<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
BINDLEY WESTERN INDUSTRIES, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
BINDLEY WESTERN INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 1997
The annual meeting of shareholders of Bindley Western Industries,
Inc. will be held at the Conference Center, 10333 North Meridian Street,
Indianapolis, Indiana, on Thursday, May 15, 1997, at 9:00 a.m., Indianapolis
time, for the following purposes:
(1) To elect ten directors to serve until the next annual meeting
of shareholders and until their successors are elected and have qualified;
(2) To approve or disapprove the appointment of Price Waterhouse
LLP as auditors for the Company for 1997;
(3) To approve or disapprove a shareholder's proposal related to
non-employee directors' compensation as set forth in the proxy statement, if
such proposal is properly presented at the meeting; and
(4) To transact such other business as may properly come before the
meeting.
All shareholders of record at the close of business on March 21, 1997
will be eligible to vote.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING.
WHETHER OR NOT YOU EXPECT TO BE PRESENT, PLEASE FILL IN, DATE, SIGN AND RETURN
THE ENCLOSED PROXY FORM IN THE ACCOMPANYING ADDRESSED, POSTAGE-PREPAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN
PERSON.
Michael D. McCormick, Secretary
<PAGE> 3
BINDLEY WESTERN INDUSTRIES, INC.
10333 N. MERIDIAN STREET, SUITE 300
INDIANAPOLIS, INDIANA 46290
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1997
This statement is being furnished to shareholders on or about
March 28, 1997 in connection with a solicitation by the Board of Directors of
Bindley Western Industries, Inc. (the "Company") of proxies to be voted at the
annual meeting of shareholders to be held at 9:00 a.m., Indianapolis time,
Thursday, May 15, 1997, at the Conference Center, 10333 North Meridian Street,
Indianapolis, Indiana, for the purposes set forth in the accompanying Notice.
At the close of business on March 21, 1997, the record date for the
meeting, there were 11,628,557 shares of Common Stock of the Company
outstanding and entitled to vote at the meeting. On all matters, including the
election of directors, each shareholder will have one vote for each share held.
If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked at any time insofar as it has not been exercised. If a
shareholder executes more than one proxy, the proxy having the latest date will
revoke any earlier proxies. A shareholder attending the meeting will be given
the opportunity to revoke his or her proxy and vote in person.
Unless revoked, a proxy will be voted at the meeting in accordance
with the instructions of the shareholder in the proxy, or, if no instructions
are given, for the election as directors of all nominees listed under
Proposal 1, for Proposal 2, and against Proposal 3. Election of directors will
be determined by the vote of the holders of a plurality of the shares voting on
such election. Approval of Proposals 2 and 3 will be subject to the vote of
the holders of a greater number of shares favoring approval than those opposing
it. A proxy may indicate that all or a portion of the shares represented by
such proxy are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in
street name on certain proposals in the absence of instructions from the
beneficial owner. Shares that are not voted with respect to a specific
proposal will be considered as not present and entitled to vote on such
proposal, even though such shares will be considered present for purposes of
determining a quorum and voting on other proposals. Abstentions on a specific
proposal will be considered as present, but not as voting in favor of such
proposal. As a result, with respect to all of the proposals, neither broker
non-votes nor abstentions will affect the determination of whether such
proposals will be approved.
The Board of Directors does not intend to bring before the meeting any
matters other than those described in the attached Notice of Annual Meeting.
The Board of Directors is aware that the Company has been notified by two
shareholders that each may raise separate proposals for consideration at the
annual meeting. One of these proposals relates to the adoption of a policy
against entering into future agreements with officers and directors which
provide compensation contingent on a change of control of the Company, unless
such agreements are approved by a majority of shareholders. The other of such
potential proposals recommends that the Board of
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Directors engage an investment banker to explore alternatives to enhance the
value of the Company. Because these proposals did not comply with the rules of
the Securities and Exchange Commission governing inclusion of shareholders'
proposals in the Company's proxy materials, they have not been included herein.
If either of these proposals is properly presented at the annual meeting, the
Board of Directors will recommend to the persons named in the accompanying form
of proxy that they vote such proxy against such proposal. On all matters other
than those described in the attached Notice of Annual Meeting that properly
come before the meeting, it is the intention of the persons named in the
accompanying form of proxy to vote such proxy in accordance with their judgment
on such matters.
The Company intends to retain Corporate Investor Communications
("CIC") to assist in the solicitation of proxies. CIC may contact various
shareholders by telephone to solicit the return of their proxies. The fee to
be paid to CIC is not expected to exceed $4,000. The cost of the solicitation
of proxies will be borne by the Company.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
Ten directors are to be elected at the meeting, each to hold office
for a term of one year and until his successor is elected and has qualified.
It is the intention of the persons named in the accompanying form of proxy to
vote such proxy for the election to the Board of Directors of the persons
identified on the next page. Each of the nominees for director is presently a
director. If any such person is unable or unwilling to accept nomination or
election, it is the intention of the persons named in the accompanying form of
proxy to nominate such other person as director as they may in their discretion
determine, in which event the shares will be voted for such other person.
The Company's By-Laws provide for a Board of Directors consisting of
eleven members. Thomas G. Slama has not been nominated for re-election as a
director. Following the meeting, and assuming the election of all ten
nominees, ten directors will serve on the Board of Directors and one vacancy
will exist. The accompanying form of proxy cannot be voted for a greater
number of persons than the ten nominees for director listed below. Although
the Board of Directors could elect another director to the Board at a later
date, there is no present intention to do so.
Unless otherwise indicated in a footnote to the following table, the
principal occupation of each nominee has been the same for the last five years,
and such nominee possesses sole voting and investment power with respect to the
shares of Common Stock indicated as beneficially owned by such nominee.
William E. Bindley is the father of William F. Bindley II. There is no family
relationship between any other of the directors or executive officers of the
Company.
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<TABLE>
<CAPTION>
Shares
Beneficially Percent
Present Owned on of Class
Principal Director January 31, (if more
Name Age Occupation Since 1997 than 1%)
- --------------------- --- ---------------------------- -------- --------------- --------
<S> <C> <C> <C>
William E. Bindley (1) 56 Chairman of the Board, Chief 1970 3,298,912 (2)(3) 27.8%
Executive Officer and
President of the Company
Robert L. Koch II (4) 58 President, George Koch 1987 13,000 (5) ---
Sons, Inc. (manufacturer of
industrial painting systems)
James K. Risk III (6) 55 President, Kirby Risk 1987 13,817 (7) ---
Corporation (electrical
supply company)
K. Clay Smith (8) 59 President, Underwood Machinery 1983 9,000 (9) ---
Transport, Inc. (transportation
company)
J. Timothy McGinley 56 President, H.M.I., Inc. 1987 16,000 (9) ---
(real estate investment company)
Michael D. McCormick 49 Executive Vice President, 1990 277,857 (2)(10) 2.3%
General Counsel and
Secretary of the Company
William F. Bindley II 35 President, Heartland 1990 46,425 (11) ---
Films, Inc. (motion picture
production company)
Thomas J. Salentine 57 Executive Vice President and 1990 321,483 (2)(12) 2.7%
Chief Financial Officer of
the Company
Keith W. Burks 39 Executive Vice President 1993 217,200 (2)(13) 1.8%
of the Company
Seth B. Harris (14) 57 Retired Chairman of the Board 1994 7,000 (15) ---
and President of Harris Wholesale
(wholesale pharmaceutical
distribution company)
- ----------
</TABLE>
(1) Mr. Bindley also serves on the Board of Directors of Shoe Carnival,
Inc., a shoe retailer, and Key Bank, N.A., a bank holding company.
(2) Does not include shares subject to stock options which are not
exercisable within 60 days.
(3) Includes presently exercisable stock options to purchase 222,905 shares
granted by the Company. Also includes 1,000 shares held by
Mr. Bindley's spouse; Mr. Bindley disclaims beneficial ownership of
such shares.
(4) Mr. Koch also serves on the Board of Directors of CNB Bancshares, Inc.,
a bank holding company, and SIGCORP, Inc., a public utility holding
company.
(5) Mr. Koch shares voting and dispositive power with respect to 5,000 of
such shares with his wife or children. Includes presently exercisable
stock options to purchase 5,000 shares, granted under the Company's
Outside Directors Stock Option Plan.
(6) Mr. Risk also serves on the Board of Directors of Marsh Supermarkets,
Inc., a retail grocery chain.
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(7) Mr. Risk shares voting and dispositive power with respect to 681 of
such shares with his wife or children. Includes presently exercisable
stock options to purchase 6,000 shares, granted under the Company's
Outside Directors Stock Option Plan.
(8) Mr. Smith also serves on the Board of Directors of Marsh Supermarkets,
Inc.
(9) Includes presently exercisable stock options to purchase 6,000 shares,
granted under the Company's Outside Directors Stock Option Plan.
(10) Includes presently exercisable stock options to purchase 269,000 shares
granted by the Company.
(11) Mr. W.F. Bindley II shares voting and dispositive power with respect to
19,225 of such shares with his spouse or minor child. Includes
presently exercisable stock options to purchase 6,000 shares, granted
under the Company's Outside Directors Stock Option Plan.
(12) Includes presently exercisable stock options to purchase 308,500 shares
granted by the Company.
(13) Includes presently exercisable stock options to purchase 209,000 shares
granted by the Company.
(14) Mr. Harris also serves on the Board of Directors of Collaborative
Clinical Research, Inc., a clinical research site selecting and
management company.
(15) Includes presently exercisable stock options to purchase 3,000 shares
granted under the Company's Outside Directors Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
LISTED ABOVE.
MEETINGS AND COMMITTEES
During 1996, the Board of Directors of the Company held five meetings.
Except for Dr. Slama, during the period in 1996 for which he served as a
director, no director attended fewer than 75% of the total meetings of the
Board of Directors and each committee on which he served. The Board of
Directors does not have a nominating committee. The Board of Directors has a
Compensation and Stock Option Committee (the "Committee"), which consists of
Messrs. Harris, Koch, McGinley, Risk and Smith. The primary function of the
Committee is to establish compensation policies and to administer all executive
compensation and stock option plans of the Company. The Committee met five
times during 1996.
The Board of Directors of the Company has an Audit Committee, the
current members of which are Messrs. Koch and Smith. The function of the Audit
Committee is to meet with the independent accountants of the Company, to review
the audit plan for the Company, to review the annual audit of the Company with
the accountants together with any other reports or recommendations made by the
accountants, to recommend whether the accountants should be continued as
auditors for the Company and, if others are to be selected, to recommend those
to be selected, to meet with the chief accounting officer for the Company and
to review with him and the accountants for the Company the adequacy of the
Company's internal controls, and to perform such other duties as shall be
delegated to the Audit Committee by the Board of Directors. The Audit
Committee met once during 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10%
of Common Stock, to file reports of
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ownership with the Securities and Exchange Commission and the NYSE. Such
persons also are required to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during 1996, all filing
requirements applicable to its executive officers, directors, and greater than
10% shareholders were complied with.
EXECUTIVE OFFICERS
As used throughout this Proxy Statement, the term "executive officers"
refers to William E. Bindley, Chairman of the Board, Chief Executive Officer
and President, Keith W. Burks, Executive Vice President, Michael D. McCormick,
Executive Vice President, General Counsel and Secretary, Thomas J. Salentine,
Executive Vice President and Chief Financial Officer, Gregory S. Beyerl, Vice
President and Controller, and Michael L. Shinn, Treasurer.
Thomas G. Slama, M.D., served as President and Chief Executive Officer
of Priority Healthcare Services Corporation, a subsidiary of the Company
formerly known as National Infusion Services, Inc. ("PHSC"), from February 8,
1996 until he severed his employment relationship with the Company as of
November 14, 1996. Dr. Slama remains a director of the Company until the
annual meeting of shareholders. In addition to the practice of medicine, for a
period of more than the last five years Dr. Slama has been Chief of the
Division of Infectious Diseases at St. Vincent's Hospital and Health Care in
Indianapolis, Indiana and Clinical Professor of Medicine at the Indiana
University School of Medicine. Until February 8, 1996, Dr. Slama served as
President of Infectious Diseases of Indiana P.S.C.
LEGAL PROCEEDINGS
The Company and PHSC are defendants in a complaint filed by Dr. Slama
in the Hamilton County, Indiana Superior Court on October 7, 1996. The
complaint alleges breach of contract and defamation resulting from the alleged
termination of Dr. Slama's employment with PHSC in October of 1996. Dr. Slama
seeks damages in excess of $3.4 million, punitive damages, attorneys fees,
costs and interest.
The Company believes Dr. Slama wrongfully terminated his employment,
and alternatively, that it had grounds to terminate Dr. Slama under his
employment agreement. Accordingly, the Company will aggressively defend the
suit, including the filing of its own complaint or counterclaim against Dr.
Slama seeking, among other things, declaratory relief, compensatory and treble
damages, punitive damages, attorneys fees, costs and interest.
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<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid during each of the Company's last three years to the
Company's Chief Executive Officer and each of the Company's five other most
highly compensated executive officers, based on salary and bonus earned during
1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------- ------------
Awards
------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus (1) Options (2) Compensation
- ------------------------------- ---- ------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
William E. Bindley 1996 $656,350 $286,931 100,000 $ 268,594 (3)
Chairman, Chief Executive Officer 1995 599,260 247,354 100,000 261,990
and President 1994 553,500 231,172 100,000 (4) 280,467
Thomas J. Salentine 1996 $253,400 $217,184 60,000 $ 23,036 (5)
Executive Vice President and 1995 231,315 188,856 60,000 22,013
Chief Financial Officer 1994 192,331 176,501 60,000 20,226
Michael D. McCormick 1996 $245,675 $216,384 60,000 $ 22,531 (6)
Executive Vice President, 1995 223,955 188,160 60,000 21,732
General Counsel and Secretary 1994 185,750 175,850 60,000 19,609
Keith W. Burks 1996 $234,950 $215,505 60,000 $ 22,261 (7)
Executive Vice President 1995 214,500 187,396 60,000 21,556
1994 172,000 175,136 60,000 19,224
Michael L. Shinn 1996 $95,375 $36,000 15,000 $ 10,426 (8)
Treasurer 1995 88,083 30,000 15,000 9,328
1994 81,400 25,000 15,000 8,720
Thomas G. Slama 1996 $225,096 $0 25,000 397 (9)
President and Chief 1995 --- --- --- ---
Executive Officer of PHSC (10) 1994 --- --- --- ---
</TABLE>
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(1) Reflects bonus earned during the specified year, which bonuses at times
have been paid in the following year.
(2) Options to acquire shares of Common Stock. The Company has no SAR plan
and has never granted restricted stock awards.
(3) Consists of $12,000 in Company contributions to the Company's profit
sharing plan, $18,000 in Company contributions under Mr. Bindley's
deferred compensation arrangement described under "---Nonqualified
Deferred Compensation Arrangements," $32,704 for the term insurance
portion and $189,163 for the non-term insurance portion of the
split-dollar life insurance plan described under "---Split Dollar Life
Insurance," $15,719 of above market interest and $1,008 in group life
insurance premiums.
(4) The 1994 amount has been restated to exclude 50,000 options awarded on
January 3, 1995 which are included in the 1995 awards amount.
(5) Consists of $19,912 in Company contributions to the Company's profit
sharing plans, $2,041 of above market interest and $1,083 in group life
insurance premiums.
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(6) Consists of $19,912 in Company contributions to the Company's profit
sharing plans, $2,041 of above market interest and $578 in group life
insurance premiums.
(7) Consists of $19,912 in Company contributions to the Company's profit
sharing plans, $2,041 of above market interest and $308 in group life
insurance premiums.
(8) Consists of $10,208 in Company contributions to the Company's profit
sharing plans and $218 in group life insurance premiums.
(9) Represents $397 in group life insurance premiums.
(10) Dr. Slama joined the Company on February 8, 1996 and severed his
employment relationship with the Company as of November 14, 1996.
EMPLOYMENT AGREEMENTS AND TERMINATION BENEFITS AGREEMENTS
On February 8, 1996, PHSC and the Company entered into an employment
agreement with Dr. Slama, pursuant to which Dr. Slama was to serve as President
and Chief Executive Officer of PHSC. The agreement provides for a term of five
years and an annual base salary of $300,000. In addition, the agreement
entitles Dr. Slama to an annual bonus based upon the financial performance of
PHSC and certain of the Company's subsidiaries. The agreement also subjects
Dr. Slama to certain non-competition provisions for the term of his employment
under the agreement and for a period of five years thereafter, and entitles him
to receive up to a total of $1.7 million in consideration thereof. In
connection with the execution of the agreement, the Company granted Dr. Slama
options to purchase 25,000 shares of Common Stock at an exercise price of
$18.125 per share, which options have been canceled, effective upon Dr. Slama's
severance of his employment relationship with the Company as of November 14,
1996. The agreement also entitles Dr. Slama to receive, on each of the first
three anniversaries of the date of the employment agreement, an option to
purchase 25,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. The options were to be
exercisable for a period of ten years and vest in fourths on each of the first
four anniversaries of the respective dates of grant. In the agreement, the
Company also agreed to use its best efforts to elect Dr. Slama to the Board of
Directors of the Company for a period of five years. Dr. Slama severed his
employment relationship with the Company and PHSC as of November 14, 1996 and
the applicability of Dr. Slama's employment agreement is currently in dispute.
See "Election of Directors--Legal Proceedings." Dr. Slama was also party to a
termination benefits agreement with PHSC on substantially the same terms as
described below, except that Dr. Slama's agreement is based upon a "Change in
Control" of PHSC rather than the Company.
The Company has entered into a Termination Benefits Agreement with each
of Messrs. Bindley, Salentine, McCormick, and Burks (the "Covered Named
Executive Officers"). The purpose of the agreements is to encourage them to
remain with the Company by assuring them of certain benefits in the event of a
"Change in Control" of the Company.
The Termination Benefits Agreements provide for payments to the Covered
Named Executive Officers upon the occurrence of certain events. Each
Termination Benefits Agreement has a term of three years and is automatically
extended annually for an additional one-year period unless notice is given by
the Company or the Covered Named Executive Officer. The Termination Benefits
Agreements are designed to protect the Covered Named Executive Officer against
termination of his employment following a "Change in Control" of the Company.
For purposes of the Termination Benefits Agreement, "Change in Control" is
broadly defined to include, among
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<PAGE> 10
other things, the acquisition by a person or group of persons of 25% or more of
the combined voting power of the stock of the Company, the replacement of a
majority of the current Board of Directors, the approval by the shareholders of
the Company of a reorganization, merger or consolidation or the approval by
shareholders of a liquidation or dissolution of the Company or the sale or
disposition of all or substantially all of the assets of the Company. A
"Change in Control," however, does not include a disposition of the Company's
wholesale drug business.
Following a "Change in Control," the Covered Named Executive Officer is
entitled to the benefits provided by the Termination Benefits Agreement in the
event his employment is terminated for any reason other than his death,
disability, or normal retirement or is terminated by the Company for cause.
In addition, the Covered Named Executive Officer is entitled to the
benefits of the Termination Benefits Agreement if, after a "Change in Control,"
he terminates his employment with the Company in response to certain actions by
the Company which include, among other things, a substantial reduction in his
duties or responsibilities, a reduction in the level of salary payable to him,
the failure by the Company to continue to provide him with benefits
substantially similar to those previously provided to him, the required
relocation of the Covered Named Executive Officer, or the breach by the Company
of any of the provisions of the Termination Benefits Agreement.
Upon termination of employment, a Covered Named Executive Officer who
is entitled to the benefits payable under the Termination Benefits Agreement
shall receive within 30 days following the termination all earned but unpaid
salary, bonus and incentive payments through the date of his termination. In
addition, he shall be entitled to a lump-sum payment of an amount equal to
2.9 times the Covered Named Executive Officer's average annual compensation
paid by the Company for the past five years. Any lump sum payment will be
grossed up in an amount sufficient to cover any excise tax imposed upon such
payment pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code").
COMPENSATION OF DIRECTORS
During 1996, the Company paid directors who are not employees of the
Company an annual retainer of $15,000 and a fee of $1,000 for each Board
meeting or committee meeting attended. Directors who are full-time employees
do not receive any additional compensation for serving as directors or for
attending meetings, but all directors are reimbursed for all reasonable
out-of-pocket expenses incurred in connection with attendance at meetings.
On March 29, 1991, the Board of Directors adopted, subject to
shareholder approval, an Outside Directors Stock Option Plan (the "Directors
Plan"). The shareholders approved the Directors Plan at the 1991 annual
meeting. Pursuant to the Directors Plan, each Eligible Director (as defined
therein) is automatically granted an option to purchase 1,000 shares of common
stock on June 1 of each year beginning in 1991. The option price per share is
85% of the fair market value of one share of Common Stock on the date of grant.
The option becomes exercisable six months following the date of grant and
expires ten years following the date of grant. Options may be exercised by the
holder only if he has been in continuous service on the Board of Directors at
all times since the grant of the option. There are currently six Eligible
Directors - Messrs. W.F. Bindley, Harris, Koch, McGinley, Risk and Smith. On
June 1, 1996, each of such Eligible Directors received an option to purchase
1,000 shares of Common Stock at an exercise
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<PAGE> 11
price of $14.56. The Eligible Directors are not currently eligible for grants
or awards under any other stock, bonus or benefit plans of the Company.
PROFIT SHARING PLAN
The Company and its subsidiaries maintain a qualified profit sharing
plan ("Profit Sharing Plan") for eligible employees of the Company and its
subsidiaries. All employees are generally eligible to participate in the
Profit Sharing Plan as of the first January 1, April 1, July 1 or October 1
after having completed at least one year of service (as defined in the Profit
Sharing Plan) and having reached age 21.
The annual contribution of the Company and its subsidiaries to the
Profit Sharing Plan is at the discretion of the Board and is generally 8% of a
participant's compensation for the year. The employer contribution for a year
is allocated among participants employed on the last day of the year in
proportion to their relative compensation for the year. Subject to limitations
imposed by the Code, a participant may, in addition to receiving a share of the
employer contribution, have a whole percentage (ranging from 1% to 13%) of his
or her compensation withheld from pay and contributed to the Profit Sharing
Plan. Subject to applicable Code requirements, employees may make "rollover"
contributions to the Profit Sharing Plan of qualifying distributions from other
employers' qualified plans.
NONQUALIFIED DEFERRED COMPENSATION ARRANGEMENTS
On December 9, 1994, the Company established the Bindley Western
Industries, Inc. 401(k) Excess Plan ("401(k) Excess Plan") and the Bindley
Western Industries, Inc. Profit Sharing Excess Plan ("Profit Sharing Excess
Plan"), both of which are non-qualified deferred compensation plans for a
select group of executive employees. The four Named Executive Officers
currently eligible to participate in the plans are Messrs. Bindley, McCormick,
Salentine, and Burks. The Profit Sharing Excess Plan was established to
compensate the eligible executives for the effect of a new Code limitation on
the contributions made on their behalf to the Company's Profit Sharing Plan.
The 401(k) Excess Plan is designed to permit the eligible executives to save
for retirement on a pre-tax basis beyond the extent permitted under the Profit
Sharing Plan's 401(k) feature.
Effective January 1, 1994, the Omnibus Budget Reconciliation Act of
1993 ("OBRA 93") reduced the amount of an employee's compensation that could be
taken into account in determining contributions or benefits under a qualified
pension or profit sharing plan. Under the Profit Sharing Excess Plan, for each
year that an executive is in the plan, the Company will credit to the
executive's account an amount designed to be equal to the difference between
(1) the contribution that the Company may lawfully make on the executive's
behalf to the Profit Sharing Plan for the year, and (2) the amount that the
Company could have contributed to the Profit Sharing Plan for the executive for
that year had OBRA 93 not reduced the compensation limitation. The Profit
Sharing Excess Plan also provides for an additional annual contribution on
behalf of Mr. Bindley. This additional contribution for Mr. Bindley was
formerly provided under a separate deferred compensation agreement between
Mr. Bindley and the Company. That arrangement has now been terminated, and the
amounts accumulated in Mr. Bindley's account under that arrangement have been
transferred to his account under the Profit Sharing Excess Plan.
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<PAGE> 12
The 401(k) Excess Plan permits the eligible executives voluntarily to
defer portions of their pre-tax salary and bonus beyond what they can now defer
under the 401(k) feature of the Profit Sharing Plan. Under the 401(k) Excess
Plan, an eligible executive may elect to defer up to 100% of those portions of
his salary and bonus that he is not able to defer under the Profit Sharing
Plan.
Amounts credited to an executive's account under the Profit Sharing
Excess Plan are deemed to bear interest each year at an annual rate equal to
the rate of return of the Standard & Poor's 500 Index for the year. With
respect to amounts deferred under the 401(k) Excess Plan, each executive, at
the time he makes his deferral election for the coming year, may designate the
investment option or options (from among those available under the Profit
Sharing Plan) to serve as the measure of the investment earnings and losses on
the executive's deferrals for the year. Under both plans, a participating
executive may choose the form in which his benefits will be paid to him or his
beneficiary upon his retirement or death. The three options available are a
single lump sum payment, quarterly installment payments for a specified period
of up to 15 years, and annual installment payments over a specified period of
up to 15 years.
The Company's contributions under the Profit Sharing Excess Plan and
amounts deferred under the 401(k) Excess Plan are credited in separate trusts.
Each trust is what is commonly referred to as a "rabbi trust" arrangement,
pursuant to which the assets of the trust are subject to the claims of the
Company's general creditors in the event of the Company's insolvency. The
trust assets are invested by the trustee in accordance with written investment
guidelines submitted to the trustee from time to time by the Committee.
Currently, such assets are principally comprised of corporate owned life
insurance policies on the lives of Messrs. Burks and McCormick.
Effective January 1, 1996, the Company adopted the First Amendment to
the 401(k) Excess Plan (the "Amendment"). The Amendment is designed to comply
with the conditions set forth in a 1995 Internal Revenue Service ruling
regarding the coordination between non-qualified deferred compensation plans
and 401(k) plans. To conform to the ruling, the executive must decide the
total deferral he wants to make for the year and elect to have that deferral
made under the 401(k) Excess Plan. Once the plan administrator of the Profit
Sharing Plan determines how much the executive can defer under the Profit
Sharing Plan's 401(k) feature for a year without exceeding Code limits, then
that amount will be transferred from the 401(k) Excess Plan to that executive's
Profit Sharing Plan 401(k) account.
SPLIT DOLLAR LIFE INSURANCE
The Company and a family trust created by Mr. Bindley established in
December 1992 a split-dollar life insurance arrangement on the life of
Mr. Bindley. The life insurance policy provides coverage in the amount of
$7 million. The trust pays premiums on the policy as if it were a one year
term life policy. The Company pays the excess premiums. In addition, the
Company pays to Mr. Bindley an annual bonus in an amount sufficient to cover
the premiums paid by the trust and the tax liability on the bonus.
At the earlier of Mr. Bindley's death or December 16, 2007, the Company
will be reimbursed for all premiums paid by it. In the event of Mr. Bindley's
death, the balance of the proceeds of the policy would be paid to the trust
established by Mr. Bindley and used to purchase Common Stock of the Company
from Mr. Bindley's estate. The annual premiums on the policy are $404,350, of
which $390,910, $389,720, $388,530, $387,270 and $385,940 were paid by the
-10-
<PAGE> 13
Company on January 25, 1993, December 15, 1993, December 14, 1994, December 15,
1995, and December 5, 1996, respectively.
The Company also purchased a $13 million term life insurance policy on
the life of Mr. Bindley in June 1993. The Company is both the owner and
beneficiary of the policy. The premiums on the policy of $23,060, $27,610,
$35,410 and $45,940 were paid by the Company on June 4, 1993, May 31, 1994,
May 30, 1995, and May 21, 1996, respectively.
STOCK OPTIONS
On June 27, 1983, the Company's Board of Directors and the then sole
shareholder approved two stock option plans, a nonqualified stock option plan
(the "Nonqualified Plan") and an incentive stock option plan (the "ISO Plan").
The Nonqualified Plan and the ISO Plan reserve 200,000 and 300,000 shares,
respectively, of Common Stock (subject to adjustment for subsequent stock
splits, stock dividends and certain other changes in the Common Stock) for
issuance pursuant to the exercise of options granted by the Board of Directors.
The Nonqualified Plan and the ISO Plan are administered by the Committee.
On March 21, 1987, the Board of Directors adopted, subject to
shareholder approval, the 1987 Stock Option and Incentive Plan (the "1987
Plan"). The shareholders approved the 1987 Plan at the 1987 annual meeting of
shareholders. As a result, no further awards will be made under the ISO Plan
or the Nonqualified Plan. The 1987 Plan reserves for issuance 2,000,000 shares
of Common Stock pursuant to incentive awards granted by the Committee. The
1987 Plan provides for the grant to officers and other key employees of the
Company or its subsidiaries of incentive awards in the form of stock options or
restricted stock. Stock options granted under the 1987 Plan may be either
options intended to qualify for federal income tax purposes as "incentive stock
options" or options not qualifying for favorable tax treatment ("nonqualified
stock options"). The shareholders amended the 1987 Plan at the 1989, 1990,
1991 and 1994 annual meetings of shareholders.
The Company's shareholders approved the 1993 Stock Option and Incentive
Plan (the "1993 Plan") on May 20, 1993, and amended it at the 1994 and the 1996
annual meetings of shareholders. The 1993 Plan reserves for issuance
3,000,000 shares of the Company's Common Stock for sale or award to officers
and key employees (including any such officer or employee who holds at least
10% of the Company's outstanding Common Stock) as stock options or restricted
stock. As a result of the adoption of the 1993 Plan, no further awards will be
made from the shares of Common Stock that remained available for grants under
the 1987 Plan.
The following table sets forth information with respect to options
granted by the Company under the 1993 Plan to the Named Executive Officers
during 1996.
-11-
<PAGE> 14
<TABLE>
<CAPTION> OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Grant Date Value
---------------------------------------------------------- ------------------
% of
Total
Options
Number of Granted
Securities to
Underlying Employees
Options in Exercise Grant Date
Name Granted Fiscal Year Price Expiration Date Present Value (1)
------------------- ------------ ----------- ------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
William E. Bindley 5,000 (2) 0.6% $18.425 January 8, 2001 $23,950 (3)
41,000 (4) 4.9% 16.750 December 8, 2005 251,330 (5)
890 (6) 0.1% 20.075 December 13, 2001 4,317 (7)
53,110 (8) 6.3% 18.250 December 13, 2006 356,899 (9)
Thomas J. Salentine 5,479 (10) 0.7% 18.250 December 13, 2006 30,628 (11)
54,521 (8) 6.5% 18.250 December 13, 2006 366,381 (9)
Michael D. McCormick 5,479 (10) 0.7% 18.250 December 13, 2006 30,628 (11)
54,521 (8) 6.5% 18.250 December 13, 2006 366,381 (9)
Keith W. Burks 5,479 (10) 0.7% 18.250 December 13, 2006 30,628 (11)
54,521 (8) 6.5% 18.250 December 13, 2006 366,381 (9)
Michael L. Shinn 5,479 (10) 0.7% 18.250 December 13, 2006 30,628 (11)
9,521 (8) 1.1% 18.250 December 13, 2006 63,981 (9)
Thomas G. Slama 5,517 (12) 0.7% 18.125 February 8, 2006 31,999 (13)
19,483 (14) 2.3% 18.125 February 8, 2006 128,003 (15)
</TABLE>
- ------------------------
(1) The Company does not believe that the Black-Scholes model or any other
valuation model is a reliable method of computing the present value of
the Company's employee stock options. The value ultimately realized,
if any, will depend on the amount by which the market price of the
stock exceeds the exercise price on the date of exercise. The
grant date present value calculation uses an expected option term based
on past experience, rather than the contract term of the options. The
use of an expected term produces a valuation adjustment for
non-transferability of the options. There have been no adjustments
made for risk of forfeiture of the options.
(2) Incentive stock options granted at 110% of the fair market value of
the stock on the date of grant. The options are exercisable on or
after January 8, 1997.
(3) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 5.36%, an expected term of four
years, a dividend yield of .41% and a stock volatility of 32.05%.
(4) Nonqualified stock options granted at 100% of the fair market value of
the stock on the date of grant. The options are exercisable at the
rate of 25% per year, beginning on December 8, 1996.
(5) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 5.41%, an expected term of five
years, a dividend yield of .41% and a stock volatility of 32.05%.
(6) Incentive stock options granted at 110% of the fair market value of
the stock on the date of grant. The options are exercisable on or
after December 13, 1997.
(7) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 6.05%, an expected term of four
years, a dividend yield of .41% and a stock volatility of 27.52%.
(8) Nonqualified stock options granted at 100% of the fair market value of
the stock on the date of grant. The options are exercisable at the
rate of 25% per year, beginning on December 13, 1997.
-12-
<PAGE> 15
(9) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 6.16%, an expected term of five
years, a dividend yield of .41% and a stock volatility of 30.22%.
(10) Incentive stock options granted at 100% of the fair market value of
the stock on the date of grant. The options are exercisable on or
after December 13, 1997.
(11) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 6.05%, an expected term of four
years, a dividend yield of .41% and a stock volatility of 27.52%.
(12) Incentive stock options granted at 100% of the fair market value of
the stock on the date of grant. The options were to be exercisable on
or after February 8, 1997. All of such options were canceled,
effective upon Dr. Slama's severance of his employment relationship
with the Company as of November 14, 1996.
(13) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 5.14%, an expected term of four
years, a dividend yield of .41% and a stock volatility of 32.00%.
(14) Nonqualified stock options granted at 100% of the fair market value of
the stock on the date of grant. The options were exercisable at the
rate of 25% per year, beginning on February 8, 1997. All of such
options were canceled, effective upon Dr. Slama's severance of his
employment relationship with the Company as of November 14, 1996.
(15) The grant date present value is based on a Black-Scholes model and
assumes a risk-free rate of return of 5.25%, an expected term of five
years, a dividend yield of .41% and a stock volatility of 31.98%.
The following table sets forth information with respect to the
exercise of options by the Named Executive Officers during 1996.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
Shares at Fiscal Year-End at Fiscal Year-End (2)
Acquired on Value -------------------------- ---------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
------------------- ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Bindley --- --- 217,905 230,095 $1,398,481 $918,469
Thomas J. Salentine --- --- 308,500 140,500 2,435,877 402,844
Michael D. McCormick --- --- 269,000 140,500 1,914,199 402,844
Keith W. Burks 6,000 $40,455 209,000 140,500 1,311,144 402,844
Michael L. Shinn 4,125 28,531 32,349 27,401 158,986 64,937
Thomas G. Slama --- --- --- --- --- ---
</TABLE>
- ---------------------
(1) The value is calculated based on the difference between the option
exercise price and the closing market price of the Common Stock on the
date of exercise, multiplied by the number of shares to which the
exercise relates.
(2) The closing price for the Company's Common Stock as reported by the
NYSE on December 31, 1996 was $19.375. The value is calculated on the
basis of the difference between the Common Stock option exercise price
and $19.375, multiplied by the number of "In-the-Money" shares of
Common Stock underlying the option.
-13-
<PAGE> 16
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Committee's established practice with respect to executive
compensation has been to: (a) conduct annual merit reviews in May of each year,
to become effective June 1; (b) grant stock options on the second Friday of
each December; and (c) approve annual bonuses payable, in whole or part, during
the following March. The Committee applied the criteria discussed below to the
June 1, 1996 annual merit reviews and the 1996 annual bonus amounts for the
executive officers.
Executive Compensation Policy
The Company's compensation policy is designed to: (a) be competitive
so that the Company can attract, reward, and retain the quality talent that is
essential to its continued success; (b) motivate key employees through the use
of incentive compensation programs, including annual bonuses and stock option
grants; (c) treat employees fairly and, at the same time, be cost effective;
(d) foster teamwork within the Company so that employees share in the rewards
and risks of the Company; (e) offer executive officers the opportunity to
achieve significant levels of ownership in the Company's stock so that their
interests will be aligned with those of its shareholders; and (f) assure that
executive officers' compensation will be tax deductible to the maximum extent
permissible.
Cash Based Compensation
Base Compensation. In making compensation decisions, the Committee's
subjective review process primarily includes: (a) an analysis of executive
compensation levels within the pharmaceutical distribution industry at other
publicly-traded companies of comparable size and stature by reviewing proxy
statements and national compensation surveys and reports; (b) individual
efforts and accomplishments within the Company, the distribution industry, and
the community; (c) management experience and development; (d) team building
skills consistent with the Company's best interests; (e) base compensation paid
to other executive officers within the Company; and (f) observance of the
Company's ethics and compliance program. For the past three years, annual
merit increases have averaged 8.8%. During this period, certain executive
officers have received greater base compensation increases corresponding to
promotions and/or expanded responsibilities.
The Committee's decision with respect to 1996 base compensation was
made after the annual merit review of the other executive officers was
conducted by the CEO. During May 1996, the Committee authorized the CEO to
increase the base salaries for Messrs. Burks, McCormick, and Salentine. These
annual merit increases averaged 10.0% and were made effective on June 1, 1996.
Annual Bonus. A portion of the cash compensation of the executive
officers (and most other salaried employees) consists of annual bonus payments
under the Company's bonus pool. The bonus pool is approved annually by the
Committee and the Board of Directors. For the past two years, the bonus pool
has averaged $1.8 million. Allocation of the bonus pool to the executive
officers (other than the CEO) is based on recommendations made by the Committee
with input from the CEO. Allocation of the bonus pool to non-executive
officers is generally based on recommendations made by the heads of the
Company's divisions or departments.
-14-
<PAGE> 17
The Committee gives equal consideration to the Company's overall
performance and the executive officer's performance for the specific areas of
the Company under his or her direct control. This 50-50 balance supports
accomplishment of overall objectives and rewards individual contributions by
the executive officers.
At the December 9, 1994 meeting, the Committee elected to expand its
previously reported measures of the Company's performance for purposes of
establishing the annual bonuses for the executive officers by including year to
year comparisons in the following areas: (a) net gross sales; (b) net DSD
sales; (c) operating earnings; (d) net pre tax earnings; (e) net after tax
earnings; (f) shareholders equity; (g) primary and fully diluted earnings per
share; and (h) December 31 closing stock price. Of these criteria, operating
earnings were given the greatest weight and shareholders equity the least
weight. If the 1996 operating earnings were greater than those in 1995 and if
the percentage improvement of the other criteria averaged at least 10%, the
Committee agreed to approve 1996 bonuses to Messrs. Bindley, Burks, McCormick
and Salentine such that the combined bonuses equaled 2.10% of operating
earnings for 1996, compared to 2.14% for 1995, 2.09% for 1994 and 2.07% for
1993. On March 27, 1997, the Committee ratified the above noted bonuses to be
paid during that month. These bonus amounts average 67% of base compensation
for these executive officers, compared to 64% for 1995, 69% for 1994 and 70%
for 1993.
The Committee deems such financial goals to be a valid measure of
performance within the pharmaceutical distribution industry and consistent with
the Company's best interests. Discretionary adjustments by the Committee are
possible should unforeseen or uncontrollable events occur during the course of
the year.
The Committee's intent is to make the executive officers' total cash
compensation package (base compensation plus annual bonus) competitive with
other publicly-traded companies of comparable size and stature within the
pharmaceutical distribution industry. Based on its analysis of total cash
compensation for similar executive officers within the pharmaceutical
distribution industry, the Committee has determined the Company's cash
compensation for its executive officers to be competitive with respect to the
Company's relative position within the industry.
Equity Based Compensation
The Committee believes that equity compensation, in the form of stock
options, is an important element of performance based compensation of executive
officers. By granting stock options, the Committee will continue the Company's
long-standing practice of increasing key employees' equity ownership in order
to ensure that their interests remain closely aligned with those of the
Company's shareholders. Stock options and equity ownership in the Company
provide a direct link between executive compensation and shareholder value.
Stock options also create an incentive for key employees to remain with the
Company for the long term because the options are not immediately exercisable
and, if not exercised, are forfeited if the employee leaves the Company before
retirement.
Consistent with the above philosophy, the Committee, based on input
from the CEO, approved the granting of stock options to 203 key employees on
December 13, 1996. For the executive officers (other than the CEO) the
Committee considered: (a) the CEO's input; (b) the Company's long-standing
practices with respect to stock option grants; (c) the objective criteria for
evaluating the Company's performance previously set forth in the discussion
with respect to
-15-
<PAGE> 18
cash compensation; (d) subjective criteria with respect to individual
performance, including individual efforts and accomplishments, experience, and
team building skills; and (e) the number of stock option grants to other
executive officers within the Company. No executive officer was granted more
stock options in 1996 than in 1995.
Compensation of William E. Bindley, Chairman, Chief Executive Officer, and
President
Mr. Bindley's cash compensation is based on the same factors as the
other executive officers. As represented in the Summary Compensation Table set
forth under "Compensation of Executive Officers and Directors," Mr. Bindley's
cash compensation is 11.4% greater in 1996 than 1995. Mr. Bindley's 1996
annual bonus was in an amount equal to 0.64% of the Company's 1996 operating
earnings, compared to 0.65% in 1995, 0.64% in 1994 and 0.53% in 1993. The
Committee's decision to increase Mr. Bindley's cash compensation was based on
the subjective and objective criteria previously set forth in this report in
the discussion with respect to cash compensation.
Since the approval of the 1993 Plan, Mr. Bindley has also participated
in the Company's equity based compensation program. By employing the
subjective and objective criteria previously set forth in the discussion with
respect to cash and equity based compensation, the Committee granted
Mr. Bindley the stock options shown in the Option Grants In Last Fiscal Year
table set forth under "Compensation of Executive Officers and Directors--Stock
Options."
It is the Committee's view that Mr. Bindley's total compensation
package for 1996 was based on an appropriate balance of: (a) individual
performance; (b) Company performance; and (c) other CEO compensation packages
within the pharmaceutical distribution industry. The Committee points out that
the companies used for evaluation of competitive compensation may not, in all
cases, be the same as those companies comprising the industry peer group
described under "Compensation of Executive Officers and Directors--Performance
Graph."
Compensation and Stock Option Committee
Seth B. Harris
Robert L. Koch II
J. Timothy McGinley
James K. Risk III
K. Clay Smith
-16-
<PAGE> 19
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total
shareholder return on the Company's Common Stock with the New York Stock
Exchange Index and with peer companies within SIC Code 5122 (Drug, Drug
Proprietaries and Druggists' Sundries) for the years 1992 through 1996. The
Company's Common Stock has been listed on the NYSE since August 2, 1995. Prior
to that time, the Company's Common Stock was traded on the Nasdaq National
Market System.
Comparison of Five-Year Cumulative Total Return Among The Company,
New York Stock Exchange Index and SIC 5122 Companies
<TABLE>
<CAPTION>
December 31 . . . 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
New York Stock Exchange 100.00 104.70 118.88 116.57 151.15 182.08
----------------------------------------------------------------------------------------------
SIC 5122 Companies 100.00 109.09 127.34 165.67 214.86 270.33
----------------------------------------------------------------------------------------------
Bindley Western 100.00 74.02 70.04 91.99 101.40 116.11
----------------------------------------------------------------------------------------------
</TABLE>
[PERFORMANCE LINE CHART]
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that may incorporate future
filings (including this Proxy Statement, in whole or in part), the preceding
Committee Report on Executive Compensation and the stock price Performance
Graph shall not be incorporated by reference in any such filings.
-17-
<PAGE> 20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On March 18, 1993, the Board of Directors established the Committee to
approve compensation and stock option grants for the Company's executive
officers. The Committee members during 1996 were Messrs. Harris, Koch,
McGinley, Risk and Smith. None of the Committee members are involved in a
relationship requiring disclosure as an interlocking executive officer/director
or under Item 404 of Regulation S-K or as a former officer or employee of the
Company.
PROPOSAL 2
APPOINTMENT OF AUDITORS
The appointment of Price Waterhouse LLP as auditors for the Company
during 1997 will be submitted to the meeting in order to permit the
shareholders to express their approval or disapproval. In the event of a
negative vote, a selection of other auditors will be made by the Board. A
representative of Price Waterhouse LLP is expected to be present at the
meeting, will be given an opportunity to make a statement if he or she desires
and will respond to appropriate questions. Notwithstanding approval by the
shareholders, the Board of Directors reserves the right to replace the auditors
at any time upon the recommendation of the Audit Committee of the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF PRICE
WATERHOUSE LLP.
PROPOSAL 3
SHAREHOLDER PROPOSAL RELATED TO
NON-EMPLOYEE DIRECTORS' COMPENSATION
A shareholder has submitted the following proposal, which will be
voted upon at the Annual Meeting if presented by its proponent:
"RESOLVED, that the shareholders recommend that the Board of Directors take the
necessary steps to ensure that from here forward all non-employee directors
should receive a minimum of fifty percent (50%) of their total compensation in
the form of Company stock which cannot be sold for three years."
The proponent has submitted the following statement in support of his
proposal:
"A significant equity ownership by non-employee directors is probably
the best motivator for enhancing shareholder value and facilitating
identification with shareholders."
"Traditionally, non-employee directors were routinely compensated with
a fixed fee, regardless of corporate performance. In today's competitive
global economy, outside directors must exercise critical oversight of
management's performance in fostering corporate profitability and shareholder
value. All too often, outside directors' oversight has been too lax, and their
actions were too late to effect any meaningful change."
-18-
<PAGE> 21
"The history of public corporations in America has too many examples
of directors passively allowing strategic management errors to occur. This
results in eroding corporate and shareholder value."
"When compensation takes the form of company stock, there is a greater
likelihood that outside directors will exercise greater diligence in protecting
their own, as well as corporate, and shareholder interests."
"What is being recommended in this proposal is neither novel nor
untried. A number of corporations have already established versions of such
practices, namely, Alexander & Alexander, Baxter International, Hartford Steam
Boiler, James River, McGraw Hill, NYNEX, RJR Nabisco, Sunbeam Corporation, The
Travelers, Westinghouse, Woolworth and Zurn Industries."
"In June, 1995, the National Association of Corporate Directors'
(NACD) Blue Ribbon Commission on Director Compensation issued a report urging
that public company directors be paid their annual fees primarily in company
stock to more closely align their interests with those of shareholders.
Several widely-reported empirical studies have confirmed the potential efficacy
of this approach. Albert J. Dunlap, a Commission member and Chairman and Chief
Executive Officer of Sunbeam Corporation has stated:
'What kind of contribution will the directors ever make if they
don't have a vested interest in the company's financial success.
They've got to show that they believe in the company, that
they're willing to stand behind their choices... ... ... Any
director who isn't willing to be paid [one hundred] percent in
stock doesn't believe in the company'"
"It can be argued that awarding stock options to outside directors
accomplishes the same purpose of insuring director's allegiance to a company's
profitability as paying them in stock. However, it is my contention that stock
options entail no downside risk, i.e., while stock options offer rewards should
the stock increase, if the stock price decreases, no penalties ensue. There
are few strategies that are more likely to align the interests of outside
directors with those of shareholder than one which results in their sharing of
the same bottom line."
"I URGE YOUR SUPPORT. VOTE FOR THIS RESOLUTION!"
The name and address of the proponent and the number of shares of the
Company's Common Stock held by the proponent will be promptly furnished by the
Company to any person, orally or in writing as requested, upon the receipt of
any oral or written request therefor directed to the Secretary of the Company.
COMPANY'S RESPONSE
In the Company's view, because all of the Company's non-employee
Directors currently own a significant number of shares and/or options
exercisable for shares of Common Stock of the Company, this proposal seeks to
address a problem which does not exist. Each non-employee Director
beneficially owns at least 3,000 shares of Common Stock and four of the
Company's six non-employee Directors beneficially own at least 7,000 shares of
Common Stock. In addition, the Company's non-employee directors hold currently
exercisable stock options representing a total of 32,000 shares of Common
Stock. See "Election of Directors--Nominees." As a result of these
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<PAGE> 22
meaningful equity holdings in the Company, the interests of the non-employee
Directors are already closely aligned with those of the shareholders.
Grants of stock options have been an integral component of the
Company's compensation package for non-employee Directors since 1991. Pursuant
to the Outside Directors Stock Option Plan, each non-employee Director receives
an option to purchase 1,000 shares of the Company's Common Stock on June 1 of
each year. See "Compensation of Executive Officers and Directors--Compensation
of Directors." Additionally, at its March 27, 1997 meeting, the Compensation
and Stock Option Committee proposes to recommend to the Board that any future
increases in Board compensation be paid in the form of Common Stock of the
Company which cannot be sold for a period of time meeting the minimum holding
period of Rule 144 of the Securities Act of 1933, as amended, which period of
time currently is two years, but which will be reduced to one year effective
April 29, 1997. The Company believes that this policy will serve to further
align the non-employee Directors' interests with those of the shareholders, as
the proponent's supporting statement urges.
The Company believes that the adoption of the shareholder's proposal
regarding compensation of non-employee Directors could severely restrict the
Company's ability to retain key non-employee Directors and to compete with
other firms in attracting highly-qualified non-employee Directors, thereby
hindering its ability to enhance shareholder value.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth as of January 31, 1997 the number of
shares of Common Stock of the Company owned by any person (including any group)
known by management to beneficially own more than 5% of the Common Stock of the
Company, by each of the Named Executive Officers, and by all directors and
executive officers of the Company as a group. The following table also sets
forth as of January 31, 1997 the number of shares of the common stock of PHSC
(the "PHSC Common Stock") owned by each of the Named Executive Officers and by
all directors and executive officers as a group. PHSC is an indirect
subsidiary of the Company. Unless otherwise indicated in a footnote, each
individual or group possesses sole voting and investment power with respect to
the shares indicated as beneficially owned.
-20-
<PAGE> 23
<TABLE>
<CAPTION>
Common Stock PHSC Common Stock
Class ---------------- ---------------------
Percent of Number of
Name and Address of Number of Shares Class Shares Percent of Class
Individual or Beneficially (if more Beneficially (if more
Identity of Group Owned (1) than 1%) Owned (2) than 1%)
----------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
William E. Bindley (3) 3,298,912 (4)(5) 27.8% 0 ---
Thomas J. Salentine 321,483 (4)(6) 2.7% 0 ---
Michael D. McCormick 277,857 (4)(7) 2.3% 0 ---
Keith W. Burks 217,200 (4)(8) 1.8% 0 ---
Michael L. Shinn 32,349 (4)(9) --- 0 ---
Thomas G. Slama 0 --- 60 6%
Mellon Bank Corporation 610,000 (10) 5.4% 0 ---
One Mellon Bank Center
Pittsburgh, PA 15258 (11)
All current directors and 4,316,215 (4)(12) 33.8% 60 6%
executive officers as a group
(13 persons)
</TABLE>
__________
(1) For information regarding the beneficial ownership of shares held by
non-employee directors, see "Election of Directors--Nominees."
(2) No shares are beneficially owned by any non-employee director.
(3) The address of this shareholder is 10333 N. Meridian Street,
Suite 300, Indianapolis, Indiana 46290.
(4) Does not include shares subject to stock options which are not
exercisable within 60 days.
(5) Includes presently exercisable stock options to purchase
222,905 shares granted by the Company. Also includes 1,000 shares
held by Mr. Bindley's spouse; Mr. Bindley disclaims beneficial
ownership of such shares.
(6) Includes presently exercisable stock options to purchase
308,500 shares granted by the Company.
(7) Includes presently exercisable stock options to purchase
269,000 shares granted by the Company.
(8) Includes presently exercisable stock options to purchase
209,000 shares granted by the Company.
(9) Includes presently exercisable stock options to purchase 32,349 shares
granted by the Company.
(10) The shareholder is a parent holding company and has sole voting power
with respect to 538,000 of such shares. Shares are beneficially owned
by certain subsidiaries of the shareholder.
(11) Information is based solely on reports filed by such shareholder under
Section 13(d) of the Securities Exchange Act of 1934.
(12) Includes presently exercisable stock options to purchase
1,136,853 shares granted by the Company.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The date by which shareholder proposals must be received by the
Company for inclusion in proxy materials relating to the 1998 Annual Meeting of
Common Shareholders is November 28, 1997.
-21-
<PAGE> 24
PROXY
BINDLEY WESTERN INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby appoint William E. Bindley and Michael D. McCormick, or either of
them, my proxies, with power of substitution, to vote all shares of common
stock of the Company which I am entitled to vote at the annual meeting of
common shareholders of said company, to be held at the Conference Center, 10333
North Meridian Steet, Indianapolis, Indiana, on May 15, 1997, at 9:00 a.m.,
Indianapolis time, and at any adjournment, as follows:
Election of Directors, Nominees (change of address)
William E. Bindley, Keith W. Burks, ____________________________
Robert L. Koch II, James K. Risk III,
Seth B. Harris, K. Clay Smith, ____________________________
J. Timothy McGinley, Michael D. McCormick,
William F. Bindley II, Thomas J. Salentine ____________________________
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card.)
This proxy when properly executed will be voted in the manner directed herein by
the signed shareholder. If no direction is made, this proxy will be voted FOR
the election as directors of all nominees listed under proposal 1, FOR proposal
2 and AGAINST proposal 3.
-------------
SEE REVERSE
SIDE
-------------
- --------------------------------------------------------------------------------
DETACH CARD
Note: The Conference Center is located on the 1st floor of 3 Meridian Plaza at
the northeast corner of 103rd Street and Meridian Street.
[X] PLEASE MARK YOUR
VOTE AS IN THIS
EXAMPLE.
<TABLE>
<S> <C>
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of [ ] [ ] 2. Proposal to [ ] [ ] [ ] 3. Shareholder Proposal [ ] [ ] [ ]
Directors approve the related to non-
(see reverse) appointment of employee directors'
Price Waterhouse compensation.
LLP, as auditors for the Company for 1997.
For, except vote withheld from the following nominee(s):
---------------------------------------------------------
4. In their discretion, on any other matters that
may properly come before the meeting.
5. The Board of Directors recommends a vote FOR its
nominees, FOR proposal 2 and AGAINST proposal 3.
Change [ ]
of
Address
Attend [ ]
Meeting
SIGNATURE(S)___________________________________ DATE _______________, 1997
SIGNATURE(S)___________________________________ DATE _______________, 1997
NOTE: Please sign exactly as name appears below. When shares are held by two or more persons, all of them should sign. When
signing as attorney, as executor, administrator, trustee or guardian, please give full title as such. 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. Please mark, sign, date and return the proxy card promptly using the enclosed envelope.
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH CARD
</TABLE>
