BINDLEY WESTERN INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1994
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 19, 1994, 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 proposed amendments to the
Company's stock option plans, including an amendment to the
Company's 1993 Stock Option and Incentive Plan increasing from
1,000,000 to 1,500,000 the number of shares of the Company's
Common Stock subject to issuance under the plan;
(3) To approve or disapprove the appointment of Price
Waterhouse as auditors for the Company for 1994; and
(4) To transact such other business as may come before
the meeting.
All shareholders of record at the close of business on
April 8, 1994, 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
(ANNUAL REPORT CONCURRENTLY MAILED)
BINDLEY WESTERN INDUSTRIES, INC.
4212 West 71st Street
Indianapolis, Indiana 46268
PROXY STATEMENT
Annual Meeting of Shareholders
May 19, 1994
This statement is being furnished to shareholders on or
about April 13, 1994, 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 19, 1994, 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 April 8, 1994, the record date
for the meeting, there were 10,784,643 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 and for
Proposals 2 and 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 Proposal 2 is subject to the
affirmative vote of a majority of the shares present or
represented at the annual meeting and entitled to vote on the
matter. Approval of Proposal 3 is 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
Proposal 2, broker non-votes will have no effect, but an
abstention would have the same effect as a vote against such
proposal. With respect to Proposals 1 and 3, neither broker
non-votes nor abstentions on such proposals will affect the
determination of whether such proposals will be approved.
The Board of Directors knows of no matters, other than those
described in the attached Notice of Annual Meeting, which are
to be brought before the meeting. However, if other matters
properly come before the meeting, it is the intention of the
persons named in the enclosed 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 $20,000. The cost of this
solicitation of proxies will be borne by the Company.
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 below. Other than Seth B. Harris, 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.
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.
Shares
BeneficiallyPercent
Present Owned on of Class
Principal Director January 31,(if more
Name Age Occupation Since 1994 than 1%)
William E. Bindley (1) 53 Chairman of the Board and 1970 3,055,676(2) 28.4%
President of the Company
Robert L. Koch II (3) 55 President, George Koch 1987 9,068(4)(5) --
Sons, Inc. (manufacturer of
industrial painting systems)
James K. Risk III (6) 52 President, Kirby Risk Supply 1987 6,817(7) --
Company, Inc. (electrical
supply company)
K. Clay Smith (8) 56 President, Underwood 1983 6,000(9) --
Machinery Transport, Inc.
(transportation company)
J. Timothy McGinley 53 President, H.M.I., Inc. 1987 7,500(9) --
(real estate investment
company)
Michael D. McCormick 46 Executive Vice President, 1990 174,491(2)(10)1.7%
-5-
General Counsel and
Secretary of the Company
William F. Bindley II 32 President, Heartland 1990 42,425(11) --
Films, Inc. (motion picture
production company)
Thomas J. Salentine 54 Executive Vice President, 1990 227,317(2)(12)2.0%
Chief Financial Officer and
Treasurer of the Company
Keith W. Burks 36 Executive Vice President 1993 127,500(2)(13)1.2%
of the Company
Seth B. Harris 54 Retired Chairman of the Board --- 2,000 --
and President of Harris Wholesale
(wholesale pharmaceutical
distribution company)
<FN>
__________
(1) Mr. Bindley also serves on the Board of Directors of Shoe
Carnival, Inc., a shoe retailer.
(2) Does not include shares of the Company's Common Stock
subject to options which are not presently exercisable.
(3) Mr. Koch also serves on the Board of Directors of CNB
Bancshares, Inc., a bank holding company and Southern
Indiana Gas and Electric Company, a public utility.
(4) Includes presently exercisable options to purchase 2,000
shares granted under the Company's Outside Directors
Stock Option Plan.
(5) Mr. Koch shares voting and dispositive power with respect
to 6,068 of such shares with his wife or children.
(6) Mr. Risk also serves on the Board of Directors of Marsh
Supermarkets, Inc., a retail grocery chain.
(7) Mr. Risk shares voting and dispositive power with respect
to 681 of such shares with his wife or children.
Includes presently exercisable options to purchase 3,000
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 options to purchase
3,000 shares granted under the Company's Outside
-6-
Directors Stock Option Plan.
(10) Includes presently exercisable stock options to purchase
169,500 shares granted by the Company.
(11) Mr. W.F. Bindley II shares voting and dispositive power
with respect to 12,825 of such shares with his spouse or
minor child. Includes presently exercisable options to
purchase 3,000 shares granted under the Company's Outside
Directors Stock Option Plan.
(12) Includes presently exercisable stock options to purchase
209,000 shares granted by the Company.
(13) Includes presently exercisable stock options to purchase
124,500 shares granted by the Company.
The Board of Directors recommends a vote FOR each of the
nominees listed above.
-7-
Meetings and Committees
During 1993, the Board of Directors of the Company held
five meetings. 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. During 1992, the Company had a Stock
Option Committee consisting of Messrs. W.E. Bindley, Koch and
Risk. The Stock Option Committee administered the 1987 Stock
Option and Incentive Plan of the Company and determined all
grants thereunder. On October 23, 1992, the Board of Directors
created a Compensation Committee consisting of Messrs. Koch,
McGinley, Risk and Smith. The primary function of the
Compensation Committee is to establish compensation policies
and compensation for the Company's executive officers. On
March 18, 1993, the Compensation Committee was redesignated as
the Compensation and Stock Option Committee and it now
administers all executive compensation and stock option plans
of the Company.
The Board of Directors of the Company has an Audit
Committee, the current members of which are Messrs. W.E.
Bindley, 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.
Section 16(a) Reporting
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than ten percent of Common Stock, to file reports of
ownership with the Securities and Exchange Commission and
NASDAQ. Officers, directors and greater than ten-percent
shareholders 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 1993, except for one
Form 4 filed deliquently by William F. Bindley II, all filing
requirements applicable to its officers, directors, and greater
than ten-percent shareholders were complied with.
-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 four other most highly compensated executive
officers, based on salary and bonus earned during 1993:
Summary Compensation Table
Annual CompensationL o n g
Term Compensation
Awards
Name and Principal O t h e r
Annual All Other
Position Year Salary
Bonus(1) Compensation (2) Compensation (4)
William E. Bindley 1993 $514,400 $165,000 $3.925 (5)148,000
$57,010 (6)
Chairman, Chief 1992 486,000 165,000 0 32,592
Executive Officer 1991 450,000 115,000
and President
Thomas J. Salentine 1993 $146,600 $168,000 $13,637 (7)60,000
$20,690 (8)
Executive Vice 1992 135,000 165,000 15,07560,000 21,459
President and Chief 1991 122,280 115,000 28,000
Financial Officer
Michael D. 1993 $143,100 $165,000$14,162 (7)
60,000 $19,678 (9)
McCormick, 1992 135,000 165,000 15,07560,000 19,785
Executive Vice 1991 122,280 115,000 28,000
President, General
Counsel and Secretary
Keith W. Burks 1993 $119,200 $150,000 $12,500 (7)60,000
$19,309 (10)
Executive Vice 1992 105,000 140,000 15,07560,000 19,187
President 1991 87,750 90,000 28,000
Geroge E. Maloof, 1993 $153,090 $0 $0 --- $16,548
(11)
Senior Vice 1992 149,000 72,000 030,000 22,517
President 1991 134,808 60,000 17,000
-9-
<FN>
(1) Reflects bonus earned during the specified year, which
bonuses at times have been paid in the following year.
(2) Disclosure of Other Annual Compensation is not required
for 1991.
(3) Options to acquire shares of Common Stock. The Company
has no SAR plan and has never granted restricted stock
awards.
(4) Disclosure of All Other Compensation is not required
for 1991.
(5) Represents an auto allowance of $3,925.
(6) Consists of $18,867 in Company contributions to the
Company's profit sharing plan, $11,133 in Company
contributions under Mr. Bindley's deferred compensation
arrangement described on page 8, $25,258 related to the
split-dollar life insurance plan described on page 9
and $1,752 in premiums for the officers' life insurance
policy.
(7) Amounts indicated, in each case, represent an auto
allowance of $4,800 and the balance representing a gift
from William E. Bindley of Common Stock of the Company.
(8) Consists of $18,867 in Company contributions to the
Company's profit sharing plan and $1,823 in premiums
for the officers' life insurance policy.
(9) Consists of $18,867 in Company contributions to the
Company's profit sharing plan and $811 in premiums for
the officers' life insurance policy.
(10) Consists of $18,867 in Company contributions to the
Company's profit sharing plan and $442 in premiums for
the officers' life insurance policy.
(11) Consists of $13,496 in Company contributions to the
Company's profit sharing plan and $3,052 in premiums
for the officers' life insurance policy.
The Company does not have any employment agreements with its
executive officers.
-10-
Compensation of Directors
During 1993, the Company paid directors who are not
employees of the Company an annual retainer of $12,000 and a
fee of $1,000 for each committee meeting or special meeting of
the Board of Directors 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 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 is automatically granted
an option to purchase 1,000 shares of common stock on June 1 of
each year beginning 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. If all nominees are
elected, there will be six Eligible Directors - Messrs. Koch,
Risk, Smith, McGinley, Harris and W.F. Bindley. The Eligible
Directors are not eligible for grants or awards under any other
stock, bonus or benefit plan 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 or July 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 the lesser of (i) the total
"Formula Contributions" for the year of those Participants who
are employed on the last day of the year or (ii) 10% of
consolidated net income for the year, limited by the amount
deductible for federal income tax purposes. A Participant's
Formula Contribution is 8% of his or her 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 Formula Contributions for the year. Subject
to limitations imposed by the Internal Revenue Code, a
participant may, in addition to receiving a share of the
employer contribution, have a whole percentage (ranging from 1%
-11-
to 13%) of his or her compensation withheld from pay and
contributed to the Profit Sharing Plan. Beginning in 1990,
subject to applicable Internal Revenue Code requirements,
employees may make "rollover" contributions to the Profit
Sharing Plan of qualifying distributions from other employers'
qualified plans.
A participant's interest in amounts withheld from his or her
pay and contributed to the Profit Sharing Plan, in rollover
contributions and in the earnings on those amounts are fully
vested at all times. A participant's interest in employer
contributions made on his or her behalf and the earnings on
those contributions become 20% vested after three years of
service and an additional 20% vests during each of the next
four years. A participating employee's interest in employer
contributions made on his or her behalf and the earnings on
those contributions will also become fully vested when the
employee reaches age 65, dies, or becomes totally disabled.
All contributions to the Profit Sharing Plan are paid in
cash to an Indianapolis bank, as trustee, and are invested by
the trustee until distributed to participants or their
beneficiaries. Beginning July 1, 1991, Profit Sharing Plan
participants are permitted to direct the trustee as to the
investment of their accounts by choosing among several
different investment funds that are offered under the Profit
Sharing Plan, including one fund consisting of Common Stock of
the Company. Participants may elect to invest in one fund or a
combination of the available funds according to their own
investment goals. If a participant does not make an investment
election, his or her Profit Sharing Plan accounts will be
invested in a fund designated by the Company.
Except in certain cases of financial hardship, a participant
(or his or her beneficiary) receives distributions from the
Profit Sharing Plan only at death, retirement, or termination
of employment. At that time, the value of a participant's
interest in the Profit Sharing Plan is distributed to him or
her.
Effective January 1, 1994, the Company adopted a new plan
document, the terms and conditions of which are essentially the
same as the prior plan document, except in the following
respects: (a) the Company's contribution is discretionary
instead of mandatory; (b) participants' forfeitures are used to
reduce the Company's contribution instead of being allocated
pro rata among the remaining participants; and (c) the type and
number of investment alternatives available for participants.
Generally, the new plan is considered an improvement in terms
of administration, costs and participant access.
-12-
Nonqualified Deferred Compensation Arrangement
On December 31, 1990, the Company entered into a deferred
compensation agreement with William E. Bindley providing for
the payment to Mr. Bindley of deferred compensation to be
payable following his termination of employment with the
Company. The arrangement was established to compensate
Mr. Bindley for the effect of a new Internal Revenue Code
limitation, which became effective in 1989, on the
contributions made on Mr. Bindley's behalf to the Company's
Profit Sharing Plan.
Prior to 1994, Internal Revenue Code paragraph 401(a)(17)
limits to $200,000 (as indexed for changes in the cost of
living) the amount of an employee's compensation that can be
taken into account in determining contributions or benefits
under a qualified pension or profit sharing plan. Under the
deferred compensation agreement, the Company has agreed to
contribute to a trust account established in Mr. Bindley's
behalf, for each calendar year from 1989 until Mr. Bindley's
termination of employment, an amount equal to the difference
between (1) the actual Company contribution allocated to
Mr. Bindley's account in the Company's Profit Sharing Plan for
that year, and (2) the Company's contribution that would have
been made to Mr. Bindley's Profit Sharing Plan account for that
year, but for the limitation of Internal Revenue Code
paragraph 401(a)(17). The Company's contributions to the trust
account, along with investment earnings and losses, are payable
to Mr. Bindley in five annual installments beginning on the
first day of the month following his termination of employment.
In the event of Mr. Bindley's death, payments are to be made to
his designated beneficiary.
The Company's contributions under the deferred compensation
agreement are deposited in a trust, entitled the Bindley
Western Industries, Inc. Employee Benefit Trust (the "Trust"),
with one of the Company's banks, which serves as trustee of the
Trust. The 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
Company.
Split Dollar Life Insurance
The Company and a family trust created by William E. 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
-13-
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.
In the event of Mr. Bindley's death, the Company would
receive proceeds of the policy sufficient to reimburse it for
all premiums paid by it. The balance of the proceeds 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 first year's premium on the policy was $404,350, of which
$390, 910 was paid by the Company on January 25, 1993. The
second year's premium of $404,350 was paid by the Company on or
about December 16, 1993.
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 first year's
premium on the policy of $27,610 was paid by the Company on or
about June 4, 1993.
Termination Benefits Agreements
Effective December 31, 1992, the Company entered into a
Termination Benefits Agreement with each of William E. Bindley,
Thomas J. Salentine, Michael D. McCormick, George E. Maloof and
Keith W. Burks (the "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. Effective February 28,
1994, Mr. Maloof retired and is no longer subject to a
Termination Benefits Agreement.
The Termination Benefits Agreements provide for payments to
the 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 Named Executive Officer. The Termination
Benefits Agreements are designed to protect the 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 other things, the acquisition by a
person or group of persons of twenty-five percent (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.
Following a "Change in Control," the Named Executive Officer
-14-
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, his disability, his normal
retirement or is terminated by the Company for cause.
In addition, the Named Executive Officer is entitled to the
benefits of the Termination Benefits Agreement if after a
"Change in Control," the Named Executive Officer terminates his
employment with the Company in response to certain actions by
the Company which include, among other things, a substantial
reduction in the duties or responsibilities of the Named
Executive Officer, a reduction in the level of salary payable
to the Named Executive Officer, the failure by the Company to
continue to provide the Named Executive Officer with benefits
substantially similar to those previously provided to the Named
Executive Officer, the required relocation of the Named
Executive Officer, or the breach by the Company of any of the
provisions of the Termination Benefits Agreement.
Upon termination of employment, a Named Executive Officer
who is entitled to the benefits payable under the Termination
Benefits Agreement shall receive within thirty (30) days
following the termination all earned but unpaid salary, bonus
and incentive payments through the date of his termination. In
addition, the Named Executive Officer shall be entitled to a
lump-sum payment of an amount equal to 2.9 times the Named
Executive Officer's average annual compensation paid by the
Company to the Named Executive Officer for the past five years.
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
Plans are administered by the Board of Directors. At the 1987
annual meeting of shareholders, the shareholders of the Company
approved the 1987 Stock Option and Incentive Plan (described
below) and, as a result, no further awards will be made under
the ISO Plan or the Nonqualified Plan.
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 and amended it
at the 1989, 1990 and 1991 annual meetings of shareholders to
increase the number of shares available thereunder. The 1987
Plan reserves for issuance 2,000,000 shares of Common Stock
-15-
pursuant to incentive awards granted by the Stock Option
Committee of the Board of Directors (the "Option Committee")
which administers the 1987 Plan. 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").
On May 20, 1993, the Company's shareholders approved the
1993 Stock Option and Incentive Plan authorizing 1,000,000
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. No further
awards will be made from the shares of Common Stock that
remained available for grants under prior stock option plans.
The Company's Board of Directors has proposed to amend the
Company's stock option plans. For a description of such
proposed amendments, see "Approval of Amendments to the
Company's Stock Option Plans."
Option Grants in Last Fiscal Year
Individual Grants
% of Total
Number Options
of Shares Granted to Grant
Subject Employees Date
to Options in Exercise
Present
Name Granted Fiscal Year Price
Expiration Date Value
William E. Bindley 7,900 (2) 1.2% $12.65 December 9, 1998
$ 24,575 (3)
140,100 (4) 21.0% $11.50 December 9, 2003
$759,314 (5)
Thomas J. Salentine 60,000 (6) 9.0% $11.50 December 9, 2003
$325,188 (5)
Michael D.
McCormick 60,000 (6) 9.0% $11.50 December 9, 2003
$325,188 (5)
Keith W. Burks 60,000 (6) 9.0% $11.50 December 9, 2003
-16-
$325,188 (5)
George E. Maloof 0 --- --- --- ---
<FN>
(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 that the market price of the stock
exceeds the exercise price on the date of exercise.
(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 December 10, 1994.
(3) The grant date present value is based on a Black-Scholes
model and assumes a risk-free rate of return of 5.18%, an
option term of five years, a dividend yield of .70%, a
stock volatility of .2587% and no adjustments for
nontransferability or risk of forfeiture.
(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 10, 1994.
(5) The grant date present value is based on a Black-Scholes
model and assumes a risk-free rate of return of 5.99%, an
option term of ten years, a dividend yield of .70%, a stock
volatility of .2587% and no adjustments for
nontransferability or risk of forfeiture.
(6) Consists of 8,000 shares of incentive stock options and
52,000 shares of nonqualified stock options, both granted
at 100% of fair market value on the date of grant. The
incentive stock options are exercisable on or after
December 10, 1994 and the nonqualified stock options are
exercisable at the rate of 25% per year, beginning December
10, 1994.
-17-
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Value of Unexer-
Unexercised cised In-The
Options at Money Options
Year-End at Year-End
(2)
Shares
Name Acquired Value
on Realized Exer- Unexer- Exer-
Unexer-
Exercise (1) cisable cisable
cisable cisable
William E. Bindley ___ ___ ___ 148,000 ___
$52,538
Thomas J. Salentine ___ ___ 209,000 60,000
$464,496 $22,500
Michael D. McCormick ___ ___ 169,500 60,000
$238,666 $22,500
Keith W. Burks ___ ___ 124,500 60,000 $
96,680 $22,500
George E. Maloof ___ ___ 112,000 ___ $189,521
___
<FN>
(1) 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 NASDAQ National Market System on
December 31, 1993 was $11.875. Value is calculated on the
basis of the difference between the common stock option
exercise price and $11.875 multiplied by the number of "In-
the-Money" shares of Common Stock underlying the option.
Certain Transactions
The Company leases its Indianapolis facility from a limited
-18-
partnership, the general partner of which is W.E. Bindley. The
lease has a remaining term of four years and three months and
provides for a minimum rent payment of $111,000 per year. The
Company believes that the terms of the lease are at least as
favorable as could be obtained from an unrelated third party.
Compensation and Stock Option Committee Interlocks and Insider
Participation
On March 18, 1993, the Board of Directors established the
Compensation and Stock Option Committee (the "Committee") to
approve compensation and stock option grants for the Company's
executive officers. The Committee members are Robert L. Koch,
J. Timothy McGinley, James K. Risk, and K. Clay 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. As used throughout this report, the
term "executive officers" refers to William E. Bindley, CEO,
Chairman, and President; Keith W. Burks, Executive Vice
President; George E. Maloof, Sr. Vice President; Michael D.
McCormick, Executive Vice President and General Counsel; and
Thomas J. Salentine, Executive Vice President and Chief
Financial Officer.
Committee Report On Executive Compensation
Prior to October 23, 1992, the Company's Board of Directors
oversaw executive compensation and stock option grants for the
Company's executive officers. The Company's established
practice with respect thereto 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 December or the following January or March. Because the
Committee was not established until March 18, 1993, however,
its role in 1993 was limited to approving the CEO's June 1
increase in base compensation and the December 1993 stock
option grants and annual bonuses for all the executive
officers. The Committee will apply the criteria discussed
below to the annual merit reviews for all the executive
officers to become effective June 1, 1994.
Executive Compensation Policy
The Company's overall compensation policy is designed to:
1. Be competitive so that the Company can attract, reward,
and retain the quality talent that is essential to its
continued success.
2. Motivate key employees through the use of incentive
compensation programs, including annual bonuses and stock
-19-
option grants.
3. Treat all employees fairly and, at the same time, be
cost effective.
4. Foster teamwork within the Company so that all
employees share in the rewards and risks of the Company.
5. Offer executive officers the opportunity to achieve
significant levels of ownership in the Company's stock so that
their interest will be aligned with those of its shareholders.
6. Assure that all compensation will continue to be tax
deductible.
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; and (e) base compensation
paid to other executive officers within the Company.
The Committee's decision with respect to 1994 base
compensation will be made after the annual merit review in May
1994 primarily based on its evaluation of the above criteria
and corresponding input from the CEO with respect to the other
executive officers. Increases in base compensation, if any,
will become effective on June 1, 1994. For the past three
years, such annual increases have averaged 9.5%. Certain
executive officers have received greater base compensation
increases corresponding to promotions and/or expanded
responsibilities.
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 informal bonus
pool. The bonus pool is approved annually by the Committee and
the Board of Directors. For the past three years, the bonus
pool has averaged $832,247. 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.
For the past three years, the annual bonus amount for the
-20-
executive officers ranged from 26% to 133% of base compensation
and averaged 62% of base compensation. Because of the current
national debate concerning health care reform, and its
resultant uncertainties in the pharmaceutical distribution
industry, the Committee deemed it prudent to generally limit
the 1993 annual bonuses paid to the executive officers to
amounts that were (a) within the ranges expressed above and
(b) no greater than those amounts paid in 1992. Mr. Burks'
annual bonus was $10,000 greater because of his 1993 promotion
to Executive Vice President and becoming a member of the Board.
Mr. Maloof was paid no annual bonus due to his July 1993
decision to retire in early 1994.
For the 1994 annual bonuses for the executive officers,
equal consideration will be given to the Company's overall
performance and an individual's performance for the specific
areas of the Company under his direct control. This 50-50
balance supports the accomplishments of overall objectives and
rewards individual contributions by the executive officers.
The Company's performance will be primarily measured by
attainment of the financial goals established by the Company in
1988: (a) a 15% annual increase in sales; (b) a 15% annual
increase in FIFO gross margin dollars; and (c) a 15% annual
increase in operating cash flow. The Committee deems such
financial goals to be valid measures of performance within the
pharmaceutical distribution industry and consistent with the
Company's best interests. Individual performance will be
measured primarily by assessing the criteria previously set
forth in the discussion with respect to base compensation.
The 1994 annual bonus amounts for the executive officers
(other than the CEO) are scheduled to be in the range of 75% to
150% of base compensation. The actual amounts will be
determined by the Committee in December. Fifty percent of the
annual bonus amount will be based on the attainment of the
Company's financial goals as of the September 30, 1994
financial results. Up to 15%, 15% and 20% of this first 50%
will be based on the Company's achievement of its sales, FIFO
gross margin, and operating cash flow goals, respectively.
Discretionary adjustments by the Committee are possible should
unforeseen or uncontrollable events occur during the course of
the year. The remaining 50% of the annual bonus amount will be
based on the subjective criteria for individual performance
previously set forth in the discussion with respect to base
compensation.
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
-21-
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 management's 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 approximately 120 key employees on December 10, 1993. 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 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. Other than the CEO, no executive
officer was granted more stock options in 1993 than in 1992.
Mr. Maloof was granted no stock options due to his July 1993
decision to retire in early 1994.
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. Therefore, it is based in
part on the Company's performance, as measured by increases in
sales, FIFO gross margin and operating cash flow.
Mr. Bindley's cash compensation, as represented in the Summary
Compensation Table on page 6, is 5.8% greater in 1993 than
1992. Consistent with the Company's long-standing practice,
Mr. Bindley's 1993 annual bonus, when adjusted for income
attributable to the premiums and taxes on the split dollar life
insurance policy described on page 9, was in an amount
generally equal to that of the next most highly compensated
executive officer. The Committee's decision to increase
-22-
Mr. Bindley's cash compensation was based on the subjective and
objective criteria previously set forth in the discussion with
respect to cash compensation, including Mr. Bindley's
leadership and vision in completing the acquisition of Charise
Charles during January-February 1993.
On May 20, 1993, the Company's shareholders approved the
1993 Stock Option and Incentive Plan. As a result, Mr. Bindley
also participated in the equity based compensation program for
the first time in the Company's history. 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 on page 12.
It is the Committee's view that Mr. Bindley's total
compensation package for 1993 was based on an appropriate
balance of (a) individual performance, (b) Company performance,
and (c) other CEO compensation packages within the
pharmaceutical distribution industry. Further, because the
Committee believes that the competition for executive officer
talent specifically comes from other companies in the
pharmaceutical distribution industry, it is important to point
out that the companies used for evaluation of competitive
compensation are not, in all cases, the same as those companies
comprising the peer group graph on page 17.
Employment and Severance Agreements
Mr. Maloof was paid his regular cash compensation for the
seven-month period preceding his retirement on February 28,
1994. He was not paid a cash bonus or granted stock options in
December 1993. Effective March 1, 1994, Mr. Maloof will be a
sales and marketing consultant to the Company for one year.
His annual fee will approximate one month's salary and benefits
costs prior to his retirement. The Committee wishes to thank
Mr. Maloof for his longstanding, dedicated service to the
Company.
Compensation and Stock Option Committee
Robert L. Koch
J. Timothy McGinley
James K. Risk
K. Clay Smith
-23-
Performance Graph
The performance graph set forth below compares the
cumulative total shareholder return on the Company's Common
Stock with the NASDAQ Market Index and the NASDAQ Index for
Non-Financial Stocks for the years 1988 through 1993.
Comparison of Five-Year Cumulative Total Return
Among The Company, NASDAQ Market Index and NASDAQ
Index for Non-Financial Stocks
NASDAQ NASDAQ
Stock Market Non-Financial Bindley
Year (US) Stocks Western
1988 100.00 100.00 100.00
1989 121.24 125.10 147.37
1990 102.96 110.13 174.11
1991 165.21 177.93 241.61
1992 192.21 154.08 179.90
1993 219.41 222.48 169.75
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.
-24-
APPROVAL OF AMENDMENTS TO THE COMPANY'S STOCK OPTION PLANS
On December 10, 1993 and March 22, 1994, the Board of
Directors of the Company adopted amendments to the Company's
Incentive Stock Option Plan (the "ISO Plan"), the Nonqualified
Stock Option Plan (the "Nonqualified Plan"), the 1987 Stock
Option and Incentive Plan (the "1987 Plan") and the 1993 Stock
Option and Incentive Plan (the "1993 Plan") (collectively, the
ISO Plan, the Nonqualified Plan, the 1987 Plan and the 1993
Plan are referred to as the "Plans"), and directed that the
amendments to the Plans be submitted to the shareholders of the
Company for consideration and approval at the 1994 annual
meeting. The purpose of the Plans is and has been to promote
the long-term interests of the Company and its shareholders by
providing a means of attracting and retaining officers and key
employees of the Company. The Company believes that employees
who own shares of the Company's Common Stock will have a closer
identification with the Company and greater motivation to work
for the Company's success by reason of their ability as
shareholders to participate in the Company's growth and
earnings.
The proposed amendments to the Plans, if adopted, would
permit the Company's Compensation and Stock Option Committee of
the Board of Directors (the "Committee") to allow participants
under the Plans, including the holders of outstanding options,
to exercise an option during its term following cessation of
employment by reason of death, disability or retirement.
Presently such right to exercise terminates three months after
cessation of employment. The amendment to the Plans would also
permit the Committee, in its sole discretion, to change the
exercise and termination terms of options granted if such
changes are otherwise consistent with applicable federal and
state laws.
In addition, the 1993 Plan would be amended to (i) increase
from 1,000,000 to 1,500,000 the number of shares available for
issuance pursuant to awards made under the 1993 Plan; (ii)
limit to 100,000 shares the number of shares that any one
participant may receive under the 1993 Plan during any calendar
year; and (iii) provide that the Board of Directors may amend
the 1993 Plan in any respect without shareholder approval,
unless such approval is required to comply with Rule 16b-3
under the Securities Exchange Act of 1934 or Section 422 of the
Internal Revenue Code of 1986.
While options remain outstanding under each of the ISO Plan,
the Nonqualified Plan and the 1987 Plan, new awards can only be
made under the 1993 Plan. Options to purchase 25,600 shares
remain outstanding under the ISO Plan, 26,054 shares under the
Nonqualified Plan, 2,900 shares under the 1987 Plan and 333,000
shares under the 1993 Plan. The 1993 Plan was approved by the
Company's shareholders at the 1993 annual meeting. The
-25-
following is a summary of the principal features of the Plans.
Because no new awards may be made under any of the Plans, other
than the 1993 Plan, the following summary as it relates to
operative aspects of the Plans, is limited to a description of
the 1993 Plan.
Eligible Persons
Recipients of incentive awards under the Plans must be or
have been at the time of grant, officers or key employees (as
determined by the Committee). The Company presently has
approximately 120 officers and employees who fall within the
category of key employees and may be considered for incentive
awards under the 1993 Plan. No awards may be granted to
directors who are not also employees of the Company or one of
its subsidiaries.
Stock Subject to the 1993 Plan
If the amendments to the Plans are approved by the
shareholders, the number of shares subject to the 1993 Plan
would be increased from 1,000,000 to 1,500,000. The number of
shares subject to the 1993 Plan is subject to antidilution
adjustments.
The number of shares covered by an award under the 1993 Plan
reduces the number of shares available for future awards under
the 1993 Plan; however, any shares of restricted stock that
ultimately are forfeited (so long as any cash dividends paid on
such shares are also forfeited) to the Company by the grantee
will become available for further incentive awards under the
1993 Plan. Similarly, if any stock option granted under the
1993 Plan expires, terminates, or is surrendered or cancelled
without having been exercised in full, the number of shares
then subject thereto is added back to the number of remaining
available shares under the 1993 Plan. No new awards may be
made under the ISO Plan, the Nonqualified Plan or the 1987
Plan.
The closing sale price of the Company's Common Stock on
April 8, 1994, as quoted on the NASDAQ National Market System
and reported in The Wall Street Journal, was $12.125 per share.
Administration of the Plan
The Plans are administered by the Committee which is
presently composed of four directors who are not eligible to
participate in the Plans. Subject to the terms of the Plans,
the Committee has sole authority to determine and designate
those officers and key employees who are to be granted
incentive awards under the 1993 Plan and the nature and terms
of the incentive awards to be granted, including the number of
shares to be subject to such awards.
-26-
Grant of Stock Options
With respect to the grant of stock options under the 1993
Plan that are intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986 (the
"Code"), the option price is 100% (or 110% in the case of any
holder of 10% or more of the voting power of the Company) of
the fair market value of the Company's Common Stock on the date
of the grant of the stock option. The aggregate fair market
value (determined on the date of grant) of the shares of stock
subject to "incentive stock options" that become exercisable
for the first time by a grantee in any calendar year may not
exceed $100,000.
The Committee establishes the exercise price of nonqualified
stock options at the time the options are granted.
The exercise price of, and the number of shares subject to,
an option are adjusted by the Committee in the event of stock
splits, stock dividends, recapitalizations and certain other
events involving a change in the Company's capital.
The 1993 Plan provides that the Committee may, as a
condition of granting any stock option, require the grantee to
surrender for cancellation one or more stock options previously
granted under the Plans. This authority would enable the
Committee to substitute options at a lower price in periods
when the market price of the Common Stock declines.
Exercise of Stock Options
No incentive stock option granted under the Plans may be
exercised more than ten years or five years in the case of any
holder of 10% or more of the voting power of the Company (or
such shorter period as the Committee may determine) from the
date it is granted. Nonqualified stock options may be
exercised during such period as the Committee determines at the
time of grant.
If a grantee's employment with the Company or a subsidiary
is terminated for cause or voluntarily by the grantee for any
reason other than death, disability or retirement, such
grantee's options expire at the date of termination.
Stock options granted under the Plans become exercisable in
one or more installments in the manner and at the time or times
specified by the Committee at the time of grant.
Restricted Stock
Incentive awards may be made in the form of restricted
stock, in which case the participant would be granted shares of
the Company's Common Stock, which shares would be subject to
-27-
such forfeiture provisions and transfer restrictions as the
Committee determined at the time of grant. Pending the lapse
of such forfeiture provisions and transfer restrictions,
certificates representing restricted stock would be held by the
Company, but the grantee generally would have all of the rights
of a stockholder, including the right to vote the shares and
the right to receive all dividends thereon.
While restricted stock would be subject to forfeiture
provisions and transfer restrictions for a period or periods of
time, the 1993 Plan does not set forth any minimum or maximum
duration for such provisions and restrictions. It is expected
that the terms of restricted stock awards ordinarily will
provide that the restricted stock will be forfeited to the
Company if the grantee ceases to be employed by the Company
prior to the lapse of the forfeiture provisions and transfer
restrictions, subject to exceptions for death, disability or
retirement while employed by the Company. It is also expected
that a specified percentage of the restricted stock will become
free of the forfeiture provisions and transfer restrictions on
each anniversary of the date of grant of the restricted stock
award.
As of the date of this proxy statement the Company has not
made any awards of restricted stock.
Payment for Shares; Loans by the Company
The Committee may permit payment of the exercise price of
stock options to be made in cash, by the surrender of Common
Stock valued at its then fair market value, or by such other
means (including a combination of stock so valued and cash) as
it deems appropriate.
The Plans empower the Company to make loans to grantees in
connection with the exercise of stock options or the ownership
of restricted stock, up to the following amounts:
(1) With respect to the exercise of stock options, the sum
of the exercise price and the amount of income taxes reasonably
estimated to be payable by the grantee in connection with such
exercise; or
(2) With respect to restricted stock, the amount of income
taxes reasonably estimated to be payable by the grantee in
connection with the ownership of the restricted stock.
Loans made under the terms of the Plans bear interest at
such rates as may be established by the Committee. No loan may
have an initial term exceeding three years, but the loan may be
renewed at the discretion of the Committee. With the consent
of the Committee, loans may be repaid in shares of common stock
at their then fair market value. Loans may, but are not
-28-
required to be, secured by shares of Common Stock.
Miscellaneous Provisions
The Committee may accelerate the period of exercise or
vesting of any incentive award, either absolutely or
contingently, for such reasons as the Committee may deem
appropriate.
In general, if the employment of a recipient of restricted
stock is involuntarily terminated within 18 months following a
change in control of the Company, the forfeiture provisions and
transfer restrictions applicable to such stock lapse. In
addition, in the event of a tender offer or exchange offer for
the Common Stock or upon the occurrence of certain other
events, all options granted under the Plans shall become
exercisable in full, unless otherwise provided by the
Committee.
Amendment of the Plans
The Board, or the Committee with the approval of the Board,
may at any time terminate or amend the Plans. However, no such
amendment to the ISO Plan, the Nonqualified Plan or 1987 Plan
shall, without the approval of the shareholders of the Company,
materially increase the number of shares that may be subject to
incentive awards under the Plans, materially increase the
benefits accruing to participants under the Plans, or
materially modify the eligibility requirements for
participation in the Plans. No amendments to the 1993 Plan
will require shareholder approval unless such approval is
required to comply with Rule 16b-3 under the Securities
Exchange Act of 1934 or Section 422 of the Internal Revenue
Code of 1986.
Federal Income Tax Consequences
The statements below are based upon those laws that are in
force on the date of this Proxy Statement and are subject to
any subsequent changes therein. The following discussion
applies only to acquisitions or dispositions of shares
occurring during the lifetime of the optionees. The
consequences may differ in the event of an acquisition or
disposition of shares following the death of an optionee. The
Company and its employees may also be subject to other federal,
state and local taxes.
Taxation of Capital Gains
Under the Code, net capital gains are generally subject to
taxation at rates up to 28%, while ordinary income is subject
to taxation at rates up to 39.6%. Net capital gains are the
excess of net long-term capital gain over net short-term
-29-
capital loss.
The classification of income as ordinary compensation income
or capital gain is also relevant for income tax purposes for
taxpayers who have capital losses and investment interest.
Nonqualified Stock Options
The holder of a non-qualified stock option does not
recognize taxable income upon the grant of the option, nor is
the Company entitled, for income tax purposes, to a deduction.
The optionee recognizes ordinary income on the later of (a) six
months after the date that the option is granted, or (b) the
date the option is exercised, in an amount equal to the excess
of the fair market value of the shares on the date the income
is recognized over the option price of such shares. An
optionee who exercises an option within six months of the date
of its grant may elect to recognize income on the date the
option is exercised by filing a proper election pursuant to
Section 83(b) of the Code within 30 days after the date of such
exercise. Such income is ordinary compensation income subject
to withholding and, if the Company complies with the applicable
withholding requirements, it is generally entitled to a
deduction in computing its federal income taxes in an amount
equal to the compensation taxable to the optionee as ordinary
income. Such deduction is available in the year in which the
income is taxable to the optionee.
Upon the optionee's sale of option shares, if the selling
price exceeds the fair market value of the option shares on the
date of exercise, the excess is taxable to the optionee as
capital gain income (long- or short-term, depending on whether
the optionee has then held the option shares for more than one
year) and no deduction is allowed to the Company with respect
to such excess. Should the selling price of the option shares
be less than their fair market value on the date of exercise,
the difference istreated as a capitalloss to theoptionee (long-
or short-term, depending on whether the optionee has then held
the option shares for more than one year).
Incentive Stock Options
The holder of an incentive stock option does not recognize
taxable income upon the grant or exercise of the option, nor is
the Company entitled, for income tax purposes, to a deduction
in respect of such grant or exercise.
The income tax treatment of any gain or loss realized upon
an optionee's disposition of option shares depends on the
timing of the disposition. If the option shares have been held
for at least one year and if at least two years have elapsed
since the date of grant, then (i) if the selling price exceeds
the option price, the excess is taxable to the optionee as
-30-
long-term capital gain, and (ii) if the selling price is less
than the option price, the difference is treated as a long-term
capital loss. In neither event is any deduction allowed to the
Company.
If a disposition of option shares occurs prior to the
elapsing of the two time periods referred to above (a
"disqualifying disposition"), then (i) if the selling price
exceeds the fair market value of the option shares on the date
the option was exercised, the excess of such fair market value
over the option price is taxable to the optionee as ordinary
income, and the excess of the selling price over such fair
market valueis taxabletothe optioneeas capitalgain income(long-
or short-term, depending on whether the optionee has held the
option shares for more than one year), (ii) if the selling
price exceeds the option price but does not exceed the fair
market value of the option shares on the date the option was
exercised, the excess of the selling price over the option
price is taxable to the optionee as ordinary income, and (iii)
if the selling price is less than the option price, the
difference is treated as a capital loss to the optionee (long-
or short-term, depending on whether the optionee has then held
the option shares for more than one year). If, however, the
disposition is a sale to a related party (as defined in Section
267(b) of the Code to include, for example, a member of the
optionee's family or a corporation majority-owned by the
optionee) or a gift, then the excess of the fair market value
of the option shares on the date the option was exercised (or,
if applicable, the date the substantial risk of forfeiture
lapses) over the option price is taxable to the optionee as
ordinary income. The Company is generally entitled to a
deduction in computing its federal income taxes for the year of
disposition in an amount equal to any amount taxable to the
optionee as ordinary income.
For the reasons set forth below, an optionee may in certain
circumstances be subject to an alternative minimum tax.
Alternative Minimum Tax
An optionee may in certain circumstances be subject to an
alternative minimum tax. An optionee's alternative minimum tax
liability for a tax year is equal to the excess, if any, of (i)
26-28% of the optionee's alternative minimum taxable income for
such tax year in excess of an exemption amount over (ii) the
optionee's regular income tax liability for such tax year. In
general, alternative minimum taxable income for a tax year
means the optionee's taxable income (without regard to any net
operating loss deduction), computed with certain adjustments
and increased by the amount of the optionee's tax preference
items, if any. Up to 90% of the optionee's alternative minimum
taxable income may be offset by the optionee's alternative
minimum tax net operating loss, if any.
-31-
The amount of alternative minimum tax paid by an optionee in
taxable years beginning after 1986 which is attributable to
timing preferences and adjustments will be available as a
credit against the optionee's regular income tax liability (but
not against alternative minimum tax liability) in future years.
This credit cannot reduce the regular tax below the alternative
minimum tax in any year.
The amount by which the fair market value of Common Stock
(determined as of the date that the rights in the stock become
freely transferable or are not subject to a substantial risk of
forfeiture) received through the exercise of an incentive stock
option exceeds the option price is an item of tax preference
and is considered a timing preference for purposes of the
credit for alternative minimum tax paid in prior years. The
amount of such preference will be added to the basis of the
stock received for purposes of computing the optionee's
alternative minimum taxable income in the future.
Restricted Stock
The grantee of a restricted stock award generally would not
recognize gain at the time such restricted stock award was
made. Such grantee would recognize ordinary income at such
time as the transfer and forfeiture restrictions applicable to
such stock lapse, in an amount equal to the aggregate fair
market value, as of the date such restrictions lapsed, of the
shares as to which the restrictions lapsed. If the Company
complies with applicable withholding requirements, it is
generally entitled to a deduction in computing its federal
income taxes in an amount equal to the ordinary income taxable
to the grantee. Such deduction is available in the year in
which the income is taxable to the grantee. Upon disposition
of such shares, any amount received in excess of the fair
market value of the shares on the date such restrictions lapsed
would be treated as long-term or short-term capital gain,
depending upon the grantee's holding period following such
lapse. Under the terms of the Plan, grantees are not permitted
to make the election described above under Section 83(b) of the
Code to recognize gain at the time restricted stock is granted,
and, accordingly, the alternative tax treatment described above
in the case of stock option shares subject to restrictions
would not be available to grantees of restricted stock. The
full amounts of any dividends or other distributions of
property (except any distribution of Common Stock of the
Company) with respect to restricted stock prior to lapse of the
transfer and forfeiture restrictions related thereto would
constitute ordinary income to the grantee and the Company would
be entitled to a deduction at the same time and in the same
amount.
The Board of Directors recommends a vote FOR the proposed
amendments.
-32-
APPOINTMENT OF AUDITORS
The appointment of Price Waterhouse as auditors for the
Company during 1994 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 is expected to be present at the meeting, will
be given an opportunity to make a statement if he 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.
-33-
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth 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 and by all directors and
executive officers of the Company as a group. 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.
Name and Address of Number of Shares Percent
Individual or Beneficially of
Identity of Group Owned Class
William E. Bindley 3,055,676 28.4%
4212 West 71st Street
Indianapolis, Indiana 46268
Invista Capital Management, Inc. 874,972 (1) 8.1%
699 Walnut
1500 Hub Tower
Des Moines, Iowa 50309
Principal Mutual Life Insurance Company 874,972 (2) 8.1%
711 High Street
Des Moines, Iowa 50392
All directors and executive
officers as a group (13 persons) 3,821,794 (3) 33.4%
[FN]
__________
(1) The shareholder is a registered investment advisor and
shares voting and dispositive power with respect to all
such shares.
(2) Includes 874,972 shares beneficially owned by Invista
Capital Management, Inc., an indirect wholly-owned
subsidiary of the reporting person.
(3) Includes presently exercisable options to acquire 680,00
shares. For additional information regarding the nature of
the beneficial ownership of shares held by certain
Directors, see "Election of Directors--Nominees" above.
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
The date by which shareholder proposals must be received by
the Company for inclusion in proxy materials relating to the
1995 Annual Meeting of Common Shareholders is December 14,
1994.
-34-