<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PRIORITY HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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INDIANA 5122 35-1927379
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION OF CLASSIFICATION CODE NUMBER) EMPLOYER
INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)
285 WEST CENTRAL PARKWAY
ALTAMONTE SPRINGS, FLORIDA 32714
(407) 869-7001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROBERT L. MYERS
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PRIORITY HEALTHCARE CORPORATION
285 WEST CENTRAL PARKWAY
ALTAMONTE SPRINGS, FLORIDA 32714
(407) 869-7001
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
JAMES A. ASCHLEMAN, ESQ. REBECCA R. ORAND, ESQ.
BAKER & DANIELS GREENBERG TRAURIG HOFFMAN LIPOFF
300 NORTH MERIDIAN STREET ROSEN & QUENTEL, P.A.
SUITE 2700 1221 BRICKELL AVENUE
INDIANAPOLIS, INDIANA 46204-1782 MIAMI, FLORIDA 33131
(317) 237-0300 (305) 579-0500
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
is practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Class B Common Stock, $.01 par value...... 2,300,000 shares $15.00 $34,500,000 $10,455
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</TABLE>
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(1) Includes 300,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION DATED AUGUST 27, 1997
PROSPECTUS
2,000,000 SHARES
PRIORITY HEALTHCARE CORPORATION
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"). It is
currently estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for the factors considered in
determining the initial public offering price. Application is being made to
list the Class B Common Stock 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.
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<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
Total (3)........................... $ $ $
</TABLE>
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(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 $ , $ and
$ , 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 , 1997.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<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 Institute of Health
estimates that approximately 30,000 new acute hepatitis C infections occur
annually.
Priority's net sales have increased at a compound annual growth rate of 26%
in the last three years, from $79.6 million in 1993 to $158.2 million in 1996.
In the same period, operating income has increased at a compound annual growth
rate of 54%, 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
<PAGE>
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 will enter 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."
Proposed 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 449,000 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 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,
-------------------------------------- ----------------------------
1996 1996 1997
-------------------- ------- --------------------
PRO FORMA PRO FORMA
1994 1995 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)....... 10,740,465 11,152,346
<CAPTION>
JUNE 30, 1997
--------------------
AS ADJUSTED
ACTUAL (4)
-------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 24,022 $ 49,272
Total assets........................................................... 68,118 79,583
Long-term debt......................................................... 6,365 6,365
Total liabilities...................................................... 41,697 27,912
Shareholders' equity................................................... $ 26,421 $ 51,671
</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 an assumed offering price of $14.00 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 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" within the
meaning of Section 27A of the Securities Act 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 the Intercompany
Agreements. 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. As a result of these two
inspections, the Florida State Board of Pharmacy did not issue any
deficiencies regarding the operations of the Altamonte Springs pharmacy.
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.
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
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 these activities 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.
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.
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."
8
<PAGE>
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.
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
9
<PAGE>
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 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 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
10
<PAGE>
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
the net proceeds to repay advances made by BWI to the Company, which advances
aggregated approximately $13.8 million at June 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
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.
11
<PAGE>
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.
SUBSTANTIAL DILUTION
The proposed 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 $10.43 per share (assuming an initial
public offering price of $14.00 per share). See "Dilution."
12
<PAGE>
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 application has been made to list the Class B Common
Stock 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 are estimated to be approximately $25.2 million
(approximately $29.1 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $14.00 per
share and after deducting the estimated underwriting discounts and offering
expenses payable by the Company. The Company intends to use a portion of the
net proceeds to repay working capital advances made by BWI to support the
Company's operating activities. The advances at June 30, 1997 aggregated
approximately $13.8 million and 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 June 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 an assumed initial public offering price of
$14.00 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 debt:
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 47,828
Retained earnings..................................... 3,721 3,721
------- -------
Total shareholders' equity.......................... 26,421 51,671
------- -------
Total capitalization................................ $32,786 $58,036
======= =======
</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 (assuming an initial public offering price
of $14.00 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 $43,593,000, or $3.57 per share of Common Stock. This represents an
immediate dilution in net tangible book value of $10.43 per share to new
investors purchasing shares in this offering and an immediate increase in net
tangible book value of $1.77 per share to BWI. The following table illustrates
this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $14.00
Net tangible book value per share at June 30, 1997............ $1.80
Increase per share attributable to new investors (1).......... 1.77
-----
Net tangible book value after the offering...................... 3.57
------
Dilution per share to new investors (2)(3)...................... $10.43
======
</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 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
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 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
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 "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>
TWO TEN
YEAR MONTHS MONTHS SIX MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, FEBRUARY 28, DECEMBER 31, -------------------------- -----------------
1992 1993 1993 1994 1995 1996 1996 1997
------------ ------------ ------------ -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <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 $65,348 $108,597
Cost of products sold.. 71,020 10,911 63,161 100,254 111,448 141,074 57,947 97,449
Gross profit........... 4,784 817 4,662 7,195 12,542 17,173 7,401 11,148
Selling, general and
administrative
expense............... 3,079 508 2,498 4,394 7,836 8,443 4,009 4,960
Depreciation and
amortization.......... 87 14 333 512 998 1,009 500 656
Earnings from
operations............ 1,618 295 1,831 2,289 3,708 7,721 2,892 5,532
Interest expense, net.. 152 60 (21) 200 511 437 170 498
Earnings before income
taxes................. 1,466 235 1,852 2,089 3,197 7,284 2,722 5,034
Provision for income
taxes................. 11 3 741 835 1,311 2,915 1,089 2,013
Net earnings (2)....... 1,455 232 1,111 1,254 1,886 4,369 1,633 3,021
<CAPTION>
DECEMBER 31,
DECEMBER 31, FEBRUARY 28, --------------------------------------- JUNE 30,
1992 1993 1993 1994 1995 1996 1997
------------ ------------ ------------ -------- -------- -------- --------
<S> <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
Total assets........... 18,199 11,897 26,705 36,849 41,584 57,220 68,118
Long-term debt......... 113 751 560 6,365
Total liabilities...... 14,144 7,822 8,853 16,610 16,553 27,820 41,697
Shareholders' equity... 4,055 4,075 17,852 20,239 25,031 29,400 26,421
</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) Historical earnings per share data are not meaningful as the Company's
historical capital structure is not comparable to periods subsequent to
this offering.
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 $ 3,021 $ 13 $ 3,034
======== ===== ========== ======== ==== ==========
Pro forma earnings per
share.................. $ 0.38 (5) $ 0.27 (5)
========== ==========
Pro forma weighted
average shares
outstanding............ 10,740,465 11,152,346
========== ==========
</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 $ 11,465 (6) $11,650
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 11,465 70,666
------- -------- -------
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 $ 11,465 $79,583
======= ======== =======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY:
<S> <C> <C> <C>
Current liabilities:
Payable to parent......... $13,785 $(13,785)(6)
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 (6) 20
Additional paid in
capital.................. 22,598 25,230 (6) 47,828
Retained earnings......... 3,721 3,721
------- -------- -------
Total shareholders'
equity................. $26,421 $ 25,250 $51,671
------- -------- -------
Commitments and
contingencies
------- -------- -------
Total liabilities and
shareholders' equity... $68,118 $ 11,465 $79,583
======= ======== =======
</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 proceeds 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) 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 estimated to be $12.625.
(6) Represents the net cash proceeds to the Company from the sale of the Class
B Common Stock offered hereby (assuming an initial public offering price
of $14.00 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........................................... $28,000,000
Underwriting discounts and commissions and estimated offering
expenses.................................................... 2,750,000
-----------
25,250,000
Repayment of payable to BWI.................................. 13,785,000
-----------
Net cash proceeds............................................ $11,465,000
===========
</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.
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 Expenses. Selling, general and
administrative ("SGA") expenses 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. The
increase in SGA expense resulted from normal inflationary increases and costs
associated with the hiring of additional management and other costs, such as
labor, warehouse and delivery expenses, which are variable with the level of
sales volume. 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, price increases.
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 Expenses. SGA expenses 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. The
increase in SGA expense resulted from normal inflationary increases, costs
associated with
23
<PAGE>
the hiring of additional management and other costs, such as labor, warehouse
and delivery expenses, which are variable with the level of sales volume. 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, price increases.
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 Expenses. SGA expenses 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. The remainder of the
increase resulted from normal inflationary increases, costs associated with
the hiring of additional management and other costs, such as labor, warehouse
and delivery expenses, which are variable with the level of sales volume.
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
At June 30, 1997, the Company had cash and working capital of $185,000 and
$24.0 million, respectively. 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. 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.
The Company's operations required $5.5 million in cash for the six months
ended June 30, 1997. The use of funds was primarily the result of an increase
in accounts receivable and inventory. An increase in accounts payable
partially reduced the requirement for funds for accounts receivable and
inventory. The increase in merchandise inventory is due to the procurement of
inventory for the increased customer base and to maximize purchasing
opportunities. Management continues to control inventory levels to minimize
carrying costs and maximize purchasing opportunities. The increase in accounts
receivable resulted from the increase in sales and an extension in credit
terms to meet competition. The increase in accounts payable was attributed to
the timing of payment terms and the buildup of inventory balances. The Company
anticipates that its operations will continue to require cash to fund its
growth.
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.
Historically, the Company has financed its operations through capital
contributions and advances from BWI. 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.
See "Relationship With BWI--Relationship and Transactions Following the
Offering."
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.
25
<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, erythropoietin ("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.
26
<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.
Over 200 drugs for cancer and cancer-related conditions are currently 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 Cancer Institute, 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 the federal Health Care Financing Administration ("HCFA"), over 80% of
dialysis patients received 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, at
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.
The National Institute of Health estimates that nearly four million Americans
are infected with hepatitis C and that approximately 30,000 new acute
hepatitis C infections occur each year. 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, the Company
believes the treated portion of this population is likely to increase as
awareness of hepatitis disease management programs increases. 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, offering automated order entry
services, providing superior service and offering customized distribution for
group accounts. 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. 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 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 has not issued any deficiencies regarding the operations of the
Altamonte Springs pharmacy.
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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While these activities 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 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.
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.
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.
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
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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 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.
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 June 30, 1997, the Company had approximately 120 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 also has an 11,900 square foot distribution center in Santa Ana,
California, which is leased
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through February 1998, and 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 second half 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.
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. To date, approximately $86,000 of claims for indemnification
have been submitted to the sellers. The Company does not expect the Amgen
litigation to be material to the Company's results of operations or financial
condition; 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."
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.
36
<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. 56 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. 36 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.
37
<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
38
<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.
39
<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 nonemployee 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). $ 0(3) $ 0 0(3) $ 0(3)
Robert L. Myers
President and Chief
Executive Officer(4)..... 105,000 130,000 0 121(5)
Guy F. Bryant
Executive Vice
President--
Priority Healthcare
Distribution............. 125,735 55,500 0 11,861(6)
Melissa E. McIntyre
Vice President--
Clinical Services........ 110,923 55,500 0 12,080(7)
William M. Woodard
Vice President--
Marketing................ 101,119 50,600 0 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.
(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.
40
<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 399,000 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.
41
<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."
42
<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.
43
<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.
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.
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.
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<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 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 June 30, 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 in connection with certain
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, 1997 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.
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<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........................ 8,608(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........................ 0 *
Rebecca M. Shanahan........................ 0 *
All current directors and executive
officers as a group (12 persons).......... 3,925,295(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 8,608 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 795,508 shares
granted by BWI.
46
<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
47
<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
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<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
49
<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
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<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 when 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.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representative,
Raymond James & Associates, Inc. (the "Representative"), 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.................................
---------
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 Representative 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 $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. The Representative has
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
51
<PAGE>
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 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 the 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 Representative. 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.
The estimated initial public offering price range set forth on the cover page
of this Prospectus is subject to change as a result of market conditions and
other factors.
Until the distribution of Class B Common Stock in this offering is
completed, rules of the Securities and Exchange 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
Representative is 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 Representative may reduce the short position by purchasing
Class B Common Stock in the open market. The Representative may also elect to
reduce any short position by exercising all or part of the over-allotment
option described above. The Representative may also impose a penalty bid on
certain Underwriters and selling group members. This means that if the
Representative purchases 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 Representative 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 (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.
52
<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 Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1
(together with all amendments thereto, 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.
53
<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, which is as of August 25, 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................... $ 0 $16,741 $ 0 $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 0 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 $ 0 $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 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.
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 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. 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, 1995 and 1996,
respectively. For each of the six month periods ended June 30, 1996 and 1997,
the Company
F-8
<PAGE>
PRIORITY HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 do not have a set repayment date 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 at 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.................................................... 0 0
---- ----
Total deferred tax assets................................ $295 $451
==== ====
Deferred tax liabilities;
Current...................................................... 0 0
---- ----
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--(CONCLUDED)
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
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
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 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. To date, approximately $86,000 of claims for indemnification
have been submitted to the sellers. The Company does not expect the Amgen
litigation to be material to the Company's results of operations or financial
condition; 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."
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 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 has not issued any deficiencies regarding the operations of the
Altamonte Springs pharmacy.
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.
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
F-13
<PAGE>
PRIORITY HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 these activities 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 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.
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.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATION 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
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECU-
RITIES 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
UNLAWFUL 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.................................................................. 26
Management................................................................ 37
Executive Compensation.................................................... 40
Relationship with BWI..................................................... 44
Principal Shareholder..................................................... 46
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 50
Underwriting.............................................................. 51
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
UNTIL , 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
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
PRIORITY HEALTHCARE CORPORATION
CLASS B COMMON STOCK
----------------
PROSPECTUS
----------------
RAYMOND JAMES & ASSOCIATES, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the issuance and
distribution of the Class B Common Stock being registered hereunder, other
than underwriting discounts and commissions:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- --------
<S> <C>
Securities and Exchange Commission registration fee............. $ 10,455
Nasdaq National Market listing fee..............................
NASD filing fee................................................. 3,950
Blue Sky fees and expenses (including fees of counsel)..........
Accounting fees and expenses....................................
Legal fees and expenses.........................................
Printing and engraving expenses.................................
Transfer Agent and Registrar fees...............................
Miscellaneous...................................................
--------
Total....................................................... $790,000
========
</TABLE>
All amounts except the registration fee, Nasdaq listing fee and NASD filing
fee are estimated. Items which are not included will be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Indiana Business Corporation Law provides that a corporation, unless
limited by its Articles of Incorporation, is required to indemnify its
directors and officers against reasonable expenses incurred in the successful
defense of any proceeding to which the director or officer was a party because
of serving as a director or officer of the corporation.
As permitted by the Indiana Business Corporation Law, the Company's Restated
Articles of Incorporation provide for indemnification of directors, officers
and employees of the Company against any and all liability and reasonable
expense that may be incurred by them, arising out of any claim or action,
civil, criminal, administrative or investigative, in which they may become
involved by reason of being or having been a director, officer, or employee.
To be entitled to indemnification, those persons must have been wholly
successful in the claim or action or the Board of Directors must have
determined that such persons acted in good faith in what they reasonably
believed to be the best interests of the Company (or at least not opposed to
its best interests) and, in addition, in any criminal action, had reasonable
cause to believe their conduct was lawful (or had no reasonable cause to
believe that their conduct was unlawful).
Reference is also made to the Form of Underwriting Agreement filed as
Exhibit 1 hereto which provides for indemnification of the directors and
officers signing the Registration Statement and certain controlling persons of
the Registrant against certain liabilities including certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act"), in certain
instances by the Underwriters.
In addition, the Company has a directors' and officers' liability and
company reimbursement policy that insures against certain liabilities,
including liabilities under the Securities Act, subject to applicable
retentions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished as to securities of the Registrant
sold within the past three years that were not registered under the Securities
Act. All of the information is adjusted for the recapitalization of all of the
Registrant's 1,000 shares of outstanding Common Stock into 10,214,286 shares
of Class A Common Stock on August 25, 1997.
S-1
<PAGE>
(a) On August 25, 1997, the Registrant effected a recapitalization,
whereby all of the Registrant's 1,000 outstanding shares of Common Stock
were converted into 10,214,286 shares of Class A Common Stock.
(b) On August 25, 1997, the Registrant granted options for an aggregate
of 449,000 shares of Class B Common Stock to certain officers, key
employees and consultants, effective on the closing of this offering, at an
exercise price equal to 100% of the initial public offering price.
(c) On March 31, 1997, the Registrant paid a dividend in the form of a
subordinated promissory note with a principal amount of $6.0 million to
BWI.
The transaction described in paragraph (b) above is exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof. The transactions described in paragraph (a) and (c) above are exempt
from the registration requirements of the Securities Act because they did not
involve a "sale" of a security within the meaning of Section 2(3) of the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES
(a) EXHIBITS
The list of exhibits is incorporated by reference to the Index to
Exhibits beginning on page E-1.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because of the absence of conditions under
which they are required or because the information is included in the
consolidated financial statements or the Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
S-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN INDIANAPOLIS, INDIANA ON AUGUST 26,
1997.
Priority Healthcare Corporation
/s/ Robert L. Myers
By: _________________________________
Robert L. Myers,
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT SUCH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS WILLIAM E. BINDLEY AND ROBERT L. MYERS HIS TRUE
AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, EACH ACTING ALONE, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS TO THIS REGISTRATION
STATEMENT, INCLUDING POST-EFFECTIVE AMENDMENTS, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, EACH ACTING ALONE, OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO
OR CAUSE TO BE DONE.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED BELOW ON AUGUST 26, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ William E. Bindley Chairman of the Board
___________________________________________
William E. Bindley
/s/ Robert L. Myers President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Robert L. Myers
/s/ Donald J. Perfetto Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
Donald J. Perfetto
/s/ Michael D. McCormick Director
___________________________________________
Michael D. McCormick
/s/ Thomas J. Salentine Director
___________________________________________
Thomas J. Salentine
</TABLE>
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1* Form of Underwriting Agreement.
3-A Restated Articles of Incorporation of the Registrant.
3-B By-Laws of the Registrant, as amended to date.
5* Opinion of Baker & Daniels.
10-A* Administrative Services Agreement between the Regis-
trant and BWI.
10-B* Tax Sharing Agreement between the Registrant and BWI.
10-C 1997 Stock Option and Incentive Plan of the Registrant.
10-D Outside Directors Stock Option Plan of the Registrant.
10-E Termination Benefits Agreement between the Registrant
and Robert L. Myers dated July 1, 1996.
10-F (i) Employment Agreement between the Registrant and Me-
lissa E. McIntyre dated June 1, 1997; and (ii)
Noncompete Agreement between the Registrant and Melissa
E. McIntyre dated June 1, 1997.
10-G (i) Employment Agreement between the Registrant and
William M. Woodard dated June 1, 1997; and (ii)
Noncompete Agreement between the Registrant and William
M. Woodard dated June 1, 1997.
10-H (i) Employment Agreement between the Registrant and Guy
F. Bryant dated June 1, 1997; and (ii) Noncompete
Agreement between the Registrant and Guy F. Bryant
dated June 1, 1997.
10-I (i) Employment Agreement between the Registrant and
Donald J. Perfetto dated June 23, 1997; and (ii)
Noncompete Agreement between the Registrant and Donald
J. Perfetto dated June 23, 1997.
10-J (i) Employment Agreement between the Registrant and
Steven D. Cosler dated June 1, 1997; and (ii)
Noncompete Agreement between the Registrant and Steven
D. Cosler dated June 1, 1997.
10-K Subordinated Promissory Note between the Registrant and
BWI.
10-L* Indemnification and Hold Harmless Agreement between the
Registrant and BWI.
10-M Consulting Agreement dated as of January 1, 1995, by
and among the Registrant, BWI and Martin A. Nassif.
10-N* Revolving Credit Promissory Note between the Registrant
and BWI.
11 Computation of Pro Forma Earnings Per Share.
21 Subsidiaries of the Registrant.
23-A Consent of Price Waterhouse LLP.
23-B Consent of Baker & Daniels (contained in Exhibit 5).
23-C Consent of Richard W. Roberson.
23-D Consent of Rebecca M. Shanahan.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
E-1
<PAGE>
Exhibit 3-A
RESTATED ARTICLES OF INCORPORATION
OF
PRIORITY HEALTHCARE CORPORATION
Priority Healthcare Corporation (hereinafter referred to as the
"Corporation"), desiring to amend and restate its Articles of Incorporation
effective as of the date Articles of Restatement are submitted to the Indiana
Secretary of State for approval, pursuant to the provisions of the Indiana
Business Corporation Law (hereinafter referred to as the "Corporation Law"),
submits the following Restated Articles of Incorporation:
ARTICLE I
Name
----
The name of the Corporation is Priority Healthcare Corporation.
ARTICLE II
Purposes and Powers
-------------------
Section 2.1. Purposes of the Corporation. The purposes for which the
Corporation is formed are (a) to engage in the general business of the
distribution and sale of medical products and pharmaceuticals, directly or
indirectly through one or more subsidiaries, and to carry on such activities of
every kind or nature as may be allied or incidental to such general business,
and (b) to engage in the transaction of any or all lawful business for which
corporations may now or hereafter be incorporated under the Corporation Law.
Section 2.2. Powers of the Corporation. The Corporation shall have
(a) all powers now or hereafter authorized by or vested in corporations pursuant
to the provisions of the Corporation Law, (b) all powers now or hereafter vested
in corporations by common law or any other statute or act, and (c) all powers
authorized by or vested in the Corporation by the provisions of these Restated
Articles of Incorporation or by the provisions of its By-Laws as from time to
time in effect.
ARTICLE III
Term of Existence
-----------------
The period during which the Corporation shall continue is perpetual.
<PAGE>
ARTICLE IV
Registered Office and Agent
---------------------------
The street address of the Corporation's registered office at the time
of adoption of these Restated Articles of Incorporation is 10333 North Meridian
Street, Indianapolis, Indiana 46290, and the name of its Resident Agent at such
office at the time of adoption of these Restated Articles of Incorporation is
Michael D. McCormick.
ARTICLE V
Authorized Shares
-----------------
Section 5.1. Authorized Classes and Number of Shares. The total
number of shares which the Corporation has authority to issue shall be
60,000,000 shares, consisting of 15,000,000 shares of Class A Common Stock,
$0.01 par value per share (the "Class A Common Stock"), 40,000,000 shares of
Class B Common Stock, $0.01 par value per share (the "Class B Common Stock"),
and 5,000,000 shares of Preferred Stock, without par value (the "Preferred
Stock"). The Class A Common Stock and the Class B Common Stock are collectively
referred to herein as the "Common Stock."
Section 5.2. General Terms of All Shares. The Corporation shall have
the power to acquire (by purchase, redemption, or otherwise), hold, own, pledge,
sell, transfer, assign, reissue, cancel, or otherwise dispose of the shares of
the Corporation in the manner and to the extent now or hereafter permitted by
the laws of the State of Indiana (but such power shall not imply an obligation
on the part of the owner or holder of any share to sell or otherwise transfer
such share to the Corporation), including the power to purchase, redeem, or
otherwise acquire the Corporation's own shares, directly or indirectly, and
without pro rata treatment of the owners or holders of any class or series of
shares, unless, after giving effect thereto, the Corporation would not be able
to pay its debts as they become due in the usual course of business or the
Corporation's total assets would be less than its total liabilities (and without
regard to any amounts that would be needed, if the Corporation were to be
dissolved at the time of the purchase, redemption, or other acquisition, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those of the holders of the shares of the
Corporation being purchased, redeemed, or otherwise acquired, unless otherwise
expressly provided with respect to a series of Preferred Stock in the provisions
of these Restated Articles of Incorporation adopted by the Board of Directors
pursuant to Section 5.5 hereof describing the terms of such series). Shares of
the Corporation purchased, redeemed, or otherwise acquired by it shall
constitute authorized but unissued shares, unless prior to any such purchase,
redemption, or other acquisition, or within thirty (30) days thereafter, the
Board of Directors adopts a resolution providing that such shares constitute
authorized and issued but not outstanding shares.
The Board of Directors of the Corporation may dispose of, issue, and
sell shares in accordance with, and in such amounts as may be permitted by, the
laws of the State of Indiana and the provisions of these Restated Articles of
Incorporation and for such consideration, at such price
-2-
<PAGE>
or prices, at such time or times and upon such terms and conditions (including
the privilege of selectively repurchasing the same) as the Board of Directors of
the Corporation shall determine, without the authorization or approval by any
shareholders of the Corporation. Shares may be disposed of, issued, and sold to
such persons, firms, or corporations as the Board of Directors may determine,
without any preemptive or other right on the part of the owners or holders of
other shares of the Corporation of any class or kind to acquire such shares by
reason of their ownership of such other shares.
The Corporation shall have the power to declare and pay dividends or
other distributions upon the issued and outstanding shares of the Corporation,
subject to the limitation that a dividend or other distribution may not be made
if, after giving it effect, the Corporation would not be able to pay its debts
as they become due in the usual course of business or the Corporation's total
assets would be less than its total liabilities (and without regard to any
amounts that would be needed, if the Corporation were to be dissolved at the
time of the dividend or other distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
of the holders of shares receiving the dividend or other distribution, unless
otherwise expressly provided with respect to a series of Preferred Stock in the
provisions of these Restated Articles of Incorporation adopted by the Board of
Directors pursuant to Section 5.5 hereof describing the terms of such series).
Except as otherwise provided in Section 5.4, the Corporation shall have the
power to issue shares of one class or series as a share dividend or other
distribution in respect of that class or series or one or more other classes or
series.
Section 5.3. Voting Rights of Shares.
(a) Common Stock. Except as otherwise provided by the Corporation Law
and subject to such shareholder disclosure and recognition procedures (which may
include voting prohibition sanctions) as the Corporation may by action of its
Board of Directors establish, shares of Common Stock have unlimited voting
rights. Shares of Class A Common Stock shall, when validly issued by the
Corporation, entitle the holder thereof to three (3) votes per share on all
matters submitted to a vote of the shareholders of the Corporation. Shares of
Class B Common Stock shall, when validly issued by the Corporation, entitle the
holder thereof to one (1) vote per share on all matters submitted to a vote of
the shareholders of the Corporation. Except as required by the Corporation Law,
holders of Common Stock shall vote together as a single voting group on all
matters submitted to a vote of shareholders. Shares of Common Stock shall not
have cumulative voting rights.
(b) Preferred Stock. Except as required by the Corporation Law or by
the provisions of these Restated Articles of Incorporation adopted by the Board
of Directors pursuant to Section 5.5 hereof describing the terms of the
Preferred Stock or a series thereof, the holders of Preferred Stock shall have
no voting rights or powers. Shares of Preferred Stock shall, when validly
issued by the Corporation, entitle the record holder thereof to vote as and on
such matters, but only as and on such matters, as the holders thereof are
entitled to vote under the Corporation Law or under the provisions of these
Restated Articles of Incorporation adopted by the Board of Directors pursuant to
Section 5.5 hereof describing the terms of the Preferred Stock or a series
thereof (which provisions
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may provide for special, conditional, limited, or unlimited voting rights,
including multiple or fractional votes per share, or for no right to vote,
except to the extent required by the Corporation Law) and subject to such
shareholder disclosure and recognition procedures (which may include voting
prohibition sanctions) as the Corporation may by action of the Board of
Directors establish.
Section 5.4. Other Terms of Common Stock.
(a) Distributions.
(1) Except with respect to voting rights as provided in Section 5.3
hereof, shares of Class A Common Stock and Class B Common Stock shall be
equal in every respect insofar as their relationship to the Corporation is
concerned, but such equality of rights shall not imply equality of
treatment as to redemption or other acquisition of shares by the
Corporation.
(2) Subject to the rights of the holders of any outstanding Preferred
Stock issued under Section 5.5 hereof, the holders of Class A Common Stock
and Class B Common Stock shall be entitled to share ratably in such
dividends or other distributions (other than purchases, redemptions, or
other acquisitions of shares by the Corporation), if any, as are declared
and paid from time to time at the discretion of the Board of Directors, but
only if at the same time equal dividends are paid on outstanding shares of
each class of Common Stock. The Corporation shall not distribute to all
holders of Class A Common Stock or Class B Common Stock evidences of its
indebtedness or assets (excluding cash dividends or other distributions to
the extent permitted by or rights or warrants to subscribe for or purchase
securities issued by the Corporation or property of the Corporation),
without making the same distribution to holders of outstanding shares of
each class of Common Stock. In case of any capital reorganization of the
Corporation, or the consolidation or merger of the Corporation with or into
another corporation, or a statutory share exchange, or the sale, transfer
or other disposition of all or substantially all of the property, assets or
business of the Corporation then, in each such case, each outstanding share
of Class A Common Stock and Class B Common Stock shall receive the same
treatment. Notwithstanding the foregoing, any dividend or distribution
payable in shares of Common Stock shall be payable only in shares of Class
A Common Stock to the holders of Class A Common Stock and in shares of
Class B Common Stock to the holders of Class B Common Stock.
(3) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntarily or involuntarily, after payment shall have
been made to the holders of the Preferred Stock of the full amount to which
they shall be entitled under this Article V, the holders of Class A Common
Stock and Class B Common Stock shall be entitled, to the exclusion of the
holders of the Preferred Stock of any and all series, to share, ratably
according to the number of shares held by them, in all remaining assets of
the Corporation available for distribution to its
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shareholders.
(4) The Corporation may not subdivide outstanding shares of Class A
Common Stock or Class B Common Stock, combine its outstanding shares of
Class A Common Stock or Class B Common Stock into a smaller number of
shares, or issue by reclassification of shares of Class A Common Stock or
Class B Common Stock any shares of the Corporation other than shares of
Common Stock without making the same adjustment to each class of Common
Stock.
(b) Conversion of Class A Common Stock to Class B Common Stock.
(1) Any holder of shares of Class A Common Stock may request to
convert any or all of its shares of Class A Common Stock into shares of
Class B Common Stock at any time. Each share of Class A Common Stock so
requested to be converted shall be converted into one (1) share of Class B
Common Stock. Such conversion shall be effective at the time of the
receipt by the Corporation or any transfer agent for the Class B Common
Stock of a written request for conversion from the holder of the shares of
Class A Common Stock to be converted.
(2) Each share of Class A Common Stock shall automatically convert
into one (1) share of Class B Common Stock if such share is sold, pledged
or assigned or otherwise transferred in any transaction other than: (i) a
dividend or other distribution of shares of Class A Common Stock by Bindley
Western Industries, Inc. to its shareholders; or (ii) a sale, pledge,
assignment or other transfer to a Permitted Transferee. The term Permitted
Transferee shall include: (i) a member of the immediate family of the
transferee; (ii) a trust, corporation or other entity formed for the
benefit of or controlled by the transferee or members of the immediate
family of the transferee; or (iii) a private foundation, charitable trust
or grantor retained annuity trust created by the transferee. The
Corporation shall be the final arbiter of any questions concerning the
application of the foregoing provisions.
(3) The outstanding shares of Class A Common Stock to be converted
into Class B Common Stock shall be so converted without any further action
by the holders of such shares and shall occur whether or not the
certificates representing such shares are surrendered to the Corporation;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Class B Common Stock issued upon such
conversion unless certificates evidencing the shares of Class A Common
Stock so converted are either delivered to the Corporation, as hereinafter
provided, or the holder notifies the Corporation that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory
to the Corporation to indemnify the Corporation and the transfer agent from
any loss incurred by it in connection therewith. Upon the conversion of
any shares of Class A Common Stock, the holder of such shares shall
surrender the certificates representing such shares at the office of the
Corporation (or at such other office or
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offices, if any, as the Board of Directors of the Corporation may
designate). Thereupon, there shall be issued and delivered to such holder a
certificate or certificates for the number of shares of Class B Common
Stock into which such shares of Class A Common Stock were converted and a
certificate or certificates for any remaining shares of Class A Common
Stock not so converted.
(4) All shares of Class A Common Stock which are converted into shares
of Class B Common Stock as provided herein shall be retired and canceled
and shall not be reissued, and the Corporation shall from time to time take
such appropriate action as may be necessary to reduce the number of its
authorized shares of Class A Common Stock accordingly.
(5) The Corporation will at all times reserve and keep available out
of its authorized but unissued shares of Class B Common Stock, solely for
the purpose of issuance upon the conversion of Class A Common Stock, such
number of shares of Class B Common Stock as shall then be issuable upon the
conversion of all then outstanding shares of Class A Common Stock.
(6) The issuance of certificates for Class B Common Stock upon
conversion of Class A Common Stock will be made without charge to the
holders of such shares for any issuance tax in respect thereof or other
cost incurred by the Corporation in connection with such conversion and the
related issuance of Class B Common Stock; provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate of Class
B Common Stock in a name other than that of the holder of the Class A
Common Stock converted.
Section 5.5. Other Terms of Preferred Stock.
(a) Preferred Stock may be issued from time to time in one or more
series, each such series to have such distinctive designation and such
preferences, limitations, and relative voting and other rights as shall be set
forth in these Restated Articles of Incorporation. Subject to the requirements
of the Corporation Law and subject to all other provisions of these Restated
Articles of Incorporation, the Board of Directors of the Corporation may create
one or more series of Preferred Stock and may determine the preferences,
limitations, and relative voting and other rights of one or more series of
Preferred Stock before the issuance of any shares of that series by the adoption
of an amendment to these Restated Articles of Incorporation that specifies the
terms of the series of Preferred Stock. All shares of a series of Preferred
Stock must have preferences, limitations, and relative voting and other rights
identical with those of other shares of the same series and, if the description
of the series set forth in these Restated Articles of Incorporation so provides,
no series of Preferred Stock need have preferences, limitations, or relative
voting or other rights identical with those of any other series of Preferred
Stock.
Before issuing any shares of a series of Preferred Stock, the Board of
Directors shall
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adopt an amendment to these Restated Articles of Incorporation, which shall be
effective without any shareholder approval or other action, that sets forth the
preferences, limitations, and relative voting and other rights of the series,
and authority is hereby expressly vested in the Board of Directors, by such
amendment:
(1) To fix the distinctive designation of such series and the number
of shares which shall constitute such series, which number may be increased
or decreased (but not below the number of shares thereof then outstanding)
from time to time by action of the Board of Directors;
(2) To fix the voting rights of such series, which may consist of
special, conditional, limited, or unlimited voting rights, including
multiple or fractional votes per share, or no right to vote (except to the
extent required by the Corporation Law);
(3) To fix the dividend or distribution rights of such series and the
manner of calculating the amount and time for payment of dividends or
distributions, including, but not limited to:
(A) the dividend rate, if any, of such series;
(B) any limitations, restrictions, or conditions on the payment
of dividends or other distributions, including whether dividends or
other distributions shall be noncumulative or cumulative or partially
cumulative and, if so, from which date or dates;
(C) the relative rights of priority, if any, of payment of
dividends or other distributions on shares of that series in relation
to Common Stock and shares of any other series of Preferred Stock; and
(D) the form of dividends or other distributions, which may be
payable at the option of the Corporation, the shareholder, or another
person (and in such case to prescribe the terms and conditions of
exercising such option), or upon the occurrence of a designated event
in cash, indebtedness, stock or other securities or other property, or
in any combination thereof,
and to make provisions, in the case of dividends or other distributions
payable in stock or other securities, for adjustment of the dividend or
distribution rate in such events as the Board of Directors shall determine;
(4) To fix the price or prices at which, and the terms and conditions
on which, the shares of such series may be redeemed or converted, which may
be
(A) at the option of the Corporation, the shareholder, or
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another person or upon the occurrence of a designated event;
(B) for cash, indebtedness, securities, or other property or any
combination thereof; and
(C) in a designated amount or in an amount determined in
accordance with a designated formula or by reference to extrinsic data
or events;
(5) To fix the amount or amounts payable upon the shares of such
series in the event of any liquidation, dissolution, or winding up of the
Corporation and the relative rights of priority, if any, of payment upon
shares of such series in relation to Common Stock and shares of any other
series of special shares; and to determine whether or not any such
preferential rights upon dissolution need be considered in determining
whether or not the Corporation may make dividends, repurchases, or other
distributions;
(6) To determine whether or not the shares of such series shall be
entitled to the benefit of a sinking fund to be applied to the purchase or
redemption of such series and, if so entitled, the amount of such fund and
the manner of its application;
(7) To determine whether or not the issue of any additional shares of
such series or of any other series in addition to such series shall be
subject to restrictions in addition to restrictions, if any, on the issue
of additional shares imposed in the provisions of these Restated Articles
of Incorporation fixing the terms of any outstanding series of Preferred
Stock theretofore issued pursuant to this Section 5.5 and, if subject to
additional restrictions, the extent of such additional restrictions; and
(8) Generally to fix the other preferences or rights, and any
qualifications, limitations, or restrictions of such preferences or rights,
of such series to the full extent permitted by the Corporation Law;
provided, however, that no such preferences, rights, qualifications,
limitations, or restrictions shall be in conflict with these Restated
Articles of Incorporation or any amendment hereof.
(b) Shares of Preferred Stock of any series that have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased by
the Corporation, or which, if convertible, have been converted into shares of
the Corporation of any other class or series, may be reissued as a part of such
series or of any other series of Preferred Stock, subject to such limitations
(if any) as may be fixed by the Board of Directors with respect to such series
of Preferred Stock in accordance with subsection (a) of this Section 5.5.
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ARTICLE VI
Directors
---------
Section 6.1. Number. The Board of Directors at the time of adoption
of these Restated Articles of Incorporation is composed of four (4) members,
which number may be changed from time to time by amendment to the By-Laws.
Whenever the By-Laws provide that the number of Directors shall be three (3) or
more, the By-Laws may also provide for staggering the terms of the members of
the Board of Directors by dividing the total number of Directors into three (3)
groups (with each group containing one-third (1/3) of the total, as near as may
be) whose terms of office expire at different times.
Notwithstanding the first sentence of this Section 6.1, any amendment
to the By-Laws that would effect:
(a) any increase in the number of Directors over such number as then
in effect,
(b) any reduction in the number of Directors below such number as then
in effect, or
(c) any elimination or modification of the groups or terms of office
of the Directors as the By-Laws then in effect may provide,
shall also be approved by the affirmative vote of a majority of the entire
number of Directors of the Corporation who then qualify as Continuing Directors
with respect to all Related Persons (as such terms are defined for purposes of
Article VIII hereof).
Section 6.2. Qualifications. Directors need not be shareholders of
the Corporation or residents of this or any other state in the United States.
Section 6.3. Vacancies. Vacancies occurring in the Board of
Directors shall be filled in the manner provided in the By-Laws or, if the By-
Laws do not provide for the filling of vacancies, in the manner provided by the
Corporation Law. The By-Laws may also provide that in certain circumstances
specified therein, vacancies occurring in the Board of Directors may be filled
by vote of the shareholders at a special meeting called for that purpose or at
the next annual meeting of shareholders.
Section 6.4. Liability of Directors. A Director's responsibility to
the Corporation shall be limited to discharging his duties as a Director,
including his duties as a member of any committee of the Board of Directors upon
which he may serve, in good faith, with the care an ordinarily prudent person in
a like position would exercise under similar circumstances, and in a manner the
Director reasonably believes to be in the best interests of the Corporation, all
based on the facts then known to the Director.
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In discharging his duties, a Director is entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data, if prepared or presented by:
(a) One (1) or more officers or employees of the Corporation whom the
Director reasonably believes to be reliable and competent in the matters
presented;
(b) Legal counsel, public accountants, or other persons as to matters
the Director reasonably believes are within such person's professional or
expert competence; or
(c) A committee of the Board of which the Director is not a member if
the Director reasonably believes the Committee merits confidence;
but a Director is not acting in good faith if the Director has knowledge
concerning the matter in question that makes reliance otherwise permitted by
this Section 6.4 unwarranted.
A Director shall not be liable for any action taken as a Director, or
any failure to take any action, unless (a) the Director has breached or failed
to perform the duties of the Director's office in compliance with this Section
6.4, and (b) the breach or failure to perform constitutes willful misconduct or
recklessness.
Section 6.5. Factors to be Considered by Board. In determining
whether to take or refrain from taking any action with respect to any matter,
including making or declining to make any recommendation to shareholders of the
Corporation, the Board of Directors may, in its discretion, consider both the
short term and long term best interests of the Corporation (including the
possibility that these interests may be best served by the continued
independence of the Corporation), taking into account, and weighing as the
Directors deem appropriate, the social and economic effects thereof on the
Corporation's present and future employees, suppliers and customers of the
Corporation and its subsidiaries, the communities in which offices or other
facilities of the Corporation are located, and any other factors the Directors
consider pertinent.
Section 6.6. Removal of Directors. Any or all of the members of the
Board of Directors may be removed, for good cause, only at a meeting of the
shareholders called expressly for that purpose, by the affirmative vote of the
holders of outstanding shares representing at least sixty-six and two-thirds
percent (66-2/3%) of all the votes then entitled to be cast at an election of
Directors. Directors may not be removed in the absence of good cause.
Section 6.7. Election of Directors by Holders of Preferred Stock.
The holders of one (1) or more series of Preferred Stock may be entitled to
elect all or a specified number of Directors, but only to the extent and subject
to limitations as may be set forth in the provisions of these Restated Articles
of Incorporation adopted by the Board of Directors pursuant to Section 5.5
hereof describing the terms of the series of Preferred Stock.
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ARTICLE VII
Provisions for Regulation of Business
and Conduct of Affairs of Corporation
-------------------------------------
Section 7.1. Meetings of Shareholders. Meetings of the shareholders
of the Corporation shall be held at such time and at such place, either within
or without the State of Indiana, as may be stated in or fixed in accordance with
the By-Laws of the Corporation and specified in the respective notices or
waivers of notice of any such meetings.
Section 7.2. Special Meetings of Shareholders. Special meetings of
the shareholders, for any purpose or purposes, unless otherwise prescribed by
the Corporation Law, may be called at any time by the Board of Directors or the
officers authorized to do so by the By-Laws and shall be called by the Board of
Directors if the Secretary of the Corporation receives one (1) or more written,
dated, and signed demands for a special meeting, describing in reasonable detail
the purpose or purposes for which it is to be held, from the holders of shares
representing at least twenty-five percent (25%) of all the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting;
provided, however, that any such demand(s) delivered to the Secretary at any
time at which the Corporation has more than 50 shareholders must be properly
delivered by the holders of shares representing at least eighty percent (80%) of
all the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting. If the Secretary receives one (1) or more proper
written demands for a special meeting of shareholders, the Board of Directors
may set a record date for determining shareholders entitled to make such demand.
Section 7.3. Meetings of Directors. Meetings of the Board of
Directors of the Corporation shall be held at such place, either within or
without the State of Indiana, as may be authorized by the By-Laws and specified
in the respective notices or waivers of notice of any such meetings or otherwise
specified by the Board of Directors. Unless the By-Laws provide otherwise, (a)
regular meetings of the Board of Directors may be held without notice of the
date, time, place, or purpose of the meeting and (b) the notice for a special
meeting need not describe the purpose or purposes of the special meeting.
Section 7.4. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or shareholders,
or of any committee of such Board, may be taken without a meeting, if the action
is taken by all members of the Board or all shareholders entitled to vote on the
action, or by all members of such committee, as the case may be. The action
must be evidenced by one (1) or more written consents describing the action
taken, signed by each Director, or all the shareholders entitled to vote on the
action, or by each member of such committee, as the case may be, and, in the
case of action by the Board of Directors or a committee thereof, included in the
minutes or filed with the corporate records reflecting the action taken or, in
the case of action by the shareholders, delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Action taken
under this Section 7.4 is effective when the last Director, shareholder, or
committee member, as the case may be, signs the consent, unless the consent
specifies a different prior or subsequent effective date, in which case the
action is effective on or as of the specified date. Such consent shall have the
same effect as a unanimous vote of all members
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of the Board, or all shareholders, or all members of the committee, as the case
may be, and may be described as such in any document.
Section 7.5. By-Laws. The Board of Directors shall have the
exclusive power to make, alter, amend, or repeal, or to waive provisions of, the
By-Laws of the Corporation by the affirmative vote of a majority of the entire
number of Directors at the time, except as expressly provided in Section 6.1
hereof and as provided by the Corporation Law. All provisions for the
regulation of the business and management of the affairs of the Corporation not
stated in these Restated Articles of Incorporation shall be stated in the By-
Laws. The Board of Directors may adopt Emergency By-Laws of the Corporation and
shall have the exclusive power (except as may otherwise be provided therein) to
make, alter, amend, or repeal, or to waive provisions of, the Emergency By-Laws
by the affirmative vote of both (a) a majority of the entire number of Directors
at the time and (b) a majority of the entire number of Directors who then
qualify as Continuing Directors with respect to all Related Persons (as such
terms are defined for purposes for Article VIII hereof).
Section 7.6. Interest of Directors.
(a) A conflict of interest transaction is a transaction with the
Corporation in which a Director of the Corporation has a direct or indirect
interest. A conflict of interest transaction is not voidable by the Corporation
solely because of the Director's interest in the transaction if any one (1) of
the following is true:
(1) The material facts of the transaction and the Director's interest
were disclosed or known to the Board of Directors or a committee of the
Board of Directors and the Board of Directors or committee authorized,
approved, or ratified the transaction.
(2) The material facts of the transaction and the Director's interest
were disclosed or known to the shareholders entitled to vote and they
authorized, approved, or ratified the transaction.
(3) The transaction was fair to the Corporation.
(b) For purposes of this Section 7.6, a Director of the Corporation
has an indirect interest in a transaction if:
(1) Another entity in which the Director has a material financial
interest or in which the Director is a general partner is a party to the
transaction; or
(2) Another entity of which the Director is a director, officer, or
trustee is a party to the transaction and the transaction is, or is
required to be, considered by the Board of Directors of the Corporation.
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(c) For purposes of Section 7.6(a)(1), a conflict of interest
transaction is authorized, approved, or ratified if it receives the affirmative
vote of a majority of the Directors on the Board of Directors (or on the
committee) who have no direct or indirect interest in the transaction, but a
transaction may not be authorized, approved, or ratified under this section by a
single Director. If a majority of the Directors who have no direct or indirect
interest in the transaction vote to authorize, approve, or ratify the
transaction, a quorum shall be deemed present for the purpose of taking action
under this Section 7.6. The presence of, or a vote cast by, a Director with a
direct or indirect interest in the transaction does not affect the validity of
any action taken under Section 7.6(a)(1), if the transaction is otherwise
authorized, approved, or ratified as provided in such subsection.
(d) For purposes of Section 7.6(a)(2), a conflict of interest
transaction is authorized, approved, or ratified if it receives the affirmative
vote of the holders of shares representing a majority of the votes entitled to
be cast. Shares owned by or voted under the control of a Director who has a
direct or indirect interest in the transaction, and shares owned by or voted
under the control of an entity described in Section 7.6(b), may be counted in
such a vote of shareholders.
Section 7.7. Nonliability of Shareholders. Shareholders of the
Corporation are not personally liable for the acts or debts of the Corporation,
nor is private property of shareholders subject to the payment of corporate
debts.
Section 7.8. Indemnification of Officers, Directors, and Other
Eligible Persons.
(a) To the extent not inconsistent with applicable law, every Eligible
Person shall be indemnified by the Corporation against all Liability and
reasonable Expense that may be incurred by him in connection with or resulting
from any Claim, (1) if such Eligible Person is Wholly Successful with respect to
the Claim, or (2) if not Wholly Successful, then if such Eligible Person is
determined, as provided in either Section 7.8(f) or 7.8(g), to have acted in
good faith, in what he reasonably believed to be the best interests of the
Corporation or at least not opposed to its best interests and, in addition, with
respect to any criminal claim is determined to have had reasonable cause to
believe that his conduct was lawful or had no reasonable cause to believe that
his conduct was unlawful. The termination of any Claim, by judgment, order,
settlement (whether with or without court approval), or conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall not create a
presumption that an Eligible Person did not meet the standards of conduct set
forth in clause (2) of this subsection (a). The actions of an Eligible Person
with respect to an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974 shall be deemed to have been taken in what the
Eligible Person reasonably believed to be the best interests of the Corporation
or at least not opposed to its best interests if the Eligible Person reasonably
believed he was acting in conformity with the requirements of such Act or he
reasonably believed his actions to be in the interests of the participants in or
beneficiaries of the plan.
(b) The term "Claim" as used in this Section 7.8 shall include every
pending, threatened, or completed claim, action, suit, or proceeding and all
appeals thereof (whether brought
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by or in the right of this Corporation or any other corporation or otherwise),
civil, criminal, administrative, or investigative, formal or informal, in which
an Eligible Person may become involved, as a party or otherwise:
(1) by reason of his being or having been an Eligible Person, or
(2) by reason of any action taken or not taken by him in his capacity
as an Eligible Person, whether or not he continued in such capacity at the
time such Liability or Expense shall have been incurred.
(c) The term "Eligible Person" as used in this Section 7.8 shall mean
every person (and the estate, heirs, and personal representatives of such
person) who is or was a Director, officer, employee, or agent of the Corporation
or is or was serving at the request of the Corporation as a Director, officer,
employee, agent, or fiduciary of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other organization
or entity, whether for profit or not. An Eligible Person shall also be
considered to have been serving an employee benefit plan at the request of the
Corporation if his duties to the Corporation also imposed duties on, or
otherwise involved services by, him to the plan or to participants in or
beneficiaries of the plan.
(d) The terms "Liability" and "Expense" as used in this Section 7.8
shall include, but shall not be limited to, counsel fees and disbursements and
amounts of judgments, fines, or penalties against (including excise taxes
assessed with respect to an employee benefit plan), and amounts paid in
settlement by or on behalf of an Eligible Person.
(e) The term "Wholly Successful" as used in this Section 7.8 shall
mean (1) termination of any claim against the Eligible Person in question
without any finding of liability or guilt against him, (2) approval by a court,
with knowledge of the indemnity herein provided, of a settlement of any Claim,
or (3) the expiration of a reasonable period of time after the making or
threatened making of any Claim without the institution of the same, without any
payment or promise made to induce a settlement.
(f) Every Eligible Person claiming indemnification hereunder (other
than one who has been Wholly Successful with respect to any Claim) shall be
entitled to indemnification (1) if special independent legal counsel, which may
be regular counsel of the Corporation, or other disinterested person or persons,
in either case selected by the Board of Directors, whether or not a
disinterested quorum exists (such counsel or person or persons being hereinafter
called the "Referee"), shall deliver to the Corporation a written finding that
such Eligible Person has met the standards of conduct set forth in Section
7.8(a)(2), and (2) if the Board of Directors, acting upon such written finding,
so determines. The Board of Directors shall, if an Eligible Person is found to
be entitled to indemnification pursuant to the preceding sentence, also
determine the reasonableness of the Eligible Person's Expenses. The Eligible
Person claiming indemnification shall, if requested, appear before the Referee,
answer questions that the Referee deems relevant and shall be given ample
opportunity to present to the Referee evidence upon which he relies for
indemnification. The Corporation shall, at the request of the Referee, make
available facts, opinions, or other evidence in
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any way relevant to the Referee's findings that are within the possession or
control of the Corporation.
(g) If an Eligible Person claiming indemnification pursuant to Section
7.8(f) is found not to be entitled thereto, or if the Board of Directors fails
to select a Referee under Section 7.8(f) within a reasonable amount of time
following a written request of an Eligible Person for the selection of a
Referee, or if the Referee or the Board of Directors fails to make a
determination under Section 7.8(f) within a reasonable amount of time following
the selection of a Referee, the Eligible Person may apply for indemnification
with respect to a Claim to a court of competent jurisdiction, including a court
in which the Claim is pending against the Eligible Person. On receipt of an
application, the court, after giving notice to the Corporation and giving the
Corporation ample opportunity to present to the court any information or
evidence relating to the claim for indemnification that the Corporation deems
appropriate, may order indemnification if it determines that the Eligible Person
is entitled to indemnification with respect to the Claim because such Eligible
Person met the standards of conduct set forth in Section 7.8(a)(2). If the
court determines that the Eligible Person is entitled to indemnification, the
court shall also determine the reasonableness of the Eligible Person's Expenses.
(h) The rights of indemnification provided in this Section 7.8 shall
be in addition to any rights to which any Eligible Person may otherwise be
entitled. Irrespective of the provisions of this Section 7.8, the Board of
Directors may, at any time and from time to time, (1) approve indemnification of
any Eligible Person to the full extent permitted by the provisions of applicable
law at the time in effect, whether on account of past or future transactions,
and (2) authorize the Corporation to purchase and maintain insurance on behalf
of any Eligible Person against any Liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
liability.
(i) Expenses incurred by an Eligible Person with respect to any Claim
may be advanced by the Corporation (by action of the Board of Directors, whether
or not a disinterested quorum exists) prior to the final disposition thereof
upon receipt of an undertaking by or on behalf of the Eligible Person to repay
such amount unless he is determined to be entitled to indemnification.
(j) The provisions of this Section 7.8 shall be deemed to be a
contract between the Corporation and each Eligible Person, and an Eligible
Person's rights hereunder shall not be diminished or otherwise adversely
affected by any repeal, amendment, or modification of this Section 7.8 that
occurs subsequent to such person becoming an Eligible Person.
(k) The provisions of this Section 7.8 shall be applicable to Claims
made or commenced after the adoption hereof, whether arising from acts or
omissions to act occurring before or after the adoption hereof.
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ARTICLE VIII
Approval of Business Combinations
---------------------------------
Section 8.1. Supermajority Vote. Except as provided in Sections 8.2
and 8.3 hereof, neither the Corporation nor its Subsidiaries, if any, shall
become a party to any Business Combination with a Related Person without the
prior affirmative vote at a meeting of the Corporation's shareholders:
(a) Of not less than sixty-six and two-thirds percent (66-2/3%) of all
the votes entitled to be cast by the holders of the outstanding shares of
all classes of Voting Stock of the Corporation considered for purposes of
this Article VIII as a single class, and
(b) Of an Independent Majority of Shareholders.
Such favorable votes shall be in addition to any shareholder vote
which would be required without reference to this Section 8.1 and shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified by law or elsewhere in these Restated
Articles of Incorporation or the By-Laws of the Corporation or otherwise.
Section 8.2. Fair Price Exception. The provisions of Section 8.1 of
this Article VIII shall not apply to a Business Combination if all of the
conditions set forth in subsections (a) through (d) are satisfied.
(a) The fair market value of the property, securities, or other
consideration to be received per share by holders of each class or series
of capital stock of the Corporation in the Business Combination is not
less, as of the date of the consummation of the Business Combination (the
"Consummation Date"), than the higher of the following: (1) the highest
per share price (with appropriate adjustments for recapitalizations and for
stock splits, stock dividends, and like distributions), including brokerage
commissions and solicitation fees paid by the Related Person in acquiring
any of its holdings, of such class or series of capital stock within the
two-year period immediately prior to the first public announcement of the
proposed Business Combination ("Announcement Date") plus interest
compounded annually from the date that the Related Person became a Related
Person (the "Determination Date"), or if later from a date two years before
the Consummation Date, through the Consummation Date, at the rate publicly
announced as the "prime rate" of interest of Citibank, N.A. (or of such
other major bank headquartered in New York as may be selected by a majority
of the Continuing Directors) from time to time in effect, less the
aggregate amount of any cash dividends paid and the fair market value of
any dividends paid in other than cash on each share of such stock from the
date from which interest accrues under the preceding clause through the
Consummation Date up to but not exceeding the amount of interest so payable
per share; OR (2) the fair market value per share of such class or series
on the Announcement Date as
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determined by the highest closing sale price during the 30-day period
immediately preceding the Announcement Date if such stock is listed on a
securities exchange registered under the Securities Exchange Act of 1934
or, if such stock is not listed on any such exchange, the highest closing
bid quotation with respect to such stock during the 30-day period preceding
the Announcement Date on the National Association of Securities Dealers,
Inc. Automated Quotation System or any similar system then in use, or if no
such quotations are available, the fair market value of such stock
immediately prior to the first public announcement of the proposed Business
Combination as determined by the Continuing Directors in good faith. In
the event of a Business Combination upon the consummation of which the
Corporation would be the surviving corporation or company or would continue
to exist (unless it is provided, contemplated, or intended that as part of
such Business Combination or within one year after consummation thereof a
plan of liquidation or dissolution of the Corporation will be effected),
the term "other consideration to be received" shall include (without
limitation) Common Stock and/or the shares of any other class of stock
retained by shareholders of the Corporation other than Related Persons who
are parties to such Business Combination;
(b) The consideration to be received in such Business Combination by
holders of each class or series of capital stock of the Corporation other
than the Related Person involved shall, except to the extent that a
shareholder agrees otherwise as to all or part of the shares which he or
she owns, be in the same form and of the same kind as the consideration
paid by the Related Person in acquiring the majority of the shares of
capital stock of such class or series already Beneficially Owned by it;
(c) After such Related Person became a Related Person and prior to the
consummation of such Business Combination: (1) such Related Person shall
have taken steps to ensure that the Board of Directors of the Corporation
included at all times representation by Continuing Directors proportionate
to the ratio that the number of shares of Voting Stock of the Corporation
from time to time owned by shareholders who are not Related Persons bears
to all shares of Voting Stock of the Corporation outstanding at the time in
question (with a Continuing Director to occupy any resulting fractional
position among the Directors); (2) such Related Person shall not have
acquired from the Corporation, directly or indirectly, any shares of the
Corporation (except upon conversion of convertible securities acquired by
it prior to becoming a Related Person or as a result of a pro rata stock
dividend, stock split, or division of shares or in a transaction which
satisfied all applicable requirements of this Article VIII); (3) such
Related Person shall not have acquired any additional shares of Voting
Stock of the Corporation or securities convertible into or exchangeable for
shares of Voting Stock except as a part of the transaction which resulted
in such Related Person's becoming a Related Person; and (4) such Related
Person shall not have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees,
pledges, or
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other financial assistance or tax credits provided by the Corporation or
any Subsidiary, or made any major change in the Corporation's business or
equity capital structure or entered into any contract, arrangement, or
understanding with the Corporation except any such change, contract,
arrangement, or understanding as may have been approved by the favorable
vote of not less than a majority of the Continuing Directors of the
Corporation; and
(d) A proxy or information statement complying with the requirements
of the Securities Exchange Act of 1934 and the rules and regulations of the
Securities and Exchange Commission thereunder, as then in force for
corporations subject to the requirements of Section 14 of such Act (even if
the Corporation is not otherwise subject to Section 14 of such Act), shall
have been mailed to all holders of shares of the Corporation's capital
stock entitled to vote with respect to such Business Combination. Such
proxy or information statement shall contain on the face page thereof, in a
prominent place, any recommendations as to the advisability (or
inadvisability) of the Business Combination which the Continuing Directors,
or any of them, may have furnished in writing and, if deemed advisable by a
majority of the Continuing Directors, a fair summary of an opinion of a
reputable investment banking firm addressed to the Corporation as to the
fairness (or lack of fairness) of the terms of such Business Combination
from the point of view of the holders of shares of Voting Stock other than
any Related Person (such investment banking firm to be selected by a
majority of the Continuing Directors, to be furnished with all information
it reasonably requests, and to be paid a reasonable fee for its services
upon receipt by the Corporation of such opinion).
Section 8.3. Director Approval Exception. The provisions of Section
8.1 hereof shall not apply to a Business Combination if:
(a) The Directors, by a favorable vote of not less than two-thirds
(2/3) of the Directors who then qualify as Continuing Directors, (1) have
expressly approved a memorandum of understanding with the Related Person
with respect to the Business Combination prior to the time that the Related
Person became a Related Person and the Business Combination is effected on
substantially the same terms and conditions as are provided by the
memorandum of understanding, or (2) have otherwise approved the Business
Combination; or
(b) The Business Combination is solely between the Corporation and
another corporation, one hundred percent (100%) of the Voting Stock of
which is owned directly or indirectly by the Corporation.
Section 8.4. Definitions. For purposes of this Article VIII:
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(a) A "Business Combination" means:
(1) The sale, exchange, lease, transfer, or other disposition to
or with a Related Person or any Affiliate or Associate of such Related
Person by the Corporation or any Subsidiaries (in a single transaction
or a Series of Related Transactions) of all or substantially all, or
any Substantial Part, of its or their assets or businesses (including,
without limitation, securities issued by a Subsidiary, if any);
(2) The purchase, exchange, lease, or other acquisition by the
Corporation or any Subsidiaries (in a single transaction or a Series
of Related Transactions) of all or substantially all, or any
Substantial Part, of the assets or business of a Related Person or any
Affiliate or Associate of such Related Person;
(3) Any merger or consolidation of the Corporation or any
Subsidiary thereof into or with a Related Person or any Affiliate or
Associate of such Related Person or into or with another Person which,
after such merger or consolidation, would be an Affiliate or an
Associate of a Related Person, in each case irrespective of which
Person is the surviving entity in such merger or consolidation;
(4) Any reclassification of securities, recapitalization, or
other transaction (other than a redemption in accordance with the
terms of the security redeemed) which has the effect, directly or
indirectly, of increasing the proportionate amount of shares of Voting
Stock of the Corporation or any Subsidiary thereof which are
Beneficially Owned by a Related Person, or any partial or complete
liquidation, spinoff, splitoff, or splitup of the Corporation or any
Subsidiary thereof; provided, however, that this Section 8.4(a)(4)
shall not relate to any transaction that has been approved by a
majority of the Continuing Directors; or
(5) The acquisition upon the issuance thereof of Beneficial
Ownership by a Related Person of shares of Voting Stock or securities
convertible into shares of Voting Stock or any voting securities or
securities convertible into voting securities of any Subsidiary of the
Corporation, or the acquisition upon the issuance thereof of
Beneficial Ownership by a Related Person of any rights, warrants, or
options to acquire any of the foregoing or any combination of the
foregoing shares of Voting Stock or voting securities of a Subsidiary,
if any.
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(b) A "Series of Related Transactions" shall be deemed to include not
only a series of transactions with the same Related Person, but also a
series of separate transactions with a Related Person or any Affiliate or
Associate of such Related Person.
(c) A "Person" shall mean any individual, firm, corporation, or other
entity and any partnership, syndicate, or other group.
(d) "Related Person" shall mean any Person (other than the Corporation
or any Subsidiary of the Corporation or the Continuing Directors, singly or
as a group) who or that at any time described in the last sentence of the
penultimate paragraph of this subsection (d):
(1) is the Beneficial Owner, directly or indirectly, of more than
ten percent (10%) of the voting power of the outstanding shares of
Voting Stock and who has not been the Beneficial Owner, directly or
indirectly, of more than ten percent (10%) of the voting power of the
outstanding shares of Voting Stock for a continuous period of two
years prior to the date in question; or
(2) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question (but not
continuously during such two-year period) was the Beneficial Owner,
directly or indirectly, of ten percent (10%) or more of the voting
power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to any shares of
the Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Related Person, if such assignment or succession shall have occurred
in the course of a transaction or series of transactions not involving
a public offering within the meaning of the Securities Act of 1933, as
amended.
A Related Person shall be deemed to have acquired a share of the
Corporation at the time when such Related Person became the Beneficial
Owner thereof. For the purposes of determining whether a Person is the
Beneficial Owner of ten percent (10%) or more of the voting power of the
then outstanding Voting Stock, the outstanding Voting Stock shall be deemed
to include any Voting Stock that may be issuable to such Person pursuant to
a right to acquire such Voting Stock and that is therefore deemed to be
Beneficially Owned by such Person pursuant to Section 8.4(e)(2)(A). A
Person who is a Related Person at (1) the time any definitive agreement
relating to a Business Combination is entered into, (2) the record date for
the determination of shareholders entitled to notice of and to vote on a
Business
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Combination, or (3) the time immediately prior to the consummation of a
Business Combination shall be deemed a Related Person.
A Related Person shall not include the Board of Directors of the
Corporation acting as a group. In addition, a Related Person shall not
include any Person who possesses more than twenty percent (20%) of the
voting power of the outstanding shares of Voting Stock of the Corporation
or of Bindley Western Industries, Inc. at the time of filing these Restated
Articles of Incorporation.
(e) A Person shall be a "Beneficial Owner" of any shares of Voting
Stock:
(1) which such Person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) which such Person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement, or understanding or upon the exercise of
conversion rights, exchange rights, warrants, or options, or
otherwise, or (B) the right to vote pursuant to any agreement,
arrangement, or understanding; or
(3) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of its Affiliates or
Associates has any agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting, or disposing of any shares of
Voting Stock.
(f) An "Affiliate" of, or a person Affiliated with, a specific Person
means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the Person specified.
(g) The term "Associate" used to indicate a relationship with any
Person, means (1) any corporation or organization (other than this
Corporation or a majority-owned Subsidiary of this Corporation) of which
such Person is an officer or partner or is, directly or indirectly, the
Beneficial Owner of five percent (5%) or more of any class of equity
securities, (2) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, (3) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person, or (4) any investment company registered under the Investment
Company Act of 1940, as amended, for which such Person or any Affiliate of
such Person serves as investment adviser.
(h) "Subsidiary" means any corporation of which a majority of any
class
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of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Related
Person set forth in Section 8.4(d) hereof, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
(i) "Continuing Director" means any member of the Board of Directors
of the Corporation (the "Board") who is not associated with the Related
Person and was a member of the Board prior to the time that the Related
Person became a Related Person, and any successor of a Continuing Director
who is not associated with the Related Person and is recommended to succeed
a Continuing Director by not less than two-thirds of the Continuing
Directors then on the Board.
(j) "Independent Majority of Shareholders" shall mean the holders of
the outstanding shares of Voting Stock representing a majority of all the
votes entitled to be cast by all shares of Voting Stock other than shares
Beneficially Owned or controlled, directly or indirectly, by a Related
Person.
(k) "Voting Stock" shall mean all outstanding shares of capital stock
of the Corporation or another corporation entitled to vote generally on the
election of Directors, and each reference to a proportion of shares of
Voting Stock shall refer to such proportion of the total number of votes
(taking into account any multiple votes per share) entitled to be cast by
such shares.
(l) "Substantial Part" means properties and assets involved in any
single transaction or a Series of Related Transactions having an aggregate
fair market value of more than ten percent (10%) of the total consolidated
assets of the Person in question as determined immediately prior to such
transaction or Series of Related Transactions.
Section 8.5. Director Determinations. A majority of the Continuing
Directors shall have the power to determine for the purposes of this Article
VIII, on the basis of information known to them: (a) the number of shares of
Voting Stock of which any Person is the Beneficial Owner, (b) whether a Person
is an Affiliate or Associate of another, (c) whether a Person has an agreement,
arrangement, or understanding with another as to the matters referred to in the
definition of "Beneficial Owner," (d) whether the assets subject to any Business
Combination constitute a Substantial Part, (e) whether two or more transactions
constitute a Series of Related Transactions, and (f) such other matters with
respect to which a determination is required under this Article VIII.
Section 8.6. Amendment of Article VIII or Certain Other Provisions.
Any amendment, change, or repeal of this Article VIII, or of Sections 6.1, 6.6,
7.2 or 9.2, or any other amendment of these Restated Articles of Incorporation
which would have the effect of modifying or permitting circumvention of this
Article VIII or such other provisions of these Restated Articles of
Incorporation, shall require the affirmative vote, at a meeting of shareholders
of the Corporation:
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(a) Of at least sixty-six and two-thirds percent (66-2/3%) of the
votes entitled to be cast by the holders of the outstanding shares of all
classes of Voting Stock of the Corporation considered for purposes of this
Article VIII as a single class; and
(b) Of an Independent Majority of Shareholders;
Provided, however, that this Section 8.6 shall not apply to, and such vote shall
not be required for, any such amendment, change, or repeal recommended to
shareholders by the favorable vote of not less than two-thirds (2/3) of the
Directors who then qualify as Continuing Directors with respect to all Related
Persons and any such amendment, change, or repeal so recommended shall require
only the vote, if any, required under the applicable provisions of the
Corporation Law.
Section 8.7. Fiduciary Obligations Unaffected. Nothing in this
Article VIII shall be construed to relieve any Related Person from any fiduciary
duty imposed by law.
Section 8.8. Article VIII Nonexclusive. The provisions of this
Article VIII are nonexclusive and are in addition to any other provisions of law
or these Restated Articles of Incorporation or the By-Laws of the Corporation
relating to Business Combinations, Related Persons, or similar matters.
ARTICLE IX
Miscellaneous Provisions
------------------------
Section 9.1. Amendment or Repeal. Except as otherwise expressly
provided for in these Restated Articles of Incorporation, the Corporation shall
be deemed, for all purposes, to have reserved the right to amend, alter, change,
or repeal any provision contained in these Restated Articles of Incorporation to
the extent and in the manner now or hereafter permitted or prescribed by
statute, and all rights herein conferred upon shareholders are granted subject
to such reservation.
Section 9.2. Redemption of Shares Acquired in Control Share
Acquisitions. If and whenever the provisions of IC 23-1-42 apply to the
Corporation, it is authorized to redeem its securities pursuant to IC 23-1-42-
10.
Section 9.3. Captions. The captions of the Articles and Sections of
these Restated Articles of Incorporation have been inserted for convenience of
reference only and do not in any way define, limit, construe, or describe the
scope or intent of any Article or Section hereof.
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EXHIBIT 3-B
BY-LAWS
OF
PRIORITY HEALTHCARE CORPORATION
(As Amended August 25, 1997)
ARTICLE I
Meetings of Shareholders
------------------------
Section 1.1. Annual Meetings. Annual meetings of the shareholders of
the Corporation shall be held on the second Monday of May of each year
commencing in May, 1998, at such hour and at such place within or without the
State of Indiana as shall be designated by the Board of Directors. In the
absence of designation, the meeting shall be held at the principal office of the
Corporation at 11:00 a.m. (local time). The Board of Directors may, by
resolution, change the date or time of such annual meeting. If the day fixed
for any annual meeting of shareholders shall fall on a legal holiday, then such
annual meeting shall be held on the first following day that is not a legal
holiday.
Section 1.2. Special Meetings. Special meetings of the shareholders
of the Corporation may be called at any time by the Board of Directors or the
Chairman of the Board and shall be called by the Board of Directors if the
Secretary receives written, dated and signed demands for a special meeting,
describing in reasonable detail the purpose or purposes for which it is to be
held, from the holders of shares representing at least twenty-five percent (25%)
of all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting; provided, however, that any such demand(s) delivered
to the Secretary at any time at which the Corporation has more than 50
shareholders must be properly delivered by the holders of shares representing at
least eighty percent (80%) of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting. If the Secretary
receives one (1) or more proper written demands for a special meeting of
shareholders, the Board of Directors may set a record date for determining
shareholders entitled to make such demand. The Board of Directors or the
Chairman of the Board, as the case may be, calling a special meeting of
shareholders shall set the date, time and place of such meeting, which may be
held within or without the State of Indiana.
Section 1.3. Notices. A written notice, stating the date, time, and
place of any meeting of the shareholders, and, in the case of a special meeting,
the purpose or purposes for which such meeting is called, shall be delivered or
mailed by the Secretary of the Corporation, to each shareholder of record of the
Corporation entitled to notice of or to vote at such meeting no fewer than ten
(10) nor more than sixty (60) days before the date of the meeting. In the event
of a special meeting of shareholders required to be called as the result of a
demand therefor made by shareholders, such notice shall be given no later than
the sixtieth (60th) day after the Corporation's
<PAGE>
receipt of the demand requiring the meeting to be called. Notice of
shareholders' meetings, if mailed, shall be mailed, postage prepaid, to each
shareholder at his address shown in the Corporation's current record of
shareholders.
Notice of a meeting of shareholders shall be given to shareholders not
entitled to vote, but only if a purpose for the meeting is to vote on any
amendment to the Corporation's Articles of Incorporation, merger, or share
exchange to which the Corporation would be a party, sale of the Corporation's
assets, dissolution of the Corporation, or consideration of voting rights to be
accorded to shares acquired or to be acquired in a "control share acquisition"
(as such term is defined in the Indiana Business Corporation Law). Except as
required by the foregoing sentence or as otherwise required by the Indiana
Business Corporation Law or the Corporation's Articles of Incorporation, notice
of a meeting of shareholders is required to be given only to shareholders
entitled to vote at the meeting.
A shareholder or his proxy may at any time waive notice of a meeting
if the waiver is in writing and is delivered to the Corporation for inclusion in
the minutes or filing with the Corporation's records. A shareholder's
attendance at a meeting, whether in person or by proxy, (a) waives objection to
lack of notice or defective notice of the meeting, unless the shareholder or his
proxy at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (b) waives objection to consideration
of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder or his proxy objects to
considering the matter when it is presented. Each shareholder who has, in the
manner above provided, waived notice or objection to notice of a shareholders'
meeting shall be conclusively presumed to have been given due notice of such
meeting, including the purpose or purposes thereof.
If an annual or special shareholders' meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time, or place is announced at the meeting before
adjournment, unless a new record date is or must be established for the
adjourned meeting.
Section 1.4. Business of Shareholder Meetings. At an annual meeting
of the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have the legal right and authority to make the
proposal for consideration at the meeting and the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than sixty (60)
days prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders (which notice or public disclosure shall
include the date of the annual
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meeting specified in these By-Laws, if such By-Laws have been filed with the
Securities and Exchange Commission and if the annual meeting is held on such
date), notice by the shareholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
record address of the shareholder proposing such business, (c) the class and
number of the Corporation's shares which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1.4. The Chairman of an annual meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 1.4, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted. At any special meeting of the shareholders, only such business
shall be conducted as shall have been specified in the notice of meeting (or any
supplement thereto) or otherwise properly brought before the meeting by or at
the direction of the Board of Directors.
Section 1.5. Notice of Shareholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this Section 1.5 shall
be eligible for election as Directors. Nominations of persons for election to
the Board of Directors may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or persons
appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 1.5. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty (60) days
prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders (which notice or public disclosure shall
include the date of the annual meeting specified in these By-Laws, if such By-
Laws have been filed with the Securities and Exchange Commission and if the
annual meeting is held on such date), notice by the shareholders to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or re-
election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of the Corporation's shares which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (b) as to
the shareholder giving the notice, (i) the name and
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record address of such shareholder and (ii) the class and number of the
Corporation's shares which are beneficially owned by such shareholder. No
person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 1.5. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by these By-Laws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
Section 1.6. Voting. Except as otherwise provided by the Indiana
Business Corporation Law or the Corporation's Articles of Incorporation, each
share of any class, other than Class A Common Stock, of the common stock of the
Corporation that is outstanding at the record date established for any annual or
special meeting of shareholders and is outstanding at the time of and
represented in person or by proxy at the annual or special meeting, shall
entitle the record holder thereof, or his proxy, to one (1) vote, or in the case
of Class A Common Stock, three (3) votes, on each matter voted on at the
meeting.
Section 1.7. Quorum. Unless the Corporation's Articles of
Incorporation or the Indiana Business Corporation Law provide otherwise, at all
meetings of shareholders, a majority of the votes entitled to be cast on a
matter, represented in person or by proxy, constitutes a quorum for action on
the matter. Action may be taken at a shareholders' meeting only on matters with
respect to which a quorum exists; provided, however, that any meeting of
shareholders, including annual and special meetings and any adjournments
thereof, may be adjourned to a later date although less than a quorum is
present. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 1.8. Vote Required To Take Action. If a quorum exists as to
a matter to be considered at a meeting of shareholders, action on such matter
(other than the election of Directors) is approved if the votes properly cast
favoring the action exceed the votes properly cast opposing the action, except
as the Corporation's Articles of Incorporation or the Indiana Business
Corporation Law require a greater number of affirmative votes. Directors shall
be elected by a plurality of the votes properly cast.
Section 1.9. Record Date. Only such persons shall be entitled to
notice of or to vote, in person or by proxy, at any shareholders' meeting as
shall appear as shareholders upon the books of the Corporation as of such record
date as the Board of Directors shall determine, which date may not be earlier
than the date seventy (70) days immediately preceding the meeting. In the
absence of such determination, the record date shall be the fiftieth (50th) day
immediately preceding the date of such meeting. Unless otherwise provided by
the Board of Directors, shareholders shall be determined as of the close of
business on the record date.
Section 1.10. Proxies. A shareholder may vote his shares either in
person or by proxy. A shareholder may appoint a proxy to vote or otherwise act
for the shareholder (including authorizing the proxy to receive, or to waive,
notice of any shareholders' meeting within the effective
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period of such proxy) by signing an appointment form, either personally or by
the shareholder's attorney-in-fact. An appointment of a proxy is effective when
received by the Secretary or other officer or agent authorized to tabulate votes
and is effective for eleven (11) months unless a longer period is expressly
provided in the appointment form. The proxy's authority may be limited to a
particular meeting or may be general and authorize the proxy to represent the
shareholder at any meeting of shareholders held within the time provided in the
appointment form. Subject to the Indiana Business Corporation Law and to any
express limitation on the proxy's authority appearing on the face of the
appointment form, the Corporation is entitled to accept the proxy's vote or
other action as that of the shareholder making the appointment.
Section 1.11. Removal of Directors. Any or all of the members of the
Board of Directors may be removed, for good cause, only at a meeting of the
shareholders called expressly for that purpose, by a vote of the holders of
outstanding shares representing at least sixty-six and two-thirds percent
(66-2/3%) of the votes then entitled to be cast at an election of Directors.
Directors may not be removed in the absence of good cause.
Section 1.12. Written Consents. Any action required or permitted to
be taken at a shareholders' meeting may be taken without a meeting if the action
is taken by all the shareholders entitled to vote on the action. The action
must be evidenced by one (1) or more written consents describing the action
taken, signed by all the shareholders entitled to vote on the action, and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. Action taken under this Section 1.12 is effective when the
last shareholder signs the consent, unless the consent specifies a different
prior or subsequent effective date, in which case the action is effective on or
as of the specified date. Such consent shall have the same effect as a
unanimous vote of all shareholders and may be described as such in any document.
Section 1.13. Participation by Conference Telephone. The Chairman of
the Board or the Board of Directors may permit any or all shareholders to
participate in an annual or special meeting of shareholders by, or through the
use of, any means of communication, such as conference telephone, by which all
shareholders participating may simultaneously hear each other during the
meeting. A shareholder participating in a meeting by such means shall be deemed
to be present in person at the meeting.
ARTICLE II
Directors
---------
Section 2.1. Number and Terms. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors
consisting of six (6) Directors. The Directors shall be divided into three (3)
groups, with each group consisting of one-third (1/3) of the total Directors, as
near as may be, with the term of office of the first group to expire at the
annual meeting of shareholders in 1998, the term of office of the second group
to expire at the annual meeting of shareholders in 1999, and the term of office
of the third group to expire at the annual meeting of
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shareholders in 2000; and at each annual meeting of shareholders, the Directors
chosen to succeed those whose terms then expire shall be identified as being of
the same group as the Directors they succeed and shall be elected for a term
expiring at the third succeeding annual meeting of shareholders.
Despite the expiration of a Director's term, the Director shall
continue to serve until his successor is elected and qualified, or until the
earlier of his death, resignation, disqualification or removal, or until there
is a decrease in the number of Directors. Any vacancy occurring in the Board of
Directors, from whatever cause arising, shall be filled by selection of a
successor by a majority vote of the remaining members of the Board of Directors
(although less than a quorum); provided, however, that if such vacancy or
vacancies leave the Board of Directors with no members or if the remaining
members of the Board are unable to agree upon a successor or determine not to
select a successor, such vacancy may be filled by a vote of the shareholders at
a special meeting called for that purpose or at the next annual meeting of
shareholders. The term of a Director elected or selected to fill a vacancy
shall expire at the end of the term for which such Director's predecessor was
elected, or if the vacancy arises because of an increase in the size of the
Board of Directors, at the end of the term specified at the time of election or
selection.
The Directors and each of them shall have no authority to bind the
Corporation except when acting as a Board.
Section 2.2. Quorum and Vote Required To Take Action. A majority of
the whole Board of Directors shall be necessary to constitute a quorum for the
transaction of any business, except the filling of vacancies. If a quorum is
present when a vote is taken, the affirmative vote of a majority of the
Directors present shall be the act of the Board of Directors, unless the act of
a greater number is required by the Indiana Business Corporation Law, the
Corporation's Articles of Incorporation or these By-Laws.
Section 2.3. Annual and Regular Meetings. The Board of Directors
shall meet annually, without notice, immediately following the annual meeting of
the shareholders, for the purpose of transacting such business as properly may
come before the meeting. Other regular meetings of the Board of Directors, in
addition to said annual meeting, shall be held on such dates, at such times and
at such places as shall be fixed by resolution adopted by the Board of Directors
and specified in a notice of each such regular meeting, or otherwise
communicated to the Directors. The Board of Directors may at any time alter the
date for the next regular meeting of the Board of Directors.
Section 2.4. Special Meetings. Special meetings of the Board of
Directors may be called by any member of the Board of Directors upon not less
than twenty-four (24) hours' notice given to each Director of the date, time,
and place of the meeting, which notice need not specify the purpose or purposes
of the special meeting. Such notice may be communicated in person (either in
writing or orally), by telephone, telegraph, teletype, or other form of wire or
wireless communication, or by mail, and shall be effective at the earlier of the
time of its receipt or, if mailed, five (5) days after its mailing. Notice of
any meeting of the Board may be waived in writing at any
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time if the waiver is signed by the Director entitled to the notice and is filed
with the minutes or corporate records. A Director's attendance at or
participation in a meeting waives any required notice to the Director of the
meeting, unless the Director at the beginning of the meeting (or promptly upon
the Director's arrival) objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to action taken at the
meeting.
Section 2.5. Written Consents. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if the action is taken by all members of the Board. The action must be
evidenced by one (1) or more written consents describing the action taken,
signed by each Director, and included in the minutes or filed with the corporate
records reflecting the action taken. Action taken under this Section 2.5 is
effective when the last Director signs the consent, unless the consent specifies
a different prior or subsequent effective date, in which case the action is
effective on or as of the specified date. A consent signed under this Section
2.5 shall have the same effect as a unanimous vote of all members of the Board
and may be described as such in any document.
Section 2.6. Participation by Conference Telephone. The Board of
Directors may permit any or all Directors to participate in a regular or special
meeting by, or through the use of, any means of communication, such as
conference telephone, by which all Directors participating may simultaneously
hear each other during the meeting. A Director participating in a meeting by
such means shall be deemed to be present in person at the meeting.
Section 2.7. Executive Committee. The Board of Directors may appoint
three (3) members to an Executive Committee. The Executive Committee shall,
subject to the restrictions of Section 2.9, be authorized to exercise the
authority of the full Board of Directors at any times other than during regular
or special meetings of the Board of Directors. All actions taken by the
Executive Committee shall be reported at the first regular meeting of the Board
of Directors following such actions. Members of the Executive Committee shall
serve at the pleasure of the Board of Directors.
Section 2.8. Other Committees. The Board of Directors may create one
(1) or more committees in addition to any Executive Committee and appoint
members of the Board of Directors to serve on them, by resolution of the Board
of Directors adopted by a majority of all the Directors in office when the
resolution is adopted. The committee may exercise the authority of the Board of
Directors to the extent specified in the resolution. Each committee may have
one (1) or more members, and all the members of such committee shall serve at
the pleasure of the Board of Directors.
Section 2.9. Limitations on Committees; Notice, Quorum and Voting.
(a) Neither the Executive Committee nor any other committee hereafter
established may:
(1) authorize dividends or other distributions, except a committee may
authorize or approve a reacquisition of shares if done according to a
formula or method
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prescribed by the Board of Directors;
(2) approve or propose to shareholders action that is required to be
approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its committees;
(4) except as permitted under Section 2.9(a)(7) below, amend the
Corporation's Articles of Incorporation under IC 23-1-38-2;
(5) adopt, amend, repeal, or waive provisions of these By-Laws;
(6) approve a plan of merger not requiring shareholder approval; or
(7) authorize or approve the issuance or sale or a contract for sale of
shares, or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except the Board of
Directors may authorize a committee (or an executive officer of the
Corporation designated by the Board of Directors) to take the action
described in this Section 2.9(a)(7) within limits prescribed by the
Board of Directors.
(b) Except to the extent inconsistent with the resolutions creating a
committee, Sections 2.1 through 2.6 of these By-Laws, which govern meetings,
action without meetings, notice and waiver of notice, quorum and voting
requirements and telephone participation in meetings of the Board of Directors,
apply to each committee and its members as well.
ARTICLE III
Officers
--------
Section 3.1. Designation, Selection and Terms. The officers of the
Corporation shall consist of the Chairman of the Board, the President, the Chief
Financial Officer, the Treasurer and the Secretary. The Board of Directors may
also elect Vice Presidents, Assistant Secretaries and Assistant Treasurers, and
such other officers or assistant officers as it may from time to time determine
by resolution creating the office and defining the duties thereof. In addition,
the Chairman of the Board or the President may, by a certificate of appointment
creating the office and defining the duties thereof delivered to the Secretary
for inclusion with the corporate records, from time to time create and appoint
such assistant officers as they deem desirable. The officers of the Corporation
shall be elected by the Board of Directors (or appointed by the Chairman of the
Board or the President as provided above) and need not be selected from among
the members of the Board of Directors, except for the Chairman of the Board and
the President who shall be members of the Board of Directors. Any two (2) or
more offices may be held by the same person. All officers shall serve at the
pleasure of the Board of Directors and, with respect to officers appointed by
the
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Chairman of the Board or the President, also at the pleasure of such officers.
The election or appointment of an officer does not itself create contract
rights.
Section 3.2. Removal. The Board of Directors may remove any officer
at any time with or without cause. An officer appointed by the Chairman of the
Board or the President may also be removed at any time, with or without cause,
by either of such officers. Vacancies in such offices, however occurring, may
be filled by the Board of Directors at any meeting of the Board of Directors (or
by appointment by the Chairman of the Board or the President, to the extent
provided in Section 3.1 of these By-Laws).
Section 3.3. Chairman of the Board. The Chairman of the Board shall,
if present, preside at all meetings of the shareholders and of the Board of
Directors and shall have such powers and perform such duties as are assigned to
him by the Board of Directors.
Section 3.4. President. The President shall be the chief executive
and principal policymaking officer of the Corporation. Subject to the authority
of the Board of Directors, he shall formulate the major policies to be pursued
in the administration of the Corporation's affairs. He shall study and make
reports and recommendations to the Board of Directors with respect to major
problems and activities of the Corporation and shall see that the established
policies are placed into effect and carried out. In the absence of the Chairman
of the Board, the President shall preside at meetings of the shareholders and of
the Board of Directors.
Section 3.5. Chief Financial Officer. The Chief Financial Officer
shall be the chief financial officer of the Corporation and shall perform all of
the duties customary to that office. He shall be responsible for all of the
Corporation's financial affairs, subject to the supervision and direction of the
President, and shall have and perform such further powers and duties as the
Board of Directors may, from time to time, prescribe and as the President may,
from time to time, delegate to him.
Section 3.6. Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors may, from time to time,
prescribe and as the President may, from time to time, delegate to him.
Section 3.7. Treasurer. The Treasurer shall perform all of the
duties customary to that office, shall be the chief accounting officer of the
Corporation and shall be responsible for maintaining the Corporation's
accounting books and records and preparing its financial statements, subject to
the supervision and direction of the Chief Financial Officer and other superior
officers within the Corporation. He shall also be responsible for causing the
Corporation to furnish financial statements to its shareholders pursuant to IC
23-1-53-1.
Section 3.8. Assistant Treasurer. In the absence or inability of the
Treasurer, the Assistant Treasurer, if any, shall perform only such duties as
are specifically assigned to him, in writing, by the Board of Directors, the
President, the Chief Financial Officer, or the Treasurer.
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Section 3.9. Secretary. The Secretary shall be the custodian of the
books, papers, and records of the Corporation and of its corporate seal, if any,
and shall be responsible for seeing that the Corporation maintains the records
required by IC 23-1-52-1 (other than accounting records) and that the
Corporation files with the Indiana Secretary of State the biennial report
required by IC 23-1-53-3. The Secretary shall be responsible for preparing
minutes of the meetings of the shareholders and of the Board of Directors and
for authenticating records of the Corporation, and he shall perform all of the
other duties usual in the office of Secretary of a corporation.
Section 3.10. Assistant Secretary. In the absence or inability of the
Secretary, the Assistant Secretary, if any, shall perform only such duties as
are provided herein or specifically assigned to him, in writing, by the Board of
Directors, the President, or the Secretary.
Section 3.11. Salary. The Board of Directors may, at its discretion,
from time to time, fix the salary of any officer by resolution included in the
minute book of the Corporation.
ARTICLE IV
Checks
------
All checks, drafts, or other orders for payment of money shall be
signed in the name of the Corporation by such officers or persons as shall be
designated from time to time by resolution adopted by the Board of Directors and
included in the minute book of the Corporation; and in the absence of such
designation, such checks, drafts, or other orders for payment shall be signed by
the Chairman, the President, the Chief Financial Officer, the Vice President-
Finance or the Treasurer.
ARTICLE V
Loans
-----
Such of the officers of the Corporation as shall be designated from
time to time by resolution adopted by the Board of Directors and included in the
minute book of the Corporation shall have the power, with such limitations
thereon as may be fixed by the Board of Directors, to borrow money in the
Corporation's behalf, to establish credit, to discount bills and papers, to
pledge collateral, and to execute such notes, bonds, debentures, or other
evidences of indebtedness, and such mortgages, trust indentures, and other
instruments in connection therewith, as may be authorized from time to time by
such Board of Directors.
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ARTICLE VI
Execution of Documents
----------------------
The Chairman of the Board, the President or any other officer
authorized by the Board of Directors may, in the Corporation's name, sign all
deeds, leases, contracts, or similar documents unless otherwise directed by the
Board of Directors or otherwise provided herein or in the Corporation's Articles
of Incorporation, or as otherwise required by law.
ARTICLE VII
Stock
-----
Section 7.1. Execution. Certificates for shares of the Corporation
shall be signed by the Chairman of the Board or the President and by the
Secretary and the seal of the Corporation (or a facsimile thereof), if any, may
be thereto affixed. Where any such certificate is also signed by a transfer
agent or a registrar, or both, the signatures of the officers of the Corporation
may be facsimiles. The Corporation may issue and deliver any such certificate
notwithstanding that any such officer who shall have signed, or whose facsimile
signature shall have been imprinted on, such certificate shall have ceased to be
such officer.
Section 7.2. Contents. Each certificate issued after the adoption of
these By-Laws shall state on its face the name of the Corporation and that it is
organized under the laws of the State of Indiana, the name of the person to whom
it is issued, and the number and class of shares and the designation of the
series, if any, the certificate represents, and shall state conspicuously on its
front or back that the Corporation will furnish the shareholder, upon his
written request and without charge, a summary of the designations, relative
rights, preferences, and limitations applicable to each class and the variations
in rights, preferences, and limitations determined for each series (and the
authority of the Board of Directors to determine variations for future series).
Section 7.3. Transfers. Except as otherwise provided by law or by
resolution of the Board of Directors, transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder thereof, in
person or by duly authorized attorney, on payment of all taxes thereon and
surrender for cancellation of the certificate or certificates for such shares
(except as hereinafter provided in the case of loss, destruction, or mutilation
of certificates) properly endorsed by the holder thereof or accompanied by the
proper evidence of succession, assignment, or authority to transfer, and
delivered to the Secretary or an Assistant Secretary.
Section 7.4. Stock Transfer Records. There shall be entered upon the
stock records of the Corporation the number of each certificate issued, the name
and address of the registered holder of such certificate, the number, kind, and
class of shares represented by such certificate, the date of issue, whether the
shares are originally issued or transferred, the registered holder from whom
transferred, and such other information as is commonly required to be shown by
such records.
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The stock records of the Corporation shall be kept at its principal office,
unless the Corporation appoints a transfer agent or registrar, in which case the
Corporation shall keep at its principal office a complete and accurate
shareholders' list giving the names and addresses of all shareholders and the
number and class of shares held by each. If a transfer agent is appointed by the
Corporation, shareholders shall give written notice of any changes in their
addresses from time to time to the transfer agent.
Section 7.5. Transfer Agents and Registrars. The Board of Directors
may appoint one or more transfer agents and one or more registrars and may
require each stock certificate to bear the signature of either or both.
Section 7.6. Loss, Destruction, or Mutilation of Certificates. The
holder of any shares of the Corporation shall immediately notify the Corporation
of any loss, destruction, or mutilation of the certificate therefor, and the
Board of Directors may, in its discretion, cause to be issued to him a new
certificate or certificates, upon the surrender of the mutilated certificate,
or, in the case of loss or destruction, upon satisfactory proof of such loss or
destruction. The Board of Directors may, in its discretion, require the holder
of the lost or destroyed certificate or his legal representative to give the
Corporation a bond in such sum and in such form, and with such surety or
sureties as it may direct, to indemnify the Corporation, its transfer agents,
and registrars, if any, against any claim that may be made against them or any
of them with respect to the shares represented by the certificate or
certificates alleged to have been lost or destroyed, but the Board of Directors
may, in its discretion, refuse to issue a new certificate or certificates, save
upon the order of a court having jurisdiction in such matters.
Section 7.7. Form of Certificates. The form of the certificates for
shares of the Corporation shall conform to the requirements of Section 7.2 of
these By-Laws and be in such printed form as shall from time to time be approved
by resolution of the Board of Directors.
ARTICLE VIII
Seal
----
The corporate seal of the Corporation shall, if the Corporation elects
to have one, be in the form of a disc, with the name of the Corporation and
"INDIANA" on the periphery thereof and the word "SEAL" in the center.
ARTICLE IX
Miscellaneous
-------------
Section 9.1. Indiana Business Corporation Law. The provisions of the
Indiana Business Corporation law, as amended, applicable to all matters relevant
to, but not specifically
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covered by, these By-Laws are hereby, by reference, incorporated in and made a
part of these By-Laws.
Section 9.2. Fiscal Year. The fiscal year of the Corporation shall end
on December 31 of each year.
Section 9.3. Election to be governed by Indiana Code (S) 23-1-43.
Effective upon the registration of any class of the Corporation's shares under
Section 12 of the Securities Exchange Act of 1934, as amended, the Corporation
shall be governed by the provisions of IC 23-1-43 regarding business
combinations.
Section 9.4. Control Share Acquisition Statute. The provisions of IC
23-1-42 shall apply to the acquisition of shares of the Corporation.
Section 9.5. Redemption of Shares Acquired in Control Share
Acquisitions. If and whenever the provisions of IC 23-1-42 apply to the
Corporation, any or all control shares acquired in a control share acquisition
shall be subject to redemption by the Corporation, if either:
(a) no acquiring person statement has been filed with the Corporation
with respect to such control share acquisition in accordance with IC 23-1-
42-6, or
(b) the control shares are not accorded full voting rights by the
Corporation's shareholders as provided in IC 23-1-42-9.
A redemption pursuant to Section 9.5(a) may be made at any time during the
period ending sixty (60) days after the last acquisition of control shares by
the acquiring person. A redemption pursuant to Section 9.5(b) may be made at
any time during the period ending two (2) years after the shareholder vote with
respect to the granting of voting rights to such control shares. Any redemption
pursuant to this Section 9.5 shall be made at the fair value of the control
shares and pursuant to such procedures for such redemption as may be set forth
in these By-Laws or adopted by resolution of the Board of Directors.
As used in this Section 9.5, the terms "control shares," "control
share acquisition," "acquiring person statement," and "acquiring person" shall
have the meanings ascribed to such terms in IC 23-1-42.
Section 9.6. Amendments. These By-Laws may be rescinded, changed, or
amended, and provisions hereof may be waived, at any meeting of the Board of
Directors by the affirmative vote of a majority of the entire number of
Directors at the time, except as otherwise required by the Corporation's
Articles of Incorporation or by the Indiana Business Corporation Law.
Section 9.7. Definition of Articles of Incorporation. The term
"Articles of Incorporation" as used in these By-Laws means the Articles of
Incorporation of the Corporation as from time to time are in effect.
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EXHIBIT 10-C
PRIORITY HEALTHCARE CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Company and its shareholders by providing a means for
attracting and retaining officers and key employees of the Company and its
Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" -- means any "parent corporation" or "subsidiary corporation"
of the Company as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Award" -- means the grant by the Committee of an Incentive Stock Option, a
Non-Qualified Stock Option, or Restricted Stock, or any combination thereof, as
provided in the Plan.
"Board" -- means the Board of Directors of the Company.
"Change in Control" -- means each of the events specified in the following
clauses (i) through (iii): (i) any third person, including a "group" as defined
in Section 13(d)(3) of the Exchange Act shall, after the date of the adoption of
the Plan by the Board, first become the beneficial owner of shares of the
Company with respect to which 25% or more of the total number of votes for the
election of the Board of Directors of the Company may be cast, (ii) as a result
of, or in connection with, any cash tender offer, exchange offer, merger or
other business combination, sale of assets or contested election, or combination
of the foregoing, the persons who were directors of the Company shall cease to
constitute a majority of the Board of Directors of the Company or (iii) the
stockholders of the Company shall approve an agreement providing either for a
transaction in which the Company will cease to be an independent publicly owned
entity or for a sale or other disposition of all or substantially all the assets
of the Company; provided, however, that the occurrence of any of such events
shall not be deemed a Change in Control if, prior to such occurrence, a
resolution specifically approving such occurrence shall have been adopted by at
least a majority of the Board of Directors of the Company.
"Code" -- means the Internal Revenue Code of 1986, as amended.
"Committee" -- means the Committee referred to in Section 3 hereof.
"Company" -- means Priority Healthcare Corporation, an Indiana corporation.
"Continuous Service" -- means the absence of any interruption or
termination of service as an employee of the Company or an Affiliate. Service
shall not be considered interrupted in the case of sick leave, military leave or
any other leave of absence approved by the Company or in the case of any
transfer between the Company and an Affiliate or any successor to the Company.
<PAGE>
"Employee" -- means any person, including an officer or director, who is
employed by the Company or any Affiliate.
"Exchange Act" -- means the Securities Exchange Act of 1934, as amended.
"Exercise Price" -- means the price per Share at which the Shares subject
to an Option may be purchased upon exercise of such Option.
"Incentive Stock Option" -- means an option to purchase Shares granted by
the Committee pursuant to the terms of the Plan which is intended to qualify
under Section 422 of the Code.
"Market Value" -- means the last reported sale price on the date in
question (or, if there is no reported sale on such date, on the last preceding
date on which any reported sale occurred) of one Share on the principal exchange
on which the Shares are listed for trading, or if the Shares are not listed for
trading on any exchange, on the NASDAQ National Market System or any similar
system then in use, or, if the Shares are not listed on the NASDAQ National
Market System, the mean between the closing high bid and low asked quotations of
one Share on the date in question as reported by NASDAQ or any similar system
then in use, or, if no such quotations are available, the fair market value on
such date of one Share as the Committee shall determine.
"Non-Qualified Stock Option" -- means an option to purchase Shares granted
by the Committee pursuant to the terms of the Plan, which option is not intended
to qualify under Section 422 of the Code.
"Option" -- means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" -- means any officer, key employee or consultant of the
Company or any Affiliate who is selected by the Committee to receive an Award.
"Plan" -- means this 1997 Stock Option and Incentive Plan of the Company.
"Reorganization" -- means the liquidation or dissolution of the Company or
any merger, consolidation or combination of the Company (other than a merger,
consolidation or combination in which the Company is the continuing entity and
which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property or any combination
thereof).
"Restricted Period" -- means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 10
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" -- means Shares which have been contingently awarded to
a Participant by the Committee subject to the restrictions referred to in
Section 10 hereof, so long as such restrictions are in effect.
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<PAGE>
"Securities Act" -- means the Securities Act of 1933, as amended.
"Shares" -- means the Class B Common Stock, $.01 par value, of the Company.
3. Administration. The Plan shall be administered by the Committee, which
shall consist of two or more members of the Board, each of whom shall be a "non-
employee director" as provided under Rule 16b-3 of the Exchange Act, and an
"outside director" as provided under Code Section 162(m). The members of the
Committee shall be appointed by the Board. Except as limited by the express
provisions of the Plan, the Committee shall have sole and complete authority and
discretion to (a) select Participants and grant Awards; (b) determine the number
of Shares to be subject to types of Awards generally, as well as to individual
Awards granted under the Plan; (c) determine the terms and conditions upon which
Awards shall be granted under the Plan; (d) prescribe the form and terms of
instruments evidencing such grants; (e) establish procedures and regulations for
the administration of the Plan; (f) interpret the Plan; and (g) make all
determinations deemed necessary or advisable for the administration of the Plan.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all members of the Committee without a meeting,
shall be acts of the Committee. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding on all persons, and shall be given the maximum deference permitted by
law.
4. Participants. The Committee may select from time to time Participants
in the Plan from those officers, key employees and consultants of the Company or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing in a substantial measure to the successful performance of the
Company or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 1,250,000 Shares. The number of Shares which may be
granted under the Plan to any Participant during any calendar year of the Plan
under all forms of Awards shall not exceed 300,000 Shares. The Shares with
respect to which Awards may be made under the Plan may either be authorized and
unissued shares or unissued shares heretofore or hereafter reacquired and held
as treasury shares. With respect to any Option which terminates or is
surrendered for cancellation or with respect to Restricted Stock which is
forfeited, new Awards may be granted under the Plan with respect to the number
of Shares as to which such termination or forfeiture has occurred.
6. General Terms and Conditions of Options. The Committee shall have full
and complete authority and discretion, except as expressly limited by the Plan,
to grant Options and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price, (ii) the
number of Shares subject to, and the expiration date of, any Option, (iii) the
manner, time and rate (cumulative or otherwise) of exercise of such Option, and
(iv) the restrictions, if any, to be placed
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<PAGE>
upon such Option or upon Shares which may be issued upon exercise of such
Option. The Committee may, as a condition of granting any Option, require that a
Participant agree to surrender for cancellation one or more Options previously
granted to such Participant.
7. Exercise of Options.
(a) Except as provided in Section 14, an Option granted under the
Plan shall be exercisable during the lifetime of the Participant to whom such
Option was granted only by such Participant, and except as provided in Section
8, no Option may be exercised unless at the time the Participant exercises the
Option, the Participant has maintained Continuous Service since the date of the
grant of the Option.
(b) To exercise an Option under the Plan, the Participant must give
written notice to the Company specifying the number of Shares with respect to
which the Participant elects to exercise the Option together with full payment
of the Exercise Price. The date of exercise shall be the date on which the
notice is received by the Company. Payment may be made either (i) in cash
(including check, bank draft or money order), (ii) by tendering Shares already
owned by the Participant and having a Market Value on the date of exercise equal
to the Exercise Price, (iii) by requesting that the Company withhold Shares
issuable upon exercise of the Option having a Market Value equal to the Exercise
Price, or (iv) by any other means determined by the Committee in its sole
discretion.
8. Termination of Options. Unless otherwise specifically provided by the
Committee, Options shall terminate as provided in this Section.
(a) Unless sooner terminated under the provisions of this Section,
Options shall expire on the earlier of the date specified by the Committee or
the expiration of ten (10) years from the date of grant.
(b) If the Continuous Service of a Participant is terminated for
cause, or voluntarily by the Participant for any reason other than death,
disability or retirement, all rights under any Options granted to the
Participant shall terminate immediately upon the Participant's cessation of
Continuous Service.
(c) If the Continuous Service of a Participant is terminated by
reason of retirement or terminated by the Company without cause, the Participant
may exercise outstanding Options to the extent that the Participant was entitled
to exercise the Options at the date of cessation of Continuous Service, but only
within the period of three (3) months immediately succeeding the Participant's
cessation of Continuous Service, and in no event after the applicable expiration
dates of the Options.
(d) In the event of the Participant's death or disability, the
Participant or the Participant's beneficiary, as the case may be, may exercise
outstanding Options to the extent that the Participant was entitled to exercise
the Options at the date of cessation of Continuous Service, but only within the
one-year period immediately succeeding the Participant's cessation of Continuous
Service by reason of death or disability, and in no event after the applicable
expiration date of the Options.
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<PAGE>
(e) Notwithstanding the provisions of the foregoing paragraphs of
this Section 8, the Committee may, in its sole discretion, establish different
terms and conditions pertaining to the effect of the cessation of Continuous
Service, to the extent permitted by applicable federal and state law.
9. Incentive Stock Options. Incentive Stock Options may be granted only
to Participants who are Employees. Any provisions of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the Company
and no Incentive Stock Option shall be exercisable more than ten years from the
date such Incentive Stock Option is granted, (ii) the Exercise Price of any
Incentive Stock Option shall not be less than the Market Value per Share on the
date such Incentive Stock Option is granted, (iii) any Incentive Stock Option
shall not be transferable by the Participant to whom such Incentive Stock Option
is granted other than by will or the laws of descent and distribution and shall
be exercisable during such Participant's lifetime only by such Participant, and
(iv) no Incentive Stock Option shall be granted which would permit a Participant
to acquire, through the exercise of Incentive Stock Options in any calendar
year, Shares or shares of any capital stock of the Company or any Affiliate
thereof having an aggregate Market Value (determined as of the time any
Incentive Stock Option is granted) in excess of $100,000. The foregoing
limitation shall be determined by assuming that the Participant will exercise
each Incentive Stock Option on the date that such Option first becomes
exercisable. Notwithstanding the foregoing, in the case of any Participant who,
at the date of grant, owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Company or any Affiliate,
the Exercise Price of any Incentive Stock Option shall not be less than 110% of
the Market Value per Share on the date such Incentive Stock Option is granted
and such Incentive Stock Option shall not be exercisable more than five years
from the date such Incentive Stock Option is granted.
10. Terms and Conditions of Restricted Stock. The Committee shall have
full and complete authority, subject to the limitations of the Plan, to grant
awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (f) of this Section 10, to provide such
other terms and conditions (which need not be identical among Participants) in
respect of such Awards, and the vesting thereof, as the Committee shall
determine and provide in the agreement referred to in paragraph (d) of this
Section 10.
(a) At the time of an award of Restricted Stock, the Committee shall
establish for each Participant a Restricted Period during which or at the
expiration of which, the Shares of Restricted Stock shall vest. The Committee
may also restrict or prohibit the sale, assignment, transfer, pledge or other
encumbrance of the Shares of Restricted Stock by the Participant during the
Restricted Period. Except for such restrictions, and subject to paragraphs (c),
(d) and (e) of this Section 10 and Section 11 hereof, the Participant as owner
of such Shares shall have all the rights of a stockholder, including but not
limited to, the right to receive all dividends paid on such Shares and the right
to vote such Shares. The Committee shall have the authority, in its discretion,
to accelerate the time at which any or all of the restrictions shall lapse with
respect to any Shares of Restricted Stock prior to the expiration of the
Restricted Period with respect thereto, or to remove any or all of such
restrictions, whenever it may determine that such action is appropriate by
reason of changes in
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<PAGE>
applicable tax or other laws or other changes in circumstances occurring after
the commencement of such Restricted Period.
(b) Except as provided in Section 13 hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death, total or partial
disability or normal or early retirement) unless the Committee shall otherwise
determine, all Shares of Restricted Stock theretofore awarded to such
Participant and which at the time of such termination of Continuous Service are
subject to the restrictions imposed by paragraph (a) of this Section 10 shall
upon such termination of Continuous Service be forfeited and returned to the
Company. If a Participant ceases to maintain Continuous Service by reason of
death or total or partial disability, then the restrictions with respect to the
Ratable Portion of the Shares of Restricted Stock shall lapse and such Shares
shall be free of restrictions and shall not be forfeited. The Ratable Portion
shall be determined with respect to each separate Award of Restricted Stock
issued and shall be equal to (i) the number of Shares of Restricted Stock
awarded to the Participant multiplied by the portion of the Restricted Period
that expired at the date of the Participant's death or total or partial
disability reduced by (ii) the number of Shares of Restricted Stock awarded with
respect to which the restrictions had lapsed as of the date of the death or
total or partial disability of the Participant.
(c) Each certificate issued in respect of Shares of Restricted Stock
awarded under the Plan shall be registered in the name of the Participant and
deposited by the Participant, together with a stock power endorsed in blank,
with the Company and shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1997 Stock Option and Incentive Plan of
Priority Healthcare Corporation, and an Agreement entered into between the
registered owner and Priority Healthcare Corporation. Copies of such Plan
and Agreement are on file in the office of the Secretary of Priority
Healthcare Corporation."
(d) At the time of an award of Shares of Restricted Stock, the Participant
shall enter into an Agreement with the Company in a form specified by the
Committee, agreeing to the terms and conditions of the award, and to such other
matters as the Committee shall in its sole discretion determine.
(e) At the time of an award of Shares of Restricted Stock, the Committee
may, in its discretion, determine that the payment to the Participant of
dividends declared or paid on such Shares by the Company or a specified portion
thereof, shall be deferred until the earlier to occur of (i) the lapsing of the
restrictions imposed under paragraph (a) of this Section 10 or (ii) the
forfeiture of such Shares under paragraph (b) of this Section 10, and shall be
held by the Company for the account of the Participant until such time. In the
event of such deferral, there shall be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may determine.
Payment of deferred dividends, together with interest accrued thereon as
aforesaid, shall be made upon the earlier to occur of the events specified in
(i) and (ii) of the immediately preceding sentence.
6
<PAGE>
(f) At the expiration of the restrictions imposed by paragraph (a) of this
Section 10, the Company shall redeliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 10 applies in the case of a
deceased Participant, to his legal representative, beneficiary or heir) the
certificate(s) and stock power deposited with it pursuant to paragraph (c) of
this Section 10 and the Shares represented by such certificate(s) shall be free
of the restrictions referred to in paragraph (a) of this Section 10.
11. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Company, the maximum aggregate number and
class of shares as to which Awards may be granted under the Plan and the number
and class of shares with respect to which Awards theretofore have been granted
under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received, as a result of any of the foregoing, by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Company in the manner
provided in Section 10 hereof.
12. Effect of Reorganization. Awards will be affected by a Reorganization
as follows:
(a) If the Reorganization is a dissolution or liquidation of the Company
then (i) the restrictions of Section 10(a) on Shares of Restricted Stock shall
lapse and (ii) each outstanding Option shall terminate, but each Participant to
whom the Option was granted shall have the right, immediately prior to such
dissolution or liquidation to exercise his Option in full, notwithstanding the
provisions of Section 9, and the Company shall notify each Participant of such
right within a reasonable period of time prior to any such dissolution or
liquidation.
(b) If the Reorganization is a merger or consolidation, other than a
Change in Control subject to Section 13 of this Agreement, upon the effective
date of such Reorganization (i) each Optionee shall be entitled, upon exercise
of his Option in accordance with all of the terms and conditions of the Plan, to
receive in lieu of Shares, shares of such stock or other securities or
consideration as the holders of Shares shall be entitled to receive pursuant to
the terms of the Reorganization; and (ii) each holder of Restricted Stock shall
receive shares of such stock or other securities as the holders of Shares
received which shall be subject to the restrictions set forth in Section 10(a)
unless the Committee accelerates the lapse of such restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Company in the manner
provided in Section 10 hereof.
The adjustments contained in this Section and the manner of application of such
provisions shall be determined solely by the Committee.
13. Effect of Change in Control. If the Continuous Service of any
Participant of the Company or any Affiliate is involuntarily terminated, for
whatever reason, at any time within twelve months
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<PAGE>
after a Change in Control, unless the Committee shall have otherwise provided in
the agreement referred to in paragraph (d) of Section 10 hereof, any Restricted
Period with respect to Restricted Stock theretofore awarded to such Participant
shall lapse upon such termination and all Shares awarded as Restricted Stock
shall become fully vested in the Participant to whom such Shares were awarded.
If a tender offer or exchange offer for Shares (other than such an offer by the
Company) is commenced, or if the event specified in clause (iii) of the
definition of a Change in Control contained in Section 2 shall occur, unless the
Committee shall have otherwise provided in the instrument evidencing the grant
of an Option, all Options theretofore provided in the instrument evidencing the
grant of an Option, all Options theretofore granted and not fully exercisable
shall (except as otherwise provided in Section 9) become exercisable in full
upon the happening of such event and shall remain so exercisable in accordance
with their terms; provided, however, that no Option shall be exercisable by a
director or officer of the Company within six months of the date of grant of
such Option and no Option which has previously been exercised or otherwise
terminated shall become exercisable.
14. Assignments and Transfers. Except as otherwise determined by the
Committee, no Award nor any right or interest of a Participant under the Plan in
any instrument evidencing any Award under the Plan may be assigned, encumbered
or transferred except, in the event of the death of a Participant, by will or
the laws of descent and distribution.
15. Employee Rights Under the Plan. No officer, employee or other person
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no officer, employee or other person
shall have any claim or right to be granted an Award under the Plan or under any
other incentive or similar plan of the Company or any Affiliate. Neither the
Plan nor any action taken thereunder shall be construed as giving any employee
any right to be retained in the employ of the Company or any Affiliate.
16. Delivery and Registration of Stock. The Company's obligation to deliver
Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Company shall determine to be necessary or advisable to comply with the
provisions of the Securities Act or any other applicable federal or state
securities legislation. It may be provided that any representation requirement
shall become inoperative upon a registration of the Shares or other action
eliminating the necessity of such representation under the Securities Act or
other securities legislation. The Company shall not be required to deliver any
Shares under the Plan prior to (i) the admission of such shares to listing on
any stock exchange or system on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule or regulation, as the Company shall determine to be
necessary or advisable.
17. Withholding Tax. Upon the termination of the Restricted Period with
respect to any Shares of Restricted Stock (or at any such earlier time, if any,
that an election is made by the Participant under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such
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<PAGE>
Shares in taxable income), the Company shall, in lieu of requiring the
Participant or other person receiving such Shares to pay the Company the amount
of any taxes which the Company is required to withhold with respect to such
Shares, retain a sufficient number of Shares held by it to cover the amount
required to be withheld. The Company shall have the right to deduct from all
dividends paid with respect to Shares of Restricted Stock the amount of any
taxes which the Company is required to withhold with respect to such dividend
payments.
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option pursuant to the Plan, the Company shall, in lieu of
requiring the Participant or such other person to pay the Company the amount of
any taxes which the Company is required to withhold with respect to such Shares,
retain a number of such Shares sufficient to cover the amount required to be
withheld.
18. Loans.
(a) The Company may make loans to a Participant in connection with
Restricted Stock or the exercise of Options subject to the following terms and
conditions and such other terms and conditions not inconsistent with the Plan,
including the rate of interest, if any, as the Company shall impose from time to
time.
(b) No loan made under the Plan shall exceed (i) with respect to Options,
the sum of (A) the aggregate option price payable upon exercise of the Option in
relation to which the loan is made, plus (B) the amount of the reasonably
estimated income taxes payable by the grantee and (ii) with respect to
Restricted Stock, the amount of reasonably estimated income taxes payable by the
grantee. In no event may any such loan exceed the Market Value of the related
Shares at the time of the loan.
(c) No loan shall have an initial term exceeding three years; provided, that
loans under the Plan shall be renewable at the discretion of the Committee; and
provided, further, that the indebtedness under each loan shall become due and
payable on a date no later than (i) one year after termination of the
Participant's employment due to death, retirement or disability, or (ii) the day
of termination of the Participant's employment for any reason other than death,
retirement or disability.
(d) Loans under the Plan may be satisfied by the Participant, as determined
by the Committee, in cash or, with the consent of the Committee, in whole or in
part in Shares at Market Value on the date of such payment.
(e) When a loan shall have been made, Shares having an aggregate Market
Value equal to the amount of the loan may, in the discretion of the Committee,
be required to be pledged by the Participant to the Company as security for
payment of the unpaid balance of the loan. Portions of such Shares may, in the
discretion of the Committee, be released from time to time as it deems not to be
needed as security.
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(f) Every loan shall meet all applicable laws, regulations and rules of the
Federal Reserve Board and any other governmental agency having jurisdiction.
19. Termination, Amendment and Modification of Plan. The Board may at any
time terminate, and may at any time and from time to time and in any respect
amend or modify, the Plan; provided however, that to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act or Section 422 of the
Code (or any other applicable law or regulation, including requirements of any
stock exchange or NASDAQ system on which the Shares are listed or quoted)
shareholder approval of any Plan amendment shall be obtained in such a manner
and to such a degree as is required by the applicable law or regulation; and
provided further, that no termination, amendment or modification of the Plan
shall in any manner affect any Award theretofore granted pursuant to the Plan
without the consent of the Participant to whom the Award was granted or
transferee of the Award.
20. Effective Date and Term of Plan. The Plan shall become effective upon
its adoption by the Board of Directors and shareholders of the Company and shall
continue in effect for a term of ten years from the date of adoption unless
sooner terminated under Section 19 hereof.
Adopted by the Board of Directors of Priority Healthcare
Corporation as of August 25, 1997
Adopted by the Shareholders of Priority Healthcare
Corporation as of August 25, 1997
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EXHIBIT 10-D
PRIORITY HEALTHCARE CORPORATION
OUTSIDE DIRECTORS STOCK OPTION PLAN
1. Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by encouraging increased Common Stock ownership by
members of the Board who are not employees of the Company or any of its
Affiliates, in order to promote long-term shareholder value through directors'
continuing ownership of the Common Stock.
2. Definitions. Unless the context clearly indicates otherwise, the
following terms, when used in the Plan, shall have the meanings set forth below.
"Affiliate" -- means any "parent corporation" or "subsidiary corporation"
of the Company as such terms are defined in Section 424(e) and (f),
respectively, of the Internal Revenue Code of 1986, as amended.
"Board" shall mean the Board of Directors of the Company, as it may from
time to time be constituted.
"Committee" shall mean the Stock Option Committee of the Board, as it may
from time to time be constituted, or any other committee of the Board
appointed by the Board to administer the Plan.
"Common Stock" shall mean the Class B Common Stock, $.01 par value, of the
Company, and shall include the Common Stock as it may be changed from time
to time as described in Section 7 of the Plan.
"Company" shall mean Priority Healthcare Corporation, and any successor by
merger or consolidation.
"Eligible Director" shall mean a member of the Board who is not at the time
of receipt of an Option an employee of the Company or any of its
Affiliates.
"Fair Market Value" of the Common Stock of the Company means the last sale
price on the applicable date (or if there is no reported sale on such date,
on the last preceding date on which any reported sale occurred) of one
share of Common Stock on the principal exchange on which such shares are
listed, or if not listed on any exchange, on the NASDAQ National Market
System or any similar system then in use, or if the shares of Common Stock
are not listed on the NASDAQ National Market System, the mean between the
closing high bid and low asked quotations of one such share on the date in
question as reported by NASDAQ or any similar system then in use, or, if no
such quotations are available, the Fair Market Value on such date of one
share of Common Stock as the Board shall determine.
<PAGE>
"Grantee" shall mean an Eligible Director who has been granted an Option.
"Option" shall mean a non-qualified option to purchase authorized but
unissued Common Stock or Common Stock held in the treasury granted by the
Company pursuant to the terms of the Plan.
"Plan" shall mean the Priority Healthcare Corporation Outside Directors
Stock Option Plan, as set forth herein and as amended from time to time.
3. Administration. The Plan shall be administered by the Committee. The
Committee shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described herein) to
prescribe the form of the agreements embodying Options. The Committee shall,
subject to the provisions of the Plan, grant Options pursuant to the Plan and
shall have the power to construe the Plan, to determine all questions arising
thereunder, and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. Any decision of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive. The Committee may act only by a majority of its members in
office, except that the members thereof may authorize any one or more of their
members or the Secretary or any other officer of the Company to execute and
deliver documents on behalf of the Committee. No member of the Committee shall
be liable for anything done or omitted to be done by him or by any other member
of the Committee in connection with the Plan, except for his own willful
misconduct or as expressly provided by statute.
4. Participation. Each Eligible Director shall be eligible to receive
Option grants in accordance with Sections 5, 6, and 7 below.
5. Grants Under the Plan. (a) Options may be granted under the Plan,
subject to the terms, conditions and restrictions specified in Sections 6 and 7
below. There may be issued under the Plan pursuant to the exercise of Options an
aggregate of not more than 25,000 shares of Common Stock, subject to adjustment
as provided in Section 7 below. Shares of Common Stock that are the subject of
an Option but not purchased prior the expiration of the Option, shall thereafter
be considered unissued for purposes of the maximum number of shares that may be
issued under the Plan, and may again be the subject of Option grants under the
Plan. If at any time, the shares remaining available for Option grants are not
sufficient to make all Option grants then required to be made under the Plan, no
Option grants shall be made.
(b) An Eligible Director to whom an Option is provided to be granted
or is granted under the Plan (and any person succeeding to such an Eligible
Director's right pursuant to the Plan), shall have no rights as a shareholder
with respect to any shares of Common Stock issuable pursuant to any such Option
until such Option is exercised. Except as provided in Section 7 below, no
adjustment shall be made for dividends, distributions, or other rights (whether
ordinary or extraordinary, and whether in cash, securities, or other property)
for which the record date is prior to the date an Option is exercised. Except as
expressly provided for in the
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Plan, no Eligible Director or other person shall have any claim or right to be
granted an Option. Neither the Plan nor any action taken hereunder shall be
construed as giving any Eligible Director any right to be retained in the
service of the Company.
6. Option Grants. On June 1 of each year, commencing June 1, 1998, each
Eligible Director on such date shall be automatically granted an Option to
purchase 1,000 shares of Common Stock (subject to adjustment as provided in
Section 7). Each Option shall be evidenced by an agreement in such form as the
Committee shall prescribe from time to time in accordance with the Plan and
shall comply with the following terms and conditions and such additional terms
and conditions not inconsistent with the Plan as may from time to time be
prescribed by the Committee.
(a) The Option exercise price per share shall be equal to the Fair
Market Value of a share of Common Stock on the date the Option is granted.
(b) The Option shall not be transferable by the Grantee otherwise
than by will or the laws of descent and distribution, and shall be
exercisable during his lifetime only by him.
(c) The Option shall not be exercisable before the expiration of six
months from the date it is granted and after the expiration of up to ten
years from the date it is granted.
(d) Payment of the Option price shall be made at the time the Option
is exercised, and shall be made in United States dollars by cash or check.
(e) An Option shall not be exercisable unless the person exercising
the Option has been, at all times during the period beginning with the date
of grant of the Option and ending on the date of such exercise, in
continuous service on the Board, except that
(i) if any Grantee of an Option shall die or become permanently
disabled or shall retire with the consent of the Board, holding an
Option that has not expired and has not been fully exercised, he or
his executor, administrators, heirs, or distributees, as the case may
be, may, at any time within one year after the date of such event (but
in no event after the Option has expired under the provisions of
Section 6(c) above), exercise the Option with respect to any shares as
to which the Grantee could have exercised the Option at the time of
his death, disability, or retirement; or
(ii) if a Grantee shall cease to serve as a director of the
Company for any reason other than those set forth in 6(e)(i) above,
while holding an Option that has not expired and has not been fully
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exercised, the Grantee, at any time within three months of the date he
ceased to be such an Eligible Director (but in no event after the
Option has expired under the provisions of Section 6(c) above), may
exercise the Option with respect to any shares of Common Stock as to
which he could have exercised the Option on the date he ceased to be
such an Eligible Director.
(f) Each Grantee of an Option shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state, or local taxes of any kind required by law to be withheld
with respect to the shares of Common Stock as to which an Option is being
exercised.
7. Dilution and Other Adjustments. In the event of any change in the
outstanding Common Stock by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, reorganization, combination or exchange
of shares or other similar event, the number or kind of shares that may be
issued under the Plan pursuant to Sections 5 and 6 above, the number or kind of
shares subject to any outstanding Option, and the Option price per share under
any outstanding Option, shall be automatically adjusted so that the
proportionate interest of the Eligible Directors or of the Grantee shall be
maintained as before the occurrence of such event. Any adjustment in outstanding
Options shall be made without change in the total Option exercise price
applicable to the unexercised portion of such Options and with a corresponding
adjustment in the Option exercise price per share. Any adjustment permitted by
this Section shall be conclusive and binding for all purposes of the Plan.
8. Miscellaneous Provisions. (a) An Eligible Director's rights and
interests under the Plan may not be assigned or transferred in whole or in part
either directly or by operation of law or otherwise (except in the event of a
participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy, or in any other manner, and no such right or
interest of any Eligible Director in the Plan shall be subject to any obligation
or liability of such Eligible Director.
(b) If the shares of Common Stock that are the subject of an Option
are not registered under the Securities Act of 1933, as amended, pursuant to an
effective registration statement, the Grantee, if the Committee shall deem it
advisable, may be required to represent and agree in writing (i) that any shares
of Common Stock acquired by such Grantee pursuant to the Plan will not be sold
except pursuant to an exemption from registration under said Act and (ii) that
such Grantee is acquiring such shares of Common Stock for his own account and
not with a view to the distribution thereof. No shares of Common Stock shall be
issued hereunder unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state and other
securities laws.
(c) By accepting any Options under the Plan, each Grantee and each
person claiming under or through him shall be conclusively deemed to have
indicated his acceptance and
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<PAGE>
ratification of and consent to, the terms and conditions of the Plan and any
action taken under the Plan by the Company or the Board.
9. Amendment. The Board may at any time and from time to time and in any
respect amend or modify this Plan; provided, however, that the Board may not
amend this Plan more than once during any six-month period, and provided
further, that to the extent necessary and desirable to comply with any
applicable law or regulation, including requirements of any stock exchange or
NASDAQ system on which the Common Stock is listed or quoted, shareholder
approval of any Plan amendment shall be obtained in such a manner and to such a
degree as is required by the applicable law or regulation.
10. Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) Upon the adoption of a resolution of the Board terminating the
Plan; or
(b) Upon the award or the purchase upon exercise of Options of all
the shares of Common Stock provided to be awarded or the subject of Options
under Sections 5 and 6, as adjusted pursuant to Section 7.
No termination of the Plan shall materially and adversely affect any of the
rights or obligations of any Grantee, without his consent, under any Option
theretofore granted under the Plan.
11. Shareholder Approval and Other Conditions. The Plan shall be submitted
to a vote of the shareholders of the Company for their approval and adoption at
the next meeting held following the date of the Board of Directors' approval, or
pursuant to unanimous written consent.
Adopted by the Board of Directors of
Priority Healthcare Corporation as of
August 25, 1997.
Adopted by the shareholders of Priority
Healthcare Corporation as of
August 25, 1997.
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<PAGE>
EXHIBIT 10-E
TERMINATION BENEFITS AGREEMENT
This Termination Benefits Agreement ("Agreement") is made and entered
into as of July 1, 1996 by and between Priority Healthcare Corporation, an
Indiana corporation (hereinafter referred to as the "Corporation") and Robert L.
Myers, a resident of the State of Indiana (hereinafter referred to as
"Employee").
W I T N E S S E T H
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WHEREAS, Employee is now serving as President and Chief Operating
Officer of the Corporation; and
WHEREAS, the Corporation believes that Employee has made valuable
contributions to the productivity and profitability of the Corporation; and
WHEREAS, the Corporation desires to encourage Employee to continue to
make such contributions and not to seek or accept employment elsewhere; and
WHEREAS, the Corporation, therefore, desires to assure Employee of
certain benefits in case of any termination or significant redefinition of the
terms of his employment with the Corporation subsequent to any Change in Control
of the Corporation;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and the mutual benefits herein provided, the
Corporation and Employee hereby agree as follows:
1. The term of this Agreement shall be from the date hereof through
December 31, 1998; provided, however, that such term shall be automatically
extended for an additional year on December 31, 1996 and on December 31 of each
year thereafter unless either party hereto gives written notice to the other
party not to so extend prior to November 30 of the year for which notice is
given, in which case no further automatic extension shall occur and the term of
this Agreement shall end on December 31 three (3) years subsequent to the date
of the latest preceding automatic extension. Notwithstanding the foregoing, if a
Change in Control of the Corporation (as defined in Section 2 below) shall occur
prior to the expiration of the original term or any extensions of the term of
this Agreement, then the term of this Agreement shall automatically become a
term of three (3) years commencing on the date of any such Change in Control.
2. As used in this Agreement, "Change in Control" of the Corporation
means, but only after the Corporation has a class of equity securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"):
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(A) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act as in effect from time to time) of twenty-five percent
(25%) or more of either (i) the then outstanding shares of common stock of
the Corporation or (ii) the combined voting power of the then outstanding
voting securities of the Corporation entitled to vote generally in the
election of directors; provided, however, that the following acquisitions
shall not constitute an acquisition of control: (i) any acquisition
directly from the Corporation (excluding an acquisition by virtue of the
exercise of a conversion privilege), (ii) any acquisition by the
Corporation, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation, (iv) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (C) of this Section 2 are
satisfied, (v) any acquisition by any Person in connection with a spin off
of the Corporation's common stock by its parent, Bindley Western
Industries, Inc., (vi) any acquisition by William E. Bindley or (vii) upon
the death of William E. Bindley, any acquisition triggered by his death by
operation of law, by any testamentary bequest or by the terms of any trust
or other contractual arrangement established by him;
(B) Individuals who, as of the date hereof, constitute the Board of
Directors of the Corporation (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors of the
Corporation (the "Board"); provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
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<PAGE>
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(C) Approval by the shareholders of the Corporation of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (i) more than sixty percent
(60%) of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the outstanding Corporation common stock and outstanding Corporation
voting securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
outstanding Corporation stock and outstanding Corporation voting
securities, as the case may be, (ii) no Person (excluding the Corporation,
any employee benefit plan or related trust of the Corporation or such
corporation resulting from such reorganization, merger or consolidation and
any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, twenty-five percent (25%)
or more of the outstanding Corporation common stock or outstanding voting
securities, as the case may be) beneficially owns, directly or indirectly,
twenty-five percent (25%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(D) Approval by the shareholders of the Corporation of (i) a complete
liquidation or dissolution of the Corporation or (ii) the sale or other
disposition of all or substantially all of the assets of the Corporation,
other than to a corporation
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<PAGE>
with respect to which following such sale or other disposition (a) more
than sixty percent (60%) of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the outstanding
Corporation common stock and outstanding Corporation voting securities
immediately prior to such sale or other disposition in substantially the
same proportion as their ownership, immediately prior to such sale or other
disposition, of the outstanding Corporation common stock and outstanding
Corporation voting securities, as the case may be, (b) no Person (excluding
the Corporation and any employee benefit plan or related trust of the
Corporation or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, twenty-five percent (25%) or more of the outstanding
Corporation common stock or outstanding Corporation voting securities, as
the case may be) beneficially owns, directly or indirectly, twenty-five
percent (25%) or more of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (c) at least a majority of the
members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition of assets
of the Corporation.
(E) Before the Corporation has a class of equity securities
registered under Section 12 of the Exchange Act, a "Change in Control" of
the Corporation for purposes of this Agreement shall mean a change in
control of Bindley Western Industries, Inc. A change in control of Bindley
Western Industries, Inc. shall be determined in the same manner as a change
in control of the Corporation under the foregoing subsections (A) through
(D) of this Section 2, except that "Bindley Western Industries, Inc." shall
be substituted for "Corporation" in each of said subsections. The parties
hereto agree that the sale or other disposition of all or substantially all
of the assets of the Bindley Western Drug Company division of Bindley
Western
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<PAGE>
Industries, Inc. shall not constitute a sale or other disposition of all or
substantially all of the assets of Bindley Western Industries, Inc. under
subsection (D) of this Section 2.
3. The Corporation shall provide Employee with the benefits set
forth in Section 6 of this Agreement upon any termination of Employee's
employment by the Corporation following a Change in Control for any reason
except the following:
(A) Termination by reason of Employee's death.
(B) Termination by reason of Employee's "disability". For purposes
hereof, "disability" shall be defined as Employee's inability by reason of
illness or other physical or mental disability to perform the duties
required by his employment for any consecutive One Hundred Eighty (180) day
period, provided that notice of any termination by the Corporation because
of Employee's "disability" shall have been given to Employee prior to the
resumption by him of the performance of such duties.
(C) Termination upon Employee reaching his normal retirement date,
which for purposes of this Agreement shall be deemed to be the end of the
month during which employee reaches sixty-five (65) years of age.
(D) Termination for "cause". As used in this Agreement, the term
"cause" means fraud, dishonesty, theft of corporate assets, or other gross
misconduct by Employee. Notwithstanding the foregoing, Employee shall not
be deemed to have been terminated for cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of
the Corporation's Board at a meeting called and held for the purpose (after
reasonable notice to him and an opportunity for him, together with his
counsel, to be heard before such Board), finding that, in the good faith
opinion of such Board, Employee was guilty of conduct constituting "cause"
and specifying the particulars thereof in detail.
4. The Corporation shall also provide Employee with the benefits set
forth in Section 6 of this Agreement upon any termination of Employee's
employment with the Corporation at Employee's option after a Change in Control
followed by the happening of any one of the following events:
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<PAGE>
(A) Without Employee's express written consent, the assignment of
Employee to any duties which, in Employee's reasonable judgment, are
materially inconsistent with his positions, duties, responsibilities or
status with the Corporation immediately prior to the Change in Control or a
substantial reduction of his duties or responsibilities which, in
Employee's reasonable opinion, does not represent a promotion from his
position, duties or responsibilities immediately prior to the Change in
Control.
(B) A reduction by the Corporation in Employee's salary from the level
of such salary immediately prior to the Change in Control or the
Corporation's failure to increase (within twelve (12) months of Employee's
last increase in base salary) Employee's base salary after a Change in
Control in an amount which at least equals, on a percentage basis, the
average percentage increase in base salary for all executive and senior
officers of the Corporation effected in the preceding twelve (12) months.
(C) The failure by the Corporation to continue in effect any
incentive, bonus or other compensation plan in which Employee participates,
including but not limited to the Corporation's stock option plans, unless
an equitable arrangement (embodied in an ongoing substitute or alternative
plan), with which Employee has consented, has been made with respect to
such plan in connection with the Change in Control, or the failure by the
Corporation to continue Employee's participation therein, or any action by
the Corporation which would directly or indirectly materially reduce
Employee's participation therein.
(D) The failure by the Corporation to continue to provide Employee
with benefits substantially similar to those enjoyed by Employee or to
which Employee was entitled under any of the Corporation's principal
pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans in which Employee was participating at the
time of a Change in Control, the taking of any action by the Corporation
which would directly or indirectly materially reduce any of such benefits
or deprive Employee of any material fringe benefit enjoyed by Employee or
to which Employee was entitled at the time of the Change in Control, or the
failure by the Corporation to provide Employee with the number of paid
vacation and sick leave days to which Employee is
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<PAGE>
entitled on the basis of years of service or position with the Corporation
in accordance with the Corporation's normal vacation policy in effect on
the date hereof.
(E) The Corporation's requiring Employee to be based anywhere other
than the metropolitan area where the Corporation office at which he was
based immediately prior to the Change in Control was located, except for
required travel on the Corporation's business in accordance with the
Corporation's past management practices.
(F) Any failure of the Corporation to obtain the assumption of the
obligation to perform this Agreement by any successor as contemplated in
Section 10 hereof.
(G) Any failure by the Corporation or its shareholders, as the case
may be, to reappoint or reelect Employee to a corporate office held by him
immediately prior to the Change in Control or his removal from any such
office including any seat held at such time on the Corporation's Board of
Directors.
(H) The effectiveness of a resignation, tendered at any time, either
before or after a Change in Control and regardless of whether formally
characterized as voluntary or otherwise, by Employee of any corporate
office held by him immediately prior to the Change in Control or of any
seat held at such time on the Corporation's Board of Directors, at the
request of the Corporation or at the request of the person obtaining
control of the Corporation in such Change in Control.
(I) Any purported termination of the Employee's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 5 hereof (and, if applicable, Section 3(D) hereof);
and for purposes of this Agreement, no such purported termination shall be
effective.
(J) Any request by the Corporation that Employee participate in an
unlawful act or take any action constituting a breach of Employee's
professional standard of conduct.
(K) Any breach by the Corporation of any of the provisions of this
Agreement or any failure by the Corporation to carry out any of its
obligations hereunder.
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<PAGE>
Notwithstanding anything in this Section 4 to the contrary, Employee's right to
terminate Employee's employment pursuant to this Section 4 shall not be affected
by Employee's incapacity due to physical or mental illness.
5. Any termination of Employee's employment with the Corporation as
contemplated by Section 3 hereof (except subsection 3(A)) or by Employee as
contemplated by Section 4 hereof shall be communicated by written "Notice of
Termination" to the other party hereto. Any "Notice of Termination" given by
Employee pursuant to Section 4 or given by the Corporation in connection with a
termination as to which the Corporation believes it is not obligated to provide
Employee with benefits set forth in Section 6 hereof shall indicate the specific
provisions of this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for such
termination.
6. Subject to the conditions and exceptions set forth in Section 3
and Section 4 hereof, the following benefits, less any amounts required to be
withheld therefrom under any applicable federal, state or local income tax,
other tax, or social security laws or similar statutes, shall be paid to
Employee upon any termination of his employment with the Corporation subsequent
to a Change in Control:
(A) Within thirty (30) days following such a termination, Employee
shall be paid, at his then-effective salary, for services performed through
the date of his termination. In addition, any earned but unpaid amount of
any bonus or incentive payment shall be paid to Employee within thirty (30)
days following the termination of his employment.
(B) Within thirty (30) days following such a termination, Employee
shall be paid a lump sum payment of an amount equal to two and nine-tenths
(2.9) times Employee's "Base Amount." For purposes hereof, Base Amount is
defined as Employee's average includable compensation paid by the
Corporation for the five (5) most recent taxable years ending before the
date on which the Change in Control occurs. The definition, interpretation
and calculation of the dollar amount of Base Amount shall be in a manner
consistent with and as required by the provisions of Section 280G of the
Internal Revenue Code of 1986, as amended ("Code"), and the regulations and
rulings of the Internal Revenue Service promulgated thereunder.
(C) (i) In the event that any payment or benefit (within the meaning
of Section 280G(b)(2) of the Code)
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<PAGE>
paid or payable to the Employee or for his benefit pursuant to the terms of
this Agreement or otherwise in connection with, or arising out of, his
employment with the Corporation or a change in ownership or effective
control of the Corporation or of a substantial portion of its assets (a
"Payment" or "Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest, penalties, additional tax or
similar items are incurred by the Employee with respect to such excise tax
(such excise tax, together with any such interest, penalties, additional
tax or similar items are hereinafter collectively referred to as the
"Excise Tax"), then the Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest, penalties, additional tax or
similar items imposed with respect thereto and the Excise Tax) including
any Excise Tax imposed upon the Gross-Up Payment, the Employee retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(ii) An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Corporation's expense by an accounting firm selected
by the Corporation and reasonably acceptable to the Employee which is
designated as one of the five largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Corporation and the Employee within
ten days of the Termination Date if applicable, or such other time as
requested by the Corporation or by the Employee and if the Accounting Firm
determines that no Excise Tax is payable by the Employee with respect to a
Payment or Payments, it shall furnish the Employee with an opinion
reasonably acceptable to the Employee that no Excise Tax will be imposed
with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the
right to dispute the Determination (the "Dispute"). The Gross-Up Payment,
if any, as determined pursuant to this subsection 6(c)(ii) shall be paid by
the Corporation to the Employee within five days of the receipt of the
Accounting Firm's Determination. The existence of the Dispute shall not in
any way affect the Employee's right to receive the Gross-Up Payment in
accordance with the Determination. If there is no Dispute, the
Determination shall be binding, final and
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<PAGE>
conclusive upon the Corporation and the Employee subject to the application
of subsection 6(c)(iii) below.
(iii) As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should have
been paid will not have been paid (an "Underpayment"). An Underpayment
shall be deemed to have occurred (a) upon notice (formal or informal) to
the Employee from any governmental taxing authority that the Employee's tax
liability (whether in respect of the Employee's current taxable year or in
respect of any prior taxable year) may be increased by reason of the
imposition of the Excise Tax on a Payment or Payments with respect to which
the Corporation has failed to make a sufficient Gross-Up Payment, (b) upon
a determination by a court, (c) by reason of determination by the
Corporation (which shall include the position taken by the Corporation,
together with its consolidated group, on its federal income tax return) or
(d) upon the resolution of the Dispute to the Employee's satisfaction. If
an Underpayment occurs, the Employee shall promptly notify the Corporation
and the Corporation shall promptly, but in any event, at least five days
prior to the date on which the applicable government taxing authority has
requested payment, pay to the Employee an additional Gross-Up Payment equal
to the amount of the Underpayment plus any interest, penalties, additional
taxes or similar items imposed on the Underpayment. An Excess Payment
shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed upon a
Payment or Payments (or portion thereof) with respect to which the Employee
had previously received a Gross-Up Payment. A "Final Determination" shall
be deemed to have occurred when the Employee has received from the
applicable government taxing authority a refund of taxes or other reduction
in the Employee's tax liability by reason of the Excise Payment and upon
either (x) the date a determination is made by, or an agreement is entered
into with, the applicable governmental taxing authority which finally and
conclusively binds the Employee and such taxing authority, or in the event
that a claim is brought before a court of competent jurisdiction, the date
upon which a final determination has been made by such court and either all
appeals have been taken and finally
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resolved or the time for all appeals has expired or (y) the statute of
limitations with respect to the Employee's applicable tax return has
expired. If an Excess Payment is determined to have been made, the amount
of the Excess Payment shall be treated as a loan by the Corporation to the
Employee and the Employee shall pay to the Corporation on demand (but not
less than 10 days after the Final Determination of such Excess Payment and
written notice has been delivered to the Employee) the amount of the Excess
Payment plus interest at an annual rate equal to the Applicable Federal
Rate provided for in Section 1274(d) of the Code from the date the Gross-Up
Payment (to which the Excess Payment relates) was paid to the Employee
until the date of repayment to the Corporation.
(iv) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax
will be imposed on any Payment or Payments, the Corporation shall pay to
the applicable government taxing authorities as Excise Tax withholding, the
amount of the Excise Tax that the Corporation has actually withheld from
the Payment or Payments.
(D) Employee acknowledges and agrees that payment in accordance with
subsections 6(A), 6(B) and 6(C) shall be deemed to constitute a full
settlement and discharge of any and all obligations of the Corporation to
Employee arising out of his employment with the Corporation and the
termination thereof, except for any vested rights Employee may then have
under any insurance, pension, supplemental pension, thrift, employee stock
ownership, or stock option plans sponsored or made available by the
Corporation.
7. The Corporation is aware that upon the occurrence of a Change in
Control the Board of Directors or a shareholder of the Corporation may then
cause or attempt to cause the Corporation to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the
Corporation to institute, or may institute, litigation seeking to have this
Agreement declared unenforceable, or may take or attempt to take other action to
deny Employee the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Corporation that Employee not be required to incur the expenses
associated with the enforcement of his rights under this Agreement by litigation
or other legal action, nor be bound to negotiate any settlement of his rights
hereunder, because the cost and expense of such legal action or settlement would
substantially detract from the
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benefits intended to be extended to Employee hereunder. Accordingly, if
following a Change in Control it should appear to Employee that the Corporation
has failed to comply with any of its obligations under this Agreement or in the
event that the Corporation or any other person takes any action to declare this
Agreement void or unenforceable, or institutes any litigation or other legal
action designed to deny, diminish or to recover from Employee the benefits
entitled to be provided to the Employee hereunder, and that Employee has
complied with all of his obligations under this Agreement, the Corporation
irrevocably authorizes Employee from time to time to retain counsel of his
choice, at the expense of the Corporation as provided in this Section 7, to
represent Employee in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against the
Corporation or any director, officer, shareholder, or other person affiliated
with the Corporation, in any jurisdiction. Notwithstanding any existing or
prior attorney-client relationship between the Corporation and such counsel, the
Corporation irrevocably consents to Employee entering into an attorney-client
relationship with such counsel, and in that connection the Corporation and
Employee agree that a confidential relationship shall exist between Employee and
such counsel. The reasonable fees and expenses of counsel selected from time to
time by Employee as hereinabove provided shall be paid or reimbursed to Employee
by the Corporation on a regular, periodic basis upon presentation by Employee of
a statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of One Hundred Thousand
Dollars ($100,000). Any legal expenses incurred by the Corporation by reason of
any dispute between the parties as to enforceability of or the terms contained
in this Agreement as provided by this Section 7, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Corporation, and the
Corporation shall not take any action to seek reimbursement from Employee for
such expenses. Notwithstanding any limitation contained in this Section 7 to
the contrary, Employee shall be entitled to payment or reimbursement of legal
expenses in excess of One Hundred Thousand Dollars ($100,000) if the expenses
were incurred as a result of a dispute under this Agreement in which Employee
obtains a final judgment in his favor from a court of competent jurisdiction or
his claim is settled by the Corporation prior to the rendering of a judgment by
such a court.
8. Employee is not required to mitigate the amount of benefit
payments to be made by the Corporation pursuant to this Agreement by seeking
other employment or otherwise, nor shall the amount of any benefit payments
provided for in this Agreement be reduced by any compensation earned by Employee
as a result of employment by another employer or which might have been earned by
-12-
<PAGE>
Employee had Employee sought such employment, after the date of termination of
his employment with the Corporation or otherwise.
9. In order to induce the Corporation to enter into this Agreement,
Employee hereby agrees as follows:
(A) He will keep confidential and not improperly divulge for the
benefit of any other party any of the Corporation's confidential
information and business secrets including, but not limited to,
confidential information and business secrets relating to such matters as
the Corporation's finances, operations and customer lists. All of the
Corporation's confidential information and business secrets shall be the
sole and exclusive property of the Corporation.
(B) For a period of two years after Employee's employment with the
Corporation ceases, Employee shall not either on his own account or for any
other person, firm or company solicit or endeavor to cause any employee of
the Corporation to leave his employment or to induce or attempt to induce
any such employee to breach any employment agreement with the Corporation.
In the event of a breach or threatened breach by Employee of the provisions of
this Section 9, the Corporation shall be entitled to an injunction restraining
Employee from committing or continuing such breach. Nothing herein contained
shall be construed as prohibiting the Corporation from pursuing any other
remedies available to it for such breach or threatened breach including the
recovery of damages from Employee. The covenants of this Section 9 shall run
not only in favor of the Corporation and its successors and assigns, but also in
favor of its subsidiaries and their respective successors and assigns and shall
survive the termination of this Agreement.
10. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by agreement
in form and substance satisfactory to Employee, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had taken
place. Failure of the Corporation to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Corporation in the same amount
and on the same terms as Employee would be entitled hereunder if he were to
terminate his employment pursuant to Section 4 hereof, except that for purposes
of implementing the foregoing, the date on which succession becomes effective
shall be deemed the date of
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<PAGE>
termination of Employee's employment with the Corporation. As used in this
Agreement, "Corporation" shall mean corporation as hereinbefore defined and any
successor to the business or assets of it as aforesaid which executes and
delivers the agreement provided for in this Section 10 or which otherwise
becomes bound by all of the terms and provisions of this Agreement by operation
of law.
11. Should Employee die while any amounts are payable to him
hereunder, this Agreement shall inure to the benefit of and be enforceable by
Employee's executors, administrators, heirs, distributees, devisees and legatees
and all amounts payable hereunder shall be paid in accordance with the terms of
this Agreement to Employee's devisee, legatee or other designee or if there be
no such designee, to his estate.
12. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Employee:
Robert L. Myers
_________________________
_________________________
If to the Corporation:
Priority Healthcare Corporation
10333 North Meridian, Suite 300
Indianapolis, Indiana 46290
Attention: Corporate Secretary
or to such other address as any party may have furnished to the other party in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. The validity, interpretation, and performance of this Agreement
shall be governed by the laws of the State of Indiana. The parties agree that
all legal disputes regarding this Agreement will be resolved in Indianapolis,
Indiana, and irrevocably consent to service of process in such City for such
purpose.
14. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Employee and the Corporation. No waiver by any party hereto at any
time of any
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<PAGE>
breach by any other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representation, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
any party which are not set forth expressly in this Agreement.
15. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
16. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together will constitute
one and the same Agreement.
17. This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder, except as provided in Section
10 and Section 11 above. Without limiting the foregoing, Employee's right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his Will or by the laws of descent and distribution as set forth in Section 11
hereof, and in the event of any attempted assignment or transfer contrary to
this Section 17, the Corporation shall have no liability to pay any amount so
attempted to be assigned or transferred.
Any benefits payable under this Agreement shall be paid solely from
the general assets of the Corporation. Neither Employee nor Employee's
beneficiary shall have interest in any specific assets of the Corporation under
the terms of this Agreement. This Agreement shall not be considered to create
an escrow account, trust fund or other funding arrangement of any kind or a
fiduciary relationship between Employee and the Corporation.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
PRIORITY HEALTHCARE CORPORATION
("Corporation")
By: /s/ William E. Bindley
--------------------------------
William E. Bindley, Chairman
of the Board and Chief
Executive Officer
/S/ Robert L. Myers
-----------------------------------
Robert L. Myers ("Employee")
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<PAGE>
EXHIBIT 10-F(i)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of June,
1997, by and between Priority Healthcare Corporation, an Indiana corporation
(the "Company"), and Melissa McIntyre (the "Employee").
Recitals
--------
1. The Company is engaged in the business of the provision of health
care services and in various related activities.
2. The Company desires to have the Employee as an employee of the
Company, and the Employee desires such employment, all on the terms and
conditions set forth in this Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Employee agree as
follows:
ARTICLE I
---------
Employment
----------
The Company hereby agrees to the Employee's employment with the
Company in accordance with the terms and conditions of this Agreement, and the
Employee hereby agrees to the terms and conditions of this Agreement. The
Employee is employed as Executive Vice President of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of her duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
----------
Term of Agreement
-----------------
The term of employment which this Agreement establishes shall commence
as of the date of this Agreement and end on February 28, 1999. Notwithstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as hereinafter provided.
<PAGE>
ARTICLE III
-----------
Devotion to Duties
------------------
During the term of employment, the Employee shall devote her full
time, attention, skill and effort to the operations of the Company and shall
not, during such term, engage in any other business activity requiring any
substantial amount of her time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
ARTICLE IV
----------
Regular Compensation
--------------------
The Company shall pay to the Employee and the Employee shall accept
from the Company, as compensation for her services and for her covenants and
other obligations hereunder, the gross bi-weekly salary of $4,892.31. Employee's
salary will be reviewed annually, consistent with the Company's compensation
policies.
ARTICLE V
---------
Expenses and Benefits
---------------------
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by her while carrying out her employment
responsibilities under this Agreement. The Employee shall receive a monthly auto
allowance of $400, shall be reimbursed by the Company for such auto's gasoline
and oil charges and the Company will pay up to $900 annually for auto insurance
on such auto. The Employee shall be entitled to participate in such other fringe
benefit programs as the Company from time to time shall establish for all of its
other full time employees of similar status if she is otherwise eligible to
participate in such programs. The Company retains the right to establish limits
on the types or amounts of business expenses that the Employee may incur and to
abolish or alter the terms of any fringe benefit program that it may establish.
The Employee shall be paid a bonus up to 60% of the gross salary paid
to Employee during the year. Such bonus shall be based on individual and Company
performance and shall be paid to the Employee no later than March 31 of the year
following the year in which the bonus is earned.
The Employee shall also be eligible to participate in the Company's
stock option plan and shall be entitled to receive annual options for at least
15,000 shares of the Company's common stock (or common stock of Bindley Western
Industries, Inc. if the Company's common stock is not publicly traded) during
the term of this Agreement, which options shall be subject to the terms and
conditions of the Company's stock option plan.
-2-
<PAGE>
ARTICLE VI
----------
Termination
-----------
Section 6.01. Reasons for Termination. The Employment of the Employee
shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
(b) At the Company's option, upon the Employee's violation of Company
policy or failure to perform any of her duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or other
cause to perform, in the opinion of the Company, duties assigned to her
hereunder for the continuous period of three months during the term of this
Agreement.
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
------------ -----------------------------
(a) Should the employment of the Employee be terminated under
subsections (a) or (c) of Section 6.01 of this Agreement, the Company shall pay
to the Employee (or the Employee's personal representative), within ten business
days after the date of termination, a sum equal to the aggregate amount of
regular compensation that was paid to the Employee under this Agreement for the
one-month period preceding such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid her regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee, within ten business days after the date of termination, a sum equal to
the aggregate amount of regular compensation that the Employee would be entitled
to receive under this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered
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<PAGE>
severance pay in consideration of the Employee's past service and in
consideration of her continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01 of this Agreement, the severance pay
provided for by this Section 6.02 shall constitute the entire obligation of the
Company to the Employee and full settlement of any claim under law or in equity
that the Employee might otherwise assert against the Company or any of its
employees, officers or directors on account of such termination.
Section 6.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Employee's employment was properly
terminated under subsection (b) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
-----------
Confidential Information
------------------------
In connection with her employment by the Company, the Employee has and
will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Appendix
A.
ARTICLE VIII
------------
General
-------
Section 8.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This Agreement,
being personal to the Employee, may not be assigned by her. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of the
parties under this Agreement shall be construed in accordance with the laws of
Indiana (other than its choice of laws provisions), and any action or proceeding
that may be brought, arising out of, in connection with, or by reason of this
Agreement shall be governed by the laws of Indiana (other than its choice of
laws provisions), to the exclusion of the law of any other forum, and regardless
of the jurisdiction in which the action or proceeding may be instituted.
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<PAGE>
Section 8.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Employee or the Company unless in writing and
signed by the Employee and a duly authorized officer of the Company. This
Agreement constitutes the entire employment arrangement between the Employee and
the Company and supersedes and replaces any and all prior agreements and
understandings, written or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
-----------------------------------------
Title: President and CEO
--------------------------------------
/s/ Melissa McIntyre
---------------------------------------------
Employee Melissa McIntyre
3812 Old Lockwood Rd.
---------------------------------------------
Address
Ovledo, FL 32765
---------------------------------------------
City, State, Zip
###-##-####
---------------------------------------------
Social Security Number
-5-
<PAGE>
EXHIBIT 10-F(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into this 1st
day of June, 1997, by and between Priority Healthcare Corporation, an Indiana
corporation, (the "Company") and Melissa McIntyre (the "Employee").
Agreement
---------
1. Employment. The parties hereto acknowledge that the terms of the
employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof, (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual promises
contained herein and in the Employment Agreement, Employee agrees and promises
that for a period of 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, employee will not, directly or indirectly,
for Employee or any other person, firm, corporation, entity or business:
(a) Compete with Company. Own, manage, operate, control or
otherwise be in any manner affiliated or connected with, or
engage or participate in the ownership, management,
operation or control of (as principal, agent, proprietor,
partner, member, shareholder, director, trustee, officer,
administrator, employee, consultant, independent contractor,
or otherwise), any business or entity which as one of its
business activities competes directly or indirectly with the
Company within any county in which the Company does
business; or attempt to sell, offer or provide to any person
or entity which is a customer of the Company a product or
service substantially similar to products or services
offered by the Company.
(b) Solicit Customers. Divert or take away or attempt to divert
or take away, call on or solicit or attempt to call on or
solicit any customers, potential customers, or prospects to
which goods were sold or services were rendered by Employee
while he was an employee of the Company.
(c) Employees. Induce or influence or attempt to induce or
influence, any person who is engaged as an employee, agent,
independent contractor or otherwise by the Company to
terminate his or her employment or engagement.
<PAGE>
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the Company's
purchasing, accounting, merchandising or marketing methods;
(b) Information and material related to business plans and
methods of operations or methods of doing business or
relating to marketing plans developed or to be developed by
the Company;
(c) Customer lists, potential customers lists, prospect lists,
account lists, billing information, salesmen reports,
territory reports, pricing lists, quotation forms,
advertising or marketing materials and techniques and lead
lists;
(d) Any of the information of the type described above which the
Company obtained from another source and which the Company
treats as proprietary or designates as confidential, whether
or not owned or developed by the Company.
5. Use of Information. Employee acknowledges and agrees that he is
in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such
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<PAGE>
proprietary and confidential information and/or trade secrets either during or
subsequent to employment with the Company, whether or not conceived, originated,
discovered or developed in whole or in part by Employee.
6. Availability of Injunctive Relief. The parties acknowledge that
compliance with the covenants in paragraphs 2, 4, and 5 is necessary to protect
the business, goodwill and proprietary interests of the Company. The parties
further agree that the remedy at law for breach of any of the provisions of such
covenants is inadequate and that the Company shall be entitled, in addition to
other such remedies as it may have, to injunctive relief for any breach or
threatened breach of paragraphs 2, 4, and 5 without proof of any actual damages
that may have been or may be caused to the Company by such breach or threatened
breach.
7. Assignment. Neither this Agreement nor any right or obligation
created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment Agreement
dated the date hereof constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the provisions
contained in this Agreement, or any portion of any such provisions, shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, or any portion of any such provision, but the Agreement shall
be construed as if such invalid, illegal or unenforceable provision, or portion
thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of this
Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
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<PAGE>
12. Binding Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall not
inure to the benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
----------------------------------------
The "Company"
/s/ Melissa McIntyre
--------------------------------------------
Melissa McIntyre
"Employee"
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<PAGE>
EXHIBIT 10-G(i)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of June,
1997, by and between Priority Healthcare Corporation, an Indiana corporation
(the "Company"), and William M. Woodard (the "Employee").
Recitals
--------
1. The Company is engaged in the business of the provision of health care
services and in various related activities.
2. The Company desires to have the Employee as an employee of the
Company, and the Employee desires such employment, all on the terms and
conditions set forth in this Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Employee agree as
follows:
ARTICLE I
---------
Employment
----------
The Company hereby agrees to the Employee's employment with the
Company in accordance with the terms and conditions of this Agreement, and the
Employee hereby agrees to the terms and conditions of this Agreement. The
Employee is employed as Vice President-Marketing of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of his duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
----------
Term of Agreement
-----------------
The term of employment which this Agreement establishes shall commence
as of the date of this Agreement and end on February 28, 1999. Notwithstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as hereinafter provided.
<PAGE>
ARTICLE III
-----------
Devotion to Duties
------------------
During the term of employment, the Employee shall devote his full
time, attention, skill and effort to the operations of the Company and shall
not, during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
ARTICLE IV
----------
Regular Compensation
--------------------
The Company shall pay to the Employee and the Employee shall accept
from the Company, as compensation for his services and for his covenants and
other obligations hereunder, the gross bi-weekly salary of $4,423.08. Employee's
salary will be reviewed annually consistent with the Company's compensation
policies.
ARTICLE V
---------
Expenses and Benefits
---------------------
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by Employee while carrying out Employee's
employment responsibilities under this Agreement. The Employee shall be entitled
to participate in such fringe benefit programs as the Company from time to time
shall establish for all of its other full time employees, if Employee is
otherwise eligible to participate in such programs. The Company retains the
right to establish limits on the types or amounts of business expenses that the
Employee may incur and to abolish or alter the terms of any fringe benefit
program that it may establish.
The Employee shall be paid a bonus up to 50% of the gross salary paid
to Employee during the year. Such bonus shall be based on individual and Company
performance and shall be paid to the Employee no later than March 31 of the year
following the year in which the bonus is earned.
The Employee shall also be eligible to participate in the Company's
stock option plan and shall be entitled to receive annual options for at least
15,000 shares of the Company's common stock (or common stock of Bindley Western
Industries, Inc. if the Company's common stock is not publicly traded) during
the term of this Agreement, which options shall be subject to the terms and
conditions of the Company's stock option plan.
-2-
<PAGE>
ARTICLE VI
----------
Termination
-----------
Section 6.01. Reasons for Termination. The Employment of the Employee
shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
(b) At the Company's option, upon the Employee's violation of Company
policy or failure to perform any of his duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or other
cause to perform, in the opinion of the Company, duties assigned to him
hereunder for the continuous period of three months during the term of this
Agreement.
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a) or (c) of Section 6.01 of this Agreement, the Company shall pay
to the Employee (or the Employee's personal representative), within ten business
days after the date of termination, a sum equal to the aggregate amount of
regular compensation that was paid to the Employee under this Agreement for the
one-month period preceding such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee, within ten business days after the date of termination, a sum equal to
the aggregate amount of regular compensation that the Employee would be entitled
to receive under this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered
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<PAGE>
severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01 of this Agreement, the severance pay
provided for by this Section 6.02 shall constitute the entire obligation of the
Company to the Employee and full settlement of any claim under law or in equity
that the Employee might otherwise assert against the Company or any of its
employees, officers or directors on account of such termination.
Section 6.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Employee's employment was properly
terminated under subsection (b) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
-----------
Confidential Information
------------------------
In connection with his employment by the Company, the Employee has and
will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Appendix
A.
ARTICLE VIII
------------
General
-------
Section 8.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This Agreement,
being personal to the Employee, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of the
parties under this Agreement shall be construed in accordance with the laws of
Indiana (other than its choice of laws provisions), and any action or proceeding
that may be brought, arising out of, in connection with, or by reason of this
Agreement shall be governed by the laws of Indiana (other than its choice of
laws provisions), to the exclusion of the law of any other forum, and regardless
of the jurisdiction
-4-
<PAGE>
in which the action or proceeding may be instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Employee or the Company unless in writing and
signed by the Employee and a duly authorized officer of the Company. This
Agreement constitutes the entire employment arrangement between the Employee and
the Company and supersedes and replaces any and all prior agreements and
understandings, written or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
----------------------------------
Title: President
-------------------------------
/s/ William M. Woodard
--------------------------------------
Employee William M. Woodard
7924 Bridgestone Dr.
--------------------------------------
Address
Orlando, FL 32835
--------------------------------------
City, State, Zip
###-##-####
--------------------------------------
Social Security Number
-5-
<PAGE>
EXHIBIT 10-G(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into this 1st
day of June, 1997, by and between Priority Healthcare Corporation, an Indiana
corporation, (the "Company") and William M. Woodard (the "Employee").
Agreement
---------
1. Employment. The parties hereto acknowledge that the terms of the
employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof, (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual promises
contained herein and in the Employment Agreement, Employee agrees and promises
that for a period of 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, employee will not, directly or indirectly,
for Employee or any other person, firm, corporation, entity or business:
(a) Compete with Company. Own, manage, operate, control or
otherwise be in any manner affiliated or connected with, or
engage or participate in the ownership, management,
operation or control of (as principal, agent, proprietor,
partner, member, shareholder, director, trustee, officer,
administrator, employee, consultant, independent contractor,
or otherwise), any business or entity which as one of its
business activities competes directly or indirectly with the
Company within any county in which the Company does
business; or attempt to sell, offer or provide to any person
or entity which is a customer of the Company a product or
service substantially similar to products or services
offered by the Company.
(b) Solicit Customers. Divert or take away or attempt to divert
or take away, call on or solicit or attempt to call on or
solicit any customers, potential customers, or prospects to
which goods were sold or services were rendered by Employee
while he was an employee of the Company.
(c) Employees. Induce or influence or attempt to induce or
influence, any person who is engaged as an employee, agent,
independent contractor or otherwise by the Company to
terminate his or her employment or engagement.
<PAGE>
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the Company's
purchasing, accounting, merchandising or marketing methods;
(b) Information and material related to business plans and
methods of operations or methods of doing business or
relating to marketing plans developed or to be developed by
the Company;
(c) Customer lists, potential customers lists, prospect lists,
account lists, billing information, salesmen reports,
territory reports, pricing lists, quotation forms,
advertising or marketing materials and techniques and lead
lists;
(d) Any of the information of the type described above which the
Company obtained from another source and which the Company
treats as proprietary or designates as confidential, whether
or not owned or developed by the Company.
5. Use of Information. Employee acknowledges and agrees that he is
in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement.
In partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
-2-
<PAGE>
6. Availability of Injunctive Relief. The parties acknowledge that
compliance with the covenants in paragraphs 2, 4, and 5 is necessary to protect
the business, goodwill and proprietary interests of the Company. The parties
further agree that the remedy at law for breach of any of the provisions of such
covenants is inadequate and that the Company shall be entitled, in addition to
other such remedies as it may have, to injunctive relief for any breach or
threatened breach of paragraphs 2, 4, and 5 without proof of any actual damages
that may have been or may be caused to the Company by such breach or threatened
breach.
7. Assignment. Neither this Agreement nor any right or obligation
created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment Agreement
dated the date hereof constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the provisions
contained in this Agreement, or any portion of any such provisions, shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, or any portion of any such provision, but the Agreement shall
be construed as if such invalid, illegal or unenforceable provision, or portion
thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of this
Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall not
inure to the benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
-------------------------------------------
The "Company"
/s/ William M. Woodard
-------------------------------------------
William M. Woodard
"Employee"
-4-
<PAGE>
EXHIBIT 10-H(i)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of June,
1997, by and between Priority Healthcare Corporation, an Indiana corporation
(the "Company"), and Guy F. Bryant (the "Employee").
Recitals
--------
1. The Company is engaged in the business of the provision of health
care services and in various related activities.
2. The Company desires to have the Employee serve as an employee of
the Company, and the Employee desires such employment, all on the terms and
conditions set forth in this Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Employee agree as
follows:
ARTICLE I
Employment
----------
The Company hereby agrees to the Employee's employment with the
Company in accordance with the terms and conditions of this Agreement, and the
Employee hereby agrees to the terms and conditions of this Agreement. The
Employee shall serve as Executive Vice President of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of his duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
Term of Agreement
-----------------
The term of employment which this Agreement establishes shall commence
as of the date of this Agreement and end on February 28, 1999. Notwithstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as hereinafter provided.
<PAGE>
ARTICLE III
Devotion to Duties
------------------
During the term of employment, the Employee shall devote his full
time, attention, skill and effort to the operations of the Company and shall
not, during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
ARTICLE IV
Regular Compensation
--------------------
The Company shall pay to the Employee and the Employee shall accept
from the Company, as compensation for his services and for his covenants and
other obligations hereunder, the gross bi-weekly salary of $5,100. Employee's
salary will be reviewed annually, consistent with the Company's compensation
policies.
ARTICLE V
Expenses and Benefits
---------------------
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall receive a monthly auto
allowance of $400, shall be reimbursed by the Company for such auto's gasoline
and oil charges and the Company will pay up to $900 annually for auto insurance
on such auto. The Employee shall be entitled to participate in such other
fringe benefit programs as the Company from time to time shall establish for all
of its other full time employees of similar status, if he is otherwise eligible
to participate in such programs. The Company retains the right to establish
limits on the types or amounts of business expenses that the Employee may incur
and to abolish or alter the terms of any fringe benefit program that it may
establish.
The Employee shall be paid a bonus up to 60% of the gross salary paid
to Employee during the year. Such bonus shall be based on individual and Company
performance and shall be paid to the Employee no later than March 31 of the year
following the year in which the bonus is earned.
During the term of this Agreement, the Employee shall be eligible to
participate in any stock option plans generally available to the Company's key
employees.
ARTICLE VI
Termination
-----------
Section 6.01. Reasons for Termination. The Employment of the
Employee shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
-2-
<PAGE>
(b) At the Company's option, upon the Employee's material violation
of Company policy or failure to materially perform any of his duties or
obligations under this Agreement in a satisfactory manner, or upon any
dishonesty of any kind or willful misconduct of the Employee, including, but not
limited to, theft of or other unauthorized personal use of Company funds or
other remuneration from Company suppliers or potential suppliers. Employee may
be terminated under this paragraph 6.01(b) only following prior notice to the
Employee of the reason for termination and an opportunity to dispute such
reason.
(c) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or other
cause to perform, in the opinion of an independent physician chosen by the
parties to this Agreement, duties assigned to him hereunder for the continuous
period of three months during the term of this Agreement.
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a), (c) or (d) (except as modified by Section 6.02(c) below) of
Section 6.01 of this Agreement, the Company shall pay to the Employee (or the
Employee's personal representative), within 10 business days after the date of
termination, a sum equal to the aggregate amount of regular compensation that
was paid to the Employee under this Agreement for the one-month period preceding
such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee a sum payable in bi-weekly installments equal to the aggregate amount
of regular compensation that the Employee would be entitled to receive under
this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may,
at its discretion, withhold from such payments any federal, state, city, county
or other taxes. In the event of the termination of the employment of the
Employee for any reason described in Section 6.01, the severance pay provided
for by this Section 6.02 shall constitute the entire obligation of the Company
to the Employee and full settlement of any claim under law or in equity that the
Employee might otherwise assert against the Company or any of its employees,
officers or directors on account of such termination.
-3-
<PAGE>
Section 6.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Employee's employment was properly
terminated under subsection (b) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
Confidential Information
------------------------
In connection with his employment by the Company, the Employee has and
will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Exhibit A.
ARTICLE VIII
General
-------
Section 8.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This Agreement,
being personal to the Employee, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of
the parties under this Agreement shall be construed in accordance with the laws
of Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the
-4-
<PAGE>
Employee or the Company unless in writing and signed by the Employee and a duly
authorized officer of the Company. This Agreement constitutes the entire
employment arrangement between the Employee and the Company and supersedes and
replaces any and all prior agreements and understandings, written or oral,
relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
---------------------------------
Title: President and CEO
------------------------------
EMPLOYEE
/s/ Guy F. Bryant
------------------------------------
Signature
948 Brightwater Circle
------------------------------------
Address
Maitland, FL 32751
------------------------------------
City, State, Zip
###-##-####
------------------------------------
Social Security Number
-5-
<PAGE>
EXHIBIT 10-H(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into this 1st
day of June, 1997, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Guy F. Bryant (the "Employee").
Agreement
---------
1. Employment. The parties hereto acknowledge that the terms of the
employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual promises
contained herein and in the Employment Agreement, Employee agrees and promises
that for a period of 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, Employee will not, directly or indirectly,
for Employee or any other person, firm, corporation, entity or business:
(a) Compete with Company. Own, manage, operate, control or otherwise
be in any manner affiliated or connected with, or engage or
participate in the ownership, management, operation or control of
(as principal, agent, proprietor, partner, member, shareholder,
director, trustee, officer, administrator, employee, consultant,
independent contractor, or otherwise), any business or entity
which competes directly with the Company within any county in
which the Company does business; or attempt to sell, offer or
provide to any person or entity which is a customer of the Company
a product or service substantially similar to products or services
offered by the Company.
(b) Solicit Customers. Divert or take away or attempt to divert or
take away, call on or solicit or attempt to call on or solicit any
customers, potential customers, or prospects to which goods were
sold or services were rendered by Employee while he was an
employee of the Company.
(c) Employees. Induce or influence or attempt to induce or
influence, any person who is engaged as an employee, agent,
independent contractor or otherwise by the Company to terminate
his or her employment or engagement.
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then
<PAGE>
this unenforceable covenant shall be deemed eliminated from these provisions for
the purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the Company's
purchasing, accounting, merchandising or marketing methods;
(b) Information and material related to business plans and
methods of operations or methods of doing business or
relating to marketing plans developed or to be developed by
the Company;
(c) Customer lists, potential customers lists, prospect lists,
account lists, billing information, salesmen reports,
territory reports, pricing lists, quotation forms,
advertising or marketing materials and techniques and lead
lists;
(d) Any of the information of the type described above which the
Company obtained from another source and which the Company
treats as proprietary or designates as confidential, whether
or not owned or developed by the Company.
5. Use of Information. Employee acknowledges and agrees that he is
in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement.
In partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
6. Availability of Injunctive Relief. The parties acknowledge that
compliance with the covenants in paragraphs 2, 4, and 5 is necessary to protect
the business, goodwill and proprietary interests of the Company. The parties
further agree that the remedy at law for breach of any of the provisions of such
covenants is inadequate and that the Company shall be entitled, in addition to
other such remedies as it may have, to injunctive relief for any breach or
threatened breach of paragraphs 2, 4, and 5 without proof of any actual damages
that may have been or may be caused to the Company by such breach or threatened
breach.
-2-
<PAGE>
7. Assignment. Neither this Agreement nor any right or obligation
created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment Agreement
dated the date hereof constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the provisions
contained in this Agreement, or any portion of any such provisions, shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, or any portion of any such provision, but the Agreement shall
be construed as if such invalid, illegal or unenforceable provision, or portion
thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of this
Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall not
inure to the benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
----------------------------
The "Company"
/s/ Guy F. Bryant
----------------------------
Guy F. Bryant "Employee"
-4-
<PAGE>
EXHIBIT 10-I(i)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 23rd day of
June, 1997, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Donald J. Perfetto (the "Employee").
Recitals
--------
1. The Company is engaged in the business of the provision of health
care services and in various related activities.
2. The Company desires to have the Employee serve as an employee of
the Company, and the Employee desires such employment, all on the terms and
conditions set forth in this Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Employee agree as
follows:
ARTICLE I
Employment
----------
The Company hereby agrees to the Employee's employment with the
Company in accordance with the terms and conditions of this Agreement, and the
Employee hereby agrees to the terms and conditions of this Agreement. The
Employee shall serve as Vice President and CFO of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of his duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
Term of Agreement
-----------------
The term of employment which this Agreement establishes shall commence
as of the date of this Agreement and end on February 28, 1999. Notwithstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as hereinafter provided.
<PAGE>
ARTICLE III
Devotion to Duties
------------------
During the term of employment, the Employee shall devote his full
time, attention, skill and effort to the operations of the Company and shall
not, during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
ARTICLE IV
Regular Compensation
--------------------
The Company shall pay to the Employee and the Employee shall accept
from the Company, as compensation for his services and for his covenants and
other obligations hereunder, the gross bi-weekly salary of $4,230.92. Employee's
salary will be reviewed annually, consistent with the Company's compensation
policies.
ARTICLE V
Expenses and Benefits
---------------------
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall be entitled to
participate in such other fringe benefit programs as the Company from time to
time shall establish for all of its other full time employees of similar status,
if he is otherwise eligible to participate in such programs. The Company
retains the right to establish limits on the types or amounts of business
expenses that the Employee may incur and to abolish or alter the terms of any
fringe benefit program that it may establish.
The Employee shall be paid a bonus up to 48% of the gross salary paid
to Employee during the year. Such bonus shall be based on individual and Company
performance and shall be paid to the Employee no later than March 31 of the year
following the year in which the bonus is earned.
During the term of this Agreement, the Employee shall be eligible to
participate in any stock option plans generally available to the Company's key
employees.
ARTICLE VI
Termination
-----------
Section 6.01. Reasons for Termination. The Employment of the
Employee shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
-2-
<PAGE>
(b) At the Company's option, upon the Employee's violation of Company
policy or failure to perform any of his duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or other
cause to perform, in the opinion of an independent physician chosen by the
parties to this Agreement, duties assigned to him hereunder for the continuous
period of three months during the term of this Agreement.
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a), (c) or (d) (except as modified by Section 6.02(c) below) of
Section 6.01 of this Agreement, the Company shall pay to the Employee (or the
Employee's personal representative), within 10 business days after the date of
termination, a sum equal to the aggregate amount of regular compensation that
was paid to the Employee under this Agreement for the one-month period preceding
such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee a sum payable in bi-weekly installments equal to the aggregate amount
of regular compensation that the Employee would be entitled to receive under
this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01, the severance pay provided for by this
Section 6.02 shall constitute the entire obligation of the Company to the
Employee and full settlement of any claim under law or in equity that the
Employee might otherwise assert against the Company or any of its employees,
officers or directors on account of such termination.
-3-
<PAGE>
Section 6.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Employee's employment was properly
terminated under subsection (b) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
Confidential Information
------------------------
In connection with his employment by the Company, the Employee has and
will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Exhibit A.
ARTICLE VIII
General
-------
Section 8.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This Agreement,
being personal to the Employee, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of
the parties under this Agreement shall be construed in accordance with the laws
of Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the
-4-
<PAGE>
Employee or the Company unless in writing and signed by the Employee and a duly
authorized officer of the Company. This Agreement and the June 2, 1997 letter
from Robert L. Myers constitutes the entire employment arrangement between the
Employee and the Company and supersedes and replaces any and all prior
agreements and understandings, written or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
-----------------------------
Title: President and CEO
---------------------------
EMPLOYEE
/s/ Donald Perfetto
---------------------------------
Signature
13001 Bell Creek Chase
---------------------------------
Address
Riverview, FL 33569
---------------------------------
City, State, Zip
###-##-####
---------------------------------
Social Security Number
-5-
<PAGE>
EXHIBIT 10-I(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into this 23rd
day of June, 1997, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Donald J. Perfetto (the "Employee").
Agreement
---------
1. Employment. The parties hereto acknowledge that the terms of the
employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual promises
contained herein and in the Employment Agreement, Employee agrees and promises
that for a period of 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, Employee will not, directly or indirectly,
for Employee or any other person, firm, corporation, entity or business:
(a) Compete with Company. Own, manage, operate, control or otherwise be in
any manner affiliated or connected with, or engage or participate in
the ownership, management, operation or control of (as principal,
agent, proprietor, partner, member, shareholder, director, trustee,
officer, administrator, employee, consultant, independent contractor,
or otherwise), any business or entity which as one of its business
activities competes directly or indirectly with the Company within any
county in which the Company does business; or attempt to sell, offer
or provide to any person or entity which is a customer of the Company
a product or service substantially similar to products or services
offered by the Company.
(b) Solicit Customers. Divert or take away or attempt to divert or take
away, call on or solicit or attempt to call on or solicit any
customers, potential customers, or prospects to which goods were sold
or services were rendered by Employee while he was an employee of the
Company.
(c) Employees. Induce or influence or attempt to induce or influence, any
person who is engaged as an employee, agent, independent contractor or
otherwise by the Company to terminate his or her employment or
engagement.
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be
<PAGE>
deemed identical in terms to the covenants contained in paragraph 2. If, in any
judicial proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this paragraph, then this unenforceable covenant
shall be deemed eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
to be enforced.
4. Proprietary and Confidential Information. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the Company's purchasing,
accounting, merchandising or marketing methods;
(b) Information and material related to business plans and methods of
operations or methods of doing business or relating to marketing plans
developed or to be developed by the Company;
(c) Customer lists, potential customers lists, prospect lists, account
lists, billing information, salesmen reports, territory reports,
pricing lists, quotation forms, advertising or marketing materials and
techniques and lead lists;
(d) Any of the information of the type described above which the Company
obtained from another source and which the Company treats as
proprietary or designates as confidential, whether or not owned or
developed by the Company.
5. Use of Information. Employee acknowledges and agrees that he is
in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
6. Availability of Injunctive Relief. The parties acknowledge that
compliance with the covenants in paragraphs 2, 4, and 5 is necessary to protect
the business, goodwill and proprietary interests of the Company. The parties
further agree that the remedy at law for breach of any of the provisions of such
covenants is inadequate and that the Company shall be entitled, in addition to
other such remedies as it may have, to injunctive relief for any breach or
threatened
-2-
<PAGE>
breach of paragraphs 2, 4, and 5 without proof of any actual damages that may
have been or may be caused to the Company by such breach or threatened breach.
7. Assignment. Neither this Agreement nor any right or obligation
created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment Agreement
dated the date hereof constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the provisions
contained in this Agreement, or any portion of any such provisions, shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, or any portion of any such provision, but the Agreement shall
be construed as if such invalid, illegal or unenforceable provision, or portion
thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of this
Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall not
inure to the benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
--------------------------------
The "Company"
/s/ Donald J. Perfetto
-----------------------------------
Donald J. Perfetto "Employee"
-4-
<PAGE>
EXHIBIT 10-J(i)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of June,
1997, by and between Priority Healthcare Corporation, an Indiana corporation
(the "Company"), and Steven D. Cosler (the "Employee").
Recitals
--------
1. The Company is engaged in the business of the provision of health
care services and in various related activities.
2. The Company desires to have the Employee serve as an employee of
the Company, and the Employee desires such employment, all on the terms and
conditions set forth in this Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Employee agree as
follows:
ARTICLE I
Employment
----------
The Company hereby agrees to the Employee's employment with the
Company in accordance with the terms and conditions of this Agreement, and the
Employee hereby agrees to the terms and conditions of this Agreement. The
Employee shall serve as Executive Vice President of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of his duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
Term of Agreement
-----------------
The term of employment which this Agreement establishes shall commence
as of the date of this Agreement and end on February 28, 1999. Notwithstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as hereinafter provided.
<PAGE>
ARTICLE III
Devotion to Duties
------------------
During the term of employment, the Employee shall devote his full
time, attention, skill and effort to the operations of the Company and shall
not, during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
ARTICLE IV
Regular Compensation
--------------------
The Company shall pay to the Employee and the Employee shall accept
from the Company, as compensation for his services and for his covenants and
other obligations hereunder, the gross bi-weekly salary of $5,669.23. Employee's
salary will be reviewed annually, consistent with the Company's compensation
policies.
ARTICLE V
Expenses and Benefits
---------------------
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall receive a monthly auto
allowance of $400, shall be reimbursed by the Company for such auto's gasoline
and oil charges and the Company will pay up to $900 annually for auto insurance
on such auto. The Employee shall be entitled to participate in such other fringe
benefit programs as the Company from time to time shall establish for all of its
other full time employees of similar status, if he is otherwise eligible to
participate in such programs. The Company retains the right to establish limits
on the types or amounts of business expenses that the Employee may incur and to
abolish or alter the terms of any fringe benefit program that it may establish.
The Employee shall be paid a bonus up to 60% of the gross salary paid
to Employee during the year. Such bonus shall be based on individual and Company
performance and shall be paid to the Employee no later than March 31 of the year
following the year in which the bonus is earned.
During the term of this Agreement, the Employee shall be eligible to
participate in any stock option plans generally available to the Company's key
employees.
ARTICLE VI
Termination
-----------
Section 6.01. Reasons for Termination. The Employment of the
Employee shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
-2-
<PAGE>
(b) At the Company's option, upon the Employee's violation of Company
policy or failure to perform any of his duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or other
cause to perform, in the opinion of an independent physician chosen by the
parties to this Agreement, duties assigned to him hereunder for the continuous
period of three months during the term of this Agreement.
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a), (c) or (d) (except as modified by Section 6.02(c) below) of
Section 6.01 of this Agreement, the Company shall pay to the Employee (or the
Employee's personal representative), within 10 business days after the date of
termination, a sum equal to the aggregate amount of regular compensation that
was paid to the Employee under this Agreement for the one-month period preceding
such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee a sum payable in bi-weekly installments equal to the aggregate amount
of regular compensation that the Employee would be entitled to receive under
this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01, the severance pay provided for by this
Section 6.02 shall constitute the entire obligation of the Company to the
Employee and full settlement of any claim under law or in equity that the
Employee might otherwise assert against the Company or any of its employees,
officers or directors on account of such termination.
-3-
<PAGE>
Section 6.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Employee's employment was properly
terminated under subsection (b) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
Confidential Information
------------------------
In connection with his employment by the Company, the Employee has and
will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Exhibit A.
ARTICLE VIII
General
-------
Section 8.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity of the remainder
of this Agreement. Should any particular covenant in this Agreement be held
unreasonable or unenforceable for any reason, including, without limitation, the
time period, geographical area, and scope of activity covered by such covenant,
then such covenant shall be given effect and enforced to whatever extent would
be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This Agreement,
being personal to the Employee, may not be assigned by him. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of
the parties under this Agreement shall be construed in accordance with the laws
of Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance with
any of the terms, covenants or conditions of this Agreement shall not be deemed
a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the
-4-
<PAGE>
Employee or the Company unless in writing and signed by the Employee and a duly
authorized officer of the Company. This Agreement constitutes the entire
employment arrangement between the Employee and the Company and supersedes and
replaces any and all prior agreements and understandings, written or oral,
relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
---------------------------
Title: President and CEO
------------------------
EMPLOYEE
/s/ Steven D. Cosler
-------------------------------
Signature
3539 Brumley Way
-------------------------------
Address
Carmel, IN 46033
-------------------------------
City, State, Zip
###-##-####
-------------------------------
Social Security Number
-5-
<PAGE>
EXHIBIT 10-J(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into this 1st day of
June, 1997, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Steven D. Cosler (the "Employee").
Agreement
---------
1. Employment. The parties hereto acknowledge that the terms of the
employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual promises
contained herein and in the Employment Agreement, Employee agrees and promises
that for a period of 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, Employee will not, directly or indirectly,
for Employee or any other person, firm, corporation, entity or business:
(a) Compete with Company. Own, manage, operate, control or otherwise
be in any manner affiliated or connected with, or engage or
participate in the ownership, management, operation or control of
(as principal, agent, proprietor, partner, member, shareholder,
director, trustee, officer, administrator, employee, consultant,
independent contractor, or otherwise), any business or entity
which as one of its business activities competes directly or
indirectly with the Company within any county in which the
Company does business; or attempt to sell, offer or provide to
any person or entity which is a customer of the Company a product
or service substantially similar to products or services offered
by the Company.
(b) Solicit Customers. Divert or take away or attempt to divert or
take away, call on or solicit or attempt to call on or solicit
any customers, potential customers, or prospects to which goods
were sold or services were rendered by Employee while he was an
employee of the Company.
(c) Employees. Induce or influence or attempt to induce or influence,
any person who is engaged as an employee, agent, independent
contractor or otherwise by the Company to terminate his or her
employment or engagement.
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then
<PAGE>
this unenforceable covenant shall be deemed eliminated from these provisions for
the purpose of those proceedings to the extent necessary to permit the remaining
separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the Company's
purchasing, accounting, merchandising or marketing methods;
(b) Information and material related to business plans and methods of
operations or methods of doing business or relating to marketing
plans developed or to be developed by the Company;
(c) Customer lists, potential customers lists, prospect lists,
account lists, billing information, salesmen reports, territory
reports, pricing lists, quotation forms, advertising or marketing
materials and techniques and lead lists;
(d) Any of the information of the type described above which the
Company obtained from another source and which the Company treats
as proprietary or designates as confidential, whether or not
owned or developed by the Company.
5. Use of Information. Employee acknowledges and agrees that he
is in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
6. Availability of Injunctive Relief. The parties acknowledge
that compliance with the covenants in paragraphs 2, 4, and 5 is necessary to
protect the business, goodwill and proprietary interests of the Company. The
parties further agree that the remedy at law for breach of any of the provisions
of such covenants is inadequate and that the Company shall be entitled, in
addition to other such remedies as it may have, to injunctive relief for any
breach or threatened breach of paragraphs 2, 4, and 5 without proof of any
actual damages that may have been or may be caused to the Company by such breach
or threatened breach.
-2-
<PAGE>
7. Assignment. Neither this Agreement nor any right or
obligation created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment
Agreement dated the date hereof constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings of the parties, and there are
no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the
provisions contained in this Agreement, or any portion of any such provisions,
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, or any portion of any such provision, but the
Agreement shall be construed as if such invalid, illegal or unenforceable
provision, or portion thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations
and liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of
this Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall not
inure to the benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
----------------------------
The "Company"
/s/ Steven D. Cosler
----------------------------
Steven D. Cosler "Employee"
-4-
<PAGE>
Exhibit 10-K
SUBORDINATED PROMISSORY NOTE
----------------------------
U.S. $6,000,000.00 March 31, 1997
FOR VALUE RECEIVED, on or before March 31, 1999 (the "Maturity Date"),
PRIORITY HEALTHCARE CORPORATION, an Indiana corporation (hereinafter called
"Maker"), unconditionally promises to pay to the order of BINDLEY WESTERN
INDUSTRIES, INC., an Indiana corporation ("Lender"), at 10333 North Meridian
Street, Indianapolis, Indiana, or at such other place as the holder hereof may
direct in writing, the principal sum of Six Million Dollars ($6,000,000), with
interest on the balance of principal outstanding from time to time from the date
hereof at seven and one-fourth percent (7 1/4%) per annum until the entire
principal balance is paid in full.
All amounts payable under this Note shall be payable without relief from
valuation and appraisement laws, and with all collection costs and attorneys'
fees.
Interest accruing during each calendar quarter shall be due and payable
quarterly, on or before the fifth (5th) day of the next succeeding calendar
quarter, commencing on the fifth (5th) day of the calendar quarter immediately
following the date of this Note, and continuing thereafter until the entire
unpaid principal balance of this Note is paid in full. All payments, as
received, shall be applied first to the payment of interest accrued to the date
of receipt of payment and the balance, if any, shall be applied to principal.
The principal of this Note, and accrued, unpaid interest thereon, shall be
due and payable in full on the Maturity Date. The principal of this Note may be
prepaid in whole or in part without premium or penalty.
All payments of principal and interest shall be made in lawful money of the
United States of America and in immediately available funds. Interest shall be
calculated on the basis that an entire years interest is earned in 360 days. If
any payment falls due on a day on which the holder is not generally open for the
conduct of its business, the due date thereof shall be extended to the next
succeeding day on which the holder is so open for business and interest will be
payable at the rate stated herein in respect of such extension.
Maker and endorser(s), jointly and severally, waive demand and presentment
for payment, protest, notice of protest and notice of nonpayment or dishonor of
this Note and each of them consents to all extensions of the time of payment
thereof.
Upon (1) default in the payment of any installment of interest due under
this Note, which default shall remain uncured for a period of ten (10) days from
the date such installment is
<PAGE>
due, or (2) default by Maker under the terms of any other instrument or
agreement evidencing indebtedness of Maker for borrowed money, and at any time
thereafter during the continuance of such default, the holder of this Note shall
be entitled by written notice to Maker to declare the entire unpaid balance of
principal and interest on the Note to be immediately due and payable, whereupon
the same shall become and be immediately due and payable.
Payment of the principal of and interest on the indebtedness evidenced by
this Note is subordinated to the rights of the holders of all "Senior
Indebtedness" of the Maker; provided however, that so long as there exists no
event of default under any then outstanding Senior Indebtedness, all payments
due under this Note may be made upon their due date. For purposes of this Note,
the term "Senior Indebtedness" means all debt of the Maker outstanding from time
to time (a) for borrowed money or (b) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given in connection with the
acquisition of any property or assets, including securities, unless such debt by
its express terms is not superior in right of payment to this Note.
Signed and delivered as of the 31st day of March, 1997.
PRIORITY HEALTHCARE CORPORATION
By: /s/ Robert L. Myers
---------------------------
Robert L. Myers
President
-2-
<PAGE>
EXHIBIT 10-M
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made as of the 1st day of
January, 1995, by and between Martin A. Nassif ("Nassif"), and Bindley Western
Industries, Inc., an Indiana corporation ("BWI"), and Priority Healthcare
Corporation, an Indiana corporation wholly owned by BWI ("PHC") (BWI and PHC are
sometimes collectively referred to herein as the "Company");
Recitals
--------
1. Concurrently with the execution of this Agreement, the Company closed
the purchase of all of the capital stock of IV-1, Inc. (which, together with its
wholly owned subsidiaries, IV-One Services, Inc. and National Pharmacy
Providers, Inc., are referred to collectively herein as the "IV-One Companies")
pursuant to a Stock Purchase Agreement (the "Acquisition Agreement").
2. Immediately prior to the consummation of the Acquisition Agreement,
Nassif was a principal advisor to the IV-One Companies.
3. Nassif is, and will continue to be, knowledgeable concerning the
business of the IV-One Companies and through years of experience has gained
valuable knowledge and expertise in the pharmaceutical and health care
businesses.
4. The Company desires to retain Nassif as a consultant to PHC and Nassif
desires to be so retained, upon the terms and conditions set forth in this
Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained herein and the consummation of the Acquisition Agreement,
the parties hereto agree as follows:
SECTION 1
---------
Term
----
Section 1.1. Term. The term ("Term") of this Agreement shall commence on
January 1, 1995, and shall continue to and including December 31, 1998. At the
option of the Company, the Term of this Agreement may be extended for up to two
additional 12-month periods, upon written notice to Nassif at least 30 days but
not more than 180 days prior to the expiration of the original term or the first
additional term, as the case may be.
<PAGE>
SECTION 2
---------
Consulting Services
-------------------
Section 2.1. Creation of the Relationship. Upon the terms of this
Agreement, and in recognition of Nassif's extensive experience and expertise,
the Company hereby agrees to retain Nassif, and Nassif hereby agrees to be
retained by the Company, during the Term of this Agreement and on the terms and
conditions set forth herein, in the capacity of a consultant to PHC.
Section 2.2. Duties of Nassif. During the Term hereof, Nassif agrees to
render service to PHC as a consultant from time to time as may be reasonably
required by the Company, including but not limited to, advising PHC with respect
to all of the business, operations, assets, customers and products of the IV-One
Companies and PHC, as well as developing new opportunities for PHC to
participate in health care businesses in the United States and creating import
and export opportunities. There shall not be a prescribed minimum or maximum
number of hours to be devoted by Nassif in fulfillment of Nassif's duties
hereunder. Nassif may provide services to PHC under this Agreement from Nassif's
home or business location by telephone or in such other manner as is acceptable
to Nassif and the Company. During the Term hereof, Nassif shall be reimbursed by
the Company for any expenses that are approved in advance by PHC which Nassif
may reasonably incur in the performance of Nassif's duties hereunder and which
are properly substantiated to the reasonable satisfaction of the Company. The
relationship of Nassif to PHC hereunder shall be that of independent contractor
and not as employee.
SECTION 3
---------
Compensation
------------
Section 3.1. Regular Compensation. Nassif shall be entitled to a fee of
$10,000 per month during the Term of this Agreement, payable in arrears on the
last day of each month.
Section 3.2. Additional Compensation.
------------ ------------------------
(a) Nassif shall be entitled to receive 3% of the consolidated net
earnings of PHC after all charges but before any provision for income taxes
("Pre-Tax Net Profit") for the fiscal years ending December 31, 1995, 1996,
1997 and 1998.
(b) If the Term of this Agreement is extended at the option of the
Company for one or two additional 12-month periods, Nassif shall be
entitled to 3% of the Pre-Tax Net Profit of PHC for the fiscal year ending
December 31,
-2-
<PAGE>
1999, in the case of one 12-month extension, or for the fiscal years ending
December 31, 1999 and 2000, in the case of two 12-month extensions.
(c) The Pre-Tax Net Profit of PHC shall be determined in accordance
with generally accepted accounting principles applied on a consistent
basis; provided, however, that Pre-Tax Net Profit shall not be charged with
any costs of an initial public offering by PHC or any of the IV-One
Companies.
(d) If 3% of the Pre-Tax Net Profit of PHC for the fiscal year ending
December 31, 1995, is less than $200,000, Nassif shall still receive a
minimum payment of $200,000. To the extent that the amounts paid to Nassif
under this Section 3.2 do not aggregate at least $1,000,000 for the four
fiscal years ending December 31, 1998, Nassif shall be entitled to an
additional amount equal to the difference between $1,000,000 and the
amounts otherwise paid to Nassif.
(e) All amounts owed to Nassif under this Section 3.2 shall be paid
within 90 days after the end of the applicable fiscal year or years for
which a share of the Pre-Tax Net Profit is due.
3.3 Payments on Death. Notwithstanding the provisions of Sections
3.1 and 3.2 of this Agreement, if Nassif dies during the Term of this Agreement,
Nassif shall be entitled to the following and only the following compensation,
all of which shall be paid according to the regularly scheduled payment dates:
(a) If Nassif dies in 1995, Nassif shall be entitled to all amounts
payable under Sections 3.1 and 3.2 during or with respect to the fiscal
years ending December 31, 1995 and 1996; provided, however, if the
aggregate amounts so payable under Section 3.2 with respect to the 1995 and
1996 fiscal years is less than an aggregate of $500,000, Nassif shall be
entitled to an additional amount equal to the difference between $500,000
and the amounts otherwise paid to Nassif for such years;
(b) If Nassif dies in 1996, Nassif shall be entitled to all amounts
payable under Sections 3.1 and 3.2 during or with respect to the fiscal
years ending December 31, 1996 and 1997; provided, however, if the
aggregate amounts so payable under Section 3.2 with respect to the 1995,
1996 and 1997 fiscal years is less than an aggregate of $750,000, Nassif
shall be entitled to an additional amount equal to the difference between
$750,000 and the amounts otherwise paid to Nassif for such years;
(c) If Nassif dies in 1997 or in 1998, Nassif shall be entitled to all
amounts payable under Sections 3.1 and 3.2 during or with respect to the
fiscal years ending December 31, 1997 and 1998; provided, however, if the
aggregate amounts so payable under Section 3.2 with respect to the 1995,
1996, 1997 and
-3-
<PAGE>
1998 fiscal years is less than an aggregate of $1,000,000, Nassif shall be
entitled to an additional amount equal to the difference between $1,000,000
and the amounts otherwise paid to Nassif for such years; and
(d) If the original term of this Agreement is extended for one or two
additional 12-month periods and if Nassif dies during such extended period
or periods, Nassif shall be entitled to all amounts payable under Sections
3.1 and 3.2 during the extended Term of this Agreement.
Section 3.4. Rights to Acquire PHC Stock. If PHC determines to issue
common stock in an initial public offering, PHC shall offer to Nassif
(concurrently with any offer to other executives, directors or consultants) the
right, at the election of Nassif, to (a) acquire shares of PHC common stock at a
price equal to 85% of the initial public offering price, or (b) receive options
to acquire shares of common stock of PHC at 100% or the initial public offering
price, which options would be for a term of 10 years, would vest over a four-
year period and would have such other terms and conditions as set forth in PHC's
option plan. The number of shares of PHC common stock under either (a) or (b)
above would be equal to the lesser of 50,000 shares or 1% of the outstanding
shares of common stock of PHC immediately after the initial public offering.
Section 3.5. Breach of Non-Competition Agreement. Concurrently with
the execution of this Agreement, Nassif is entering into a Non-Competition
Agreement with the Company. Notwithstanding any other provisions of this
Agreement, if Nassif breaches any of Nassif's obligations under the Non-
Competition Agreement and such breach is not cured within 15 days after written
notice from the Company, Nassif shall not thereafter be entitled to any
compensation or payments under this Agreement and this Agreement shall
terminate.
SECTION 4
---------
Miscellaneous
-------------
Section 4.1. Benefit and Burden. Nassif acknowledges that the duties
of Nassif are unique and personal; accordingly, Nassif may not delegate any of
Nassif's duties or obligations under this Agreement. The rights and obligations
of the Company under this Agreement shall inure to the benefit of, and be
binding upon, the successors and assigns of the Company. The rights of Nassif
under this Agreement shall inure to the benefit of the heirs and legal
representatives of Nassif.
Section 4.2. Nature of Relationship. The relationship of Nassif to
PHC hereunder shall be that of an independent contractor, and not as an
employee, a partner or joint venturer of the Company for any purpose. Nassif
shall not have any right to make contracts or commitments for or on behalf of
the Company, or to act in any manner as a representative of the Company, without
obtaining the written consent of the Chief Executive Officer of BWI.
-4-
<PAGE>
Section 4.3. Notices. Any notices to be given hereunder shall be deemed
sufficiently given when in writing and when (a) actually served on the party to
be notified, or (b) deposited in a receptacle of the United States mail,
certified or registered, postage prepaid, addressed appropriately as follows:
If to Company at:
Bindley Western Industries, Inc.
10333 N. Meridian Street
Indianapolis, IN 46290
Attention: Executive Vice President and
General Counsel
If to Nassif at:
1129 Brownshire Court
Longwood, FL 32779
Such addresses may be changed by any party by written advice given pursuant to
this Section.
Section 4.4. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.
Section 4.5. No Waiver. No failure on the part of any party at any time to
require the performance by any other party of any term of this Agreement shall
be taken or held to be a waiver of such term or in any way affect such parties'
right to enforce such term, and no waiver on the part of any party of any term
of this Agreement shall be deemed a continuing waiver or a waiver of any other
term hereof or the breach thereof.
Section 4.6. Modifications. This Agreement may not be amended, modified, or
supplemented without the written agreement of the parties at the time of such
amendment, modification, or supplement.
Section 4.7. Captions. The captions in this Agreement are for convenience
and identification purposes only, are not an integral part of this Agreement,
and are not to be considered in the interpretation of any part hereof.
Section 4.8. Arbitration and Counsel Fees.
(a) Notwithstanding any other provision of this Agreement to the
contrary, the parties hereto agree that any and all disputes with respect
to the provisions of this Agreement, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association by an arbitrator appointed pursuant to such Rules,
and judgment upon the award
-5-
<PAGE>
rendered by such arbitrator may be entered in any court having jurisdiction.
Such arbitrator shall not have the authority or power to reform, alter, amend or
modify any of the terms or conditions of this Agreement or to enter an award
which reforms, alters, amends or modifies such terms or conditions. The decision
of such arbitrator shall be in writing, setting forth both findings of fact and
of law, and shall be final and conclusive upon the parties; and no suit at law
or in equity based on such dispute, controversy or claim shall be instituted by
any party hereto, other than to enforce the award of such arbitrator. Such
arbitration shall be conducted in Orlando, Florida, or in such other location as
the parties thereto may agree. The arbitrator shall be an existing or former
judge of a court of record within the United States or an attorney in good
standing admitted to practice for a period of at least ten (10) years within the
United States. No arbitration shall involve parties other than the parties
hereto and their respective successors and assigns or be in any respect binding
with respect to any such other parties.
(b) The parties to any arbitration arising hereunder shall have the right
to take depositions and to obtain discovery regarding the subject matter of the
arbitration and to use and exercise all of the same rights, remedies and
procedures, and be subject to all of the same duties, liabilities, and
obligations in the arbitration with respect to the subject matter thereof, as if
the subject matter of the arbitration were pending in a civil action before a
court of highest jurisdiction in the state where the arbitration is held. The
arbitrator shall have the power to enforce said discovery by imposition of the
same terms, conditions, consequences, liabilities, sanctions and penalties as
can be or may be imposed in like circumstances in a civil action by a court of
highest jurisdiction of the state in which the arbitration is held, except the
power to order the arrest or imprisonment of a person.
(c) In the event of a dispute, the prevailing party shall be entitled to be
reimbursed by the nonprevailing party or parties for such prevailing party's
reasonable attorney's fees and other expenses, including mediation and
arbitration fees.
(d) The parties agree that as a precondition to the commencement of
arbitration by any party, the dispute must be submitted to non-binding mediation
with a mediator agreed to by both parties. If the parties cannot agree on a
mediator within 14 days from the date of a request for mediation, the dispute
will be mediated by a person selected in accordance with the rules of the
American Arbitration Association.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
BINDLEY WESTERN INDUSTRIES, INC.
By: /s/ Michael D. McCormick
---------------------------------------------
EVP and General Counsel
PRIORITY HEALTHCARE CORPORATION
By: /s/ Michael D. McCormick
---------------------------------------------
EVP and General Counsel
/s/ Martin A. Nassif
---------------------------------------------
Martin A. Nassif
-7-
<PAGE>
EXHIBIT 11
Computation of Pro Forma Earnings Per Share
Year ended December 31, 1996 and six months ended June 30, 1997
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1997
-----------------------------------
<S> <C> <C>
(In thousands, except share data)
Pro forma net Earnings $ 4,065 $ 3,034
Shares
Weighted average number of Class A
Common Shares outstanding 10,214,286 10,214,286
Assumed number of Class B Common Shares issued
to repay payable to parent (1) 506,931 918,812
Assumed number of Class B Common Shares issued
to fund dividend in excess of earnings (1) 19,248 19,248
----------- -----------
Adjusted weighted average number of
Common Shares outstanding 10,740,465 11,152,346
--------------------------
Pro forma earnings per share $ 0.38 $ 0.27
==========================
</TABLE>
(1) See Note 5 to Unaudited Pro Forma Consolidated Financial Data.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation DBA
------------------ ---------------------- ---
<S> <C> <C>
IV-1, Inc. Florida Priority Pharmacy Services
IV-One Services, Inc. Florida Priority Pharmacy Services
National Pharmacy Providers, Inc. Florida Priority Pharmacy Services
</TABLE>
<PAGE>
EXHIBIT 23-A
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 28, 1997, except as
to Note 1, which is as of August 25, 1997, relating to the consolidated
financial statements of Priority Healthcare Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Consolidated Financial Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Consolidated Financial Data."
Price Waterhouse LLP
Indianapolis, Indiana
August 25, 1997
<PAGE>
EXHIBIT 23-C
RICHARD W. ROBERSON
August 26, 1997
Board of Directors
Priority Healthcare Corporation
10333 North Meridian Street
Indianapolis, IN 46290
Gentlemen:
I have reviewed the Registration Statement on Form S-1 relating to the
Initial Public Offering of Class B Common Stock of Priority Healthcare
Corporation and hereby consent to be named as a director of Priority Healthcare
Corporation upon completion of its Initial Public Offering and to the references
to me under the heading "Management" in such Registration Statement.
Very truly yours,
/s/ Richard W. Roberson
Richard W. Roberson
<PAGE>
EXHIBIT 23-D
REBECCA M. SHANAHAN
August 26, 1997
Board of Directors
Priority Healthcare Corporation
10333 North Meridian Street
Indianapolis, IN 46290
Gentlemen:
I have reviewed the Registration Statement on Form S-1 relating to the
Initial Public Offering of Class B Common Stock of Priority Healthcare
Corporation and hereby consent to be named as a director of Priority Healthcare
Corporation upon completion of its Initial Public Offering and to the references
to me under the heading "Management" in such Registration Statement.
Very truly yours,
/s/ Rebecca M. Shanahan
Rebecca M. Shanahan
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 1,656 185
<SECURITIES> 0 0
<RECEIVABLES> 29,541 40,178
<ALLOWANCES> 815 863
<INVENTORY> 16,132 18,174
<CURRENT-ASSETS> 47,932 59,201
<PP&E> 2,138 2,424
<DEPRECIATION> (804) (1,115)
<TOTAL-ASSETS> 57,220 68,118
<CURRENT-LIABILITIES> 27,140 35,179
<BONDS> 560 6,365
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 29,400 26,421
<TOTAL-LIABILITY-AND-EQUITY> 57,220 68,118
<SALES> 158,247 108,597
<TOTAL-REVENUES> 158,267 108,597
<CGS> 141,074 97,449
<TOTAL-COSTS> 150,963 103,563
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 89 81
<INTEREST-EXPENSE> 437 498
<INCOME-PRETAX> 7,284 5,034
<INCOME-TAX> 2,915 2,013
<INCOME-CONTINUING> 4,369 3,021
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,369 3,021
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
