PRIORITY HEALTHCARE CORP, 424B4, 1997-10-24

PRIORITY HEALTHCARE CORP
424B4, 1997-10-24
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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Filed Pursuant to Rule 424(B)(4)
File Number 333-34463

PROSPECTUS

2,000,000 SHARES

LOGO

CLASS B COMMON STOCK

----------------

All of the shares of Class B Common Stock offered hereby are being sold by
Priority Healthcare Corporation ("Priority" or the "Company"). Prior to this
offering, there has been no public market for the Company's Class A Common
Stock or Class B Common Stock (collectively, the "Common Stock"). See
"Underwriting" for the factors considered in determining the initial public
offering price. The Class B Common Stock has been approved for listing on the
Nasdaq National Market under the symbol "PHCC."

The Company currently has outstanding 10,214,286 shares of Class A Common
Stock, representing all of the outstanding shares of Common Stock. The holders
of the Class A Common Stock and Class B Common Stock are entitled to three
votes per share and one vote per share, respectively, and generally vote
together as a single class on all matters submitted to a vote of the
shareholders of the Company. Following this offering, Bindley Western
Industries, Inc. ("BWI"), through its ownership of all of the outstanding
shares of Class A Common Stock, will beneficially own 83.6% of the Common
Stock, will have 93.9% of the voting power of the outstanding Common Stock and
will continue to control the Company. BWI has advised the Company that,
following this offering, BWI will evaluate whether to distribute its shares of
Class A Common Stock to BWI's shareholders. See "Principal Shareholder,"
"Relationship with BWI" and "Description of Capital Stock."

----------------

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $14.50 $1.015 $13.485
Total (3)........................... $29,000,000 $2,030,000 $26,970,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company and BWI have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering estimated at $790,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Class B Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $33,350,000, $2,334,500 and
$31,015,500, respectively. See "Underwriting."

The shares of Class B Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to certain other conditions including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is
expected that delivery of the shares of Class B Common Stock will be made at
the offices of Raymond James & Associates, Inc., St. Petersburg, Florida, on
or about October 29, 1997.

RAYMOND JAMES & ASSOCIATES, INC. WHEAT FIRST BUTCHER SINGER

The date of this Prospectus is October 24, 1997
<PAGE>

[PHOTO OF WOMAN IN PHARMACY]
[PHOTO OF PHARMACIST ON PHONE]

The Company's JCAHO-accredited
pharmacy strives toward continuous The Company's pharmacists and
quality improvement through a registered nurses are available for
Quality Assessment and Quality ongoing consultation with the
Improvement Program. patient and prescribing physician
regarding the patient's therapy and
progress seven days a week, 24 hours
a day.

[PHOTO OF BIOPHARMACEUTICALS]

The Company specializes in the distribution and overnight delivery of
biopharmaceuticals nationwide.

[PHOTO OF PATIENT RECEIVING [PHOTO OF WOMAN AT COMPUTER]
INJECTION]

State-of-the-art systems provide
The Company provides innovative important outcomes data, cross-
nursing- and pharmacy-supported selling lead generation, and
disease treatment management customer efficiencies in ordering
programs. products or services.

[PHOTO OF EMPLOYEE FILLING ORDER FROM WAREHOUSE SHELVES]

The Company's expanding distribution network has maintained a 98% fill rate to
its nationwide customers with next day deliveries of biopharmaceuticals.

----------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS B COMMON
STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

THE COMPANY WILL FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT AUDITING FIRM AND
INTENDS TO DISTRIBUTE QUARTERLY REPORTS FOR THE FIRST THREE QUARTERS OF EACH
FISCAL YEAR CONTAINING UNAUDITED FINANCIAL INFORMATION.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes thereto
appearing elsewhere in this Prospectus. See "Risk Factors" for a discussion of
certain factors to be considered by prospective investors.

Priority Healthcare Corporation ("Priority" or the "Company") is a national
distributor of specialty pharmaceuticals and related medical supplies to the
alternate site healthcare market and is a provider of patient-specific, self-
injectable biopharmaceuticals and disease treatment programs to individuals
with chronic diseases. Through its Priority Healthcare Distribution division
("Priority Distribution"), the Company sells over 3,500 SKUs of specialty
pharmaceuticals and medical supplies to outpatient renal care centers and
office-based physicians in the oncology and infectious disease markets. With
the recent acquisition of Grove Way Pharmacy, Priority Distribution has entered
the vaccine market. Priority Distribution offers value-added services to meet
the specific needs of these markets by shipping refrigerated pharmaceuticals
overnight in special packaging to maintain appropriate temperatures, offering
automated order entry services and offering customized distribution for group
accounts. From distribution centers in Altamonte Springs, Florida and Santa
Ana, California, Priority Distribution services over 2,000 customers in all 50
states and Puerto Rico, including approximately 550 office-based oncologists
and 800 renal dialysis clinics.

Through its Priority Pharmacy Services division ("Priority Pharmacy"), the
Company fills individual patient prescriptions for self-injectable
biopharmaceuticals for over 1,400 patients. These patient-specific
prescriptions are filled at two licensed pharmacies in Altamonte Springs,
Florida, where the Company reconstitutes in syringes the components of the
biopharmaceuticals, according to manufacturer's instructions, and ships these
products directly to the patient overnight in specialized packages. Priority
Pharmacy also provides disease treatment programs for hepatitis, melanoma,
cancer, human growth deficiency and the complications of HIV. Management
believes that it is the only provider that offers this range of services on a
nationwide basis.

Priority sells the majority of its products and services into two large and
growing markets--oncology and chronic renal dialysis. Frost & Sullivan
estimated the U.S. market for oncology pharmaceuticals to be $4.1 billion in
1996 and projected it to grow at a compound annual rate of 13.2% from 1996
through 2003. The Company believes that the office-based segment of the
oncology pharmaceutical market represents approximately 25% of such market and
has been growing faster than the overall market. According to the Health Care
Financing Administration, the number of patients who received renal dialysis
treatments grew from approximately 157,000 in 1992 to approximately 200,000 in
1995, representing a compound annual growth rate of approximately 8%. The
Company also sells products and services into the infectious disease market,
principally for the treatment of hepatitis C. The National Institutes of Health
estimates that approximately 30,000 new acute hepatitis C infections occur
annually.

Priority's net sales have increased from $79.6 million in 1993 to $158.2
million in 1996. In the same period, operating income has increased from $2.1
million in 1993 to $7.7 million in 1996. The Company's objective is to continue
to grow rapidly and enhance its market position as a leading specialty
distributor by capitalizing on its business strengths and pursuing the
following strategy: (i) continue to focus on and further penetrate the
alternate site market; (ii) enter new markets by distributing new product
categories and patient-specific biopharmaceuticals; (iii) accelerate growth of
its higher margin, patient-specific pharmacy business by leveraging
relationships with existing distribution customers; (iv) maintain intense cost
control while investing in infrastructure; and (v) pursue acquisitions to
complement existing product offerings or further penetrate markets.

3
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RELATIONSHIP WITH BWI

The Company is a wholly-owned subsidiary of BWI. Following this offering, BWI
will beneficially own 10,214,286 shares of Class A Common Stock, representing
83.6% of the Common Stock (81.6% if the Underwriters' over-allotment option is
exercised in full), and will have 93.9% of the voting power of the outstanding
Common Stock (93.0% if the Underwriters' over-allotment option is exercised in
full). As a result, BWI will be able to determine any corporate action
requiring approval of holders of the Common Stock, including the election of
the entire Board of Directors of the Company, without the approval of the other
shareholders of the Company.

BWI has advised the Company that, following this offering, BWI will evaluate
whether to distribute its shares of Class A Common Stock to BWI shareholders.
Unless and until such distribution is completed, BWI will retain control of the
Company. Currently, three of the Company's directors are directors and
executive officers of BWI. In connection with this offering, BWI and the
Company have entered into a series of agreements, including a Revolving Credit
Promissory Note, an Indemnification and Hold Harmless Agreement, a Tax Sharing
Agreement and an Administrative Services Agreement, governing certain aspects
of the relationship between the Company and BWI subsequent to this offering.
See "Risk Factors," "Management," "Relationship with BWI" and "Principal
Shareholder."

THE OFFERING

<TABLE>
<C> <S>
Class B Common Stock being offered.................. 2,000,000 shares(1)
Class B Common Stock outstanding after the offering. 2,000,000 shares(1)(2)
Class A Common Stock outstanding after the offering. 10,214,286 shares(3)
Total Common Stock outstanding after the offering... 12,214,286 shares(1)(2)
Use of proceeds..................................... To repay certain
indebtedness to BWI and
for working capital and
general corporate
purposes, including
potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market Symbol....................... PHCC
</TABLE>
- --------
(1) Excludes up to 300,000 shares of Class B Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Excludes (i) 10,214,286 shares of Class B Common Stock issuable upon
conversion of outstanding shares of Class A Common Stock and (ii) an
aggregate of 1,275,000 shares of Class B Common Stock reserved for issuance
upon the exercise of options granted or available for grant, or upon the
issuance of restricted stock, pursuant to the Company's stock option plans,
of which options to purchase 455,050 shares with an exercise price equal to
the initial public offering price set forth on the cover page of this
Prospectus have been granted. See "Management--Compensation of Directors"
and "Executive Compensation--1997 Stock Option and Incentive Plan" and
"Description of Capital Stock."
(3) The Class A Common Stock is identical to the Class B Common Stock, except
that the Class A Common Stock is entitled to three votes per share and the
Class B Common Stock is entitled to one vote per share. The holders of the
Class A Common Stock and the Class B Common Stock generally vote together
as a single class on all matters submitted to a vote of the holders of
Common Stock. The Class A Common Stock will automatically convert into
Class B Common Stock on a share-for-share basis upon certain transfers
following any distribution of such Class A Common Stock by BWI to its
shareholders. See "Risk Factors--Relationship with and Benefits to BWI" and
"Description of Capital Stock."

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- ----------------------------
1994 1995 1996 1996 1997
-------- -------- -------------------- ------- --------------------
PRO FORMA PRO FORMA
ACTUAL ACTUAL ACTUAL (2) ACTUAL ACTUAL (2)
-------- -------- -------- ----------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales.............. $107,449 $123,990 $158,247 $158,247 $65,348 $108,597 $108,597
Cost of products sold.. 100,254 111,448 141,074 141,074 57,947 97,449 97,449
Gross profit........... 7,195 12,542 17,173 17,173 7,401 11,148 11,148
Selling, general and
administrative
expense............... 4,394 7,836 8,443 8,923 4,009 4,960 5,200
Depreciation and
amortization.......... 512 998 1,009 1,009 500 656 656
Earnings from
operations............ 2,289 3,708 7,721 7,241 2,892 5,532 5,292
Interest expense, net.. 200 511 437 464 170 498 237
Earnings before
income taxes.......... 2,089 3,197 7,284 6,777 2,722 5,034 5,055
Provision for income
taxes................. 835 1,311 2,915 2,712 1,089 2,013 2,021
Net earnings........... 1,254 1,886 4,369 4,065 1,633 3,021 3,034
Pro forma earnings
per share (2)(3)...... $0.38 $0.27
Pro forma weighted
average shares
outstanding (2)....... 10,721,773 11,119,023
<CAPTION>
JUNE 30, 1997
--------------------
AS ADJUSTED
ACTUAL (4)
-------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $24,022 $50,202
Total assets........................................................... 68,118 80,513
Payable to parent...................................................... 13,785 --
Long-term debt......................................................... 6,365 6,365
Total liabilities...................................................... 41,697 27,912
Shareholders' equity................................................... 26,421 52,601
</TABLE>
- --------
(1) During the periods presented, the Company made two acquisitions. See "The
Company--Acquisition History." These acquisitions were accounted for under
the purchase method of accounting and, accordingly, the results of
operations of the acquired entities are included in the Company's financial
statements from their respective dates of acquisition. As a result, period-
to-period comparisons of financial position and results of operations are
not necessarily meaningful.
(2) Adjusted to give effect to the pro forma adjustments described under
"Unaudited Pro Forma Consolidated Financial Data" commencing on page 18.
(3) Historical earnings per share data are not meaningful as the Company's
historical capital structure is not comparable to periods subsequent to
this offering.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Class B Common
Stock offered by the Company at the initial offering price of $14.50 per
share and the application of the net proceeds therefrom. See "Use of
Proceeds."

----------------

Unless otherwise indicated, information in this Prospectus (i) assumes no
exercise of the Underwriters' option to purchase from the Company up to 300,000
additional shares of Class B Common Stock to cover over-allotments, if any and
(ii) gives effect to a recapitalization of the Company's Common Stock on August
25, 1997, resulting in the issuance of 10,214,286 shares of Class A Common
Stock to BWI.

5
<PAGE>

RISK FACTORS

The shares of Class B Common Stock offered hereby involve a high degree of
risk, including the risks described below. Prospective investors should
carefully consider the specific factors set forth below, as well as the other
information contained in this Prospectus, before deciding to invest in the
Class B Common Stock offered hereby.

This Prospectus contains certain forward-looking statements which represent
the Company's expectations or beliefs, and which involve certain risks and
uncertainties, including but not limited to, changes in interest rates,
competitive pressures, changes in customer mix, financial stability of major
customers, investment procurement opportunities and changes in governmental
regulations or the interpretation thereof, which could cause actual results to
differ from those in the forward-looking statements. For this purpose, any
statement contained in this Prospectus that is not a statement of historical
fact may be deemed to be a forward-looking statement. These statements by
their nature involve substantial risks and uncertainties, certain of which are
beyond the Company's control, and actual results may differ materially
depending on a variety of important factors, including those described below
under this "Risk Factors" Section and elsewhere in this Prospectus.
Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, prior to
making an investment in the Class B Common Stock.

ABSENCE OF HISTORY AS A STAND-ALONE COMPANY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION

To date, the Company has been operated as a subsidiary of BWI. After this
offering, the Company will continue to be a majority-owned subsidiary of BWI,
but will operate as a stand-alone company. BWI will have no obligation to
provide assistance to the Company except as provided in certain agreements
between the Company and BWI. See "Relationship With BWI--Relationship and
Transactions Following the Offering. There can be no assurance that the
Company will be viable as a stand-alone company or that this change will not
have an adverse effect on the Company. The financial information included in
this Prospectus is not necessarily indicative of the Company's future results
of operations, financial position and cash flows or what the Company's results
of operations, financial position and cash flows would have been had it been a
separate, stand-alone entity during the periods presented. See "Unaudited Pro
Forma Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Relationship With BWI."

ABSENCE OF LONG-TERM CONTRACTS WITH SUPPLIERS; DEPENDENCE UPON SINGLE SOURCE
FOR A KEY PRODUCT

The Company has few long-term contracts with its suppliers. The Company's
arrangements with most of its suppliers may be cancelled by either party,
without cause, on minimal notice. Many of these arrangements are not governed
by written agreements. During 1996, approximately 36% of the Company's
revenues were attributable to sales of erythropoietin ("EPO") to the renal
care market. EPO for the renal care market is available from only one
manufacturer, Amgen, Inc. ("Amgen"), with which the Company must maintain good
working relations. The Company's purchases from Amgen are currently guaranteed
by BWI, and there can be no assurance that the Company, as a stand-alone
entity, would be able to purchase products from Amgen on terms as favorable.
The Company is involved in a lawsuit in which this supplier is an adverse
party. See "Business--Legal Proceedings." Any termination of or adverse change
in the Company's commercial relationships with its key suppliers could have a
material adverse effect on the Company.

Bristol-Myers Squibb Company ("Bristol-Myers Squibb"), a major
pharmaceutical manufacturer, has purchased a distributor to market oncology-
related products to the office-based oncologist market, which is a market from
which the Company derives substantial revenues. As a result, that distributor
has a significant price advantage on Bristol-Myers Squibb products. There can
be no assurance that other pharmaceutical manufacturers, including those whose
products account for a significant portion of the Company's revenues, will not
seek to limit the availability or change the terms of supply of such products
in the future.

COMPETITION

The alternate site segment of the healthcare industry in which the Company
competes is highly competitive and is experiencing both horizontal and
vertical consolidation. All of the products which the Company sells are

6
<PAGE>

available from sources other than the Company. Current and potential
competitors of the Company include regional and national full-line, full-
service medical supply distributors; independent specialty distributors;
national full-line, full-service wholesale drug distributors, such as Bergen
Brunswig Corporation and Cardinal Health, Inc., that operate their own
specialty distribution businesses; institutional pharmacies; hospital-based
pharmacies; home healthcare agencies; mail order distributors that distribute
medical supplies on a regional or national basis; and certain manufacturers,
such as Bristol-Myers Squibb, that own distributors or that sell their
products both to distributors and directly to users, including clinics and
physician offices. These competitive pressures continue to exert pressure on
margins, particularly those of Priority Distribution. Some of the Company's
competitors have greater financial, technical, marketing and managerial
resources than the Company. There can be no assurance that competitive
pressures will not have a material adverse effect on the Company. See
"Business--Competition."

RISKS RELATED TO GOVERNMENT REGULATION

The Company, its customers and its suppliers are subject to extensive
regulation by federal, state and local government agencies. The Company's
distribution business is required to register for permits and/or licenses
with, and comply with certain operating and security standards of, the United
States Drug Enforcement Administration (the "DEA"), the Food and Drug
Administration (the "FDA"), and appropriate state agencies. The Company's
Altamonte Springs, Florida and Santa Ana, California distribution centers are
licensed to distribute pharmaceuticals in accordance with the Prescription
Drug Marketing Act of 1987. The Altamonte Springs location is also licensed to
distribute or dispense certain controlled substances in accordance with the
requirements of the Controlled Substances Act of 1970. Similarly, the
Company's provider businesses are subject to licensing by the DEA as well as
by the state boards of pharmacy, state health departments, and other state
agencies where they operate. In addition, the Company is subject to federal
and state regulations which govern financial and other arrangements between
healthcare providers, including the federal anti-kickback statute and other
fraud and abuse laws. The fraud and abuse laws impose criminal and civil
sanctions, are broad in scope, are subject to frequent modification and varied
interpretation, and recently have been expanded by the Health Insurance
Portability and Accountability Act of 1996. Failure to comply with these laws
and regulations could subject the Company to significant civil sanctions,
especially under the strict liability standards imposed by the Controlled
Substances Act of 1970 and the broad scope of coverage imposed by the fraud
and abuse laws and could result in suspension of the Company's operations.

On November 14, 1995, an investigator for the FDA, accompanied by an
inspector from the State of Florida Board of Pharmacy, inspected the Company's
pharmacy in Altamonte Springs, Florida. At the end of the inspection, the FDA
investigator issued an FDA Form-483, which is the form used by FDA
investigators to identify any observed or suspected noncompliance with the
laws administered by the agency. The FDA Form-483 identified the facility as a
pharmacy/repackager and listed three observations related to certain
requirements that the FDA typically imposes on manufacturers of sterile
products. The Company advised the FDA in December 1995 that the Company
believes it is not, within the statutory or regulatory meaning of these terms,
a repackager or a manufacturer. A second inspection of the same facility
occurred on June 26, 1997, in which the FDA investigator was again accompanied
by Florida pharmacy authorities. The FDA investigator issued a substantially
identical FDA Form-483 at the end of that inspection. The Florida State Board
of Pharmacy did not issue any deficiencies regarding the operations of the
Altamonte Springs pharmacy in either of these inspections.

On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. The Company's response to the FDA in December 1995 cited
this CPG and explained the Company's contention that, according to the FDA's
own criteria, the Altamonte Springs facility is a pharmacy properly regulated
under state and local laws.

7
<PAGE>

this session of Congress that would clarify this distinction. Thus, the
distinction between a pharmacy and a pharmaceutical manufacturer currently is
a subject of activity by policymakers in the Federal government.

While this activity may clarify matters in the future, the criteria that
differentiate drug manufacturing from pharmacy operations are uncertain under
the current state of the law. If the Company is correct and its operations are
limited to those engaged in by pharmacies, there should be no material adverse
effect from the FDA Form-483s because the Company believes it is currently in
compliance in all material respects with applicable state and local laws. If
the Company is deemed to be a sterile product manufacturer or a sterile
product repackager, the Company would be subject to additional regulatory
requirements. Because the FDA does not currently have clear guidance or
regulations on this subject, the FDA or other legal authorities could decide
that the Company must file for approval of a New Drug Application. Such an
event could have a material adverse effect on the Company.

Alternatively, the FDA could determine that the Company is a sterile
products repackager and promulgate regulations or publish guidance respecting
such entities. In that event, the Company would likely have to comply with
that portion of the FDA requirements that covers the packaging operations of
sterile product manufacturers. These requirements may include stability
validation, expiration dating, sterility control, sterile product
environmental monitoring, and good manufacturing practices including
appropriate employee training related to the foregoing. The Company believes
that the cost of compliance with such requirements would not be material to
the Company's operations. However, there can be no assurance that other
conditions or requirements would not be imposed that would have a material
adverse effect on the Company.

There can be no assurance that future legislation, future rulemaking, or
active enforcement by the FDA of a determination that the Company is a drug
manufacturer will not have a material adverse effect on the business of the
Company.

The State of Florida Board of Pharmacy regulates the compounding activities
of Florida pharmacies, including certain activities of the Company. The
Company has obtained a Community/Special Parenteral/Enteral Compounding
Pharmacy Permit. Over the past several years, the Florida Board of Pharmacy
has proposed certain changes to its compounding requirements. The Company
believes that it is in compliance with such current requirements, but there
can be no assurance that other conditions or requirements would not be imposed
in the future that would have a material adverse effect on the Company.

Additionally, state laws prohibit the practice of medicine and nursing
without a license. Many states interpret the practice of nursing to include
health teaching, health counseling, the provision of care supportive to or
restorative of life and well being and the execution of medical regimens
prescribed by a physician. Accordingly, to the extent that the Company assists
patients and providers in helping patients comply with prescribed treatment
programs, such activities could be deemed by a state to be the practice of
medicine or nursing. There can be no assurance that the Company's operations
will not be challenged as constituting the unlicensed practice of medicine or
nursing. If such a challenge were made successfully in any state, the Company
could be subject to civil and criminal penalties under such state's law and
could be required to restructure its business in that state. Such results or
the inability to successfully restructure its business could have a material
adverse effect on the Company.

The Company is also subject to federal and state laws governing the
confidentiality of patient information. In addition, recent federal
legislation will result in new national standards for the protection of
patient information in electronic health information transactions. Failure to
comply with all applicable laws and regulations regarding medical information
privacy could have a material adverse effect on the Company.

Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern the activities of many of the Company's customers that
depend upon Medicare and Medicaid reimbursement in their businesses. There can
be no assurance that such increased enforcement activities will not indirectly
have a material adverse effect on the Company.

8
<PAGE>

Because the healthcare industry will continue to be subject to substantial
regulations, the Company can give no assurance that its activities will not be
reviewed or challenged by regulatory agencies in the future. Any such action
could have a material adverse effect on the Company. See "Business--Government
Regulation."

DEVELOPMENT OF ALTERNATIVE DELIVERY SYSTEMS FOR BIOPHARMACEUTICALS

The Company's pharmacy program provides biopharmaceuticals in syringes
pursuant to patient-specific prescriptions. At present, most
biopharmaceuticals must be injected subcutaneously to be effective. The
development of alternative delivery systems for biopharmaceuticals by methods
other than subcutaneous injection could have a material adverse effect on the
Company.

RISKS RELATED TO CHANGES IN THE HEALTHCARE INDUSTRY

In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare, and
horizontal and vertical consolidation within the healthcare industry. The
Company's inability to react effectively to these and other changes in the
healthcare industry could adversely affect its operating results. The Company
cannot predict whether any healthcare reform efforts will be enacted and what
effect any such reforms may have on the Company or its customers and
suppliers.

DEPENDENCE ON PAYORS AND REIMBURSEMENT RELATED RISKS

The profitability of the Company's Priority Pharmacy division depends in
part on reimbursement provided by third-party payors. Competition for
patients, efforts by traditional third-party payors to contain or reduce
healthcare costs and the increasing influence of managed care payors such as
health maintenance organizations in recent years have resulted in reduced
rates of reimbursement. If these trends continue, they could adversely affect
the Company's results of operations unless the Company can implement measures
to offset the loss of revenues and decreased profitability. The ability to
collect from third-party payors also depends on the timely and accurate filing
of claims. The passage of time makes missing documentation required for
billing and payment difficult or impossible to obtain or replace, and can
delay claim submission past deadlines imposed by certain payors. In 1996,
reimbursement from Medicare and Medicaid accounted for less than 0.1% of the
Company's revenues. The profitability of the Company's Priority Distribution
division also depends, indirectly, on reimbursement provided by third-party
payors insofar as the Company's office-based physician and clinic customers
seek reimbursement from third-party payors for the cost of pharmaceuticals and
related medical supplies distributed by the Company. As a result, changes in
reimbursement policies of private and governmental third-party payors,
including policies relating to the Medicare and Medicaid programs, could
reduce the amounts reimbursed to these customers for the Company's products
and consequently, the amount these customers would be willing to pay for the
products. See "Business--Reimbursement."

The U.S. Health Care Financing Administration ("HCFA") recently adopted new
reimbursement guidelines, which prohibit Medicare reimbursement for EPO
furnished to a patient having an hematocrit level exceeding 36.5% based on a
90 day rolling average basis. Previously, Medicare policy provided for payment
for EPO for hematocrit levels exceeding such level if supported by medical
documentation. This change in Medicare reimbursement policy could have an
adverse effect on the sales of EPO by the Company in the future.

Additionally, the Balanced Budget Act of 1997 (the "Budget Act"), which was
enacted in August 1997, contained numerous provisions related to Medicare and
Medicaid reimbursement. Although many of the details will not be solidified
for the next one to six years, the general thrust of the provisions dealing
with Medicare and Medicaid contained in the Budget Act is intended to provide
incentives to providers to deliver services at lower costs. The Budget Act
contains changes to reimbursement rates for certain Medicare and Medicaid
covered services, as well as certain limitations on the coverage of such
services. Although less than 0.1% of the Company's revenues in 1996 were
derived from Medicare and Medicaid reimbursement, the Budget Act may affect
the Company's suppliers and customers, which in turn could have an adverse
effect on the Company.

9
<PAGE>

RELIANCE ON TELEPHONE AND COMPUTER SYSTEMS

Because the Company believes that its success depends, in part, upon its
telesales and direct marketing efforts and its ability to provide prompt,
accurate and complete service to its customers on a price-competitive basis,
any continuing disruption in either its computer system or its telephone system
could adversely affect its ability to receive and process customer orders and
ship products on a timely basis, and could adversely affect the Company's
relations with its customers.

RISKS RELATED TO SHIPPING

Shipping is a significant expense in the operation of the Company's business.
The Company ships most of its orders by overnight courier or other delivery
services, and typically bears the cost of shipment. Accordingly, any
significant increase in shipping rates could have an adverse effect on the
Company's results of operations. Similarly, strikes or other service
interruptions by such couriers would adversely affect the Company's ability to
deliver products on a timely basis.

RISKS ASSOCIATED WITH ACQUISITION STRATEGY

The Company's current business is the result of five acquisitions and the
Company expects to pursue acquisitions of complementary businesses in the
future. Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations of the acquired company, the diversion of
management's attention from other business concerns, risks of entering new
geographic or product markets in which the Company has limited or no direct
prior experience, the potential loss of key employees of the acquired company
and the assumption of undisclosed liabilities. In addition, future acquisitions
may result in dilutive issuances of equity securities, the incurrence of
additional debt and the amortization of expenses related to goodwill and
intangible assets, any of which could have a material adverse effect on the
Company.

DEPENDENCE ON KEY EMPLOYEES

The Company's future performance will depend, in part, upon the efforts and
abilities of certain key employees, including Robert L. Myers, President and
Chief Executive Officer, Guy F. Bryant, Executive Vice President-Priority
Healthcare Distribution, Steven D. Cosler, Executive Vice President-Priority
Pharmacy Services and Melissa E. McIntyre, Vice President-Clinical Services.
The loss of the services of one or more of these persons could have an adverse
effect on the Company's business. For an interim period (not expected to exceed
18 months), Mr. Cosler and Ms. McIntyre may spend up to 20% and 5%,
respectively, of their time on BWI matters, and the Company will be reimbursed
by BWI for such time. The Company has no key man life insurance policies on any
of its employees. See "Executive Compensation--Employment Agreements,
Termination of Employment and Change in Control Agreements."

CONCENTRATION OF CUSTOMERS

During 1996, the Company's largest 20 customers accounted for approximately
30% of the Company's revenues and one customer, Everest Healthcare Services
Corporation, accounted for 12% of the Company's revenues. As is customary in
its industry, the Company generally does not have long-term contracts with its
customers. Significant declines in the level of purchases by one or more of
these customers could have a material adverse effect on the Company's business
and results of operations. Additionally, an adverse change in the financial
condition of any of these customers, including an adverse change as a result of
a change in governmental or private reimbursement programs, could have a
material adverse effect on the Company. See "Business--Customers."

RELATIONSHIP WITH AND BENEFITS TO BWI

BWI is currently the only shareholder of the Company. Upon completion of this
offering, BWI will beneficially own 100% of the outstanding Class A Common
Stock, representing approximately 93.9% of the

10
<PAGE>

combined voting power of all classes of the Company's voting stock. The Class
A Common Stock is entitled to three votes per share on all matters submitted
to a vote of the shareholders of the Company. The holders of the Class A
Common Stock and the Class B Common Stock generally vote together as a single
class on all matters submitted to a vote of the holders of Common Stock. As a
result, BWI will be able to elect the entire Board of Directors of the Company
and control the business and affairs of the Company, including any
determinations with respect to mergers or other combinations involving the
Company, the acquisition or disposition of assets by the Company, the
incurrence of indebtedness by the Company, the issuance of additional Common
Stock or other equity securities by the Company and the payment of dividends
with respect to the Common Stock. Similarly, BWI will have the power to
determine matters submitted to a vote of the Company's shareholders, will have
the power to delay, defer or prevent a change in control of the Company and
could take other actions that might be favorable to BWI but not to the
shareholders of the Company generally.

On March 31, 1997, the Company paid a dividend in the form of a subordinated
promissory note with a principal amount of $6.0 million to BWI to return a
portion of BWI's equity investment in the Company. The Company intends to use
a portion of the net proceeds of this offering to repay advances made by BWI
to the Company, which advances aggregated approximately $15.1 million at
September 30, 1997. See "Use of Proceeds."

The Company currently has, and will continue to have, a variety of
contractual relationships with BWI and its affiliates, including a Revolving
Credit Promissory Note by which BWI will lend the Company funds to finance
working capital requirements, an Indemnification and Hold Harmless Agreement
by which BWI and the Company will indemnify and hold harmless the other from
certain obligations and contingent liabilities, a Tax Sharing Agreement
relating to the allocation of tax liabilities between BWI and the Company, and
an Administrative Services Agreement relating to certain services to be
provided by BWI to the Company. There can be no assurance that BWI's interests
under these contracts will not be adverse to those of the Company or that BWI
will not use its control position in a manner adverse to the other
shareholders of the Company, either in the context of these contracts or
otherwise. See "Management," "Relationship with BWI" and "Principal
Shareholder."

EVALUATION OF BWI'S DISTRIBUTION OF ITS OWNERSHIP INTEREST IN THE COMPANY

Immediately following this offering, the Company will continue to be
controlled by BWI, which will own more than 80% of the outstanding Common
Stock. BWI has advised the Company that, following this offering, BWI will
continue to evaluate whether to distribute the Class A Common Stock to
shareholders of BWI as a dividend (the "Distribution"). The Distribution is
unlikely to be completed before 1998. In making its evaluation, BWI is
expected to consider such matters as the need for an employee stock ownership
plan and other equity-based compensation incentives to attract and retain
qualified personnel, the relative trading prices of the Class B Common Stock
and BWI common stock after this offering, the results of operations of the
Company and BWI, and the relative prospects of BWI and the Company on a stand-
alone basis. The Distribution will also be subject to the receipt of a
favorable ruling from the Internal Revenue Service as to the tax-free nature
of the transaction, and the absence of any change in market conditions or
other circumstances that causes the Board of Directors of BWI to conclude that
the Distribution is not in the best interests of the shareholders of BWI. BWI
is not legally obligated to effect the Distribution, and there can be no
assurance as to whether or when BWI will distribute its shares of Class A
Common Stock to its shareholders. If BWI does not effect the Distribution, BWI
will continue to own a majority of the Company's Common Stock and will be able
to control the Company. See "Relationship With BWI."

EFFECTIVE VOTING CONTROL BY BWI MANAGEMENT IF DISTRIBUTION IS COMPLETED

If the Class A Common Stock is distributed by BWI to its shareholders, based
on the number of BWI shares held (excluding options) as of June 30, 1997,
William E. Bindley and the other current directors and executive officers of
BWI would beneficially own approximately 22.0% of the Common Stock (21.5% if
the Underwriters' over-allotment option is exercised in full) and will have
approximately 24.7% of the voting power of the outstanding Common Stock (24.5%
if the Underwriters' over-allotment option is exercised in full) immediately

11
<PAGE>

after the distribution. See "Principal Shareholder." As a result, they would
be able to significantly affect the outcome of any corporate transaction or
other matter submitted to the Company's shareholders for approval, including
mergers, consolidations and the sale of all or substantially all of the
Company's assets, and may be able to prevent or cause a change in control of
the Company.

POTENTIAL CONFLICTS OF INTEREST WITH BWI

Upon consummation of this offering and the election of two independent
directors, the Company will have a Board of Directors consisting of six
members. In light of its ownership of the Class A Common Stock, BWI will have
the ability to change the size and composition of the Company's Board of
Directors and committees of the Board of Directors. In addition, three of the
Company's directors, including its Chairman of the Board of Directors, are
executive officers and directors of BWI. The performance by these persons of
their duties to BWI and the Company may give rise to conflicts of interest and
conflicting demands on the amount of time these individuals will have
available for the Company's affairs. There can be no assurance that any such
conflicts will be resolved in the Company's favor. See "Management--Directors
and Executive Officers" and "Relationship with BWI."

RISK OF PROFESSIONAL LIABILITY; AVAILABILITY OF INSURANCE

The Company's business exposes it to risks that are inherent in the
distribution or provision of pharmaceuticals and the provision of ancillary
services. Although the Company currently maintains professional liability and
products liability insurance, there can be no assurance that the coverage
limits of such insurance will be adequate to protect the Company against
future claims. In addition, there can be no assurance that the Company will be
able to maintain professional liability insurance in the future on acceptable
terms or with adequate coverage against potential liabilities.

POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, there will be 10,214,286 shares of Class A
Common Stock and 2,000,000 shares of Class B Common Stock outstanding. Except
in limited circumstances, shares of Class A Common Stock will convert
automatically upon any sale or other transfer into shares of Class B Common
Stock on a share-for-share basis. The Class B Common Stock sold pursuant to
this offering will be freely tradeable without restrictions by persons other
than "affiliates" of the Company. If BWI completes the Distribution,
substantially all of the 10,214,286 shares of Class A Common Stock, when
converted into Class B Common Stock, will also be freely tradeable without
restrictions by persons other than "affiliates" of the Company. No prediction
can be made as to the effect, if any, that future sales of shares of Class B
Common Stock, or the availability of shares of Class B Common Stock for future
sales, will have on the market price of the shares of Class B Common Stock
prevailing from time to time. Sales of substantial amounts of Class B Common
Stock, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Class B Common Stock. The Company, its
executive officers and directors and BWI have agreed, subject to certain
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
shares of Class B Common Stock, or any securities convertible into or
exercisable or exchangeable for shares of Class B Common Stock, for a period
of 180 days after the date of this Prospectus without the prior written
consent of Raymond James & Associates, Inc. See "Shares Eligible for Future
Sale" and "Underwriting."

RISKS ASSOCIATED WITH DISTRIBUTION BY BWI; SUITABILITY OF INVESTMENT FOR BWI
SHAREHOLDERS

The Class B Common Stock may not be a suitable or desirable investment for
shareholders of BWI that would receive shares of Class A Common Stock if BWI
determines to conduct the Distribution. If the Distribution is completed and a
large number of BWI shareholders were to determine that an investment in the
Company was not suitable or desirable, such holders may seek to sell some or
all of such shares, thereby creating downward pressure on the market price of
the Class B Common Stock.

12
<PAGE>

SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the book
value per share of the Class B Common Stock at June 30, 1997. Accordingly,
purchasers in this offering will incur immediate and substantial net tangible
book value dilution of $10.85 per share (at the initial public offering price
of $14.50 per share). See "Dilution."

ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Class B
Common Stock. Although the Class B Common Stock will be listed on the Nasdaq
National Market, there can be no assurance that an active trading market will
develop or be sustained or that the market price for the Class B Common Stock
will not decline below the public offering price set forth on the cover page
of this Prospectus. The initial public offering price has been determined by
negotiations between the Company and the Representative of the Underwriters.
For a description of the factors considered in determining the initial public
offering price, see "Underwriting." Future developments concerning the Company
or its competitors, including operating results, governmental regulation and
other factors, could have a significant impact on the market price of the
Class B Common Stock. In addition, in recent years the stock market has
experienced a high level of price and volume volatility, and market prices for
the stock of many companies (particularly small and emerging growth companies)
have experienced wide price fluctuations which have not necessarily been
related to the operating performance of such companies. These broad market
fluctuations could have a material adverse effect on the market price of the
Class B Common Stock.

ADVERSE IMPACT OF ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Restated Articles of Incorporation and
By-Laws may have the effect of delaying, deferring or preventing a change of
control of the Company without further action by the shareholders, may
discourage bids for the Class B Common Stock at a premium over the market
price of the Class B Common Stock and may adversely affect the market price
of, and the voting and other rights of the holders of, the Class B Common
Stock. In addition, certain "anti-takeover" provisions of the Indiana Business
Corporation Law, among other things, restrict the ability of shareholders to
effect a merger or business combination or obtain control of the Company, and
may be considered disadvantageous by a shareholder. See "Description of
Capital Stock--Certain Provisions of Restated Articles of Incorporation and
By-Laws" and "--Certain Provisions of Indiana Law."

13
<PAGE>

THE COMPANY

GENERAL

The Company was formed by BWI on June 23, 1994 as an Indiana corporation to
focus on the distribution of products and provision of services to the
alternate site segment of the healthcare industry. The Company conducts the
business activities of alternate site healthcare companies acquired by BWI or
the Company in five transactions since February 1993. The principal executive
offices of the Company are located at 285 West Central Parkway, Altamonte
Springs, Florida 32714 and its telephone number at that address is (407) 869-
7001. Unless otherwise indicated, "Priority" and the "Company" refer to
Priority Healthcare Corporation and its subsidiaries, and "BWI" refers to
Bindley Western Industries, Inc. and its subsidiaries other than the Company.

ACQUISITION HISTORY

Effective as of February 28, 1993, BWI acquired substantially all of the
assets of Charise Charles, Ltd., Inc. ("Charise Charles"), a specialty
wholesale distributor of oncology and renal care biopharmaceuticals located in
Altamonte Springs, Florida. On October 6, 1993, BWI acquired substantially all
of the assets of PRN Medical, Inc. ("PRN"), a specialty wholesale distributor
of renal care supplies and dialysis equipment located in Orlando, Florida. In
August 1994, PRN was combined with Charise Charles as part of the formation of
the Company. On October 31, 1994, the Company acquired the stock of 3C
Medical, Inc. ("3C"), a specialty distributor of acute dialysis products
located in Santa Ana, California. Effective January 1, 1995, the Company
acquired all of the outstanding stock of IV-1, Inc., IV-One Services, Inc. and
National Pharmacy Providers, Inc. (collectively, the "IV One Companies"),
three related companies located in Altamonte Springs, Florida that provided
specialty pharmacy and other related healthcare services. On August 6, 1997,
the Company acquired substantially all of the assets of Grove Way Pharmacy,
Inc. ("Grove Way Pharmacy"), a specialty distributor of vaccines located in
Castro Valley, California.

The operations of Charise Charles, PRN, 3C and Grove Way Pharmacy are now
included in the Company's Priority Distribution division. The IV One Companies
now comprise the Priority Pharmacy division.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Class B
Common Stock offered hereby will be approximately $26.2 million (approximately
$30.2 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discounts and estimated offering
expenses payable by the Company. The Company intends to use a portion of the
net proceeds to repay the then outstanding working capital advances made by
BWI to support the Company's operating activities. The advances at September
30, 1997 aggregated approximately $15.1 million, bear interest at the rate
paid by BWI on incremental borrowings in effect from time to time under its
line of credit agreement (6.4% as of September 30, 1997) and are due on
demand. The Company estimates that the amount of working capital advances to
be outstanding at the closing of this offering will not differ materially from
the amount outstanding at September 30, 1997. The balance of the net proceeds
will be used for working capital and general corporate purposes, including
potential acquisitions of alternate site healthcare businesses, although there
are currently no definitive agreements or letters of intent with respect to
any material acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Pending the use of the net
proceeds as described above, the Company intends to invest the net proceeds in
short-term, interest-bearing, investment grade securities.

14
<PAGE>

DIVIDEND POLICY

The Company does not intend to pay cash dividends on the Common Stock in the
foreseeable future, but rather intends to use future earnings principally to
support operations and to finance expansion and possible acquisitions. The
payment of cash dividends in the future will be at the discretion of the
Company's Board of Directors and will depend on a number of factors, including
the Company's financial condition, capital requirements, future business
prospects, the terms of any documents governing indebtedness of the Company,
and such other factors as the Board of Directors of the Company may deem
relevant. Subject to the terms of any Preferred Stock created by the Company's
Board of Directors, each outstanding share of Common Stock will be entitled
equally to such dividends as may be declared from time to time by the Board of
Directors. See "Description of Capital Stock."

On March 31, 1997, the Company paid a dividend in the form of a subordinated
promissory note (the "Dividend Note") with a principal amount of $6.0 million
to BWI to return to BWI a portion of its equity investment in the Company. The
Dividend Note bears interest at the rate of 7.25% per annum. Interest on the
Dividend Note must be paid by the Company on a quarterly basis, with the
principal amount due in a single payment on March 31, 1999. See "Relationship
with BWI."

CAPITALIZATION

The following table sets forth the capitalization of the Company at June 30,
1997, and as adjusted to give effect to the sale of the shares of Class B
Common Stock offered hereby (at the initial public offering price of $14.50
per share) and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term and related party debt:
Working capital advances payable to parent............ $13,785 $ --
Subordinated note payable to parent (Dividend Note)... 6,000 6,000
Other long-term debt.................................. 365 365
------- -------
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; none issued or outstanding............... -- --
Class A Common Stock, $0.01 par value; 15,000,000
shares authorized; 10,214,286 shares issued and
outstanding, actual and as adjusted.................. 102 102
Class B Common Stock, $0.01 par value; 40,000,000
shares authorized; none issued or outstanding,
actual; and 2,000,000 shares issued and outstanding,
as adjusted.......................................... -- 20
Additional paid-in capital............................ 22,598 48,758
Retained earnings..................................... 3,721 3,721
------- -------
Total shareholders' equity.......................... 26,421 52,601
------- -------
Total capitalization................................ $46,571 $58,966
======= =======
</TABLE>

15
<PAGE>

DILUTION

The net tangible book value of the Company at June 30, 1997 was $18,343,000,
or $1.80 per share of Common Stock. Net tangible book value per share is
determined by dividing the net tangible book value (total tangible assets less
total liabilities) of the Company by the number of shares of Common Stock
outstanding. Without taking into account any changes in the net tangible book
value of the Company, other than to give effect to the sale of the shares of
Class B Common Stock offered hereby (at the initial public offering price of
$14.50 per share) and the receipt of the net proceeds therefrom, the adjusted
net tangible book value of the Company at June 30, 1997 would have been
$44,523,000, or $3.65 per share of Common Stock. This represents an immediate
dilution in net tangible book value of $10.85 per share to new investors
purchasing shares in this offering and an immediate increase in net tangible
book value of $1.85 per share to BWI. The following table illustrates this per
share dilution.

<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $14.50
Net tangible book value per share at June 30, 1997............ $1.80
Increase per share attributable to new investors (1).......... 1.85
-----
Net tangible book value after the offering...................... 3.65
------
Dilution per share to new investors (2)(3)...................... $10.85
======
</TABLE>
- --------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
(2) Determined by subtracting the adjusted net tangible book value per share
after the offering from the amount of cash paid by a new investor for one
share of Class B Common Stock.
(3) The foregoing information does not give effect to the issuance of an
aggregate of 1,575,000 shares of Class B Common Stock reserved for
issuance as follows: (i) 300,000 shares reserved for issuance upon the
exercise of the Underwriters' over-allotment option; (ii) 25,000 shares
reserved for issuance under the Company's Outside Directors Stock Option
Plan; and (iii) 1,250,000 shares reserved for issuance under the Company's
1997 Stock Option and Incentive Plan. See "Management--Compensation of
Directors," "Executive Compensation--1997 Stock Option and Incentive Plan"
and "Underwriting."

16
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial data for the ten
months ended December 31, 1993 and for the years ended December 31, 1994, 1995
and 1996 have been derived from the audited consolidated financial statements
of the Company, which have been audited by Price Waterhouse LLP, independent
accountants. The historical financial data as of and for the six-month periods
ended June 30, 1996 and 1997 have been derived from unaudited consolidated
financial statements of the Company. In the opinion of management, the
unaudited consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
consolidated financial position and consolidated results of operations of the
Company. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
The historical financial data for the two months ended February 28, 1993 were
derived from the unaudited financial statements of Charise Charles, Ltd., Inc.
(the "Predecessor Company"). The historical financial data for the year ended
December 31, 1992 were derived from the audited financial statements of the
Predecessor Company, which were audited by independent accountants to the
Predecessor Company. Effective February 28, 1993, BWI acquired substantially
all of the assets of the Predecessor Company. The following data should be read
in conjunction with "Unaudited Pro Forma Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
TWO TEN ------------------------------------- -----------------------------
YEAR MONTHS MONTHS 1994 1995 1996 1996 1997
ENDED ENDED ENDED -------- -------- ------------------- ------- ---------------------
DECEMBER 31, FEBRUARY 28, DECEMBER 31, PRO FORMA PRO
1992 1993 1993 ACTUAL ACTUAL ACTUAL (2) ACTUAL ACTUAL FORMA (2)
------------ ------------ ------------ -------- -------- -------- ---------- ------- -------- ------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
(1)
Net sales....... $75,804 $11,728 $67,823 $107,449 $123,990 $158,247 $158,247 $65,348 $108,597 $108,597
Cost of products
sold........... 71,020 10,911 63,161 100,254 111,448 141,074 141,074 57,947 97,449 97,449
Gross profit.... 4,784 817 4,662 7,195 12,542 17,173 17,173 7,401 11,148 11,148
Selling, general
and
administrative
expense........ 3,079 508 2,498 4,394 7,836 8,443 8,923 4,009 4,960 5,200
Depreciation and
amortization... 87 14 333 512 998 1,009 1,009 500 656 656
Earnings from
operations..... 1,618 295 1,831 2,289 3,708 7,721 7,241 2,892 5,532 5,292
Interest
expense, net... 152 60 (21) 200 511 437 464 170 498 237
Earnings before
income taxes... 1,466 235 1,852 2,089 3,197 7,284 6,777 2,722 5,034 5,055
Provision for
income taxes... 11 3 741 835 1,311 2,915 2,712 1,089 2,013 2,021
Net earnings.... 1,455 232 1,111 1,254 1,886 4,369 4,065 1,633 3,021 3,034
Pro forma
earnings per
share (2)(3)... $0.38 $0.27
Pro forma
weighted
average shares
outstanding
(2)............ 10,721,773 11,119,023
<CAPTION>
DECEMBER 31, JUNE 30, 1997
--------------------------------------- ---------------------
DECEMBER 31, FEBRUARY 28, AS
1992 1993 1993 1994 1995 1996 ACTUAL ADJUSTED (4)
------------ ------------ ------------ -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA: (1)
Working capital. $3,736 $3,744 $11,599 $12,955 $16,000 $20,792 $24,022 $50,202
Total assets.... 18,199 11,897 26,705 36,849 41,584 57,220 68,118 80,513
Payable to
parent......... -- -- 985 8,345 3,873 9,290 13,785 --
Long-term debt.. -- -- -- 113 751 560 6,365 6,365
Total
liabilities.... 14,144 7,822 8,853 16,610 16,553 27,820 41,697 27,912
Shareholders'
equity......... 4,055 4,075 17,852 20,239 25,031 29,400 26,421 52,601
</TABLE>
- -------
(1) During the periods presented, four acquisitions were made by or on behalf
of the Company. See "The Company--Acquisition History." These acquisitions
were accounted for under the purchase method of accounting and,
accordingly, the results of operations of the acquired entities are
included in the Company's financial statements from their respective dates
of acquisition. As a result, period-to-period comparisons of financial
position and results of operations are not necessarily meaningful.
(2) Adjusted to give effect to the pro forma adjustments described under
"Unaudited Pro Forma Consolidated Financial Data" commencing on page 18.
(3) Historical earnings per share data are not meaningful as the Company's
historical capital structure is not comparable to periods subsequent to
this offering.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Class B Common
Stock offered by the Company at the initial public offering price of $14.50
per share and the application of the net proceeds therefrom. See "Use of
Proceeds."

17
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated financial data have been
prepared to reflect adjustments to the Company's historical financial position
and results of operations to give effect to certain transactions, as if such
transactions had been consummated at earlier dates, as described herein.

The unaudited pro forma consolidated balance sheet reflects the issuance and
use of the proceeds from this offering of Class B Common Stock as if it had
occurred on June 30, 1997. The unaudited pro forma consolidated statements of
earnings adjust the historical statements of earnings to reflect the impact of
certain items as if they had occurred on January 1, 1996, including an
adjustment to reflect certain estimated costs necessary to present the Company
as a stand-alone entity, to reflect a reduction in interest expense based upon
the expected use of proceeds to repay certain indebtedness, and to reflect
additional interest expense on the $6.0 million note payable on the dividend
declared March 31, 1997.

The unaudited pro forma consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes, as well as "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere in this Prospectus. The pro
forma consolidated financial data are not necessarily indicative of the
results that would have been reported had such events actually occurred on the
dates specified, nor are they indicative of the Company's future results.

18
<PAGE>

PRIORITY HEALTHCARE CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30, 1997
-------------------------------- --------------------------------
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $158,247 $ 158,247 $108,597 $ 108,597
Cost of products sold... 141,074 141,074 97,449 97,449
-------- ----- ---------- -------- ----- ----------
Gross profit............ 17,173 17,173 11,148 11,148
-------- ----- ---------- -------- ----- ----------
Selling, general and
administrative expense. 8,443 480 (1) 8,923 4,960 240 (1) 5,200
Depreciation and
amortization........... 1,009 1,009 656 656
-------- ----- ---------- -------- ----- ----------
Earnings from
operations............. 7,721 (480) 7,241 5,532 (240) 5,292
Interest expense, net... 437 (408)(2) 498 (370)(2)
435 (3) 464 109 (3) 237
-------- ----- ---------- -------- ----- ----------
Earnings before income
taxes.................. 7,284 (507) 6,777 5,034 21 5,055
Provision for income
taxes.................. 2,915 (203)(4) 2,712 2,013 8 (4) 2,021
-------- ----- ---------- -------- ----- ----------
Net earnings............ $ 4,369 $(304) $ 4,065(5) $ 3,021 $ 13 $ 3,034(5)
======== ===== ========== ======== ===== ==========
Pro forma earnings per
share.................. $ 0.38(5)(6) $ 0.27(5)(6)
========== ==========
Pro forma weighted
average shares
outstanding............ 10,721,773 11,119,023
========== ==========
</TABLE>

(See accompanying notes to unaudited pro forma consolidated financial data)

19
<PAGE>

PRIORITY HEALTHCARE CORPORATION

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

JUNE 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------- ----------- ---------
ASSETS:
<S> <C> <C> <C>
Current assets:
Cash...................... $ 185 $ 12,395 (7) $12,580
Accounts receivable, less
allowance
for doubtful accounts.... 40,178 40,178
Finished goods inventory.. 18,174 18,174
Deferred income taxes..... 470 470
Other current assets...... 194 194
------- -------- -------
59,201 12,395 71,596
------- -------- -------
Fixed assets, at cost..... 2,424 2,424
Less: accumulated
depreciation............. 1,115 1,115
------- -------- -------
1,309 1,309
------- -------- -------
Intangibles, net.......... 7,608 7,608
------- -------- -------
Total assets............ $68,118 $ 12,395 $80,513
======= ======== =======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY:
<S> <C> <C> <C>
Current liabilities:
Payable to parent......... $13,785 $(13,785)(7) --
Accounts payable.......... 19,809 19,809
Other current liabilities. 1,585 1,585
------- -------- -------
35,179 (13,785) 21,394
------- -------- -------
Long-term obligations....... 365 365
------- -------- -------
Deferred income taxes....... 153 153
------- -------- -------
Note payable to parent...... 6,000 6,000
------- -------- -------
Shareholders' equity:
Class A Common Stock...... 102 102
Class B Common Stock...... -- 20 (7) 20
Additional paid in
capital.................. 22,598 26,160 (7) 48,758
Retained earnings......... 3,721 3,721
------- -------- -------
Total shareholders'
equity................. 26,421 26,180 52,601
------- -------- -------
Commitments and
contingencies
------- -------- -------
Total liabilities and
shareholders' equity... $68,118 $ 12,395 $80,513
======= ======== =======
</TABLE>

(See accompanying notes to unaudited pro forma consolidated financial data)

20
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

(1) The Company has operated as a wholly owned subsidiary of BWI and as a
result has not incurred all costs necessary to operate on a stand-alone
basis. The pro forma consolidated financial data have been adjusted to
include certain additional costs required to present the Company as if it
had operated on a stand-alone basis, and include incremental legal, audit,
risk management and administrative costs.
(2) The Company intends to use a portion of the net proceeds of this offering
to liquidate the payable to BWI. The pro forma consolidated financial data
have been adjusted to eliminate the interest expense associated with this
indebtedness.
(3) Adjustment reflects additional interest expense on the $6.0 million note
payable on the dividend declared March 31, 1997, as if the note was
outstanding January 1, 1996. Interest is calculated based on the 7.25%
face rate of the note payable.
(4) The effective rate derived from the income tax expense for the Company's
historical statements of earnings for 1996 and the six months ended June
30, 1997 was applied to the pro forma adjustments to determine income tax
expense or benefit associated with those adjustments.
(5) Upon completion of this offering, the Company will grant to a consultant
of the Company a 10-year option to purchase 50,000 shares of the Company's
Class B Common Stock at the initial public offering price. The grant of
this option will result in a non-recurring compensation expense of
approximately $350,000 in the period the offering closes and is not
reflected in this unaudited pro forma consolidated financial data. See
"Executive Compensation--Consulting Agreement."
(6) Pro forma earnings per share was calculated assuming that all of the
shares of the Class A Common Stock and the number of shares of Class B
Common Stock required to be issued (i) to liquidate the average interest
bearing payable to BWI and (ii) to replace the amount in capital by which
the dividend declared to BWI exceeded the most recent twelve-month
earnings were outstanding as of January 1, 1996. The number of shares
required to be issued to liquidate the payable to BWI was calculated by
dividing the average balance of the interest bearing payable to BWI by the
estimated net proceeds per share of this offering. The number of shares
required to be included as a result of the dividend was calculated by
dividing the amount by which the dividend exceeded cumulative net income
for the twelve-month period ended June 30, 1997 by the estimated net
proceeds per share of this offering. For purposes of these calculations,
the net proceeds per share is $13.09.
(7) Represents the net cash proceeds to the Company from the sale of the Class
B Common Stock offered hereby (at the initial public offering price of
$14.50 per share) after deducting underwriting discounts and commissions
and estimated offering expenses and application of proceeds as described
under "Use of Proceeds" as follows:

<TABLE>
<S> <C>
Proceeds from sale........................................... $29,000,000
Underwriting discounts and commissions and estimated offering
expenses.................................................... 2,820,000
-----------
26,180,000
Repayment of payable to BWI.................................. 13,785,000
-----------
Net cash proceeds............................................ $12,395,000
===========
</TABLE>

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and related notes contained elsewhere in
this Prospectus.

INTRODUCTION

The Company was formed in June 1994 to succeed to the business operations of
companies previously acquired by BWI, as described below. Since its formation,
the Company has operated as a wholly owned subsidiary of BWI, and has procured
a number of services from, and engaged in a number of financial and other
transactions with, BWI. Following this offering, the Company will continue to
be controlled by BWI, but will operate on a stand-alone basis. Accordingly,
the Company expects that after this offering it will incur incremental
recurring legal, audit, risk management and administrative costs related to
operating as a stand-alone entity that it did not experience as a wholly owned
subsidiary of BWI. See "Unaudited Pro Forma Consolidated Financial Data." The
financial information included in this Prospectus is not necessarily
indicative of the Company's future results of operations, financial position
and cash flows.

The Company provides specialty pharmaceuticals and related medical supplies
as well as disease treatment services to the office-based physician,
outpatient renal dialysis and homecare markets. The Company's operations are
derived from the acquisition by BWI of substantially all of the assets of
Charise Charles, a specialty wholesale distributor of oncology and renal care
biopharmaceuticals, in February 1993 and of PRN, a specialty wholesale
distributor of renal care supplies and dialysis equipment, in October 1993.
The Company subsequently acquired 3C, a specialty distributor of acute
dialysis products, in October 1994, the IV One Companies, three related
companies that provided specialty pharmacy and related healthcare services, in
January 1995, and Grove Way Pharmacy, a vaccine and injectable drug
distributor, in August 1997. These acquisitions were accounted for under the
purchase method of accounting and, accordingly, the results of operations of
the acquired companies are included in the Company's financial statements from
their respective dates of acquisition. As a result, period-to-period
comparisons of financial position and results of operations are not
necessarily meaningful.

The operations of Charise Charles, PRN, 3C and the recently acquired Grove
Way Pharmacy are now included in the Company's Priority Distribution division,
and the IV One Companies comprise the Priority Pharmacy division. During 1995
and 1996 and the six months ended June 30, 1996 and 1997, Priority
Distribution represented 93%, 92%, 92% and 93% of net sales, respectively, and
Priority Pharmacy represented the balance. Historically, Priority Pharmacy has
generated substantially higher margins than Priority Distribution and has
contributed a significant portion of the Company's earnings.

Upon completion of this offering, the Company will grant a consultant of the
Company a 10-year option to purchase 50,000 shares of the Company's Class B
Common Stock at the initial public offering price. The grant of this option
will result in a one-time compensation expense of approximately $350,000 in
the period the offering closes. See "Executive Compensation--Consulting
Agreement."

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

Net Sales. Net sales increased to $108.6 million in the first six months of
1997 from $65.3 million in the first six months of 1996, an increase of 66%.
This increase was generated from internal growth that included a 54% increase
in sales by Priority Pharmacy and a 67% increase in sales by Priority
Distribution. The growth

22
<PAGE>

reflected primarily the addition of new customers, new product introductions,
additional sales to existing customers and, to a lesser extent, inflationary
price increases of approximately 4%.

Gross Margin. Gross margin increased to $11.1 million in the first six
months of 1997 from $7.4 million in the first six months of 1996, an increase
of 51%. The increase in gross margin reflected increased sales by both
Priority Distribution and Priority Pharmacy. Gross margin as a percentage of
net sales decreased in the first six months of 1997 to 10.3% from 11.3% in the
first six months of 1996. This decrease was primarily attributable to the
change in sales mix resulting from the significant increase in sales by
Priority Distribution which generated lower gross margins than those of
Priority Pharmacy. Competition continues to exert pressure on margins,
particularly those of Priority Distribution.

Selling, General and Administrative Expense. Selling, general and
administrative ("SGA") expense increased to $5.0 million in the first six
months of 1997 from $4.0 million in the first six months of 1996, an increase
of 24%. However, SGA expense as a percentage of net sales decreased to 4.6% in
the first six months of 1997 from 6.1% in the first six months of 1996. Of the
$1.0 million increase in SGA expense, approximately 55% was attributed to the
hiring of additional employees, approximately 23% to warehouse and delivery
expenses and approximately 22% to other costs and inflationary price
increases. Management continually monitors SGA expense and remains focused on
controlling these increases through improved technology and efficient asset
management. The decrease in SGA expense as a percentage of net sales resulted
from the revenue growth in excess of the fixed portion of SGA expense.

Depreciation and Amortization. Depreciation and amortization increased to
$656,000 in the first six months of 1997 from $500,000 in the first six months
of 1996, an increase of 31%. The increase was primarily the result of
depreciation of new equipment, particularly in management information systems.

Interest Expense. Interest expense increased to $504,000 in the first six
months of 1997 from $182,000 in the first six months of 1996. This expense is
primarily related to financing provided to the Company by BWI. The first six
months of 1997 also includes $109,000 of interest due on the Dividend Note
issued to BWI on March 31, 1997. The interest expense on the intercompany
borrowings was calculated by applying the BWI average incremental borrowing
rate to the average outstanding borrowings. During the first six months of
1997 and 1996, the average outstanding balances were $11.6 million and $4.9
million, respectively, and the average incremental borrowing rate charged was
6.4% in both periods.

Income Taxes. The Company participates in the consolidated federal and state
income tax returns filed by BWI. BWI charges federal and state income tax
expense to the Company as if the Company filed its own separate federal and
state income tax returns. During the first six months of 1997 and 1996, the
provision for income taxes represented 40.0% of earnings before taxes in both
periods.

1996 Compared to 1995

Net Sales. Net sales increased to $158.2 million in 1996 from $124.0 million
in 1995, a 28% increase. All of the increase was generated from internal
growth, including a 56% increase in sales by Priority Pharmacy and a 26%
increase in sales by Priority Distribution. The internal growth reflected
primarily the addition of new customers, new product introductions, additional
sales to existing customers and, to a lesser extent, inflationary price
increases of approximately 4%.

Gross Margin. Gross margin increased to $17.2 million in 1996 from $12.5
million in 1995, an increase of 37%. The increase in gross margin reflected
increased sales by both Priority Distribution and Priority Pharmacy. Gross
margin as a percentage of net sales had a slight increase in 1996 to 10.9%
from 10.1% in 1995. Margins were enhanced by the increase in the sales mix of
the higher margin sales of Priority Pharmacy. Competition continually exerted
pressure on margins.

Selling, General and Administrative Expense. SGA expense increased to $8.4
million in 1996 from $7.8 million in 1995, an increase of 8%. SGA expense as a
percentage of net sales decreased from 6.3% in 1995 to 5.3% in 1996. Of the
$600,000 increase in SGA expense, approximately 52% was attributed to the
hiring of

23
<PAGE>

additional employees, approximately 23% to warehouse and delivery expenses and
approximately 25% to other costs and inflationary price increases. The
decrease in SGA expense as a percentage of net sales resulted from the revenue
growth, principally at Priority Distribution, in excess of the fixed portion
of SGA expense.

Depreciation and Amortization. Depreciation and amortization remained
relatively constant in 1996 and 1995.

Interest Expense. Interest expense decreased to $457,000 in 1996 from
$526,000 in 1995, a decrease of 13%. Interest expense primarily relates to
financing provided to the Company by BWI. The interest expense on these
intercompany borrowings was calculated by applying the BWI average incremental
borrowing rate to the average outstanding borrowings. During 1996 and 1995,
the average outstanding balances were $6.4 million and $6.4 million and the
average incremental borrowing rates charged were 6.4% and 7.1%, respectively.

Income Taxes. The Company participates in the consolidated federal and state
income tax returns filed by BWI. BWI charges federal and state income tax
expense to the Company as if the Company filed its own separate federal and
state income tax returns. The provision for income taxes in 1996 represented
40.0% of earnings before taxes as compared to 41.0% for 1995.

1995 Compared to 1994

Net Sales. Net sales increased to $124.0 million in 1995 from $107.4 million
in 1994, an increase of 15%. The increase resulted from internal growth of 7%,
with the remaining 8% attributable to the acquisitions of 3C and the IV One
Companies. The internal growth reflected primarily the addition of new
customers, new product introductions, additional sales to existing customers
and, to a lesser extent, inflationary price increases of approximately 4%.

Gross Margin. Gross margin increased to $12.5 million in 1995 from $7.2
million, an increase of 74%. The primary reason for the increase was the
addition of the higher margin business associated with the acquisition of the
IV One Companies and the increase in sales. Gross margin as a percentage of
net sales increased to 10.1% in 1995 from 6.7% in 1994. Margins were enhanced
by the increase in the sales mix of the higher margin sales of the IV One
Companies. Competition continually exerted pressure on margins.

Selling, General and Administrative Expense. SGA expense increased to $7.8
million in 1995 from $4.4 million in 1994, an increase of 78%. SGA expense as
a percentage of net sales increased from 4.1% in 1994 to 6.3% in 1995. The
amount of the increase in actual SGA expense associated with the acquisition
of the IV One Companies was approximately $2.8 million. Of the remaining
$600,000 increase in SGA expense, approximately 65% was attributed to the
hiring of additional employees, approximately 16% to warehouse and delivery
expenses and approximately 19% to other costs and inflationary price
increases.

Depreciation and Amortization. Depreciation and amortization increased to
$998,000 in 1995 from $512,000 in 1994, an increase of 95%. These increases
were primarily the result of the amortization of intangible assets related to
acquired entities and the depreciation of new equipment, particularly in
management information systems.

Interest Expense. Interest expense increased to $526,000 in 1995 from
$218,000 in 1994, an increase of 141%. Interest expense primarily relates to
financing provided to the Company by BWI. The interest expense on these
intercompany borrowings was calculated by applying the BWI average incremental
borrowing rate to the average outstanding borrowings. During 1995 and 1994,
the average outstanding balances were $6.4 million and $3.6 million, and the
average incremental borrowing rates charged were 7.1% and 5.9%, respectively.

Income Taxes. The Company participates in the consolidated federal and state
income tax returns filed by BWI. BWI charges federal and state income tax
expense to the Company as if the Company filed its own separate federal and
state income tax returns. The provision for income taxes in 1995 represented
41.0% of earnings before taxes as compared to 40.0% for 1994.

24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

The Company's principal capital requirements have been to fund working
capital needs to support internal growth, for acquisitions and for capital
expenditures. The Company's principal working capital needs are for inventory
and accounts receivable. Management controls inventory levels in order to
minimize carrying costs and maximize purchasing opportunities. The Company
sells inventory to its customers on various payment terms. This requires
significant working capital to finance inventory purchases and entails
accounts receivable exposure in the event any of its major customers encounter
financial difficulties. Although the Company monitors closely the
creditworthiness of its major customers, there can be no assurance that the
Company will not incur some collection loss on major customer accounts
receivable in the future.

Six Months Ended June 30, 1997

The Company had cash and working capital of $185,000 and $24.0 million,
respectively.

Net Cash Used by Operating Activities. The Company's operations required
$5.5 million in cash for the six months ended June 30, 1997. Accounts
receivable increased $10.6 million, primarily to support the increase in sales
and the extension of credit terms to meet competitive conditions. Inventory
increased $2.0 million due to incremental purchases necessary to serve the
increased customer base and to maximize purchasing opportunities. The $3.4
million increase in accounts payable partially reduced the cash requirements
for accounts receivable and inventory; this increase is attributable to the
timing of payments and the increase in inventory. The Company anticipates that
its operations will continue to require cash to fund its growth. Depreciation
and amortization totaled $656,000.

Net Cash Used by Investing Activities. The Company purchased $285,000 in
fixed assets, primarily computer hardware and software.

Net Cash Provided by Financing Activities. The Company's payable to parent
increased by $4.5 million, primarily to fund the cash used by operating
activities.

Year Ended December 31, 1996

The Company had cash and working capital of $1.7 million and $20.8 million,
respectively.

Net Cash Used by Operating Activities. The Company's operations required
$4.5 million in cash for the year ended December 31, 1996. Accounts receivable
increased $12.2 million, primarily to support the increase in sales and the
extension of credit terms to meet competitive conditions. Inventory increased
$3.5 million due to incremental purchases necessary to serve the increased
customer base and to maximize purchasing opportunities. The $5.7 million
increase in accounts payable partially reduced the cash requirements for
accounts receivable and inventory; this increase is attributable to the timing
of payments and the increase in inventory. Depreciation and amortization
totaled $1.0 million.

Net Cash Used by Investing Activities. The Company purchased $405,000 in
fixed assets, primarily computer hardware and software.

Net Cash Provided by Financing Activities. The Company's payable to parent
increased by $5.4 million, primarily to fund the cash used by operating
activities.

Year Ended December 31, 1995

The Company had cash and working capital of $1.4 million and $16.0 million,
respectively.

Net Cash Provided by Operating Activities. The Company's operations provided
$6.0 million in cash for the year ended December 31, 1995, primarily due to a
reduction in accounts receivable and inventory. Accounts receivable decreased
$560,000 due to a reduction of the average receivables aging and a decrease in
the Company's rate of growth in operations. Inventory decreased $426,000, due
primarily to the reduction of

25
<PAGE>

inventory necessitated by the slower rate of growth. The $2.4 million increase
in accounts payable is attributable to the timing of payments. Depreciation
and amortization totaled $1.0 million.

Net Cash Used by Investing Activities. The Company acquired the stock of the
IV One Companies for $2.5 million and purchased $474,000 in fixed assets,
primarily computer hardware and software, furniture, fixtures and leasehold
improvements.

Net Cash Used by Financing Activities. The Company's payable to parent
decreased by $4.5 million as a result of a partial repayment of advances
accumulated through December 31, 1995. BWI contributed $2.9 million to fund
the purchase of the IV One Companies.

Year Ended December 31, 1994

The Company had cash and working capital of $150,000 and $13.0 million,
respectively.

Net Cash Used by Operating Activities. The Company's operations required
$6.6 million in cash for the year ended December 31, 1994. Accounts receivable
increased $4.2 million, primarily as a result of the increase in sales.
Inventory increased $4.0 million due to incremental purchases necessary to
serve the increased customer base and to maximize purchasing opportunities.
Depreciation and amortization totaled $512,000.

Net Cash Used by Investing Activities. The Company acquired the stock of 3C
for $1.2 million and purchased fixed assets of $511,000, primarily computer
hardware and software.

Net Cash Provided by Financing Activities. The Company's payable to parent
increased by $7.4 million, primarily to fund the cash used by operating
activities. BWI contributed $1.1 million to fund the purchase of 3C.

CAPITAL RESOURCES

Capital expenditures during the first six months of 1997 totalled $285,000.
The Company expects that capital expenditures during the last six months of
1997 will be $400,000 and during 1998 will be $550,000. The Company
anticipates that these expenditures will relate primarily to the opening of
the Grove City, Ohio distribution center and to the purchase of computer
hardware and software and telecommunications equipment.

Historically, the Company has financed its operations through capital
contributions and advances from BWI. The Company intends to use a portion of
the net proceeds of this offering to repay the amount of the working capital
advances outstanding at the time of the closing of this offering, which amount
the Company expects to not differ materially from the approximately $15.1
million outstanding at September 30, 1997. In connection with this offering,
BWI will make available to the Company a $30.0 million line of credit, which
the Company may utilize for working capital purposes and possible
acquisitions. The maturity date for the line is December 31, 1998. Outstanding
principal amounts under the line will bear interest, payable quarterly, at a
rate equal to the rate then paid by BWI under its primary line of credit
agreement.

Management believes that the net proceeds of this offering, together with
cash from operations and borrowings from BWI, will be sufficient to meet the
Company's working capital needs for at least two years.

INFLATION

The Company's financial statements are prepared on the basis of historical
costs and are not intended to reflect changes in the relative purchasing power
of the dollar. Because of its ability to take advantage of forward purchasing
opportunities, the Company believes that its gross profits generally increase
as a result of manufacturers' price increases in the products it distributes.
Gross profits may decline if the rate of price increases by manufacturers
declines.

Generally, price increases are passed through to customers as they are
received by the Company and therefore they reduce the negative effect of
inflation. Other non-inventory cost increases, such as payroll, supplies and
services, have been partially offset during the past three years by increased
volume and productivity.

26
<PAGE>

BUSINESS

GENERAL

The Company is a national distributor of specialty pharmaceuticals and
related medical supplies to the alternate site healthcare market and is a
provider of patient-specific, self-injectable biopharmaceuticals and disease
treatment programs to individuals with chronic diseases. Through Priority
Distribution, the Company sells over 3,500 SKUs of specialty pharmaceuticals
and medical supplies to outpatient renal care centers and office-based
physicians in the oncology and infectious disease markets. With the recent
acquisition of Grove Way Pharmacy, Priority Distribution has entered the
vaccine market. Priority Distribution offers value-added services to meet the
specific needs of these markets by shipping refrigerated pharmaceuticals
overnight in special packaging to maintain appropriate temperatures, offering
automated order entry services and offering customized distribution for group
accounts. From distribution centers in Altamonte Springs, Florida and Santa
Ana, California, Priority Distribution services over 2,000 customers in all 50
states and Puerto Rico, including approximately 550 office-based oncologists
and 800 renal dialysis clinics.

Through Priority Pharmacy, the Company fills individual patient
prescriptions for self-injectable biopharmaceuticals for over 1,400 patients.
These patient-specific prescriptions are filled at two licensed pharmacies in
Altamonte Springs, Florida, where the Company reconstitutes in syringes the
components of the biopharmaceuticals, according to manufacturer's
instructions, and ships these products directly to the patient overnight in
specialized packages. Priority Pharmacy also provides disease treatment
programs for hepatitis, melanoma, cancer, human growth deficiency and the
complications of HIV. Management believes that it is the only provider that
offers this range of services on a nationwide basis.

INDUSTRY AND MARKET OVERVIEW

Priority sells the majority of its products and services into two large and
growing markets--oncology and chronic renal dialysis. The Company also
operates in certain segments of the infectious disease market and, with the
recent acquisition of Grove Way Pharmacy, has entered the vaccine market. The
common characteristics of these markets is that most products are administered
in an alternate site setting by physicians or the patients themselves and
require specialized shipping and support services.

Industry Overview. The alternate site supply market is fragmented with many
public and private companies focusing on different product or customer niches.
Few companies offer a wide range of pharmaceuticals and related supplies
targeted to multiple customer groups, specifically renal dialysis clinics and
office-based physicians. Historically, cancer therapy, renal dialysis and most
other treatments for chronic and life-threatening medical conditions were
administered almost exclusively in a hospital inpatient setting. During the
1990s, the frequency with which these treatments have been administered
outside the hospital has increased dramatically in response to cost
containment efforts and the introduction of new biopharmaceutical products,
such as interferon, EPO and cancer drugs.

The service needs of office-based physicians and clinics differ markedly
from those of the hospital market, creating logistical challenges and
increasing administrative costs for those offices. Office-based physicians and
clinics generally order relatively small quantities of drugs at irregular
intervals and do not have inventory management systems or sufficient pharmacy
staffing. Challenges facing these caregivers include providing necessary
administrative and financial resources, managing relationships with multiple
suppliers, managing inventories, billing patients and third-party payors, and
monitoring new clinical developments. The Company believes that the shift from
hospital-based to office-based or home-based care delivery has created a
significant opportunity, particularly in the oncology, renal dialysis, vaccine
and homecare markets.

Oncology. According to the American Cancer Society, in 1996 approximately
1.3 million new cases of cancer were diagnosed and approximately 550,000
deaths were attributed to cancer in the United States. The principal
treatments for cancer are surgery and a regimen of pharmaceutical treatments.
Surgery typically involves hospitalization, but radiation and chemotherapy are
increasingly being delivered in alternate site settings such as the physician
office and the home.

27
<PAGE>

The National Cancer Institute estimates that direct medical costs for the
treatment of cancer in the United States totaled $35 billion in 1996. Frost &
Sullivan estimated the U.S. market for oncology pharmaceuticals to be $4.1
billion in 1996 and projected it to grow at a compound annual rate of 13.2%
from 1996 through 2003. The Company believes that the office-based segment of
the cancer pharmaceutical market represents approximately 25% of such market
and has been growing faster than the cancer pharmaceutical market. Growth in
the cancer pharmaceutical market is expected to be driven by the continued
introduction of new pharmaceuticals and increases in the incidence of cancer.
In 1995, over 200 drugs for cancer and cancer-related conditions were in
development and in 1996, 30 diagnostic or therapeutic biopharmaceuticals
(including biopharmaceuticals other than cancer biopharmaceuticals) received
FDA approval for marketing in the United States as compared to the previous
record number of eight in 1995. In addition, the overall incidence of cancer
is expected to increase as the average age of the U.S. population continues to
increase. According to the National Institutes of Health ("NIH"), over 50% of
all cancers are diagnosed in people age 65 or over.

Renal Dialysis. End stage renal disease ("ESRD") is characterized by the
irreversible loss of kidney function and requires kidney transplantation or
routine dialysis treatment (either periodialysis or hemodialysis), which
involves removing waste products and excess fluids from the blood. According
to HCFA, as of December 31, 1995 over 80% of dialysis patients were receiving
hemodialysis in outpatient treatment centers. Hemodialysis typically utilizes
various specialty pharmaceuticals and related medical supplies as part of the
treatment. Hemodialysis treatments usually last three hours and are performed
three times a week at over 3,000 outpatient facilities in the United States.
According to the HCFA, the number of patients in the United States that
received renal dialysis treatments grew from approximately 157,000 in 1992 to
approximately 200,000 at the end of 1995, a compound annual growth rate of
approximately 8%. The medication most frequently prescribed to hemodialysis
patients is EPO, which stimulates the production of red blood cells, as well
as Calcijex (calcium), INFeD (iron), hepatitis vaccine and other nutrient
compounds. The Company estimates that in 1996 the United States market for EPO
alone exceeded $1 billion. Growth in this market is driven by the general
aging of the population, favorable reimbursement trends and proposed
regulatory changes, expansion of ancillary services, and increased managed
care contracts.

Vaccine Market. The worldwide vaccine market currently exceeds $3 billion
annually, and is expected to grow to $7 billion by 2001, according to
SmithKline Beecham, one of the leading vaccine manufacturers. The Company
estimates that pediatric vaccines represent 40% of the world market, and
hepatitis vaccines represent over 20% of the world market.

The Omnibus Budget Reconciliation Act of 1993 created the Vaccines for
Children ("VFC") program, which was implemented on October 1, 1994. The VFC
program provides vaccines at no cost for children up to 18 years of age who
are Medicaid enrolled, have no health insurance or are native American Indian
or Alaskan. In addition, children who have health insurance that does not
cover immunizations are eligible if they receive vaccines at a Federally
Qualified Health Center or a Rural Health Clinic. Since most states have
already established contracts for VFC distribution, the Company intends to
focus its efforts initially on the estimated 40% of pediatric vaccines
administered by private practice physicians and on the adult vaccine market,
particularly hepatitis vaccines.

Growth in the vaccine market is expected to be driven by the growth of
combination pediatric vaccines, travelers' vaccines, vaccines for adolescent
protection, vaccines for the elderly and vaccines to treat chronic infectious
disease and cancer.

Infectious Disease. Priority operates in the infectious disease market,
principally through the sale of interferon for the treatment of hepatitis C.
NIH estimates that nearly four million Americans are infected with hepatitis C
and that approximately 30,000 new acute hepatitis C infections occur each
year. According to NIH, the incidence of hepatitis C infection appears to be
declining from its peak in 1989. However, because only 25% to 30% of new
hepatitis C infections are currently diagnosed, as estimated by NIH, the
Company believes the treated portion of this population is likely to increase
as awareness of hepatitis disease management programs increases. According to
NIH, hepatitis C is responsible for 8,000 to 10,000 deaths annually and is
currently the leading reason for liver transplantation in the United States.

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BUSINESS STRENGTHS

Priority believes the following represent the Company's business strengths
and have been the principal factors in the Company's business success to date.

Knowledgeable Sales, Marketing and Support Staff. The Company has a well-
trained, knowledgeable telemarketing and sales support staff of 32 full-time
associates, with over five years of experience on average. The Company's sales
support staff and telemarketers are most experienced in the areas of renal
care and oncology. Priority holds frequent meetings and training sessions with
its suppliers to enable the sales and support staff to be well-informed about
current and new biopharmaceuticals. The sales and support staff provides not
only superior and knowledgeable customer service, but also promotes the sale
of new products.

Clinical Expertise. The Company provides disease treatment programs to
patients and physicians through its highly trained clinical staff of patient
care coordinators, pharmacists and nurses. These personnel are available for
ongoing consultation with the patient and the dispensing physician regarding
the patient's therapy and progress seven days a week, 24 hours a day. In order
to serve the specific needs of its customers, Priority operates two licensed
pharmacies, one of which has been accredited with commendation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO").

Broad Product Offerings to Targeted Markets. Priority sells over 3,500 SKUs
of pharmaceuticals and medical supplies which enable the Company to provide
"one-stop shopping" to its customers. Priority targets its selling efforts of
this broad range of products and services to customers in alternate site
settings, such as office-based physicians and renal dialysis clinics. The
Company continually evaluates new products that it can add to its offerings to
continue to meet the needs of these specialized markets.

Commitment to Customer Service. The Company is committed to providing
superior customer service that includes shipping products ordered before 6
p.m. for delivery the next day and filling 99% of its orders within one day of
being ordered. Priority's software enables its salespeople to quickly
determine product availability, pricing, customer order history and billing
information. In addition, Priority Pharmacy provides patient education,
counseling and follow-up with 24-hour on-call nurses to assist its patients in
better understanding and complying with their treatments.

Efficient Infrastructure. In the last two years, Priority has focused
considerable time and expense on building an infrastructure, including
computer systems and training, that would enable the Company to operate
efficiently and manage rapid growth. Management also focuses on tightly
controlling expenses and is constantly re-evaluating the efficiency of its
operations, including purchasing and distribution.

GROWTH STRATEGY

The Company's objective is to continue to grow rapidly and enhance its
market position as a leading specialty distributor by capitalizing on its
business strengths and pursuing the following strategy.

Continue to focus on and further penetrate the alternate site market. By
focusing on the alternate site market, the Company has targeted growth
segments of the health care industry. The Company intends to increase its
alternate site market presence by expanding its product and service offerings,
increasing its sales and marketing personnel and focusing on group accounts.

Enter new markets by distributing new product categories and patient-
specific biopharmaceuticals. The Company plans to selectively enter new
markets through new program offerings, such as its disease treatment programs
for melanoma and human growth hormone. In addition, by targeting chronic
disease therapies that require patient-specific, self-injectable
biopharmaceuticals, the Company continues to expand its markets.

Accelerate growth of its higher margin, patient-specific pharmacy business
by leveraging relationships with existing distribution customers. The Company
has over 2,000 customers, including physicians focusing on renal care,
oncology, infectious disease and human growth hormone deficiency. The Company
believes that a number of physicians that order supplies from the Company also
treat patients who require patient-specific, self-injectable
biopharmaceuticals. The Company's information database identifies these cross-
selling opportunities, and Priority believes it is well-positioned to capture
incremental revenue from these customers.

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Maintain intense cost control while investing in infrastructure. The
Company's goal is to remain a low cost provider of specialty distribution
products yet increase the value-added services it provides to customers such
as 24-hour on-call nurse support, patient counseling, specialized shipping and
software to its larger customers. The Company's selling, general and
administrative expense was only 5.3% of revenues in 1996 even as the Company
continued to invest in its infrastructure.

Pursue acquisitions to complement existing product offerings or further
penetrate markets. The Company believes that the highly fragmented specialty
distribution industry affords it an opportunity to grow through selective
acquisitions. By acquiring complementary businesses, the Company can increase
its customer base, expand its product and geographic scope and leverage its
existing infrastructure. For example, the recent acquisition of Grove Way
Pharmacy will enable the Company to target the distribution of vaccines into
the alternate site market.

PRODUCTS AND SERVICES

Priority Distribution. Priority Distribution provides a broad range of
services and supplies to meet the needs of the alternate site market,
including the outpatient renal care market, office-based oncology market and
other physician office specialty markets such as infectious disease. Priority
Distribution offers value-added services to meet the specialized needs of
these markets by shipping refrigerated pharmaceuticals overnight in special
packaging to maintain appropriate temperatures and offering automated order
entry services and customized group account distribution. Priority
Distribution distributes its products from distribution centers in Altamonte
Springs, Florida and Santa Ana, California. Priority Distribution also expects
to begin shipping medical supplies from a distribution center in Grove City,
Ohio later this year. The Company sells over 3,500 SKUs of pharmaceuticals
such as EPO, Calcijex and INFeD and related medical supplies such as
dialyzers, blood tubing, fistula needles, IV sets, transducers, tape and
sponges. During 1996, approximately 36% of the Company's revenues were
attributable to sales of EPO to the renal care market. EPO for the renal care
market is available from only one manufacturer, Amgen. Priority Distribution
services over 2,000 customers located in all 50 states and Puerto Rico,
including approximately 550 office-based oncologists and 800 renal dialysis
clinics.

Priority believes its knowledgeable salesforce provides a competitive
advantage when selling into the alternate site market. Since a majority of
customer orders are placed by telephone, the Company offers its customers a
toll-free telephone number and fax line and is beginning to use electronic
data interchange ("EDI") ordering capability to accept electronically
transmitted orders. Orders typically are received by the Company's
telemarketing sales and service personnel who use PC-based computer systems to
enter customer orders, and to access product information, product
availability, pricing, promotions and the customer's buying or referral
history. As part of the Company's commitment to superior customer service, the
Company offers its customers ease of order placement. Once an order is
received, it is electronically sent to the appropriate distribution center
where it is filled and shipped. The Company estimates that approximately 98%
of all items are shipped without back ordering, and that 99% of all orders
received before 6 p.m. are shipped on the same day that the order is received.
See "--Sales and Marketing."

Priority Distribution recently licensed comprehensive catalog ordering and
inventory management software from a national software company. The license
allows Priority Distribution to use the software in the Company's facilities
and to place the software in customer offices. Priority has already placed
this software on the systems of almost one dozen customers. This software
allows a customer to determine product availability and transmit orders via
EDI directly to the Company's computers, which the Company believes should
increase ordering efficiencies and accuracy. Management intends to customize
the software to further enhance its value to its customers and its own
operations. The Company believes that the installation of these information
systems within customers' facilities should, over time, solidify Priority
Distribution's long-term relationship with its customers.

Priority Pharmacy. Priority Pharmacy provides patient-specific, self-
injectable biopharmaceuticals and related disease treatment programs to
individuals with chronic diseases. Through two licensed pharmacies in
Altamonte Springs, Florida, Priority Pharmacy fills patient-specific
prescriptions by reconstituting the

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biopharmaceuticals into syringes and shipping them via overnight delivery in
special shipping containers to maintain appropriate temperatures. These
services are provided in combination with the Company's disease treatment
programs, through which the Company's pharmacy and nursing staff provide
education, counseling and other services to patients. Management is not aware
of any other provider that offers the same services as Priority Pharmacy on a
nationwide basis.

Priority Pharmacy currently provides disease treatment programs for various
diseases, including hepatitis and cancer, with biopharmaceuticals that
primarily consist of interferon, a synthetic biopharmaceutical used to treat
hepatitis B and C, Octreotide, a synthetic hormone used to treat diarrhea
associated with intestinal peptide tumors, and Epoetin Alfa, a synthetic
biopharmaceutical used to treat anemia. Priority Pharmacy also recently began
dispensing Filgrastin, Saragramostin and human growth hormone and continues to
evaluate adding more products.

The disease treatment programs provided by the Company offer a number of
advantages to patients, physicians, third-party payors and drug manufacturers.
The advantages include: (i) increasing patient compliance with the recommended
therapy, thereby avoiding more costly future treatments; (ii) facilitating
patient education required to prepare and administer the products; (iii)
reducing the potential for patient errors in dosing or wastage of product;
(iv) decreasing patient or caregiver anxiety; (v) reducing the overall cost of
delivery; and (vi) collecting better outcomes data.

The Company's telemarketing efforts focus on marketing to physician offices
where new patient referrals occur. Upon referral, patients are contacted via
telephone by the Company's intake nurses who explain the program and provide
education on self-injection techniques, side effects and potential drug
interactions. Following the initial prescription delivery, patients are
contacted by patient care coordinators who assess patient compliance and
progress, inquire regarding any potential side effects, arrange the next
scheduled prescription delivery, verify the shipping address, listen to
patient concerns and direct questions to the Company's clinical staff. The
Company's pharmacists and registered nurses are available for ongoing
consultation with the patient and the dispensing physician regarding the
patient's therapy and progress seven days a week, 24 hours a day.

All parenteral, or injectable, prescriptions are prepared in sterile
conditions under class 100 laminar flow hoods. Licensed pharmacists verify the
prescription with the prescribing physician and recheck the prescription
before shipping. In order to ensure the safe delivery of prescriptions to the
patient, the Company telephones the patient several days before shipping to
confirm that the patient or another person will be at home to receive the
package immediately upon delivery. In addition, the Company requires the
overnight delivery service to obtain a signed receipt before leaving the drugs
at a residence.

In order to respond to the specific needs of its customers, Priority
Pharmacy maintains two licensed pharmacies. One pharmacy is accredited with
commendation by JCAHO. The JCAHO pharmacy responds to the needs of customers
and payors that require JCAHO-accredited services. The Company's IV-1, Inc.
nursing program is also accredited with commendation by JCAHO. The Company's
pharmacy and nursing programs maintain a planned and systematic Quality
Assessment and Quality Improvement ("QAQI") Program, which provides a means
for monitoring and evaluating the care and services provided to patients.
Through the QAQI Program, the Company strives to promote continuous quality
improvement. A multi-departmental QAQI Committee meets quarterly and is
responsible for the collection and review of quality data, which it presents
on a quarterly basis to the Company's Medical Advisory Board and on an annual
basis to the Company's Chairman of the Board.

SALES AND MARKETING

The Company employs approximately 32 full-time telemarketing and sales
support staff personnel with an average of five years of experience. The
Company strives to generate new customers and solidify existing customer
relationships through frequent direct marketing contact that emphasizes the
Company's broad product lines in specialty markets, competitive prices,
responsive service and ease of order placement. The Company

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telemarkets to dialysis centers, oncology clinics and physician offices. The
Company also has five key account managers who target larger customers. The
Company also links the Priority Distribution and Priority Pharmacy databases
to facilitate cross-selling efforts between the two divisions. The Company
believes that there is a significant opportunity to provide its specialty
pharmacy services to patients of physicians that currently order supplies from
Priority Distribution.

The Company's sales personnel service both in-bound and out-bound calls and
are responsible for assisting customers in purchasing decisions, answering
questions and placing orders. Sales personnel also initiate out-bound calls to
market the Company's services to those customer accounts identified by the
Company as being high volume accounts, high order frequency accounts or cross-
selling opportunity accounts. The Company's sales personnel use PC-based
computer systems to enter customer orders and to access information about
products, product availability, pricing, promotions and customer buying and
referral history. All telemarketing sales personnel work to establish long-
term relationships with the Company's customers through regularly scheduled
phone contact and personalized service.

The Company's five key account managers work with selected large accounts to
develop customized distribution programs. The key account managers are
equipped with laptop computers and software to facilitate sales presentations,
customer communications and proposals, and, through synchronization software,
on-line changes with customer accounts.

Training for sales personnel is provided on a regular basis through in-
service meetings, seminars and field training and is supported by print and
video materials. Initial and ongoing training focuses on industry and product
information, selling skills, ethics and compliance requirements and computer
software skills. The Company believes that its investment in training is
critical to establishing its competitive position in the marketplace.

CUSTOMERS

Priority Distribution serves over 2,000 customers located in all 50 states
and Puerto Rico, including approximately 550 office-based oncologists and 800
renal dialysis clinics. Priority Pharmacy serves approximately 1,400 patients
nationwide.

During 1996, the Company's largest 20 customers accounted for approximately
30% of the Company's revenues and one customer, Everest Healthcare Services
Corporation, accounted for 12% of the Company's revenues. Significant declines
in the level of purchases by one or more of the Company's largest customers
could have a material adverse effect on the Company's business and results of
operations. As is customary in its industry, the Company generally does not
have long-term contracts with its customers. Management believes that the
retention rate for the Company's customers is very favorable. Although the
Company has not to date experienced any failure to collect accounts receivable
from its largest customers, an adverse change in the financial condition of
any of these customers, including an adverse change as a result of a change in
governmental or private reimbursement programs, could have a material adverse
effect on the Company.

PURCHASING

Management believes that effective purchasing is key to both profitability
and maintaining market share. In 1994, 1995 and 1996, the Company's single
largest supplier, Amgen, accounted for approximately 46%, 44% and 42%,
respectively, of the Company's revenues. The Company's purchases from Amgen
are currently guaranteed by BWI, and there can be no assurance that the
Company, as a stand-alone entity, would be able to purchase products from
Amgen on terms as favorable. The Company continually evaluates its purchase
requirements and likely increases in manufacturer prices in order to obtain
products at the most advantageous cost. It has negotiated several partnership
relationships with manufacturers that offer favorable pricing, volume-based
incentives and opportunities to reduce supply chain costs for both parties.

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COMPETITION

The alternate site specialty pharmaceutical and medical supply industry is
highly competitive and is experiencing both horizontal and vertical
consolidation. The industry is fragmented, with many public and private
companies focusing on different product or customer niches. Some of the
Company's current and potential competitors include regional and national
full-line, full-service medical supply distributors; independent speciality
distributors; national full-line, full-service wholesale drug distributors,
such as Bergen Brunswig Corporation and Cardinal Health, Inc., that operate
their own specialty distribution businesses; institutional pharmacies;
hospital-based pharmacies; home healthcare agencies; mail order distributors
that distribute medical supplies on a regional or national basis; and certain
manufacturers, such as Bristol-Myers Squibb, that own distributors or that
sell their products both to distributors and directly to users, including
clinics and physician offices. Some of the Company's competitors have greater
financial, technical, marketing and managerial resources than the Company.
While competition is primarily price and service oriented, it can also be
affected by depth of product line, technical support systems, specific patient
requirements and reputation. There can be no assurance that competitive
pressures will not have a material adverse effect on the Company.

GOVERNMENT REGULATION

As a provider of healthcare services and products, the Company is subject to
extensive regulation by federal, state and local government agencies.

Licensing. The Company is required to register with the DEA, the FDA, and
appropriate state agencies for various permits and/or licenses, and it also
must comply with the operating and security standards of such agencies. The
Company's Altamonte Springs and Santa Ana distribution centers are licensed to
distribute pharmaceuticals in accordance with the Prescription Drug Marketing
Act of 1987. The Altamonte Springs location is also licensed to distribute or
dispense certain controlled substances in accordance with the requirements of
the Controlled Substances Act of 1970. Similarly, the Company's pharmacy
program and provider businesses are subject to licensing by the DEA as well as
by the state boards of pharmacy, state health departments, and other state
agencies where they operate. The Company also has one subsidiary that is
licensed as a home health agency.

On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. The Company's response to the FDA in December 1995 cited
this CPG and explained the Company's contention that, according to the FDA's
own criteria, the Altamonte Springs is a pharmacy properly regulated under
state and local laws.

The FDA has indicated publicly that it expects to further clarify and
explain through rulemaking the distinction between pharmaceutical
manufacturing and pharmacy operations. Legislation has been introduced in this
session of Congress that would clarify this distinction. Thus, the distinction
between a pharmacy and a pharmaceutical manufacturer currently is a subject of
activity by policymakers in the Federal government.

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Alternatively, the agency could determine that the Company is a sterile
products repackager and promulgate regulations or publish guidance respecting
such entities. In that event, the Company would likely have to comply with
that portion of the FDA requirements that covers the packaging operations of
sterile product manufacturers. These requirements may include stability
validation, expiration dating, sterility control, sterile product
environmental monitoring, and good manufacturing practices including
appropriate employee training related to the foregoing. The Company believes
that the cost of compliance with such requirements would not be material to
the Company's operations. However, there can be no assurance that other
conditions or requirements would not be imposed that would have a material
adverse effect on the Company.

Referral Restrictions. The Company is subject to federal and state laws
which govern financial and other arrangements between healthcare providers.
These laws include the federal anti-kickback statute, which was originally
enacted in 1977 and amended in 1987, and which prohibits, among other things,
knowingly and willfully soliciting, receiving, offering or paying any
remuneration directly or indirectly in return for or to induce the referral of
an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many
states have enacted similar statutes which are not necessarily limited to
items and services for which payment is made by Medicare or Medicaid.
Violations of these laws may result in fines, imprisonment and exclusion from
the Medicare and Medicaid programs or other state-funded programs. Federal and
state court decisions interpreting these statutes are limited, but have
generally construed the statutes to apply if "one purpose" of remuneration is
to induce referrals or other conduct within the statute.

In July 1991 and November 1992, in part to address concerns regarding the
anti-kickback statute, the federal government published regulations that
provide exceptions, or "safe harbors," for transactions that will be deemed
not to violate the anti-kickback statute. Proposed regulations to clarify
these safe harbors and to provide additional safe harbors were published in
July 1994 and in September 1993, respectively. Final regulations have not yet
been published. Although the Company believes that it is not in violation of
the anti-kickback statute, its operations do not fit within any of the
existing or proposed safe harbors. Until recently, there were no procedures
for obtaining binding interpretations or advisory opinions from the Health and
Human Services Office of the Inspector General ("OIG") on the application of
the federal anti-kickback statute to an arrangement or its qualification for a
safe harbor upon which the Company can rely. However, the Health Insurance
Portability and Accountability Act of 1996 requires the Secretary of Health
and Human Services to issue written advisory opinions regarding the
applicability of certain aspects of the anti-kickback statute to specific
arrangements or proposed arrangements. Advisory opinions will be binding as to
the Secretary and the party requesting the opinion.

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The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices which it believes may implicate the federal anti-
kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between healthcare
providers. The OIG recently has issued a Fraud Alert concerning prescription
drug marketing practices that could potentially violate the federal anti-
kickback statute. Pharmaceutical marketing activities may implicate the
federal anti-kickback statute because drugs are often reimbursed under the
Medicaid program. According to the Fraud Alert, examples of practices that may
implicate the statute include certain arrangements under which remuneration is
made to pharmacists to recommend the use of a particular pharmaceutical
product. In addition, a number of states have recently undertaken enforcement
actions against pharmaceutical manufacturers involving pharmaceutical
marketing programs, including programs containing incentives to pharmacists to
dispense one particular product rather than another. These enforcement actions
arise under state consumer protection laws which generally prohibit false
advertising, deceptive trade practices and the like. Further, a number of the
states involved in these enforcement actions have requested that the FDA
exercise greater regulatory oversight in the area of pharmaceutical
promotional activities by pharmacists. It is not possible to determine whether
the FDA will act in this regard or what effect, if any, FDA involvement would
have on the Company's operations.

Significant prohibitions against physician referrals were enacted by
Congress in 1993. These prohibitions, commonly known as "Stark II," amended
prior physician self-referral legislation known as "Stark I" by dramatically
enlarging the field of physician-owned or physician-interested entities to
which the referral prohibitions apply. Effective on January 1, 1995, Stark II
prohibits a physician from referring Medicare or Medicaid patients to an
entity providing "designated health services" in which the physician has an
ownership or investment interest, or with which the physician has entered into
a compensation arrangement. Stark II also prohibits the entity from billing
the government for services rendered pursuant to a prohibited referral. The
designated health services include clinical laboratory services, radiology
services, radiation therapy services and supplies, physical and occupational
therapy services, durable medical equipment and supplies, parenteral and
enteral nutrients, equipment, and supplies, prosthetic devices, orthotics and
prosthetics, outpatient prescription drugs, home health services, and
inpatient and outpatient hospital services. The penalties for violating Stark
II include a prohibition on payment by these government programs, civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme," and exclusion from further
participation in Medicare or Medicaid.

Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern the activities of many of the Company's customers.
There can be no assurance that increased enforcement activities will not
indirectly have a material adverse effect on the Company.

Other Regulatory Issues. Certain states have adopted, or are considering
adopting, restrictions similar to those contained in the federal anti-kickback
and physician self-referral laws. Although the Company believes that its
operations do not violate applicable state laws, there can be no assurance
that state regulatory authorities will not challenge the Company's activities
under such laws or challenge the dispensing of patient-specific, self-
injectable biopharmaceuticals by the Company as being subject to state laws
regulating out-of-state pharmacies.

The Company believes that its pharmacy practices and its contract
arrangements with other healthcare providers and pharmaceutical suppliers are
in compliance with these laws. To address the risks presented by such laws,
the Company has appointed an employee trained as a lawyer as Vice President of
Administration, arranged for compliance reviews conducted by outside advisors,
and implemented an ethics and corporate compliance program. There can be no
assurance that such laws will not, however, be interpreted in the future in a
manner inconsistent with the Company's interpretation and application.

REIMBURSEMENT

A substantial portion of the sales of Priority Pharmacy is derived from
third-party payors, including private insurers and managed care organizations
such as HMOs and PPOs. Similar to other medical service providers, the Company
experiences lengthy reimbursement collection periods as a result of third
party payment procedures. Consequently, management of accounts receivable
through effective patient registration, billing, collection and reimbursement
procedures is critical to financial success.

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Private payors typically reimburse a higher amount for a given service and
provide a broader range of benefits than governmental payors, although net
revenue and gross profits from private payors have been affected by the
continuing efforts to contain or reduce the costs of healthcare. A portion of
the Company's revenue has been derived in recent years from agreements with
HMOs, PPOs and other managed care providers. Although these agreements often
provide for negotiated reimbursement at reduced rates, they generally result
in lower bad debts, provide for faster payment terms and provide opportunities
to generate greater volumes than traditional indemnity referrals.

In 1996, reimbursement from Medicare and Medicaid accounted for less than
0.1% of the Company's revenues. Nevertheless, due to the reliance of office-
based oncologists and renal dialysis clinics on Medicare and Medicaid
reimbursement, changes in such governmental programs could have a material
effect on the Company's financial condition and results of operations.

HCFA recently adopted new reimbursement guidelines, which prohibit Medicare
reimbursement for EPO furnished to a patient having an hematocrit level
exceeding 36.5% based on a 90 day rolling average basis. Previously, Medicare
policy provided for payment for EPO for hematocrit levels exceeding such level
if supported by medical documentation. This change in Medicare reimbursement
policy could have an adverse effect on the sales of EPO by the Company in the
future.

Because the Medicare program represents a substantial portion of the federal
budget, Congress takes action in almost every legislative session to modify
the Medicare program for the purpose of reducing the amounts otherwise payable
from the program to healthcare providers. Legislation or regulations may be
enacted in the future that may significantly modify the end stage renal
dialysis program or substantially reduce the amount paid for dialysis or
oncology treatments. Further, statutes or regulations may be adopted which
impose additional requirements in order for the Company's customers to be
eligible to participate in the federal and state payment programs. Such new
legislation or regulations could adversely affect the Company's business
operations.

Additionally, the Budget Act, which was enacted in August 1997, contained
numerous provisions related to Medicare and Medicaid reimbursement. Although
many of the details will not be solidified for the next one to six years, the
general thrust of the provisions dealing with Medicare and Medicaid contained
in the Budget Act is intended to provide incentives to providers to deliver
services at lower costs. The Budget Act contains changes to reimbursement
rates for certain Medicare and Medicaid covered services, as well as certain
limitations on the coverage of such services. Although less than 0.1% of the
Company's revenues in 1996 were derived from Medicare and Medicaid
reimbursement, the Budget Act may affect the Company's suppliers and
customers, which in turn could have an adverse effect on the Company.

In addition, the Company expects that private payors will continue their
efforts to contain or reduce healthcare costs through reductions in
reimbursement rates or other cost-containment measures. The continuation of
such efforts could have a material adverse effect on the Company's financial
condition and results of operations.

EMPLOYEES

At September 30, 1997, the Company had approximately 130 full-time
equivalent employees. None of the Company's employees is currently represented
by a labor union or other labor organization. Approximately 16% of the
employees are pharmacists or nurses. The Company believes that its
relationship with its employees is good.

FACILITIES

The Company's headquarters are located in Altamonte Springs, Florida, and
consist of approximately 14,800 square feet of office space and an 18,000
square foot distribution center leased through December 1999. Priority
Distribution has an 11,900 square foot distribution center in Santa Ana,
California, which is leased through February 1998. The Company may renew such
lease for an additional three years or may decide to

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lease a new distribution center in the same vicinity. Priority Distribution
also has a 24,000 square foot distribution center in Grove City, Ohio, which
is leased through July 2002. The lease for the Grove City, Ohio, distribution
center will provide an additional 12,000 square feet beginning January 1,
1998.

The Company's distribution centers have been constructed or adapted to the
Company's specifications for climate control, alarm systems and, where
required, segregated security areas for controlled substances.

The Company intends to expand its distribution capabilities to further
enhance service and provide for continued growth. The Company expects to begin
distributing medical supplies from its newly-leased facility in Grove City,
Ohio during the last quarter of 1997. By locating closer to a large share of
its current customers and potential new customers, the Company believes that
it can lower distribution costs, while increasing its appeal to certain
national and regional customers. Overall, the Company believes that its
facilities are suitable and adequate for its current needs, and for projected
internal growth through at least 1999.

LEGAL PROCEEDINGS

IV-1, Inc. ("IV-1") and IV-One Services, Inc. ("IV-One Services") have been
named as defendants in a second amended counterclaim filed by Amgen, Inc.
("Amgen") on May 14, 1996, in the Circuit Court of the Eighteenth Judicial
District of Seminole County, Florida. Amgen has asserted that these entities
tortiously interfered with a license agreement (the "License Agreement")
between Amgen and Ortho Pharmaceutical Corporation ("Ortho"). Pursuant to this
agreement, Amgen licensed Ortho to sell EPO for use in the treatment of non-
dialysis patients, while Amgen reserved the exclusive right to sell EPO for
use in the treatment of dialysis patients. Amgen has asserted that, prior to
the purchase of IV-1 and IV-One Services by the Company, these entities
induced Ortho to sell EPO to them for resale in the dialysis market in
contravention of the License Agreement. Amgen has also alleged that IV-1 and
IV-One Services were involved in a civil conspiracy to circumvent the terms of
the License Agreement to allow the resale of EPO to the dialysis market.
Furthermore, Amgen has asserted unfair competition claims against IV-1,
including that IV-1 manufactured and distributed unapproved prefilled syringes
of EPO and another product manufactured by Amgen in container systems
unapproved by Amgen. Amgen did not specify a time frame for the acts
complained of in the civil conspiracy and unfair competition allegations. In
each count, Amgen has demanded an unspecified amount of compensatory damages,
including costs and interest.

The Company believes that the sellers of IV-1, IV-One Services and Charise
Charles are contractually obligated to provide legal defense and to indemnify
the Company for losses and liabilities with respect to this litigation, to the
extent that the alleged acts occurred prior to the purchase of such entities
by the Company. To date, the sellers have provided the legal defense for IV-1
and IV-One Services in the litigation. Indemnification from the sellers of IV-
1 and IV-One Services is limited to no more than $1.5 million and
indemnification from the sellers of Charise Charles is limited to no more than
$2.0 million. As of September 5, 1997, approximately $89,000 of claims for
indemnification had been submitted to the sellers. The Company does not expect
the Amgen litigation to be material to the Company's results of operations,
financial condition or cash flows; however, no assurance can be given that
this litigation will not have a material adverse effect on the Company. In
addition, Amgen is the Company's largest supplier. Consequently, this
litigation presents the risk of adversely affecting the Company's business
relationship with Amgen, which could have a material adverse effect on the
Company. See "Business--Purchasing."

On August 29, 1997, the Company received a preliminary report of field audit
issued by the California State Board of Equalization notifying the Company of
a proposed sales and use tax deficiency of approximately $2.4 million for the
period ended December 31, 1995. Management believes the California tax
authorities are inappropriately proposing to assess tax on the sale of certain
pharmaceutical products and medical supplies that are exempt from such tax.
Although discussions with the taxing authority are in the preliminary stages,
management, after discussions with its state tax consultants, believes that
the ultimate resolution of the pending claim and any other claims for periods
not audited will not be material to the Company's financial position, results
of operations or cash flows.

The Company is also subject to ordinary and routine litigation incidental to
its business, none of which is material to the Company's results of
operations, financial condition or cash flows.

37
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William E. 57 Chairman of the Board
Bindley
Robert L. 52 President, Chief Executive Officer and Director
Myers
Guy F. 38 Executive Vice President--Priority Healthcare Distribution
Bryant
Steven D. 42 Executive Vice President--Priority Pharmacy Services
Cosler
Donald J. 51 Vice President, Chief Financial Officer and Treasurer
Perfetto
Melissa E. 37 Vice President--Clinical Services
McIntyre
Barbara J. 57 Vice President--Administration
Luttrell
William M. 39 Vice President--Marketing
Woodard
Michael D. 49 Secretary and Director
McCormick
Thomas J. 58 Director
Salentine
Richard W. 50 Director designee (1)
Roberson
Rebecca M. 43 Director designee (1)
Shanahan
</TABLE>
- --------
(1) The Board of Directors has elected Mr. Roberson and Ms. Shanahan to, and
they have agreed to become members of, the Board of Directors, effective
upon consummation of the offering.

William E. Bindley is the Chairman of the Board, Chief Executive Officer and
President of BWI, positions he has held since founding BWI in 1968. He is also
a director of BWI and Shoe Carnival, Inc., a shoe retailer. Mr. Bindley was
the Chief Executive Officer of the Company from July 1994 until May 1997 and
the President of the Company from May 1996 until July 1996. He has served as a
director of the Company since June 1994.

Robert L. Myers has been the President of the Company since July 1996 and
the Chief Executive Officer of the Company since May 1997. From July 1996 to
May 1997, he was the Chief Operating Officer of the Company. From June 1995
through June 1996, Mr. Myers was a consultant to the healthcare industry. From
1971 to June 1995, he was employed by Eckerd Corporation, a retail drug store
chain, where he served as a corporate officer from 1981 through 1995 and as
senior vice president of pharmacy from 1990 to 1995. Mr. Myers has served as a
director of the Company since May 1997. Mr. Myers is a registered pharmacist.

Guy F. Bryant serves as the Executive Vice President--Priority Healthcare
Distribution, a position that he has held since September 1995. Prior to
joining the Company, he was employed in sales management positions by Major
Pharmaceuticals, a distributor of generic pharmaceuticals, since September
1992 and was vice president of sales from August 1994 to August 1995. Until
September 1992, Mr. Bryant was a branch manager for Durr Medical, a
distributor of medical supplies.

Steven D. Cosler became Executive Vice President--Priority Pharmacy Services
of the Company in August 1997. Prior to that time and since July 1996, he was
Senior Vice President and General Manager of Priority Healthcare Services
Corporation, a subsidiary of BWI. From January 1992 to June 1996, he was
senior vice president of sales and operations for Coresource, a managed care
and third party administrator.

Donald J. Perfetto has been the Vice President, Chief Financial Officer and
Treasurer of the Company since June 1997. From 1986 to May 1997, he was
employed by Bimeco, Inc., a distributor of medical products. During such time,
Mr. Perfetto held the positions of vice president of finance and operations
and secretary/treasurer of Bimeco, Inc.

38
<PAGE>

Melissa E. McIntyre, RN, OCN, is the Vice President--Clinical Services, a
position that she has held since August 1997. She has also been President and
Chief Operating Officer of IV-1, Inc., IV-One Services, Inc. and National
Pharmacy Providers, Inc., subsidiaries of the Company since February 1995 and
was Director of Clinical Services of IV-1, Inc. from June 1994 to January
1995. Prior to joining the Company, and since June 1991, she was employed by
Intracare, an outpatient infusion center, as clinical director of nursing.

Barbara J. Luttrell is the Vice President--Administration of the Company, a
position she has held since May 1997. Prior to joining the Company in January
1997, she was employed by Physician's Alliance, a physician group, as director
of human resources since September 1996. She attended law school from May 1993
to December 1995 and practiced as an attorney from May 1996 to September 1996.
From December 1995 to May 1996, Ms. Luttrell prepared for the bar examination.
From July 1992 to February 1993, she was a human resources consultant employed
by Infusion Therapy, Inc. Prior to July 1992, she was employed by Semoran
Management Corporation as vice president human resources. Ms. Luttrell has 15
years of experience in human resource management.

William M. Woodard is the Vice President--Marketing of the Company, a
position that he has held since May 1997. From February 1995 to May 1997, he
was Executive Vice President of Sales of IV-1, Inc., IV-One Services, Inc.,
and National Pharmacy Providers, Inc.; from July 1994 to February 1995, he was
President of National Pharmacy Providers, Inc.; and from April 1993 to
February 1995, he was President of IV-1, Inc. From March 1990 until April
1993, Mr. Woodard was a sales representative for Tri State Hospital Supply, a
distributor of medical supplies.

Michael D. McCormick is the Secretary of the Company, a position that he has
held since July 1994. He is also the Executive Vice President, General Counsel
and Secretary of BWI, positions he has held for more than the past five years,
and a director of BWI. Mr. McCormick was the Executive Vice President and
General Counsel of the Company from July 1994 until May 1997 and has served as
a director of the Company since June 1994.

Thomas J. Salentine is the Executive Vice President and Chief Financial
Officer of BWI, positions he has held for more than the past five years. He is
also a director of BWI. Mr. Salentine was the Executive Vice President of the
Company from July 1994 until May 1997, the Chief Financial Officer of the
Company from July 1994 until May 1995 and the Treasurer of the Company from
May 1997 to June 1997. He has served as a director of the Company since July
1994.

Richard W. Roberson is the president of Sand Dollar Partners, Inc., an
investment and consulting firm, a position which he has held since November
1996. Prior to that time, Mr. Roberson served as president and chief executive
officer of Visionworks, Inc., a retail superstore optical chain, from March
1993 to September 1996. From 1978 to March 1993, Mr. Roberson held various
positions with Eckerd Corporation, including chief executive officer of Insta-
Care Pharmacy Services, Inc. and president of Eckerd Vision Group from 1988 to
1993. Mr. Roberson is also a director of C.H. Heist Corporation, an industrial
cleaning and maintenance company.

Rebecca M. Shanahan became vice president, managed care of the University of
Chicago Hospitals and Health Systems in September 1997, where she is
responsible for the development and implementation of managed care programs
and products. From December 1996 until assuming her present position, she
performed legal and consulting services as an independent contractor for
various entities in the health care industry. From 1991 until December 1996,
she held executive officer positions with Methodist Medical Group and Beltway
Services, a 600 member physician practice group affiliated with Methodist
Hospital in Indianapolis, Indiana, with her latest position being senior vice
president and chief operating officer. From 1986 to 1991 she was vice
president and general counsel of Community Hospitals of Indiana, Inc.

Directors of the Company are divided into three classes with staggered
three-year terms. The term of the first class will expire at the annual
meeting of shareholders in 1998 and the terms of the second and third classes

39
<PAGE>

will expire at the annual meetings of shareholders in 1999 and 2000,
respectively. The terms of the Company's current and proposed Directors will
expire as follows: Messrs. McCormick and Salentine--1998; Messrs. Myers and
Roberson--1999; and Mr. Bindley and Ms. Shanahan--2000.

Executive officers of the Company serve at the discretion of the Board of
Directors. There is no family relationship between any of the Directors or
executive officers of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors will have two committees: an Audit, Ethics and
Compliance Committee and a Compensation Committee.

The functions of the Audit, Ethics and Compliance Committee include making
recommendations to the Board of Directors as to the selection of the firm of
independent public accountants to examine the books and accounts of the
Company for each fiscal year, the proposed engagement arrangements for the
independent public accountants for each fiscal year, and the advisability of
having the independent public accountants make specified studies and reports
regarding auditing matters, accounting procedures, tax or other matters. The
Audit, Ethics and Compliance Committee will also review the results of the
audit for each fiscal year, such accounting policies of the Company as are
deemed appropriate for review by the Committee, and the coordination between
the independent public accountants and the Company's chief accounting officer.
The Audit, Ethics and Compliance Committee is also responsible for reviewing
all related party transactions and for monitoring corporate policies and
procedures with respect to the Company's ethics and compliance program. Upon
consummation of this offering, the members of the Audit, Ethics and Compliance
Committee will be Mr. Roberson and Ms. Shanahan, each of whom will be an
"independent director" within the meaning of the rules of the Nasdaq National
Market.

The functions of the Compensation Committee include considering and
recommending to the Board of Directors and Company management the overall
compensation programs of the Company, reviewing and approving the compensation
payable to the senior management personnel of the Company, and reviewing and
monitoring the executive development efforts of the Company to assure
development of a pool of management and executive personnel adequate for
orderly management succession. The Committee will also review significant
changes in employee benefits plans and stock related plans and serve as the
"Committee" under the Company's 1997 Stock Option and Incentive Plan. The
members of the Compensation Committee will be Mr. Roberson and Ms. Shanahan,
each of whom is a "non-employee director" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and an "outside director" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code").

The Board of Directors may, from time to time, establish certain other
committees to facilitate its work.

COMPENSATION OF DIRECTORS

No compensation was paid during 1996 to any director of the Company for
services as a director of the Company. The Company will pay directors who are
not employees of the Company or BWI an annual retainer of $15,000 and a fee of
$1,000 for each Board meeting or committee meeting attended. The annual
retainer will be paid 50% in cash and 50% in the form of shares of Class B
Common Stock, valued at 100% of the fair market value of such shares on the
date of grant. Such shares will not be registered and will be subject to the
resale limitations of Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"). Directors who are full-time employees of the Company or BWI
will not receive any additional compensation for serving as directors or for
attending meetings, but all directors will be reimbursed for all reasonable
out-of-pocket expenses incurred in connection with attendance at meetings.

40
<PAGE>

The Company has adopted an Outside Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan reserves for issuance 25,000 shares of
the Company's Class B Common Stock, subject to adjustment in certain events.
Pursuant to the Directors Plan, each non-employee director ("Eligible
Director") will be automatically granted an option to purchase 1,000 shares of
Class B Common Stock on June 1 of each year beginning June 1, 1998. The option
exercise price per share will be the fair market value of one share of Class B
Common Stock on the date of grant. Each option becomes exercisable six months
following the date of grant and expires ten years following the date of grant.
Subject to certain exceptions, 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 will initially be two Eligible Directors, Mr.
Roberson and Ms. Shanahan. The Eligible Directors are not eligible for grants
or awards under any other stock, bonus or benefit plans of the Company.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes compensation paid by the Company for services
rendered in all capacities to the Company during 1996, to the individual who
served as the Company's Chief Executive Officer during 1996, and to each of
the Company's four 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 BONUS UNDERLYING ALL OTHER
POSITION SALARY (1) OPTIONS COMPENSATION
----------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
William E. Bindley
Chairman of the
Board(2).............. $ --(3) $ --(3) --(3) $ --(3)
Robert L. Myers
President and Chief
Executive Officer(4).. 105,000 130,000 -- 121(5)
Guy F. Bryant
Executive Vice
President--
Priority Healthcare
Distribution.......... 125,735 55,500 -- 11,861(6)
Melissa E. McIntyre
Vice President--
Clinical Services..... 110,923 55,500 -- 12,080(7)
William M. Woodard
Vice President--
Marketing............. 101,119 50,600 -- 12,111(8)
</TABLE>
- --------
(1) Reflects bonus earned during the specified year, but paid in the following
year.
(2) Mr. Bindley served as the Chief Executive Officer of the Company from July
1994 until May 1997, but he did not receive or earn any compensation for
his services rendered as Chief Executive Officer.
(3) Does not include compensation paid by BWI to Mr. Bindley as an officer of
BWI.
(4) Mr. Myers became the Chief Executive Officer of the Company in May 1997.
(5) Represents $121 in group life insurance premiums.
(6) Consists of $11,782 in Company contributions to BWI's qualified profit
sharing plan (the "BWI Profit Sharing Plan") and $79 in group life
insurance premiums.
(7) Consists of $12,000 in Company contributions to the BWI Profit Sharing
Plan and $80 in group life insurance premiums.
(8) Consists of $12,000 in Company contributions to the BWI Profit Sharing
Plan and $111 in group life insurance premiums.

41
<PAGE>

1997 STOCK OPTION AND INCENTIVE PLAN

On August 25, 1997, the Board of Directors and BWI, as sole shareholder of
the Company, adopted the 1997 Stock Option and Incentive Plan (the "1997 Stock
Option Plan"). Under the 1997 Stock Option Plan, the Company may award stock
options and shares of restricted stock to officers, key employees, and
consultants of the Company. The aggregate number of shares of Class B Common
Stock that may be awarded under the 1997 Stock Option Plan is 1,250,000,
subject to adjustment in certain events. No individual participant may receive
awards for more than 300,000 shares in any calendar year.

The 1997 Stock Option Plan is currently administered by the Board of
Directors of the Company. After consummation of the offering, the 1997 Stock
Option Plan will be administered by the Compensation Committee. Subject to the
terms of the 1997 Stock Option Plan, the Compensation Committee will have the
sole discretion and authority to select those officers and key employees to
whom awards will be made, to designate the number of shares to be covered by
each award, to establish vesting schedules, to specify all other terms of the
awards (subject to certain restrictions) and to interpret the 1997 Stock
Option Plan. Awards of options and shares of restricted stock as to which
restrictions have not lapsed are not transferable other than pursuant to the
laws of descent and distribution.

With respect to stock options under the 1997 Stock Option Plan that are
intended to qualify as "incentive stock options" under Section 422 of the
Code, the option price must be at least 100% (or, in the case of a holder of
more than 10% of the total combined voting power of the Company's stock, 110%)
of the fair market value of a share of Class B Common Stock on the date of the
grant of the stock option. The Compensation Committee will establish the
exercise price of options that do not qualify as incentive stock options
("non-qualified stock options") at the time the options are granted. No
incentive stock option granted under the 1997 Stock Option Plan may be
exercised more than ten years (or, in the case of a holder of more than 10% of
the total combined voting power of the Company's stock, five years) from the
date of grant or such shorter period as the Compensation Committee may
determine from the date it is granted. Non-qualified stock options may be
exercised during such period as the Compensation Committee determines at the
time of grant, which period may not be more than ten years from the date of
grant. Under the 1997 Stock Option Plan, the Compensation Committee may grant
awards of restricted shares, in which case the grantee would be granted shares
of Class B Common Stock, subject to such forfeiture provisions and transfer
restrictions as the Compensation Committee determines.

Subject to the discretion of the Compensation Committee, generally if the
employment of a grantee of stock options or restricted shares is terminated
for cause or voluntarily by the grantee for any reason other than death,
disability or retirement, such grantee's options expire and any restricted
shares are forfeited at the date of termination. The Board of Directors may
terminate or amend the 1997 Stock Option Plan at any time; however,
shareholder approval must be obtained to the extent necessary to comply with
Rule 16b-3 under the Exchange Act, Section 422 of the Code, or any other
applicable law or regulation, including the requirements of any stock exchange
or quotation system on which the Class B Common Stock is listed or quoted. The
1997 Stock Option Plan provides for accelerated vesting of outstanding options
in the event of a change in control or the dissolution or liquidation of the
Company. The 1997 Stock Option Plan also provides for accelerated vesting of a
grantee's restricted shares upon the involuntary termination of such grantee
within 12 months following a change in control of the Company or upon the
dissolution or liquidation of the Company.

On August 25, 1997, the Company's Board of Directors granted a combination
of incentive and non-qualified stock options to employees under the 1997 Stock
Option Plan for an aggregate of 405,050 shares of Class B Common Stock,
effective at the closing date of the offering. The Board of Directors also
granted a non-qualified stock option to a consultant of the Company for 50,000
shares of Class B Common Stock, effective at the closing date of the offering.
See "--Consulting Agreement." Each of such options has an exercise price equal
to the initial public offering price set forth on the cover page of this
Prospectus and has a term of 10 years. The incentive stock options vest on
January 1, 1999 and the non-qualified stock options vest 25% on each January
1, in the years 1999 through 2002. Included in these grants were grants to Ms.
McIntyre and Messrs. Myers, Bryant and Woodard of options for 40,000 shares,
100,000 shares, 40,000 shares and 15,000 shares, respectively.

42
<PAGE>

No employees of the Company will be eligible to receive options under any
BWI stock option plan for 1997 or any future year. In the event of a
Distribution by BWI of its Class A Common Stock, employees of the Company who
have exercisable stock options from BWI may elect to waive all of their rights
under those BWI options, in which case the Company will grant the employee
substitute options for shares of Class B Common Stock with equivalent economic
value.

ESOP

If BWI effects the Distribution of its Class A Common Stock to its
shareholders, the Company will establish an employee stock ownership plan
("ESOP") for its employees. The ESOP would acquire shares of Class B Common
Stock from the Company which would be equal to approximately 5% of the then
outstanding Common Stock. See "Relationship With BWI."

PROFIT SHARING PLAN

The Company's eligible employees participate in the BWI Profit Sharing Plan.
All employees are generally eligible to participate in the BWI 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 BWI Profit Sharing
Plan) and having reached age 21.

The annual contribution of the Company to the BWI Profit Sharing Plan is at
the discretion of the Board of Directors of BWI 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 BWI Profit
Sharing Plan. Subject to applicable Code requirements, employees may make
"rollover" contributions to the BWI Profit Sharing Plan of qualifying
distributions from other employers' qualified plans.

If BWI effects the Distribution of its Class A Common Stock to its
shareholders, the Company's employees would no longer be eligible to
participate in the BWI Profit Sharing Plan. In lieu of this benefit, the
Company would establish the ESOP.

EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS

The Company has entered into a Termination Benefits Agreement with Mr.
Myers. The purpose of the agreement is to encourage him to remain with the
Company by assuring him of certain benefits in the event of a "Change in
Control" of the Company.

The Termination Benefits Agreement provides for payments to Mr. Myers upon
the occurrence of certain events. The Termination Benefits Agreement has an
initial term through December 31, 1998 and is automatically extended annually
for an additional one-year period unless notice is given by the Company or Mr.
Myers. The Termination Benefits Agreement is designed to protect Mr. Myers
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 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. Any Distribution by BWI of its
Class A Common Stock would not constitute a "Change in Control."

43
<PAGE>

Following a "Change in Control," Mr. Myers is entitled to the benefits
provided by the Termination Benefits Agreement in the event his employment is
terminated within three years for any reason other than for cause or due to
his death, disability, or normal retirement.

In addition, Mr. Myers is entitled to the benefits of the Termination
Benefits Agreement if, after a "Change in Control," he terminates his
employment with the Company within three years in response to certain actions
by the Company which include, among other things, a substantial reduction in
his duties or responsibilities, reduction in the level of salary payment 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 Mr. Myers, or the breach by the Company of any of the provisions
of the Termination Benefits Agreement.

Upon termination of employment, if Mr. Myers is entitled to the benefits
payable under the Termination Benefits Agreement, he 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 his 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 Code.

On June 1, 1997, the Company entered into an employment agreement with each
of Guy F. Bryant, Steven D. Cosler, Melissa E. McIntyre and William M.
Woodard. The Company also entered into an employment agreement with Donald J.
Perfetto on June 23, 1997. Each of the agreements is for a term to expire on
February 28, 1999. Under the terms of these agreements, Mr. Bryant, Mr.
Cosler, Ms. McIntyre, Mr. Woodard and Mr. Perfetto are entitled to receive
base salaries of $11,050 per month, $12,283 per month, $10,600 per month,
$9,583 per month and $9,167 per month, respectively, subject to annual review
for potential increase. These employment agreements provide that Mr. Bryant,
Mr. Cosler, Ms. McIntyre, Mr. Woodard and Mr. Perfetto are eligible to receive
an annual bonus based on individual and company performance, up to 60% of
annualized monthly salary for Mr. Bryant, Mr. Cosler or Ms. McIntyre, up to
50% of annualized monthly salary for Mr. Woodard and up to 48% of annualized
monthly salary for Mr. Perfetto. Pursuant to the employment agreements, if the
Company terminates Mr. Bryant, Mr. Cosler, Ms. McIntyre, Mr. Woodard or Mr.
Perfetto, as the case may be, without cause prior to the expiration of the
employment agreement, the Company shall pay to Mr. Bryant, Mr. Cosler, Ms.
McIntyre, Mr. Woodard or Mr. Perfetto, as the case may be, the aggregate
amount of regular compensation that he or she would be entitled to receive
under the agreement for a six-month period.

The Company also entered into a non-compete agreement with each of Mr.
Bryant, Mr. Cosler, Ms. McIntyre and Mr. Woodard on June 1, 1997 and with Mr.
Perfetto on June 23, 1997. These non-compete agreements contain
confidentiality provisions and provide that, for one year after termination of
employment with the Company for any reason other than termination by the
Company without cause, in which event the period shall be six months, Mr.
Bryant, Mr. Cosler, Ms. McIntyre, Mr. Woodard or Mr. Perfetto, as the case may
be, may not compete with the Company, solicit the Company's customers or
induce the Company's employees to terminate their employment.

CONSULTING AGREEMENT

In connection with the Company's acquisition of the IV One Companies, the
Company entered into a four-year consulting agreement with one of the sellers,
Martin A. Nassif. Pursuant to the agreement, which expires December 31, 1998,
Mr. Nassif receives a fee of $10,000 per month and is entitled to receive as
additional compensation an amount equal to 3% of Pre-Tax Net Profit (as
defined in the agreement) of the Company for calendar years 1995 through 1998,
with a guaranteed aggregate minimum amount of $1.0 million payable as
additional compensation. Under the consulting agreement, Mr. Nassif is also
entitled to and will receive a 10-year option to acquire 50,000 shares of
Class B Common Stock at the initial public offering price.

44
<PAGE>

RELATIONSHIP WITH BWI

CURRENT RELATIONSHIP

The Company was incorporated in June 1994 as a wholly-owned subsidiary of
BWI to operate the alternate site healthcare businesses acquired by BWI.
Currently, the Company is a wholly-owned subsidiary of BWI and three of the
four members of the Company's Board of Directors are directors and executive
officers of BWI.

CERTAIN TRANSACTIONS

BWI has provided management and consulting services to the Company which
included, but were not limited to, legal, human resources, payroll and tax.
The Company was charged $49,000, $75,000 and $65,000 for 1994, 1995 and 1996,
respectively. These amounts were based on an allocation of the actual services
rendered by BWI.

The Company's eligible employees participate in BWI's Profit Sharing Plan.
BWI's contributions to the plan for Company employees for 1994, 1995 and 1996
were $69,344, $119,283 and $229,990, respectively.

The Company was also provided coverage under the BWI insurance plans. The
expenses of these plans were charged to the Company based on a combination of
a pro rata allocation and the push-down of actual expenses incurred, depending
on the type of expenditure. The insurance expense allocated to the Company was
$38,000, $100,000 and $132,000 for 1994, 1995 and 1996, respectively.

At December 31, 1995 and December 31, 1996 the Company owed BWI $3.9 million
and $9.3 million, respectively. This liability represents the cost of certain
transactions undertaken by the Company that were paid or financed by BWI. The
interest expense attributable to the related party borrowings was $211,000,
$455,000 and $408,000 for 1994, 1995 and 1996, respectively. This interest
expense was calculated by applying the BWI average incremental borrowing rate
to the average outstanding borrowings. For 1994, 1995 and 1996 the average
outstanding borrowings were $3.6 million, $6.4 million and $6.4 million,
respectively. The average incremental borrowing rates applied to these
borrowings were 5.9%, 7.1% and 6.4% for 1994, 1995 and 1996, respectively.

The Company has purchased inventory from BWI at the price paid by BWI for
such inventory. Intercompany purchases of inventory from BWI were $9.4
million, $8.3 million and $1.8 million in 1994, 1995 and 1996, respectively.

The Company believes that each of the above transactions was on terms no
less favorable to the Company than those that could have been obtained from
unaffiliated third parties.

On March 31, 1997, the Company paid a dividend to BWI in the form of a
subordinated promissory note with a principal amount of $6.0 million. The
Dividend Note bears interest at the rate of 7.25% per annum. Interest on the
Dividend Note must be paid by the Company on a quarterly basis, with the
principal amount due on March 31, 1999. The dividend returned a portion of
BWI's equity investment in the Company. After giving effect to the dividend,
BWI's aggregate investment in the Company on March 31, 1997 was approximately
$24.9 million.

RELATIONSHIP AND TRANSACTIONS FOLLOWING THE OFFERING

Immediately following this offering, the Company will continue to be
controlled by BWI, which will own more than 80% of the outstanding Common
Stock of the Company. BWI has advised the Company that, following this
offering, BWI will continue to evaluate whether to distribute its ownership
interest in the Company to its shareholders by means of a spin-off. The
Distribution is unlikely to be completed before 1998. In making the
evaluation, BWI is expected to consider such matters as the need for an ESOP
and other equity-based compensation incentives to attract and retain qualified
personnel for the Company, the relative trading prices of the Class B Common
Stock and BWI common stock after this offering, the results of operations of
the Company and BWI, and the relative prospects of BWI and the Company on a
stand-alone basis. The Distribution will also be subject to the receipt of a
favorable ruling from the Internal Revenue Service as to the tax-free nature
of the transaction.

45
<PAGE>

Set forth below are descriptions of certain agreements between the Company
and BWI which will be in place following the consummation of this offering.
The Company has adopted a policy that, following the offering made hereby, all
future agreements, including any amendments to those set forth herein, between
the Company and BWI and its affiliates will be subject to the review of the
Company's Audit, Ethics and Compliance Committee and will be on terms that the
Audit, Ethics and Compliance Committee believes are no less favorable to the
Company than terms that would be available from unaffiliated parties. The
Audit, Ethics and Compliance Committee will be composed entirely of
"independent directors" within the meaning of the rules of the Nasdaq National
Market.

Revolving Credit Promissory Note. BWI will make available to the Company a
$30.0 million line of credit. The Company may utilize the line for working
capital purposes and for possible acquisitions. The maturity date for the line
is December 31, 1998. Outstanding principal amounts under the line will bear
interest, payable quarterly, at a rate equal to the rate then paid by BWI
under its primary line of credit agreement.

Indemnification and Hold Harmless Agreement. The Company and BWI have
entered into an Indemnification and Hold Harmless Agreement (the
"Indemnification Agreement"), in which each party agrees to indemnify and hold
harmless the other from and against certain obligations and contingent
liabilities. Specifically, the Indemnification Agreement provides that the
Company will indemnify and hold harmless BWI from obligations related to a
guarantee which BWI made in favor of the Company and from certain indemnity
and other obligations which BWI assumed, or which could be charged against
BWI, in connection with the five acquisitions by or on behalf of the Company.
The Indemnification Agreement also provides that BWI will indemnify and hold
harmless the Company from and against contingent liabilities in connection
with certain litigation to which the Company is not a party.

Tax Sharing Agreement. Unless and until the Distribution of the Class A
Common Stock to shareholders of BWI occurs, the results of operations of the
Company and its domestic subsidiaries that are at least 80% owned by the
Company (the "Company Group") will be included in BWI's consolidated federal
income tax returns and in BWI's consolidated or combined state tax returns. In
connection with this offering, BWI and the Company have entered into a Tax
Sharing Agreement that provides, among other things, for the allocation
between BWI and the Company of federal, state, local and foreign tax
liabilities for all periods through the date that any Distribution occurs (the
"Distribution Date"). Generally, the Company will be responsible for the
portion of any tax deficiencies of BWI assessed with respect to all periods up
to and including the Distribution Date that give rise to a tax benefit to the
Company in a post-Distribution period. The Company will also be entitled to
tax refunds received by BWI that result in a tax detriment to the Company for
those post-Distribution periods. The Company will also be responsible for all
income taxes imposed on the Company Group during the taxable period or portion
thereof beginning on January 1, 1998 and ending on or before the Distribution
Date. Furthermore, the Tax Sharing Agreement provides that, if the
Distribution fails to qualify as a tax-free distribution as a result of any
event occurring prior to the second anniversary of the Distribution Date that
results from the breach of certain covenants made by the Company in the Tax
Sharing Agreement or involves either the stock or assets (or any combination
thereof) of any member of the Company Group, then the Company must indemnify
and hold BWI harmless, on an after-tax basis, from any tax liability imposed
upon it in connection with the Distribution. The Tax Sharing Agreement also
prohibits the Company from entering into certain transactions or disposing of
substantially all of its assets prior to the second anniversary of the
Distribution Date in the absence of a prior opinion of independent tax counsel
or the receipt of a private letter ruling from the Internal Revenue Service
that such transaction or disposition will not cause the Distribution to be a
taxable transaction.

Administrative Services Agreement. The Company and BWI have entered into an
Administrative Services Agreement (the "Services Agreement") relating to the
provision of certain services by BWI to the Company. The services covered by
the Services Agreement will include administrative services for employee
benefits and risk management, legal, tax and treasury services. The Company
anticipates that it will pay BWI a total of $80,000 in the first twelve months
following this offering for such services.

46
<PAGE>

PRINCIPAL SHAREHOLDER

Prior to this offering, the only shareholder of the Company is BWI, whose
address is 10333 North Meridian Street, Indianapolis, Indiana 46290. As of the
date of this Prospectus, BWI owns beneficially and of record 10,214,286 shares
of Class A Common Stock, representing all of the shares of Common Stock
outstanding prior to this offering. Upon completion of this offering, BWI will
own beneficially and of record 10,214,286 shares of Class A Common Stock, or
83.6% of the outstanding Common Stock (81.6% if the Underwriters' over-
allotment option is exercised in full), and will have 93.9% of the voting
power of the outstanding Common Stock (93.0% if the Underwriters' over-
allotment option is exercised in full). Accordingly, BWI, acting alone, will
be able to elect the entire Board of Directors of the Company and to control
the vote on matters submitted to a vote of the Company's shareholders,
including extraordinary corporate transactions. See "Risk Factors."

The following table sets forth as of June 30, 1997 the number of shares of
BWI common stock owned by each director or nominee for director of the
Company, by each of the Named Executive Officers, and by all current 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.

<TABLE>
<CAPTION>
BWI COMMON STOCK
------------------------------
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED OF CLASS
---- ------------------ --------
<S> <C> <C>
William E. Bindley(1)...................... 3,291,034(2)(3) 27.4%
Robert L. Myers............................ 19,910(2)(4) *
Guy F. Bryant.............................. 9,340(2)(5) *
Melissa E. McIntyre........................ 3,608(2)(6) *
William M. Woodard......................... 3,656(2)(7) *
Michael D. McCormick....................... 272,322(2)(8) 2.3%
Thomas J. Salentine........................ 320,425(2)(9) 2.7%
Richard W. Roberson........................ -- *
Rebecca M. Shanahan........................ -- *
All current directors and executive
officers as a group (12 persons).......... 3,925,495(2)(10) 31.2%
</TABLE>
- --------
*Less than one percent.
(1) The address of this shareholder is 10333 North Meridian Street, Suite
300, Indianapolis, Indiana 46290.
(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 BWI. Also includes 1,000 shares held by Mr. Bindley's spouse;
Mr. Bindley disclaims beneficial ownership of such shares.
(4) Includes presently exercisable stock options to purchase 11,088 shares
granted by BWI. Also includes 300 shares held by Mr. Myers' minor child.
(5) Includes presently exercisable stock options to purchase 8,424 shares
granted by BWI.
(6) Includes presently exercisable stock options to purchase 3,608 shares
granted by BWI.
(7) Includes presently exercisable stock options to purchase 2,983 shares
granted by BWI.
(8) Includes presently exercisable stock options to purchase 255,000 shares
granted by BWI.
(9) Includes presently exercisable stock options to purchase 281,500 shares
granted by BWI.
(10) Includes presently exercisable stock options to purchase 790,508 shares
granted by BWI.

47
<PAGE>

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED SHARES

The Company's authorized shares consist of 15,000,000 shares of Class A
Common Stock, $0.01 par value, 40,000,000 shares of Class B Common Stock,
$0.01 par value, and 5,000,000 shares of Preferred Stock, without par value.
Based on the number of shares of Class A Common Stock outstanding as of August
25, 1997, after giving effect to the sale of the 2,000,000 shares of Class B
Common Stock offered hereby, there will be 10,214,286 shares of Class A Common
Stock and 2,000,000 shares of Class B Common Stock, or an aggregate of
12,214,286 shares of Common Stock, outstanding upon completion of the
offering. No shares of Preferred Stock have been issued as of the date of this
Prospectus.

COMMON STOCK

The two classes of Common Stock entitle holders to the same rights and
privileges, except that holders of shares of Class A Common Stock are entitled
to three votes per share on all matters submitted to a vote of holders of
Common Stock, and holders of shares of Class B Common Stock are entitled to
one vote per share on such matters. The two classes of Common Stock vote
together as a single class on all matters except as otherwise required by
applicable law.

The Class A Common Stock will automatically be converted into shares of
Class B Common Stock on a share-for-share basis upon any transfer or purported
transfer to any person other than: (i) a dividend or other distribution of the
shares of Class A Common Stock to the shareholders of BWI; or (ii) family
members of the transferee, or trusts for the benefit of or entities controlled
by the transferee or family members of the transferee.

Except as set forth below (and as provided by law), all matters submitted to
a vote of shareholders will be voted on by holders of Class A Common Stock and
Class B Common Stock voting together as a single class. Holders of outstanding
shares of Class A Common Stock and Class B Common Stock, respectively, vote
separately as a class with respect to certain amendments to the Company's
Restated Articles of Incorporation. These amendments would include changes in
the aggregate number of authorized shares of a class, an exchange or
reclassification of shares of one class into another class, or other changes
to the designation, rights, preferences or limitations of a class.

Subject to any preferential rights of any Preferred Stock created by the
Company's Board of Directors, each outstanding share of Common Stock will be
entitled to such dividends as may be declared from time to time by the Board
of Directors. Holders of shares of Class A Common Stock and holders of shares
of Class B Common Stock will be treated equally with respect to such
dividends, except that in the case of dividends payable in Common Stock,
holders of Class A Common Stock may only receive shares of Class A Common
Stock and holders of Class B Common Stock may only receive shares of Class B
Common Stock. See "Dividend Policy." Holders of Common Stock are not entitled
to cumulate their votes in an election of directors; therefore, the holders of
a majority of the votes cast in an election of the Board of Directors of the
Company can elect all the directors up for election, if they so choose. In the
event of liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to receive on a pro rata basis any assets remaining
after provision for payment of creditors and after payment of any liquidation
preferences to holders of Preferred Stock.

PREFERRED STOCK

The authorized Preferred Stock is available for issuance from time to time
at the discretion of the Board of Directors without shareholder approval. The
Board of Directors has the authority to prescribe for each series of Preferred
Stock it establishes the number of shares in that series, the number of votes
(if any) to which such shares in that series are entitled, the consideration
for such shares in that series and the designations, powers, preferences and
relative, participating, option or other special rights, and such
qualifications, limitations or

48
<PAGE>

restrictions of the shares in that series. Depending upon the rights of such
Preferred Stock, the issuance of Preferred Stock could have an adverse effect
on holders of Common Stock by delaying or preventing a change in control of
the Company, making removal of the present management of the Company more
difficult or resulting in restrictions upon the payment of dividends and other
distributions to the holders of Common Stock.

AUTHORIZED BUT UNISSUED SHARES

Indiana law does not require shareholder approval for any issuance of
authorized shares. These additional shares may be used for a variety of
corporate purposes, including future public or private offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of unissued and unreserved shares may be to enable the Board
of Directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the shareholders of opportunities to sell their shares of
Common Stock at prices higher than prevailing market prices.

NO PREEMPTIVE RIGHTS

No holder of any class of authorized shares of the Company has any
preemptive right to subscribe to any securities of the Company of any kind or
class.

CERTAIN PROVISIONS OF RESTATED ARTICLES OF INCORPORATION AND BY-LAWS

Certain provisions of the Company's Restated Articles of Incorporation and
By-Laws may delay or make more difficult unsolicited acquisitions or changes
of control of the Company. Such provisions could have the effect of
discouraging third parties from making proposals involving an unsolicited
acquisition or change in control of the Company, although such proposals, if
made, might be considered desirable by a majority of the Company's
shareholders. Such provisions may also have the effect of making it more
difficult for third parties to cause the replacement of the current management
of the Company without the concurrence of the Board of Directors. These
provisions include: (i) the division of the Board of Directors into three
classes, each class serving "staggered" terms of office of three years (see
"Management--Directors and Executive Officers"); (ii) the availability of
authorized shares of stock for issuance from time to time at the discretion of
the Board of Directors (see "--Authorized But Unissued Shares"); (iii)
provisions allowing the removal of directors only for cause and only upon a 66
2/3% shareholder vote, taken at a meeting called for that purpose; (iv)
provisions which require the participation of 80% of the voting power of the
outstanding Common Stock in order for the shareholders to demand the calling
of a special meeting of shareholders; and (v) requirements for advance notice
for raising business or making nominations at shareholders' meetings.

The Company's By-Laws establish an advance notice procedure with regard to
business to be brought before an annual or special meeting of shareholders of
the Company and with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors.
Although the Company's By-Laws do not give the Board of Directors any power to
approve or disapprove shareholder nominations for the election of directors or
proposals for action, they may have the effect of precluding a contest for the
election of directors or the consideration of shareholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its proposal without regard to whether consideration
of such nominees or proposals might be harmful or beneficial to the Company
and its shareholders.

The Restated Articles of Incorporation provide that, in the case of a
merger, sale of assets, issuance of securities, liquidation or
reclassification (a "business combination") involving a beneficial owner of
10% or more of the voting power of the Company's capital stock (a "Related
Person"), or any affiliate or associate of a Related Person, such business
combination must be approved by (i) 66 2/3% of the voting power of the

49
<PAGE>

outstanding voting stock of the Company and (ii) a majority of the then
outstanding voting power of the voting stock held by shareholders other than
the Related Person, unless the business combination is approved in advance by
the Continuing Directors (as defined in the Restated Articles of
Incorporation) or the consideration to be received by shareholders in the
business combination is at least equal to the highest price paid by the
Related Person in acquiring its interest in the Company, with certain
adjustments, and certain other requirements are met. The term Related Person
does not include any person who beneficially owned more than 20% of the voting
power of the Company's capital stock or of BWI on August 25, 1997. See
"Principal Shareholder."

CERTAIN PROVISIONS OF INDIANA LAW

The Indiana Business Corporation Law (the "IBCL") applies to the Company as
an Indiana corporation. Under certain circumstances, the following provisions
of the IBCL may delay, prevent or make more difficult unsolicited acquisition
or changes of control of the Company. Such provisions also may have the effect
of preventing changes in the management of the Company. It is possible that
such provisions could make it more difficult to accomplish transactions which
shareholders may otherwise deem to be in their best interests.

Control Share Acquisitions. Pursuant to Sections 23-1-42-1 to 23-1-42-11 of
the IBCL, an "acquiring person" who makes a "control share acquisition" in an
"issuing public corporation" may not exercise voting rights on any "control
shares" unless such voting rights are conferred by a majority vote of the
disinterested shareholders of the issuing corporation at a special meeting of
such shareholders held upon the request and at the expense of the acquiring
person. In the event that control shares acquired in a control share
acquisition are accorded full voting rights and the acquiring person acquires
control shares with a majority or more of all voting power, all shareholders
of the issuing corporation have dissenters' rights to receive the fair value
of their shares. Under the IBCL, "control shares" means shares acquired by a
person that, when added to all other shares of the issuing public corporation
owned by that person or in respect to which that person may exercise or direct
the exercise of voting power, would otherwise entitle that person to exercise
voting power of the issuing public corporation in the election of directors
within any of the following ranges: (i) one-fifth or more but less than one-
third; (ii) one-third or more but less than a majority; or (iii) a majority or
more. "Control share acquisition" means, subject to certain exceptions, the
acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding control shares. Shares acquired within 90 days or pursuant to a
plan to make a control share acquisition are considered to have been acquired
in the same acquisition. "Issuing public corporation" means a corporation
which is organized in Indiana, has 100 or more shareholders, its principal
place of business, its principal office or substantial assets within Indiana
and either (i) more than 10% of its shareholders resident in Indiana, (ii)
more than 10% of its shares owned by Indiana residents or (iii) 10,000
shareholders resident in Indiana. The above provisions do not apply if, before
a control share acquisition is made, the corporation's articles of
incorporation or by-laws (including a board adopted by-law) provide that said
provisions do not apply. The Company's Restated Articles of Incorporation and
By-Laws do not exclude the Company from the restrictions imposed by such
provisions.

Certain Business Combinations. Sections 23-1-43-1 to 23-1-43-23 of the IBCL
restrict the ability of a "resident domestic corporation" to engage in any
combinations with an "interested shareholder" for five years after the
interested shareholder's date of acquiring shares unless the combination or
the purchase of shares by the interested shareholder on the interested
shareholder's date of acquiring shares is approved by the board of directors
of the resident domestic corporation before that date. If the combination was
not previously approved, the interested shareholder may effect a combination
after the five-year period only if such shareholder receives approval from a
majority of the disinterested shares or the offer meets certain fair price
criteria. For purposes of the above provisions, "resident domestic
corporation" means an Indiana corporation that has 100 or more shareholders.
"Interested shareholder" means any person, other than the resident domestic
corporation or its subsidiaries, who is (i) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting
shares of the resident domestic corporation or (ii) an affiliate or associate
of the resident domestic corporation and at any time within the five-year
period immediately before the date in question was the beneficial owner of 10%
or more of the voting power of the then outstanding shares of the resident
domestic

50
<PAGE>

corporation. The above provisions do not apply to corporations that so elect
in an amendment to their articles of incorporation approved by a majority of
the disinterested shares. Such an amendment, however, would not become
effective until 18 months after its passage and would apply only to stock
acquisitions occurring after its effective date. The Company's Restated
Articles of Incorporation do not exclude the Company from the restrictions
imposed by such provisions.

Directors' Duties and Liability. Under Section 23-1-35-1 of the IBCL,
directors are required to discharge their duties: (i) in good faith; (ii) with
the care an ordinarily prudent person in a like position would exercise under
similar circumstances; and (iii) in a manner the directors reasonably believe
to be in the best interests of the Company. However, the IBCL also provides
that a director is not liable for any action taken as a director, or any
failure to act, unless the director has breached or failed to perform the
duties of the director's office and the action or failure to act constitutes
willful misconduct or recklessness. The exoneration from liability under the
IBCL does not affect the liability of directors for violations of the federal
securities laws.

Section 23-1-35-1 of the IBCL also provides that a board of directors, in
discharging its duties, may consider, in its discretion, both the long-term
and short-term best interests of the corporation, taking into account, and
weighing as the directors deem appropriate, the effects of an action on the
corporation's shareholders, employees, suppliers and customers and the
communities in which offices or other facilities of the corporation are
located and any other factors the directors consider pertinent. If a
determination is made with the approval of a majority of the disinterested
directors of the board, that determination is conclusively presumed to be
valid unless it can be demonstrated that the determination was not made in
good faith after reasonable investigation. Once the board has determined that
the proposed action is not in the best interests of the corporation, it has no
duty to remove any barriers to the success of the action, including a rights
plan. Section 23-1-35-1 specifically provides that certain judicial decisions
in Delaware and other jurisdictions, which might be looked upon for guidance
in interpreting Indiana law, including decisions that propose a higher or
different degree of scrutiny in response to a proposed acquisition of the
corporation, are inconsistent with the proper application of that section.

TRANSFER AGENT

The Transfer Agent for the Class B Common Stock is Harris Trust and Savings
Bank.

SHARES ELIGIBLE FOR FUTURE SALE

The 2,000,000 shares of Class B Common Stock sold in this offering
(2,300,000 if the Underwriters exercise their over-allotment option in full)
will be freely tradable without restriction under the Securities Act, except
for any such shares which may be acquired by an "affiliate" of the Company (an
"Affiliate") as that term is defined in Rule 144 ("Rule 144") promulgated
under the Securities Act, which shares will remain subject to the resale
limitations of Rule 144.

The 10,214,286 shares of Class A Common Stock that will continue to be held
by BWI after the offering will constitute "restricted securities" within the
meaning of Rule 144, and will be eligible for sale in the open market after
the offering, after conversion to shares of Class B Common Stock, subject to
certain contractual lockup provisions and to the applicable requirements of
Rule 144, both of which are described below. So long as BWI is able to elect a
majority of the Board of Directors, it will also be able to cause the Company
at any time to register under the Securities Act all or a portion of the Class
A Common Stock owned by it (whether or not converted into Class B Common
Stock), in which event BWI would be able to sell such shares upon the
effectiveness of any such registration.

Generally, Rule 144 provides that a person who has beneficially owned
"restricted securities" for at least one year will be entitled to sell on the
open market in broker's transactions within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares and (ii) the average weekly trading volume on the open market during
the four calendar weeks preceding such sale. Sales under Rule

51
<PAGE>

144 are also subject to certain notice requirements and the availability of
current public information about the Company. Shares properly sold in reliance
upon Rule 144 to persons who are not Affiliates are thereafter freely
tradeable without the restriction or registration under the Securities Act.

Sales of substantial amounts of Class B Common Stock in the open market, or
the availability of such shares for sale, could adversely affect prevailing
market prices. If BWI effects the Distribution, the shares of Class A Common
Stock distributed by BWI will convert automatically into shares of Class B
Common Stock upon certain transfers and will be eligible for immediate resale
in the public market without restrictions by persons other than Affiliates of
the Company. Any Affiliates would be subject to the restrictions of Rule 144
other than the one-year holding period requirement.

See "Underwriting" for certain limitations on the ability of the Company,
its executive officers and directors, and BWI to dispose of shares of Class B
Common Stock.

52
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Raymond James & Associates, Inc. and Wheat, First Securities, Inc. (the
"Representatives"), have severally agreed to purchase from the Company the
following respective numbers of shares of Class B Common Stock at the initial
public offering price, less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Raymond James & Associates, Inc................................. 912,000
Wheat, First Securities, Inc.................................... 608,000
Bear, Stearns & Co. Inc......................................... 40,000
Cowen & Company................................................. 40,000
A.G. Edwards & Sons, Inc........................................ 40,000
NationsBanc Montgomery Securities, Inc.......................... 40,000
Oppenheimer & Co., Inc.......................................... 40,000
Salomon Brothers Inc............................................ 40,000
Smith Barney Inc................................................ 40,000
William Blair & Company, L.L.C.................................. 20,000
Cleary, Gull, Reiland & McDevitt Inc............................ 20,000
Dain Bosworth Incorporated...................................... 20,000
Hanifen, Imhoff Inc............................................. 20,000
McDonald & Company Securities, Inc.............................. 20,000
Morgan Keegan & Company, Inc.................................... 20,000
The Ohio Company................................................ 20,000
Southwest Securities, Inc....................................... 20,000
Allen & Company of Florida Inc ................................. 10,000
First Equity Corporation of Florida............................. 10,000
Natcity Investments, Inc........................................ 10,000
David A. Noyes & Company........................................ 10,000
---------
Total....................................................... 2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Class B Common Stock offered hereby if any of such
shares are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Class B Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $0.58 per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.10 per share to certain other dealers. The Representatives have
advised the Company that the Underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority. This offering of
Class B Common Stock is made for delivery when, as and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.

The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Class B Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Class B Common Stock to be
purchased by it shown in the above table bears to total shown, and the Company
will be obligated, pursuant to

53
<PAGE>

the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the Class B Common Stock offered hereby. If purchased, the Underwriters
will offer such additional shares on the same terms as those on which the
shares are being offered.

The Company and BWI have agreed to indemnify the Underwriters and certain
controlling persons against certain liabilities, including liabilities under
the Securities Act.

The Company, its executive officers and directors, and BWI, prior to the
consummation of the offering, have agreed not to sell, offer to sell, contract
to sell, pledge or otherwise dispose of or transfer any shares of Class B
Common Stock or any securities convertible into, or exercisable or exchangeable
for, or any rights to purchase or acquire Class B Common Stock for a period of
180 days following the date of this Prospectus without the prior written
consent of Raymond James & Associates, Inc., other than, in the case of the
Company, in certain limited circumstances and, in the case of BWI, in the
Distribution.

Prior to this offering, there has been no public market for the Class B
Common Stock of the Company. Consequently, the initial public offering price of
the Class B Common Stock was determined by negotiations between the Company and
the Representatives. Among the factors considered in such negotiations were
prevailing market conditions, the value of publicly traded companies believed
to be comparable to the Company, the results of operations of the Company in
recent periods, estimates of the business potential of the Company, the present
stage of the Company's development and other factors deemed relevant.

Until the distribution of Class B Common Stock in this offering is completed,
rules of the Securities and Exchange Commission (the "Commission") may limit
the ability of the Underwriters and certain selling group members to bid for
and purchase the Class B Common Stock. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of the Class B Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Class B Common Stock. If the Underwriters create a short position in the Class
B Common Stock in connection with this offering, i.e., if they sell more shares
of Class B Common Stock than are set forth on the cover page of this
Prospectus, the Representatives may reduce the short position by purchasing
Class B Common Stock in the open market. The Representatives may also elect to
reduce any short position by exercising all or part of the over-allotment
option described above. The Representatives may also impose a penalty bid on
certain Underwriters and selling group members. This means that if the
Representatives purchase shares of Class B Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the Class
B Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of this
offering. In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it discouraged resales of any security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Class B Common Stock. In addition, neither the Company nor any of
the Underwriters makes any representation that the Representatives will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.

The foregoing includes a summary of certain principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the Underwriting Agreement that is on file as an exhibit to the
Registration Statement on Form S-1 (together with all amendments thereto, the
"Registration Statement") under the Securities Act and filed by the Company
with the Commission with respect to the shares of Class B Common Stock offered
hereby, of which this Prospectus is a part.

54
<PAGE>

LEGAL MATTERS

Certain legal matters relating to the legality of the issuance of the shares
of Class B Common Stock being offered hereby will be passed upon for the
Company by Baker & Daniels, Indianapolis, Indiana. Certain legal matters will
be passed upon for the Underwriters by Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., Miami, Florida.

EXPERTS

The Consolidated Financial Statements of Priority Healthcare Corporation at
December 31, 1995 and 1996 and for each of the three years in the period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission in Washington, D.C., the
Registration Statement, under the Securities Act with respect to the Class B
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information,
reference is made to the Registration Statement and exhibits thereto. The
information so omitted, including exhibits, may be obtained from the Commission
at its principal office in Washington, D.C. upon the payment of the prescribed
fees, or may be examined, without charge, at public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New
York, New York 10048. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.

55
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Statements of Earnings for each of the three years in the
period ended December 31, 1996 and (unaudited) for the six months ended
June 30, 1996 and June 30, 1997......................................... F-3
Consolidated Balance Sheets at December 31, 1995, December 31, 1996, and
(unaudited) June 30, 1997............................................... F-4
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996 and (unaudited) for the six months ended
June 30, 1996 and June 30, 1997......................................... F-5
Consolidated Statements of Shareholders' Equity for each of the three
years in the period ended December 31, 1996 and (unaudited) for the six
months ended June 30, 1997.............................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholder of Priority Healthcare Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Priority
Healthcare Corporation (a wholly-owned subsidiary of Bindley Western
Industries, Inc.) and its subsidiaries at December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Indianapolis, Indiana
May 28, 1997, except as to
Note 1 and Note 11, which
are as of August 25, 1997
and the last paragraph in
Note 10, which is as of
October 1, 1997

F-2
<PAGE>

PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
--------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................. $107,449 $123,990 $158,247 $65,348 $108,597
Cost of products sold..... 100,254 111,448 141,074 57,947 97,449
-------- -------- -------- ------- --------
Gross profit.............. 7,195 12,542 17,173 7,401 11,148
-------- -------- -------- ------- --------
Selling, general and
administrative expense... 4,394 7,836 8,443 4,009 4,960
Depreciation and
amortization............. 512 998 1,009 500 656
-------- -------- -------- ------- --------
Earnings from operations.. 2,289 3,708 7,721 2,892 5,532
Interest expense, net
(primarily related
party)................... 200 511 437 170 498
-------- -------- -------- ------- --------
Earnings before income
taxes.................... 2,089 3,197 7,284 2,722 5,034
-------- -------- -------- ------- --------
Provision for income
taxes:
Current................. 1,033 1,301 3,061 1,188 1,999
Deferred................ (198) 10 (146) (99) 14
-------- -------- -------- ------- --------
835 1,311 2,915 1,089 2,013
-------- -------- -------- ------- --------
Net earnings.............. $ 1,254 $ 1,886 $ 4,369 $ 1,633 $ 3,021
======== ======== ======== ======= ========
</TABLE>

(See accompanying notes to consolidated financial statements)

F-3
<PAGE>

PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
DATA) --- ---
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash..................................... $ 1,359 $ 1,656 $ 185
Accounts receivable, less allowance for
doubtful accounts of $503, $815 and
$863, respectively...................... 17,333 29,541 40,178
Finished goods inventory................. 12,647 16,132 18,174
Deferred income taxes.................... 295 451 470
Other current assets..................... 58 152 194
------- ------- -------
31,692 47,932 59,201
------- ------- -------
Fixed assets, at cost.................... 1,734 2,138 2,424
Less: accumulated depreciation........... 487 804 1,115
------- ------- -------
1,247 1,334 1,309
------- ------- -------
Intangibles, net......................... 8,645 7,954 7,608
------- ------- -------
Total assets......................... $41,584 $57,220 $68,118
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Payable to parent........................ $ 3,873 $ 9,290 $13,785
Accounts payable......................... 10,792 16,449 19,809
Other current liabilities................ 1,027 1,401 1,585
------- ------- -------
15,692 27,140 35,179
------- ------- -------
Long-term obligations...................... 751 560 365
------- ------- -------
Deferred income taxes...................... 110 120 153
------- ------- -------
Subordinated note payable to parent........ -- -- 6,000
------- ------- -------
Shareholders' equity:
Preferred stock, no par value, 5,000,000
shares authorized, none issued and
outstanding............................. -- -- --
Common stock
Class A, $0.01 par value, 15,000,000
shares authorized, 10,214,286 issued
and outstanding....................... 102 102 102
Class B, $0.01 par value, 40,000,000
shares authorized, none issued and
outstanding........................... -- -- --
Additional paid in capital............. 22,598 22,598 22,598
Retained earnings...................... 2,331 6,700 3,721
------- ------- -------
Total shareholders' equity........... 25,031 29,400 26,421
------- ------- -------
Commitments and contingencies.............. -- -- --
------- ------- -------
Total liabilities and shareholders'
equity.............................. $41,584 $57,220 $68,118
======= ======= =======
</TABLE>

(See accompanying notes to consolidated financial statements)

F-4
<PAGE>

PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 30
----------------------- -----------------------
1994 1995 1996 1996 1997
------ ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flow from operating
activities:
Net income................. $1,254 $1,886 $ 4,369 $1,633 $ 3,021
Adjustments to reconcile net
income to net cash provided
(used) by operating
activities:
Depreciation and
amortization.............. 512 998 1,009 500 656
Deferred income taxes...... (198) 10 (146) (99) 14
Change in assets and
liabilities, net of
acquisitions:
Accounts receivable........ (4,153) 560 (12,208) (4,063) (10,637)
Finished goods inventory... (3,959) 426 (3,485) (1,272) (2,042)
Trade accounts payable..... (216) 2,384 5,657 3,222 3,360
Other current assets and
liabilities............... 164 (293) 280 (138) 142
------ ------ ------- ------ -------
Net cash provided (used)
by operating activities. (6,596) 5,971 (4,524) (217) (5,486)
------ ------ ------- ------ -------
Cash flow from investing
activities:
Purchase of fixed assets... (511) (474) (405) (120) (285)
Acquisition of businesses.. (1,189) (2,538) -- -- --
------ ------ ------- ------ -------
Net cash used by
investing activities.... (1,700) (3,012) (405) (120) (285)
------ ------ ------- ------ -------
Cash flow from financing
activities:
Net increase (decrease) in
payable to parent......... 7,359 (4,471) 5,417 1,398 4,495
Payments on long-term
obligations............... (47) (185) (191) 5 (195)
Contribution by parent..... 1,134 2,906 -- -- --
------ ------ ------- ------ -------
Net cash provided (used)
by financing activities. 8,446 (1,750) 5,226 1,403 4,300
------ ------ ------- ------ -------
Net increase (decrease) in
cash........................ 150 1,209 297 1,066 (1,471)
Cash at beginning of year.... -- 150 1,359 1,359 1,656
------ ------ ------- ------ -------
Cash at end of year.......... $ 150 $1,359 $ 1,656 $2,425 $ 185
====== ====== ======= ====== =======
Supplemental cash flow
information:
Interest paid.............. $ 218 $ 526 $ 445 $ 182 $ 385
Income taxes paid.......... $1,033 $1,301 $ 3,061 $1,188 $ 1,999
</TABLE>

(See accompanying notes to consolidated financial statements)

F-5
<PAGE>

PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A
COMMON STOCK
------------------ ADDITIONAL
SHARES INVESTMENT PAID IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT BY PARENT CAPITAL EARNINGS EQUITY
----------- ------ ---------- ---------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993................... -- $ -- $16,741 $ -- $1,110 $17,851
Net earnings............ 1,254 1,254
Contribution by parent.. 1,134 1,134
Capitalization of
division's retained
earnings............... 1,919 (1,919) --
Capitalization of
investment by parent... 10,214,286 102 (16,741) 16,639 --
---------- ---- ------- ------- ------ -------
Balances at December 31,
1994................... 10,214,286 102 -- 19,692 445 20,239
Net earnings............ 1,886 1,886
Contribution by parent.. 2,906 2,906
---------- ---- ------- ------- ------ -------
Balances at December 31,
1995................... 10,214,286 102 -- 22,598 2,331 25,031
Net earnings............ 4,369 4,369
---------- ---- ------- ------- ------ -------
Balances at December 31,
1996................... 10,214,286 102 -- 22,598 6,700 29,400
Net earnings
(Unaudited)............ 3,021 3,021
Dividend to parent
(Unaudited)............ (6,000) (6,000)
---------- ---- ------- ------- ------ -------
Balances at June 30,
1997 (Unaudited)....... 10,214,286 $102 $ -- $22,598 $3,721 $26,421
========== ==== ======= ======= ====== =======
</TABLE>

(See accompanying notes to consolidated financial statements)

F-6
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. Priority Healthcare Corporation, (the "Company") was
formed by Bindley Western Industries, Inc. (BWI) on June 23, 1994, as an
Indiana corporation to focus on the distribution of products and provision of
services to the "alternate site" segment of the healthcare industry. On August
1, 1994, BWI transferred the net assets of its Charise Charles and PRN
divisions to the Company in exchange for 1,000 shares of common stock, no par
value. The Company now operates as a national distributor of specialty
pharmaceuticals and related medical supplies to the alternate site healthcare
market and is a provider of patient-specific, self-injectable
biopharmaceuticals and disease prevention programs to individuals with chronic
diseases.

On August 25, 1997 the Board of Directors and management of the Company
completed a recapitalization of the Company. Effective on that date, the
Company's capitalization consisted of: (i) 15,000,000 authorized shares of
Class A Common Stock, $0.01 par value, 10,214,286 shares of which were issued
and outstanding and owned by BWI, (ii) 40,000,000 shares of Class B Common
Stock, $0.01 par value, none of which are issued and outstanding
(approximately 2,000,000 shares of which the Company plans to issue in an
initial public offering) and (iii) 5,000,000 shares of Preferred Stock,
without par value, none of which are issued and outstanding. This
recapitalization has been given retroactive effect in these consolidated
financial statements.

The two classes of Common Stock entitle holders to the same rights and
privileges, except that holders of shares of Class A Common Stock are entitled
to three votes per share on all matters submitted to a vote of holders of
Common Stock and holders of Class B Common Stock are entitled to one vote per
share on such matters. The two classes of Common Stock vote together, as a
single class on all matters except as otherwise required by applicable law.

The consolidated financial statements of the Company include certain
allocations of corporate overhead and other expenses incurred by BWI on behalf
of the Company. These expenses and the basis of allocations are discussed in
Note 2--Related party transactions. The Company's financial statements are not
necessarily indicative of the results the Company would have reported had it
existed as a stand-alone public entity, or of the financial position, results
of operations and cash flows of the Company in the future.

Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

Revenue recognition. Revenues are recognized when products are shipped to
unaffiliated customers with appropriate provisions recorded for estimated
discounts and allowances.

Interim unaudited consolidated financial statements. The accompanying
balance sheet as of June 30, 1997, the statements of earnings and cash flow
for the six months ended June 30, 1996 and 1997 and the statement of
shareholders' equity for the six months ended June 30, 1997 are unaudited. In
the opinion of management, these interim unaudited consolidated financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of only normal recurring
adjustments, necessary for fair presentation of the interim period. The
disclosures in these notes related to these unaudited consolidated financial
statements are also unaudited.

Inventories. Inventories are stated on the basis of lower of cost or market
using the first-in, first-out ("FIFO") method.

F-7
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Fixed assets. Depreciation is computed on the straight-line method for
financial reporting purposes. Accelerated methods are primarily used for
income tax purposes. Assets, valued at cost, are generally being depreciated
over their estimated useful lives as follows:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
(YEARS)
---------
<S> <C>
Furnishings.................... 5-7
Leasehold improvements......... 12
Transportation and other
equipment..................... 3-7
</TABLE>

In the event facts and circumstances indicate an asset could be impaired, an
evaluation of the undiscounted estimated future cash flows from operations is
compared to the asset's carrying amount to determine if a write-down is
required. At December 31, 1996 and June 30, 1997, no impairments existed.

Intangibles. The Company continually monitors its cost in excess of net
assets acquired (goodwill), covenants not to compete and its other intangibles
(customer lists and consulting agreements) to determine whether any impairment
of these assets has occurred. In making such determination, the Company
evaluates the expected future cash flows from operations, on an undiscounted
basis, of the underlying businesses which gave rise to such amounts. Goodwill
is being amortized on the straight-line method over 40 years. Other
intangibles are being amortized on the straight-line method over 6 to 15
years.

Earnings per share. Historical per share amounts have not been presented as
the Company's historical capital structure is not representative of the
prospective capital structure.

Income taxes. The Company participates in the consolidated federal and state
income tax returns filed by its parent company, BWI. BWI charges federal and
state income tax expense to the Company as if the Company filed its own
separate federal and state income tax returns.

In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes," the Company accounts
for income taxes using the asset and liability method. The asset and liability
method requires the recognition of deferred tax assets and liabilities for
expected future tax consequences of temporary differences that currently exist
between the tax bases and financial reporting bases of the Company's assets
and liabilities.

Use of estimates. The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of estimates made by
management. Actual results could differ from those estimates.

Fair value of financial instruments. The carrying values of cash, accounts
receivable, short-term borrowings, accounts payable and other current
liabilities approximate their fair market values due to the short-term
maturity of these instruments.

NOTE 2--RELATED PARTY TRANSACTIONS

The Company is a wholly owned subsidiary of BWI and, as such, has entered
into certain related party transactions which are described below. Had the
Company operated as a stand-alone, non-public entity for the periods
presented, management believes the costs and expenses incurred by the Company
would not have differed materially from those reported in the financial
statements. In addition, the Company has participated in the BWI profit
sharing plan which is discussed in Note 7--Profit sharing plan.

BWI provided management and consulting services to the Company which
included, but were not limited to legal, human resources, payroll and tax. The
Company was charged $49,000, $75,000 and $65,000 for 1994,

F-8
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1995 and 1996, respectively. For each of the six month periods ended June 30,
1996 and 1997, the Company was charged $32,500. These amounts were based on an
allocation of the actual services rendered by BWI and were calculated in a
manner considered reasonable by management.

The Company was also provided coverage under the BWI insurance plans. These
expenses were charged to the Company based on a combination of a pro rata
allocation and the push-down of actual expenses incurred, depending on the
type of expenditure. These methods are considered reasonable by management.
The insurance expense was $38,000, $100,000 and $132,000 for 1994, 1995 and
1996, respectively. For the six months ended June 30, 1996 and 1997, the
insurance expense was $66,000 and $76,000, respectively.

At December 31, 1995, December 31, 1996 and June 30, 1997, the Company owed
BWI $3.9 million, $9.3 million and $13.8 million, respectively. These
borrowings are due on demand and represent the financing and payment of
transactions by BWI on behalf of the Company, offset in part by cash
collections transferred to BWI. Interest expense attributable to the related
party borrowings was $211,000, $455,000 and $408,000 for 1994, 1995 and 1996,
respectively. This interest expense was calculated by applying the BWI average
incremental borrowing rate to the average outstanding borrowings. For 1994,
1995 and 1996 the average outstanding borrowings were $3.6 million, $6.4
million and $6.4 million, respectively. The average incremental borrowing
rates applied to these borrowings in 1994, 1995 and 1996 were 5.9%, 7.1% and
6.4%, respectively. The interest expense of $370,000 for the six months ended
June 30, 1997 was based on average outstanding borrowings of $11.6 million at
an average incremental borrowing rate of 6.4%.

For 1994, 1995 and 1996 and the six month periods ended June 30, 1996 and
1997, intercompany purchases of inventory from BWI (at the price paid by BWI)
totaled $9.4 million, $8.3 million, $1.8 million, $742,000 and $1.1 million,
respectively.

On March 31, 1997, the Company declared and paid a dividend to BWI in the
form of a $6.0 million subordinated promissory note that becomes due on March
31, 1999. The note carries an interest rate of 7.25% per annum. For the six
month period ended June 30, 1997, interest expense associated with this note
totaled $109,000.

Certain employees of the Company have been granted options to purchase BWI
stock under a BWI stock option plan. 66,500 and 155,750 such options were
granted to Company employees in 1995 and 1996, respectively, with exercise
prices equal to the market price of the BWI stock at the date of grant. No
compensation expense was recognized on these pursuant to Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". If the
Company had recognized compensation expense based on the grant date fair value
of those options as prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation", pro forma net income for the years ended December 31, 1995 and
1996 would have been $1,840,000 and $4,089,000, respectively. The weighted
average fair value of each 1995 and 1996 BWI option granted of $5.90 and
$6.04, respectively, was estimated using the Black-Scholes option pricing
model, and certain assumptions relevant to those BWI options and the
underlying BWI common stock.

NOTE 3--ACQUISITIONS

During the three years ended December 31, 1996, the Company purchased 3C
Medical, Inc. ("3C") and IV-1, Inc., IV-One Services, Inc. and National
Pharmacy Providers, Inc. (collectively, the "IV One Companies"). Each of these
acquisitions was accounted for as a purchase and their results of operations
are included in the consolidated financial statements from their respective
dates of acquisition.

3C, a specialty distributor of acute dialysis products located in Santa Ana,
California, was acquired effective October 31, 1994. The Company paid 15,000
shares of BWI common stock (market value $195,000) and approximately $1.2
million in cash for 3C, which exceeded the fair value of the net assets
acquired and resulted

F-9
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

in approximately $1.1 million of intangibles. These intangibles include a
three-year non-compete agreement with the prior owner. At December 31, 1995
and 1996, the balance owed under this agreement was $113,333 and $73,333,
respectively ($73,333 and $33,333, respectively, is included in long-term
obligations). 3C's results of operations for the initial ten months of 1994
were immaterial to the consolidated results of operations of the Company.

The acquisition of the IV One Companies was effective January 1, 1995. The
IV One Companies provide pharmacy and other healthcare services. The
consideration exchanged for the IV One Companies was approximately $2.9
million, which exceeded the fair value of net assets acquired and resulted in
approximately $2.6 million of intangibles. These intangibles include a four-
year consulting agreement with the prior owner. At December 31, 1995 and 1996,
the balance owed under this agreement was $878,031 and $726,931, respectively
($678,031 and $526,931, respectively, is included in long-term obligations).
If the acquisition of the IV One Companies had taken place at the beginning of
1994, the unaudited pro forma net sales and net earnings would have been
$112.0 million and $1.5 million, respectively. The pro forma data are not
necessarily indicative of the results of operations as they would have been
had the transaction occurred on the assumed date and are not necessarily
indicative of the results of operations which may occur in the future.

NOTE 4--FIXED ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Furnishings............................... $ 537 $ 574 $ 574
Leasehold improvements.................... 249 220 220
Transportation and other equipment........ 948 1,344 1,630
------ ------ ------
1,734 2,138 2,424
Less: Accumulated depreciation............ (487) (804) (1,115)
------ ------ ------
$1,247 $1,334 $1,309
====== ====== ======
</TABLE>

NOTE 5--INTANGIBLES

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Goodwill.......................... $ 6,109 $ 6,109 $ 6,109
Accumulated amortization.......... (309) (457) (531)
------- ------- -------
Goodwill, net..................... 5,800 5,652 5,578
------- ------- -------
Other............................. 3,883 3,883 3,883
Accumulated amortization.......... (1,038) (1,581) (1,853)
------- ------- -------
Other, net........................ 2,845 2,302 2,030
------- ------- -------
Intangibles, net.................. $ 8,645 $ 7,954 $ 7,608
======= ======= =======
</TABLE>

NOTE 6--INCOME TAXES

The provision for income taxes includes state income taxes of $137,050,
$212,523 and $479,420 in 1994, 1995 and 1996, respectively.

F-10
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table indicates the significant elements contributing to the
difference between the U.S. federal statutory tax rate and the effective tax
rate:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Percentage of earnings before taxes:
U.S. federal statutory rate.......................... 35.0% 35.0% 35.0%
State and local taxes on income, net of federal
income tax benefit.................................. 4.3% 4.3% 4.3%
Other................................................ 0.7% 1.7% 0.7%
----- ----- -----
Effective rate......................................... 40.0% 41.0% 40.0%
===== ===== =====
</TABLE>

Presented below are the significant elements of the net deferred tax balance
sheet accounts at December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax asset:
Current:
Accounts receivable........................................ $203 $320
Inventories................................................ 92 131
---- ----
Subtotal................................................. 295 451
Long-term.................................................... -- --
---- ----
Total deferred tax assets................................ $295 $451
==== ====
Deferred tax liabilities:
Current...................................................... -- --
---- ----
Long-term:
Fixed assets............................................... $ 77 $ 95
Intangibles................................................ 33 25
---- ----
Subtotal................................................. 110 120
---- ----
Total deferred tax liabilities........................... $110 $120
==== ====
</TABLE>

NOTE 7--PROFIT SHARING PLAN

The Company's eligible employees participate in the BWI qualified Profit
Sharing Plan ("Profit Sharing Plan"). 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 ("Participant").
The annual contribution of the Company to the Profit Sharing Plan is at the
discretion of the Board of Directors of BWI and is generally 8% of the
Participant's compensation for the year. The employer contribution for a year
is allocated among the Participants employed on the last day of the year in
proportion to their relative compensation for the year. The BWI contributions
to the Profit Sharing Plan with respect to the Company which are included as
expense in the statement of earnings for 1994, 1995 and 1996 were $69,344,
$119,283 and $229,990, respectively.

Subject to limitations imposed by the Internal Revenue Code of 1986, as
amended, a Participant may have a whole percentage (ranging from 1% to 13%) of
his or her compensation withheld from pay and contributed to the Profit
Sharing Plan and make "rollover" contributions to the Profit Sharing Plan of
qualifying distributions from other employers' qualified plans.

F-11
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A Participant's interest in amounts withheld from his or her pay and
contributed to the Profit Sharing Plan or 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% vested during each of the next four years. A Participant's
interest in employer contributions made on his or her behalf and the earnings
on those contributions also become fully vested when the employee retires at
age 65 or older, dies or becomes totally disabled.

All contributions to the Profit Sharing Plan are paid in cash to a
Cleveland, Ohio bank, as trustee, and are invested by the trustee until
distributed to Participants or their beneficiaries. Participants are permitted
to direct the trustee as to the investment of their accounts by choosing among
several investment funds that are offered under the Profit Sharing Plan,
including one fund consisting of BWI common stock. Participants may elect to
invest in one fund or a combination of the available funds according to their
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 his or her interest in the Profit Sharing Plan only at
death, retirement or termination of employment.

NOTE 8--COMMITMENTS

The Company leases warehouse and office space under noncancelable operating
leases expiring at various dates through 2002, with options to renew for
various periods. Minimum commitments under leases aggregate $561,000 for 1997,
$512,000 for 1998, $461,000 for 1999 and $101,000 for 2000 and 2001.

The consolidated rent expense for 1994, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 was $244,000, $490,000, $470,000, $236,000 and
$248,000, respectively, of which approximately $75,000 in 1996 pertained to
leases with terms of one year or less. In 1995 and 1994, all leases had terms
greater than one year.

NOTE 9--MAJOR CUSTOMERS AND OTHER CONCENTRATIONS

The Company services customers in 50 states and Puerto Rico. For the year
ended December 31, 1996 and the six months ended June 30, 1997, the Company
had one customer, Everest Healthcare Services Corporation, which accounted for
12% of the Company's revenues. For the six months ended June 30, 1996 and the
years ended December 31, 1994 and 1995, no customer accounted for greater than
10% of the Company's revenues. The Company sells goods and services to its
customers on various payment terms which entail accounts receivable exposure.
Although the Company monitors closely the creditworthiness of its customers,
there can be no assurance that the Company will not incur the write-off or
writedown of a significant account in the future.

The Company's largest vendor accounted for approximately 46% of total
revenues in 1994, 44% in 1995 and 42% in 1996. The same vendor accounted for
approximately 43% of total revenues for the six months ended June 30, 1996 and
41% for the six months ended June 30, 1997. In addition, the sale of one
product supplied by this vendor accounted for 36% of revenues in 1996. This
product is available from only one manufacturer, with which the Company must
maintain a good working relationship. The Company is a party in a lawsuit
involving this vendor. See Note 10--Legal Proceedings.

NOTE 10--LEGAL PROCEEDINGS

F-12
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

interfered with a license agreement (the "License Agreement") between Amgen
and Ortho Pharmaceutical Corporation ("Ortho"). Pursuant to this agreement,
Amgen licensed Ortho to sell EPO for use in the treatment of non-dialysis
patients, while Amgen reserved the exclusive right to sell EPO for use in the
treatment of dialysis patients. Amgen has asserted that, prior to the purchase
of IV-1 and IV-One Services by the Company, these entities induced Ortho to
sell EPO to them for resale in the dialysis market in contravention of the
License Agreement. Amgen has also alleged that IV-1 and IV-One Services were
involved in a civil conspiracy to circumvent the terms of the License
Agreement to allow the resale of EPO to the dialysis market. Furthermore,
Amgen has asserted unfair competition claims against IV-1, including that IV-1
manufactured and distributed unapproved prefilled syringes of EPO and another
product manufactured by Amgen in container systems unapproved by Amgen. Amgen
did not specify a time frame for the acts complained of in the civil
conspiracy and unfair competition allegations. In each count, Amgen has
demanded an unspecified amount of compensatory damages, including costs and
interest.

The Company is also subject to ordinary and routine litigation incidental to
its business, none of which is material to the Company's results of
operations, financial condition, or cash flows.

On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. The Company's response to the FDA in December 1995 cited
this CPG and explained the Company's contention that, according to the FDA's
own criteria, the facility is a pharmacy properly regulated under state and
local laws.

F-13
<PAGE>

PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--SUBSEQUENT EVENTS

On August 25, 1997, the Board of Directors of the Company approved the
filing of a registration statement on Form S-1 with the Securities and
Exchange Commission to register up to 2,300,000 shares of the Company's Class
B Common Stock, all of which shares will be issued and sold by the Company
(the "Offering"). The Company intends to use a portion of the net proceeds of
the Offering to repay the then outstanding working capital advances made by
BWI to support the Company's operating activities. The balance of the net
proceeds will be used for working capital and general corporate purposes,
including potential acquisitions.

In connection with the Offering, BWI and the Company have entered into a
series of agreements, including a Revolving Credit Promissory Note, an
Indemnification and Hold Harmless Agreement, a Tax Sharing Agreement and an
Administrative Services Agreement, governing certain aspects of the
relationship between the Company and BWI subsequent to the Offering.

F-14
<PAGE>

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- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICI-
TATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UN-
LAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.

---------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 14
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 15
Capitalization............................................................ 15
Dilution.................................................................. 16
Selected Consolidated Financial Data...................................... 17
Unaudited Pro Forma Consolidated Financial Data........................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 27
Management................................................................ 38
Executive Compensation.................................................... 41
Relationship with BWI..................................................... 45
Principal Shareholder..................................................... 47
Description of Capital Stock.............................................. 48
Shares Eligible for Future Sale........................................... 51
Underwriting.............................................................. 53
Legal Matters............................................................. 55
Experts................................................................... 55
Additional Information.................................................... 55
Index to Consolidated Financial Statements................................ F-1
</TABLE>

---------------

UNTIL NOVEMBER 18, 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS B COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

2,000,000 SHARES

LOGO

CLASS B COMMON STOCK

---------------

PROSPECTUS

---------------

RAYMOND JAMES & ASSOCIATES, INC.

WHEAT FIRST BUTCHER SINGER

OCTOBER 24, 1997

- --------------------------------------------------------------------------------
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