<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PRIORITY HEALTHCARE CORPORATION
_______________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
_______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
___________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
___________________________________________________________________
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___________________________________________________________________
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________________________
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_______________________________________________________________
4) Date Filed:
_______________________________________________________________
<PAGE> 2
PRIORITY HEALTHCARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
The annual meeting of shareholders of Priority Healthcare Corporation will
be held at the Conference Center, 10333 North Meridian Street, Indianapolis,
Indiana, on Thursday, May 21, 1998, at 2:00 p.m., Indianapolis time, for the
following purposes:
(1) To elect two directors to serve until the 2001 annual meeting of
shareholders and until their successors are elected and have qualified;
(2) To approve or disapprove the appointment of Price Waterhouse LLP as
auditors for the Company for 1998;
(3) To approve the adoption of the Company's 1997 Stock Option and
Incentive Plan; and
(4) To transact such other business as may properly come before the
meeting.
All shareholders of record at the close of business on March 20, 1998 will
be eligible to vote.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WHETHER OR
NOT YOU EXPECT TO BE PRESENT, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY FORM IN THE ACCOMPANYING ADDRESSED, POSTAGE-PREPAID ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
Michael D. McCormick, Secretary
<PAGE> 3
PRIORITY HEALTHCARE CORPORATION
285 WEST CENTRAL PARKWAY
ALTAMONTE SPRINGS, FLORIDA 32714
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
This statement is being furnished to shareholders on or about March 26,
1998 in connection with a solicitation by the Board of Directors of Priority
Healthcare Corporation (the "Company") of proxies to be voted at the annual
meeting of shareholders to be held at 2:00 p.m., Indianapolis time, Thursday,
May 21, 1998, at the Conference Center, 10333 North Meridian Street,
Indianapolis, Indiana, for the purposes set forth in the accompanying Notice.
The holders of record of shares of the Company's Class A Common Stock,
$0.01 par value per share ("Class A Common Stock"), and Class B Common Stock,
$0.01 par value per share ("Class B Common Stock," together with the Class A
Common Stock, "Common Stock"), outstanding at the close of business on March 20,
1998, the record date for the meeting, are entitled to vote at the meeting. On
that date, there were 10,214,286 shares of Class A Common Stock and 2,300,922
shares of Class B Common Stock outstanding and entitled to vote at the meeting.
On all matters, including the election of directors, each shareholder will have
three votes for each share of Class A Common Stock held and one vote for each
share of Class B Common Stock held. Accordingly, the Common Stock outstanding on
the record date represents an aggregate of 32,943,780 votes.
If the enclosed form of proxy is executed and returned, it may nevertheless
be revoked at any time insofar as it has not been exercised. If a shareholder
executes more than one proxy, the proxy having the latest date will revoke any
earlier proxies. A shareholder attending the meeting will be given the
opportunity to revoke his or her proxy and vote in person.
Unless revoked, a proxy will be voted at the meeting in accordance with the
instructions of the shareholder in the proxy, or, if no instructions are given,
for the election as directors of all nominees listed under Proposal 1 and for
Proposals 2 and 3. Election of directors will be determined by the vote of the
holders of a plurality of the shares voting on such election. Approval of
Proposals 2 and 3 will be subject to the vote of the holders of a greater number
of shares favoring approval than those opposing it. A proxy may indicate that
all or a portion of the shares represented by such proxy are not being voted
with respect to a specific proposal. This could occur, for example, when a
broker is not permitted to vote shares held in street name on certain proposals
in the absence of instructions from the beneficial owner. Shares that are not
voted with respect to a specific proposal will be considered as not present and
entitled to vote on such proposal, even though such shares will be considered
present for purposes of determining a quorum and voting on other proposals.
Abstentions on a specific proposal will be considered as present, but not as
voting in favor of such proposal. As a result, with respect to all of the
proposals, neither broker non-votes nor abstentions will affect the
determination of whether such proposals will be approved.
The Board of Directors knows of no matters, other than those described in
the attached Notice of Annual Meeting, which are to be brought before the
meeting. If other matters properly come before the meeting, it is the intention
of the persons named in the accompanying form of proxy to vote such proxy in
accordance with their judgment on such matters.
The cost of the solicitation of proxies will be borne by the Company.
Bindley Western Industries, Inc., an Indiana corporation ("BWI"),
beneficially owns all of the outstanding shares of Class A Common Stock, and
therefore it holds 81.6% of the outstanding Common Stock and 93.0% of the voting
power of the outstanding Common Stock. Accordingly, BWI has sufficient voting
power
<PAGE> 4
to elect all nominees for director and control the outcome of any other matters
that properly come before the meeting. The Company is not soliciting proxies in
respect of the Class A Common Stock, although such shares are expected to be
represented at the meeting.
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors of the Company consists of six directors divided
into three classes. Each class contains two directors, and the term of one class
of directors expires each year. Generally, each director serves until the annual
meeting of shareholders held in the year that is three years after such
director's election and until such director's successor is elected and has
qualified.
Two directors are to be elected at the meeting, each to hold office for a
term to expire at the 2001 annual meeting of shareholders and until his
successor is elected and has qualified. It is the intention of the persons named
in the accompanying form of proxy to vote such proxy for the election to the
Board of Directors of Messrs. Michael D. McCormick and Thomas J. Salentine. Each
of the nominees for director is presently a director. If any such person is
unable or unwilling to accept nomination or election, it is the intention of the
persons named in the accompanying form of proxy to nominate such other person as
director as they may in their discretion determine, in which event the shares
will be voted for such other person.
Unless otherwise indicated in a footnote to the following table, the
principal occupation of each director or nominee has been the same for the last
five years, and such person possesses sole voting and investment power with
respect to the shares of Class B Common Stock indicated as beneficially owned by
such nominee. None of the Company's directors beneficially owns any shares of
Class A Common Stock. The beneficial ownership of BWI common stock by the
Company's directors and nominees is set forth under "Management Ownership of BWI
Common Stock." There is no family relationship between any of the directors or
executive officers of the Company.
<TABLE>
<CAPTION>
Class B
Shares
Beneficially Percent
Present Owned on of Class
Principal Director January 31, (if more
Name Age Occupation Since 1998 than 1%)
- ----------------------- --- ----------------------------- --------- ------------------ ------------
NOMINEES FOR DIRECTOR
(Nominees for three-year term to expire at the annual meeting of shareholders in 2001)
<S> <C> <C> <C> <C> <C>
Michael D. McCormick 50 Secretary of the Company; 1994 5,000 ---
Executive Vice President,
General Counsel and
Secretary of BWI (1)
Thomas J. Salentine 58 Executive Vice President 1994 50,000 2.2%
and Chief Financial Officer
of BWI (2)
</TABLE>
-2-
<PAGE> 5
<TABLE>
<CAPTION>
Class B
Shares
Beneficially Percent
Present Owned on of Class
Principal Director January 31, (if more
Name Age Occupation Since 1998 than 1%)
- ----------------------- --- ----------------------------- --------- ------------------ ------------
DIRECTORS CONTINUING IN OFFICE
(Term expiring at the annual meeting of shareholders in 1999)
<S> <C> <C> <C> <C> <C>
Robert L. Myers 52 President and Chief 1997 25,500 (3) 1.1%
Executive Officer
of the Company (4)
Richard W. Roberson 51 President of Sand Dollar 1997 15,461 ---
Partners, Inc. (investment
and consulting firm) (5)
(Term expiring at the annual meeting of shareholders in 2000)
William E. Bindley 57 Chairman of the Board of 1994 5,000 ---
the Company; Chairman,
Chief Executive Officer and
President of BWI (6)
Rebecca M. Shanahan 44 Vice President, Managed 1997 1,261 ---
Care of the University of
Chicago Hospitals and
Health Systems (7)
</TABLE>
- ----------
(1) Mr. McCormick also serves on the Board of Directors of BWI.
(2) Mr. Salentine also serves on the Board of Directors of BWI.
(3) Does not include shares subject to stock options which are not
exercisable within 60 days. Includes 500 shares held by Mr. Myers' daughter.
(4) Mr. 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 health care 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
is a registered pharmacist.
(5) From March 1993 to September 1996, Mr. Roberson served as president and
chief executive officer of Visionworks, Inc., a retail superstore optical
chain. 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.
(6) Mr. Bindley also serves on the Board of Directors of BWI and of 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.
(7) From December 1996 to September 1997, Ms. Shanahan 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES LISTED ABOVE.
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<PAGE> 6
MEETINGS AND COMMITTEES
During 1997, the Board of Directors of the Company held one meeting. During
the period in 1997 for which he or she served as a director, no director
attended fewer than 75% of the total meetings of the Board of Directors and each
committee on which he or she served. The Board of Directors does not have a
nominating committee. The Board of Directors has a Compensation Committee, which
consists of Mr. Roberson and Ms. Shanahan. The primary functions of the
Compensation Committee are to consider and recommend overall compensation
programs, to review and approve compensation payable to management and to
administer all executive compensation and stock option plans of the Company. The
Compensation Committee met one time during 1997.
The Board of Directors of the Company has an Audit, Ethics and Compliance
Committee (the "Audit Committee"), the current members of which are Mr. Roberson
and Ms. Shanahan. The functions of the Audit Committee are to meet with the
independent accountants of the Company, to review the audit plan for the
Company, to review the annual audit of the Company with the accountants together
with any other reports or recommendations made by the accountants, to recommend
whether the accountants should be continued as auditors for the Company and, if
others are to be selected, to recommend those to be selected, to meet with the
chief accounting officer for the Company and to review with him and the
accountants for the Company the adequacy of the Company's internal controls, to
review related party transactions, to monitor corporate policies and procedures
with respect to the Company's ethics and compliance program and to perform such
other duties as shall be delegated to the Audit Committee by the Board of
Directors. The Audit Committee met one time during 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of Common
Stock, to file reports of ownership with the Securities and Exchange Commission.
Such persons also are required to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during 1997, all filing
requirements applicable to its executive officers, directors, and greater than
10% shareholders were complied with.
EXECUTIVE OFFICERS
As used throughout this Proxy Statement, the term "executive officers"
refers to William E. Bindley, Chairman of the Board, 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, Donald J. Perfetto, Vice President, Chief Financial Officer
and Treasurer, Melissa E. McIntyre, Vice President - Clinical Services, Barbara
J. Luttrell, Vice President - Administration and William M. Woodard, Vice
President - Marketing.
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<PAGE> 7
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid during each of the Company's last two years to the two
individuals who served as the Company's Chief Executive Officer during 1997 and
to each of the Company's four other most highly compensated executive officers,
based on salary and bonus earned during 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------- --------------
Awards
--------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus (1) Options (2) Compensation
- ------------------------------------ ------ ------------- ----------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
William E. Bindley 1997 $ --- (3) $ ---(3) ---(3) $ --- (3)
Chairman of the Board (4) 1996 --- (3) ---(3) ---(3) --- (3)
Robert L. Myers
President and 1997 $ 233,450 $ 200,000 100,000 $ 21,236 (5)
Chief Executive Officer (6) 1996 105,000 130,000 50,000 121
Steven D. Cosler
Executive Vice President-Priority 1997 $ 152,004 $ 65,000 46,000 $ 12,896 (7)
Pharmacy Services (8) 1996 --- --- --- ---
Guy F. Bryant
Executive Vice President-Priority 1997 $ 138,400 $ 77,723 46,000 $ 12,996 (9)
Healthcare Distribution 1996 125,735 55,500 15,000 11,861
Melissa E. McIntyre 1997 $ 125,234 $ 51,839 40,000 $ 12,993 (10)
Vice President-Clinical Services 1996 110,923 55,500 15,000 12,080
William M. Woodard 1997 $ 113,636 $ 47,583 15,000 $ 12,976 (11)
Vice President-Marketing 1996 101,119 50,600 15,000 12,111
</TABLE>
- ------------------
(1) Reflects bonus earned during the specified year, which bonuses at times
have been paid in the following year.
(2) Includes options to acquire shares of Class B Common Stock of the
Company (for awards made in 1997) and options to acquire shares of BWI
common stock (for awards made in 1996). The Company and BWI have no SAR
plan and did not grant restricted stock awards.
(3) Does not include compensation paid by BWI to Mr. Bindley as an officer of
BWI.
(4) Mr. Bindley served as the Chief Executive Officer of the Company from
July 1994 until May 1997, but he did not receive or earn any compensation
for his services rendered as Chief Executive Officer.
(5) Consists of $12,800 in Company contributions to BWI's qualified profit
sharing plan (the "BWI Profit Sharing Plan"), $8,126 in Company
contributions to BWI's profit sharing excess plan and $310 in group life
insurance premiums.
(6) Mr. Myers joined the Company in July 1996 and became the Chief Executive
Officer of the Company in May 1997. The amounts disclosed in the table do
not include consulting fees paid to Mr. Myers prior to his being employed
by the Company in 1996 of $50,547, the majority of which was paid in the
form of shares of common stock of BWI.
(7) Consists of $12,800 in Company contributions to the BWI Profit Sharing
Plan and $96 in group life insurance premiums.
(8) Mr. Cosler began serving as Executive Vice President-Priority Pharmacy
Services in August 1997.
-5-
<PAGE> 8
(9) Consists of $12,800 in Company contributions to the BWI Profit Sharing
Plan and $196 in group life insurance premiums.
(10) Consists of $12,800 in Company contributions to the BWI Profit Sharing
Plan and $193 in group life insurance premiums.
(11) Consists of $12,800 in Company contributions to the BWI Profit Sharing
Plan and $176 in group life insurance premiums.
EMPLOYMENT AGREEMENTS AND TERMINATION BENEFITS 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. A "Change in Control," however, does not include an
acquisition by any person in connection with a spin-off of the Company's Class A
Common Stock by BWI.
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 his death, disability,
or normal retirement or is terminated by the Company for cause.
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, a reduction in the level of salary payable to him, the
failure by the Company to continue to provide him with benefits substantially
similar to those previously provided to him, the required relocation of 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 Internal Revenue Code of 1986, as
amended (the "Code").
On June 1, 1997, the Company entered into an employment agreement with each
of Mr. Bryant, Mr. Cosler, Ms. McIntyre and Mr. Woodard. 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 and Mr. Woodard are entitled to
receive base salaries of $11,050 per month, $12,283 per month, $10,600 per month
and $9,583 per month, respectively, subject to annual review for potential
increase. The employment agreements provide that the officers 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, as the
case may be, and up to 50% of annualized monthly salary for Mr. Woodard.
Pursuant to the employment agreements, if the Company terminates Messrs. Bryant,
Cosler or Woodard or Ms. McIntyre,
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<PAGE> 9
as the case may be, without cause prior to the expiration of the employment
agreement, the Company shall pay to Messrs. Bryant, Cosler or Woodard or Ms.
McIntyre, 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. 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 or Mr. Woodard, 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.
COMPENSATION OF DIRECTORS
During 1997, the Company paid 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 is 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 are not
registered and are subject to the resale limitations of Rule 144 of the
Securities Act of 1933, as amended. Directors who are full-time employees of the
Company or BWI do not receive any additional compensation for serving as
directors or for attending meetings, but all directors are reimbursed for all
reasonable out-of-pocket expenses incurred in connection with attendance at
meetings.
On August 25, 1997, the Board of Directors and the then sole shareholder
adopted an Outside Directors Stock Option Plan (the "Directors Plan"). Pursuant
to the Directors Plan, each Eligible Director (as defined therein) is
automatically granted an option to purchase 1,000 shares of Class B Common Stock
on June 1 of each year beginning in 1998. The option exercise price per share is
equal to 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 or she has been in
continuous service on the Board of Directors at all times since the grant of the
option. There are currently two Eligible Directors - Mr. Roberson and Ms.
Shanahan. The Eligible Directors are not currently eligible for grants or awards
under any other stock, bonus or benefit plans of the Company.
PROFIT SHARING PLAN
The Company'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.
STOCK OPTIONS
On August 25, 1997, the Company's Board of Directors and the then sole
shareholder adopted the 1997 Stock Option and Incentive Plan (the "1997 Stock
Option Plan"). The 1997 Stock Option Plan reserves for issuance 1,250,000 shares
of the Company's Class B Common Stock, subject to adjustment in certain
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<PAGE> 10
events. The 1997 Stock Option Plan provides for the grant to officers, key
employees and consultants of the Company of options to purchase shares of Class
B Common Stock and restricted shares of Class B Common Stock. Stock options
granted under the 1997 Stock Option Plan may be either options intended to
qualify for federal income tax purposes as "incentive stock options" or options
not qualifying for favorable tax treatment ("nonqualified stock options"). No
individual participant may receive awards for more than 300,000 shares in any
calendar year.
In order to qualify the 1997 Stock Option Plan under Section 162(m) of the
Code (which section limits the deductibility of certain employee compensation),
the 1997 Stock Option Plan is being submitted to the Company's shareholders for
approval at the annual meeting. For a description of the 1997 Stock Option Plan,
see "Approval of the Company's 1997 Stock Option and Incentive Plan."
The following table sets forth information with respect to options granted
by the Company under the 1997 Stock Option Plan to the Named Executive Officers
during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
--------------------------------------------------------------- -----------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Grant Date
Name Granted Fiscal Year Price Expiration Date Present Value (1)
- ------------------------- ------------ -------------- ---------- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
William E. Bindley ---(2) --- --- --- ---
Robert L. Myers 6,890(3) 1.6% $ 14.50 August 24, 2007 $ 47,748(4)
93,110(5) 22.0% 14.50 August 24, 2007 736,500(6)
Steven D. Cosler 6,890(3) 1.6% 14.50 August 24, 2007 47,748(4)
33,110(5) 7.8% 14.50 August 24, 2007 261,900(6)
6,000(7) 1.4% 15.00 December 16, 2007 47,520(8)
Guy F. Bryant 6,890(3) 1.6% 14.50 August 24, 2007 47,748(4)
33,110(5) 7.8% 14.50 August 24, 2007 261,900(6)
6,000(7) 1.4% 15.00 December 16, 2007 47,520(8)
Melissa E. McIntyre 6,890(3) 1.6% 14.50 August 24, 2007 47,748(4)
33,110(5) 7.8% 14.50 August 24, 2007 261,900(6)
William M. Woodard 6,890(3) 1.6% 14.50 August 24, 2007 47,748(4)
8,110(5) 1.9% 14.50 August 24, 2007 64,150(6)
</TABLE>
- ------------------
(1) The Company does not believe that the Black-Scholes model or any other
valuation model is a reliable method of computing the present value of the
Company's employee stock options. The value ultimately realized, if any,
will depend on the amount by which the market price of the stock exceeds
the exercise price on the date of exercise. The grant date present value
calculation uses an expected option term based on past experience, rather
than the contract term of the options. The use of an expected term produces
a valuation adjustment for non-transferability of the options. There have
been no adjustments made for risk of forfeiture of the options.
(2) Does not include options to purchase BWI common stock granted by BWI. Mr.
Bindley has not received or earned any compensation from the Company for
services rendered to the Company.
-8-
<PAGE> 11
(3) Incentive stock options to purchase Class B Common Stock granted at the
initial public offering price of the Class B Common Stock. The options are
exercisable on or after January 1, 1999.
(4) The grant date present value is based on a Black-Scholes model and assumes
a risk-free rate of return of 5.9%, an expected term of four years, a
dividend yield of 0.0% and a stock volatility of 53.51%.
(5) Nonqualified stock options to purchase Class B Common Stock granted at the
initial public offering price of the Class B Common Stock. The options are
exercisable at the rate of 25% per year, beginning on January 1, 1999.
(6) The grant date present value is based on a Black-Scholes model and assumes
a risk-free rate of return of 5.92%, an expected term of five years, a
dividend yield of 0.0% and a stock volatility of 55.81%.
(7) Nonqualified stock options granted at 100% of the fair market value of the
stock on the date of grant. The options are exercisable at the rate of 25%
per year, beginning January 1, 1999.
(8) The grant date present value is based on a Black-Scholes model and assumes
a risk-free rate of return of 5.66%, an expected term of five years, a
dividend yield of 0.0% and a stock volatility of 53.61%
The following table sets forth information with respect to the exercise of
options to acquire Class B Common Stock by the Named Executive Officers during
1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money Options
Name Exercise Realized Options at Fiscal Year-End at Fiscal Year-End (1)
- ----------------------- ------------ ------------ --------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Bindley --- --- 0 0 $ 0 $ 0
Robert L. Myers --- --- 0 100,000 0 62,500
Steven D. Cosler --- --- 0 46,000 0 25,750
Guy F. Bryant --- --- 0 46,000 0 25,750
Melissa E. McIntyre --- --- 0 40,000 0 25,000
William M. Woodard --- --- 0 15,000 0 9,375
</TABLE>
- ------------------
(1) The closing price for the Company's Class B Common Stock as reported by the
Nasdaq National Market System on December 31, 1997 was $15.125. The value
is calculated on the basis of the difference between the Class B Common
Stock option exercise price and $15.125, multiplied by the number of
"In-the-Money" shares of Class B Common Stock underlying the option.
-9-
<PAGE> 12
The following table sets forth information with respect to the exercise of
options to acquire BWI common stock by the Named Executive Officers during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End (2)
Acquired on Value --------------------------- ----------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------ -------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Bindley 165,751 $3,140,987 163,761 218,488 $ 2,649,066 $ 1,785,400
Robert L. Myers --- --- 17,338 32,662 249,384 450,616
Steven D. Cosler --- --- 9,674 10,326 135,884 130,366
Guy F. Bryant --- --- 18,475 11,525 249,882 148,243
Melissa E. McIntyre 5,000 27,500 13,598 11,402 175,262 146,613
William M. Woodard 2,983 33,416 9,365 10,152 119,175 130,051
</TABLE>
- ------------------
(1) The value is calculated based on the difference between the option exercise
price and the closing market price of the BWI common stock on the date of
exercise, multiplied by the number of shares to which the exercise relates.
(2) The closing price for BWI's common stock as reported by the New York Stock
Exchange on December 31, 1997 was $30.875. The value is calculated on the
basis of the difference between the BWI common stock option exercise price
and $30.875, multiplied by the number of "In-the-Money" shares of BWI
common stock underlying the option.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Prior to the consummation of the Company's initial public offering of its
Class B Common Stock on October 29, 1997 (the "Offering") and the establishment
of the Compensation Committee, the Company's Chairman was responsible for
setting executive compensation for, and granting stock options to, the Company's
executive officers. The salaries for executive officers for 1997 and the stock
option grants approved by the Chairman were based principally on the
recommendations of Mr. Myers, based upon his assessment of the contributions of
the various executive officers in the performance of the Company and/or the
business units directed by certain executive officers. Upon consummation of the
Offering, the Compensation Committee was established to determine executive
compensation and administer the 1997 Stock Option Plan. In 1997, the
Compensation Committee granted additional stock options to certain executive
officers, approved year-end bonuses and established guidelines for future
compensation.
Executive Compensation Policy
The Company's compensation policy is designed to: (a) be competitive so
that the Company can attract, reward, and retain the quality talent that is
essential to its continued success; (b) motivate key employees through the use
of incentive compensation programs, including annual bonuses and stock option
grants; (c) treat employees fairly and, at the same time, be cost effective; (d)
foster teamwork within the Company so that employees share in the rewards and
risks of the Company; (e) offer executive officers the opportunity to achieve
significant levels of ownership in the Company's stock so that their interests
will be aligned with those of its shareholders; and (f) assure that executive
officers' compensation will be tax deductible to the maximum extent permissible.
Consistent with this policy, the compensation of executive officers has been and
will be related in substantial part to Company performance. Compensation for
executive officers consists of base salary, bonuses and stock option grants.
-10-
<PAGE> 13
Cash Based Compensation
Base Compensation. In making future compensation decisions, the
Compensation Committee's subjective review process will primarily include: (a)
an analysis of executive compensation levels within the specialty distribution
and health care services industry at other publicly-traded companies of
comparable size and stature by reviewing proxy statements and national
compensation surveys and reports; (b) individual efforts and accomplishments
within the Company, the industry, and the community; (c) management experience
and development; (d) team building skills consistent with the Company's best
interests; (e) base compensation paid to other executive officers within the
Company; and (f) observance of the Company's ethics and compliance program. Base
compensation for 1997 was established for the executive officers after a merit
review was conducted by the CEO.
Annual Bonus. A portion of the cash compensation of the executive
officers (and most other salaried employees) consists of annual bonus payments
under the Company's bonus program. Allocation of the bonuses to the executive
officers (other than the CEO) will be based on recommendations made by the CEO
to the Compensation Committee. Bonus amounts to non-executive officers are
generally based on recommendations made by the Company's executive officers.
The Compensation Committee will give equal consideration to the
Company's overall performance and the executive officer's performance for the
specific areas of the Company under his or her direct control. This 50-50
balance supports accomplishment of overall objectives and rewards individual
contributions by the executive officers. The 1997 annual bonuses were approved
by the Compensation Committee after receiving input from the CEO based upon the
subjective criteria used for establishing base compensation as set forth above.
On March 26, 1998, the Compensation Committee adopted the following
performance standards to be used for purposes of establishing future annual
bonuses: (a) sales; (b) net earnings; and (c) individual performance criteria.
The Compensation Committee deems such financial goals to be a valid
measure of performance within the specialty distribution and health care
services industry and consistent with the Company's best interests.
Discretionary adjustments by the Compensation Committee are possible should
unforeseen or uncontrollable events occur during the course of the year.
The Compensation Committee's intent is to make the executive officers'
total cash compensation package (base compensation plus annual bonus)
competitive with other publicly-traded companies of comparable size and stature
within the specialty distribution and health care services industry, based on
its analysis of total cash compensation for similar executive officers within
the industry.
Equity Based Compensation
The Board of Directors and the Compensation Committee believe that
equity compensation, in the form of stock options, is an important element of
performance based compensation of executive officers. By granting stock options,
the Compensation Committee will continue the Company's practice of increasing
key employees' equity ownership in order to ensure that their interests remain
closely aligned with those of the Company's shareholders. Stock options and
equity ownership in the Company provide a direct link between executive
compensation and shareholder value. Stock options also create an incentive for
key employees to remain with the Company for the long term because the options
are not immediately exercisable and, if not exercised, are in most cases
forfeited if the employee leaves the Company before retirement.
Consistent with the above philosophy, the Board of Directors, based on
input from the CEO, approved the granting of stock options to 126 key employees
on August 25, 1997, and the Compensation Committee approved the granting of
stock options to certain executive officers on December 16, 1997. For the
executive officers (other than the CEO) the Board of Directors and the
Compensation Committee considered: (a) the CEO's input; (b) subjective criteria
with respect to individual performance, including
-11-
<PAGE> 14
individual efforts and accomplishments, experience, and team building skills;
and (c) the relative number of stock option grants to other executive officers
within the Company.
Compensation of William E. Bindley, Chairman, and Robert L. Myers,
President and Chief Executive Officer
Mr. Bindley did not receive or earn any compensation for his services
rendered as Chairman for 1997 or as Chief Executive Officer during the period
January through May 1997.
Mr. Myers' cash compensation is based on the same factors as the other
executive officers. The Board of Directors' and Compensation Committee's
decision to increase Mr. Myers' cash compensation (base compensation plus annual
bonus) was based on the subjective criteria previously set forth in this report
in the discussion with respect to cash compensation.
Since the approval of the 1997 Stock Option Plan, Mr. Myers has also
participated in the Company's equity based compensation program. By employing
the subjective criteria previously set forth in the discussion with respect to
cash and equity based compensation, the Board of Directors and the Compensation
Committee granted to Mr. Myers the stock options shown in the Option Grants In
Last Fiscal Year table set forth under "Compensation of Executive Officers and
Directors--Stock Options."
It is the Board of Directors' and Compensation Committee's view that
Mr. Myers' total compensation package for 1997 was based on an appropriate
balance of: (a) individual performance; (b) Company performance; and (c) other
CEO compensation packages within the specialty distribution and health care
services industry. The Compensation Committee points out that the companies used
for evaluation of competitive compensation may not, in all cases, be the same as
those companies comprising the industry peer group described under "Compensation
of Executive Officers and Directors--Performance Graph."
Board of Directors Compensation Committee
(Prior to establishment of
Compensation Committee) Richard W. Roberson
Rebecca M. Shanahan
William E. Bindley
Michael D. McCormick
Robert L. Myers
Thomas J. Salentine
Compensation and Stock Option
Committee of BWI
(with respect to grants of options
to purchase BWI common stock)
Seth B. Harris
Robert L. Koch II
J. Timothy McGinley
James K. Risk III
K. Clay Smith
-12-
<PAGE> 15
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total
shareholder return on the Company's Class B Common Stock with the Nasdaq Market
Index and with peer industries within SIC Code 5122 (Drugs, Drug Proprietaries
and Druggists' Sundries) for the period from October 24, 1997 through December
31, 1997. The Company's Class B Common Stock commenced trading on the Nasdaq
National Market System on October 24, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
NASDAQ MARKET INDEX AND INDEX OF COMPANIES IN SIC 5122
<TABLE>
<CAPTION>
October 24, 1997 October 31, 1997 November 30, 1997 December 31, 1997
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market 100.00 100.00 100.43 98.77
SIC 5122 Companies 100.00 100.00 104.94 102.35
Priority Healthcare Corporation 100.00 93.94 94.70 91.67
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
[LINE GRAPH]
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that may incorporate future filings
(including this Proxy Statement, in whole or in part), the preceding
Compensation Committee Report on Executive Compensation and the stock price
Performance Graph shall not be incorporated by reference in any such filings.
-13-
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the establishment of the Compensation Committee, the Company's
Board of Directors (which then consisted of Mr. Bindley, Mr. McCormick, Mr.
Myers and Mr. Salentine) made compensation determinations for the Company.
Messrs. Bindley, McCormick and Myers are officers of the Company and Mr.
Salentine is a former officer of the Company. Messrs. Bindley, McCormick and
Salentine are also directors and executive officers, and Mr. Bindley is a
significant shareholder, of BWI, which provides certain services to and is a
party to certain agreements with the Company. See "Certain Transactions."
On October 29, 1997, the Board of Directors established the
Compensation Committee to approve compensation and stock option grants for the
Company's executive officers. The Compensation Committee members during 1997
were Mr. Roberson and Ms. Shanahan. None of the Compensation Committee members
are involved in a relationship requiring disclosure as an interlocking executive
officer/director or under Item 404 of Regulation S-K or as a former officer or
employee of the Company.
CERTAIN TRANSACTIONS
RELATIONSHIP AND TRANSACTIONS WITH PRINCIPAL SHAREHOLDER
The Company was incorporated in June 1994 as a wholly owned subsidiary of
BWI to operate the alternate site healthcare businesses acquired by BWI. On
August 25, 1997, the Company effected a recapitalization, whereby all of the
Company's outstanding shares of Common Stock were converted into 10,214,286
shares of Class A Common Stock, all of which were, and continue to be, owned by
BWI. Following the Offering in October 1997 and currently, BWI beneficially owns
81.6% of the outstanding shares of Common Stock of the Company. Three of the six
members of the Company's Board of Directors (Messrs. Bindley, McCormick and
Salentine) are directors and executive officers of BWI. Mr. Bindley is also a
significant shareholder of BWI.
Set forth below are descriptions of certain services provided by BWI to the
Company and certain agreements between the Company and BWI.
Administrative Services. During 1997 and prior to the Offering, BWI
provided management and consulting services to the Company as its wholly owned
subsidiary, which services included, but were not limited to, legal, human
resources, payroll and tax. In connection with the Offering, the Company and BWI
entered into an Administrative Services Agreement (the "Services Agreement"),
relating to the provision of similar services by BWI to the Company. The
services covered by the Services Agreement include administrative services for
employee benefits and risk management, legal, tax and treasury services. During
1997, the Company was charged a total of $65,000 for management and
administrative services rendered by BWI to the Company. This amount was based on
an allocation of the actual services rendered by BWI.
BWI Profit Sharing Plan. The Company's eligible employees participate in
BWI's Profit Sharing Plan. See "Compensation of Executive Officers and
Directors--Profit Sharing Plan." BWI's contribution to the plan for Company
employees for 1997 was $260,000.
Insurance Coverage. During 1997, the Company was 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 $151,000 for 1997.
Purchase of Inventory. During 1997, the Company purchased inventory from
BWI at the price paid by BWI for such inventory. Such purchases of inventory
from BWI aggregated $2.0 million in 1997.
Dividend Note. 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"). The Dividend Note bears
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<PAGE> 17
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. During 1997, the Company paid BWI $324,000 in interest on the Dividend
Note.
Borrowings. In prior years, BWI paid for or financed certain transactions
on behalf of the Company, which costs were represented as borrowings due by the
Company to BWI. The largest amount outstanding in 1997 relating to such
borrowings was $16.3 million. The interest expense attributable to the
borrowings was $671,000 for 1997. This interest expense was calculated by
applying the BWI average incremental borrowing rate to the average outstanding
borrowings. For 1997, the average outstanding borrowing was $10.3 million, and
the average incremental borrowing rate applied to the borrowings was 6.4%. On
October 29, 1997, the Company paid in full all amounts due under the borrowings
with proceeds received from the Offering.
Since the Offering, the Company has loaned funds to BWI. The largest amount
outstanding during 1997 relating to this loan was approximately $6.7 million.
The average incremental borrowing rate applied to the loan was 6.4%. As of March
13, 1998, the amount outstanding under this loan was approximately $11.2
million.
Revolving Credit Promissory Note. In connection with the Offering, BWI made
available to the Company a $30.0 million line of credit (the "Line"), evidenced
by a Revolving Credit Promissory Note made by the Company in favor of BWI on
September 30, 1997. The maturity date for the Line is December 31, 1998.
Outstanding principal amounts under the Line bear interest, payable quarterly,
at a rate equal to the rate then paid by BWI under its primary line of credit
agreement. As of March 13, 1998, no amounts had been borrowed under the Line.
Tax Sharing Agreement. Unless and until BWI distributes the Company's Class
A Common Stock to shareholders of BWI (the "Distribution"), 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. BWI and the Company have entered into a Tax Sharing Agreement
that provides, among other things, for the allocation between BWI and the
Company of federal, state, local and foreign tax liabilities for all periods
through the date that any Distribution occurs (the "Distribution Date").
Generally, the Company will be responsible for the portion of any tax
deficiencies of BWI assessed with respect to all periods up to and including the
Distribution Date that give rise to a tax benefit to the Company in a
post-Distribution period. The Company will also be entitled to tax refunds
received by BWI that result in a tax detriment to the Company for those
post-Distribution periods. The Company will also be responsible for all income
taxes imposed on the Company Group during the taxable period or portion thereof
beginning on January 1, 1998 and ending on or before the Distribution Date.
Furthermore, the Tax Sharing Agreement provides that, if the Distribution fails
to qualify as a tax-free distribution as a result of any event occurring prior
to the second anniversary of the Distribution Date that results from the breach
of certain covenants made by the Company in the Tax Sharing Agreement or
involves either the stock or assets (or any combination thereof) of any member
of the Company Group, then the Company must indemnify and hold BWI harmless, on
an after-tax basis, from any tax liability imposed upon it in connection with
the Distribution. The Tax Sharing Agreement also prohibits the Company from
entering into certain transactions or disposing of substantially all of its
assets prior to the second anniversary of the Distribution Date in the absence
of a prior opinion of independent tax counsel or the receipt of a private letter
ruling from the Internal Revenue Service that such transaction or disposition
will not cause the Distribution to be a taxable transaction. For 1997, the
Company Group's allocated federal income taxes were $4.5 million.
Indemnification and Hold Harmless Agreement. The Company and BWI entered
into an Indemnification and Hold Harmless Agreement dated as of September 30,
1997 (the "Indemnification Agreement"), in which each party agrees to indemnify
and hold harmless the other from and against certain obligations and contingent
liabilities. Specifically, the Indemnification Agreement provides that the
Company will indemnify and hold harmless BWI from obligations related to a
guarantee which BWI made in favor of the Company and from certain indemnity and
other obligations which BWI assumed, or which could be charged against BWI, in
connection with five acquisitions by or on behalf of the Company. The
Indemnification Agreement also
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<PAGE> 18
provides that BWI will indemnify and hold harmless the Company from and against
contingent liabilities in connection with certain pending litigation against
BWI, to which the Company has been added as a party. In 1997, neither the
Company nor BWI made any payments to the other under the Indemnification
Agreement.
The Company has adopted a policy that, following the Offering, all
agreements, including any amendments to those described above, between the
Company and BWI and its affiliates will be subject to the review of the
Company's Audit Committee and will be on terms that the Audit Committee believes
are no less favorable to the Company than terms that would be available from
unaffiliated parties.
APPROVAL OF THE COMPANY'S 1997 STOCK OPTION AND INCENTIVE PLAN
On August 25, 1997, the Company's Board of Directors and the then sole
shareholder adopted the 1997 Stock Option Plan. In order to qualify the 1997
Stock Option Plan under Section 162(m) of the Code (which section limits the
deductibility of certain employee compensation), the 1997 Stock Option Plan is
being submitted to the Company's shareholders for approval at the annual
meeting.
The following is a summary of the principal features of the 1997 Stock
Option Plan. The summary is qualified in its entirety by reference to the
complete text of the 1997 Stock Option Plan as set forth as Appendix A to this
Proxy Statement. Shareholders are urged to read the actual text of the 1997
Stock Option Plan as set forth in Appendix A.
PURPOSE
The purpose of the 1997 Stock Option Plan is to promote the long-term
interests of the Company and its shareholders by providing a means of attracting
and retaining officers and key employees of the Company. The Company believes
that employees who own shares of the Company's Class B Common Stock will have a
closer identification with the Company and greater motivation to work for the
Company's success by reason of their ability as shareholders to participate in
the Company's growth and earnings.
ELIGIBLE PERSONS
Recipients of incentive awards under the 1997 Stock Option Plan must be, or
have been at the time of grant, officers, consultants or key employees (as
determined by the Compensation Committee). The Company presently has
approximately 26 officers and employees who fall within the category of key
employees and may be considered for incentive awards under the 1997 Stock Option
Plan. No awards may be granted to directors who are not also employees of the
Company or one of its subsidiaries.
SHARES SUBJECT TO THE 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan reserves for issuance 1,250,000 shares of the
Company's Class B Common Stock, subject to adjustment in certain events. No
individual participant may receive awards for more than 300,000 shares in any
calendar year.
The number of shares covered by an award under the 1997 Stock Option Plan
reduces the number of shares available for future awards under the 1997 Stock
Option Plan; however, any shares of restricted stock that ultimately are
forfeited to the Company by the grantee will become available for further
incentive awards under the 1997 Stock Option Plan. Similarly, if any stock
option granted under the 1997 Stock Option Plan terminates or is surrendered or
cancelled without having been exercised in full, the number of shares then
subject thereto is added back to the number of remaining available shares under
the 1997 Stock Option Plan.
As of March 13, 1998, options to purchase 463,250 shares of Class B Common
Stock were outstanding under the 1997 Stock Option Plan.
-16-
<PAGE> 19
The closing sale price of the Company's Class B Common Stock on March 13,
1998, as quoted on the Nasdaq Stock Market and reported in The Wall Street
Journal, was $17.750 per share.
ADMINISTRATION OF THE PLAN
The 1997 Stock Option Plan is administered by the Compensation Committee
which is presently composed of two directors who are not eligible to participate
in the 1997 Stock Option Plan. Subject to the terms of the 1997 Stock Option
Plan, the Compensation Committee has sole authority to determine and designate
those officers and key employees who are to be granted incentive awards under
the 1997 Stock Option Plan and the nature and terms of the incentive awards to
be granted, including the number of shares to be subject to such awards.
GRANT OF STOCK OPTIONS
With respect to the grant of 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 110% in the case of any
holder of 10% or more of the voting power of the Company) of the fair market
value of the Company's Class B Common Stock on the date of the grant of the
stock option. The aggregate fair market value (determined on the date of grant)
of the shares of stock subject to "incentive stock options" that become
exercisable for the first time by a grantee in any calendar year may not exceed
$100,000. The Compensation Committee establishes the exercise price of
nonqualified stock options at the time the options are granted.
The number and class of shares subject to an option will be adjusted by the
Compensation Committee in the event of stock splits, stock dividends,
recapitalizations and certain other events involving a change in the Company's
capital.
During the time that the 1997 Stock Option Plan has been in effect, the
Named Executive Officers have received options to purchase the indicated numbers
of shares of Class B Common Stock as follows: Mr. Bindley, Chairman of the Board
- - 0; Mr. Myers, President and Chief Executive Officer - 100,000; Mr. Cosler,
Executive Vice President-Priority Pharmacy Services - 46,000; Mr. Bryant,
Executive Vice President-Priority Healthcare Distribution - 46,000; Ms.
McIntyre, Vice President-Clinical Services - 40,000; Mr. Woodard, Vice
President-Marketing -15,000. All current executive officers as a group have been
granted options under the 1997 Stock Option Plan to purchase 298,000 shares of
Class B Common Stock. Additionally, options totaling 192,050 shares have been
received by all employees of the Company as a group, other than executive
officers, pursuant to the 1997 Stock Option Plan. The preceding numbers
represent all option grants pursuant to the 1997 Stock Option Plan up to March
13, 1998, including options which have been forfeited or canceled. None of the
current directors who are not executive officers nor either of the nominees for
director have been granted any options to purchase shares of Class B Common
Stock.
EXERCISE OF STOCK OPTIONS
No incentive stock option granted under the 1997 Stock Option Plan may be
exercised more than ten years, or five years in the case of any holder of 10% or
more of the voting power of the Company, (or such shorter period as the
Compensation Committee may determine) from the date it is granted. Nonqualified
stock options may be exercised during such period as the Compensation Committee
determines at the time of grant.
Unless otherwise determined by the Compensation Committee, if a grantee's
employment with the Company or a subsidiary is terminated for cause or
voluntarily by the grantee for any reason other than death, disability or
retirement, such grantee's options expire at the date of termination.
Stock options granted under the 1997 Stock Option Plan become exercisable
in one or more installments in the manner and at the time or times specified by
the Compensation Committee at the time of grant.
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<PAGE> 20
RESTRICTED STOCK
Incentive awards may be made in the form of restricted stock, in which case
the participant would be granted shares of the Company's Class B Common Stock,
which shares would be subject to such forfeiture provisions and transfer
restrictions as the Compensation Committee determined at the time of grant.
Pending the lapse of such forfeiture provisions and transfer restrictions,
certificates representing restricted stock would be held by the Company, but the
grantee generally would have all of the rights of a shareholder, including the
right to vote the shares and the right to receive all dividends thereon.
While restricted stock would be subject to forfeiture provisions and
transfer restrictions for a period or periods of time, the 1997 Stock Option
Plan does not set forth any minimum or maximum duration for such provisions and
restrictions. It is expected that the terms of restricted stock awards
ordinarily will provide that the restricted stock will be forfeited to the
Company if the grantee ceases to be employed by the Company prior to the lapse
of the forfeiture provisions and transfer restrictions, subject to exceptions
for death, disability or retirement while employed by the Company. It is also
expected that a specified percentage of the restricted stock will become free of
the forfeiture provisions and transfer restrictions on each anniversary of the
date of grant of the restricted stock award.
As of the date of this Proxy Statement, the Company has not made any awards
of restricted stock.
PAYMENT FOR SHARES; LOANS BY THE COMPANY
The Compensation Committee may permit payment of the exercise price of
stock options to be made in cash, by the surrender of Class B Common Stock
valued at its then fair market value, or by such other means (including a
combination of stock so valued and cash) as it deems appropriate.
The 1997 Stock Option Plan empowers the Company to make loans to grantees
in connection with the exercise of stock options or the ownership of restricted
stock, up to the following amounts:
(1) With respect to the exercise of stock options, the sum of the exercise
price and the amount of income taxes reasonably estimated to be payable by the
grantee in connection with such exercise; or
(2) With respect to restricted stock, the amount of income taxes reasonably
estimated to be payable by the grantee in connection with the ownership of the
restricted stock.
Loans made under the terms of the 1997 Stock Option Plan bear interest at
such rates as may be established by the Compensation Committee. No loan may have
an initial term exceeding three years, but the loan may be renewed at the
discretion of the Compensation Committee. With the consent of the Compensation
Committee, loans may be repaid in shares of Class B Common Stock at their then
fair market value. Loans may, but are not required to be, secured by shares of
Class B Common Stock.
MISCELLANEOUS PROVISIONS
The Compensation Committee may accelerate the period of exercise or vesting
of any incentive award, either absolutely or contingently, for such reasons as
the Compensation Committee may deem appropriate.
In general, if the employment of a recipient of restricted stock is
involuntarily terminated within 12 months following a change in control of the
Company, the forfeiture provisions and transfer restrictions applicable to such
stock lapse. In addition, in the event of a tender offer or exchange offer for
the Class B Common Stock or upon the occurrence of certain other events, all
options granted under the 1997 Stock Option Plan shall become exercisable in
full, unless otherwise provided by the Compensation Committee.
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<PAGE> 21
AMENDMENT OF THE PLAN
The Board, or the Compensation Committee with the approval of the Board,
may at any time terminate or amend the 1997 Stock Option Plan. No amendments to
the 1997 Stock Option Plan will require shareholder approval unless such
approval is required to comply with Rule 16b-3 under the Securities Exchange Act
of 1934, Section 422 of the Code or the requirements of the Nasdaq National
Market System.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1997 Stock Option Plan. The summary is based on
current federal income tax laws and interpretations thereof, all of which are
subject to change at any time, possibly with retroactive effect. The summary is
not intended to be exhaustive.
Limitation on Amount of Deduction. The Company generally will be entitled
to a tax deduction for awards under the 1997 Stock Option Plan only to the
extent that the participants recognize ordinary income from the award. Section
162(m) of the Code contains special rules regarding the federal income tax
deductibility of compensation paid to the Company's Chief Executive Officer and
to each of the other four most highly compensated executive officers of the
Company. The general rule is that annual compensation paid to any of these
specified executives will be deductible only to the extent that it does not
exceed $1,000,000 or it qualifies as "performance-based compensation" under
section 162(m). The 1997 Stock Option Plan has been designed to permit the
Compensation Committee to grant awards which qualify for deductibility under
section 162(m).
Taxation of Ordinary Income and Capital Gains. For capital gains properly
taken into account after July 28, 1997, subject to certain exceptions, the
maximum rate of tax on "net capital gains" from the sale or exchange of capital
assets held for more than 18 months is 20%, and the maximum rate is 18% for
capital assets acquired after December 31, 2000 and held for more than five
years. The maximum rate of tax for tax on "net capital gains" from the sale of
capital assets held more than one year but not more than 18 months is 28%. "Net
capital gain" is the excess of net long-term capital gain over net short-term
capital loss. Short-term capital gains are taxed at the same rates applicable to
ordinary income. For taxpayers with certain income levels, the marginal tax rate
applicable to ordinary income can range up to 39.6%. The classification of
income as ordinary income or capital gain is also relevant for income tax
purposes for taxpayers who have capital losses and investment interest.
Nonqualified Stock Options. An employee who is granted a nonqualified
option does not recognize taxable income upon the grant of the option, and the
Company is not entitled to a tax deduction. The employee will recognize ordinary
income upon the exercise of the option in an amount equal to the excess of the
fair market value of the option shares on the exercise date over the option
price. Such income will be treated as compensation to the employee subject to
applicable withholding requirements. The Company is generally entitled to a tax
deduction in an amount equal to the amount taxable to the employee as ordinary
income in the year the income is taxable to the employee. Any appreciation in
value after the time of exercise will be taxable to the employee as capital gain
and will not result in a deduction by the Company.
The employee may also be required to recognize gain or loss upon the sale
of the option shares. If the selling price of the option shares exceeds the
employee's basis in the shares, the employee will recognize long-term capital
gain if the option shares were held for more than one year, and short-term
capital gain if the shares were held for one year or less. If the selling price
of the option shares is less than the employee's basis in the shares, the
employee will recognize long-term or short-term capital loss depending on how
long the shares were held. The employee's basis in the option shares will equal
the amount of ordinary income recognized by the employee upon exercise of the
option, plus any cash paid to exercise the option.
Incentive Stock Options. An employee who receives an incentive stock option
does not recognize taxable income upon the grant or exercise of the option, and
the Company is not entitled to a tax deduction. The difference between the
option price and the fair market value of the option shares on the date of
exercise,
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<PAGE> 22
however, will be treated as a tax preference item for purposes of determining
the alternative minimum tax liability, if any, of the employee in the year of
exercise. The Company will not be entitled to a deduction with respect to any
item of tax preference.
An employee will recognize gain or loss upon the disposition of shares
acquired from the exercise of incentive stock options. The nature of the gain or
loss depends on how long the option shares were held. If the option shares are
not disposed of pursuant to a "disqualifying disposition" (i.e., no disposition
occurs within two years from the date the option was granted nor one year from
the date of exercise), the employee will recognize long-term capital gain or
capital loss depending on the selling price of the shares. If option shares are
sold or disposed of as part of a disqualifying disposition, the employee must
recognize ordinary income in an amount equal to the lesser of the amount of gain
recognized on the sale, or the difference between the fair market value of the
option shares on the date of exercise and the option price. Any additional gain
will be taxable to the employee as a long-term or short-term capital gain,
depending on how long the option shares were held. The Company is generally
entitled to a deduction in computing its federal income taxes for the year of
disposition in an amount equal to any amount taxable to the employee as ordinary
income.
Restricted Stock. An employee who receives an award of restricted stock
generally will not recognize taxable income at the time of the award, nor will
the Company be entitled to a tax deduction at that time, unless the employee
makes an election under section 83(b) of the Code to recognize the income upon
the receipt of the restricted stock. If the election is not made, the employee
will recognize ordinary income at such time as the transfer and forfeiture
restrictions applicable to such stock lapse, in an amount equal to the aggregate
fair market value of the shares, as of the date such restrictions lapsed. If the
Company complies with applicable withholding requirements, it is generally
entitled to a deduction in computing its federal income taxes in an amount equal
to the ordinary income taxable to the employee. Such deduction would be
available in the year in which the income is taxable to the employee. Upon
disposition of the shares, any amount received in excess of the fair market
value of the shares on the date such restrictions lapsed would be treated as
long-term or short-term capital gain, depending upon the employee's holding
period following such lapse. Dividends or other distributions of property (other
than a distribution of Common Stock of the Company) with respect to restricted
stock prior to the lapse of the transfer and forfeiture restrictions related
thereto would constitute ordinary income to the employee and the Company would
be entitled to a deduction at the same time and in the same amount.
Pursuant to the provisions of section 83(b) of the Code, an employee who
receives restricted stock may elect to be taxed at the time of the award. If the
employee so elects, the full value of the shares (without regard to
restrictions) at the time of the grant, less any amount paid by the employee,
will be taxed to the participant as ordinary income and will be deductible by
the Company. Dividends paid with respect to the shares during the period of
restriction will be taxable as dividends to the participant and not deductible
by the Company. If, after making an election pursuant to section 83(b), any
shares are subsequently forfeited, the employee will be entitled to a capital
loss deduction.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
1997 STOCK OPTION PLAN.
APPOINTMENT OF AUDITORS
The appointment of Price Waterhouse LLP as auditors for the Company during
1998 will be submitted to the meeting in order to permit the shareholders to
express their approval or disapproval. In the event of a negative vote, a
selection of other auditors will be made by the Board. A representative of Price
Waterhouse LLP is expected to be present at the meeting, will be given an
opportunity to make a statement if he or she desires and will respond to
appropriate questions. Notwithstanding approval by the shareholders, the Board
of Directors reserves the right to replace the auditors at any time upon the
recommendation of the Audit Committee of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF
PRICE WATERHOUSE LLP.
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<PAGE> 23
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth as of January 31, 1998, the number of shares
of each class of Common Stock of the Company owned by any person (including any
group) known by management to beneficially own more than 5% of each class of
Common Stock of the Company, by each of the Named Executive Officers, and by all
directors and executive officers of the Company as a group. 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>
Class B Common Stock Class A Common Stock
------------------------------------- ----------------------------------
Name and Address of Number of Shares Percent of Class Number of Shares Percent of
Individual or Beneficially (if more Beneficially Class (if more
Identity of Group Owned (1) than 1%) Owned (2) than 1%)
----------------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
William E. Bindley 5,000 --- 0 ---
Robert L. Myers 25,500(3)(4) 1.1% 0 ---
Steven D. Cosler 2,000(3) --- 0 ---
Guy F. Bryant 1,000(3) --- 0 ---
Melissa E. McIntyre 350(3) --- 0 ---
William M. Woodard 100(3) --- 0 ---
Bindley Western Industries, Inc. 10,214,286(5) 81.6% 10,214,286 100%
10333 N. Meridian Street, Ste. 300
Indianapolis, IN 46290
State of Wisconsin 135,000 5.9% 0 ---
Investment Board
P.O. Box 7842
Madison, WI 53707 (6)
Bankers Trust Company 198,400 8.6% 0 ---
130 Liberty Street
New York, NY 10006 (7)
All current directors and executive 108,672(3) 4.7% 0 ---
officers as a group (12 persons)
</TABLE>
- ----------
(1) For information regarding the beneficial ownership of shares of Class B
Common Stock held by non-employee directors, see "Election of
Directors--Nominees."
(2) No shares of Class A Common Stock are beneficially owned by any non-
employee director.
(3) Does not include shares subject to stock options which are not exercisable
within 60 days.
(4) Includes 500 shares held by Mr. Myers' daughter.
(5) This amount represents shares of Class B Common Stock issuable upon
conversion of Class A Common Stock. The Class A Common Stock is convertible
into Class B Common Stock on a share-for-share basis, upon the request of
the holder thereof at any time and upon the occurrence of certain events.
(6) The shareholder is a government agency which manages public pension funds.
Information is based solely on reports filed by such shareholder under
Section 13(d) of the Securities Exchange Act of 1934.
(7) The shareholder is a bank and a wholly owned subsidiary of Bankers Trust
New York Corporation, a parent holding company. Information is based solely
on reports filed by such shareholder under Section 13(d) of the Securities
Exchange Act of 1934.
-21-
<PAGE> 24
MANAGEMENT OWNERSHIP OF BWI COMMON STOCK
The following table sets forth as of January 31, 1998, the number of shares
of common stock of BWI, the Company's parent, owned by all of the Company's
directors and nominees, by each of the Named Executive Officers, and by all
directors and executive officers of the Company as a group. Unless otherwise
indicated in a footnote, each individual or group possesses sole voting and
investment power with respect to the shares of BWI indicated as beneficially
owned.
<TABLE>
<CAPTION>
BWI Common Stock
-------------------------------------------------
Name Number of Shares Percent of Class
---- Beneficially Owned (if more than 1%)
------------------ ----------------
<S> <C> <C>
William E. Bindley 3,385,165 (1)(2) 21.2%
Robert L. Myers 26,560 (1)(3) ---
Michael D. McCormick 331,313 (1)(4) 2.1%
Richard W. Roberson 0 ---
Thomas J. Salentine 300,719 (1)(5) 1.9%
Rebecca M. Shanahan 0 ---
Steven D. Cosler 10,010 (1)(6) ---
Guy F. Bryant 19,399 (1)(7) ---
Melissa E. McIntyre 13,598 (1)(8) ---
William M. Woodard 7,644 (1)(9) ---
All current directors and executive
officers as a group (12 persons) 4,099,408 (1)(10) 24.7%
</TABLE>
- ----------
(1) Does not include shares subject to stock options which
are not exercisable within 60 days.
(2) Includes presently exercisable stock options to purchase 169,240 shares
granted by BWI. Also includes 49,000 shares held by a family foundation
and 47,500 shares held in a charitable remainder trust of which Mr.
Bindley is the trustee and has investment control. Excludes 5,500 shares
held by Mr. Bindley's spouse; Mr. Bindley disclaims beneficial ownership
of such shares.
(3) Includes presently exercisable stock options to purchase 17,338 shares
granted by BWI. Also includes 300 shares held by Mr. Myers' daughter.
(4) Includes presently exercisable stock options to purchase 313,984 shares
granted by BWI. Also includes 972 shares held in a family foundation.
(5) Includes presently exercisable stock options to purchase 268,468 shares
granted by BWI.
(6) Includes presently exercisable stock options to purchase 9,674 shares
granted by BWI.
(7) Includes presently exercisable stock options to purchase 18,475 shares
granted by BWI.
(8) Includes presently exercisable stock options to purchase 13,598 shares
granted by BWI.
(9) Includes presently exercisable stock options to purchase 6,886 shares
granted by BWI.
(10) Includes presently exercisable stock options to purchase 822,663 shares
granted by BWI.
-22-
<PAGE> 25
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
The date by which shareholder proposals must be received by the Company for
inclusion in proxy materials relating to the 1999 Annual Meeting of Common
Shareholders is November 26, 1998.
In order to be considered at the 1999 Annual Meeting, shareholder proposals
must comply with the advance notice and eligibility requirements contained in
the Company's By-Laws. The Company's By-Laws provide that shareholders are
required to give advance notice to the Company of any nomination by a
shareholder of candidates for election as directors and of any business to be
brought by a shareholder before an annual shareholders' meeting. Specifically,
the By-Laws provide that for a shareholder to nominate a person for election to
the Company's Board of Directors, the shareholder must be entitled to vote for
the election of directors at the meeting and must give timely written notice of
the nomination to the Secretary of the Company. The By-Laws also provide that
for business to be property 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 give timely written notice
thereof to the Secretary of the Company. In order to be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days prior to the meeting. In the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder must be
received not later than the close of business on the tenth day following the day
on which notice of the date of the meeting was mailed or public disclosure was
made. The notice must contain specified information about each nominee or the
proposed business and the shareholder making the nomination or proposal.
The specific requirements of these advance notice and eligibility
provisions are set forth in Section 1.4 and Section 1.5 of the Company's
By-Laws, a copy of which is available upon request. Such requests and any
shareholder proposals should be sent to the Secretary of the Company at the
principal executive offices of the Company.
-23-
<PAGE> 26
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.
"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.
Appendix A
<PAGE> 27
"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.
"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.
A-2
<PAGE> 28
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 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
A-3
<PAGE> 29
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.
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 applicable tax or other laws or other changes in
circumstances occurring after the commencement of such Restricted Period.
A-4
<PAGE> 30
(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.
(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
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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 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 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.
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<PAGE> 32
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 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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<PAGE> 33
(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.
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<PAGE> 34
PRIORITY HEALTHCARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby appoint William E. Bindley and Michael D. McCormick, or
P either of them, my proxies, with power of substitution, to vote all
R shares of common stock of the Company which I am entitled to vote
O at the annual meeting of common shareholders of said company, to be
X held at the Conference Center, 10333 North Meridian Street,
Y Indianapolis, Indiana, on May 21, 1998, at 2:00 P.M., Indianapolis
time, and at any adjournment, as follows:
<TABLE>
<S> <C>
Election of Directors, Nominees: (change of address)
------------------------------------
Michael D. McCormick and Thomas J. Salentine ------------------------------------
------------------------------------
------------------------------------
(If you have written in the above
space please mark the corresponding
box on the reverse side of this
card.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE SIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF ALL NOMINEES LISTED UNDER PROPOSAL 1, FOR PROPOSAL 2 AND FOR PROPOSAL 3.
SEE REVERSE
SIDE
...................................................................................................................................
DETACH CARD
NOTE: THE CONFERENCE CENTER IS LOCATED ON THE 1ST FLOOR OF 3 MERIDIAN PLAZA AT THE NORTHEAST CORNER OF 103RD STREET AND
MERIDIAN STREET.
</TABLE>
<PAGE> 35
PRIORITY HEALTHCARE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
FOR WITHHELD FOR ALL
ALL ALL EXCEPT:
<S> <C> <C> <C> <C> <C> <C> <C>
1. Election of Directors -- [] [] [] ------------------------------------------
(see reverse)
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. To approve the appointment of [] [] [] 3. To approve the adoption of the [] [] []
Price Waterhouse LLP as auditors Company's 1997 Stock Option and
for the Company for 1998; Incentive Plan; and
4. In their discretion, to transact
such other business as may properly
come before the meeting.
Address Change Requested
Date: _______________________, 1998
___________________________________
Signature(s)
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
guardian, please give full title as
such. If a corporation, please sign
in full corporate name by President
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person. Please, mark, sign, date
and return the proxy promptly in
the enclosed postage paid envelope.
...................................................................................................................................
! FOLD AND DETACH HERE !
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
