pursuant to Section
1.8 (after taking into account all shares of Target Common Stock then held by
such holder) and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of this Article II,
including cash in lieu of any fractional Parent Common Shares pursuant to
Section 2.5, and the Certificate so surrendered shall forthwith be canceled. No
interest will be paid or will accrue on any cash payable pursuant to Section 2.3
or Section 2.5. In the event of a transfer of ownership of Target Common Stock
which is not registered in the transfer records of Target, one or more Parent
Common Shares evidencing, in the aggregate, the proper number of Parent Common
Shares, a check in the proper amount of cash in lieu of any fractional Parent
Common Shares pursuant to Section 2.5 and any dividends or other distributions
to which such holder is entitled pursuant to Section 2.3, may be issued with
respect to such Target Common Stock to such a transferee if the Certificate
representing such shares of Target Common Stock 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.
2.3 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 Parent 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 Article II. Subject to the effect of Applicable
Laws (as defined in Section 3.1(f)(i)), following surrender of any such
Certificate there shall be paid to the holder of Certificates representing whole
Parent 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 Parent Common Shares and not paid and (ii) at the appropriate payment date
subsequent to surrender, the amount of dividends or other
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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
Parent Common Shares.
2.4 No Further Ownership Rights in Target Common Stock. All Parent Common
Shares issued upon surrender of Certificates in accordance with the terms hereof
(including any cash paid pursuant to Section 2.3 or 2.5) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to the shares
of Target Common Stock represented thereby, and there shall be no further
registration of transfers on the stock transfer books of Target of shares of
Target 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 Article II. Certificates surrendered for exchange by any person
constituting an "affiliate" of Target for purposes of Rule 145(c) under the
Securities Act (as defined in Section 3.1(c)(iii)) shall not be exchanged until
Parent has received Target Affiliate Letters (as defined in Section 5.11) from
such persons.
2.5 No Fractional Parent Common Shares. (a) No certificates or scrip or
Parent Common Shares representing fractional Parent Common Shares shall be
issued upon the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any rights of a
shareholder of Parent or a holder of Parent Common Shares.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Target Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a Parent Common Share
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to the
product of (i) such fractional part of a Parent Common Share multiplied by (ii)
the closing price (as reported on the New York Stock Exchange ("NYSE") Composite
Tape) of a Parent Common Share on the last complete trading day immediately
prior to the Closing Date. As promptly as practicable after the determination of
the amount of cash, if any, to be paid to holders of fractional interests, the
Exchange Agent shall so notify Parent, and Parent shall cause the Surviving
Corporation to deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to Parent or otherwise on the instruction of
Parent, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to Parent for the Merger
Consideration with respect to the shares of Target Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.8
and Section 2.2, any cash in lieu of fractional Parent Common Shares to which
such holders are entitled pursuant to Section 2.5 and any dividends or
distributions with respect to Parent Common Shares to which such holders are
entitled pursuant to Section 2.3. Any such portion of the Exchange Fund
remaining unclaimed by holders of shares of Target Common Stock five years after
the Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental Entity
(as defined in Section 3.1(d)(iii))) shall, to the extent permitted by law,
become the property of Parent free and clear of any claims or interest of any
Person (as defined in Section 8.11(g)) previously entitled thereto.
2.7 No Liability. None of Parent, Merger Sub, Target, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration (or dividends or distributions with respect thereto)
from the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Parent on a daily basis. Any
interest and other income resulting from such investments shall promptly be paid
to Parent.
2.9 Lost Certificates. 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 Parent, the
posting by such Person of a bond in such reasonable amount as Parent may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will
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deliver in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of Target Common
Stock formerly represented thereby, any cash in lieu of fractional Parent Common
Shares, and unpaid dividends and distributions on Parent Common Shares
deliverable in respect thereof, pursuant to Article II of this Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Target 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 Parent, 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 Target Common Stock
in respect of which such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
2.11 Further Assurances. At and after the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Target or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
Target or Merger Sub, any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
2.12 Stock Transfer Books. At the close of business, New York City time,
on the day the Effective Time occurs, the stock transfer books of Target shall
be closed and there shall be no further registration of transfers of shares of
Target Common Stock thereafter on the records of Target. From and after the
Effective Time, the holders of Certificates shall cease to have any rights with
respect to such shares of Target Common Stock formerly represented thereby,
except as otherwise provided herein or by law. On or after the Effective Time,
any Certificates presented to the Exchange Agent or Parent for any reason shall
be converted into the Merger Consideration with respect to the shares of Target
Common Stock formerly represented thereby, any cash in lieu of fractional Parent
Common Shares to which the holders thereof are entitled pursuant to Section 2.5
and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Target. Target represents and
warrants to Parent as follows:
(a) Organization, Standing and Power. Each of Target and each of its
Subsidiaries (as defined in Section 8.11(i)) is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease, use and operate its properties and to carry on its
business as now being conducted and is duly qualified and in good standing
to do business in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure to so qualify
would not, either individually or in the aggregate, have a Material Adverse
Effect (as defined in Section 8.11(e)) on Target. The copies of the
certificate of incorporation and by-laws of Target which were previously
furnished to Parent are true, complete and correct copies of such documents
as in effect on the date of this Agreement.
(b) Subsidiaries. Target 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 the Subsidiaries and
other entities set forth in the Target SEC Reports (as defined in Section
3.1(g)), documents provided by Target to Parent prior to the date of this
Agreement or which are not material to Target. Except as set forth in the
Target SEC Reports or in documents provided by Target to Parent prior to
the date of this Agreement, Target is not subject to any obligation or
requirement to provide a material amount of funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in
any such
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<PAGE> 106
entity that is not wholly owned by Target. Except as would not, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Target, 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) owned by Target of each of Target's
Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and is owned directly or indirectly by Target free and clear
of all liens, pledges, security interests, claims or other encumbrances.
(c) Capital Structure. (i) As of May 12, 1998 the authorized capital
stock of Target consisted of (A) 50,000,000 shares of Target Common Stock,
par value $.01, of which 23,508,155 shares were outstanding and 60,100 were
held in treasury and (B) 500,000 shares of authorized preferred stock, par
value $.01, of which no shares were outstanding. Since May 12, 1998 to the
date of this Agreement, there have been no issuances of shares of the
capital stock of Target or any other securities of Target other than
issuances of shares pursuant to options outstanding under the Target Stock
Plans (as defined in Section 5.6(a)). All issued and outstanding shares of
the capital stock of Target are duly authorized, validly issued, fully paid
and nonassessable, and no class of capital stock is entitled to preemptive
rights and no such shares have been issued in violation of any preemptive
or similar rights. There were outstanding as of May 12, 1998 no options,
warrants or other rights to acquire capital stock from Target other than
options to acquire 2,098,257 shares of Target Common Stock under the Target
Stock Plans. Other than issuances of options pursuant to the Target Stock
Plans permitted under the terms of this Agreement, no options or warrants
or other rights to acquire capital stock from Target have been issued or
granted since May 12, 1998.
(ii) No bonds, debentures, notes or other indebtedness of Target
having the right to vote on any matters on which stockholders may vote
("Target Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 3.1(c), there are
no securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Target or any of its
Subsidiaries is a party or by which any of them is bound obligating Target
or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
voting securities of Target or any of its Subsidiaries or obligating Target
or any of its Subsidiaries to issue, grant, extend or enter into any such
security, subscription, option, warrant, call, right, commitment,
agreement, arrangement, understanding or undertaking. There are no
outstanding obligations of Target or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of Target or any of
its Subsidiaries. Target has previously furnished to Parent a schedule
showing the names of and number of shares of Target Common Stock (including
the number of shares issuable upon exercise of options granted under the
Target Benefit Plans (as defined in Section 8.11(k)) and the exercise price
and vesting schedule with respect thereto) and the number of options held
by all holders of options to purchase Target Common Stock. Target has no
agreement, arrangement or understanding to register any securities of
Target or any of its Subsidiaries under the Securities Act, or any state
securities law and has not granted registration rights to any person or
entity.
(d) Authority; No Conflicts. (i) Target has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, subject in the case of the consummation
of the Merger to the adoption of this Agreement by the Required Target Vote
(as defined in Section 3.1(s)). The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Target, subject in the case of the consummation of the Merger to the
adoption of this Agreement by the Required Target Vote. This Agreement has
been duly executed and delivered by Target and constitutes a valid and
binding agreement of Target, enforceable against it in accordance with its
terms.
(ii) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the Merger and the other
transactions contemplated hereby will not at the Effective Time, conflict
with, or result in any violation of, or constitute a default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, amendment, cancellation or acceleration of any
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<PAGE> 107
obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on any assets
(any such conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") pursuant to:
(A) any provision of the certificate of incorporation or by-laws or other
governing documents of Target or any Subsidiary of Target, or (B) except as
would not reasonably be expected to have a Material Adverse Effect on
Target, and subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (iii) below, any loan or credit agreement (other than the Amended
and Restated $175,000,000 Credit Agreement, dated as of October 29, 1997
among Target, NDB Bank, N.A. and Comerica Bank, as agents, and subject to
the execution and delivery of a supplemental indenture to the Indenture,
dated as of January 1, 1994, between Target and Comerica Bank, as trustee
in form reasonably acceptable to the trustee), note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation, contract,
undertaking, instrument, permit, concession, franchise, license, judgment,
order, writ, injunction, decree, statute, law, ordinance, rule or
regulation applicable to Target or any Subsidiary of Target or their
respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or review by any supranational,
national, state, municipal or local government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof; or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority (a "Governmental Entity") is required by or with respect to
Target or any Subsidiary of Target in connection with the execution and
delivery of this Agreement by Target or the consummation of the Merger and
the other transactions contemplated hereby, except for those required under
or in relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (B) state securities or "blue sky" laws
(the "Blue Sky Laws"), (C) the Securities Act), (D) the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (E) the DGCL with respect to
the filing of the Delaware Certificate of Merger, (F) rules and regulations
of the NYSE, (G) antitrust or other competition laws of other jurisdictions
and (H) such consents, approvals, orders, authorizations, registrations,
declarations and filings or reviews the failure of which to make or obtain
would not reasonably be expected to have a Material Adverse Effect on
Target. Consents, approvals, orders, authorizations, registrations,
declarations, filings and reviews required under or in relation to any of
the foregoing clauses (A) through (G) are hereinafter referred to as
"Required Consents."
(iv) No consent, approval or authorization of any limited or general
partner of R.P. Scherer GmbH & Co. ("KG") or KG itself or any shareholder
of R.P. Scherer VerWaltungs GmbH ("VerWaltungs") or VerWaltungs itself is
required in connection with the execution of this Agreement, the Merger or
the consummation of the other transactions contemplated hereby. The
execution of this Agreement, the Merger or the consummation or the other
transactions contemplated hereby will not trigger the right of Deutsche
Gelatine-Fabriken Stoess AG ("DGF") to acquire the interests in KG held by,
or sell its interests in KG to, F&F Holding GmbH.
(e) Reports and Financial Statements. Target has timely filed all
required reports, schedules, forms, statements and other documents required
to be filed by it with the Securities and Exchange Commission (the "SEC")
since March 31, 1995 (collectively, including all exhibits, financial
statements and schedules thereto, the "Target SEC Reports"). No Subsidiary
of Target is required to file any form, report or other document with the
SEC. None of the Target SEC Reports, as of their respective dates (and, if
amended or superseded by a filing prior to the date of this Agreement or,
solely with respect to Target SEC Reports filed after the date hereof,
prior to the Closing Date, then on the date of such filing), contained or
will contain any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of the financial statements (including the
related notes) included in the Target SEC Reports complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto and
presents fairly the consolidated financial position and consolidated
results of operations and cash flows of Target and its Subsidiaries as of
the respective dates or for the respective periods set forth
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therein, all in conformity with United States generally accepted accounting
principles ("U.S. GAAP") consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such Target SEC Reports, as of their respective dates (and
as of the date of any amendment to the respective Target SEC Report),
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(f) Compliance with Law; Permits. (i) Target and its Subsidiaries are
in compliance with all applicable laws, statutes, orders, rules and
regulations promulgated, or judgments, decisions or orders entered by any
Governmental Entity (collectively, "Applicable Laws") relating to Target,
its Subsidiaries or their business or properties, except where the failure
to be in compliance therewith, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on Target. No
investigation or review by any Governmental Entity with respect to Target
or its Subsidiaries is pending or, to the knowledge of Target, threatened,
other than those the outcome of which would not reasonably be expected to
have a Material Adverse Effect on Target.
(ii) Target and its Subsidiaries are in possession of all 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 "Target Permits"), except for Target
Permits the failure of which to possess would not have a Material Adverse
Effect on Target. Target and its Subsidiaries are not in conflict with, or
in default or violation of any of the Target Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on
Target.
(g) Intellectual Property. Target and its Subsidiaries own, or have
the defensible right to use, the Intellectual Property (as defined in
Section 8.11(d)), other than where the failure to own or have the
defensible right to use the Intellectual Property would not reasonably be
expected to have a Material Adverse Effect on Target. To the knowledge of
Target, as of the date of this Agreement, no person or entity has asserted,
with respect to the Intellectual Property, a claim of invalidity or that
Target or any Subsidiary thereof or a licensee of Target or any Subsidiary
thereof is infringing or has infringed any domestic or foreign patent,
trademark, service mark, tradename, or copyright or design right, or has
misappropriated or improperly used or disclosed any trade secret,
confidential information or know-how.
(h) Litigation. Except as specifically identified in the Target SEC
Reports filed prior to the date of this Agreement, there is no action,
suit, claim, proceeding or investigation (an "Action") pending or, to the
knowledge of Target, threatened against Target or any of its Subsidiaries
or any executive officer or director of Target or any of its Subsidiaries
which, individually or in the aggregate, if adversely determined, would
reasonably be expected to have a Material Adverse Effect on Target.
(i) Information Supplied. (i) None of the information supplied or to
be supplied by Target for inclusion or incorporation by reference in (A)
the registration statement on Form S-4 (as defined in Section 5.1) to be
filed with the SEC by Parent in connection with the issuance of the Parent
Common Shares in the Merger will, at the time the Form S-4 is filed with
the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (B)
the Proxy Statement/Prospectus (as defined in Section 5.1) included in the
Form S-4 related to the Target Stockholders Meeting and, if applicable, the
Parent Shareholders Meeting (each, as defined in Section 5.1) and the
Parent Common Shares to be issued in the Merger will, on the date it is
first mailed to Target stockholders or Parent Stockholders, if applicable,
or at the time of the Target Stockholders Meeting or the Parent
Shareholders Meeting, if applicable, 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 were made, not misleading.
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(ii) Notwithstanding the foregoing provisions of this Section 3.1(j),
no representation or warranty is made by Target with respect to statements
made or incorporated by reference in the Form S-4 or the Proxy
Statement/Prospectus based on information supplied by Parent for inclusion
or incorporation by reference therein.
(j) Absence of Certain Changes or Events; Operations. Except as
disclosed in the Target SEC Reports filed prior to the date of this
Agreement, since December 31, 1997 Target and its Subsidiaries have not
incurred any material liability, except in the ordinary course of business
consistent with past practice, nor has there been any event, occurrence or
development or any change in the business, financial condition or results
of operations of Target or any of its Subsidiaries which, individually or
in the aggregate, has had, or is reasonably likely to have, a Material
Adverse Effect on Target or a material adverse effect on Target's ability
to consummate the transactions contemplated hereby.
(k) Accounting Matters. Neither Target nor, to the best of its
knowledge, any of its affiliates has, through the date of this Agreement
taken or agreed to take any action that (without giving effect to any
actions taken or agreed to be taken by Parent or any of its affiliates
other than in connection with this Agreement) would prevent Parent from
accounting for the Merger as a pooling-of-interests for financial reporting
purposes.
(l) Board Approval. The Board of Directors of Target, by resolutions
adopted at a meeting duly called and held and not subsequently rescinded or
modified (the "Target Board Approval"), has (i) determined that this
Agreement, the Merger and the other transactions contemplated hereby are
fair to and in the best interests of Target and its stockholders, (ii)
approved this Agreement, the Merger and the other transactions contemplated
hereby and (iii) recommended that the stockholders of Target approve this
Agreement and the Merger and the other transactions contemplated hereby.
(m) Contracts. None of Target or any of its Subsidiaries nor, to the
knowledge of Target, any other party thereto is in violation of or in
default in respect of, nor has there occurred an event or condition which
with the passage of time or giving of notice (or both) would constitute a
default under or permit the termination of any contract, agreement,
guarantee, lease or executory commitment that is material to the business
or operations of Target or its Subsidiaries to which Target or a Subsidiary
thereof is a party, except as is not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on Target, and except
with respect to the Credit Agreement and the Indenture of Target referenced
in Section 3.1(d)(ii) hereof.
(n) Labor Matters. Neither Target nor any of its Subsidiaries is a
party to any collective bargaining agreements covering U.S. employees.
Since March 31, 1996, to the date of this Agreement, there has been no
labor strike or stoppage pending or, to the knowledge of Parent, threatened
against Target or any of its Subsidiaries.
(o) Undisclosed Liabilities. Except (i) as and to the extent
disclosed or reserved against on the balance sheet of Target as of December
31, 1997 included in the Target SEC Documents or (ii) as incurred after the
date thereof in the ordinary course of business consistent with past
practice and not prohibited by this Agreement, Target and its Subsidiaries
do 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, would reasonably be
expected to have a Material Adverse Effect on Target.
(p) Environmental Matters. As used herein, the term "Environmental
Laws" means all federal, state, local and foreign laws relating to
pollution or protection of human health 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, demands or demand letters,
injunctions, judgments, licenses,
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notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
Except as would not individually or in the aggregate reasonably be
expected to have a Material Adverse Effect on Target, there are, with
respect to Target, its Subsidiaries or any predecessor of the foregoing, no
past or present violations of Environmental Laws, releases of any material
into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any
common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and none of Target and its
Subsidiaries has received any notice with respect to any of the foregoing,
nor is any Action pending or, to the knowledge of Target, threatened in
connection with any of the foregoing.
(q) Employee Benefit Matters.
(i) With respect to each Target Benefit Plan maintained primarily for
the benefit of individuals employed in the United States and each
employment agreement with an employee of Target or its Subsidiaries
employed in the United States providing for annual compensation of at least
$200,000, Target has provided, and with respect to each material Target
Benefit Plan maintained primarily for the benefit of individuals employed
outside the United States and each employment agreement with an employee of
Target or its Subsidiaries employed outside the United States providing for
annual compensation of at least $200,000, Target will provide, as promptly
as practicable after the date of this Agreement, to Parent a true, correct
and complete copy of the following (where applicable): (A) each writing
constituting a part of such plan or agreement, including without limitation
all plan documents, trust agreements, and insurance contracts and other
funding vehicles; (B) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (C) the current summary plan description, if
any; (D) the most recent annual financial report, if any; and (E) the most
recent determination letter from the Internal Revenue Service, if any.
(ii) The Internal Revenue Service has issued a favorable determination
letter with respect to each Target Benefit 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 reasonably be expected to adversely affect
the qualified status of any Qualified Plan or the related trust.
(iii) All premiums due or payable with respect to material insurance
policies funding any Target Benefit Plan have been made or paid in full on
or before the final due date thereof, and all such premiums due or payable
through the Closing Date will be made or paid in full on or before the
final due date thereof.
(iv) Target and its Subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the
Code and all other domestic or foreign laws and regulations and all
contractual obligations applicable to the Target Benefit Plans. Each Target
Benefit Plan has been operated in material compliance with its terms. There
is not now, and there are no existing circumstances that would 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 Target or any of its
Subsidiaries under ERISA or the Code.
(v) All Target Benefit Plans subject to the laws of any jurisdiction
outside of the United States have been maintained in accordance with all
applicable requirements and, if they are intended to be funded and/or
book-reserved, are fully funded and/or book reserved, as appropriate, based
upon reasonable actuarial assumptions.
(vi) 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 Target and its Subsidiaries or any of their respective ERISA
Affiliates has incurred any Withdrawal Liability that has not been
satisfied in full.
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(vii) There does not now exist, and there are no currently existing
circumstances that would result in, any material Controlled Group Liability
that would be a liability of Target or any of its Subsidiaries following
the Closing. Without limiting the generality of the foregoing, neither
Target nor any of its Subsidiaries nor any of their respective ERISA
Affiliates has engaged in any transaction described in Section 4069 or
Section 4204 of ERISA.
(viii) Except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA or other applicable law or
as set forth in Target SEC Reports, neither Target 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.
(ix) Except as required by applicable law and except as disclosed in
the Target SEC Reports or in Target Benefit Plans delivered to Parent,
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 materially increase the amount or
value of, any payment or benefit to any employee, officer, director or
consultant of Target or any of its Subsidiaries.
(x) There are no pending or, to the knowledge of Target, threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the Target
Benefit Plans, any fiduciaries thereof with respect to their duties to the
Target Benefit Plans or the assets of any of the trusts under any of the
Target Benefit Plans which would result in any material liability of Target
or any of its Subsidiaries to the Pension Benefit Guaranty Corporation, the
Department of Treasury, the Department of Labor, any Multiemployer Plan, or
any foreign governmental authority.
(r) Taxes. Except for such matters that would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Target:
(i) Target and its Subsidiaries (a) have duly filed all Tax Returns
(as defined in Section 3.1(r)(v)) (including, but not limited to, those
filed on a consolidated, combined or unitary basis) required to have been
filed by Target or its Subsidiaries prior to the date of this Agreement,
all of which foregoing Tax Returns are true and correct; (b) have within
the time and manner prescribed by Applicable Law paid or, prior to the
Effective Time, will pay all Taxes, 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; (c) have adequate reserves (to the extent required by U.S. GAAP)
on their financial statements for any Taxes in excess of the amounts so
paid; (d) are not delinquent in the payment of any Tax and have not
requested or filed any document having the effect of causing any extension
of time within which to file any Tax Returns in respect of any fiscal year
which have not since been filed; and (e) have not received written notice
of any deficiencies for any Tax from any taxing authority, against Target
or any of its Subsidiaries for which there are not adequate reserves (to
the extent required by U.S. GAAP). Neither Target nor any of its
Subsidiaries is the subject of any currently ongoing Tax audit. As of the
date of this Agreement, there are no pending requests for waivers of the
time to assess any Tax, other than those made in the ordinary course and
for which payment has been made or there are adequate reserves (to the
extent required by U.S. GAAP). With respect to any taxable period ended
prior to December 31, 1991, all U.S. federal and material foreign income
Tax Returns including Target or any of its Subsidiaries have been audited
by the Internal Revenue Service or applicable local authorities or are
closed by the applicable statute of limitations. Neither Target 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 Target
or any of its Subsidiaries (other than liens for Taxes not yet due). To
Target's knowledge, no claim has ever been made in writing by an authority
in a jurisdiction where none of Target and its Subsidiaries files Tax
Returns that Target or any of its Subsidiaries is or may be subject to
taxation by that jurisdiction. Target has not filed an election under
Section 341(f) of the Code to be treated as a consenting corporation.
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(ii) Neither Target nor any of its Subsidiaries is obligated by any
contract, agreement or other arrangement to indemnify any other person with
respect to Taxes. Neither Target nor any of its Subsidiaries is now or has
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 Target or any of its Subsidiaries which (a)
requires Target or any of its Subsidiaries to make any Tax payment to or
for the account of any other person, (b) 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 Target or
any of its Subsidiaries, or (c) requires or permits the transfer or
assignment of income, revenues, receipts or gains to Target or any of its
Subsidiaries, from any other person.
(iii) Target and its Subsidiaries have withheld and paid all 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.
(iv) Target and its Subsidiaries have withheld and paid all Taxes
required to have been paid to any foreign jurisdiction in connection with
the payment of interest, dividends, royalties, technical service fees or
other payments or property transfers subject to withholding made to related
or unrelated parties.
(v) "Tax Returns" means returns, reports and forms required to be
filed with any Governmental Entity of the United States or any other
jurisdiction responsible for the imposition or collection of Taxes.
(vi) "Taxes" means 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.
(s) Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Target Common Stock to approve the Merger (the
"Required Target Vote") is the only vote of the holders of any class or
series of Target capital stock necessary to adopt this Agreement and
approve the transactions contemplated hereby.
(t) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee from Target or its Subsidiaries or any other
similar commission or fee will be incurred by or on behalf of Target in
connection with any of the transactions contemplated by this Agreement,
except Lehman Brothers, Inc. (the "Target Financial Advisor"), whose fees
and expenses will be paid by Target in accordance with Target's agreement
with such firm, based upon arrangements made by or on behalf of Target and
a copy of which arrangements have been provided to Parent.
(u) Opinions of Financial Advisor. Target has received the opinion of
the Target Financial Advisor, dated the date of this Agreement, to the
effect that, as of such date, the Merger Consideration is fair, from a
financial point of view, to the holders of Target Common Stock (the
"Fairness Opinion"), a copy of which opinion has been made available to
Parent.
(v) DGCL Section 203. Prior to the time this Agreement was executed,
the Board of Directors of Target has taken all action necessary to exempt
under or make not subject to Section 203 of the General Corporation Law of
the State of Delaware: (i) the execution of this Agreement, (ii) the Merger
and (iii) the transactions contemplated hereby.
3.2 Representations and Warranties of Parent. Parent represents and
warrants to Target as follows:
(a) Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all requisite power and authority to
own, use, lease and operate its properties and to carry on its business as
now being conducted and is duly
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qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties
makes such qualification necessary other than in such jurisdictions where
the failure so to qualify or to be in good standing would not, either
individually or in the aggregate, have a Material Adverse Effect on Parent.
The copies of the articles of incorporation, as amended and restated (the
"Parent Articles"), and the Code of Regulations, as amended and restated
(the "Parent Code"), of Parent which were previously furnished to Target
are true, complete and correct copies of such documents as in effect on the
date of this Agreement.
(b) Capital Structure. (i) As of April 30, 1998, the authorized
capital stock of Parent consisted of (A) 300,000,000 Parent Common Shares
of which 110,507,970 shares were outstanding and 267,867 were held in
treasury, (B) 5,000,000 Class B Common Shares, without par value, none of
which was outstanding or held in treasury and (C) 500,000 Non-Voting
Preferred Shares, without par value, none of which was outstanding or held
in treasury. As of April 30, 1998, 5,112,753 Parent Common Shares were
reserved for issuance upon the exercise or conversion of options, warrants
or convertible securities granted or issuable by Parent. All issued and
outstanding shares of the capital stock of Parent are duly authorized,
validly issued, fully paid and nonassessable, and no shares of capital
stock have been issued in violation of preemptive or similar rights.
(ii) No bonds, debentures, notes or other indebtedness of Parent
having the right to vote on any matters on which stockholders may vote
("Parent Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in Section 3.2(b)(i), as of April
30, 1998, there are no securities, subscriptions, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which Parent or any of its Subsidiaries is a party or by which any of
them is bound obligating Parent or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Parent or any of its
Subsidiaries or obligating Parent or any of its Subsidiaries to issue,
grant, extend or enter into any such security, subscription, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. As
of the date of this Agreement, there are no outstanding obligations of
Parent to repurchase, redeem or otherwise acquire any shares of capital
stock of Parent.
(c) Authority; No Conflicts. (i) Parent has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, subject to the approval by the
shareholders of Parent of the Agreement and the issuance of Parent Common
Shares in connection with the Merger (collectively the "Share Issuance") by
the Required Parent Vote (as defined in Section 3.2(i)), if required by
Applicable Law or the rules of the NYSE. The execution and delivery of this
Agreement, the Merger and the consummation of the other transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent, subject to the approval, if any, by the
shareholders of Parent of the Share Issuance. This Agreement has been duly
executed and delivered by Parent and constitutes a valid and binding
agreement of Parent, enforceable against it in accordance with its terms.
(ii) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the Merger and the other
transactions contemplated hereby will not, conflict with, or result in a
Violation pursuant to: (A) any provision of the Parent Articles or the
Parent Code or the certificate of incorporation or by-laws of any
Subsidiary of Parent, (B) except as would not have a Material Adverse
Effect on Parent and, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in paragraph (iii) below, any loan or credit agreement, note,
mortgage, bond, indenture, lease, benefit plan or other agreement,
obligation, contract, undertaking, instrument, permit, concession,
franchise, license, judgment, order, writ, injunction, decree, statute,
law, ordinance, rule or regulation applicable to Parent or any Subsidiary
of Parent or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or review by any Governmental
Entity is required by or with respect to Parent or any Subsidiary of Parent
in connection with the execution and delivery of this Agreement by Parent
or the consummation of the
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Merger and the other transactions contemplated hereby, except for the
Required Consents and such consents, approvals, orders, authorizations,
registrations, declarations, filings and reviews the failure of which to
make or obtain would not reasonably be expected to have a Material Adverse
Effect on Parent.
(d) Reports and Financial Statements. Parent has timely filed all
required reports, schedules, forms, statements and other documents required
to be filed by it with the SEC since June 30, 1995 (collectively, including
all exhibits, financial statements and schedules thereto, the "Parent SEC
Reports"). No Subsidiary of Parent is required to file any form, report or
other document with the SEC. None of the Parent SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or, solely with respect to Parent SEC Reports filed
after the date hereof, prior to the Closing Date, then on the date of such
filing), contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the Parent
SEC Reports complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto and presents fairly the consolidated financial
position and consolidated results of operations and cash flows of Parent
and its Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with U.S. GAAP consistently
applied during the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to
normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such Parent SEC Reports, as of
their respective dates (and as of the date of any amendment to the
respective Parent SEC Report), complied as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder.
(e) Information Supplied. (i) None of the information supplied or to
be supplied by Parent for inclusion or incorporation by reference in (A)
the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B) the Proxy
Statement/Prospectus will, on the date it is first mailed to Target
stockholders or Parent Stockholders, if applicable, or at the time of the
Target Stockholders Meeting or the Parent Shareholders Meeting, if
applicable, 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 were made, not misleading.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e),
no representation or warranty is made by Parent with respect to statements
made or incorporated by reference in the Form S-4 or the Proxy
Statement/Statement based on information supplied by Target for inclusion
or incorporation by reference therein.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Parent SEC Reports filed prior to the date of this Agreement, since March
31, 1998, Parent and its Subsidiaries have not incurred any material
liability, except in the ordinary course of business consistent with past
practice, nor has there been any event, occurrence or development or any
change in the business, financial condition or results of operations of
Parent or any of its Subsidiaries which has had, or is reasonably likely to
have, a Material Adverse Effect on Parent or a material adverse effect on
Parent's ability to consummate the transactions contemplated hereby.
(g) Accounting Matters. Neither Parent nor, to the best of its
knowledge, any of its affiliates has, through the date of this Agreement
taken or agreed to take any action that (without giving effect to any
actions taken or agreed to be taken by Target or any of its affiliates)
would prevent Parent from accounting for the Merger as a
pooling-of-interests for financial reporting purposes.
(h) Board Approval. The Board of Directors of Parent, by resolutions
adopted at a meeting duly called and held and not subsequently rescinded or
modified (the "Parent Board Approval"), has
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(i) determined that this Agreement, the Merger and the other transactions
contemplated hereby are fair to and in the best interests of Parent and its
shareholders, (ii) approved this Agreement and the Merger and the other
transactions contemplated hereby and (iii) recommended that the
shareholders of Parent approve the Share Issuance if required by Applicable
Law or the rules of NYSE.
(i) Vote Required. If the proposed transaction between Parent and
Bergen Brunswig Corporation ("BBC") is not consummated prior to the
Effective Time, the affirmative vote of holders of Parent Common Shares
representing a majority of the Parent Common Shares outstanding and
entitled to vote thereon (the "Required Parent Vote") is the only vote of
the holders of any class or series of Parent capital stock necessary to
approve the Share Issuance. If the proposed transaction between Parent and
BBC is consummated prior to the Effective Time, no vote of the holders of
any class or series of Parent capital stock is necessary to approve the
Share Issuance.
(j) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee from Parent or its affiliates or any other similar
commission or fee will be incurred by or on behalf of Parent in connection
with any of the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent, except Donaldson Lufkin &
Jenrette Securities Corporation and certain of its affiliates and related
parties (the "Parent Financial Advisor"), whose fees and expenses will be
paid by Parent in accordance with Parent's agreement (if any) with such
firm based upon arrangements made by or on behalf of Parent.
3.3 Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub represent and warrant to Target as follows:
(a) Organization and Corporate Power. Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware. Merger Sub is a direct wholly-owned subsidiary of Parent.
(b) Corporate Authorization. Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
by Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Merger Sub. This Agreement has been duly
executed and delivered by Merger Sub and constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its
terms.
(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby do not and will not contravene or conflict
with the certificate of incorporation or by-laws of Merger Sub.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with the organization of Merger Sub,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Target. During the period from the date of this
Agreement and continuing until the Effective Time, Target agrees as to itself
and its Subsidiaries (except as expressly contemplated or permitted by this
Agreement or to the extent that Parent shall otherwise consent in writing) to
conduct its operations in the ordinary course, consistent with past practice,
and to use all reasonable 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, 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 and continuing until
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the Effective Time, Target shall not (except as expressly contemplated or
permitted by this Agreement and the transactions contemplated hereby or to the
extent that Parent shall otherwise consent in writing):
(a) do or effect any of the following actions with respect to its
securities: (i) adjust, split, combine or reclassify its capital stock,
(ii) make, declare or pay any dividend 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, other than dividends, distributions,
redemptions, purchases or other acquisitions of shares between Target and a
wholly owned Subsidiary of Target and dividends by majority-owned
Subsidiaries of Target in the ordinary course of business consistent with
past practice (including increases in such amounts consistent with past
practice), (iii) grant any person any right or option to acquire any shares
of its capital stock; provided that Target may grant options under the
Target's 1997 Stock Option Plan with a fair market value exercise price to
purchase shares of Target Common Stock consistent with the terms of the
pre-established formula under Target's 1997 Stock Option Plan with respect
to Target's fiscal 1998 performance to employees of Target in the ordinary
course of business consistent with past practice, (iv) issue, deliver or
sell or agree to issue, deliver or sell any additional shares of its
capital stock, Target Voting Debt or any securities or obligations
convertible into or exchangeable or exercisable for any shares of its
capital stock or such securities (except (A) pursuant to the exercise of
options which are outstanding as of the date of this Agreement in
accordance with their existing terms or (B) as and to the extent provided
for in clause (iii) of this sentence), or (v) enter into any agreement,
understanding or arrangement with respect to the sale, purchase or voting
of its capital stock (except as and to the extent provided for in clause
(iii) of this sentence);
(b) directly or indirectly sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any of its material property or assets,
other than the sale of inventory and the disposition of obsolete or worn-
out equipment in the ordinary course of business consistent with past
practice;
(c) make or propose any changes in Target's Certificate of
Incorporation or By-laws;
(d) merge or consolidate with any other person or acquire a material
amount of assets or capital stock of any other person, create any
subsidiary outside the ordinary course of business or enter into any
confidentiality agreement with any person outside the ordinary course of
business;
(e) 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;
(f) except as disclosed in a schedule previously provided by Target to
Parent, 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 salary increases granted in the ordinary
course of business consistent with past practice, other than, without the
consent of Parent, to employees who are officers or directors of Target, or
otherwise increase the compensation or benefits provided to any officer,
director, consultant or employee except as may be required by Applicable
Law or a binding written contract in effect on the date of this Agreement;
(g) enter into, adopt or amend any employee benefit or similar plan;
(h) change any method or principle of accounting in a manner that is
inconsistent with past practice, except to the extent required by U.S. GAAP
as advised by Target's regular independent accountants;
(i) settle any Actions, whether now pending or hereafter made or
brought involving an amount in excess of $500,000;
(j) write up, write down or write off the book value of any assets,
individually or in the aggregate, in excess of $500,000, except for
depreciation and amortization in accordance with U.S. GAAP consistently
applied;
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(k) incur or commit to any capital expenditures, other than capital
expenditures provided for in Target's Profit Plan for fiscal 1999
previously provided to Parent;
(l) take any action, or permit any of its Subsidiaries to take any
action, that would prevent the Merger from qualifying as a reorganization
under Section 368 of the Code;
(m) take any action that would reasonably be expected to result in any
of the representations and warranties set forth in Section 3.1 becoming
false or inaccurate in any material respect;
(n) permit or cause any Subsidiary to do any of the foregoing or agree
or commit to do any of the foregoing; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
4.2 Covenants of Parent. During the period from the date of this
Agreement and continuing until the Effective Time, Parent shall not (except as
expressly contemplated or permitted by this Agreement or to the extent that
Target shall otherwise consent in writing):
(a) except to the extent required to comply with their respective
obligations hereunder, required by law or required by the rules and
regulations of NYSE, make any amendment to the Parent Articles that would
adversely affect in any material respect the rights and preferences of the
holders of Parent Common Shares or make any changes in the certificate of
incorporation of Merger Sub;
(b) change any method or principle of accounting in a manner that is
inconsistent with past practice except to the extent required by U.S. GAAP
as advised by Parent's regular independent counsel;
(c) take any action, or permit any of its Subsidiaries to take any
action, that would prevent the Merger from qualifying as a reorganization
under Section 368 of the Code;
(d) make, declare or pay any extraordinary cash dividend, other than
dividends between Parent and a Subsidiary of Parent;
(e) permit or cause any Subsidiaries to do any of the foregoing or
agree or commit to do any of the foregoing; or
(f) agree in writing or otherwise to take any of the foregoing
actions.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement; Target Stockholders Meeting. (a) As
promptly as practicable following the date of this Agreement, Parent shall, in
cooperation with Target, prepare and file with the SEC preliminary proxy
materials on a confidential basis which shall constitute the Proxy
Statement/Prospectus and, if the Required Parent Vote is required to be obtained
with respect to the Share Issuance pursuant to Applicable Law or the rules of
the NYSE, the joint proxy statement/prospectus (such joint proxy
statement/prospectus, and any amendments or supplements thereto, the "Proxy
Statement/Prospectus") and, following completion of a review by the SEC (if
any), a registration statement on Form S-4 with respect to the issuance of
Parent Common Shares in the Merger (the "Form S-4"). The Proxy
Statement/Prospectus will be included in the Form S-4 as Parent's prospectus.
The Form S-4 and the Proxy Statement/Prospectus shall comply as to form in all
material respects with the applicable provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder. Each of Parent and Target
shall use all reasonable efforts to have the preliminary proxy materials cleared
by the SEC as promptly as practicable after filing with the SEC and to keep the
Form S-4 effective as long as is necessary to consummate the Merger. Parent
shall, as promptly as practicable after receipt thereof, provide copies of any
written comments received from the SEC with respect to the Proxy
Statement/Prospectus to Target and advise Target of any oral comments with
respect to the Proxy Statement/Prospectus received from the SEC. Parent agrees
that none of the information supplied or to be supplied by Parent for inclusion
or incorporation by reference in the Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the time
of the
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Target Stockholders Meeting or the Parent Shareholders Meeting, if applicable,
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Target
agrees that none of the information supplied or to be supplied by Target for
inclusion or incorporation by reference in the Proxy Statement/Prospectus and
each amendment or supplement thereto, at the time of mailing thereof and at the
time of the Target Stockholders Meeting or the Parent Shareholders Meeting, if
applicable, will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to Parent and the Parent Shareholders Meeting,
if applicable, will be deemed to have been supplied by Parent and information
concerning or related to Target and the Target Stockholders Meeting shall be
deemed to have been supplied by Target. Parent will provide Target with a
reasonable opportunity to review and comment on any amendment or supplement to
the Proxy Statement/Prospectus prior to filing such with the SEC, and will
provide Target with a copy of all such filings made with the SEC. No amendment
or supplement to the information supplied by Target for inclusion in the Proxy
Statement/Prospectus shall be made without the approval of Target, which
approval shall not be unreasonably withheld or delayed.
(b) Target shall, as promptly as practicable following the execution of
this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Target Stockholders Meeting") for the purpose of obtaining
the Required Target Vote with respect to the transactions contemplated by this
Agreement, shall take all lawful action to solicit the adoption of this
Agreement by the Required Target Vote and the Board of Directors of Target shall
recommend adoption of this Agreement by the stockholders of Target.
(c) Parent shall, if required by Applicable Law or the rules of the NYSE,
as promptly as practicable following the execution of this Agreement, duly call,
give notice of, convene and hold a meeting of its shareholders (the "Parent
Shareholders Meeting") for the purpose of obtaining the Required Parent Vote,
shall take all lawful action to solicit the approval of the Share Issuance by
the Required Parent Vote, and the Board of Directors of Parent shall recommend
approval of the Share Issuance by the shareholders of Parent.
5.2 Parent Board of Directors. At or immediately after the Effective
Time, the Board of Directors of Parent will take all necessary action to elect
Aleksandar Erdeljan as a member of the Board of Directors of Parent.
5.3 Access to Information. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of the other party
reasonable access during normal business hours, during the period prior to the
Effective Time, to all its relevant properties, books, contracts, commitments
and records and, during such period, such party shall (and shall cause its
Subsidiaries to) furnish promptly to the other party, consistent with its legal
obligations, all other relevant information concerning its business, properties
and personnel as such other party may reasonably request. The parties will hold
any such information which is non-public in confidence to the extent required
by, and in accordance with, the provisions of the letter dated April 17, 1998
between Target and Parent (the "Confidentiality Agreement"). Any investigation
by Parent or Target shall not affect the representations and warranties of
Target or Parent or Merger Sub, as the case may be.
5.4 Reasonable Efforts. (a) Subject to the terms and conditions of this
Agreement, each party will use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under Applicable Laws and regulations to consummate the Merger and
the other transactions contemplated by this Agreement as soon as practicable
after the date of this Agreement. In furtherance and not in limitation of the
foregoing, each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable and in any event
within five Business Days after the date of this Agreement and to supply as
promptly as practicable any additional information and documentary material that
may be requested pursuant to the HSR Act and to use all reasonable efforts to
take all other actions necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as practicable.
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(b) Each of Parent and Target shall, in connection with the efforts
referenced in Section 5.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Merger Agreement under
the HSR Act or any other Regulatory Law (as defined below), use all reasonable
efforts to (i) cooperate in all respects with each other in connection with any
filing or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party, (ii) promptly inform the
other party of any communication received by such party from, or given by such
party to, the Antitrust Division of the Department of Justice (the "DOJ") or any
other Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the transactions contemplated hereby, and (iii) permit the other party to review
any communication given by it to, and make all reasonable efforts to consult
with each other in advance of any meeting or conference with, the DOJ or any
such other Governmental Entity or, in connection with any proceeding by a
private party, with any other Person, and to the extent permitted by the DOJ or
such other applicable Governmental Entity or other Person, give the other party
the opportunity to attend and participate in such meetings and conferences, in
each case relating solely to the transactions contemplated by this Agreement.
For purposes of this Agreement, "Regulatory Law" means the Sherman Act, as
amended, the Clayton Act, as amended, the HSR Act and all other federal, state
and foreign, if any, statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines and other laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade or lessening of competition through
merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 5.4(a) and 5.4(b), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is instituted
(or threatened to be instituted) challenging any transaction contemplated by
this Agreement as violative of any Regulatory Law, each of Parent and Target
shall cooperate in all respects with each other and use all reasonable efforts
to contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5.4 shall limit a party's right to terminate
this Agreement pursuant to Section 7.1(b) so long as such party has up to then
complied in all respects with its obligations under this Section 5.4.
(d) If any objections are asserted with respect to the transactions
contemplated hereby under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated hereby as violative of any Regulatory Law, each of Parent and
Target shall use all reasonable efforts to resolve any such objections or
challenge as such Governmental Entity or private party may have to such
transactions under such Regulatory Law so as to permit consummation of the
transactions contemplated by this Agreement.
(e) Notwithstanding anything to the contrary in this Agreement, neither
Parent nor Target shall be required to (i) hold separate (including by trust or
otherwise) or divest any businesses or assets or (ii) take or agree to take any
other action or agree to any limitation that would reasonably be expected to
have a Material Adverse Effect on Parent or Target, or would reasonably be
expected to substantially impair the overall benefits expected, as of the date
of this Agreement, to be realized from the consummation of the Merger.
(f) Each of Parent, Merger Sub and Target shall use its best efforts to
cause the Merger to qualify, and will not (both before and after consummation of
the Merger) take any actions which to its knowledge could reasonably be expected
to prevent the Merger from qualifying as a reorganization under the provisions
of Section 368 of the Code.
(g) Each of the parties agrees that it shall not, and shall not permit any
of its Subsidiaries to, take any actions which would, or would be reasonably
likely to, prevent Parent from accounting, and shall use its best efforts
(including, without limitation, providing appropriate representation letters to
Parent's accountants) to allow Parent 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
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Financial Accounting Standards Board, and all related published rules,
regulations and policies of the SEC ("APB No. 16"), and to obtain a letter, in
form and substance reasonably satisfactory to Parent, from Deloitte & Touche LLP
dated the date of the Effective Time and, if requested by Parent, dated the date
of the Proxy Statement/Prospectus stating that they concur with management's
conclusion that the Merger will qualify as a transaction to be accounted for by
Parent in accordance with the pooling-of-interests method of accounting under
the requirements of APB No. 16.
5.5 Acquisition Proposals. (a) Target agrees that neither it nor any of
its Subsidiaries nor any of the officers and directors of it or its Subsidiaries
shall, and that it shall direct and use its best efforts to cause its and its
Subsidiaries" employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate, solicit, encourage or knowingly facilitate
(including by way of furnishing information) any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving, or any purchase or sale of all or any
significant portion of the assets or 10% or more of the equity securities of, it
or any of its Subsidiaries (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). Target further agrees that neither it
nor any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall direct and use its best efforts to cause
its and its Subsidiaries" employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, have any discussion with or
provide any confidential information or data to any Person relating to an
Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal. Notwithstanding the
foregoing, at any time prior to the Target Stockholders Meeting, Target or its
Board of Directors shall be permitted to engage in any discussions or
negotiations with, or provide any information to, any Person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person if (i) the
Board of Directors of Target concludes in good faith by a majority vote, after
consulting with a nationally recognized investment banking firm, that such
Acquisition Proposal would, if consummated, constitute a Superior Proposal, (ii)
prior to providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, the Target Board of Directors receives
from such Person an executed confidentiality agreement on terms substantially
similar to those contained in the Confidentiality Agreement and (iii) prior to
providing any information or data to any Person, the Board of Directors of
Target notifies Parent promptly of such inquiries, proposals or offers received
by, any such information requested from, or any such discussions or negotiations
sought to be initiated or continued with, any of its representatives indicating,
in connection with such notice, the name of such Person and all of the material
terms and conditions of any proposals or offers. Target agrees that it will keep
Parent fully informed, on a current basis, of the status and terms of any such
proposals or offers and the status of any such discussions or negotiations.
Notwithstanding any other provision of this Section 5.5(a), in the event that
the Board of Directors of Target determines in good faith by a majority vote,
after consulting with a nationally recognized investment banking firm, that an
Acquisition Proposal would, if consummated, constitute a Superior Proposal, the
Board of Directors of Target may withdraw, modify or change, in a manner adverse
to Parent, the Target Board Approval and, to the extent applicable, comply with
Rule 14e-2 promulgated under the Exchange Act with respect to an Acquisition
Proposal by disclosing such withdrawn, modified or changed Target Board Approval
in connection with a tender or exchange offer for Target Common Stock, provided
that it uses all reasonable efforts to give Parent two days' prior written
notice of its intention to do so (provided that the foregoing shall in no way
limit or otherwise affect Parent's right to terminate this Agreement pursuant to
Section 7.1 at such time as the requirements of Section 7.1 have been met). The
Target Board of Directors shall not, in connection with any such withdrawal,
modification or change of the Target Board Approval, take any action to change
the approval of the Board of Directors of Target for purposes of causing any
state takeover statute or other state law to become applicable to the Merger or
inapplicable to any Acquisition Proposal or transaction contemplated thereby
(until such time as this Agreement has been terminated in accordance with the
requirements of Section 7.1). Target agrees that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any
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Acquisition Proposal. Target agrees that it will take the necessary steps to
promptly inform the individuals or entities referred to in the first sentence of
this Section 5.5 of the obligations undertaken in this Section 5.5.
(b) Termination Right. If prior to the approval of the Merger at the
Target Stockholders Meeting: (x) the Board of Directors of Target shall
determine in good faith, after consultation with its financial advisors, with
respect to any written proposal from a third party for an Acquisition Proposal
received after the date hereof that was not initiated, solicited, encouraged or
knowingly facilitated by Target or any of its Subsidiaries or their affiliates
or agents in violation of this Agreement, that such Acquisition Proposal would,
if consummated, constitute a Superior Proposal (after taking into account any
adjustment to the terms and conditions of the Merger offered in writing by
Parent in response to such Acquisition Proposal) and (y) Target has received
from a nationally recognized investment banking firm a written opinion (a copy
of which is delivered to Parent) that the Acquisition Proposal would, if
consummated, constitute a Superior Proposal (after taking into account any
adjustment to the terms and conditions of such transaction offered in writing by
Parent), Target 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 Acquisition Proposal provided
that, prior to any such termination, (i) Target has provided Parent written
notice that it intends to terminate this Agreement pursuant to this Section
5.5(b) and Section 7.1(f), identifying the Acquisition Proposal then determined
to be a Superior Proposal and delivering the information with respect to such
Acquisition Proposal required by Section 5.5(a), and (ii) at least three full
Business Days after Target has provided the notice referred to in clause (i)
above (provided that the advice and opinion referred to in clauses (x) and (y)
above shall continue in effect without revocation, revision or modification),
(A) Target delivers to Parent a written notice of termination of this Agreement
pursuant to this Section 5.5(b), (B) Parent receives from Target a wire transfer
in the aggregate amount of (I) Parent's Expenses (as defined in Section 5.7) as
the same may have been estimated by Parent in good faith prior to the date of
such delivery (subject to an adjustment payment, if any, between the parties
upon Parent's definitive determination of such Expenses), plus (II) the
Termination Fee (less the amount of any Parent Expenses paid pursuant to clause
I) as provided in Section 7.2, and (C) Parent receives a written acknowledgment
from Target and from the other party to the Acquisition Proposal that Target and
such other party have irrevocably waived any right to contest such payment.
(c) Effects of Section 5.5. Nothing in this Section 5.5 shall (x) permit
either Parent or Target to terminate this Agreement (except as specifically
provided in Article VII hereof) or (y) affect any other obligation of Target or
Parent under this Agreement, provided that any withdrawal, modification or
change of the Target Board Approval implemented in accordance with this Section
5.5 (and not in response to an Acquisition Proposal that was initiated,
solicited, encouraged or facilitated in violation of this Section 5.5) shall not
constitute a breach of this Agreement by Target for any purpose hereunder.
5.6 Stock Options and Other Stock Plans; Employee Benefits Matters. (a)
Prior to the Effective Time of the Merger, Parent and Target shall take all such
actions as may be necessary to cause each unexpired and unexercised option to
purchase Target Common Stock (a "Target Stock Option") issued pursuant to
Target's 1990 Nonqualified Stock Option Plan, Target's 1990 Nonqualified
Performance Stock Option Plan A, Target's 1990 Nonqualified Performance Stock
Option Plan B, Target's 1992 Stock Option Plan, Target's 1997 Stock Option Plan
and each of Target's agreements with its directors existing on the date hereof
relating to the grant of stock options to such directors and disclosed in the
Target SEC Reports or previously provided to Parent by Target (collectively, the
"Target Stock Plans") in effect on the date of this Agreement which has been
granted to current or former directors, officers or employees of Target by
Target, to be converted at the Effective Time into an option (a "Converted
Option") to purchase that number of Parent Common Shares equal to the number of
shares of Target Common Stock issuable immediately prior to the Effective Time
upon exercise of the Target Stock Option multiplied by the Exchange Ratio, with
an exercise price equal to the exercise price which existed under the
corresponding Target Stock Option divided by the Exchange Ratio, and with other
terms and conditions that are the same as the terms and conditions of such
Target Stock Option immediately prior to the Effective Time (taking into account
any acceleration of vesting, if any, that would result from the Merger under the
terms of the Target Stock Plans as in effect on the date hereof); provided, that
with respect to any Target Stock Option that is an "incentive stock option"
within the meaning of
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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. In connection
with the issuance of Parent Common Shares, Parent shall (i) reserve for issuance
the number of Parent Common Shares that will become subject to the Target Stock
Options pursuant to this Section 5.6 and (ii) from and after the Effective Time,
upon exercise of Converted Options, make available for issuance all Parent
Common Shares covered thereby, subject to the terms and conditions applicable
thereto. Target agrees to issue treasury shares of Target, to the extent
available and reasonably practicable to do so, upon the exercise of Target Stock
Options prior to the Effective Time.
(b) Employee Benefits.
(i) Obligations of Parent; Comparability of Benefits. For a period of
one year following the Effective Time, Parent shall, or shall cause the
Surviving Corporation to, provide benefits to continuing or former
employees of Target and its Subsidiaries ("Target Employees") that, in the
aggregate, are no less favorable than the benefits provided, in the
aggregate, under such Benefit Plans to the Target Employees immediately
prior to the Effective Time. Notwithstanding the foregoing, nothing herein
shall require (A) the continuation of any particular Target Benefit Plan or
prevent the amendment or termination thereof (subject to the maintenance,
in the aggregate, of the benefits as provided in the preceding sentence) or
(B) Parent or the Surviving Corporation to continue or maintain any stock
purchase or other equity plan related to the equity of Target or the
Surviving Corporation.
(ii) Pre-Existing Limitations; Deductible; Service Credit. With
respect to any Benefit Plans of Parent or its Subsidiaries in which the
Target Employees participate effective as of the Closing Date, Parent
shall, or shall cause the Surviving Corporation to: (A) waive any
limitations as to pre-existing conditions, exclusions and waiting periods
with respect to participation and coverage requirements applicable to the
Target Employees under which any welfare Benefit Plan in which such
employees may be eligible to participate after the Effective Time
(provided, however, that no such waiver shall apply to a pre-existing
condition of any Target Employee who was, as of the Effective Time,
excluded from participation in a Target Benefit Plan by nature of such
pre-existing condition), (B) provide each Target Employee with credit for
any co-payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket requirements under
any welfare Benefit Plan in which such employees may be eligible to
participate after the Effective Time, and (C) recognize all service of the
Target Employees with Target for all purposes (including, without
limitation, purposes of eligibility to participate, vesting credit,
entitlement for benefits, and benefit accrual) in any Benefit Plan in which
such employees may be eligible to participate after the Effective Time,
except to the extent such treatment would result in duplicative accrual on
or after the Closing Date of benefits for the same period of service.
5.7 Fees and Expenses. Whether or not the Merger is consummated, all
Expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such Expenses, except
(a) if the Merger is consummated, the Surviving Corporation shall pay, or cause
to be paid, any and all property or transfer taxes imposed on Target or its
Subsidiaries and any real property transfer tax imposed on any holder of shares
of capital stock of Target resulting from the Merger, (b) Expenses incurred in
connection with the filing, printing and mailing of the Proxy
Statement/Prospectus, which shall be shared equally by Parent and Target and (c)
as provided in Section 7.2. As used in this Agreement, "Expenses" includes all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of the Proxy
Statement/Prospectus and the solicitation of stockholder approvals and all other
matters related to the transactions contemplated hereby.
5.8 Directors' and Officers' Indemnification and Insurance. For a period
of six years from and after the Effective Time, Parent shall cause (including,
to the extent required, providing sufficient funding to enable the Surviving
Corporation to satisfy all of its obligations under this Section 5.8) the
Surviving Corporation to indemnify, defend and hold harmless the present and
former officers and directors of Target in respect of acts or omissions
occurring prior to the Effective Time to the fullest extent permitted or
provided under Target's
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certificate of incorporation and by-laws in effect on the date of this
Agreement. The Surviving Corporation shall, for a period of six years, maintain
the current policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by Target (provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are, in the aggregate, no less
advantageous to the insured) with respect to claims arising from facts or events
that occurred at or before the Effective Time; provided, however, that in no
event shall the Surviving Corporation be required to expend in any one year an
amount in excess of 100% of the annual premium currently paid by Target for such
insurance; and, provided, further, that if the premiums of such insurance
coverage exceed such amount, the Surviving Corporation shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
5.9 Public Announcements. Target and Parent shall use all reasonable
efforts, unless otherwise required by Applicable Law or by obligations pursuant
to any listing agreement with or rules of any securities exchange, to consult
with each other before issuing any press release or making any other public
statement with respect to this Agreement or the transactions contemplated
hereby.
5.10 Listing of Parent Common Shares. Parent shall use all reasonable
efforts to cause the Parent Common Shares to be issued in the Merger and the
Parent Common Shares to be reserved for issuance upon exercise of the Converted
Options to be approved for listing, upon official notice of issuance, on the
NYSE.
5.11 Affiliates. Target shall cause each such Person who may be at the
Effective Time or was on the date of this Agreement an "affiliate" of Target for
purposes of Rule 145 under the Securities Act or applicable accounting releases
of the SEC with respect to pooling-of-interests accounting treatment, to execute
and deliver to Parent no less than 30 days prior to the date of the Target
Stockholders Meeting, the written undertakings in the form attached hereto as
Exhibit A-1 (the "Target Affiliate Letter"). No later than 45 days prior to the
date of the Target Stockholders Meeting, Target, after consultation with its
outside counsel, shall provide Parent with a letter (reasonably satisfactory to
outside counsel to Parent) specifying all of the Persons or entities who, in
Target's opinion, may be deemed to be "affiliates" of Target under the preceding
sentence. The foregoing notwithstanding, Parent shall be entitled to place
legends as specified in the Target Affiliate Letter on the certificates
evidencing any of the Parent Common Shares to be received by (i) any such
"affiliate" of Target specified in such letter or (ii) any person Parent
reasonably identified (by written notice to Target) 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 SEC 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 Parent
Common Shares, consistent with the terms of the Target Affiliate Letter,
regardless of whether such Person has executed the Target Affiliate Letter and
regardless of whether such Person's name appears on the letter to be delivered
pursuant to the preceding sentence.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligations of Target, Parent and Merger Sub to effect the Merger are subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. (i) Target shall have obtained the Required
Target Vote in connection with the adoption of this Agreement by the
stockholders of Target and (ii) Parent shall have obtained the Required
Parent Vote, if required by Applicable Law or the rules of the NYSE, in
connection with the approval of the Share Issuance by the shareholders of
Parent.
(b) No Injunctions or Restraints, Illegality, Actions. No laws shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or
other Governmental Entity of competent jurisdiction shall be in effect,
having the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger. No Actions shall be instituted by any
Governmental Entity which seeks to prevent consummation of the Merger or
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seeking material damages in connection with the transactions contemplated
hereby which continues to be outstanding.
(c) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(d) German Antitrust. There shall have been received all required
consents, authorizations, clearances and/or approvals from German
competition and any similar German authorities necessary to consummate the
Merger and the transactions contemplated hereby to the extent required by
German law.
(e) NYSE Listing. The Parent Common Shares to be issued in the Merger
and such other shares to be reserved for issuance in connection with the
Merger shall have been approved upon official notice of issuance for
listing on the NYSE.
(f) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Form S-4 shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(g) Pooling. Parent shall have received a letter, in form and
substance reasonably satisfactory to Parent, from Deloitte & Touche LLP
dated the Closing Date stating that they concur with the conclusion of
Parent's management that the Merger will qualify as a transaction to be
accounted for by Parent in accordance with the pooling of interests method
of accounting under the requirements of APB No. 16.
6.2 Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction of, or waiver by Parent, on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. (i) Each of the representations
and warranties of Target set forth in this Agreement, other than the
representations and warranties of Target set forth in Section 3.1(c), shall
have been true and correct on the date of this Agreement and shall be true
and correct on and as of the Closing Date as though made on and as of the
Closing Date (except for such 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 such 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 Target
(disregarding, for purposes of this provision, the Material Adverse Effect
qualification in any single representation and warranty), and (ii) the
representations and warranties of Target set forth in Section 3.1(c) shall
have been true and correct in all material respects on the date of this
Agreement and shall be true and correct in all material respects on the
Closing Date as though made as of the Closing Date (except for such
representations and warranties made as of a specified date, the accuracy of
which will be determined as of the specified date), and Parent shall have
received a certificate of the chief executive officer or president and the
chief financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have performed
or complied with all agreements and covenants required to be performed by
it under this Agreement at or prior to the Closing Date that are qualified
as to materiality and shall have performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under this Agreement at or prior to the Closing Date that are not so
qualified as to materiality, and Parent shall have received a certificate
of the chief executive officer or president and the chief financial officer
of Target to such effect.
6.3 Additional Conditions to Obligations of Target. The obligations of
Target to effect the Merger are subject to the satisfaction of, or waiver by,
Target, on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub set forth in this Agreement shall have
been true and correct on the date of this Agreement and shall be true and
correct on and as of the Closing Date as though made on and as of the
Closing Date (except for such representations and warranties made as of a
specified date, the accuracy of which will be
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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 Parent (disregarding, for purposes of this provision, the
Material Adverse Effect qualification in any single representation and
warranty), and Target shall have received a certificate of the chief
executive officer or president and the chief financial officer of Parent to
such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
or complied with all agreements and covenants required to be performed by
it under this Agreement at or prior to the Closing Date that are qualified
as to materiality and shall have performed or complied in all material
respects with all agreements and covenants required to be performed by it
under this Agreement at or prior to the Closing Date that are not so
qualified as to materiality, and Target shall have received a certificate
of the chief executive officer or president and the chief financial officer
of Parent to such effect.
(c) Tax Opinion. The opinion, dated on or about the date of and
referred to in the Proxy Statement/Prospectus, based on appropriate
representations of Target and Parent, of Simpson Thacher & Bartlett,
counsel to Target, to Target to the effect that (i) the Merger will be
treated for U.S. Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and (ii) Parent, Merger Sub and
Target will each be a party to the reorganization within the meaning of
Section 368(b) of the Code, shall have been rendered.
(d) Closing Tax Opinion. An opinion, dated as of the Closing Date,
based on appropriate representations of Target and Parent, of Simpson
Thacher & Bartlett, counsel to Target, substantially identical to the
opinion referred to in Section 6.3(c), shall have been rendered.
(e) Change of Control of Parent. On or after the date of this
Agreement, Parent shall not have undergone a change of control.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties and, except as provided below, whether before
or after any required approval of the matters presented in connection with the
Merger by the stockholders of Target or the shareholders of Parent:
(a) By mutual written consent of Parent and Target, by action of their
respective Boards of Directors;
(b) By either Target or Parent if the Effective Time shall not have
occurred on or before November 30, 1998 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement (including without limitation Section 5.4)
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before the Termination Date;
(c) By either Target or Parent if any Governmental Entity (i) shall
have issued an order, decree or ruling or taken any other action (which the
parties shall have used all reasonable efforts to resist, resolve or lift,
as applicable, in accordance with Section 5.4) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree
or ruling or to take any other action (which order, decree, ruling or other
action the parties shall have used all reasonable efforts to obtain, in
accordance with Section 5.4), in each case (i) and (ii) which is necessary
to fulfill the conditions set forth in subsections 6.1(c) and (d), as
applicable, and such denial of a request to issue such order, decree,
ruling or take such other action shall have become final and nonappealable.
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(d) By either Target or Parent if (i) the approval by the stockholders
of Target required for the consummation of the Merger shall not have been
obtained by reason of the failure to obtain the Required Target Vote or
(ii) the approval by the shareholders of Parent required for the Share
Issuance, if required by Applicable Law or the rules of the NYSE, shall not
have been obtained by reason of the failure to obtain the Required Parent
Vote, in each case upon the taking of such vote at a duly held meeting of
stockholders of Target or shareholders of Parent, as the case may be, or at
any adjournment thereof;
(e) By Parent if the Board of Directors of Target (i) shall withdraw
or modify in any adverse manner the Target Board Approval, (ii) shall
approve or recommend any Acquisition Proposal or (iii) shall resolve to
take any of the actions specified in clauses (i) or (ii) above;
(f) By Target pursuant to Section 5.5(b); or
(g) By Target if the Board of Directors of Parent (i) shall withdraw
or modify in any adverse manner the Parent Board Approval or (ii) shall
resolve to take the action specified in clause (i) above.
7.2 Effect of Termination. (a) In the event of termination of this
Agreement by either Target or Parent as provided in Section 7.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of Parent or Target or their respective officers, directors or stockholders
except with respect to the second sentence of Section 5.3, Section 5.7, this
Section 7.2 and Article VIII. 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 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 Expenses.
(b) Parent and Target agree that (i) if Target shall terminate this
Agreement pursuant to Section 5.5(b) and Section 7.1(f), (ii) if Parent
shall terminate this Agreement pursuant to Section 7.1(e) or (iii) if (x)
Target or Parent shall terminate this Agreement pursuant to Section
7.1(d)(i), (y) at any time prior to such termination there shall have been
made to Target or publicly disclosed an Acquisition Proposal with respect
to Target and (z) within twelve months of the termination of this
Agreement, Target enters into an Acquisition Agreement with respect to a
Business Combination or a Business Consummation is consummated, then Target
shall pay to Parent (A) an amount in cash equal to the aggregate amount of
Parent's Expenses incurred in connection with pursuing the transactions
contemplated by this Agreement, up to but not in excess of an amount equal
to $4 million in the aggregate and (B) a termination fee in an amount equal
to $75 million (such amounts collectively, the "Termination Fee"). For the
purposes of this Section 7.2, "Business Combination" means (i) a merger,
consolidation, share exchange, business combination or similar transaction
involving Target as a result of which the Target 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 at least 50% of the assets of Target 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
Parent 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 25% or more of the Target Common Stock whether by tender or exchange
offer or otherwise. (c) The Termination Fee required to be paid pursuant to
Section 7.2(b)(i) shall be paid prior to termination of this Agreement
pursuant to Section 7.1(f). The Termination Fee required to be paid
pursuant to Section 7.2(b)(ii) shall be paid to Parent within two Business
Days after the termination of this Agreement pursuant to Section 7.1(e).
Any other payment required to be made pursuant to Section 7.2(b) shall be
made to Parent prior to the entering into of an Acquisition Agreement with
respect to, or the consummation of, an Acquisition Proposal described
therein, as applicable. All payments under this Section 7.2 shall be made
by wire transfer of immediately available funds to an account designated by
the party entitled to receive payment.
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 approval of the matters
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presented in connection with the Merger by the stockholders of Target and the
shareholders of Parent, but, after any such approval, no amendment shall be made
which by law or in accordance with the rules of any relevant stock exchange
requires further approval by such stockholders without such further approval.
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, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) 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. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII. Nothing in this Section 8.1 shall relieve any party for any
breach of any representation, warranty, covenant or other agreement in this
Agreement occurring prior to termination.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to Parent or Merger Sub, to
Cardinal Health, Inc.
5555 Glendon Court
Dublin, Ohio 43016
Attention: Robert D. Walter
Facsimile No.: 614-717-8919
with a copy to
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: David A. Katz, Esq.
Facsimile No.: 212-403-2000
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(b) if to Target, to
R.P. Scherer Corporation
P.O. Box 7060
Troy, MI 48084
Attention: Tom Stuart
Facsimile No.: 248-649-2079
with a copy to
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Philip T. Ruegger III, Esq.
Facsimile No.: 212-455-2502
8.3 Interpretation. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. The table of contents, glossary of defined
terms and headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. (a) This Agreement
(including the documents and instruments referenced herein) and the
Confidentiality Agreement constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.8 (which is intended to be for the benefit of the Persons covered
thereby and may be enforced by such Persons).
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such assignment
without such consent shall be null and void, except that Merger Sub may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to any direct wholly owned Subsidiary of Parent without
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the consent of Target, but no such assignment shall relieve Merger Sub of any of
its obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
8.9 Submission to Jurisdiction; Waivers. Each of Parent and Target
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware or the
United States District Court for the District of Delaware, and each of Parent
and Target hereby irrevocably submits with regard to any such action or
proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Parent and Target hereby irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of the above-named courts for any reason other than the
failure to serve process in accordance with this Section 8.9, (b) that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), and (c) to the fullest extent permitted by
applicable law, that (i) the suit, action or proceeding in any such court is
brought in an inconvenient forum, (ii) the venue of such suit, action or
proceeding is improper and (iii) this Agreement, or the subject matter hereof,
may not be enforced in or by such courts.
8.10 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof; this being in
addition to any other remedy to which they are entitled at law or in equity.
8.11 Definitions. As used in this Agreement:
(a) "Benefit Plan" means, with respect to any Person, each employee
benefit plan, program, arrangement and contract (including, without
limitation, any "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
any bonus, deferred compensation, stock bonus, stock purchase, restricted
stock, stock option, employment, termination, stay agreement or bonus,
change in control and severance plan, program, arrangement and contract) to
which such Person or its Subsidiary is a party, which is maintained or
contributed to by such Person, or with respect to which such Person could
incur material liability under Section 4069, 4201 or 4212(c) of ERISA or
otherwise.
(b) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(c) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(d) "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 Benefit Plans.
(e) "ERISA Affiliates" 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.
(f) "Intellectual Property" means all industrial and intellectual
property rights, including Proprietary Technology, patents, patent
applications, trademarks, trademark applications and registrations, service
marks, service mark applications and registrations, copyrights, know-how,
licenses, trade secrets, proprietary processes, formulae and customer lists
used by Target in their respective businesses.
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(g) "Material Adverse Effect" means, with respect to any entity, any
adverse event, change, circumstance or effect that, individually or in the
aggregate with all other adverse events, changes, circumstances and
effects, is or is reasonably likely to be materially adverse to the
business, financial condition or results of operations of such entity and
its Subsidiaries taken as a whole, other than (i) any change, circumstance
or effect relating to the economy, foreign exchange rates or securities
markets in general or the industries generally in which Parent and its
Subsidiaries or Target and its Subsidiaries operate and not specifically
relating to Parent or Target and (ii) solely with respect to Parent, such
matters set forth in a schedule previously provided by Parent to Target.
(h) "the other party" means, with respect to Target, Parent and means,
with respect to Parent, Target.
(i) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(j) "Proprietary Technology" means all proprietary processes,
formulae, inventions, trade secrets, know-how, development tools and other
proprietary rights used by Target and its Subsidiaries pertaining to any
product, software or service manufactured, marketed, licensed or sold by
Target and its Subsidiaries in the conduct of their businesses or used,
employed or exploited in the development, license, sale, marketing,
distribution or maintenance thereof by Target or its Subsidiaries, and all
documentation and media constituting, describing or relating to the above,
including manuals, memoranda, know-how, notebooks, software, records and
disclosures.
(k) "subsidiary" when used (A) with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other 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 a majority
of the voting interests in such partnership) or (ii) at least a majority of
the securities or other interests of which having by their terms ordinary
voting power to elect a majority 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
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries and (B) with respect to Target, shall include R.P. Scherer
Verwaltungs GmbH, R.P. Scherer GmbH, R.P. Scherer GmbH & Co. KG, R.P.
Scherer S.p.A., R.P. Scherer S.A., R.P. Scherer Production S.A., Allcaps
Weichgelatinekapseln GmbH and R.P. Scherer K.K.
(l) "Superior Proposal" means a bona fide written Acquisition Proposal
which the Board of Directors of Target concludes in good faith (after
consultation with its financial advisors and legal counsel), taking into
account all legal, financial, regulatory, fiduciary and other aspects of
the proposal and the Person making the proposal, (i) would, if consummated,
result in a transaction that is more favorable to Target's stockholders (in
their capacities as stockholders), from a financial point of view, than the
transactions contemplated by this Agreement and (ii) is reasonably capable
of being completed (provided that for purposes of this definition the term
Acquisition Proposal shall have the meaning assigned to such term in
Section 5.5 except that the reference to "10%" in the definition of
"Acquisition Proposal" shall be deemed to be a reference to "80%" and
"Acquisition Proposal" shall only be deemed to refer to a transaction
involving Target, or with respect to assets (including the shares of any
Subsidiary of Target) of Target and its Subsidiaries, taken as a whole, and
not any of its Subsidiaries alone).
(m) "Target Benefit Plan" means any Benefit Plan with respect to
Target.
(n) "Withdrawal Liability" means liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan,
as those terms are defined in Part I, Subtitle E of Title IV of ERISA.
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IN WITNESS WHEREOF, Parent, Target and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of May 17, 1998.
CARDINAL HEALTH, INC.
By: /s/ ROBERT D. WALTER
---------------------------------------
Name: Robert D. Walter
Title: Chairman and Chief Executive
Officer
GEL ACQUISITION CORP.
By: /s/ ROBERT D. WALTER
---------------------------------------
Name: Robert D. Walter
Title: Chairman of the Board
R.P. SCHERER CORPORATION
By: /s/ ALEKSANDAR ERDELJAN
---------------------------------------
Name: Aleksandar Erdeljan
Title: Chairman, President and Chief
Executive Officer
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<PAGE> 132
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION
DEFINITION OF DEFINITION
- ---------- -------------
<S> <C>
Acquisition Agreement....................................... 5.5(b)
Acquisition Proposal........................................ 5.5(a)
Action...................................................... 3.1(h)
Agreement................................................... Preamble
APB No. 16.................................................. 5.4(g)
Applicable Laws............................................. 3.1(f)(i)
BBC......................................................... 3.2(i)
Benefit Plan................................................ 8.11(a)
Blue Sky Laws............................................... 3.1(d)(iii)
Board of Directors.......................................... 8.11(b)
Business Combination........................................ 7.2(b)
Business Day................................................ 8.11(c)
Certificate................................................. 1.8(b)
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ Recitals
Confidentiality Agreement................................... 5.3
Controlled Group Liability.................................. 8.11(d)
Converted Option............................................ 5.6(a)
Delaware Certificate of Merger.............................. 1.3
DGCL........................................................ 1.1
DGF......................................................... 3.1(d)(iv)
DOJ......................................................... 5.4(b)
Effective Time.............................................. 1.3
Environmental Laws.......................................... 3.1(p)
ERISA....................................................... 8.11(a)
ERISA Affiliates............................................ 8.11(e)
Exchange Act................................................ 3.1(d)(iii)
Exchange Agent.............................................. 2.1
Exchange Fund............................................... 2.1
Exchange Ratio.............................................. 1.8(a)
Expenses.................................................... 5.7
Fairness Opinion............................................ 3.1(u)
Form S-4.................................................... 5.1(a)
Governmental Entity......................................... 3.1(d)(iii)
Hazardous Materials......................................... 3.1(p)
HSR Act..................................................... 3.l(d)(iii)
Intellectual Property....................................... 8.11(f)
KG.......................................................... 3.1(d)(iv)
Material Adverse Effect..................................... 8.11(g)
Merger...................................................... Recitals
Merger Consideration........................................ 1.8(a)
Merger Sub.................................................. Preamble
Multiemployer Plan.......................................... 3.1(q)(vi)
Multiple Employer Plan...................................... 3.1(q)(vi)
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
LOCATION
DEFINITION OF DEFINITION
- ---------- -------------
<S> <C>
NYSE........................................................ 2.5(b)
Parent...................................................... Preamble
Parent Articles............................................. 3.2(a)
Parent Board Approval....................................... 3.2(h)
Parent Code................................................. 3.2(a)
Parent Common Shares........................................ Recitals
Parent Financial Advisor.................................... 3.2(j)
Parent SEC Reports.......................................... 3.2(d)
Parent Shareholders Meeting................................. 5.1(c)
Parent Voting Debt.......................................... 3.2(b)(ii)
Person...................................................... 8.11(i)
Proprietary Technology...................................... 8.11(j)
Proxy Statement/Prospectus.................................. 5.1(a)
Qualified Plan.............................................. 3.1(q)(ii)
Regulatory Law.............................................. 5.4(b)
Required Consents........................................... 3.1(d)(iii)
Required Parent Vote........................................ 3.2(i)
Required Target Vote........................................ 3.1(s)
SEC......................................................... 3.1(e)
Securities Act.............................................. 3.1(c)(iii)
Share Issuance.............................................. 3.2(c)(i)
subsidiary.................................................. 8.11(k)
Superior Proposal........................................... 8.11(l)
Surviving Corporation....................................... 1.1
Target...................................................... Preamble
Target Affiliate Letter..................................... 5.11
Target Benefit Plan......................................... 8.11(m)
Target Board Approval....................................... 3.1(l)
Target Common Stock......................................... Recitals
Target Employees............................................ 5.6(b)(i)
Target Financial Advisor.................................... 3.1(t)
Target Permits.............................................. 3.1(f)(ii)
Target SEC Reports.......................................... 3.1(e)
Target Stockholders Meeting................................. 5.1(b)
Target Stock Option......................................... 5.6(a)
Target Stock Plans.......................................... 5.6(a)
Target Voting Debt.......................................... 3.1(c)(ii)
Tax Returns................................................. 3.1(r)(v)
Taxes....................................................... 3.1(r)(vi)
Termination Date............................................ 7.1(b)
Termination Fee............................................. 7.2(b)
the other party............................................. 8.11(h)
U.S. GAAP................................................... 3.1(e)
VerWaltungs................................................. 3.1(d)(iv)
Violation................................................... 3.1(d)(ii)
Withdrawal Liability........................................ 8.11(n)
</TABLE>
ii
<PAGE> 134
ANNEX B
[LETTERHEAD OF LEHMAN BROTHERS, INC.]
May 17, 1998
Board of Directors
R.P. Scherer Corporation
2301 West Big Beaver Road
Troy, Michigan 48084
Member of the Board:
We understand that R.P. Scherer Corporation ("R.P. Scherer" or the
"Company") and Cardinal Health Inc. ("Cardinal") have entered into an Agreement
and Plan of Merger dated the date hereof (the "Agreement") pursuant to which a
newly-formed subsidiary of Cardinal will merge with and into R.P. Scherer and,
upon effectiveness of the merger, each share of common stock of the Company
shall be converted into the right to receive 0.95 shares of common stock of
Cardinal (the "Exchange Ratio") (the "Proposed Transaction"). The terms and
conditions of the Proposed Transaction are set forth in more detail in the
Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the Exchange Ratio to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction; (2) publicly available
information concerning the Company and Cardinal that we believe to be relevant
to our analysis, including the Company's and Cardinal's Forms 10-K for the years
ended March 31, 1997 and June 30, 1997, respectively, Forms 10-Q for the
quarters ended December 31, 1997 and March 31, 1998, respectively, and the
Company's earnings press release for the three and twelve months periods ended
March 31, 1998; (3) financial and operating information with respect to the
business, operations and prospects of the Company and Cardinal furnished to us
by the Company and Cardinal; (4) a trading history of the Company's common stock
from January 1, 1997 to the present and a comparison of such trading history
with those of other companies that we deemed relevant; (5) a trading history of
Cardinal's common stock from January 1, 1997 to the present and a comparison of
such trading history with those of other companies that we deemed relevant; (6)
publicly available research analyst reports regarding the Company and its
estimated future financial performance; (7) publicly available research analyst
reports regarding Cardinal and its estimated future financial performance; (8)
comparisons of the historical financial results and present financial condition
of the Company with those of other companies that we deemed relevant; (9)
comparisons of the historical financial results and present financial condition
of Cardinal with those of other companies that we deemed relevant; and (10) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other transactions that we deemed relevant. In addition, we
have had discussions with the managements of the Company and Cardinal concerning
their respective businesses, operations, assets, financial conditions and
prospects and the strategic benefits expected by the managements of the Company
and Cardinal to result from a combination of the businesses of the Company and
Cardinal, and have undertaken such other studies, analyses and investigations as
we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company, we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and
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<PAGE> 135
that the Company will perform substantially in accordance with such projections.
With respect to the financial projections of Cardinal, upon the advice of the
Company and Cardinal, we have assumed that the publicly available estimates of
research analysts were a reasonable basis upon which to evaluate and analyze the
future financial performance of Cardinal, and that Cardinal would perform
substantially in accordance with such estimates. In arriving at our opinion, we
have not conducted a physical inspection of the properties and facilities of the
Company and have not made or obtained any evaluations or appraisals of the
assets or liabilities of the Company. In addition, you have not authorized us to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase of all or a part of the Company's business.
Upon advice of the management of the Company and its legal and accounting
advisors, we have assumed that the proposed transaction will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and therefore as a tax-free reorganization to the
stockholders of the Company. Our opinion necessarily is based upon market,
economic and other conditions as they exist on, and can be evaluated as of, the
date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary fees for such
services. Frederick Frank, a Vice Chairman of Lehman Brothers Inc., is also a
member of the Board of Directors of the Company. In the ordinary course of our
business, we actively trade in the securities of the Company and Cardinal for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
/s/ FREDERICK FRANK
--------------------------------------
Vice Chairman
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<PAGE> 136
ANNEX C
SECTION 1701.85 OF THE OHIO REVISED CODE
DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES.
(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.
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(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 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.
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(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;
(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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<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1701.13(E) of the Ohio Revised Code sets forth conditions and
limitations governing the indemnification of officers, directors, and other
persons.
Article 6 of Cardinal's Code of Regulations contains certain
indemnification provisions adopted pursuant to authority contained in Section
1701.13(E) of the Ohio Revised Code. Cardinal's Code of 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 shareholders of Cardinal or otherwise as provided in Section
1701.13(E) of the Ohio Revised Code, that (a) they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interest of
Cardinal; (b) 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 (c) 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) 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, he 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
which may result in a request for such indemnification.
Cardinal has entered into indemnification contracts with each of its
directors and executive officers. These contacts generally: (i) confirm the
existing indemnity provided to them under Cardinal's Code of Regulations and
assure that this indemnity will continue to be provided; (ii) provide that if
Cardinal does not maintain directors' and officers' liability insurance,
Cardinal will, in effect, become a self-insurer of the coverage; (iii) 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 (iv) provide for the mandatory advancement of expenses to the
executive officer or director in connection with the defense of any proceedings,
provided 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: (A) on account of conduct
which is finally adjudged to be knowingly fraudulent, deliberately dishonest, or
willful misconduct; or (B) if a final court of adjudication shall determine that
such indemnification is not lawful; or (C) in respect of any suit in which
judgment is rendered for violation of Section 16(b) of the Exchange Act or
provisions of any federal, state, or local statutory law; or (D) on account of
any remuneration paid which is finally adjudged to have been in violation of
law; or (E) 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 (F) 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
agreement.
II-1
<PAGE> 140
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
2.01 Agreement and Plan of Merger dated as of May 17, 1998, among
the Registrant, GEL Acquisition Corp., and R.P. Scherer
Corporation(1)
3.01 Amended and Restated Articles of Incorporation of the
Registrant, as amended.(2)
3.02 Restated Code of Regulations of the Registrant, as
amended.(3)
4.01 Specimen Certificate for the Registrant's Common Shares.(2)
5 Opinion of Wachtell, Lipton, Rosen & Katz as to the legality
of the shares being issued.
8 Opinion of Simpson, Thacher & Bartlett as to certain tax
matters.
12 Computation of Ratio of Earnings to Fixed Charges.
23.01 Consent of Deloitte & Touche LLP (Cardinal).
23.02 Consent of Arthur Andersen LLP (Scherer).
23.03 Consent of Price Waterhouse LLP.
23.04 Consent of Ernst & Young LLP.
23.05 Consent of Deloitte & Touche LLP (Bergen).
23.06 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5).
23.07 Consent of Simpson Thacher & Bartlett (included in Exhibit
8).
23.08 Consent of Lehman Brothers Inc.
23.09 Consent of Aleksandar Erdeljan
24 Power of Attorney
99.01 Form of Proxy Card of the Registrant
99.02 Form of Proxy Card of R.P. Scherer 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 Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 (Commission File No. 0-12591) and
incorporated herein by reference.
(3) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 (Commission File No. 0-12591) and
incorporated herein by reference.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts (incorporated by reference
from the 1997 Cardinal Form 10-K).
(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 indemnifica-
II-2
<PAGE> 141
tion 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 10(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.
(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-3
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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
June 11, 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 has been signed by the following persons in the
capacities indicated on June 11, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
/s/ ROBERT D. WALTER Chairman and Chief Executive Officer (principal
- --------------------------------------------------- executive officer) and Director
Robert D. Walter
/s/ DAVID BEARMAN Executive Vice President, Chief Financial
- --------------------------------------------------- Officer and Chief Accounting Officer
David Bearman (principal financial officer)
/s/ RICHARD J. MILLER Vice President, Controller and Principal
- --------------------------------------------------- Accounting Officer
Richard J. Miller
/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
</TABLE>
II-4
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURE TITLE
<C> <S>
/s/ GEORGE R. MANSER Director
- ---------------------------------------------------
George R. Manser
/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-5
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
2.01 Agreement and Plan of Merger dated as of May 17, 1998, among
the Registrant, GEL Acquisition Corp., and R.P. Scherer
Corporation (1)
3.01 Amended and Restated Articles of Incorporation of the
Registrant, as amended. (2)
3.02 Restated Code of Regulations of the Registrant, as amended.
(3)
4.01 Specimen Certificate for the Registrant's Common Shares. (2)
5 Opinion of Wachtell, Lipton, Rosen & Katz as to the legality
of the shares being issued.
8 Opinion of Simpson, Thacher & Bartlett as to certain tax
matters.
12 Computation of Ratio of Earnings to Fixed Charges.
23.01 Consent of Deloitte & Touche LLP (Cardinal).
23.02 Consent of Arthur Andersen LLP (Scherer).
23.03 Consent of Price Waterhouse LLP.
23.04 Consent of Ernst & Young LLP.
23.05 Consent of Deloitte & Touche LLP (Bergen).
23.06 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5).
23.07 Consent of Simpson Thacher & Bartlett (included in Exhibit
8).
23.08 Consent of Lehman Brothers, Inc.
23.09 Consent of Aleksandar Erdeljan
24 Power of Attorney
99.01 Form of Proxy Card of the Registrant
99.02 Form of Proxy Card of R.P. Scherer 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 Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 (Commission File No. 0-12591) and
incorporated herein by reference.
(3) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 (Commission File No. 0-12591) and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 5
Form of Opinion re: Validity of Shares
, 1998
Cardinal Health, Inc.
5555 Glendon Court
Dublin, Ohio 43016
Re: Registration Statement on Form S-4 of Cardinal Health, Inc.
Ladies and Gentlemen:
We are acting as special counsel to Cardinal Health, Inc., an Ohio
corporation ("Cardinal"), in connection with the Registration Statement filed
today by Cardinal with the Securities and Exchange Commission (the "Registration
Statement") with respect to up to 25,261,131 common shares, without par value
("Cardinal Common Shares"), of Cardinal proposed to be issued in connection with
the merger (the "Merger") of GEL Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Cardinal ("Subcorp"), with and into R.P. Scherer
Corporation, a Delaware corporation ("Scherer"), 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.
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 May 17, 1998, by and among Cardinal, Subcorp and Scherer, by
the requisite votes of the stockholders of Scherer and the shareholders of
Cardinal (if required by applicable law or the rules of the New York Stock
Exchange), 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,
<PAGE> 1
EXHIBIT 8
, 1998
FORM OF TAX OPINION
R.P. Scherer Corporation
P.O. Box 7060
Troy, MI 48084
Re: Merger of GEL Acquisition Corp., a wholly-owned subsidiary of
Cardinal Health, Inc., with and into R.P. Scherer Corporation
Ladies and Gentlemen:
You have requested our opinion, as counsel to R.P. Scherer Corporation, a
Delaware corporation ("Target"), as to the material United States federal income
tax consequences of the merger (the "Merger") of GEL Acquisition Corp., a
Delaware corporation ("Merger Sub") and a wholly-owned subsidiary of Cardinal
Health, Inc. ("Parent"), with and into Target, with Target surviving as a
wholly-owned subsidiary of Parent, pursuant to the terms and provisions of the
Agreement and Plan of Merger, dated as of May 17, 1998, among Parent, Merger Sub
and Target (the "Merger Agreement"). This opinion is being furnished to you
pursuant to Section 6.3(c) of the Merger Agreement. Unless otherwise defined
herein, all capitalized terms used herein shall have the meanings provided for
them in the Merger Agreement.
In rendering our opinion, we have examined and relied upon the accuracy and
completeness of the facts, information, covenants and representations contained
in originals or copies, certified or otherwise identified to our satisfaction,
of the Merger Agreement, the Joint Proxy Statement/Prospectus, and such other
documents as we have deemed necessary or appropriate as a basis for the opinion
set forth below. In addition, as to certain facts material to our opinion, we
have relied upon the accuracy of written representations made by an authorized
officer of each of Target and Parent in letters dated the date hereof and
addressed to us, copies of which are attached hereto. Our opinion is conditioned
on, among other things, the accuracy and completeness as of the Effective Time,
of such facts, information, covenants and representations referred to above.
We have assumed the genuineness of all signatures, the legal capacity of
all natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
documents. In rendering our opinion, we have also assumed that the Merger and
the transactions related to the Merger or contemplated by the Merger Agreement
will be consummated (i) in accordance with the Merger Agreement and that none of
the terms and conditions contained therein has been or will be waived or
modified in any respect and (ii) as described in the Joint Proxy
Statement/Prospectus. A change in any of the facts set forth or assumed herein
could affect our conclusions.
In rendering our opinion, we have considered the applicable provisions of
the United States Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations promulgated thereunder (the "Regulations"), pertinent
judicial authorities, rulings of the United States Internal Revenue Service and
such other authorities as we have considered relevant. It should be noted that
such Code, Regulations, judicial decisions, administrative interpretations and
such other authorities are subject to change at any time and, in some
circumstances, with retroactive effect. A change in any of the authorities upon
which our opinion is based could affect our conclusions.
OPINIONS
Based solely upon and subject to the foregoing, we are of the opinion that:
(i) the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the Code; and (ii) Parent, Merger Sub and Target will each be a party
to such reorganization within the meaning of Section 368(b) of the Code.
<PAGE> 2
This opinion is given as of the date hereof. We assume no obligation to
update or supplement this opinion. Except as set forth above, we express no
other opinion. We hereby consent to the filing of this opinion as an exhibit to
the Joint Proxy Statement/Prospectus and to the use of our name under the
captions "Certain U.S. Federal Income Tax Consequences" and "Legal Matters" in
the Joint Proxy Statement/Prospectus. In giving this consent, we do not admit
that we are 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 of the Securities and Exchange Commission thereunder.
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 12
CARDINAL HEALTH, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE FIVE YEARS AND INTERIM PERIOD ENDED
MARCH 31, 1998
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
MARCH 31, JUNE 30, JUNE 30, JUNE 30, JUNE 30, MARCH 31,
1993 1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing operations
before income taxes............... $109,118,000 $160,674,000 $249,264,000 $227,502,000 $311,080,000 $297,766,000
Add-Fixed Charges:
Interest Expense.................. 30,546,000 22,254,000 23,948,000 30,611,000 27,974,000 17,261,000
Interest Capitalized.............. -- -- -- 693,000 -- --
Amortization of Debt Offering
Costs........................... 267,000 220,000 336,000 1,516,000 514,000 453,032
Interest Portion of Rent
Expense......................... 4,686,000 5,214,000 5,907,000 7,722,000 7,590,000 5,692,500
Preferred Stock Dividend
Requirement..................... 3,038,806 2,150,905 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total Fixed Charges................. 38,537,806 29,838,905 30,191,000 40,542,000 36,078,000 23,406,532
Less: Interest Capitalized.......... -- -- -- (693,000) -- --
Preferred Stock Dividend
Requirement..................... (3,038,806) (2,150,905) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Earnings as Adjusted................ $144,617,000 $188,362,000 $279,455,000 $267,351,000 $347,158,000 $321,172,532
============ ============ ============ ============ ============ ============
Ratio of Earnings to Fixed
Charges........................... 3.8 6.3 9.3 6.6 9.6 13.7
</TABLE>
<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, 1997, except
for Note 16 as to which the date is August 23, 1997 and Note 17 as to which the
date is December 30, 1997 (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the restatement described in Note
17), appearing in the Annual Report on Form 10-K/A of Cardinal Health, Inc. for
the year ended June 30, 1997, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Columbus, Ohio
June 11, 1998
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Joint Proxy Statement/Prospectus of our report 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 R.P. Scherer Corporation's Annual Report on
Form 10-K for the year ended March 31, 1998 and to all references to our Firm
included in this Joint Proxy Statement/Prospectus.
Arthur Andersen LLP
Detroit, Michigan
June 11, 1998.
<PAGE> 1
EXHIBIT 23.03
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the 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 11 of Cardinal Health, Inc.'s Annual
Report on Form 10-K/A (Amendment No. 1) for the year ended June 30, 1997. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
June 11, 1998
<PAGE> 1
EXHIBIT 23.04
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement on Form S-4 of
Cardinal Health, Inc. of our report dated August 2, 1996, with respect to the
consolidated financial statements of Pyxis Corporation, included in the Annual
Report (Form 10-K/A) of Cardinal Health, Inc. for the year ended June 30, 1997,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
June 11, 1998
<PAGE> 1
EXHIBIT 23.05
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 October 31, 1997,
appearing in the Annual Report on Form 10-K of Bergen Brunswig Corporation for
the fiscal year ended September 30, 1997.
Deloitte & Touche LLP
Costa Mesa, California
June 10, 1998
<PAGE> 1
EXHIBIT 23.08
CONSENT OF LEHMAN BROTHERS
We hereby consent to the use of our opinion letter dated May 17, 1998 to
the Board of Directors of R.P. Scherer Corporation (the "Company") attached as
Annex B to the Joint Proxy Statement/Prospectus of the Company and Cardinal
Health, Inc. ("Cardinal") and the Prospectus of Cardinal on Form S-4 (the "Joint
Proxy Statement/Prospectus") and to the references to our firm in the Joint
Proxy Statement/Prospectus under the heading "Opinion of Scherer's Financial
Advisor." In giving such consent, we do not 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 of the Securities and
Exchange Commission thereunder and we do not thereby admit that we are experts
with respect to any part of the Registration Statement under the meaning of the
term "expert" as used in the Securities Act.
LEHMAN BROTHERS INC.
By: /s/ ANDREW J. COLYER
--------------------------------------
New York, New York
June 11, 1998
<PAGE> 1
EXHIBIT 23.09
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Aleksandar Erdeljan, hereby consent to the use of my name in the
Registration Statement of Cardinal Health, Inc., to be filed with the Securities
and Exchange Commission as a person named therein as about to become a director
of Cardinal Health, Inc. and the filing of this consent as an exhibit to such
Registration Statement.
/s/ Aleksandar Erdeljan
--------------------------------------
Aleksandar Erdeljan
June 11, 1998
<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
GEL Acquisition Corp. with and into R. P. Scherer 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.
<PAGE> 2
This Power of Attorney has been signed in the respective capacities and on
the respective dates indicated below.
<TABLE>
<S> <C>
/s/ ROBERT D. WALTER /s/ JOHN C. KANE
- --------------------------------------------------- ---------------------------------------------------
Robert D. Walter John C. Kane
Chairman and Chief Executive Officer Director
(principal executive officer) June 11, 1998
June 11, 1998
/s/ DAVID BEARMAN /s/ J. MICHAEL LOSH
- --------------------------------------------------- ---------------------------------------------------
David Bearman J. Michael Losh
Executive Vice President and Director
Chief Financial Officer June 11, 1998
(principal financial officer)
June 11, 1998
/s/ RICHARD J. MILLER /s/ GEORGE R. MANSER
- --------------------------------------------------- ---------------------------------------------------
Richard J. Miller George R. Manser
Vice President, Controller and Director
Principal Accounting Officer June 11, 1998
June 11, 1998
/s/ JOHN F. FINN /s/ JOHN B. MCCOY
- --------------------------------------------------- ---------------------------------------------------
John F. Finn John B. McCoy
Director Director
June 11, 1998 June 11, 1998
/s/ ROBERT L. GERBIG /s/ JERRY E. ROBERTSON
- --------------------------------------------------- ---------------------------------------------------
Robert L. Gerbig Jerry E. Robertson
Director Director
June 11, 1998 June 11, 1998
/s/ JOHN F. HAVENS /s/ L. JACK VAN FOSSEN
- --------------------------------------------------- ---------------------------------------------------
John F. Havens L. Jack Van Fossen
Director Director
June 11, 1998 June 11, 1998
/s/ REGINA E. HERZLINGER /s/ MELBURN G. WHITMIRE
- --------------------------------------------------- ---------------------------------------------------
Regina E. Herzlinger Melburn G. Whitmire
Director Director
June 11, 1998 June 11, 1998
</TABLE>
<PAGE> 1
EXHIBIT 99.01
CARDINAL HEALTH, INC.
PROXY
555 GLENDON COURT, DUBLIN, OHIO 43016
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROBERT D. WALTER and GEORGE H. BENNETT, JR.,
and each of them, the attorneys and proxies of the undersigned with full power
of substitution to vote as indicated herein, all of the common shares ("Cardinal
Common Shares"), without par value, of Cardinal Health, Inc. ("Cardinal") held
of record by the undersigned at the close of business on ,1998, at the
Special Meeting of Cardinal Shareholders to be held on ,1998, 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, THE PROXY WILL BE VOTED FOR EACH OF
THE FOLLOWING PROPOSALS, AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE 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 May 17, 1998, by and among Cardinal, R.P. Scherer Corporation and
GEL Acquisition Corp.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
2. Proposal 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 Proposal 1.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
3. In their discretion, to vote upon such other business as may properly come
before the meeting.
(continued and to be signed on reverse side)
<PAGE> 2
RECEIPT OF NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND THE RELATED JOINT
PROXY STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
PLEASE SIGN 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.
Dated: , 1998
---------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
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
EXHIBIT 99.02
R.P. SCHERER CORPORATION
PROXY
2031 WEST BIG BEAVER ROAD,
P.O. BOX 7060,
TROY, MICHIGAN 48007-7060
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Aleksandar Erdeljan and Nicole S. Williams,
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,
par value $0.01, of R.P. Scherer Corporation ("Scherer") held of record by the
undersigned at the close of business on , 1998, at the Special Meeting
of Scherer Stockholders to be held on , 1998, 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
STOCKHOLDER. IF NO SPECIFICATIONS ARE MADE, THE PROXY WILL BE VOTED FOR EACH OF
THE FOLLOWING PROPOSALS, AND WITH DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF.
PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE [X]
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
May 17, 1998, by and among Scherer, Cardinal Health, Inc. and GEL Acquisition
Corp.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
2. Proposal 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 Proposal 1.
<TABLE>
<S> <C> <C>
[ [ [
] FOR ] AGAINST ] ABSTAIN
</TABLE>
3. In their discretion, to vote upon such other business as may properly come
before the meeting.
(continued and to be signed on reverse side)
<PAGE> 2
RECEIPT OF NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND THE RELATED JOINT
PROXY STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
PLEASE SIGN 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.
Dated: , 1998
---------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
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.
