FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 000-23249
PRIORITY HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1927379
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
285 West Central Parkway, Suite 1704
Altamonte Springs, Florida 32714
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (407) 869-7001
No Change
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
-
As of November 1, 1998, the number of shares outstanding of each of the issuer's
classes of common stock were as follows:
Class A Common Stock - 10,214,286
Class B Common Stock - 2,301,476
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(000's omitted except share data)
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Nine-month period ended Three-month period ended
September 30, September 30,
1998 1997 1998 1997
-----------------------------------------------------------------------
Net sales......................................... $ 193,776 $ 169,300 $ 71,723 $ 60,703
Cost of products sold............................. 171,977 152,012 63,670 54,760
---------- ----------- ---------- ------
Gross profit...................................... 21,799 17,288 8,053 5,943
Selling, general and administrative expense....... 9,887 8,017 3,672 2,775
Depreciation and amortization..................... 933 862 311 291
--------- ----------- --------- -------
Earnings from operations.......................... 10,979 8,409 4,070 2,877
Interest (income) expense, net.................... (640) 832 (334) 334
--------- ----------- --------- -------
Earnings before income taxes...................... 11,619 7,577 4,404 2,543
Provision for income taxes........................ 4,619 3,031 1,751 1,018
--------- ----------- --------- -------
Net earnings...................................... $ 7,000 $ 4,546 $ 2,653 $ 1,525
======== ======== ======== =======
Earnings per share:
Basic $.56 $.45 $.21 $.15
Diluted................................... $.56 $.45 $.21 $.15
Weighted average shares outstanding:
Basic 12,515,208 10,214,286 12,515,208 10,214,286
Diluted................................... 12,578,943 10,214,286 12,598,436 10,214,286
</TABLE>
(See accompanying notes to consolidated financial statements.)
<PAGE>
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's omitted except share data)
(unaudited)
<TABLE>
<S> <C> <C>
September 30, December 31,
1998 1997
------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents............................................ $ 2,636 $ 9,484
Accounts receivable, less allowance for doubtful accounts of
$479 for 1998 and $402 for 1997............................... 49,240 43,643
Receivable from parent............................................. 20,365 5,290
Finished goods inventory.............................................. 20,246 25,082
Deferred income taxes................................................. 869 869
Other current assets.................................................. 174 166
--------- ---------
93,530 84,534
--------- ---------
Fixed assets, at cost...................................................... 3,090 2,492
Less: accumulated depreciation........................................ 1,354 997
--------- --------
1,736 1,495
--------- --------
Intangibles, net 6,723 7,273
--------- --------
Total assets................................................ $ 101,989 $ 93,302
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable...................................................... $ 32,391 $ 24,754
Other current liabilities............................................. 2,614 2,292
--------- --------
35,005 27,046
--------- --------
Long-term obligations...................................................... -- 272
--------- --------
Deferred income taxes...................................................... 101 101
--------- --------
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
Class B, $0.01 par value, 40,000,000 shares
authorized, ................. 23 23
2,300,922 issued and outstanding......................................
Additional paid in capital....................................... 52,907 52,907
Retained earnings................................................ 13,851 6,851
--------- ----------
Total shareholders' equity.................................. 66,883 59,883
--------- ----------
Commitments and contingencies.............................................. -- --
--------- ----------
Total liabilities and shareholders' equity.................. $ 101,989 $ 93,302
========= ========
(See accompanying notes to consolidated financial statements.)
</TABLE>
<PAGE>
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
(unaudited)
Nine-month period ended
September 30,
1998 1997
-------------------------------------
Cash flow from operating activities:
Net income............................ $ 7,000 $ 4,546
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization.......... 933 862
Loss on disposal of fixed assets.... -- 126
Deferred income taxes.................. -- 21
Change in assets and liabilities:
Accounts receivable.................... (5,597) (12,005)
Finished goods inventory............... 4,836 (1,101)
Trade accounts payable................. 7,637 1,228
Other current assets and liabilities... 314 126
------- --------
Net cash provided (used) by operating
activities..................... 15,123 (6,197)
------- -------
Cash flow from investing activities:
Purchase of fixed assets............... (624) (474)
Acquisition of business................ -- (333)
------- -------
Net cash used by investing activities.... (624) (807)
------- -------
Cash flow from financing activities:
Net change in amounts due to /from parent..... (15,075) 5,811
Repayment of subordinated note payable to parent (6,000) --
Payments on long-term obligations............. (272) (250)
-------- -------
Net cash provided (used) by financing
activities............................ (21,347) 5,561
-------- -------
Net decrease in cash............................... (6,848) (1,443)
Cash and cash equivalents at beginning of period... 9,484 1,656
-------- ------
Cash and cash equivalents at end of period.. $ 2,636 $ 213
======== ======
Supplemental cash flow information:
Interest paid.............................. $ 351 $ 832
Income taxes paid.......................... $ 4,619 $ 3,010
(See accompanying notes to consolidated financial statements.)
<PAGE>
PRIORITY HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The accompanying consolidated financial statements have been prepared by
the Company without audit. Certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
financial statements for the three and nine month periods ended September
30, 1998 and 1997 include all necessary adjustments for fair presentation.
Results for any interim period may not be indicative of the results of the
entire year.
2. The subordinated note issued to Bindley Western Industries, Inc. ("BWI") on
March 31, 1997 and due March 31, 1999 was repaid, including accrued
interest, on September 30, 1998.
3. 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, Ltd., Inc. ("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. The Company does not expect the Amgen litigation to be material to
the Company's results of operations, financial condition or cash flows;
however, no assurance can be given that this litigation will not have a
material adverse effect on the Company. In addition, Amgen is the Company's
largest supplier. Consequently, this litigation presents the risk of
adversely affecting the Company's business relationship with Amgen, which
could have a material adverse effect on the Company.
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 Food and Drug Administration
(the "FDA"), accompanied by an inspector from the State of Florida Board of
Pharmacy, inspected the Company's pharmacy in Altamonte Springs, Florida.
At the end of the inspection, the FDA investigator issued an FDA Form-483,
which is the form used by FDA investigators to identify any observed or
suspected noncompliance with the laws administered by the agency. The FDA
Form-483 identified the facility as a pharmacy/repackager and listed three
observations related to certain requirements that the FDA typically imposes
on manufacturers of sterile products. The Company advised the FDA in
December 1995 that the Company believes it is not, within the statutory or
regulatory meaning of these terms, a repackager or a manufacturer. A second
inspection of the same facility occurred on June 26, 1997, in which the FDA
investigator was again accompanied by Florida pharmacy authorities. The FDA
investigator issued a substantially identical FDA Form-483 at the end of
that inspection. The Florida State Board of Pharmacy did not issue any
deficiencies regarding the operations of the Altamonte Springs pharmacy in
either of these inspections.
On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug
manufacturing regulated by the FDA. The Company's response to the FDA in
December 1995 cited this CPG and explained the Company's contention that,
according to the FDA's own criteria, the facility is a pharmacy properly
regulated under state and local laws.
On November 21, 1997, the President signed into law the FDA Modernization
Act of 1997, which, among a number of other items, adds a new section on
pharmacy compounding to the Federal Food, Drug and Cosmetic Act. In this
provision, Congress clarified a gray area by explicitly identifying the
circumstances in which pharmacies may compound drugs without the need for
filing a New Drug Application, observing the FDA's Good Manufacturing
Practice regulations or complying with certain other specific Federal Food,
Drug and Cosmetic Act requirements. Congress provided that the term
"compounding" does not include mixing or reconstituting that is done in
accordance with directions contained in approved labeling provided by the
manufacturer of the product. The Company believes that, as a result of this
amendment, so long as it follows the manufacturer's approved labeling in
each case, and prepares drugs only for identified individual patients using
licensed practitioners, the Company's activities should be regulated by the
Florida State Board of Pharmacy and not be subjected by the FDA to a full
New Drug Application requirement demonstrating the basic safety and
effectiveness of the drugs.
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, it would be subject to additional regulatory requirements. If
for some reason the FDA or other legal authorities 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.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward Looking Statements.
Certain statements included in this quarterly report, which are not
historical facts, are forward looking statements. Such forward looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward looking statements
represent the Company's expectations or beliefs and involve certain risks
and uncertainties including, but not limited to, changes in interest rates,
competitive pressures, changes in customer mix, changes in third party
reimbursement rates, financial stability of major customers, investment
procurement opportunities, changes in government regulations or the
interpretation thereof and the ability of the Company and the entities with
which it transacts business to modify or redesign their computer systems to
work properly in the year 2000, which could cause actual results to differ
from those in the forward looking statements. The forward looking
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.
Results of Operations.
Net sales increased to $193.8 million in the first nine months of 1998 from
$169.3 million in the first nine months of 1997, an increase of 14%. Net
sales increased to $71.7 million in the three months ended September 30,
1998, from $60.7 million in the three months ended September 30, 1997, an
increase of 18%. The growth reflected primarily the addition of new
customers, new product introductions, the new Rebetron treatment for
Hepatitis-C, additional sales to existing customers and, to a lesser
extent, the acquisition of Grove Way Pharmacy and inflationary price
increases.
Gross margin increased to $21.8 million in the first nine months of 1998
from $17.3 million in the first nine months of 1997, an increase of 26%.
Gross margin as a percentage of net sales increased in the first nine
months of 1998 to 11.2% from 10.2% in the first nine months of 1997. Gross
margin increased to $8.1 million in the three months ended September 30,
1998, from $5.9 million in the three months ended September 30, 1997, an
increase of 37%. Gross margin as a percentage of net sales increased in the
three months ended September 30, 1998, to 11.3% from 9.7% in the three
months ended September 30, 1997. The increase in gross margin reflected
increased sales by both Priority Distribution and Priority Pharmacy. The
increase in gross margin as a percentage of net sales was primarily
attributed to the change in sales mix. Priority Distribution generated more
sales of higher gross margin items; and Priority Pharmacy experienced
increased sales, which generate higher gross margins than Priority
Distribution. Competition continues to exert pressure on margins,
particularly those of Priority Distribution.
Selling, general and administrative ("SGA") expense increased to $9.9
million in the first nine months of 1998 from $8.0 million in the first
nine months of 1997, an increase of 24%. SGA expense as a percentage of net
sales increased to 5.1% in the first nine months of 1998 from 4.7% in the
first nine months of 1997. SGA expense increased to $3.7 million in the
three months ended September 30, 1998, from $2.8 million in the three
months ended September 30, 1997, an increase of 32%. SGA expense as a
percentage of net sales increased in the three months ended September 30,
1998, to 5.2% from 4.6% in the three months ended September 30, 1997. The
increase in SGA expense as a percentage of net sales resulted from
incurring expenses associated with the Company's Columbus, Ohio facility,
which opened in November, 1997, training costs from hiring additional sales
personnel at Priority Pharmacy, and increased overall costs of being a
publicly traded company. Management continually monitors SGA expense and
remains focused on controlling these increases through improved technology
and efficient asset management.
Depreciation and amortization ("D&A") increased to $933,000 in the first
nine months of 1998 from $862,000 in the first nine months of 1997, an
increase of 8%. D&A increased to $311,000 in the three months ended
September 30, 1998, from $291,000 in the three months ended September 30,
1997, an increase of 7%. The increase in D&A was primarily the result of
depreciation of new equipment, particularly in management information
systems.
Interest income, net, equaled $640,000 in the first nine months of 1998 as
opposed to interest expense, net, which equaled $832,000 in the first nine
months of 1997. Interest income, net, equaled $334,000 in the three months
ended September 30, 1998 as opposed to interest expense, net, which equaled
$334,000 in the three months ended September 30, 1997. In the first nine
months of 1998, interest income of $276,000 and $715,000 was primarily
related to amounts earned by investing funds received from the October,
1997 initial public offering of the Company's Class B Common Stock (the
"Offering") in overnight repurchase agreements with a major financial
institution and loaning funds to BWI, respectively. In the three months
ended September 30, 1998, interest income of $90,000 and $359,000 was
primarily related to amounts earned by investing funds received from the
Offering in overnight repurchase agreements with a major financial
institution and loaning funds to BWI, respectively. This interest income
was partially offset by interest expense of $327,000 in the first nine
months of 1998 and $109,000 in the three months ended September 30, 1998,
for interest due on the subordinated note issued to BWI on March 31, 1997.
The subordinated note issued to BWI was repaid on September 30, 1998. The
interest income on the loans to BWI was calculated by applying BWI's
average incremental borrowing rate to the average outstanding loans. During
the first nine months of 1998 the average outstanding loans to BWI were
$14.9 million. During the three months ended September 30, 1998, the
average outstanding loans to BWI were $22.4 million. During the first nine
months of 1997 and in the three months ended September 30, 1997, the
interest expense was primarily related to borrowings from BWI. During the
first nine months of 1997 the average outstanding borrowings from BWI were
$12.4 million. During the three months ended September 30, 1997, the
average outstanding borrowings from BWI were $14.2 million. The interest
expense on the borrowings was calculated by applying BWI's average
incremental borrowing rate to the average outstanding borrowings. BWI's
average incremental borrowing rate was 6.4 % in both the first nine months
of 1998 and 1997 and the three months ended September 30, 1998 and 1997.
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 provisions for income taxes represented
approximately 40% of earnings before taxes for both the first nine months
of 1998 and 1997 and the three months ended September 30, 1998 and 1997.
Liquidity - Capital Resources.
Net cash provided by operating activities. The Company's operations
generated $15.1 million in cash during the first nine months of 1998.
Accounts receivable increased $5.6 million during the first nine months of
1998, which was a direct result of increased sales. Inventory decreased
$4.8 million during the first nine months of 1998, due to the liquidation
of inventory purchased to take advantage of the 1997 year end buy-in
opportunities and the Company's concerted effort to closely monitor
inventory and maintain it at an optimal level. Trade accounts payable
increased $7.6 million due to the Company's payment terms with its major
vendors, particularly those of Priority Pharmacy. Depreciation and
amortization totaled $933,000 during the first nine months of 1998.
Net cash used by investing activities. Capital expenditures during the
first nine months of 1998 totaled $624,000. The Company expects that
capital expenditures during the last three months of 1998 will be
approximately $150,000 and during 1999 will be approximately $800,000. The
Company anticipates that these expenditures will relate primarily to the
purchase of computer hardware and software and telecommunications
equipment.
Net cash used by financing activities. During the first nine months of
1998, the Company's receivable from BWI increased by $15.1 million,
primarily due to loaning BWI excess funds available. Also, on September 30,
1998 the Company repaid the $6.0 million subordinated note payable to BWI.
The Company's principal capital requirements have been to fund working
capital needs to support internal growth, for acquisitions and for capital
expenditures. The Company's principal working capital needs are for
inventory and accounts receivable. Management controls inventory levels in
order to minimize carrying costs and maximize purchasing opportunities. The
Company sells inventory to its customers on various payment terms. This
requires significant working capital to finance inventory purchases and
entails accounts receivable exposure in the event any of its major
customers encounter financial difficulties. Although the Company monitors
closely the creditworthiness of its major customers, there can be no
assurance that the Company will not incur some collection loss on major
customer accounts receivable in the future.
Historically, the Company has financed its operations through capital
contributions and advances from BWI. These advances were repaid with a
portion of the proceeds of the Company's Offering. In connection with the
Offering, BWI has made available to the Company a $30.0 million line of
credit, which the Company may utilize until December 31, 1998. Outstanding
principal amounts under the line will bear interest, payable quarterly, at
a rate equal to the rate then paid by BWI under its primary line of credit
agreement.
Management believes that the net proceeds from the 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.
Year 2000 Compliance.
The year 2000 will pose a unique set of challenges to those industries
reliant on information technology. As a result of the methods employed by
early programmers, many software applications and operational programs may
be unable to distinguish the year 2000 from the year 1900. If not
effectively addressed, this problem could result in the production of
inaccurate data, or, in the worst cases, the inability of the systems to
continue to function altogether. The Company and other companies in the
same business are vulnerable to the dependence on distribution and
communications systems.
During the past two years, the Company has replaced its hardware and
network systems for reasons other than year 2000 compliance, however such
new hardware and network systems have been successfully tested for year
2000 compliance. The Company spent approximately $280,000 for such systems.
In May 1998 the Company initiated the process of preparing its software
applications to make them year 2000 compliant. The Company anticipates that
the upgrades of two of the three main software packages which it uses will
be completed by the end of 1998 and will have been tested for year 2000
compliance by then. The Company expects that the third software package
will be upgraded and year 2000 compliant by the end of the first quarter of
1999. Management estimates the total cumulative costs relating to the
upgrade of its software programs will be $75,000, of which approximately
$45,000 had been incurred as of September 30, 1998. Funds for such
expenditures have been and are expected to be generated from operations.
Management believes that the expenditures required to bring the Company's
systems into compliance will not have a materially adverse effect on the
Company's performance. However, the year 2000 problem is pervasive and
complex and can potentially affect any computer process. Accordingly, no
assurance can be given that the year 2000 compliance can be achieved
without additional unanticipated expenditures and uncertainties that might
affect future financial results.
Moreover, to operate its business, the Company relies on governmental
agencies, utility companies, telecommunications companies, shipping
companies, suppliers and other third party service providers over which it
can assert little control. The Company's ability to conduct its business is
dependent upon the ability of these third parties to avoid year 2000
related disruptions. The Company is in the process of contacting its third
party service providers about their year 2000 readiness, but the Company
has not yet received any assurances from any such third parties about their
year 2000 compliance. If the Company's key third party service providers do
not adequately address their year 2000 issues, the Company's business may
be materially affected which could result in a materially adverse effect on
the Company's results of operations and financial condition.
The Company has not to date developed any contingency plans, as such plans
will depend on the responses from its third party service providers, in the
event the Company or any key third party providers should fail to become
year 2000 compliant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note 3 to the Notes to Consolidated
Financial Statements (unaudited) set forth elsewhere in this Report is
incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds.
(c) Sales of Unregistered Securities
The following securities of the Company that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"), were
sold during the quarter ended September 30, 1998: On September 15, 1998,
the Company granted options for an aggregate of 123,880 shares of its Class
B Common Stock to certain of its employees pursuant to the Company's Broad
Based Stock Option Plan, which options have an exercise price equal to the
closing price of the Class B Common Stock on September 15, 1998. This
transaction is exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof.
(d) Use of Proceeds
The Company's Registration Statement on Form S-1 (File No. 333-34463)
was declared effective on October 23, 1997. There has been no change in the
Use of Proceeds since that reported in the Company's Form 10-Q for the
quarter ended March 31, 1998.
Item 5. Other Information.
On October 27, 1998, BWI announced that its Board of Directors
established record and distribution dates of December 15, 1998 and December
31, 1998, respectively, for the spin-off of the Company. The spin-off will
be accomplished by a pro rata distribution to BWI's common shareholders of
the 10,214,286 shares of the Company's Class A Common Stock owned by BWI.
It is estimated that BWI's shareholders will receive approximately 0.46
shares of the Company's Class A Common Stock for each share of BWI common
stock owned as of the record date. The actual ratio will be calculated by
dividing 10,214,286 by the total number of BWI common shares outstanding as
of December 15, 1998. The spin-off of the Company's Class A Common Stock by
BWI is subject to finalizing certain regulatory approvals and continued
favorable market conditions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10-C(ii) *First Amendment to the 1997 Stock Option and
Incentive Plan of the Registrant (filed herewith)
Exhibit 10-P *Broad Based Stock Option Plan of the
Registrant (incorporated herein by reference
from Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8
(Registration No. 333-65927))
Exhibit 27 Financial Data Schedule (filed herewith)
* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
November 12, 1998 PRIORITY HEALTHCARE CORPORATION
BY: /s/ DONALD J. PERFETTO
Donald J. Perfetto
Vice President and
Chief Financial Officer
Exhibit 10-C(ii)
FIRST AMENDMENT TO PRIORITY HEALTHCARE CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
WHEREAS, the Board of Directors of Priority Healthcare Corporation
(the "Company") adopted the Priority Healthcare Corporation 1997
Stock Option and Incentive Plan (the "Plan") on August 25, 1997;
and
WHEREAS, the Plan was approved by the then sole shareholder of the
Company on August 25, 1997; and
WHEREAS, the Plan was approved by the shareholders of the Company
on May 21, 1998; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 8 of the Plan is hereby amended to read in its entirety as follows:
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, and the Participant shall (unless the
Committee in its sole discretion waives this requirement) repay to the
Company within 10 days the amount of any gain realized by the
Participant upon any exercise within the 90-day period prior to the
cessation of Continuous Service of any Options granted to such
Participant on or after September 15, 1998.
(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.
(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.
2. This First Amendment to the Plan shall become effective
upon its adoption by the Board of Directors of the Company.
Adopted by the Board of Directors of Priority
Healthcare Corporation as of September 15, 1998
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