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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR
- --- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from
to
---------- ----------
Commission file number 000-23249
PRIORITY HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1927379
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
285 WEST CENTRAL PARKWAY
ALTAMONTE SPRINGS, FLORIDA 32714
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 869-7001
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
$425,881,567
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant based on the last sale price for such stock on March 9, 1999
(assuming solely for the purposes of this calculation that all Directors and
executive officers of the Registrant are "affiliates").
5,465,497
Number of shares of Class A Common Stock, $.01 par value, outstanding at
March 9, 1999.
7,093,759
Number of shares of Class B Common Stock, $.01 par value, outstanding at
March 9, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference into this
Annual Report on Form 10-K:
PART OF FORM 10-K INTO WHICH
IDENTITY OF DOCUMENT DOCUMENT IS INCORPORATED
Definitive Proxy Statement for the Annual PART III
Meeting of Shareholders
to be held May 10, 1999
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PRIORITY HEALTHCARE CORPORATION
Altamonte Springs, Florida
Annual Report to Securities and Exchange Commission
December 31, 1998
PART I
ITEM 1. BUSINESS.
BACKGROUND
Priority Healthcare Corporation ("Priority" or the "Company") was
formed by Bindley Western Industries, Inc. ("BWI") on June 23, 1994 as an
Indiana corporation to focus on the distribution of products and provision of
services to the alternate site segment of the healthcare industry. The Company
conducts the business activities of alternate site healthcare companies acquired
by BWI or the Company in five transactions since February 1993. The principal
executive offices of the Company are located at 285 West Central Parkway,
Altamonte Springs, Florida 32714 and its telephone number at that address is
(407) 869-7001. On October 29, 1997, the Company consummated an initial public
offering of its Class B Common Stock (the "Offering"). On December 31, 1998, BWI
distributed to its common shareholders all of the 10,214,286 shares of the
Company's Class A Common Stock in a spin-off transaction and BWI no longer has
any ownership interest in the Company. Unless otherwise indicated, "Priority"
and the "Company" refer to Priority Healthcare Corporation and its subsidiaries,
and "BWI" refers to Bindley Western Industries, Inc. and its subsidiaries other
than the Company.
ACQUISITION HISTORY
Effective as of February 28, 1993, BWI acquired substantially all of
the assets of Charise Charles, Ltd., Inc. ("Charise Charles"), a specialty
wholesale distributor of oncology and renal care biopharmaceuticals located in
Altamonte Springs, Florida. On October 6, 1993, BWI acquired substantially all
of the assets of PRN Medical, Inc. ("PRN"), a specialty wholesale distributor of
renal care supplies and dialysis equipment located in Orlando, Florida. In
August 1994, PRN was combined with Charise Charles as part of the formation of
the Company. On October 31, 1994, the Company acquired the stock of 3C Medical,
Inc. ("3C"), a specialty distributor of acute dialysis products located in Santa
Ana, California. Effective January 1, 1995, the Company acquired all of the
outstanding stock of IV-1, Inc., IV-One Services, Inc. and National Pharmacy
Providers, Inc., three related companies located in Altamonte Springs, Florida
that provided specialty pharmacy and other related healthcare services. On
August 6, 1997, the Company acquired substantially all of the assets of Grove
Way Pharmacy, Inc. ("Grove Way Pharmacy"), a specialty distributor of vaccines
located in Castro Valley, California.
The operations of Charise Charles, PRN, 3C and Grove Way Pharmacy are
now included in the Company's Priority Healthcare Distribution division
("Priority Distribution"). Effective December 31, 1998, IV-One Services, Inc.
and National Pharmacy Providers, Inc. were merged into IV-1, Inc. and the name
of the corporation was changed to Priority Healthcare Pharmacy, Inc. ("Priority
Pharmacy").
GENERAL
Priority is a national distributor of specialty pharmaceuticals and
related medical supplies to the alternate site healthcare market and is a
provider of patient-specific, self-injectable biopharmaceuticals and disease
treatment programs to individuals with chronic diseases. Through Priority
Distribution, the Company sells over 3,500 SKUs of specialty pharmaceuticals and
medical supplies to outpatient renal care centers and office-based physicians in
oncology and other physician specialty markets. With the acquisition of Grove
Way Pharmacy, Priority Distribution entered the vaccine market. Priority
Distribution offers value-added services to meet the specific needs of these
markets by shipping refrigerated pharmaceuticals overnight in special packaging
to maintain appropriate temperatures, offering automated order entry services
and offering customized distribution for group accounts.
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From distribution centers in Tustin, California and Grove City, Ohio, Priority
Distribution services over 2,000 customers in all 50 states and Puerto Rico,
including approximately 600 office-based oncologists and 800 renal dialysis
clinics.
Through Priority Pharmacy, the Company fills individual patient
prescriptions for self-injectable biopharmaceuticals. These patient-specific
prescriptions are filled at the licensed pharmacy in Altamonte Springs, Florida
and shipped directly to the patient overnight in specialized packages. Priority
Pharmacy also provides disease treatment programs for hepatitis, melanoma,
cancer, human growth deficiency and the complications of HIV.
Priority's net sales have increased from $107.4 million in 1994 to
$275.6 million in 1998. In the same period, operating income has increased from
$2.3 million in 1994 to $15.9 million in 1998. The Company's objective is to
continue to grow rapidly and enhance its market position as a leading healthcare
company by capitalizing on its business strengths and pursuing the following
strategy: (i) continue to focus on and further penetrate the alternate site
market; (ii) enter new markets by distributing new product categories and
patient-specific biopharmaceuticals; (iii) accelerate growth of its higher
margin, patient-specific pharmacy business by leveraging relationships with
existing distribution customers; (iv) maintain intense cost control while
investing in infrastructure; (v) pursue acquisitions to complement existing
product offerings and further penetrate markets; and (vi) continue to develop
physician and patient networks that enhance Priority's alliance capabilities
with manufacturers.
INDUSTRY AND MARKET OVERVIEW
Priority sells the majority of its products and services into three
large and growing markets -- oncology, gastroenterology and chronic renal
dialysis. The Company also operates in certain segments of the vaccine market.
The common characteristics of these markets is that most products are
administered in an alternate site setting by physicians or the patients
themselves and require specialized shipping and support services.
Industry Overview. The alternate site supply market is fragmented with
many public and private companies focusing on different product or customer
niches. Few companies offer a wide range of pharmaceuticals and related supplies
targeted to multiple customer groups, specifically renal dialysis clinics and
office-based physicians. Historically, cancer therapy, renal dialysis and most
other treatments for chronic and life-threatening medical conditions were
administered almost exclusively in a hospital inpatient setting. During the
1990s, the frequency with which these treatments have been administered outside
the hospital has increased dramatically in response to cost containment efforts
and the introduction of new biopharmaceutical products, such as interferon,
ribavirin-Intron A combination therapy ("Rebetron"), erythropoietin ("EPO") and
cancer drugs.
The service needs of office-based physicians and clinics differ
markedly from those of the hospital market, creating logistical challenges and
increasing administrative costs for those offices. Office-based physicians and
clinics generally order relatively small quantities of drugs at irregular
intervals and do not have inventory management systems or sufficient pharmacy
staffing. Challenges facing these caregivers include providing necessary
administrative and financial resources, managing relationships with multiple
suppliers, managing inventories, billing patients and third-party payors, and
monitoring new clinical developments. The Company believes that the shift from
hospital-based to office-based or home-based care delivery has created a
significant opportunity, particularly in the oncology, gastroenterology, renal
dialysis, vaccine and homecare markets.
Oncology. Cancer continues to grow in the United States. According to
USA Today newspaper, 1.2 million cases of cancer will be diagnosed in the United
States in 1999. The principal treatments for cancer are surgery and a regimen of
pharmaceutical treatments. Surgery typically involves hospitalization, but
radiation and chemotherapy are increasingly being delivered in alternate site
settings such as the physician office and the home. According to USA Today,
approximately 60% of cancer patients have no effective therapy to treat their
illness. Cancer drugs generate approximately $6 billion per year in sales
worldwide, which is predicted to grow to $62.7 billion by the year 2030.
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The National Cancer Institute estimates that direct medical costs for
the treatment of cancer in the United States totaled $35 billion in 1996. Frost
& Sullivan estimated the U.S. market for oncology pharmaceuticals to be $4.1
billion in 1996 and projected it to grow at a compound annual rate of 13.2% from
1996 through 2003. The Company believes that the office-based segment of the
cancer pharmaceutical market represents approximately 25% of such market and has
been growing faster than the cancer pharmaceutical market. Growth in the cancer
pharmaceutical market is expected to be driven by the continued introduction of
new pharmaceuticals and increases in the incidence of cancer. Of 350
biotechnology medicines currently in development, nearly one half are cancer
related according to a 1998 survey conducted by Pharmaceutical Research and
Manufacturers of America ("PhRMA"). In addition, the overall incidence of cancer
is expected to increase as the average age of the U.S. population continues to
increase. According to the National Institutes of Health ("NIH"), over 50% of
all cancers are diagnosed in people age 65 or over.
Renal Dialysis. End stage renal disease ("ESRD") is characterized by
the irreversible loss of kidney function and requires kidney transplantation or
routine dialysis treatment (either periodialysis or hemodialysis), which
involves removing waste products and excess fluids from the blood. According to
the Health Care Financing Administration ("HCFA"), as of December 31, 1995, over
80% of dialysis patients, which the Company still believes is valid, were
receiving hemodialysis in outpatient treatment centers. Hemodialysis typically
utilizes various specialty pharmaceuticals and related medical supplies as part
of the treatment. Hemodialysis treatments usually last three hours and are
performed three times a week at over 3,000 outpatient facilities in the United
States. According to HCFA, ESRD enrollment is growing by approximately 6% per
year. The medication most frequently prescribed to hemodialysis patients is EPO,
which stimulates the production of red blood cells, as well as Calcijex
(calcium), INFeD (iron), hepatitis vaccine and other nutrient compounds. The
Company estimates that the United States market for EPO alone exceeds $1
billion. Growth in this market is driven by the general aging of the population,
favorable reimbursement trends and proposed regulatory changes, expansion of
ancillary services and increased managed care contracts.
Vaccine Market. The worldwide vaccine market currently exceeds $3
billion annually, and is expected to grow to $7 billion by 2001, according to
SmithKline Beecham, one of the leading vaccine manufacturers. The Company
estimates that pediatric vaccines represent 40% of the world market, and
hepatitis vaccines represent over 20% of the world market.
Growth in the vaccine market is expected to be driven by the growth of
combination pediatric vaccines, travelers' vaccines, vaccines for adolescent
protection, vaccines for the elderly and vaccines to treat chronic infectious
disease and cancer. According to the 1998 PhRMA survey, 77 vaccines are
currently in development.
Gastroenterology. Priority operates in the gastroenterology market,
principally through the sale of interferon and Rebetron for the treatment of
hepatitis C. NIH estimates that nearly four million Americans are infected with
hepatitis C and that approximately 30,000 new acute hepatitis C infections occur
each year. According to NIH, the incidence of hepatitis C infection appears to
be declining from its peak in 1989. However, because only 25% to 30% of new
hepatitis C infections are currently diagnosed, as estimated by NIH, the Company
believes the treated portion of this population is likely to increase as
awareness of hepatitis disease management programs increases. According to NIH,
hepatitis C is responsible for 8,000 to 10,000 deaths annually and is currently
the leading reason for liver transplantation in the United States.
BUSINESS STRENGTHS
Priority believes the following represent the Company's business
strengths and have been the principal factors in the Company's business success
to date.
Knowledgeable Sales, Marketing and Support Staff. The Company has a
well-trained, knowledgeable telemarketing and sales support staff of
approximately 50 full-time associates. The Company's sales support staff and
telemarketers are most experienced in the areas of oncology, gastroenterology,
renal care and vaccines. Priority holds frequent meetings and training sessions
with its suppliers to enable the sales and support staff to be well-
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informed about current and new biopharmaceuticals. The sales and support staff
provides not only superior and knowledgeable customer service, but also promotes
the sale of new products.
Clinical Expertise. The Company provides disease treatment programs to
patients and physicians through its highly trained clinical staff of
pharmacists, nurses and patient care coordinators. These personnel are available
for ongoing consultation with the patient and the dispensing physician regarding
the patient's therapy and progress seven days a week, 24 hours a day. In order
to serve the specific needs of its customers, Priority operates one central
licensed pharmacy, which has been accredited with commendation by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO").
Broad Product Offerings to Targeted Markets. Priority sells over 3,500
SKUs of pharmaceuticals and medical supplies which enable the Company to provide
"one-stop shopping" to its customers. Priority targets its selling efforts of
this broad range of products and services to customers in alternate site
settings, such as office-based physicians and renal dialysis clinics. The
Company continually evaluates new products that it can add to its offerings to
continue to meet the needs of these specialized markets.
Commitment to Customer Service. The Company is committed to providing
superior customer service that includes shipping products ordered before 6 p.m.
for delivery the next day and filling 99% of its orders within one day of being
ordered. Priority's software enables its salespeople to quickly determine
product availability, pricing, customer order history and billing information.
In addition, Priority Pharmacy provides patient education, counseling and
follow-up with 24-hour on-call nurses to assist its patients in better
understanding and complying with their treatments.
Efficient Infrastructure. In the last two years, Priority has focused
considerable time and expense on building an infrastructure, including computer
systems and training, that would enable the Company to operate efficiently and
manage rapid growth. Management also focuses on tightly controlling expenses and
is constantly re-evaluating the efficiency of its operations, including
purchasing and distribution.
GROWTH STRATEGY
The Company's objective is to continue to grow rapidly and enhance its
market position as a leading specialty distributor by capitalizing on its
business strengths and pursuing the following strategy.
Continue to focus on and further penetrate the alternate site market.
By focusing on the alternate site market, the Company has targeted growth
segments of the health care industry. The Company intends to increase its
alternate site market presence by expanding its product and service offerings,
increasing its sales and marketing personnel and focusing on group accounts.
Enter new markets by distributing new product categories and
patient-specific biopharmaceuticals. The Company plans to selectively enter new
markets through new program offerings, such as its disease treatment programs
for melanoma and non-hodgkins lymphoma. In addition, by targeting chronic
disease therapies that require patient-specific, self-injectable
biopharmaceuticals, the Company continues to expand its markets.
Accelerate growth of its higher margin, patient-specific pharmacy
business by leveraging relationships with existing distribution customers. The
Company has over 2,000 customers, including physicians focusing on oncology,
gastroenterology, renal care and vaccines. The Company believes that a number of
physicians that order pharmaceuticals and supplies from the Company also treat
patients who require patient-specific, self-injectable biopharmaceuticals. The
Company's information database identifies these cross-selling opportunities, and
Priority believes it is well-positioned to capture incremental revenue from
these customers.
Maintain intense cost control while investing in infrastructure. The
Company's goal is to remain a low cost provider of specialty distribution
products yet increase the value-added services it provides to customers such as
24-hour on-call nurse support, patient counseling, specialized shipping and
software to its larger customers. The
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Company's selling, general and administrative expense was only 5.1% of revenues
in 1998 even as the Company continued to invest in its infrastructure.
Pursue acquisitions to complement existing product offerings or further
penetrate markets. The Company believes that the highly fragmented specialty
distribution and pharmacy industries afford it an opportunity to grow through
selective acquisitions. By acquiring complementary businesses, the Company can
increase its customer base, expand its product and geographic scope and leverage
its existing infrastructure. For example, the acquisition of Grove Way Pharmacy
has enabled the Company to target the distribution of vaccines into the
alternate site market.
Continue to develop physician and patient networks that enhance the
Company's alliance capabilities with manufacturers. The Company believes that
with strong physician and patient networks the relationships with its
manufacturers will be enhanced, thereby increasing the potential for alliances
which could expand its products, service and geographic scope.
PRODUCTS AND SERVICES
Priority Distribution. Priority Distribution provides a broad range of
services and supplies to meet the needs of the alternate site market, including
the outpatient renal care market, office-based oncology market and other
physician office specialty markets that are high users of vaccines. Priority
Distribution offers value-added services to meet the specialized needs of these
markets by shipping refrigerated pharmaceuticals overnight in special packaging
to maintain appropriate temperatures and offering automated order entry services
and customized group account distribution. Priority Distribution distributes its
products from distribution centers in Tustin, California and Grove City, Ohio.
The Company sells over 3,500 SKUs of pharmaceuticals such as EPO, Neupogen,
Calcijex and INFeD and related medical supplies such as dialyzers, blood tubing,
fistula needles, IV sets, transducers, tape and sponges. During 1998,
approximately 27% of the Company's revenues were attributable to sales of EPO to
the renal care market. EPO for the renal care market is available from only one
manufacturer, Amgen. Priority Distribution services over 2,000 customers located
in all 50 states and Puerto Rico, including approximately 600 office-based
oncologists and 800 renal dialysis clinics.
Priority believes its knowledgeable salesforce provides a competitive
advantage when selling into the alternate site market. Since a majority of
customer orders are placed by telephone, the Company offers its customers a
toll-free telephone number and fax line and is beginning to use electronic data
interchange ("EDI") ordering capability to accept electronically transmitted
orders. Orders typically are received by the Company's telemarketing sales and
service personnel who use PC-based computer systems to enter customer orders,
and to access product information, product availability, pricing, promotions and
the customer's buying or referral history. As part of the Company's commitment
to superior customer service, the Company offers its customers ease of order
placement. Once an order is received, it is electronically sent to the
appropriate distribution center where it is filled and shipped. The Company
estimates that approximately 98% of all items are shipped without back ordering,
and that 99% of all orders received before 6 p.m. are shipped on the same day
that the order is received. See " -- Sales and Marketing."
Priority Pharmacy. Priority Pharmacy provides patient-specific,
self-injectable biopharmaceuticals and related disease treatment programs to
individuals with chronic diseases. In Altamonte Springs, Florida, Priority
Pharmacy fills patient-specific prescriptions and ships them via overnight
delivery in special shipping containers to maintain appropriate temperatures.
These services are provided in combination with the Company's disease treatment
programs, through which the Company's pharmacy and nursing staff provide
education, counseling and other services to patients. Management is not aware of
any other provider that offers the same services as Priority Pharmacy on a
nationwide basis.
Priority Pharmacy currently provides disease treatment programs for
various diseases, including hepatitis and cancer, with biopharmaceuticals that
primarily consist of Interferon, a synthetic biopharmaceutical used to treat
hepatitis B and C, Rebetron, an oral antiviral and a synthetic biopharmaceutical
used to treat hepatitis C, Octreotide, a synthetic hormone used to treat
diarrhea associated with intestinal peptide tumors, and Epoetin Alfa, a
synthetic biopharmaceutical used to treat anemia. Priority Pharmacy continues to
evaluate adding more products.
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The disease treatment programs provided by the Company offer a number
of advantages to patients, physicians, third-party payors and drug
manufacturers. The advantages include: (i) increasing patient compliance with
the recommended therapy, thereby avoiding more costly future treatments; (ii)
facilitating patient education required to prepare and administer the products;
(iii) reducing the potential for patient errors in dosing or wastage of product;
(iv) decreasing patient or caregiver anxiety; (v) reducing the overall cost of
delivery; and (vi) collecting better outcomes data.
The Company's telemarketing efforts focus on marketing to physician
offices where new patient referrals occur. Upon referral, patients are contacted
via telephone by the Company's intake nurses who explain the program and provide
education on self-injection techniques, side effects and potential drug
interactions. Following the initial prescription delivery, patients are
contacted by patient care coordinators who assess patient compliance and
progress, inquire regarding any potential side effects, arrange the next
scheduled prescription delivery, verify the shipping address, listen to patient
concerns and direct questions to the Company's clinical staff. The Company's
pharmacists and registered nurses are available for ongoing consultation with
the patient and the dispensing physician regarding the patient's therapy and
progress seven days a week, 24 hours a day.
Most parenteral or injectable prescriptions are prepared in sterile
conditions under class 100 laminar flow hoods. Licensed pharmacists verify the
prescription with the prescribing physician and recheck the prescription before
shipping. In order to ensure the safe delivery of prescriptions to the patient,
the Company telephones the patient several days before shipping to confirm that
the patient or another person will be at home to receive the package immediately
upon delivery. In addition, the Company requires the overnight delivery service
to obtain a signed receipt before leaving the drugs at a residence.
Year 2000 Compliance. The year 2000 will pose a unique set of
challenges to those industries reliant on information technology. As a result of
the methods employed by early programmers, many software applications and
operational programs may be unable to distinguish the year 2000 from the year
1900. If not effectively addressed, this problem could result in the production
of inaccurate data, or, in the worst cases, the inability of the systems to
continue to function altogether. The Company and other companies in the same
business are vulnerable to the dependence on distribution and communications
systems.
During the past two years, the Company has replaced its hardware and
software systems for reasons other than year 2000 compliance; the Company has
spent approximately $375,000 for such systems. The hardware systems have been
successfully tested for year 2000 compliance. In May 1998 the Company initiated
the process of preparing its software applications to make them year 2000
compliant. Two of the three main software packages that the Company utilizes
were tested for year 2000 compliance during 1998. The third software package was
upgraded during January 1999 and is now year 2000 compliant. The total
cumulative costs relating to the upgrade of its software programs was
approximately $75,000. Funds for such expenditures were generated from
operations.
Management believes that the expenditures required to bring the
Company's systems into compliance did not have a materially adverse effect on
the Company's performance. However, the year 2000 problem is pervasive and
complex and can potentially affect any computer process. Accordingly, no
assurance can be given that the year 2000 compliance can be achieved without
additional unanticipated expenditures and uncertainties that might affect future
financial results.
Moreover, to operate its business, the Company relies on governmental
agencies, utility companies, telecommunications companies, shipping companies,
suppliers and other third party service providers over which it can assert
little control. The Company's ability to conduct its business is dependent upon
the ability of these third parties to avoid year 2000 related disruptions. The
Company is in the process of contacting its third party service providers about
their year 2000 readiness, but the Company has not yet received any assurances
from any such third parties about their year 2000 compliance. If the Company's
key third party service providers do not adequately address their year 2000
issues, the Company's business may be materially affected which could result in
a materially adverse effect on the Company's results of operations and financial
condition.
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The Company has not to date developed any contingency plans, as such
plans will depend on the responses from its third party service providers, in
the event the Company or any key third party providers should fail to become
year 2000 compliant. If required, critical functions could be handled on a
manual basis until such time that the year 2000 malfunction was identified and
resolved.
SALES AND MARKETING
The Company employs approximately 50 full-time telemarketing and sales
support staff personnel. The Company strives to generate new customers and
solidify existing customer relationships through frequent direct marketing
contact that emphasizes the Company's broad product lines in specialty markets,
competitive prices, responsive service and ease of order placement. The Company
telemarkets to oncology clinics, physician offices and dialysis centers. The
Company targets larger customers with customized approaches developed by
management and its key account team. The Company also links the Priority
Distribution and Priority Pharmacy databases to facilitate cross-selling efforts
between the two divisions. The Company believes that there is a significant
opportunity to provide its specialty pharmacy services to patients of physicians
that currently order pharmaceuticals and supplies from Priority Distribution.
The Company's sales personnel service both in-bound and out-bound calls
and are responsible for assisting customers in purchasing decisions, answering
questions and placing orders. Sales personnel also initiate out-bound calls to
market the Company's services to those customer accounts identified by the
Company as being high volume accounts, high order frequency accounts or
cross-selling opportunity accounts. The Company's sales personnel use PC-based
computer systems to enter customer orders and to access information about
products, product availability, pricing, promotions and customer buying and
referral history. All telemarketing sales personnel work to establish long-term
relationships with the Company's customers through regularly scheduled phone
contact and personalized service.
Training for sales personnel is provided on a regular basis through
in-service meetings, seminars and field training and is supported by print and
video materials. Initial and ongoing training focuses on industry and product
information, selling skills, ethics and compliance requirements and computer
software skills. The Company believes that its investment in training is
critical to establishing its competitive position in the marketplace.
CUSTOMERS
Priority Distribution serves over 2,000 customers located in all 50
states and Puerto Rico, including approximately 600 office-based oncologists and
800 renal dialysis clinics.
During 1998, the Company's largest 20 customers accounted for
approximately 38% of the Company's revenues and one customer, Everest Healthcare
Services Corporation, accounted for approximately 12% of the Company's revenues.
Significant declines in the level of purchases by one or more of the Company's
largest customers could have a material adverse effect on the Company's business
and results of operations. As is customary in its industry, the Company
generally does not have long-term contracts with its customers. Management
believes that the retention rate for the Company's customers is very favorable.
Although the Company has not to date experienced any failure to collect accounts
receivable from its largest customers, an adverse change in the financial
condition of any of these customers, including an adverse change as a result of
a change in governmental or private reimbursement programs, could have a
material adverse effect on the Company.
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PURCHASING
Management believes that effective purchasing is key to both
profitability and maintaining market share. In 1996, 1997 and 1998, the
Company's single largest supplier, Amgen, accounted for approximately 42%, 40%
and 32%, respectively, of the Company's revenues. The Company has a $5,000,000
Standby Letter of Credit with a major financial institution with Amgen as the
beneficiary. The Company continually evaluates its purchase requirements and
likely increases in manufacturer prices in order to obtain products at the most
advantageous cost. It has negotiated several partnership relationships with
manufacturers that offer favorable pricing, volume-based incentives and
opportunities to reduce supply chain costs for both parties.
COMPETITION
The alternate site specialty pharmaceutical and medical supply industry
is highly competitive and is experiencing both horizontal and vertical
consolidation. The industry is fragmented, with many public and private
companies focusing on different product or customer niches. Some of the
Company's current and potential competitors include regional and national
full-line, full-service medical supply distributors; independent speciality
distributors; national full-line, full-service wholesale drug distributors, such
as Bergen Brunswig Corporation and Cardinal Health, Inc., that operate their own
specialty distribution businesses; institutional pharmacies; hospital-based
pharmacies; home healthcare agencies; mail order distributors that distribute
medical supplies on a regional or national basis; and certain manufacturers,
such as Bristol-Myers Squibb, that own distributors or that sell their products
both to distributors and directly to users, including clinics and physician
offices. Some of the Company's competitors have greater financial, technical,
marketing and managerial resources than the Company. While competition is
primarily price and service oriented, it can also be affected by depth of
product line, technical support systems, specific patient requirements and
reputation. There can be no assurance that competitive pressures will not have a
material adverse effect on the Company.
GOVERNMENT REGULATION
As a provider of healthcare services and products, the Company is
subject to extensive regulation by federal, state and local government agencies.
Licensing. The Company is required to register with the United States
Drug Enforcement Administration ("DEA"), the Food and Drug Administration
("FDA") and appropriate state agencies for various permits and/or licenses, and
it also must comply with the operating and security standards of such agencies.
The Company's Tustin and Grove City distribution centers are licensed to
distribute pharmaceuticals in accordance with the Prescription Drug Marketing
Act of 1987. The Grove City location is also licensed to distribute or dispense
certain controlled substances in accordance with the requirements of the
Controlled Substances Act of 1970. Similarly, the Company's pharmacy program and
provider businesses are subject to licensing by the DEA as well as by the state
boards of pharmacy, state health departments and other state agencies where they
operate.
On November 14, 1995, an investigator for the FDA, accompanied by an
inspector from the State of Florida Board of Pharmacy, inspected the Company's
pharmacy in Altamonte Springs, Florida. At the end of the inspection, the FDA
investigator issued an FDA Form-483, which is the form used by FDA investigators
to identify any observed or suspected noncompliance with the laws administered
by the agency. The FDA Form-483 identified the facility as a pharmacy/repackager
and listed three observations related to certain requirements that the FDA
typically imposes on manufacturers of sterile products. The Company advised the
FDA in December 1995 that the Company believes it is not, within the statutory
or regulatory meaning of these terms, a repackager or a manufacturer. A second
inspection of the same facility occurred on June 26, 1997, in which the FDA
investigator was again accompanied by Florida pharmacy authorities. The FDA
investigator issued a substantially identical FDA Form-483 at the end of that
inspection. The Florida State Board of Pharmacy did not issue any deficiencies
regarding the operations of the Altamonte Springs pharmacy in either of these
inspections.
On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG
460.200), which explains the criteria the FDA uses to distinguish between
pharmacy operations that are properly regulated under state law and
9
<PAGE> 10
drug manufacturing regulated by the FDA. The Company's response to the FDA in
December 1995 cited this CPG and explained the Company's contention that,
according to the FDA's own criteria, the Altamonte Springs pharmacy is properly
regulated under state and local laws.
On November 21, 1997, the President signed into law the FDA
Modernization Act of 1997, which, among a number of other items, added a new
section on pharmacy compounding to the Federal Food, Drug and Cosmetic Act. In
this provision, Congress clarified a gray area by explicitly identifying the
circumstances in which pharmacies may compound drugs without the need for filing
a New Drug Application, observing the FDA's Good Manufacturing Practice
regulations or complying with certain other specific Federal Food, Drug and
Cosmetic Act requirements. Congress provided that the term "compounding" does
not include mixing or reconstituting that is done in accordance with directions
contained in approved labeling provided by the manufacturer of the product. The
Company believes that, as a result of this amendment, so long as it follows the
manufacturer's approved labeling in each case, and prepares drugs only for
identified individual patients using licensed practitioners, the Company's
activities should be regulated by the Florida State Board of Pharmacy and not be
subjected by the FDA to a full New Drug Application requirement demonstrating
the basic safety and effectiveness of the drugs.
If the Company is correct and its operations are limited to those
engaged in by pharmacies, there should be no material adverse effect from the
FDA Form-483s because the Company believes it is currently in compliance in all
material respects with applicable state and local laws. If the Company is deemed
to be a sterile product manufacturer or a sterile product repackager, it would
be subject to additional regulatory requirements. If for some reason the FDA or
other legal authorities decide that the Company must file for approval of a New
Drug Application, such an event could have a material adverse effect on the
Company.
There can be no assurance that future legislation, future rulemaking or
active enforcement by the FDA of a determination that the Company is a drug
manufacturer will not have a material adverse effect on the business of the
Company.
The State of Florida Board of Pharmacy regulates the compounding
activities of Florida pharmacies, including certain activities of the Company.
The Company has obtained a Community/Special Parenteral/Enteral Compounding
Pharmacy Permit. Over the past several years, the Florida Board of Pharmacy has
proposed certain changes to its compounding requirements. The Company believes
that it is in compliance with such current requirements, but there can be no
assurance that other conditions or requirements would not be imposed in the
future that would have a material adverse effect on the Company.
Referral Restrictions. The Company is subject to federal and state laws
which govern financial and other arrangements between healthcare providers.
These laws include the federal anti-kickback statute, which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many states
have enacted similar statutes which are not necessarily limited to items and
services for which payment is made by Medicare or Medicaid. Violations of these
laws may result in fines, imprisonment and exclusion from the Medicare and
Medicaid programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the statute.
In part to address concerns regarding the anti-kickback statute, the
federal government has promulgated regulations that provide exceptions, or "safe
harbors", for transactions that will be deemed not to violate the anti-kickback
statute. Proposed regulations to clarify these safe harbors and to provide
additional safe harbors have been published but final regulations have not yet
been adopted. Although the Company believes that it is not in violation of the
anti-kickback statute, its operations do not fit within any of the existing or
proposed safe harbors. Until recently, there were no procedures for obtaining
binding interpretations or advisory opinions from the Health and Human Services
Office of the Inspector General ("OIG") on the application of the federal
anti-kickback statute to an arrangement or its qualification for a safe harbor
upon which the Company can rely. However, the Health Insurance Portability and
Accountability Act of 1996 requires the Secretary of Health and Human Services
to issue written
10
<PAGE> 11
advisory opinions regarding the applicability of certain aspects of the
anti-kickback statute to specific arrangements or proposed arrangements.
Advisory opinions are binding as to the Secretary and the party requesting the
opinion.
The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices which it believes may implicate the federal
anti-kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between healthcare providers.
The OIG also has issued a Fraud Alert concerning prescription drug marketing
practices that could potentially violate the federal anti-kickback statute.
Pharmaceutical marketing activities may implicate the federal anti-kickback
statute because drugs are often reimbursed under the Medicaid program. According
to the Fraud Alert, examples of practices that may implicate the statute include
certain arrangements under which remuneration is made to pharmacists to
recommend the use of a particular pharmaceutical product. In addition, a number
of states have recently undertaken enforcement actions against pharmaceutical
manufacturers involving pharmaceutical marketing programs, including programs
containing incentives to pharmacists to dispense one particular product rather
than another. These enforcement actions arise under state consumer protection
laws which generally prohibit false advertising, deceptive trade practices and
the like. Further, a number of the states involved in these enforcement actions
have requested that the FDA exercise greater regulatory oversight in the area of
pharmaceutical promotional activities by pharmacists. It is not possible to
determine whether the FDA will act in this regard or what effect, if any, FDA
involvement would have on the Company's operations.
Significant prohibitions against physician referrals were enacted by
Congress in 1993. These prohibitions, commonly known as "Stark II," amended
prior physician self-referral legislation known as "Stark I" by dramatically
enlarging the field of physician-owned or physician-interested entities to which
the referral prohibitions apply. Effective on January 1, 1995, Stark II
prohibits a physician from referring Medicare or Medicaid patients to an entity
providing "designated health services" in which the physician has an ownership
or investment interest, or with which the physician has entered into a
compensation arrangement. Stark II also prohibits the entity from billing the
government for services rendered pursuant to a prohibited referral. The
designated health services include clinical laboratory services, radiology
services, radiation therapy services and supplies, physical and occupational
therapy services, durable medical equipment and supplies, parenteral and enteral
nutrients, equipment and supplies, prosthetic devices, orthotics and
prosthetics, outpatient prescription drugs, home health services, and inpatient
and outpatient hospital services. The penalties for violating Stark II include a
prohibition on payment by these government programs, civil penalties of as much
as $15,000 for each violative referral and $100,000 for participation in a
"circumvention scheme", and exclusion from further participation in Medicare or
Medicaid.
In January, 1998, the HCFA published proposed regulations implementing
Stark II. The proposed rules provide interpretations of the Stark II provisions,
some of which are more restrictive than previously assumed. As of the date
hereof, it is impossible to predict when the proposed rules will be published in
final form or what changes may be made to the rules before they are finalized.
The financial or other impact of the anti-referral provisions of Stark II on the
Company cannot be determined.
Federal regulatory and law enforcement authorities have recently
increased enforcement activities with respect to Medicare and Medicaid fraud and
abuse regulations and other reimbursement laws and rules, including laws and
regulations that govern the activities of many of the Company's customers. There
can be no assurance that increased enforcement activities will not indirectly
have a material adverse effect on the Company.
Other Regulatory Issues. Certain states have adopted, or are
considering adopting, restrictions similar to those contained in the federal
anti-kickback and physician self-referral laws. Although the Company believes
that its operations do not violate applicable state laws, there can be no
assurance that state regulatory authorities will not challenge the Company's
activities under such laws or challenge the dispensing of patient-specific,
self-injectable biopharmaceuticals by the Company as being subject to state laws
regulating out-of-state pharmacies.
The Company believes that its pharmacy practices and its contract
arrangements with other healthcare providers and pharmaceutical suppliers are in
compliance with these laws. To address the risks presented by such laws, the
Company has appointed an employee trained as a lawyer as Vice President of
Administration, arranged for compliance reviews conducted by outside advisors
and implemented an ethics and corporate compliance program.
11
<PAGE> 12
There can be no assurance that such laws will not, however, be interpreted in
the future in a manner inconsistent with the Company's interpretation and
application.
REIMBURSEMENT
A substantial portion of the sales of Priority Pharmacy is derived from
third-party payors, including private insurers and managed care organizations
such as HMOs and PPOs. Similar to other medical service providers, the Company
experiences lengthy reimbursement collection periods as a result of third party
payment procedures. Consequently, management of accounts receivable through
effective patient registration, billing, collection and reimbursement procedures
is critical to financial success.
Private payors typically reimburse a higher amount for a given service
and provide a broader range of benefits than governmental payors, although net
revenue and gross profits from private payors have been affected by the
continuing efforts to contain or reduce the costs of healthcare. A portion of
the Company's revenue has been derived in recent years from agreements with
HMOs, PPOs and other managed care providers. Although these agreements often
provide for negotiated reimbursement at reduced rates, they generally result in
lower bad debts, provide for faster payment terms and provide opportunities to
generate greater volumes than traditional indemnity referrals.
In 1998, the Company's revenues included no reimbursement from Medicare
and Medicaid. Nevertheless, due to the reliance of office-based oncologists and
renal dialysis clinics on Medicare and Medicaid reimbursement, changes in such
governmental programs could have a material effect on the Company's financial
condition and results of operations.
Because the Medicare program represents a substantial portion of the
federal budget, Congress takes action in almost every legislative session to
modify the Medicare program for the purpose of reducing the amounts otherwise
payable from the program to healthcare providers. Legislation or regulations may
be enacted in the future that may significantly modify the end stage renal
dialysis program or substantially reduce the amount paid for dialysis or
oncology treatments. Further, statutes or regulations may be adopted which
impose additional requirements in order for the Company's customers to be
eligible to participate in the federal and state payment programs. Such new
legislation or regulations could adversely affect the Company's business
operations.
Additionally, the Balanced Budget Act of 1997 (the "Budget Act"), which
was enacted in August 1997, contained numerous provisions related to Medicare
and Medicaid reimbursement. Although many of the details will not be solidified
for the next several years, the general thrust of the provisions dealing with
Medicare and Medicaid contained in the Budget Act is intended to significantly
slow the growth in Medicare spending. The Budget Act contains changes to
reimbursement rates for certain Medicare and Medicaid covered services, as well
as certain limitations on the coverage of such services. Although the Company's
revenues in 1998 included no reimbursement from Medicare and Medicaid, the
Budget Act may affect the Company's suppliers and customers, which in turn could
have an adverse effect on the Company.
In addition, the Company expects that private payors will continue
their efforts to contain or reduce healthcare costs through reductions in
reimbursement rates or other cost-containment measures. The continuation of such
efforts could have a material adverse effect on the Company's financial
condition and results of operations.
EMPLOYEES
At December 31, 1998, the Company had approximately 145 full-time
equivalent employees. None of the Company's employees is currently represented
by a labor union or other labor organization. Approximately 8% of the employees
are pharmacists or nurses. The Company believes that its relationship with its
employees is good.
12
<PAGE> 13
ITEM 2. PROPERTIES.
The Company's headquarters are located in Altamonte Springs, Florida,
and consist of approximately 33,000 square feet of space leased through December
1999. The Company has signed a five year lease beginning in January 2000 for a
new 38,000 square foot corporate headquarters and pharmacy facility in nearby
Lake Mary, Florida. Priority Distribution has a 19,300 square foot distribution
center in Tustin, California, which is leased through November 2000 and a 36,000
square foot distribution center in Grove City, Ohio, which is leased through
July 2002. Priority Distribution also has a 1,200 square foot sales office in
San Ramon, California, which is leased through April 2001.
The Company's distribution centers have been constructed or adapted to
the Company's specifications for climate control, alarm systems and, where
required, segregated security areas for controlled substances.
Overall, the Company believes that its facilities are suitable and
adequate for its current needs, and for projected internal growth through at
least 2000.
ITEM 3. LEGAL PROCEEDINGS.
IV-1, Inc. ("IV-1") and IV-One Services, Inc. ("IV-One Services")
(which was merged into IV-1 on December 31, 1998) have been named as defendants
in a second amended counterclaim filed by Amgen, Inc. ("Amgen") on May 14, 1996,
in the Circuit Court of the Eighteenth Judicial District of Seminole County,
Florida. Amgen has asserted that these entities tortiously interfered with a
license agreement (the "License Agreement") between Amgen and Ortho
Pharmaceutical Corporation ("Ortho"). Pursuant to this agreement, Amgen licensed
Ortho to sell EPO for use in the treatment of non-dialysis patients, while Amgen
reserved the exclusive right to sell EPO for use in the treatment of dialysis
patients. Amgen has asserted that, prior to the purchase of IV-1 and IV-One
Services by the Company, these entities induced Ortho to sell EPO to them for
resale in the dialysis market in contravention of the License Agreement. Amgen
has also alleged that IV-1 and IV-One Services were involved in a civil
conspiracy to circumvent the terms of the License Agreement to allow the resale
of EPO to the dialysis market. Furthermore, Amgen has asserted unfair
competition claims against IV-1, including that IV-1 manufactured and
distributed unapproved prefilled syringes of EPO and another product
manufactured by Amgen in container systems unapproved by Amgen. Amgen did not
specify a time frame for the acts complained of in the civil conspiracy and
unfair competition allegations. In each count, Amgen has demanded an unspecified
amount of compensatory damages, including costs and interest.
The Company believes that the sellers of IV-1, IV-One Services and
Charise Charles are contractually obligated to provide legal defense and to
indemnify the Company for losses and liabilities with respect to this
litigation, to the extent that the alleged acts occurred prior to the purchase
of such entities by the Company. To date, the sellers have provided the legal
defense for IV-1 and IV-One Services in the litigation. Indemnification from the
sellers of IV-1 and IV-One Services is limited to no more than $1.5 million and
indemnification from the sellers of Charise Charles is limited to no more than
$2.0 million. As of January 31, 1999, approximately $151,000 of charges have
been incurred on behalf of the sellers for claims for indemnification to be
submitted to the sellers. The Company does not expect the Amgen litigation to be
material to the Company's results of operations, financial condition or cash
flows; however, no assurance can be given that this litigation will not have a
material adverse effect on the Company. In addition, Amgen is the Company's
largest supplier. Consequently, this litigation presents the risk of adversely
affecting the Company's business relationship with Amgen, which could have a
material adverse effect on the Company.
The Company is also subject to ordinary and routine lawsuits and
governmental inspections, investigations and proceedings incidental to its
business, none of which is material to the Company's results of operations,
financial condition or cash flows.
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<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders
during the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William E. Bindley 58 Chairman of the Board
Robert L. Myers 53 President, Chief Executive Officer and Director
Guy F. Bryant 40 Executive Vice President -- Priority Healthcare
Distribution
Steven D. Cosler 43 Executive Vice President -- Priority Pharmacy Services
Donald J. Perfetto 52 Executive Vice President, Chief Financial Officer and
Treasurer
Melissa E. McIntyre 38 Vice President -- Clinical Services
Barbara J. Luttrell 58 Vice President -- Administration
William M. Woodard 40 Vice President -- Strategic Alliances
</TABLE>
William E. Bindley is the Chairman of the Board, Chief Executive
Officer and President of BWI, positions he has held since founding BWI in 1968.
He is also a director of BWI and Shoe Carnival, Inc., a shoe retailer. Mr.
Bindley was the Chief Executive Officer of the Company from July 1994 until May
1997 and the President of the Company from May 1996 until July 1996. He has
served as a director of the Company since June 1994.
Robert L. Myers has been the President of the Company since July 1996
and the Chief Executive Officer of the Company since May 1997. From July 1996 to
May 1997, he was the Chief Operating Officer of the Company. From June 1995
through June 1996, Mr. Myers was a consultant to the healthcare industry. From
1971 to June 1995, he was employed by Eckerd Corporation, a retail drug store
chain, where he served as a corporate officer from 1981 through 1995 and as
senior vice president of pharmacy from 1990 to 1995. Mr. Myers has served as a
director of the Company since May 1997. Mr. Myers is a registered pharmacist.
Guy F. Bryant serves as the Executive Vice President -- Priority
Healthcare Distribution, a position that he has held since September 1995. Prior
to joining the Company, he was employed in sales and general management
positions by Major Pharmaceuticals, a distributor of generic pharmaceuticals,
since September 1992 and was vice president of sales from August 1994 to August
1995.
Steven D. Cosler became Executive Vice President -- Priority Pharmacy
in August 1997. Prior to that time and since July 1996, he was Senior Vice
President and General Manager of Priority Healthcare Services Corporation, a
subsidiary of BWI. From January 1992 to June 1996, he was senior vice president
of sales and operations for Coresource, a managed care and third party
administrator.
Donald J. Perfetto became Executive Vice President in November 1998.
Prior to that time and since June 1997 he was a Vice President. Mr. Perfetto
also has served as Chief Financial Officer and Treasurer of the Company since
June 1997. From 1986 to May 1997, he was employed by Bimeco, Inc., a distributor
of medical
14
<PAGE> 15
products. During such time, Mr. Perfetto held the positions of vice president of
finance and operations and secretary/treasurer of Bimeco, Inc.
Melissa E. McIntyre, RN, OCN, is the Vice President -- Clinical
Services of the Company, a position that she has held since August 1997. She has
also held various positions with subsidiaries of the Company since June 1994.
Prior to joining the Company, and since June 1991, she was employed by
Intracare, an outpatient infusion center, as clinical director of nursing.
Barbara J. Luttrell is the Vice President -- Administration of the
Company, a position she has held since May 1997. Prior to joining the Company in
January 1997, she was employed by Physician's Alliance, a physician group, as
director of human resources since September 1996. She attended law school from
May 1993 to December 1995 and practiced as an attorney from May 1996 to
September 1996. From December 1995 to May 1996, Ms. Luttrell prepared for the
bar examination. Ms. Luttrell has 16 years of experience in human resource
management.
William M. Woodard has held the positions of Vice President --
Strategic Alliances or Vice President -- Marketing of the Company since May
1997. Prior to such time, Mr. Woodard held various positions with subsidiaries
of the Company. From March 1990 until April 1993, Mr. Woodard was a sales
representative for Tri State Hospital Supply, a distributor of medical supplies.
The above information includes business experience during the past five
years for each of the Company's executive officers. Executive officers of the
Company serve at the discretion of the Board of Directors. There is no family
relationship between any of the Directors or executive officers of the Company.
(Pursuant to General Instruction G(3) of Form 10-K, the foregoing
information regarding executive officers is included as an unnumbered Item in
Part I of this Annual Report in lieu of being included in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders.)
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICES
The Company's Class B Common Stock trades on The Nasdaq Stock Market
("Nasdaq") under the symbol PHCC. Prior to October 24, 1997, there was no public
market for the Class B Common Stock. The prices set forth below reflect the high
and low sales quotations for the Company's Class B Common Stock as reported by
Nasdaq for the calendar period indicated, commencing on October 24, 1997. As of
March 9, 1999, there were 45 holders of record of the Company's Class B Common
Stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997:
Fourth Quarter (From October 24, 1997) $16.50 $14.00
1998:
First Quarter 18.25 13.25
Second Quarter 20.25 17.00
Third Quarter 24.25 16.25
Fourth Quarter 53.94 19.75
</TABLE>
The Company's Class A Common Stock is not listed for trading. However,
because the Class A Common Stock is automatically converted into Class B Common
Stock upon transfer (except in limited circumstances), the Class A Common Stock
is freely tradable except by affiliates of the Company. As of March 9, 1999,
there were 782 holders of record of the Company's Class A Common Stock.
DIVIDENDS
The Company does not intend to pay cash dividends on its Common Stock
in the foreseeable future, but rather intends to use future earnings principally
to support operations and to finance expansion and possible acquisitions. The
payment of cash dividends in the future will be at the discretion of the
Company's Board of Directors and will depend on a number of factors, including
the Company's financial condition, capital requirements, future business
prospects, the terms of any documents governing indebtedness of the Company, and
such other factors as the Board of Directors of the Company may deem relevant.
Subject to the terms of any preferred stock created by the Company's Board of
Directors, each outstanding share of Common Stock will be entitled equally to
such dividends as may be declared from time to time by the Board of Directors.
On March 31, 1997, the Company paid a dividend in the form of a
subordinated promissory note (the "Dividend Note") with a principal amount of
$6.0 million to BWI to return to BWI a portion of its equity investment in the
Company. The Company paid the Dividend Note on September 30, 1998. The Dividend
Note carried an interest rate of 7.25% per annum. Interest expense on the
Dividend Note totaled $324,000 in 1997 and $326,000 in 1998.
SALES OF UNREGISTERED SECURITIES
The following information is furnished as to securities of the Company
sold during 1998 that were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
(a) On October 22, 1998, the Company issued 554 shares of Class B
Common Stock to its two non-employee Directors as the stock portion of their
annual retainer.
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<PAGE> 17
(b) On September 15, 1998, the Company granted options under its
nonqualified broad based stock option plan for an aggregate of 147,000 shares of
Class B Common Stock to key employees at an exercise price of $20.00 per share.
The transactions described in paragraphs (a) and (b) above are exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof.
USE OF PROCEEDS
The Company's Registration Statement on Form S-1 (File No. 333-34463)
was declared effective on October 23, 1997. The Company registered 2,300,000
shares of Class B Common Stock, all of which were sold in a firm commitment
underwriting at an aggregate offering price to the public of $33,350,000. After
the underwriters' discount of $2,334,500, the Company received proceeds
aggregating $31,015,500 before expenses of the Offering.
Through December 31, 1998, the aggregate amount of expenses incurred
for the Company's account in connection with the issuance and distribution of
its Class B Common Stock was $1,048,000. Included in the offering expenses is
$156,000 that was paid to BWI for services provided by BWI to facilitate the
marketing and sale of the Offering. None of the other expenses were direct or
indirect payments to affiliates.
The net offering proceeds to the Company, after deducting the
underwriters' discount and offering expenses, was $30.0 million. As of December
31, 1998, $16.7 million of the net offering proceeds have been used to repay
indebtedness to BWI, and the balance has been advanced to BWI or invested in
interest bearing investment grade securities.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA.
Effective February 28, 1993, BWI acquired substantially all of the
assets of Charise Charles, Ltd., Inc. Since that time five acquisitions were
made by or on behalf of the Company. See "Item 1. Business -- Acquisition
History." These acquisitions were accounted for under the purchase method of
accounting and, accordingly, the results of operations of the acquired entities
are included in the Company's financial statements from their respective dates
of acquisition. As a result, period-to-period comparisons of financial position
and results of operations are not necessarily meaningful. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related notes included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
-----------------------------------------------------------------
(000's OMITTED, EXCEPT SHARE DATA)
STATEMENT OF EARNINGS DATA:
<S> <C> <C> <C> <C> <C>
Net sales .................... $ 107,449 $ 123,990 $ 158,247 $ 230,982 $ 275,626
Cost of products sold ........ 100,254 111,448 141,074 207,755 244,485
Gross profit ................. 7,195 12,542 17,173 23,227 31,141
Selling, general and
administrative expense ..... 4,394 7,836 8,443 10,620 13,989
Depreciation and
amortization ............... 512 998 1,009 1,161 1,234
Earnings from operations ..... 2,289 3,708 7,721 11,446 15,918
Stock option expense ......... -- -- -- 350 --
Interest expense (income), net 200 511 437 887 (916)
Earnings before income taxes . 2,089 3,197 7,284 10,209 16,834
Provision for income taxes ... 835 1,311 2,915 4,058 6,691
Net earnings ................. $ 1,254 $ 1,886 $ 4,369 $ 6,151 $ 10,143
Earning per share : ..........
Basic .... $ .12 $ .18 $ .43 $ .58 $ .81
Diluted .. $ .12 $ .18 $ .43 $ .58 $ .81
Weighted average
shares outstanding : ..
Basic .... 10,214,286 10,214,286 10,214,286 10,622,941 12,515,316
Diluted .. 10,214,286 10,214,286 10,214,286 10,626,589 12,569,361
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 1996 1997 1998
------------------------------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital ..... $ 12,955 $ 16,000 $ 20,792 $ 57,488 $ 61,875
Receivable from BWI . -- -- -- 5,290 16,517
Total assets ........ 36,849 41,584 57,220 91,728 107,519
Payable to BWI ...... 8,345 3,873 9,290 -- --
Long-term obligations 113 751 560 272 --
Note payable to BWI . -- -- -- 6,000 --
Total liabilities ... 16,610 16,553 27,820 31,845 37,478
Shareholders' equity 20,239 25,031 29,400 59,883 70,041
</TABLE>
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<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and related notes included elsewhere
in this report.
INTRODUCTION
The Company was formed in June 1994 to succeed to the business
operations of companies previously acquired by BWI, as described below. From its
formation through its initial public offering ("IPO") on October 24, 1997, the
Company operated as a wholly owned subsidiary of BWI, and procured a number of
services from, and engaged in a number of financial and other transactions with
BWI. Since the IPO, the Company continued to be controlled by BWI, but operated
on a stand-alone basis. On December 31, 1998, BWI distributed to the holders of
BWI common stock on December 15, 1998 all of the shares of the Company's Class A
Common Stock owned by BWI, making the Company a stand-alone public company.
Accordingly, since the IPO the Company has incurred and will continue to incur
incremental recurring legal, audit, risk management and administrative costs
related to operating as a stand-alone entity that it did not experience as a
wholly owned subsidiary of BWI. The financial information included in this
Annual Report on Form 10-K is not necessarily indicative of the Company's future
results of operations, financial position and cash flows as a stand-alone public
company.
The Company provides specialty pharmaceuticals and related medical
supplies as well as disease treatment services to the office-based physician,
outpatient renal dialysis and homecare markets. The Company's operations are
derived from the acquisition by BWI of substantially all of the assets of
Charise Charles, a specialty wholesale distributor of oncology and renal care
biopharmaceuticals, in February 1993 and of PRN, a specialty wholesale
distributor of renal care supplies and dialysis equipment, in October 1993. The
Company subsequently acquired 3C, a specialty distributor of acute dialysis
products, in October 1994, IV-1, Inc., IV-One Services, Inc. and National
Pharmacy Providers, Inc., three related companies that provided specialty
pharmacy and related healthcare services, in January 1995, and Grove Way
Pharmacy, a vaccine and injectable drug distributor, in August 1997. These
acquisitions were accounted for under the purchase method of accounting and,
accordingly, the results of operations of the acquired companies are included in
the Company's financial statements from their respective dates of acquisition.
As a result, period-to-period comparisons of financial position and results of
operations are not necessarily meaningful.
The operations of Charise Charles, PRN, 3C and Grove Way Pharmacy are
now included in the Company's Priority Distribution division, and IV-1, Inc.
(which now includes the operations of IV-One Services, Inc. and National
Pharmacy Providers, Inc., which merged into IV-1, Inc. on December 31, 1998)
comprises the Priority Pharmacy division. During 1996, 1997 and 1998, Priority
Distribution represented 92%, 92% and 88% of net sales, respectively, and
Priority Pharmacy represented the balance. Historically, Priority Pharmacy has
generated substantially higher margins than Priority Distribution and has
contributed a significant portion of the Company's earnings.
RESULTS OF OPERATIONS
1998 Compared to 1997
Net Sales. Net sales increased to $275.6 million in 1998 from $231.0
million in 1997, an increase of 19%. The growth reflected primarily the addition
of new customers, new product introductions (including Rebetron), additional
sales to existing customers and, to a lesser extent, the acquisition of Grove
Way Pharmacy and inflationary price increases.
Gross Margin. Gross margin increased to $31.1 million in 1998 from
$23.2 million in 1997, an increase of 34%. The increase in gross margin
reflected increased sales by both Priority Distribution and Priority Pharmacy.
Gross margin as a percentage of net sales increased in 1998 to 11.3% from 10.1%
in 1997. This increase was
19
<PAGE> 20
primarily attributable to the change in sales mix resulting from the significant
increase in sales by Priority Pharmacy which generated higher gross margins than
those of Priority Distribution. Competition continues to exert pressure on
margins, particularly those of Priority Distribution.
Selling, General and Administrative Expense. Selling, general and
administrative ("SGA") expense increased to $14.0 million in 1998 from $10.6
million in 1997, an increase of 32%. SGA expense as a percentage of net sales
increased to 5.1% in 1998 from 4.6% in 1997. Management continually monitors SGA
expense and remains focused on controlling these increases through improved
technology and efficient asset management. The increase in SGA expense as a
percentage of net sales resulted from incurring expenses associated with the
Company's Grove City, Ohio facility, which opened in November 1997, training and
payroll costs from hiring additional sales personnel at Priority Pharmacy, and
increased overall costs of being a publicly traded company.
Depreciation and Amortization. Depreciation and amortization was $1.2
million in both 1998 and 1997.
Interest Income, Net. Interest income, net, equaled $916,000 in 1998 as
opposed to interest expense, net, which equaled $887,000 in 1997. In 1998,
interest income of $348,000 and $1.1 million was primarily related to amounts
earned by investing funds received from the October, 1997 initial public
offering of the Company's Class B Common Stock (the "Offering") in overnight
repurchase agreements with a major financial institution and loaning funds to
BWI, respectively. This interest income was partially offset by interest expense
of $326,000 on the subordinated note issued to BWI on March 31, 1997 (which was
paid September 30, 1998) and interest expense of $155,000 on the deferred
compensation of a Company executive. During 1997 the interest expense was
primarily related to borrowings from BWI and $324,000 of interest expense on the
subordinated note issued to BWI. The interest income or expense on the loans to
or borrowings from BWI is calculated by applying BWI's average incremental
borrowing rate, which was 6.3% and 6.4% for 1998 and 1997, respectively, to the
average outstanding balances. During 1998 the average outstanding loans to BWI
were $16.9 million, while in 1997 the average outstanding borrowings from BWI
were $10.3 million.
Income Taxes. Through December 31, 1998, the Company participated in
the consolidated federal and state income tax returns filed by BWI. BWI charged
federal and state income tax expense to the Company as if the Company filed its
own separate federal and state income tax returns. The provision for income
taxes in 1998 and 1997 represented 39.7% and 39.8%, respectively, of earnings
before taxes.
1997 Compared to 1996
Net Sales. Net sales increased to $231.0 million in 1997 from $158.2
million in 1996, an increase of 46%. The growth reflected the addition of new
customers, new product introductions, additional sales to existing customers
and, to a lesser extent, inflationary price increases of approximately 4%.
Gross Margin. Gross margin increased to $23.2 million in 1997 from
$17.2 million in 1996, an increase of 35%. The increase in gross margin
reflected increased sales by both Priority Distribution and Priority Pharmacy.
Gross margin as a percentage of net sales decreased in 1997 to 10.1% from 10.9%
in 1996. This decrease was primarily attributable to the change in sales mix
resulting from the significant increase in sales by Priority Distribution which
generated lower gross margins than those of Priority Pharmacy. Competition
continues to exert pressure on margins, particularly those of Priority
Distribution.
Selling, General and Administrative Expense. Selling, general and
administrative ("SGA") expense increased to $10.6 million in 1997 from $8.4
million in 1996, an increase of 26%. However, SGA expense as a percentage of net
sales decreased to 4.6% in 1997 from 5.3% in 1996. Management continually
monitors SGA expense and remains focused on controlling these increases through
improved technology and efficient asset management. The decrease in SGA expense
as a percentage of net sales resulted from the revenue growth in excess of the
fixed portion of SGA expense.
20
<PAGE> 21
Depreciation and Amortization. Depreciation and amortization increased
to $1.2 million in 1997 from $1.0 million in 1996, an increase of 15%. The
increase was primarily the result of depreciation of new equipment, particularly
management information systems.
Stock Option Expense. Upon completion of the IPO, the Company granted a
consultant of the Company a 10-year option to purchase 50,000 shares of the
Company's Class B Common Stock at the initial public offering price. The grant
of this option resulted in a one-time compensation expense charge of $350,000 in
1997.
Interest Expense, Net. Interest expense increased to $1.0 million in
1997 from $457,000 in 1996. This expense was primarily related to financing
provided to the Company by BWI through the IPO date. The expense also included
$324,000 of interest due on the subordinated note issued to BWI on March 31,
1997. The interest expense on the intercompany borrowings was calculated by
applying the BWI average incremental borrowing rate to the average outstanding
borrowings, while interest on the subordinated note was calculated at the fixed
7.25% face rate of the note. During 1997 and 1996, the average outstanding
borrowings (excluding the subordinated note) were $10.3 million and $6.4
million, respectively, and the average incremental borrowing rate charged was
6.4% in both 1997 and 1996.
Interest income increased to $153,000 in 1997 from $20,000 in 1996.
This income included $87,000 earned on short-term investments with outside
financial institutions and finance charges from customers. The remaining $66,000
of interest income was from advances to BWI. This interest income was calculated
by applying the BWI average incremental borrowing rate to the average
outstanding advances. During the last two months of 1997, the average
outstanding balance was $5.9 million and the average incremental borrowing rate
was 6.4%.
Income Taxes. The Company participated in the consolidated federal and
state income tax returns filed by BWI. BWI charged federal and state income tax
expense to the Company as if the Company filed its own separate federal and
state income tax returns. The provision for income taxes in 1997 represented
39.8% of earnings before taxes as compared to 40.0% for 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working
capital needs to support internal growth, for acquisitions and for capital
expenditures. The Company's principal working capital needs are for inventory
and accounts receivable. Management controls inventory levels in order to
minimize carrying costs and maximize purchasing opportunities. The Company sells
inventory to its customers on various payment terms. This requires significant
working capital to finance inventory purchases and entails accounts receivable
exposure in the event any of its major customers encounter financial
difficulties. Although the Company monitors closely the creditworthiness of its
major customers, there can be no assurance that the Company will not incur some
collection loss on major customer accounts receivable in the future.
The Company had cash, cash advances to BWI and working capital of
$2,000, $16.5 million and $61.9 million, respectively, at December 31, 1998.
Net Cash Provided by Operating Activities. The Company's operations
generated $10.4 million in cash during 1998. Accounts receivable increased $13.2
million, primarily to support the increase in sales and the extension of credit
terms to meet competitive conditions. Inventory decreased $695,000 in 1998 due
to the Company's concerted effort to closely monitor inventory and maintain it
at an optimal level. The $10.7 million increase in accounts payable partially
reduced the cash requirements for accounts receivable; this increase was
attributable to the timing of payments and the credit terms negotiated with
vendors. The Company anticipates that its operations may require cash to fund
its growth. Depreciation and amortization totaled $1.2 million in 1998.
Net Cash Used by Investing Activities. In 1998 the Company purchased
$825,000 in fixed assets, primarily computer hardware and software. The Company
expects that capital expenditures during 1999 will be approximately $1.1
million. The Company anticipates that these expenditures will relate primarily
to the purchase of
21
<PAGE> 22
computer hardware and software, telecommunications equipment, and furniture and
equipment for a new corporate office.
Net Cash Used by Financing Activities. The Company has advanced excess
cash to BWI on an interest-bearing basis under the terms of a $25.0 million
Revolving Credit Promissory Note which is effective through December 31, 1999,
at which time all outstanding amounts are due in full. In 1998 this receivable
from BWI increased by $11.2 million. The Company also paid the $6.0 million
subordinated note payable to BWI.
Management believes that cash from operations and repayment by BWI of
advances made thereto, will be sufficient to meet the Company's working capital
needs for at least two years.
INFLATION
The Company's financial statements are prepared on the basis of
historical costs and are not intended to reflect changes in the relative
purchasing power of the dollar. Because of its ability to take advantage of
forward purchasing opportunities, the Company believes that its gross profits
generally increase as a result of manufacturers' price increases in the products
it distributes. Gross profits may decline if the rate of price increases by
manufacturers declines.
Generally, price increases are passed through to customers as they are
received by the Company and therefore they reduce the negative effect of
inflation. Other non-inventory cost increases, such as payroll, supplies and
services, have been partially offset during the past three years by increased
volume and productivity.
YEAR 2000 COMPLIANCE
The year 2000 will pose a unique set of challenges to those industries
reliant on information technology. As a result of the methods employed by early
programmers, many software applications and operational programs may be unable
to distinguish the year 2000 from the year 1900. If not effectively addressed,
this problem could result in the production of inaccurate data, or, in the worst
cases, the inability of the systems to continue to function altogether. The
Company and other companies in the same business are vulnerable to the
dependence on distribution and communications systems.
During the past two years, the Company has replaced its hardware and
software systems for reasons other than year 2000 compliance; the Company has
spent approximately $375,000 for such systems. The hardware systems have been
successfully tested for year 2000 compliance. In May 1998 the Company initiated
the process of preparing its software applications to make them year 2000
compliant. Two of the three main software packages that the Company utilizes
were tested for year 2000 compliance during 1998. The third software package was
upgraded during January 1999 and is now year 2000 compliant. The total
cumulative costs relating to the upgrade of its software programs was
approximately $75,000. Funds for such expenditures were generated from
operations.
Management believes that the expenditures required to bring the
Company's systems into compliance did not have a materially adverse effect on
the Company's performance. However, the year 2000 problem is pervasive and
complex and can potentially affect any computer process. Accordingly, no
assurance can be given that the year 2000 compliance can be achieved without
additional unanticipated expenditures and uncertainties that might affect future
financial results.
Moreover, to operate its business, the Company relies on governmental
agencies, utility companies, telecommunications companies, shipping companies,
suppliers and other third party service providers over which it can assert
little control. The Company's ability to conduct its business is dependent upon
the ability of these third parties to avoid year 2000 related disruptions. The
Company is in the process of contacting its third party service providers about
their year 2000 readiness, but the Company has not yet received any assurances
from any such third parties about their year 2000 compliance. If the Company's
key third party service providers do not adequately address their year 2000
issues, the Company's business may be materially affected which could result in
a materially adverse effect on the Company's results of operations and financial
condition.
22
<PAGE> 23
The Company has not to date developed any contingency plans, as such
plans will depend on the responses from its third party service providers, in
the event the Company or any key third party providers should fail to become
year 2000 compliant. If required, critical functions could be handled on a
manual basis until such time that the year 2000 malfunction was identified and
resolved.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements which represent
the Company's expectations or beliefs, and which involve certain risks and
uncertainties, including but not limited to, changes in interest rates,
competitive pressures, changes in customer mix, financial stability of major
customers, investment procurement opportunities, changes in governmental
regulations or the interpretation thereof, asserted and unasserted claims and
the ability of the Company and the entities with which it transacts business to
modify or redesign their computer systems to work properly in the year 2000,
which could cause actual results to differ from those in the forward-looking
statements. For this purpose, any statement contained in this report that is not
a statement of historical fact may be deemed to be a forward-looking statement.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond the Company's control, and actual results may differ
materially depending on a variety of important factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary exposure to market risk consists of changes in
interest rates on the Company's loans to BWI. Interest income to the Company on
these loans is determined based on BWI's average incremental borrowing rate (a
variable rate) with its third-party lendor. A decrease in interest rates would
adversely affect the Company's operating results and cash flow available to fund
operations and expansion. Based on the average loan balance for 1998, a decrease
of 10% in BWI's average incremental borrowing rate would result in an
approximately $106,000 annual decrease in interest income. Conversely, a 10%
increase in BWI's average incremental borrowing rate would result in an
approximately $106,000 annual increase in interest income.
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1997 1998
---------------------------------------
<S> <C> <C> <C>
Net sales ................................................. $ 158,247 $ 230,982 $ 275,626
Cost of products sold ..................................... 141,074 207,755 244,485
------------ ------------ ------------
Gross profit .............................................. 17,173 23,227 31,141
Selling, general and administrative expense ............... 8,443 10,620 13,989
Depreciation and amortization ............................. 1,009 1,161 1,234
------------ ------------ ------------
Earnings from operations .................................. 7,721 11,446 15,918
Stock option expense ...................................... -- 350 --
Interest expense (income), net (primarily BWI) ............ 437 887 (916)
------------ ------------ ------------
Earnings before income taxes .............................. 7,284 10,209 16,834
------------ ------------ ------------
Provision for income taxes:
Current ......................................... 3,061 4,495 6,875
Deferred ........................................ (146) (437) (184)
------------ ------------ ------------
2,915 4,058 6,691
------------ ------------ ------------
Net earnings .............................................. $ 4,369 $ 6,151 $ 10,143
============ ============ ============
Earnings per share:
Basic ........................................... $ .43 $ .58 $ .81
Diluted ......................................... $ .43 $ .58 $ .81
Weighted average shares outstanding:
Basic ............................................ 10,214,286 10,622,941 12,515,316
Diluted ......................................... 10,214,286 10,626,589 12,569,361
</TABLE>
(See accompanying notes to consolidated financial statements.)
24
<PAGE> 25
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
----------------
ASSETS:
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 7,910 $ 2
Accounts receivable, less allowance for doubtful accounts of
$402 and $778, respectively ............................... 43,643 56,825
Receivable from BWI ............................................... 5,290 16,517
Finished goods inventory ............................................. 25,082 24,387
Deferred income taxes ................................................ 869 1,145
Other current assets ................................................. 166 284
------- --------
82,960 99,160
------- --------
Fixed assets, at cost ..................................................... 2,492 3,279
Less: accumulated depreciation ....................................... 997 1,459
------- --------
1,495 1,820
------- --------
Intangibles, net .......................................................... 7,273 6,539
------- --------
Total assets ............................................... $ 91,728 $107,519
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable ..................................................... $ 23,180 $ 33,857
Other current liabilities ............................................ 2,292 3,428
------- --------
25,472 37,285
------- --------
Long-term obligations ..................................................... 272 --
------- --------
Deferred income taxes ..................................................... 101 193
------- --------
Subordinated note payable to BWI .......................................... 6,000 --
------- --------
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized, none
issued and outstanding ........................................ -- --
Common stock
Class A, $0.01 par value, 15,000,000 shares authorized,
10,214,286 issued and outstanding ............................ 102 102
Class B, $0.01 par value, 40,000,000 shares authorized, 2,300,922
and 2,301,476 issued and outstanding, respectively ........... 23 23
Additional paid in capital ...................................... 52,907 52,922
Retained earnings ............................................... 6,851 16,994
------- --------
Total shareholders' equity ................................. 59,883 70,041
------- --------
Commitments and contingencies ............................................. -- --
------- --------
Total liabilities and shareholders' equity ................. $ 91,728 $107,519
======== ========
</TABLE>
(See accompanying notes to consolidated financial statements.)
25
<PAGE> 26
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1997 1998
----------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ....................................... $ 4,369 $ 6,151 $ 10,143
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization .................... 1,009 1,161 1,234
Loss on disposal of fixed assets ................. -- 126 --
Compensation expense on stock and option grants... -- 365 15
Deferred income taxes ............................ (146) (437) (184)
Change in assets and liabilities, net of acquisitions:
Accounts receivable .............................. (12,208) (13,549) (13,182)
Finished goods inventory ......................... (3,485) (8,554) 695
Trade accounts payable ........................... 5,657 5,992 10,677
Other current assets and liabilities ............. 280 877 1,018
-------- -------- --------
Net cash (used) provided by operating
activities ............................... (4,524) (7,868) 10,416
-------- -------- --------
Cash flow from investing activities:
Purchase of fixed assets ......................... (405) (727) (825)
Acquisition of business .......................... -- (250) --
-------- -------- --------
Net cash used by investing activities ....... (405) (977) (825)
-------- -------- --------
Cash flow from financing activities:
Net change in amounts due to /from BWI ........... 5,417 (14,580) (11,227)
Repayment of subordinated note payable to BWI .... -- -- (6,000)
Payments on long-term obligations ................ (191) (288) (272)
Proceeds from initial public offering, net ....... -- 29,967 --
-------- -------- --------
Net cash provided (used) by financing
activities ............................... 5,226 15,099 (17,499)
-------- -------- --------
Net increase (decrease) in cash ....................... 297 6,254 (7,908)
Cash and cash equivalents at beginning of period ...... 1,359 1,656 7,910
-------- -------- --------
Cash and cash equivalents at end of period ............ $ 1,656 $ 7,910 $ 2
======== ======== ========
Supplemental cash flow information:
Interest paid .................................... $ 445 $ 1,040 $ 361
Income taxes paid ................................ $ 3,061 $ 4,495 $ 6,875
</TABLE>
(See accompanying notes to consolidated financial statements.)
26
<PAGE> 27
PRIORITY HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------- --------------------
ADDITIONAL
SHARES SHARES PAID IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY
----------- ------ ------------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 ............... 10,214,286 $ 102 -- $ -- $ 22,598 $ 2,331 $ 25,031
Net earnings ................................ 4,369 4,369
----------- ------ ------------ ------ -------- -------- -------
Balances at December 31, 1996 ............... 10,214,286 102 -- -- 22,598 6,700 29,400
Net earnings ................................ 6,151 6,151
Dividend to BWI ............................. (6,000) (6,000)
Issuance of Class B common stock:
Initial public offering ........... 2,300,000 23 29,944 29,967
Board of Directors' compensation .. 922 15 15
Stock option grant .......................... 350 350
----------- ------ ------------ ------ -------- -------- -------
Balances at December 31, 1997 ............... 10,214,286 102 2,300,922 23 52,907 6,851 59,883
Net earnings ................................ 10,143 10,143
Issuance of Class B common stock:
Board of Directors' compensation . 554 15 15
----------- ------ ------------ ------ -------- -------- -------
Balances at December 31, 1998 ............... 10,214,286 $ 102 2,301,476 $ 23 $ 52,922 $ 16,994 $ 70,041
=========== ====== ============ ====== ======== ======== =======
</TABLE>
(See accompanying notes to consolidated financial statements.)
27
<PAGE> 28
PRIORITY HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. Priority Healthcare Corporation (the "Company")
was formed by Bindley Western Industries, Inc. ("BWI") on June 23, 1994, as an
Indiana corporation to focus on the distribution of products and provision of
services to the "alternate site" segment of the healthcare industry. On August
1, 1994, BWI transferred the net assets of its Charise Charles and PRN divisions
to the Company in exchange for 1,000 shares of common stock, no par value. The
Company now operates as a national distributor of specialty pharmaceuticals and
related medical supplies to the alternate site healthcare market and is a
provider of patient-specific, self-injectable biopharmaceuticals and disease
prevention programs to individuals with chronic diseases.
On August 25, 1997, the Board of Directors and BWI, as the sole
shareholder of the Company, completed a recapitalization of the Company.
Effective on that date, the Company's capitalization consisted of: (i)
15,000,000 authorized shares of Class A Common Stock, $0.01 par value,
10,214,286 shares of which were issued and outstanding and owned by BWI, (ii)
40,000,000 shares of Class B Common Stock, $0.01 par value (of which 2,300,000
shares were subsequently issued in an initial public offering described in Note
2 -- Related Party Transactions), and (iii) 5,000,000 shares of Preferred Stock,
without par value, none of which are issued and outstanding. This
recapitalization has been given retroactive effect in these consolidated
financial statements.
The consolidated financial statements of the Company include certain
allocations of corporate overhead and other expenses incurred by BWI on behalf
of the Company. These expenses and the basis of allocations are discussed in
Note 2 -- Related Party Transactions. The Company's financial statements are not
necessarily indicative of the results the Company would have reported had it
existed as a stand-alone public entity, or of the financial position, results of
operations and cash flows of the Company in the future.
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Revenue recognition. Revenues are recognized when products are shipped
to unaffiliated customers with appropriate provisions recorded for estimated
discounts and allowances.
Cash and cash equivalents. The Company considers all investments with
an original maturity of less than 3 months to be a cash equivalent.
Inventories. Inventories are stated on the basis of lower of cost or
market using the first-in, first-out ("FIFO") method.
Fixed assets. Depreciation is computed on the straight-line method for
financial reporting purposes. Accelerated methods are primarily used for income
tax purposes. Assets, valued at cost, are generally being depreciated over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
Estimated
useful life
(years)
<S> <C>
Furnishings........................... 5-7
Leasehold improvements................ 12
Transportation and other equipment.... 3-7
</TABLE>
In the event facts and circumstances indicate an asset could be impaired, an
evaluation of the undiscounted estimated future cash flows from operations is
compared to the asset's carrying amount to determine if a write-down is
required. At December 31, 1997 and December 31, 1998, no impairments existed.
28
<PAGE> 29
Intangibles. The Company continually monitors its cost in excess of net
assets acquired (goodwill), covenants not to compete and its other intangibles
(customer lists and consulting agreements) to determine whether any impairment
of these assets has occurred. In making such determination, the Company
evaluates the expected future cash flows from operations, on an undiscounted
basis, of the underlying businesses which gave rise to such amounts. Goodwill is
being amortized on the straight-line method, principally over 40 years. Other
intangibles are being amortized on the straight-line method over 4 to 15 years.
Earnings per share. Historical earnings per share. The Company has adopted
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," for all periods presented. Basic earnings per share is
computed by dividing net income by the weighted average of Class A and Class B
shares outstanding for the period. Diluted earnings per share computations
assume outstanding stock options with a dilutive effect on earnings were
exercised. These common stock equivalents are added to the weighted average
number of shares outstanding in the diluted calculation. A reconciliation of the
basic and diluted weighted average shares outstanding is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
(In Thousands) 1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted average number of Class A and Class B
Common shares outstanding used as the denominator
in the basic earnings per share calculation 10,214 10,623 12,515
Additional shares assuming exercise of dilutive
stock options -- 4 54
------ ------ ------
Weighted average number of Class A and Class B
Common and equivalent shares used
as the denominator
in the diluted earnings per share calculation 10,214 10,627 12,569
====== ====== ======
</TABLE>
Unaudited pro forma earnings per share. Unaudited pro forma earnings per
share was $0.55 for the year ended December 31, 1997, and was calculated by
dividing pro forma net earnings of $6,248,000 by pro forma average shares
outstanding of 11,430,229. The pro forma adjustments to reported net earnings
reflect, on a net of tax basis (i) additional legal, audit, risk management and
administrative costs required to present the Company as if it had operated as a
stand-alone public company for all of 1997, (ii) the elimination of the interest
expense associated with the Company's payable to BWI, which was liquidated with
proceeds from the IPO and (iii) three months of additional interest expense on
the $6.0 million note payable on the dividend to BWI, as if it was outstanding
as of January 1, 1997. The pro forma average shares outstanding amount includes
an incremental number of Class B shares required to be issued to liquidate the
payable to BWI. This amount was calculated by dividing the average balance of
the payable to BWI from January 1, 1997 through the IPO date by the net proceeds
per share from the IPO.
Income taxes. Through December 31, 1998, the Company participated in the
consolidated federal and state income tax returns filed by BWI. BWI charged
federal and state income tax expense to the Company as if the Company filed its
own separate federal and state income tax returns.
In accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes," the Company accounts for income taxes using the asset and liability
method. The asset and liability method requires the recognition of deferred tax
assets and liabilities for expected future tax consequences of temporary
differences that currently exist between the tax bases and financial reporting
bases of the Company's assets and liabilities.
Use of estimates. The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates made
by management. Actual results could differ from those estimates.
Fair value of financial instruments. The carrying values of cash, accounts
receivable, payable to/from BWI, other current assets, accounts payable and
other current liabilities approximate their fair market values due to the
short-term maturity of these instruments.
29
<PAGE> 30
Prior year reclassifications. Certain amounts in the prior year financial
statements have been reclassified to conform to the current year presentation.
NOTE 2 -- RELATED PARTY TRANSACTIONS
On October 29, 1997, the Company consummated an initial public offering
("IPO") of 2,000,000 shares of Class B Common Stock. An additional 300,000
shares of Class B Common Stock were sold on November 25, 1997 pursuant to the
exercise of the underwriters' overallotment option. Prior to the IPO, the
Company was a wholly-owned subsidiary of BWI. After the IPO, BWI owned over 80%
of the Company's outstanding capital stock. On October 23, 1998, the Board of
Directors of BWI declared a distribution payable on December 31, 1998 to the
holders of BWI common stock of the 10,214,286 shares of Priority Class A Common
Stock owned by BWI on the basis of .448 shares of Priority Class A Common Stock
for each share of BWI common stock outstanding on December 15, 1998, which was
the record date for the Distribution. The fraction of a share of Priority Class
A Common Stock that was distributed for each share of BWI Common Stock was based
upon the 10,214,286 shares of Priority Class A Common Stock owned by BWI divided
by the 22,782,545 shares of BWI Common Stock outstanding on the record date. The
Company and BWI have entered into certain related party transactions which are
described below. Had the Company operated as a stand-alone, non-public entity
for all periods presented, management believes the costs and expenses incurred
by the Company would not have differed materially from those reported in the
financial statements. In addition, the Company participated in the BWI profit
sharing plan, as discussed in Note 8 -- Profit Sharing Plan, through December
31, 1998.
BWI provided management and consulting services to the Company which
included, but were not limited to, legal, human resources, payroll and tax. The
Company was charged $65,000 during each of the years ended December 31, 1996,
1997 and 1998 for such services. These amounts were based on an allocation of
the actual services rendered by BWI and were calculated in a manner considered
reasonable by management.
The Company was also provided certain coverage under the BWI insurance
plans. These expenses were charged to the Company based on a combination of a
pro rata allocation and the push-down of actual expenses incurred, depending on
the type of expenditure. These methods are considered reasonable by management.
This insurance expense was $132,000, $151,000 and $163,000 for 1996, 1997 and
1998, respectively.
At December 31, 1997 and 1998, BWI owed the Company $5.3 and $16.5 million,
respectively. These amounts are due on demand and represent loans of excess cash
balances of the Company to BWI on a short-term, interest-bearing basis. In 1996
and 1997 (until the October 24, 1997 date of the IPO), the Company borrowed from
BWI to finance its operations, those borrowings offset in part by cash
collections from operations that were transferred to BWI. Net interest expense
attributable to these borrowings from BWI were $408,000 for 1996 and $605,000
(net of $66,000 of interest income) for 1997. Interest income attributable to
loans to BWI was $1.1 million for 1998. These amounts were calculated by
applying BWI's average incremental borrowing rate, which was 6.4%, 6.4% and 6.3%
for 1996, 1997 and 1998, respectively, to the average outstanding balances.
During 1996 and 1997, the average outstanding borrowings from BWI were $6.4
million and $10.3 million, respectively, while in 1998 the average outstanding
loans to BWI were $16.9 million.
On March 31, 1997, the Company declared and paid a dividend to BWI in the
form of a $6.0 million subordinated promissory note that was to become due on
March 31, 1999. The Company paid the note on September 30, 1998. The note
carried an interest rate of 7.25% per annum. For 1997 and 1998, interest expense
associated with this note totaled $324,000 and $326,000, respectively.
For 1996, 1997 and 1998, intercompany purchases of inventory from BWI (at
the price paid by BWI) totaled $1.8 million, $2.0 million and $6.0 million,
respectively.
Certain employees of the Company were granted options to purchase BWI stock
under a BWI stock option plan. 155,750 and 15,000 such options were granted by
BWI to Company employees in 1996 and 1997 (prior to the IPO), respectively, with
exercise prices equal to the market price of the BWI stock at the date of grant.
No compensation expense was recognized on any BWI option grants pursuant to
Accounting Principles Board Opinion
30
<PAGE> 31
No. 25, "Accounting for Stock Issued to Employees". If the Company had
recognized compensation expense based on the grant date fair value of those
options as prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation", net income for the years ended December 31, 1996, 1997 and 1998
would have decreased $280,000, $377,000 and $54,000, respectively, on a pro
forma basis. See Note 9 -- Capital Stock for a calculation of pro forma earnings
per share required by SFAS No. 123. The weighted average fair value of each 1996
and 1997 BWI option granted of $6.04 and $7.21, respectively, was estimated
using the Black-Scholes option pricing model, and certain assumptions relevant
to those BWI options and the underlying BWI common stock. On December 31, 1998,
the unvested BWI stock options were converted to options to purchase shares of
Class B Common Stock of the Company. See Note 9 -- Capital Stock.
NOTE 3 -- ACQUISITIONS
The Company acquired Grove Way Pharmacy effective August 6, 1997. This
acquisition was accounted for as a purchase and its results of operations are
included in the consolidated financial statements from the effective date of
acquisition. Grove Way Pharmacy was a specialty distributor of vaccines and
medical supplies to the physicians market. The consideration exchanged for Grove
Way Pharmacy was approximately $250,000, which exceeded the fair value of net
assets acquired and resulted in approximately $156,000 of intangibles. These
intangibles include a three-year noncompete with the prior owner. The results of
operations of Grove Way Pharmacy for 1996 and for the pre-acquisition period in
1997 were not material to the Company's consolidated sales and net earnings.
NOTE 4 -- FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Furnishings $ 797 $ 857
Leasehold improvements 274 450
Transportation and other equipment 1,421 1,972
------- -------
2,492 3,279
Less: accumulated depreciation (997) (1,459)
------- -------
$ 1,495 $ 1,820
======= =======
</TABLE>
NOTE 5 -- INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
---- ----
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Goodwill $ 6,019 $ 6,019
Accumulated amortization (616) (768)
------- ------
Goodwill, net 5,403 5,251
------- ------
Other 4,001 4,001
Accumulated amortization (2,131) (2,713)
------- ------
Other, net 1,870 1,288
------- ------
Intangibles, net $ 7,273 $ 6,539
======= =======
</TABLE>
31
<PAGE> 32
NOTE 6 -- SHORT-TERM BORROWINGS
The Company entered into an agreement with a major financial
institution on November 24, 1998 for a three year unsecured revolving credit
facility. The Company may use the entire $10.0 million credit facility for
letters of credit or direct borrowings. The Company made no direct borrowings
during 1998; a $5.0 million standby letter of credit is outstanding as of
December 31, 1998. The annual interest rate on direct borrowings is a variable
rate equal to LIBOR plus thirty-seven and one-half basis points (0.375%). The
letter of credit carries an annual fee of one percent (1.0%) of the face amount.
The Company is also required to maintain all of its operating accounts with this
financial institution. The revolving credit facility contains covenants related
to fixed charge coverage, funded debt to capitalization and funded debt to
EBITDA ratios.
NOTE 7 -- INCOME TAXES
The provision for income taxes includes state income taxes of $479,000,
$669,000 and $1.1 million in 1996, 1997 and 1998, respectively.
The following table indicates the significant elements contributing to the
difference between the U.S. federal statutory tax rate and the effective tax
rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Percentage of earnings before taxes:
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes on income, net of federal income
tax benefit 4.3% 4.3% 4.2%
Other 0.7% 0.5% 0.5%
--- --- ---
Effective rate 40.0% 39.8% 39.7%
====== ====== ======
</TABLE>
Presented below are the significant elements of the net deferred tax balance
sheet accounts at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
(IN THOUSANDS)
Deferred tax asset:
Current:
<S> <C> <C>
Accounts receivable ...................... $ 491 $ 635
Inventories .............................. 206 223
Deferred compensation and stock
option expense ...................... 172 287
------ ------
Subtotal ............................ 869 1,145
------ ------
Long-term: ..................................... -- --
------ ------
Total deferred tax assets ........... $ 869 $1,145
====== ======
Deferred tax liabilities:
Current: ....................................... -- --
Long-term:
Fixed assets .............................. $ 60 $ 86
Intangibles ............................... 41 107
------ ------
Subtotal ............................ 101 193
------ ------
Total deferred tax liabilities ...... $ 101 $ 193
====== ======
</TABLE>
32
<PAGE> 33
NOTE 8 -- PROFIT SHARING PLAN
The Company's eligible employees participated in the BWI qualified Profit
Sharing Plan ("BWI Plan") through December 31, 1998 at which time the Company
established its own qualified Profit Sharing Plan ("Profit Sharing Plan"). On
February 8, 1999, all employees of the Company and their account balances
transferred from the BWI Plan to the Company's Profit Sharing Plan. All
employees are generally eligible to participate in the Profit Sharing Plan as of
the first January 1, April 1, July 1 or October 1 after having completed at
least one year of service (as defined in the Profit Sharing Plan) and having
reached age 21 ("Participant"). The annual contribution of the Company to the
BWI Plan was at the discretion of the Board of Directors of BWI and for the
Profit Sharing Plan is now at the discretion of the Board of Directors of the
Company and is generally 8% of the Participant's compensation for the year. The
employer contribution for a year is allocated among the Participants employed on
the last day of the year in proportion to their relative compensation for the
year. The contributions to the BWI Plan with respect to the Company which are
included as expense in the statement of earnings for 1996 and 1997 were $230,000
and $260,000, respectively. The contribution to the Profit Sharing Plan which is
included as expense in the statement of earnings for 1998 was $394,000.
Subject to limitations imposed by the Internal Revenue Code of 1986, as
amended, a Participant may have a percentage of his or her compensation withheld
from pay and contributed to the Profit Sharing Plan and make "rollover"
contributions to the Profit Sharing Plan of qualifying distributions from other
employers' qualified plans.
A Participant's interest in amounts withheld from his or her pay and
contributed to the Profit Sharing Plan or in rollover contributions and in the
earnings on those amounts are fully vested at all times. A Participant's
interest in employer contributions made on his or her behalf and the earnings on
those contributions become 20% vested after one year of service and an
additional 20% vested during each of the next four years. A Participant's
interest in employer contributions made on his or her behalf and the earnings on
those contributions also become fully vested when the employee retires at age 65
or older, dies or becomes totally disabled.
All contributions to the Profit Sharing Plan are paid in cash to a
Cleveland, Ohio bank, as trustee, and are invested by the trustee until
distributed to Participants or their beneficiaries. Participants are permitted
to direct the trustee as to the investment of their accounts by choosing among
several investment funds that are offered, including one fund under the BWI Plan
consisting of BWI Common Stock. Under the Company's Profit Sharing Plan, a
Participant may elect to invest in the Company's Common Stock, but may not make
additional investments in BWI Common Stock. Participants may elect to invest in
one fund or a combination of the available funds according to their investment
goals. If a Participant does not make an investment election, his or her Profit
Sharing Plan accounts will be invested in a fund designated by the Company.
Except in certain cases of financial hardship, a Participant (or his or her
beneficiary) receives his or her interest in the Profit Sharing Plan only at
death, retirement or termination of employment.
NOTE 9 -- CAPITAL STOCK
As described in Note 1 -- Significant Accounting Policies, on August 25,
1997, the Board of Directors and BWI, as the sole shareholder of the Company,
approved a recapitalization of the Company. The recapitalization resulted in the
authorization of Class A Common Stock, Class B Common Stock and Preferred Stock.
The two classes of Common Stock entitle holders to the same rights and
privileges, except that holders of shares of Class A Common Stock are entitled
to three votes per share on all matters submitted to a vote of holders of Common
Stock and holders of Class B Common Stock are entitled to one vote per share on
such matters. The two classes of Common Stock vote together, as a single class
on all matters except as otherwise required by applicable law.
The Class A Common Stock will automatically be converted into shares of
Class B Common Stock on a share-for-share basis upon any transfer or purported
transfer to any person other than: (i) a dividend or other distribution of the
shares of Class A Common Stock to the shareholders of BWI or; (ii) family
members of the holder of Class A
33
<PAGE> 34
Common Stock, or trusts for the benefit of or entities controlled by the holder
of Class A Common Stock or family members of the holder.
On October 29, 1997, the Company consummated an initial public offering of
2,000,000 shares of Class B Common Stock. An additional 300,000 shares of Class
B Common Stock were sold on November 25, 1997 pursuant to the exercise of the
underwriters' overallotment option. All shares were issued at an initial price
of $14.50 per share. Net proceeds to the Company, after deducting underwriting
discounts and commissions and other expenses of the offering, was $30.0 million.
On October 29, 1997 and October 22, 1998, 922 and 554 shares, respectively,
of Class B Common Stock were granted to the two non-employee directors of the
Company, representing the stock portion of their annual retainer for serving on
the Board of Directors. Compensation expense relating to these grants was
$15,000 in both 1997 and 1998.
On December 31, 1998, BWI made a distribution to the holders of BWI Common
Stock of the 10,214,286 shares of Priority Class A Common Stock owned by BWI on
the basis of .448 shares of Priority Class A Common Stock for each share of BWI
Common Stock outstanding on December 15, 1998, which was the Record Date for the
Distribution. The fraction of a share of Priority Class A Common Stock that was
distributed for each share of BWI Common Stock was based upon the number of
shares of Priority Class A Common Stock owned by BWI divided by the number of
shares of BWI Common Stock outstanding on the Record Date.
On August 25, 1997, the Board of Directors and BWI, as sole shareholder of
the Company, adopted the 1997 Stock Option and Incentive Plan (the "1997 Stock
Option Plan"). Under the 1997 Stock Option Plan, the Company may award stock
options and shares of restricted stock to officers, key employees and
consultants of the Company. The aggregate number of shares of Class B Common
Stock that may be awarded under the 1997 Stock Option Plan is 1,250,000, subject
to adjustment in certain events. This total will increase to 2,250,000 subject
to shareholder approval at the May 10, 1999 annual meeting of shareholders. No
individual participant may receive awards for more than 300,000 shares in any
calendar year. Under the 1997 Stock Option Plan, awards of restricted shares may
be made, in which case the grantee would be granted shares of Class B Common
Stock, subject to any determined forfeiture or transfer restrictions.
The Compensation Committee of the Board of Directors administers the 1997
Stock Option Plan and has the authority to select those officers and key
employees to whom awards will be made, to designate the number of shares to be
covered by each award, to establish vesting schedules, and to specify all other
terms of the awards. With respect to stock options that are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code, the
option price must be at least 100% (or, in the case of a holder of more than 10%
of the total combined voting power of the Company's stock, 110%) of the fair
market value of a share of Class B Common Stock on the date of the grant of the
stock option. The Compensation Committee will establish the exercise price of
options that do not qualify as incentive stock options ("non-qualified stock
options"). No options may be exercised more than 10 years from the date of
grant, or for such shorter period as the Compensation Committee may determine at
the date of grant. Awards of options and shares of restricted stock as to which
restrictions have not lapsed are not transferable other than pursuant to the
laws of descent and distribution.
On August 25, 1997, the Board of Directors and BWI, as sole shareholder of
the Company, approved the adoption of the Outside Directors Stock Option Plan
(the "Directors Plan"). The Directors Plan reserves for issuance 25,000 shares
of the Company's Class B Common Stock, subject to adjustment in certain events.
Pursuant to the Directors Plan, each non-employee director will be automatically
granted an option to purchase 1,000 shares of Class B Common Stock on June 1 of
each year beginning June 1, 1998. The option exercise price per share will be
the fair market value of one share of Class B Common Stock on the date of grant.
Each option becomes exercisable six months following the date of grant and
expires 10 years following the date of grant.
On September 15, 1998, the Board of Directors of the Company approved the
adoption of the Broad Based Stock Option Plan (the "Broad Based Plan"). The
Broad Based Plan reserves for issuance 400,000 shares of the Company's Class B
Common Stock, subject to adjustment in certain events. The number of shares
which may be
34
<PAGE> 35
granted under the Broad Based Plan during any calendar year shall not exceed
40,000 shares to any one person. The Compensation Committee of the Board of
Directors administers the Broad Based Plan and establishes vesting schedules.
Each option expires 10 years following the date of grant.
In accordance with the provision of SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), the Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related Interpretations in accounting for its stock
option plans, and accordingly, generally does not recognize compensation expense
related to options granted to employees. If the Company had elected to recognize
compensation expense based on the fair value of the options at the grant date,
whether granted by the Company or by BWI as described in Note 2 -- Related Party
Transactions, as prescribed by SFAS No. 123, pro forma net income and earnings
would have been:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net earnings - as reported .......... $ 4,369 $ 6,151 $ 10,143
Pro forma impact of
BWI option grants (Note 2) (280) (377) (54)
Pro forma impact of
Company option grants .... -- (224) (1,718)
-------- -------- --------
Pro forma net earnings .............. $ 4,089 $ 5,550 $ 8,371
======== ======== ========
Pro forma earnings per share:
Basic ........................ $ 0.40 $ 0.52 $ 0.67
Diluted ...................... $ 0.40 $ 0.52 $ 0.67
</TABLE>
The fair values of the Company's 1997 and 1998 option grants were estimated
on the date of grant using the Black-Scholes option pricing model, with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Risk free interest rate .............. 5.90% 5.02%
Expected dividend yield .............. .00% .00%
Expected life of options ............. 4.60 4.71
Volatility of stock price ............ 54.79% 55.94%
Weighted average fair value of options $ 7.52 $ 9.65
</TABLE>
The Board of Directors granted a non-qualified stock option to a consultant
of the Company for 50,000 shares of Class B Common Stock effective at the
closing date of the IPO. This option granted to the consultant of the Company (a
non-employee under SFAS No. 123 and APB 25) resulted in $350,000 of compensation
expense that was recorded by the Company in October, 1997. The compensation
expense was determined based on the fair value of those options at the date of
grant as estimated by using the Black-Scholes option pricing model.
As discussed in Note 2 -- Related Party Transactions, prior to the IPO,
certain employees of the Company were granted options to purchase BWI stock
under a BWI stock option plan. On December 31, 1998, the unvested BWI stock
options held by these employees were converted to options to purchase 67,033
shares of Class B Common Stock of the Company. As these options were converted
in accordance with accounting principles issued by the Financial Accounting
Standards Board, no compensation expense was recorded on the conversion.
35
<PAGE> 36
Changes in stock options under all of the Company's plans are shown below:
<TABLE>
<CAPTION>
Number of Option price per
shares share
------ -----
<S> <C> <C>
Options outstanding at December 31, 1996 -- --
Forfeited during 1997 .................. (13,800) $14.50 to $14.50
Granted during 1997 .................... 473,050 $14.50 to $15.00
Exercised during 1997 .................. -- --
----------
Options outstanding at December 31, 1997 459,250 $14.50 to $15.00
Forfeited during 1998 .................. (29,120) $14.50 to $20.00
Granted during 1998 .................... 534,920 $13.88 to $20.00
Exercised during 1998 .................. -- --
Converted from BWI during 1998 ......... 67,033 $12.24 to $17.87
----------
Options outstanding at December 31, 1998 1,032,083 $12.24 to $20.00
==========
Exercisable at December 31, 1998 --
==========
Available for grant at December 31, 1998 642,917
==========
</TABLE>
Additional information regarding the Company's options outstanding at
December 31, 1998 is shown below:
<TABLE>
<CAPTION>
Exercise Price Range
--------------------
<S> <C> <C> <C> <C>
$12.24-$14.42 $14.50-$17.87 $18.00-$20.00 Total
------------- ------------- ------------- -----
Number of options outstanding ............. 161,734 462,949 407,400 1,032,083
Weighted average exercise price ........... $ 13.90 $ 14.59 $ 19.96 $ 16.60
Weighted average remaining contractual life 8.62 8.84 9.78 9.18
Number of shares exercisable .............. -- -- -- --
Weighted average exercisable price ........ -- -- -- --
</TABLE>
NOTE 10 -- COMMITMENTS
The Company leases warehouse and office space under noncancelable operating
leases expiring at various dates through 2004, with options to renew for various
periods. Minimum commitments under leases aggregate $595,000 for 1999, $679,000
for 2000, $557,000 for 2001, $524,000 for 2002, $462,000 for 2003 and $473,000
for 2004.
The consolidated rent expense for 1996, 1997 and 1998 was $470,000,
$515,000 and $635,000, respectively, of which approximately $75,000 in 1996,
$89,000 in 1997 and $26,000 in 1998 pertained to leases with terms of one year
or less.
NOTE 11 -- MAJOR CUSTOMERS AND OTHER CONCENTRATIONS
The Company services customers in 50 states and Puerto Rico. For the years
ended December 31, 1996, 1997 and 1998, the Company had one customer, Everest
Healthcare Services Corporation, which accounted for 12%, 11%, and 12%,
respectively, of the Company's revenues. The Company sells goods and services to
its customers on various payment terms which entail accounts receivable
exposure. Although the Company monitors closely the creditworthiness of its
customers, there can be no assurance that the Company will not incur a write-off
or writedown of a significant account in the future.
Product provided by the Company's largest vendor accounted for
approximately 42% of total revenues in 1996, 40% in 1997 and 32% in 1998. In
addition, the sale of one product supplied by this vendor accounted for 36% of
revenues in 1996, 35% in 1997 and 27% in 1998. This product is available from
only one manufacturer, with which
36
<PAGE> 37
the Company must maintain a good working relationship. The Company is a party in
a lawsuit involving this vendor. See Note 12 -- Legal Proceedings.
NOTE 12 -- LEGAL PROCEEDINGS
IV-1, Inc. ("IV-1") and IV-One Services, Inc. ("IV-One Services") have been
named as defendants in a second amended counterclaim filed by Amgen, Inc.
("Amgen") on May 14, 1996, in the Circuit Court of the Eighteenth Judicial
District of Seminole County, Florida. Amgen has asserted that these entities
tortiously interfered with a license agreement (the "License Agreement") between
Amgen and Ortho Pharmaceutical Corporation ("Ortho"). Pursuant to this
agreement, Amgen licensed Ortho to sell EPO for use in the treatment of
non-dialysis patients, while Amgen reserved the exclusive right to sell EPO for
use in the treatment of dialysis patients. Amgen has asserted that, prior to the
purchase of IV-1 and IV-One Services by the Company, these entities induced
Ortho to sell EPO to them for resale in the dialysis market in contravention of
the License Agreement. Amgen has also alleged that IV-1 and IV-One Services were
involved in a civil conspiracy to circumvent the terms of the License Agreement
to allow the resale of EPO to the dialysis market. Furthermore, Amgen has
asserted unfair competition claims against IV-1, including that IV-1
manufactured and distributed unapproved prefilled syringes of EPO and another
product manufactured by Amgen in container systems unapproved by Amgen. Amgen
did not specify a time frame for the acts complained of in the civil conspiracy
and unfair competition allegations. In each count, Amgen has demanded an
unspecified amount of compensatory damages, including costs and interest.
The Company believes that the sellers of IV-1, IV-One Services and Charise
Charles are contractually obligated to provide legal defense and to indemnify
the Company for losses and liabilities with respect to this litigation, to the
extent that the alleged acts occurred prior to the purchase of such entities by
the Company. To date, the sellers have provided the legal defense for IV-1 and
IV-One Services in the litigation. Indemnification from the sellers of IV-1 and
IV-One Services is limited to no more than $1.5 million and indemnification from
the sellers of Charise Charles is limited to no more than $2.0 million. The
Company does not expect the Amgen litigation to be material to the Company's
results of operations, financial condition or cash flows; however, no assurance
can be given that this litigation will not have a material adverse effect on the
Company. In addition, Amgen is the Company's largest supplier. Consequently,
this litigation presents the risk of adversely affecting the Company's business
relationship with Amgen, which could have a material adverse effect on the
Company. See Note 11 -- Major Customers and Other Concentrations.
The Company is also subject to ordinary and routine litigation incidental
to its business, none of which is material to the Company's results of
operations, financial condition, or cash flows.
On November 14, 1995, an investigator for the FDA, accompanied by an
inspector from the State of Florida Board of Pharmacy, inspected the Company's
pharmacy in Altamonte Springs, Florida. At the end of the inspection, the FDA
investigator issued an FDA Form-483, which is the form used by FDA investigators
to identify any observed or suspected noncompliance with the laws administered
by the agency. The FDA Form-483 identified the facility as a pharmacy/repackager
and listed three observations related to certain requirements that the FDA
typically imposes on manufacturers of sterile products. The Company advised the
FDA in December 1995 that the Company believes it is not, within the statutory
or regulatory meaning of these terms, a repackager or a manufacturer. A second
inspection of the same facility occurred on June 26, 1997, in which the FDA
investigator was again accompanied by Florida pharmacy authorities. The FDA
investigator issued a substantially identical FDA Form-483 at the end of that
inspection. The Florida State Board of Pharmacy did not issue any deficiencies
regarding the operations of the Altamonte Springs pharmacy in either of these
inspections.
On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. The Company's response to the FDA in December 1995 cited
this CPG and explained the Company's contention that, according to the FDA's own
criteria, the facility is a pharmacy properly regulated under state and local
laws.
37
<PAGE> 38
On November 21, 1997, the President signed into law the FDA Modernization
Act of 1997, which, among a number of other items, adds a new section on
pharmacy compounding to the Federal Food, Drug and Cosmetic Act. In this
provision, Congress clarified a gray area by explicitly identifying the
circumstances in which pharmacies may compound drugs without the need for filing
a New Drug Application, observing the FDA's Good Manufacturing Practice
regulations or complying with certain other specific Federal Food, Drug and
Cosmetic Act requirements. Congress provided that the term "compounding" does
not include mixing or reconstituting that is done in accordance with directions
contained in approved labeling provided by the manufacturer of the product. The
Company believes that, as a result of this amendment, so long as it follows the
manufacturer's approved labeling in each case, and prepares drugs only for
identified individual patients using licensed practitioners, the Company's
activities should be regulated by the Florida State Board of Pharmacy and not be
subjected by the FDA to a full New Drug Application requirement demonstrating
the basic safety and effectiveness of the drugs.
If the Company is correct and its operations are limited to those engaged
in by pharmacies, there should be no material adverse effect from the FDA
Form-483s because the Company believes it is currently in compliance in all
material respects with applicable state and local laws. If the Company is deemed
to be a sterile product manufacturer or a sterile product repackager, it would
be subject to additional regulatory requirements. If for some reason the FDA or
other legal authorities decide that the Company must file for approval of a New
Drug Application, such an event could have a material adverse effect on the
Company.
There can be no assurance that future legislation, future rulemaking, or
active enforcement by the FDA of a determination that the Company is a drug
manufacturer will not have a material adverse effect on the business of the
Company.
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Priority Healthcare Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Priority
Healthcare Corporation and its subsidiaries (the "Company") at December 31, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 19, 1999
39
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's
independent accountants on accounting or financial disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item concerning the Directors and
nominees for Director of the Company and concerning disclosure of delinquent
filers under Section 16(a) of the Exchange Act is incorporated herein by
reference to the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders, to be filed with the Commission pursuant to Regulation
14A within 120 days after the end of the Company's last fiscal year. Information
concerning the executive officers of the Company is included under the caption
"Executive Officers of the Company" at the end of Part I of this Annual Report.
Such information is incorporated herein by reference, in accordance with General
Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item concerning remuneration of the
Company's officers and Directors and information concerning material
transactions involving such officers and Directors is incorporated herein by
reference to the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item concerning the stock ownership of
management and five percent beneficial owners is incorporated herein by
reference to the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item concerning certain relationships
and related transactions is incorporated herein by reference to the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders which
will be filed with the Commission pursuant to Regulation 14A within 120 days
after the end of the Company's last fiscal year.
40
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The following consolidated financial statements of
the Company and its subsidiaries are set forth in
Part II, Item 8.
Consolidated Statements of Earnings for the years
ended December 31, 1996, December 31, 1997 and
December 31, 1998
Consolidated Balance Sheets as of December 31, 1997
and December 31, 1998
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, December 31, 1997 and
December 31, 1998
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1996, December 31, 1997
and December 31, 1998
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules:
None
3. Exhibits:
A list of exhibits required to be filed as part of
this report is set forth in the Index to Exhibits,
which immediately precedes such exhibits, and is
incorporated herein by reference.
(b) Reports on Form 8-K
None
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRIORITY HEALTHCARE CORPORATION
BY: /s/ ROBERT L. Myers
-------------------------------------
Dated: March 26, 1999 Robert L. Myers
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM E. BINDLEY Chairman of the Board March 26, 1999
---------------------------------
William E. Bindley
/s/ ROBERT L. MYERS President, Chief Executive Officer and March 26, 1999
---------------------------------- Director (Principal Executive Officer)
Robert L. Myers
/s/ DONALD J. PERFETTO Chief Financial Officer (Principal March 26, 1999
--------------------------------- Financial and Accounting Officer)
Donald J. Perfetto
/s/ MICHAEL D. MCCORMICK Director March 26, 1999
-------------------------------
Michael D. McCormick
/s/ RICHARD W. ROBERSON Director March 26, 1999
--------------------------------
Richard W. Roberson
/s/ THOMAS J. SALENTINE Director March 26, 1999
-----------------------------------
Thomas J. Salentine
/s/ REBECCA M. SHANAHAN Director March 26, 1999
-------------------------------
Rebecca M. Shanahan
</TABLE>
42
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------ -------------------- ------
<S> <C> <C>
3-A (1) Restated Articles of Incorporation of the Registrant.
3-B By-Laws of the Registrant, as amended to date.
3-C (1) Articles of Restatement of the Restated Articles of Incorporation of the Registrant.
4 Loan Agreement By and Between the Registrant (the "Borrower") and
Suntrust Bank, Central Florida, National Association (the "Bank") dated
November 24, 1998.
10-A (1) Administrative Services Agreement between the Registrant and BWI.
10-B (1) Tax Sharing Agreement between the Registrant and BWI.
10-C (1) (i)*1997 Stock Option and Incentive Plan of the Registrant.
(2) (ii)*First Amendment to the 1997 Stock Option and Incentive Plan of the Registrant.
10-D (1) *Outside Directors Stock Option Plan of the Registrant.
10-E (1) *Termination Benefits Agreement between the Registrant and Robert L.
Myers dated July 1, 1996.
10-F (1) *(i) Employment Agreement between the Registrant and Melissa E.
McIntyre dated June 1, 1997; and (ii) Noncompete Agreement between the
Registrant and Melissa E. McIntyre dated June 1, 1997.
10-G (1) *(i) Employment Agreement between the Registrant and William M.
Woodard dated June 1, 1997; and (ii) Noncompete Agreement between the
Registrant and William M. Woodard dated June 1, 1997.
10-H (1) *(i) Employment Agreement between the Registrant and Guy F. Bryant
dated June 1, 1997; and (ii) Noncompete Agreement between the
Registrant and Guy F. Bryant dated June 1, 1997.
10-I (1) *(i) Employment Agreement between the Registrant and Donald J.
Perfetto dated June 23, 1997; and (ii) Noncompete Agreement between the
Registrant and Donald J. Perfetto dated June 23, 1997.
10-J (1) *(i) Employment Agreement between the Registrant and Steven D.
Cosler dated June 1, 1997; and (ii) Noncompete Agreement between the
Registrant and Steven D. Cosler dated June 1, 1997.
10-K (1) Subordinated Promissory Note between the Registrant and BWI.
10-L (1) Indemnification and Hold Harmless Agreement between the Registrant and
BWI.
10-M (1) *Consulting Agreement dated as of January 1, 1995, by and among the Registrant,
BWI and Martin A. Nassif.
10-N (1) Revolving Credit Promissory Note between the Registrant and BWI.
10-O (3) Revolving Credit Promissory Note by BWI in favor of the Registrant.
</TABLE>
43
<PAGE> 44
10-P (4) *(i)Broad Based Stock Option Plan of the Registrant.
*(ii) First Amendment to the Broad Based Stock Option Plan of
the Registrant.
10-Q (5) *Profit Sharing Plan of Priority Healthcare Corporation and
Subsidiaries.
10-R *Priority Healthcare Corporation 401(k) Excess Plan.
10-S *(i) Employment Agreement between the Registrant and Guy F. Bryant
dated March 1, 1999; and (ii) Noncompete Agreement between the
Registrant and Guy F. Bryant dated March 1, 1999.
10-T *(i) Employment Agreement between the Registrant and Steven D. Cosler
dated March 1, 1999; and (ii) Noncompete Agreement between the
Registrant and Steven D. Cosler dated March 1, 1999.
10-U *(i) Employment Agreement between the Registrant and Donald J. Perfetto
dated March 1, 1999; and (ii) Noncompete Agreement between the
Registrant and Donald J. Perfetto dated March 1, 1999.
10-V (6) Distribution Agreement, dated as of October 23, 1998, between the
Registrant and Bindley Western Industries, Inc.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants
27 Financial Data Schedule.
99 Form 11-K Annual Report of the Profit Sharing Plan of Priority
Healthcare Corporation and Affiliates for the year ended December 31,
1998 (to be filed by amendment).
* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.
(1) The copy of this exhibit filed as the same exhibit number to the
Company's Registration Statement on Form S-1 (Registration No.
333-34463) is incorporated herein by reference.
(2) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10- Q for the quarter ended
September 30, 1998 is incorporated herein by reference.
(3) The copy of this exhibit filed as the same exhibit number to the
Company's Quarterly Report on Form 10- Q for the quarter ended June 30,
1998 is incorporated herein by reference.
(4) The copy of this exhibit filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (Registration No. 333-65927) is
incorporated herein by reference.
(5) The copy of this exhibit filed as Exhibit 4.4 to the Company's
Registration Statement on Form S-8 (Registration No. 333-69921) is
incorporated herein by reference.
(6) The copy of this exhibit filed as Exhibit 10 to the Company's Current
Report on Form 8-K, as filed with the Commission on January 4, 1999, is
incorporated herein by reference.
44
<PAGE> 1
EXHIBIT 3-B
BY-LAWS
OF
PRIORITY HEALTHCARE CORPORATION
(As Amended February 25, 1999)
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meetings. Annual meetings of the
shareholders of the Corporation shall be held on the second Monday of May of
each year commencing in May, 1998, at such hour and at such place within or
without the State of Indiana as shall be designated by the Board of Directors.
In the absence of designation, the meeting shall be held at the principal office
of the Corporation at 11:00 a.m. (local time). The Board of Directors may, by
resolution, change the date or time of such annual meeting. If the day fixed for
any annual meeting of shareholders shall fall on a legal holiday, then such
annual meeting shall be held on the first following day that is not a legal
holiday.
Section 1.2. Special Meetings. Special meetings of the
shareholders of the Corporation may be called at any time by the Board of
Directors or the Chairman of the Board and shall be called by the Board of
Directors if the Secretary receives written, dated and signed demands for a
special meeting, describing in reasonable detail the purpose or purposes for
which it is to be held, from the holders of shares representing at least
twenty-five percent (25%) of all votes entitled to be cast on any issue proposed
to be considered at the proposed special meeting; provided, however, that any
such demand(s) delivered to the Secretary at any time at which the Corporation
has more than 50 shareholders must be properly delivered by the holders of
shares representing at least eighty percent (80%) of all the votes entitled to
be cast on any issue proposed to be considered at the proposed special meeting.
If the Secretary receives one (1) or more proper written demands for a special
meeting of shareholders, the Board of Directors may set a record date for
determining shareholders entitled to make such demand. The Board of Directors or
the Chairman of the Board, as the case may be, calling a special meeting of
shareholders shall set the date, time and place of such meeting, which may be
held within or without the State of Indiana.
Section 1.3. Notices. A written notice, stating the date,
time, and place of any meeting of the shareholders, and, in the case of a
special meeting, the purpose or purposes for which such meeting is called, shall
be delivered or mailed by the Secretary of the Corporation, to each shareholder
of record of the Corporation entitled to notice of or to vote at such meeting no
-1-
<PAGE> 2
fewer than ten (10) nor more than sixty (60) days before the date of the
meeting. In the event of a special meeting of shareholders required to be called
as the result of a demand therefor made by shareholders, such notice shall be
given no later than the sixtieth (60th) day after the Corporation's receipt of
the demand requiring the meeting to be called. Notice of shareholders' meetings,
if mailed, shall be mailed, postage prepaid, to each shareholder at his address
shown in the Corporation's current record of shareholders.
Notice of a meeting of shareholders shall be given to
shareholders not entitled to vote, but only if a purpose for the meeting is to
vote on any amendment to the Corporation's Articles of Incorporation, merger, or
share exchange to which the Corporation would be a party, sale of the
Corporation's assets, dissolution of the Corporation, or consideration of voting
rights to be accorded to shares acquired or to be acquired in a "control share
acquisition" (as such term is defined in the Indiana Business Corporation Law).
Except as required by the foregoing sentence or as otherwise required by the
Indiana Business Corporation Law or the Corporation's Articles of Incorporation,
notice of a meeting of shareholders is required to be given only to shareholders
entitled to vote at the meeting.
A shareholder or his proxy may at any time waive notice of a
meeting if the waiver is in writing and is delivered to the Corporation for
inclusion in the minutes or filing with the Corporation's records. A
shareholder's attendance at a meeting, whether in person or by proxy, (a) waives
objection to lack of notice or defective notice of the meeting, unless the
shareholder or his proxy at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting, and (b) waives objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the shareholder or
his proxy objects to considering the matter when it is presented. Each
shareholder who has, in the manner above provided, waived notice or objection to
notice of a shareholders' meeting shall be conclusively presumed to have been
given due notice of such meeting, including the purpose or purposes thereof.
If an annual or special shareholders' meeting is adjourned to
a different date, time, or place, notice need not be given of the new date,
time, or place if the new date, time, or place is announced at the meeting
before adjournment, unless a new record date is or must be established for the
adjourned meeting.
Section 1.4. Business of Shareholder Meetings. At an annual
meeting of the shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have the legal right and authority to make the
proposal for consideration at the meeting and the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal
-2-
<PAGE> 3
executive offices of the Corporation, not less than sixty (60) days prior to the
meeting; provided, however, that in the event that less than seventy (70) days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders (which notice or public disclosure shall include the date of the
annual meeting specified in these By-Laws, if such By-Laws have been filed with
the Securities and Exchange Commission and if the annual meeting is held on such
date), notice by the shareholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
record address of the shareholder proposing such business, (c) the class and
number of the Corporation's shares which are beneficially owned by the
shareholder, and (d) any material interest of the shareholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1.4. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this Section
1.4, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
At any special meeting of the shareholders, only such business shall be
conducted as shall have been specified in the notice of meeting (or any
supplement thereto) or otherwise properly brought before the meeting by or at
the direction of the Board of Directors.
Section 1.5. Notice of Shareholder Nominees. Only persons who
are nominated in accordance with the procedures set forth in this Section 1.5
shall be eligible for election as Directors. Nominations of persons for election
to the Board of Directors may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or persons
appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 1.5. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than sixty (60) days
prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders (which notice or public disclosure shall
include the date of the annual meeting specified in these By-Laws, if such
By-Laws have been filed with the Securities and Exchange Commission and if the
annual meeting is held on such date), notice by the shareholders to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of the Corporation's shares which are
beneficially owned by such
-3-
<PAGE> 4
person and (iv) any other information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (b) as to the shareholder giving the
notice, (i) the name and record address of such shareholder and (ii) the class
and number of the Corporation's shares which are beneficially owned by such
shareholder. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.5. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these By-Laws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Section 1.6. Voting. Except as otherwise provided by the
Indiana Business Corporation Law or the Corporation's Articles of Incorporation,
each share of any class, other than Class A Common Stock, of the common stock of
the Corporation that is outstanding at the record date established for any
annual or special meeting of shareholders and is outstanding at the time of and
represented in person or by proxy at the annual or special meeting, shall
entitle the record holder thereof, or his proxy, to one (1) vote, or in the case
of Class A Common Stock, three (3) votes, on each matter voted on at the
meeting.
Section 1.7. Quorum. Unless the Corporation's Articles of
Incorporation or the Indiana Business Corporation Law provide otherwise, at all
meetings of shareholders, a majority of the votes entitled to be cast on a
matter, represented in person or by proxy, constitutes a quorum for action on
the matter. Action may be taken at a shareholders' meeting only on matters with
respect to which a quorum exists; provided, however, that any meeting of
shareholders, including annual and special meetings and any adjournments
thereof, may be adjourned to a later date although less than a quorum is
present. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
Section 1.8. Vote Required To Take Action. If a quorum exists
as to a matter to be considered at a meeting of shareholders, action on such
matter (other than the election of Directors) is approved if the votes properly
cast favoring the action exceed the votes properly cast opposing the action,
except as the Corporation's Articles of Incorporation or the Indiana Business
Corporation Law require a greater number of affirmative votes. Directors shall
be elected by a plurality of the votes properly cast.
Section 1.9. Record Date. Only such persons shall be entitled
to notice of or to vote, in person or by proxy, at any shareholders' meeting as
shall appear as shareholders upon the books of the Corporation as of such record
date as the Board of Directors shall determine, which date may not be earlier
than the date seventy (70) days immediately preceding the meeting. In the
absence of such determination, the record date shall be the fiftieth (50th) day
immediately
-4-
<PAGE> 5
preceding the date of such meeting. Unless otherwise provided by the Board of
Directors, shareholders shall be determined as of the close of business on the
record date.
Section 1.10. Proxies. A shareholder may vote his shares
either in person or by proxy. A shareholder may appoint a proxy to vote or
otherwise act for the shareholder (including authorizing the proxy to receive,
or to waive, notice of any shareholders' meeting within the effective period of
such proxy) by signing an appointment form, either personally or by the
shareholder's attorney-in-fact. An appointment of a proxy is effective when
received by the Secretary or other officer or agent authorized to tabulate votes
and is effective for eleven (11) months unless a longer period is expressly
provided in the appointment form. The proxy's authority may be limited to a
particular meeting or may be general and authorize the proxy to represent the
shareholder at any meeting of shareholders held within the time provided in the
appointment form. Subject to the Indiana Business Corporation Law and to any
express limitation on the proxy's authority appearing on the face of the
appointment form, the Corporation is entitled to accept the proxy's vote or
other action as that of the shareholder making the appointment.
Section 1.11. Removal of Directors. Any or all of the members
of the Board of Directors may be removed, for good cause, only at a meeting of
the shareholders called expressly for that purpose, by a vote of the holders of
outstanding shares representing at least sixty-six and two-thirds percent
(66-2/3%) of the votes then entitled to be cast at an election of Directors.
Directors may not be removed in the absence of good cause.
Section 1.12. Written Consents. Any action required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
if the action is taken by all the shareholders entitled to vote on the action.
The action must be evidenced by one (1) or more written consents describing the
action taken, signed by all the shareholders entitled to vote on the action, and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records. Action taken under this Section 1.12 is effective when the
last shareholder signs the consent, unless the consent specifies a different
prior or subsequent effective date, in which case the action is effective on or
as of the specified date. Such consent shall have the same effect as a unanimous
vote of all shareholders and may be described as such in any document.
Section 1.13. Participation by Conference Telephone. The
Chairman of the Board or the Board of Directors may permit any or all
shareholders to participate in an annual or special meeting of shareholders by,
or through the use of, any means of communication, such as conference telephone,
by which all shareholders participating may simultaneously hear each other
during the meeting. A shareholder participating in a meeting by such means shall
be deemed to be present in person at the meeting.
-5-
<PAGE> 6
ARTICLE II
Directors
Section 2.1. Number and Terms. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors
consisting of seven (7) Directors. The Directors shall be divided into three (3)
groups, with each group consisting of one-third (1/3) of the total Directors, as
near as may be, with the term of office of the first group to expire at the
annual meeting of shareholders in 1999, the term of office of the second group
to expire at the annual meeting of shareholders in 2000, and the term of office
of the third group to expire at the annual meeting of shareholders in 2001; and
at each annual meeting of shareholders, the Directors chosen to succeed those
whose terms then expire shall be identified as being of the same group as the
Directors they succeed and shall be elected for a term expiring at the third
succeeding annual meeting of shareholders.
Despite the expiration of a Director's term, the Director
shall continue to serve until his successor is elected and qualified, or until
the earlier of his death, resignation, disqualification or removal, or until
there is a decrease in the number of Directors. Any vacancy occurring in the
Board of Directors, from whatever cause arising, shall be filled by selection of
a successor by a majority vote of the remaining members of the Board of
Directors (although less than a quorum); provided, however, that if such vacancy
or vacancies leave the Board of Directors with no members or if the remaining
members of the Board are unable to agree upon a successor or determine not to
select a successor, such vacancy may be filled by a vote of the shareholders at
a special meeting called for that purpose or at the next annual meeting of
shareholders. The term of a Director elected or selected to fill a vacancy shall
expire at the end of the term for which such Director's predecessor was elected,
or if the vacancy arises because of an increase in the size of the Board of
Directors, at the end of the term specified at the time of election or
selection.
The Directors and each of them shall have no authority to bind
the Corporation except when acting as a Board.
Section 2.2. Quorum and Vote Required To Take Action. A
majority of the whole Board of Directors shall be necessary to constitute a
quorum for the transaction of any business, except the filling of vacancies. If
a quorum is present when a vote is taken, the affirmative vote of a majority of
the Directors present shall be the act of the Board of Directors, unless the act
of a greater number is required by the Indiana Business Corporation Law, the
Corporation's Articles of Incorporation or these By-Laws.
Section 2.3. Annual and Regular Meetings. The Board of
Directors shall meet annually, without notice, immediately following the annual
meeting of the shareholders, for the purpose of transacting such business as
properly may come before the meeting. Other regular meetings of the Board of
Directors, in addition to said annual meeting, shall be held on such dates, at
such times and at such places as shall be fixed by resolution adopted by the
Board of
-6-
<PAGE> 7
Directors and specified in a notice of each such regular meeting, or otherwise
communicated to the Directors. The Board of Directors may at any time alter the
date for the next regular meeting of the Board of Directors.
Section 2.4. Special Meetings. Special meetings of the Board
of Directors may be called by any member of the Board of Directors upon not less
than twenty-four (24) hours' notice given to each Director of the date, time,
and place of the meeting, which notice need not specify the purpose or purposes
of the special meeting. Such notice may be communicated in person (either in
writing or orally), by telephone, telegraph, teletype, or other form of wire or
wireless communication, or by mail, and shall be effective at the earlier of the
time of its receipt or, if mailed, five (5) days after its mailing. Notice of
any meeting of the Board may be waived in writing at any time if the waiver is
signed by the Director entitled to the notice and is filed with the minutes or
corporate records. A Director's attendance at or participation in a meeting
waives any required notice to the Director of the meeting, unless the Director
at the beginning of the meeting (or promptly upon the Director's arrival)
objects to holding the meeting or transacting business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
Section 2.5. Written Consents. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if the action is taken by all members of the Board. The action
must be evidenced by one (1) or more written consents describing the action
taken, signed by each Director, and included in the minutes or filed with the
corporate records reflecting the action taken. Action taken under this Section
2.5 is effective when the last Director signs the consent, unless the consent
specifies a different prior or subsequent effective date, in which case the
action is effective on or as of the specified date. A consent signed under this
Section 2.5 shall have the same effect as a unanimous vote of all members of the
Board and may be described as such in any document.
Section 2.6. Participation by Conference Telephone. The Board
of Directors may permit any or all Directors to participate in a regular or
special meeting by, or through the use of, any means of communication, such as
conference telephone, by which all Directors participating may simultaneously
hear each other during the meeting. A Director participating in a meeting by
such means shall be deemed to be present in person at the meeting.
Section 2.7. Executive Committee. The Board of Directors may
appoint three (3) members to an Executive Committee. The Executive Committee
shall, subject to the restrictions of Section 2.9, be authorized to exercise the
authority of the full Board of Directors at any times other than during regular
or special meetings of the Board of Directors. All actions taken by the
Executive Committee shall be reported at the first regular meeting of the Board
of Directors following such actions. Members of the Executive Committee shall
serve at the pleasure of the Board of Directors.
Section 2.8. Other Committees. The Board of Directors may
create one (1) or more committees in addition to any Executive Committee and
appoint members of the Board of
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<PAGE> 8
Directors to serve on them, by resolution of the Board of Directors adopted by a
majority of all the Directors in office when the resolution is adopted. The
committee may exercise the authority of the Board of Directors to the extent
specified in the resolution. Each committee may have one (1) or more members,
and all the members of such committee shall serve at the pleasure of the Board
of Directors.
Section 2.9. Limitations on Committees; Notice, Quorum and
Voting.
(a) Neither the Executive Committee nor any other committee
hereafter established may:
(1) authorize dividends or other distributions, except a committee
may authorize or approve a reacquisition of shares if done
according to a formula or method prescribed by the Board of
Directors;
(2) approve or propose to shareholders action that is required to
be approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its
committees;
(4) except as permitted under Section 2.9(a)(7) below, amend the
Corporation's Articles of Incorporation under IC 23-1-38-2;
(5) adopt, amend, repeal, or waive provisions of these By-Laws;
(6) approve a plan of merger not requiring shareholder approval;
or
(7) authorize or approve the issuance or sale or a contract for
sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of
shares, except the Board of Directors may authorize a
committee (or an executive officer of the Corporation
designated by the Board of Directors) to take the action
described in this Section 2.9(a)(7) within limits prescribed
by the Board of Directors.
(b) Except to the extent inconsistent with the resolutions
creating a committee, Sections 2.1 through 2.6 of these By-Laws, which govern
meetings, action without meetings, notice and waiver of notice, quorum and
voting requirements and telephone participation in meetings of the Board of
Directors, apply to each committee and its members as well.
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ARTICLE III
Officers
Section 3.1. Designation, Selection and Terms. The officers of
the Corporation shall consist of the Chairman of the Board, the President, the
Chief Financial Officer, the Treasurer and the Secretary. The Board of Directors
may also elect Vice Presidents, Assistant Secretaries and Assistant Treasurers,
and such other officers or assistant officers as it may from time to time
determine by resolution creating the office and defining the duties thereof. In
addition, the Chairman of the Board or the President may, by a certificate of
appointment creating the office and defining the duties thereof delivered to the
Secretary for inclusion with the corporate records, from time to time create and
appoint such assistant officers as they deem desirable. The officers of the
Corporation shall be elected by the Board of Directors (or appointed by the
Chairman of the Board or the President as provided above) and need not be
selected from among the members of the Board of Directors, except for the
Chairman of the Board and the President who shall be members of the Board of
Directors. Any two (2) or more offices may be held by the same person. All
officers shall serve at the pleasure of the Board of Directors and, with respect
to officers appointed by the Chairman of the Board or the President, also at the
pleasure of such officers. The election or appointment of an officer does not
itself create contract rights.
Section 3.2. Removal. The Board of Directors may remove any
officer at any time with or without cause. An officer appointed by the Chairman
of the Board or the President may also be removed at any time, with or without
cause, by either of such officers. Vacancies in such offices, however occurring,
may be filled by the Board of Directors at any meeting of the Board of Directors
(or by appointment by the Chairman of the Board or the President, to the extent
provided in Section 3.1 of these By-Laws).
Section 3.3. Chairman of the Board. The Chairman of the Board
shall, if present, preside at all meetings of the shareholders and of the Board
of Directors and shall have such powers and perform such duties as are assigned
to him by the Board of Directors.
Section 3.4. President. The President shall be the chief
executive and principal policymaking officer of the Corporation. Subject to the
authority of the Board of Directors, he shall formulate the major policies to be
pursued in the administration of the Corporation's affairs. He shall study and
make reports and recommendations to the Board of Directors with respect to major
problems and activities of the Corporation and shall see that the established
policies are placed into effect and carried out. In the absence of the Chairman
of the Board, the President shall preside at meetings of the shareholders and of
the Board of Directors.
Section 3.5. Chief Financial Officer. The Chief Financial
Officer shall be the chief financial officer of the Corporation and shall
perform all of the duties customary to that office. He shall be responsible for
all of the Corporation's financial affairs, subject to the supervision and
direction of the President, and shall have and perform such further powers and
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duties as the Board of Directors may, from time to time, prescribe and as the
President may, from time to time, delegate to him.
Section 3.6. Vice Presidents. Each Vice President shall have
such powers and perform such duties as the Board of Directors may, from time to
time, prescribe and as the President may, from time to time, delegate to him.
Section 3.7. Treasurer. The Treasurer shall perform all of the
duties customary to that office, shall be the chief accounting officer of the
Corporation and shall be responsible for maintaining the Corporation's
accounting books and records and preparing its financial statements, subject to
the supervision and direction of the Chief Financial Officer and other superior
officers within the Corporation. He shall also be responsible for causing the
Corporation to furnish financial statements to its shareholders pursuant to IC
23-1-53-1.
Section 3.8. Assistant Treasurer. In the absence or inability
of the Treasurer, the Assistant Treasurer, if any, shall perform only such
duties as are specifically assigned to him, in writing, by the Board of
Directors, the President, the Chief Financial Officer, or the Treasurer.
Section 3.9. Secretary. The Secretary shall be the custodian
of the books, papers, and records of the Corporation and of its corporate seal,
if any, and shall be responsible for seeing that the Corporation maintains the
records required by IC 23-1-52-1 (other than accounting records) and that the
Corporation files with the Indiana Secretary of State the biennial report
required by IC 23-1-53-3. The Secretary shall be responsible for preparing
minutes of the meetings of the shareholders and of the Board of Directors and
for authenticating records of the Corporation, and he shall perform all of the
other duties usual in the office of Secretary of a corporation.
Section 3.10. Assistant Secretary. In the absence or inability
of the Secretary, the Assistant Secretary, if any, shall perform only such
duties as are provided herein or specifically assigned to him, in writing, by
the Board of Directors, the President, or the Secretary.
Section 3.11. Salary. The Board of Directors may, at its
discretion, from time to time, fix the salary of any officer by resolution
included in the minute book of the Corporation.
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<PAGE> 11
ARTICLE IV
Checks
All checks, drafts, or other orders for payment of money shall
be signed in the name of the Corporation by such officers or persons as shall be
designated from time to time by resolution adopted by the Board of Directors and
included in the minute book of the Corporation; and in the absence of such
designation, such checks, drafts, or other orders for payment shall be signed by
the Chairman, the President, the Chief Financial Officer, the Vice
President-Finance or the Treasurer.
ARTICLE V
Loans
Such of the officers of the Corporation as shall be designated
from time to time by resolution adopted by the Board of Directors and included
in the minute book of the Corporation shall have the power, with such
limitations thereon as may be fixed by the Board of Directors, to borrow money
in the Corporation's behalf, to establish credit, to discount bills and papers,
to pledge collateral, and to execute such notes, bonds, debentures, or other
evidences of indebtedness, and such mortgages, trust indentures, and other
instruments in connection therewith, as may be authorized from time to time by
such Board of Directors.
ARTICLE VI
Execution of Documents
The Chairman of the Board, the President or any other officer
authorized by the Board of Directors may, in the Corporation's name, sign all
deeds, leases, contracts, or similar documents unless otherwise directed by the
Board of Directors or otherwise provided herein or in the Corporation's Articles
of Incorporation, or as otherwise required by law.
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<PAGE> 12
ARTICLE VII
Stock
Section 7.1. Execution. Certificates for shares of the
Corporation shall be signed by the Chairman of the Board or the President and by
the Secretary and the seal of the Corporation (or a facsimile thereof), if any,
may be thereto affixed. Where any such certificate is also signed by a transfer
agent or a registrar, or both, the signatures of the officers of the Corporation
may be facsimiles. The Corporation may issue and deliver any such certificate
notwithstanding that any such officer who shall have signed, or whose facsimile
signature shall have been imprinted on, such certificate shall have ceased to be
such officer.
Section 7.2. Contents. Each certificate issued after the
adoption of these By-Laws shall state on its face the name of the Corporation
and that it is organized under the laws of the State of Indiana, the name of the
person to whom it is issued, and the number and class of shares and the
designation of the series, if any, the certificate represents, and shall state
conspicuously on its front or back that the Corporation will furnish the
shareholder, upon his written request and without charge, a summary of the
designations, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences, and limitations determined for
each series (and the authority of the Board of Directors to determine variations
for future series).
Section 7.3. Transfers. Except as otherwise provided by law or
by resolution of the Board of Directors, transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder thereof, in
person or by duly authorized attorney, on payment of all taxes thereon and
surrender for cancellation of the certificate or certificates for such shares
(except as hereinafter provided in the case of loss, destruction, or mutilation
of certificates) properly endorsed by the holder thereof or accompanied by the
proper evidence of succession, assignment, or authority to transfer, and
delivered to the Secretary or an Assistant Secretary.
Section 7.4. Stock Transfer Records. There shall be entered
upon the stock records of the Corporation the number of each certificate issued,
the name and address of the registered holder of such certificate, the number,
kind, and class of shares represented by such certificate, the date of issue,
whether the shares are originally issued or transferred, the registered holder
from whom transferred, and such other information as is commonly required to be
shown by such records. The stock records of the Corporation shall be kept at its
principal office, unless the Corporation appoints a transfer agent or registrar,
in which case the Corporation shall keep at its principal office a complete and
accurate shareholders' list giving the names and addresses of all shareholders
and the number and class of shares held by each. If a transfer agent is
appointed by the Corporation, shareholders shall give written notice of any
changes in their addresses from time to time to the transfer agent.
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<PAGE> 13
Section 7.5. Transfer Agents and Registrars. The Board of
Directors may appoint one or more transfer agents and one or more registrars and
may require each stock certificate to bear the signature of either or both.
Section 7.6. Loss, Destruction, or Mutilation of Certificates.
The holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, destruction, or mutilation of the certificate therefor,
and the Board of Directors may, in its discretion, cause to be issued to him a
new certificate or certificates, upon the surrender of the mutilated
certificate, or, in the case of loss or destruction, upon satisfactory proof of
such loss or destruction. The Board of Directors may, in its discretion, require
the holder of the lost or destroyed certificate or his legal representative to
give the Corporation a bond in such sum and in such form, and with such surety
or sureties as it may direct, to indemnify the Corporation, its transfer agents,
and registrars, if any, against any claim that may be made against them or any
of them with respect to the shares represented by the certificate or
certificates alleged to have been lost or destroyed, but the Board of Directors
may, in its discretion, refuse to issue a new certificate or certificates, save
upon the order of a court having jurisdiction in such matters.
Section 7.7. Form of Certificates. The form of the
certificates for shares of the Corporation shall conform to the requirements of
Section 7.2 of these By-Laws and be in such printed form as shall from time to
time be approved by resolution of the Board of Directors.
ARTICLE VIII
Seal
The corporate seal of the Corporation shall, if the
Corporation elects to have one, be in the form of a disc, with the name of the
Corporation and "INDIANA" on the periphery thereof and the word "SEAL" in the
center.
ARTICLE IX
Miscellaneous
Section 9.1. Indiana Business Corporation Law. The provisions
of the Indiana Business Corporation law, as amended, applicable to all matters
relevant to, but not specifically covered by, these By-Laws are hereby, by
reference, incorporated in and made a part of these By-Laws.
Section 9.2. Fiscal Year. The fiscal year of the Corporation
shall end on December 31 of each year.
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<PAGE> 14
Section 9.3. Election to be governed by Indiana Code Section
23-1-43. Effective upon the registration of any class of the Corporation's
shares under Section 12 of the Securities Exchange Act of 1934, as amended, the
Corporation shall be governed by the provisions of IC 23-1-43 regarding business
combinations.
Section 9.4. Control Share Acquisition Statute. The provisions
of IC 23-1-42 shall apply to the acquisition of shares of the Corporation.
Section 9.5. Redemption of Shares Acquired in Control Share
Acquisitions. If and whenever the provisions of IC 23-1-42 apply to the
Corporation, any or all control shares acquired in a control share acquisition
shall be subject to redemption by the Corporation, if either:
(a) no acquiring person statement has been filed with the
Corporation with respect to such control share acquisition in
accordance with IC 23-1-42-6, or
(b) the control shares are not accorded full voting rights by
the Corporation's shareholders as provided in IC 23-1-42-9.
A redemption pursuant to Section 9.5(a) may be made at any time during the
period ending sixty (60) days after the last acquisition of control shares by
the acquiring person. A redemption pursuant to Section 9.5(b) may be made at any
time during the period ending two (2) years after the shareholder vote with
respect to the granting of voting rights to such control shares. Any redemption
pursuant to this Section 9.5 shall be made at the fair value of the control
shares and pursuant to such procedures for such redemption as may be set forth
in these By-Laws or adopted by resolution of the Board of Directors.
As used in this Section 9.5, the terms "control shares,"
"control share acquisition," "acquiring person statement," and "acquiring
person" shall have the meanings ascribed to such terms in IC 23-1-42.
Section 9.6. Amendments. These By-Laws may be rescinded,
changed, or amended, and provisions hereof may be waived, at any meeting of the
Board of Directors by the affirmative vote of a majority of the entire number of
Directors at the time, except as otherwise required by the Corporation's
Articles of Incorporation or by the Indiana Business Corporation Law.
Section 9.7. Definition of Articles of Incorporation. The term
"Articles of Incorporation" as used in these By-Laws means the Articles of
Incorporation of the Corporation as from time to time are in effect.
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<PAGE> 1
EXHIBIT 4
LOAN AGREEMENT
By and Between
PRIORITY HEALTHCARE CORPORATION
(the "Borrower")
and
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
(the "Bank")
November 24, 1998
<PAGE> 2
TABLE OF CONTENTS
(The Table of Contents for this Loan Agreement is for convenience of reference
only and is not intended to define, limit or describe the scope or intent of any
provisions of this Loan Agreement.)
<TABLE>
<CAPTION>
Article Section Heading Page
- ------------- ------------ ------- ----
<S> <C> <C> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS..................................................1
SECTION 1.1 Definitions.......................................................................1
SECTION 1.2 Accounting Terms..................................................................9
ARTICLE II AMOUNT AND TERMS OF THE LOAN......................................................9
SECTION 2.1 The Loan..........................................................................9
SECTION 2.2 Advance of Proceeds of Facility..................................................10
SECTION 2.3 Interest on The Note.............................................................11
SECTION 2.4 Prepayment of the Loan...........................................................12
SECTION 2.5 Calculation of Interest..........................................................12
SECTION 2.6 Place of Payment.................................................................13
SECTION 2.7 Payment of Note..................................................................13
SECTION 2.8 Application of Payments..........................................................14
SECTION 2.9 Non-Usage Fee....................................................................14
SECTION 2.10 Setoff...........................................................................14
SECTION 2.11 Special Provisions Governing LIBOR...............................................15
SECTION 2.12 Letters of Credit................................................................15
SECTION 2.13 Capital Adequacy.................................................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................................18
SECTION 3.1 Organization, Corporate Powers, Etc..............................................18
SECTION 3.2 Authorization of Loan, Etc.......................................................19
SECTION 3.3 Tax Returns and Payments.........................................................19
SECTION 3.4 Agreements.......................................................................19
SECTION 3.5 Financial Statements.............................................................20
SECTION 3.6 Changes in Financial Condition; Adverse Developments.............................20
SECTION 3.7 Litigation, Etc..................................................................20
SECTION 3.8 Patents, Trademarks, Franchises, Etc.............................................20
SECTION 3.9 Principal Place of Business......................................................21
SECTION 3.10 Consents and Approvals...........................................................21
SECTION 3.11 Title to Properties and Assets, Liens, Etc.......................................21
SECTION 3.12 Outstanding Funded Debt..........................................................21
SECTION 3.13 ERISA............................................................................21
SECTION 3.14 Subsidiaries.....................................................................24
SECTION 3.15 Environmental Matters............................................................24
SECTION 3.16 Regulation U, Etc................................................................25
SECTION 3.17 Holding Company Status...........................................................25
SECTION 3.18 Investment Company Status........................................................25
SECTION 3.19 False or Misleading Statements...................................................25
SECTION 3.20 Securities Acts..................................................................25
SECTION 3.21 Governmental Consent.............................................................25
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
SECTION 3.22 Year 2000 Compliance.............................................................26
ARTICLE IV COVENANTS OF THE BORROWER........................................................26
SECTION 4.1 Affirmative Covenants............................................................26
SECTION 4.2 Negative Covenants...............................................................32
ARTICLE V CONDITIONS OF LENDING............................................................33
SECTION 5.1 Representations and Warranties...................................................33
SECTION 5.2 No Default.......................................................................33
SECTION 5.3 Validity of Guaranties...........................................................33
SECTION 5.4 Facility Documents...............................................................33
SECTION 5.5 Supporting Documents.............................................................33
SECTION 5.6 Additional Notes.................................................................34
SECTION 5.7 Loans Permitted by Applicable Laws...............................................34
SECTION 5.8 Proceedings......................................................................35
SECTION 5.9 Payment of Fees and Disbursements of
Bank's Counsel..........................................................35
SECTION 5.10 Fees.............................................................................35
ARTICLE VI EVENTS OF DEFAULT................................................................35
SECTION 6.1 Events of Default................................................................35
ARTICLE VII RIGHTS UPON DEFAULT..............................................................37
SECTION 7.1 Acceleration.....................................................................37
SECTION 7.2 Right of Setoff..................................................................38
SECTION 7.3 Other Rights.....................................................................38
SECTION 7.4 Uniform Commercial Code..........................................................38
ARTICLE VIII MISCELLANEOUS....................................................................38
SECTION 8.1 Cumulative Remedies..............................................................38
SECTION 8.2 Amendments, Etc..................................................................38
SECTION 8.3 Addresses for Notices, Etc.......................................................38
SECTION 8.4 Applicable Law...................................................................39
SECTION 8.6 Time of the Essence..............................................................39
SECTION 8.7 Headings.........................................................................39
SECTION 8.8 Severability.....................................................................40
SECTION 8.9 Counterparts.....................................................................40
SECTION 8.10 Conflict.........................................................................40
SECTION 8.11 Term.............................................................................40
SECTION 8.12 Cross Defaults...................................................................40
SECTION 8.13 Expenses.........................................................................40
SECTION 8.14 Successors and Assigns...........................................................41
SECTION 8.15 Further Assurances...............................................................41
SECTION 8.16 No Third Party Beneficiaries.....................................................41
SECTION 8.17 WAIVER OF JURY TRIAL.............................................................41
SECTION 8.18 No Waiver........................................................................41
SECTION 8.19 Entire Agreement.................................................................41
</TABLE>
ii
<PAGE> 4
EXHIBIT "A" - Notice of Borrowing
EXHIBIT "B" - Notice of Conversion/Continuation
EXHIBIT "C" - List of Subsidiaries
iii
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into this 24th day of November,
1998, by and between:
PRIORITY HEALTHCARE CORPORATION, an Indiana corporation, 285 W. Central
Parkway, Suite 1704, Altamonte Springs, Florida 32714-2554 (hereinafter
referred to as the "Borrower")
and
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, a national
banking association, 200 South Orange Avenue, P.O. Box 3833, Orlando,
Florida 32897 (hereinafter referred to as the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to extend to it a
revolving line of credit loan/letter of credit facility in the maximum aggregate
principal amount of $10,000,000.00; and
WHEREAS, the Bank is willing to make such facility available upon the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements contained herein, the Borrower and the Bank
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Definitions. For the purposes of this Agreement, the
following terms shall have the respective meanings specified in this Section 1.1
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Advance" shall mean individually and collectively the proceeds of the
Facility delivered to the Borrower by the Bank pursuant to Section 2.2 hereof.
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with Borrower,
including a Subsidiary. A Person shall be deemed to control a corporation if
such Person possesses,
<PAGE> 6
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract, or otherwise.
"Agreement" shall mean this Loan Agreement as originally executed by
the parties hereto and all permitted amendments hereto and modifications hereof.
"Amgen Letter of Credit" shall mean that certain letter of credit, to
be issued by the Bank for the account of the Borrower and for the benefit of
Amgen, Inc., and all amendments, modifications, supplements, extensions or
replacements thereof.
"Banking Day" shall mean any Day other than a Saturday, Sunday or Day
on which commercial banks are authorized to close under the laws of State of
Florida.
"Covenant Compliance Certificate" shall mean a certificate in such form
as may be acceptable to the Bank, containing all the financial covenants and
ratios with which the Borrower is required to comply during the term of this
Agreement and containing calculations reflecting whether or not the Borrower is
in compliance with each such financial covenant or ratio.
"Current Liabilities" shall mean, as at any date of determination
thereof, (a) the principal and interest outstanding under the Loan, and (b)
those liabilities, or any portion thereof, the maturity of which will not extend
beyond one year from the date of calculation.
"Day" shall mean a calendar day, unless the context indicates
otherwise.
"Default Rate" shall mean the lesser of (i) the Prime Rate plus three
hundred basis points (3.0%) or (ii) the highest rate of interest permitted from
time to time by applicable law.
"Due Date" shall mean the date any payment of principal or interest is
due and payable on the Loan or Note.
"EBITDA" shall mean, for any period, Net Income, increased by the sum
of (i) Interest Expense for such period, (ii) Income Tax Expense for such
period, (iii) depreciation for such period and (iv) amortization for such
period.
"Environmental Laws" shall mean (i) the Resource Conservation and
Recovery Act, (ii) the Comprehensive Environmental Response, Compensation and
Liability Act, (iii) the Clean Water Act, (iv) the Clean Air Act, (v) the Solid
Waste Disposal Act, (vi) the Superfund Amendments and Reauthorization Act of
1986, (vii) the Federal Insecticide, Fungicide, and
2
<PAGE> 7
Rodenticide Act, (viii) the Toxic Substance Control Act, (ix) the Emergency
Planning and Community Right to Know Act, (x) the Hazardous Material
Transportation Act, (xi) the Resource Conservation and Recovery Act, (xii) the
Florida Air and Water Pollution and Control Act, (xiii) the Florida Hazardous
Substances Law, (xiv) any and all other federal, state or local laws,
regulations or interpretations applicable to the Borrower or any of the
properties or operations of the Borrower relating to (A) protection of the
environment, (B) discharges to the environment, or (C) the handling, storage,
transportation, removal or disposal of hazardous waste, hazardous substances, or
petroleum products or by-products or natural gas, and (xi) any and all other
federal, state, or local laws, regulations or interpretations relating to
environmental permitting applicable to any of the properties or operations of
the Borrower.
"ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended.
"Event of Default" shall mean an event of default specified in Article
Six of this Agreement.
"Facility" shall mean the revolving line of credit loan/ letter of
credit facility extended to the Borrower by the Bank pursuant to the terms
hereof.
"Facility Documents" shall mean this Agreement, the Note, the Negative
Pledge, the Guaranties and all of the other documents, agreements, certificates,
schedules, notes, statements and opinions, however described, referenced herein
or executed or delivered pursuant hereto or in connection with or arising with
the Facility or the transactions contemplated by this Agreement.
"Fixed Charge Coverage Ratio" shall mean the ratio of (a) the
Borrower's EBITDA to (b) the sum of the Borrower's (i) Interest Expense, (ii)
capital expenditures (excluding acquisitions), (iii) capitalized lease payments
and (iv) dividends.
"Funded Debt to Capitalization Ratio" shall mean, as at any date of
determination thereof, the ratio of (a) the Borrower's Funded Debt to (b) the
sum of the Borrower's (i) Funded Debt and (ii) Net Worth.
"Funded Debt to EBITDA Ratio" shall mean, as at any date of
determination thereof, the ratio of the Borrower's Funded Debt to its EBITDA.
"Funded Debt" shall mean and include without duplication:
3
<PAGE> 8
(a) all amounts outstanding in respect of the Loans,
(b) indebtedness which is secured by any security interest on
property owned by the Borrower whether or not the indebtedness secured thereby
shall have been assumed by the Borrower,
(c) guarantees, endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of business), and
other contingent liabilities (whether direct or indirect) in connection with the
obligations, stock, or dividends of any Person,
(d) obligations under any contract providing for the making of
loans, advances, or capital contributions to any Person in order to enable such
Person primarily to maintain working capital, net worth, or any other balance
sheet condition or to pay debts, dividends, or expenses, and
(e) obligations under any contract which, in economic effect,
is substantially equivalent to a guarantee, all as determined in accordance with
GAAP; provided, however, that any such obligation shall be treated as Funded
Debt, regardless of its term, if such obligation is renewable pursuant to the
terms thereof or arises under a revolving credit or similar agreement, or may be
payable out of the proceeds of a similar obligation pursuant to the terms of
such obligation or of any such agreement.
"GAAP" shall mean generally accepted accounting principles consistently
applied to the particular item.
"Guaranties" shall mean the absolute and unconditional guaranty
agreements executed by the Guarantors in favor of the Bank guaranteeing the
Obligations.
"Guarantors" shall mean IV-1, Inc., a Florida corporation and its
wholly-owned Subsidiaries, IV-One Services, Inc., a Florida corporation and
National Pharmacy Providers, Inc., a Florida corporation, their successors
and/or assigns, and each future wholly-owned Subsidiary of the Borrower.
"Hazardous Materials Liabilities" shall mean any and all damages
(compensatory and punitive), losses, cleanup costs, liabilities, disabilities,
fines, penalties, costs or expenses (including reasonable attorneys' and
paralegals' fees and expenses), whether incurred or to be incurred, whether
absolute, fixed or contingent, whether civil or criminal, and whether arising
under the Environmental Laws or under any other federal, state or local law,
arising out of or in connection with the handling, use, storage, transportation,
removal or disposal of
4
<PAGE> 9
(i) "hazardous waste, as defined in the Resource Conservation and Recovery Act
or, if broader, as such term or any similar term is defined in any other
applicable federal, state or local law, regulation or interpretation, (ii)
"Hazardous Substances", as defined in this Section 1.1, or, if broader, in the
Comprehensive Environmental Response, Compensation and Liability Act, or, if
broader, as such term or any similar term is defined in any other applicable
federal, state or local law, regulation or interpretation, and/or (iii)
petroleum products or by-products or natural gas.
"Hazardous Substances" shall mean any hazardous or toxic materials,
pollutants, contaminants, constituents or wastes and any other chemical,
material or substance, the generating, handling, storage, release,
transportation, or disposal of which is or becomes prohibited, limited or
regulated by any federal, state, county, regional or local authority or which,
even if not so regulated, is or becomes known to pose a hazard to the health and
safety of the occupants of the Places of Business including, without limitation,
(i) asbestos, (ii) petroleum and petroleum by-products, (iii) urea formaldehyde
foam insulation, (iv) polychlorinated biphenyls, (v) all substances now or
hereafter designated as "hazardous substances," "hazardous materials" or "toxic
substances" pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended, 42 U.S.C. Sections 9601, et seq. the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq.,
or the Resource, Conservation and Recovery Act, 42 U.S.C. Sections 6901 et
seq; (vi) all substances now or hereafter designated as "hazardous wastes" or as
"hazardous substances" in Chapter 403 of Florida Statutes (the "Florida Air and
Water Pollution and Control Act") or in Sections 501.061 et seq. of
Florida Statutes (the "Florida Hazardous Substances Law"); or (vii) all
substances now or hereafter designated as "hazardous substances," "hazardous
materials" or "toxic substances" under any other federal, state or local laws or
in any regulations adopted and publications promulgated pursuant to said laws.
"IRS Code" shall mean the Internal Revenue Code of 1986, as amended.
"Income Tax Expense" shall mean, for any period, the aggregate of (i)
all taxes based upon or measured by the Borrower's income and (ii) franchise
taxes payable by the Borrower, determined in accordance with GAAP.
"Interest Expense" shall mean, for any period, the interest expenses of
the Borrower, including the interest equivalent under capitalized lease
obligations and Funded Debt, determined in accordance with GAAP.
"Interest Payment Date" shall mean (a) with respect to Prime Rate
Loans, the tenth Day of each month, in arrears (i.e.
5
<PAGE> 10
interest accruing during a particular month will be payable on the tenth Day of
the following month), commencing on December 10, 1998 and (b) with respect to
LIBOR Loans, the end of the related Interest Period, except in the case of
Interest Periods which extend beyond ninety Days, each Day which is ninety Days
from the date of such advance and at the end of the related Interest Period.
"Interest Period" shall mean (a) with respect to Prime Rate Loan, a
calendar month, and (b) with respect to LIBOR Loans, 1, 2, 3 or 6 months, or any
other period approved by the Bank in its sole and absolute discretion, as
selected by the Borrower from time to time in accordance with the terms hereof.
"Interest Rate" shall mean the interest rate per annum selected by the
Borrower for each Loan or Advance, from time to time, with reference to either
the Prime Rate or LIBOR, except when the Default Rate is in effect; provided,
however, that the Interest Rate shall never exceed the maximum rate allowable by
law from time to time.
"Interest Rate Determination Date" shall mean each date for
calculating the Prime Rate or LIBOR, as the case may be, for purposes of
determining the Interest Rate in respect of an Interest Period. The Interest
Rate Determination Date shall be (i) the Banking Day prior to the first Day of
the related Interest Period for a Prime Rate Loan and (ii) the second Banking
Day prior to the first Day of the related Interest Period for a LIBOR Loan.
"Letter of Credit" and "Letters of Credit" shall mean any one or more
of the standby letters of credit issued for the account of the Borrower pursuant
to Section 2.12 hereof, whether issued by or through the actions of the Bank, as
the same may be transferred, renewed, modified, amended or restated from time to
time in the manner provided therein.
"Letter of Credit Fees" shall mean the fees paid by the Borrower to the
Bank in connection with the issuance of Letters of Credit, which fees shall be
calculated in the manner set forth in Section 2.12 hereof.
"Liabilities" shall mean all liabilities and obligations of the
Borrower, all as determined in accordance with GAAP.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien, or charge of any kind (including any agreement to give any of the
foregoing, any conditional sales or other title retention agreements, or any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction).
6
<PAGE> 11
"LIBOR" shall mean the interest rate per annum (in accordance with the
length of the designated Interest Period) in effect on the Interest Rate
Determination Date designated as the LIBOR rate and appearing from time to time
on Telerate or such substitute interest rate reporting service or publication of
recognized standing as may be designated in writing from time to time by the
Bank to the Borrower; in any such case rounded, if necessary, to the next higher
1/16 of 1.0%, if the rate is not such a multiple.
"LIBOR Applicable Margin" shall mean the number of basis points
designated below, based on the Borrower's Funded Debt to EBITDA Ratio:
FUNDED DEBT/EBITDA
<TABLE>
<CAPTION>
greater than or equal greater than or equal greater than or equal greater than or equal greater than or
less than 0.5 to 0.5 + less than 1.0 to 1.0 + less than 1.50 to 1.50 + less than 2.0 to 2.0:1 + less than 2.5 equal to 2.5
- ------------- ---------------------- ----------------------- ----------------------- ------------------------ ---------------
<S> <C> <C> <C> <C> <C>
L + 37.5 L + 55.0 L + 67.5 L + 80.0 L + 92.5 L + 105.0
</TABLE>
"LIBOR Loans" shall mean loans or Advances made by the Bank to the
Borrower during the Revolving Period under the Facility pursuant to the terms of
this Agreement which bear interest at rates determined by reference to LIBOR as
provided in Section 2.3 hereof.
"Loan" or "Loans" shall mean, collectively, or individually, as the
case may be or as the context may require, the Prime Rate Loans and the LIBOR
Loans, extended to the Borrower by the Bank pursuant to the terms hereof.
"Margin Securities" shall mean any "margin securities" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System.
"Net Income" shall mean, for any period the aggregate of the net income
of the Borrower determined in accordance with GAAP.
"Non-Usage Fee" shall mean the fee paid to the Bank by the Borrower for
the unused portion of the Facility, determined in accordance with Section 2.9
hereof.
"Note" shall mean the Borrower's promissory note or notes evidencing
the Loan together with all amendments, modifications, supplements renewals or
replacements thereof.
7
<PAGE> 12
"Obligations", with respect to the Borrower, shall mean, individually
and collectively, all payment and performance duties, obligations and
liabilities of the Borrower to the Bank, however and whenever incurred, acquired
or evidenced, whether primary or secondary, direct or indirect, absolute or
contingent, sole or joint and several, or due or to become due, including,
without limitation, all such duties, obligations and liabilities of the Borrower
to the Bank, under and pursuant to the Facility Documents and all renewals,
modifications or extensions of any thereof.
"Permitted Loan Limit" shall mean $10,000,000.00.
"Person" shall mean any individual, joint venturer, partnership, firm,
corporation, trust, unincorporated organization or other organizational entity,
or a governmental body or any department or agency thereof, and shall include
both the singular and the plural.
"Plan" shall mean an employee benefit plan or plans and any trust
created thereunder which has been established or maintained or hereafter is
established or maintained for employees of the Borrower or any Subsidiary,
provided such plan is covered by Title I or IV of ERISA.
"Prime Rate" shall mean the interest rate announced from time to time
by SunTrust Banks of Florida, Inc. as the Prime Rate (which rate is only a
benchmark, is purely discretionary and is not necessarily the best or lowest
rate charged borrowing customers of any subsidiary bank of SunTrust Banks of
Florida, Inc.), with any change in the Prime Rate to be effective at 12:01 a.m.
on the Day any such change in the Prime Rate is announced by SunTrust Banks of
Florida, Inc.
"Prime Rate Loans" shall mean Loans or Advances made by the Bank during
the Revolving Period under the Facility pursuant to this Agreement and bearing
interest at rates determined by reference to the Prime Rate, as provided in
Section 2.3 hereof.
"Principal Place of Business" shall mean the principal place of
business and the headquarters of the Borrower at which all of its records are
kept which is noted in the preamble of this Agreement.
"Prohibited Transaction" shall mean a transaction prohibited by Section
408 of ERISA or Section 4975 of the IRS Code.
"Related Entity" shall mean any entity if, with respect to the
Borrower, any of the entity's employees fall within any of the following
categories: (a) employees of a controlled group of corporations as defined in
Section 414(b) of the IRS Code; (b) employees of partnerships, proprietorships
or other entities that
8
<PAGE> 13
are under common control as defined in Section 414(c) of the IRS Code; (c)
employees of affiliated service groups as defined in Section 414(m) of the IRS
Code; or (d) employees of entities that are deemed affiliated with or related to
the Borrower in accordance with Sections 414(n) or (o) of the IRS Code.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Period" shall mean the period during the term of the Loan
(in the absence of an Event of Default) during which principal owed to the Bank
under the Facility may be retained by the Borrower; such period of time shall
commence on the date hereof and terminate on the earlier of (i) the occurrence
of an Event of Default, (ii) November 24, 2001, or (iii) such later date as the
Bank may in its absolute discretion agree to in writing.
"Subsidiary" shall mean any other corporation whose assets and income
are includible in the financial statements of the Borrower in accordance with
GAAP, and shall include subsidiaries of a subsidiary.
"Total Liabilities" shall mean all liabilities and obligations of the
Borrower, all as determined in accordance with GAAP, and shall include Funded
Debt and/or Current Liabilities, as the case may be.
"UCC" shall mean the Florida Uniform Commercial Code, Chapters 671 to
680, inclusive.
SECTION 1.2 Accounting Terms. All accounting terms used herein shall be
construed in accordance with GAAP consistently applied and all financial data
submitted pursuant to this Agreement shall be prepared in accordance with GAAP.
In the event of ambiguities in GAAP, the more conservative principle or
interpretation shall be used.
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.1 The Loan. The Bank agrees from time to time during the
Revolving Period to lend to the Borrower under the Facility upon the request of
the Borrower up to the aggregate principal amount of the Permitted Loan Limit on
the terms and conditions set forth herein. During the Revolving Period, the
Borrower shall be entitled to receive up to the amount of the Permitted Loan
Limit in one or more Advances pursuant to Section 2.2 hereof, except as
otherwise specifically set forth in this Agreement. Advances under the Loan
shall be
9
<PAGE> 14
evidenced by the Note and shall be payable as set forth in Section 2.7 hereof.
The Borrower shall not be liable under the Note except with respect to funds
actually advanced to the Borrower by the Bank pursuant to the terms hereof. The
Loan may revolve during the Revolving Period; accordingly, during the Revolving
Period, the Borrower may borrow up to the Permitted Loan Limit, repay all or any
portion of such principal amount of the Loan, and reborrow up to such amount,
subject to the terms and conditions set forth herein. After the expiration of
the Revolving Period, the Borrower shall not be entitled to receive any further
Advance.
SECTION 2.2 Advance of Proceeds of Facility. After the date hereof, and
upon satisfaction of the conditions precedent set forth in Article Five hereof,
the Borrower shall be entitled to obtain Advances under the Facility. The
Borrower shall give the Bank written notice (or facsimile transmission,
immediately confirmed by telephone and further confirmed by sending the original
notice to the Bank so that the same is received by the Bank no later than three
(3) Banking Days after the date of the facsimile transmission) ( a "Notice of
Borrowing"), which Notice of Borrowing shall be given prior to 2:00 p.m.
Orlando, Florida time and such Notice of Borrowing shall be in the form attached
hereto as EXHIBIT "A" or in such other form as may be acceptable to the Bank in
its sole and absolute discretion, which shall specify (a) the proposed date of
the Advance (which shall be a Banking Day), (b) the amount of the proposed
borrowing, (c) the requested Interest Rate, (d) in the case of a LIBOR Loan, the
requested Interest Period, and (e) that on the date of the Notice of Borrowing
there has been no material adverse change in the financial condition of the
Company from that set forth on the most recent annual financial statements
furnished to the Bank as provided in this Agreement. The Notice of Borrowing
shall be irrevocable by the Borrower on or after the related Interest Rate
Determination Date and the Borrower shall be bound to make a borrowing in
accordance therewith. The Bank shall have no duty or obligation to verify or
confirm the authority of the representative of the Borrower requesting any such
Advance as long as said person identifies himself/herself as an employee or
representative of the Borrower. The Bank shall make each Advance hereunder on
the date proposed by the Borrower therefor by crediting the amount of each
Advance requested by the Borrower to the general deposit account of the Borrower
maintained with the Bank, or in such other manner as the Borrower may request in
such Notice of Borrowing and as is agreeable to the Bank. Each request for an
Advance shall be deemed to restate and verify all representations of the
Borrower made herein as of the date of such request.
10
<PAGE> 15
Loans which are unpaid upon the expiration of the Interest Period
applicable thereto and with respect to which Borrower has not advised Bank in
writing (a "Notice of Conversion/ Continuation") as provided in Section 2.7 and
received by the Bank within the times provided in Section 2.7 prior to the
expiration of such Interest Period that it has elected to continue such Loans as
LIBOR Loans or Prime Rate Loans, as the case may be, or continue the Interest
Period applicable to such Loans shall, effective as of the first Day after the
expiration of such Interest Period, accrue interest at the rate determined by
reference to the Prime Rate, determined in accordance with Section 2.3 hereof.
Thereafter, subject to the limitations set forth in Section 2.7 hereof, the
Borrower may, by giving Bank an appropriate Notice of Conversion/Continuation,
together with the requested Interest Period, elect to convert such Loans to
LIBOR Loans for the designated Interest Period at a date designated by the
Borrower which date shall be no earlier than a date two Banking Days after the
receipt by the Bank of such Notice of Conversion/Continuation.
SECTION 2.3 Interest on The Note. The Facility shall be evidenced by
the Note and shall be due and payable in accordance with and as required by
Section 2.7. The Note shall bear interest from the date thereof on the unpaid
principal balance thereof from time to time from the date made through maturity
(whether by acceleration or otherwise) at a rate determined by reference to the
Prime Rate or LIBOR, as selected from time to time by the Borrower, and shall be
payable as set forth in Section 2.7. The applicable basis for determining the
rate of interest shall be selected by Borrower at the time the Notice of
Borrowing is given pursuant to Section 2.2 or at the time a Notice of
Conversion/Continuation is given pursuant to Section 2.7. If on any Day a Loan
is outstanding with respect to which such a Notice has not been delivered to
Bank in accordance with the terms of this Agreement specifying the basis for
determining the rate of interest, then for that Day that Loan shall bear
interest at the rate determined by reference to the Prime Rate, determined in
accordance with this Section 2.3. Interest on Loans or Advances under the
Facility shall fluctuate based upon the Borrower's Funded Debt to EBITDA Ratio
("Funded Debt/EBITDA"), determined by the Bank quarterly, as follows:
(a) if a Prime Rate Loan, then at a fluctuating rate
per annum equal to the Prime Rate; or
(b) if a LIBOR Loan, then at a rate per annum equal
to the sum of the applicable LIBOR (based upon the Interest
Period selected) plus the LIBOR Applicable Margin.
11
<PAGE> 16
Notwithstanding the foregoing, however, until February 15, 1999, or such earlier
date as the Borrower shall deliver to the Bank its financial statements for the
quarter ending December 31, 1998, the Interest Rate for all LIBOR Loans shall be
LIBOR plus thirty seven and one-half basis points (.375%). For purposes of
determining the applicable Interest Rate, the Borrower's Funded Debt to EBITDA
Ratio shall be calculated by the Bank quarterly, based upon the Borrower's
quarterly financial statements, beginning with the Borrower's statement for the
period ending December 31, 1998, with any change in the applicable Interest Rate
to be effective as of the first day of the month following the date of the
delivery to the Bank of the financial statements reflecting such change in the
Borrower's Funded Debt to EBITDA Ratio.
From and after the Due Date, interest shall accrue on the unpaid
principal balance of the Facility and on all accrued but unpaid interest
thereon, or on such defaulted payment, from the Due Date at the Default Rate.
Such interest shall continue to accrue until the date of payment in full of all
principal and accrued but unpaid interest of such defaulted payment, if
applicable.
SECTION 2.4 Prepayment of the Loan. The Borrower may at any time and
from time to time prepay all or any part of the principal amount of any Prime
Rate Loans outstanding without penalty; provided, however, that each permitted
prepayment shall be applied to the reduction of the Facility, in such manner as
the Bank may, in its sole discretion, elect and, further provided, that on the
date of the prepayment, there shall exist no Default and all accrued but unpaid
interest on the amount of the prepayment through the prepayment date, whether or
not due and payable, shall be paid in full prior to any prepayment. Each
prepayment other than full payment shall be made prior to 2:00 p.m. (Orlando
time) on the date of the prepayment, and shall be made on a Banking Day in
immediately available funds. The Borrower may not prepay any LIBOR Loan prior to
the expiration of the applicable Interest Period.
SECTION 2.5 Calculation of Interest. Any interest due on the Facility
or any other Obligations shall be calculated on the basis of a year containing
360 Days. The interest due on any date for payment of interest hereunder shall
be that interest to the extent accrued as of midnight on the last Day
immediately prior to that interest payment date. Notwithstanding anything herein
or in any Facility Document to the contrary, the sum of all interest and all
other amounts deemed interest under Florida or other applicable law which may be
collected by the Bank hereunder shall not exceed the maximum lawful interest
rate permitted by such law from time to time. The Bank and the Borrower intend
and agree that under no circumstance shall the Borrower be required
12
<PAGE> 17
to pay interest on the Facility or on any other Obligations at a rate in excess
of the maximum interest rate permitted by applicable law from time to time, and
in the event any such interest is received or charged by the Bank in excess of
that rate, the Borrower shall be entitled to an immediate refund of any such
excess interest by a credit to and payment toward the unpaid balance of the
Facility (such credit to be considered to have been made at the time of the
payment of the excess interest) with any excess interest not so credited to be
immediately paid to the Borrower by the Bank.
SECTION 2.6 Place of Payment. All payments by the Borrower under the
Facility Documents shall be made to the Bank at its banking house at Orlando,
Florida, in lawful money of the United States of America and in immediately
available funds.
SECTION 2.7 Payment of Note. The Borrower shall pay the Note together
with interest at the rate set forth in Section 2.3 as follows:
(a) Interest. Interest shall be payable on each Interest
Payment Date, upon any permitted prepayment of the Facility (to the extent
accrued on the amount being prepaid) and at maturity. The Bank will endeavor to
notify the Borrower of interest due prior to any Interest Payment Date.
Borrower shall deliver a Notice of Conversion/Continuation to Bank no
later than 11:00 A.M. Orlando, Florida time, on the Banking Day of the proposed
conversion date for any Loan or Advance under the Facility, which shall be (i)
in the case of the conversion/continuation of a Prime Rate Loan, a date which is
at least one (1) Banking Day after the date on which the Bank receives such
Notice of Conversion/Continuation and (ii) in the case of the
conversion/continuation of a LIBOR Loan, a date which is at least three (3)
Banking Days after the date on which the Bank receives such Notice of
Conversion/Continuation. A Notice of Conversion/Continuation shall be in the
form of EXHIBIT "B" attached hereto or such other form and content as may be
acceptable to the Bank in its sole and absolute discretion and shall be
delivered to the Bank and shall specify (i) the proposed conversion/continuation
date (which shall be a Banking Day), (ii) the amount of the Loan to be
converted/continued, (iii) the nature of the proposed conversion/continuation,
and (iv) in the case of a conversion to, or continuation of, a LIBOR Loan the
requested Interest Period. In lieu of delivering the above-described Notice of
Conversion/Continuation, Borrower may give Bank such notice by facsimile
transmission by the required time of any proposed conversion/continuation under
this Section 2.7; provided, that such facsimile transmission is immediately
confirmed by telephone, and further confirmed by sending the
13
<PAGE> 18
original Notice of Conversion/Continuation to the Bank so that the same is
received by the Bank no later than three (3) Banking Days after the date of the
facsimile transmission; and further provided that no outstanding Loan may be
continued as, or be converted into, a LIBOR Loan when any Event of Default has
occurred and is continuing.
The Bank shall incur no liability to Borrower in acting upon any
telephonic notice referred to above or for otherwise acting under this Section
2.7 and upon conversion/ continuation by Bank in accordance with this Agreement
pursuant to any telephonic notice, Borrower shall have effected Loans hereunder.
Any Notice of Conversion/Continuation for conversion to, or
continuation of, a LIBOR Loan (or telephonic notice in lieu thereof) shall be
irrevocable by Borrower on or after the related Interest Rate Determination Date
and Borrower shall be bound to convert or continue in accordance therewith.
(b) Maturity Date. On the Maturity Date, all outstanding
principal, together with accrued but unpaid interest thereon, shall become due
and payable in full.
SECTION 2.8 Application of Payments. All payments made on the Note
shall be applied first to interest accrued to the date of payment and next to
the unpaid principal balance; provided, however, in the event an Event of
Default occurs, payments shall be applied first to any costs or expenses,
including attorneys fees, that the Bank may incur in exercising its rights under
the Facility Documents, as the Bank may determine.
SECTION 2.9 Non-Usage Fee. The Borrower shall pay to the Bank a
quarterly Non-Usage Fee on the average unused portion of the Facility in an
amount equal to the amount of the number of basis points set forth below per
annum, based on the Borrower's Funded Debt to EBITDA Ratio ("Funded
Debt/EBITDA"):
FUNDED DEBT/EBITDA
<TABLE>
<CAPTION>
greater than or equal greater than or equal greater than or equal greater than or equal greater than or
less than 0.5 to 0.5 + less than 1.0 to 1.0 + less than 1.50 to 1.50 + less than 2.0 to 2.0:1 + less than 2.5 equal to 2.5
- ------------- ---------------------- ----------------------- ----------------------- ------------------------ ---------------
<S> <C> <C> <C> <C> <C>
12.5 bp 12.5 bp 15.0 bp 15.0 bp 20.0 bp 20 bp
</TABLE>
Such fee shall accrue from the date of this Agreement until the Bank's
obligations to advance funds under the Facility pursuant to this Agreement are
terminated and shall be payable quarterly, in arrears, on the last Day of each
calendar quarter during the term of this Agreement. Such fees shall be
calculated by the
14
<PAGE> 19
Bank and such calculations shall not be subject to challenge or dispute except
in the case of manifest error. Notwithstanding anything to the contrary
contained herein, the first $16,250.00 of the Non-Usage Fee due to the Bank
hereunder for the Facility shall be waived as long as the Amgen Letter of Credit
remains outstanding and the pricing thereof remains in effect for a full year.
SECTION 2.10 Setoff. The Borrower hereby grants to the Bank a lien on,
and a security interest in, the deposit balances, accounts, items, certificates
of deposit and monies of the Borrower in the possession of or on deposit with
the Bank or any of its affiliates to secure and as collateral for the payment
and performance of the Obligations. Upon the occurrence of a Default, the Bank
may at any time and from time to time, without demand or notice, appropriate and
setoff against and apply the same to the Obligations when and as due and
payable.
SECTION 2.11 Special Provisions Governing LIBOR. Notwithstanding other
provisions of this Agreement, the following provisions shall govern with respect
to LIBOR as to the matters covered:
(a) Determination of Interest Period. By giving notice as set
forth in Section 2.2 or Section 2.7 the Borrower shall have the option, subject
to the other provisions of this Section 2.10, to specify an Interest Rate
determined with reference to LIBOR commencing on any such date, provided, that:
(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the Day on
which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on
a Day which is not a Banking Day, that Interest Period shall be
extended to expire on the next succeeding Banking Day; provided, that
if any such Interest Period would otherwise expire on a Day which is
not a Banking Day but is a Day of the month after which no further
Banking Day occurs in that month, that Interest Period shall expire on
the next preceding Banking Day; and
(iii) any Interest Period which begins on the last
Banking Day of a calendar month (or on a Day for which there is no
numerically corresponding Day in the calendar month at the end of such
Interest Period) shall end on the last Banking Day of a calendar month.
(b) Determination of Interest Rate. As soon as practicable
after 11:00 A.M. Orlando, Florida time, on the
15
<PAGE> 20
Interest Rate Determination Date, Bank shall determine (which determination
shall, absent manifest error, be final, conclusive and binding upon all parties)
the Interest Rate which shall apply to the Loan for which an Interest Rate is
then being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to the
Borrower.
SECTION 2.12 Letters of Credit.
(a) Upon the terms and provisions and subject to the
conditions contained in this Agreement, in lieu of an Advance under the
Facility, the Bank may issue or cause the issuance of one or more Letters of
Credit from time to time upon the request of the Borrower; provided, however,
the Bank's agreement to consider the issuance of Letters of Credit shall
terminate when payment of the Note becomes due, whether by demand or otherwise,
and further provided, however, that notwithstanding the face amount of the Note
the Bank shall not be required to consider the issuance of any Letter of Credit
if (i) the face amount of the Letter of Credit to be issued plus the principal
balance outstanding under the Facility together with the aggregate face amounts
of all Letters of Credit outstanding would exceed the Permitted Loan Limit; or
(ii) the expiration date thereof could occur after the earlier of (A) one year
from the date of issuance thereof or (B) the termination of the Revolving
Period. The issuance of such Letters of Credit is subject to compliance with
conditions precedent to obtaining an Advance under this Agreement, to the prior
approval of the Bank and to the Bank's standard procedures for issuance of a
Letter of Credit, including, but not limited to, the submission of an
application on the Bank's approved forms with respect to any standby Letters of
Credit, a Master Letter of Credit Agreement with respect to commercial Letters
of Credit, and any other standard requirements with regard to the issuance of
Letters of Credit of the type to be issued hereunder. The Letters of Credit will
be in such form as is reasonably acceptable to the Bank and the documentation
therefor will include an unconditional obligation of the Borrower to pay any
amount drawn under any Letter of Credit.
(b) Each of the Letters of Credit may be drawn upon by
presentment to the Bank, at its office at 200 South Orange Avenue, Orlando,
Florida 32801 (or such other office as may be specified therein), of the
original Letter of Credit, together with such supporting documents and
certificates as may be required by the Letter of Credit. The Bank may honor any
draft, certificate or other document reasonably conforming in form and substance
to the requirements described in and/or forms annexed to any Letter of Credit,
and may afford the beneficiary notice of and an opportunity to correct
non-conforming items capable of cure, each in the sole and absolute discretion
of the Bank and without any notice to or consent from the Borrower.
16
<PAGE> 21
(c) Each amount paid by the Bank pursuant to a Letter of
Credit or otherwise in respect of the obligation thereby secured and not
immediately paid by the Borrower shall be deemed to be an Advance under the
Facility by the Bank to the Borrower pursuant to this Agreement, and the
Borrower shall repay such advance in accordance with the terms and provisions of
this Agreement.
(d) In addition to the payments of principal and interest as
stated above, if there shall be any increase in the direct or indirect cost to
the Bank of issuing, causing the issuance of or maintaining a Letter of Credit,
or any reduction in any amount received or to be received with respect to a
Letter of Credit by the Bank hereunder due to:
(i) The introduction of any change in any applicable
law or the interpretation or administration thereof, including without
limitation, the imposition, modification or application of (A) any
reserve, special deposit, assessment or similar requirement respecting
Letters of Credit issued by, assets held by, or deposits in or for the
account of, the Bank, (B) any requirement to withhold or deduct from
any amount payable to the Bank hereunder, or payable directly or
indirectly to the Bank, any taxes, levies, imports, duties, fees,
deductions, withholdings or charges of a similar nature, or to any
interest thereon, or any penalties with respect thereto, imposed,
levied, collected, assessed, withheld or deducted by any governmental
authority, including subdivisions and taxing authorities thereof, or
(C) any other restriction or condition effecting a Letter of Credit or
this Agreement; or
(ii) The compliance of the Bank with any regulation,
guideline or request from any central bank or other authority (whether
or not having the force of law);
the Borrower from time to time, within 10 days upon demand by the Bank, shall
pay to the Bank additional amounts sufficient to indemnify the Bank against such
increased costs and reduced receipts. A certificate setting forth the basis for
the additional amounts in reasonable detail as to the amount and manner of
calculation of such increased costs and reduced receipts submitted to the
Borrower by the Bank shall be conclusive (absent manifest error) as to the
existence and the amount thereof. If the Bank has not received payment for such
amounts by the time it receives from the Borrower the next succeeding payment or
prepayment of a portion of the Facility, whether intended by the Borrower to be
interest, principal or otherwise, the Bank may apply such payment or prepayment
first to the reduction of the amounts of such costs and receipts.
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(e) The Facility shall not otherwise be deemed to have been
fully paid or satisfied until each of the outstanding Letters of Credit have
been presented, have expired by their terms without presentment or have been
surrendered to the Bank for cancellation.
(f) Letter of Credit Fees. With regard to the issuance of any
such Letters of Credit, the Borrower agrees to pay to the Bank:
(i) for the Amgen Letter of Credit, a fee equal to
one hundred basis points (1.0%) per annum on the face amount thereof;
and
(ii) for all other Letters of Credit issued by the
Bank on behalf of the Borrower, a fee equal to the LIBOR Applicable
Margin in effect from time to time, payable annually in advance, based
on a 360 day year, for actual number of days elapsed, in immediately
available funds, beginning on the date of the initial issuance of any
standby Letter of Credit, and on any anniversary date of said standby
Letter of Credit, if such Letter of Credit is renewed or extended for
an additional term, provided, however, that no fee for any standby
Letter of Credit issued hereunder shall be less than $250.00 per annum.
SECTION 2.13 Capital Adequacy. If, subsequent to the date of this
Agreement, any laws, statutes, regulations, rules, or interpretations thereof,
are changed by an appropriate authority (government, regulatory agency, central
bank, etc.) or in the event that compliance by the Bank with any request or
directive from such authority whether or not having the force of law, results,
in the Bank's opinion, in effectively and materially reducing the rate of return
on the Bank's capital investment in regard to the transactions contemplated by
this Agreement to less than what was anticipated by the Bank on the date of this
Agreement, the Bank may, from time to time, issue notification to the Borrower
which will reasonably identify such change, request, or directive requiring
additional payment or payments hereunder. Said notification will be conclusive
absent manifest error and will state the additional amount(s) the Bank deems
necessary to compensate for said change(s), request(s), or directive(s). The
Borrower shall pay any such sums due to the Bank within ten (10) Days of the
date of issue of said notification and the Bank may use reasonable averaging and
attribution methods in calculating amounts due from the Borrower. For purposes
hereof, the date that any particular law, statute, regulation, rule, or
interpretation thereof is changed shall be deemed to be the date such change
becomes effective, rather than the date any such change is passed or approved by
the applicable legislative, regulatory, or judicial body.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank that:
SECTION 3.1 Organization, Corporate Powers, Etc. The Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Indiana, (ii) has all requisite power and authority, corporate
and otherwise, to own its properties and assets and to carry on its business as
now conducted and proposed to be conducted, (iii) is duly qualified to do
business and is in good standing in every jurisdiction in which the character of
its properties or assets owned or the nature of its activities conducted makes
such qualification necessary including the States of Indiana and Florida, and
(iv) has the corporate power and authority to execute and deliver, and to
perform its obligations under this Agreement, the Note, and the other Facility
Documents.
SECTION 3.2 Authorization of Loan, Etc. The execution, delivery and
performance of the Facility Documents by the Borrower (a) have been duly
authorized by all requisite corporate action (no shareholder action being
required pursuant to applicable law) and (b) will not (i) violate (A) any
provision of law, any governmental rule or regulation, any order of any court or
other agency of government or the Articles of Incorporation or Bylaws of the
Borrower or (B) any provision of any indenture, agreement or other instrument to
which the Borrower is a party or by which it or any of its properties or assets
are bound, (ii) be in conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or (iii) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Borrower other than as permitted by the terms
hereof.
SECTION 3.3 Tax Returns and Payments. All federal, state and local tax
returns and reports of the Borrower required to be filed have been filed, and
all taxes, assessments, fees and other governmental charges upon the Borrower,
or upon any of its properties, assets, incomes or franchises, which are due and
payable in accordance with such returns and reports, have been paid, other than
those presently (a) payable without penalty or interest, or (b) contested in
good faith and by appropriate and lawful proceedings prosecuted diligently. The
aggregate amount of the taxes, assessments,
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charges and levies so contested is not material to the condition (financial or
otherwise) and operations of the Borrower. The charges, accruals, and reserves
on the books of the Borrower in respect of federal, state and local taxes for
all fiscal periods to date are adequate and the Borrower knows of no other
unpaid assessment for additional federal, state or local taxes for any such
fiscal period or of any basis therefor.
SECTION 3.4 Agreements.
(a) The Borrower is not a party to any agreement, indenture,
lease or instrument or subject to any charter or other corporate restriction or
any judgment, order, writ, injunction, decree, rule or regulation materially and
adversely affecting its business, properties, assets, operations or condition
(financial or otherwise). There are no unrealized losses with respect to any
such agreement, indenture, lease or instrument.
(b) The Borrower is not in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions contained in any material agreement or instrument to which it is a
party.
SECTION 3.5 Financial Statements. The Borrower has furnished the Bank
with the Borrower's annual audited financial statements for the fiscal year
ended December 31, 1997 and internally prepared financial statements for the
period ended September 30, 1998. Such financial statements (including any
related schedules) are true and correct in all material respects. There has been
no material adverse change in the business, condition or operations (financial
or otherwise) of the Borrower and its Subsidiaries taken as a whole since the
date of the financial statements referred to above.
SECTION 3.6 Changes in Financial Condition; Adverse Developments. From
the date of the annual financial statements referenced in Section 3.5 hereof, to
the date of this Agreement, there has been, and to the date of the initial
Advance and each subsequent Advance there will be, no material change in the
assets, liabilities, financial condition, business, operations, affairs or
prospects of the Borrower from that set forth or reflected in the Borrower's
most recent federal income tax return or in the fiscal year-end financial
statements referred to in Section 3.5, other than changes in the ordinary course
of business, including acquisitions, none of which have been, either in any case
or in the aggregate, materially adverse.
SECTION 3.7 Litigation, Etc. There are no actions, proceedings or
investigations, however described or denominated, pending or, to the knowledge
of
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the Borrower, threatened, against the Borrower or affecting the Borrower (or
any basis therefor known to the Borrower) which, either in any case or in the
aggregate, might result in any material adverse change in the financial
condition, business, prospects, affairs or operations of the Borrower, or in any
of its properties or assets, or in any material impairment of the right or
ability of the Borrower to carry on its operations as now conducted or proposed
to be conducted, or in any material liability on the part of the Borrower and
none which questions the validity of this Agreement, the Notes, the Security
Documents or any of the other Loan Documents or of any action taken or to be
taken in connection with the transactions contemplated hereby or thereby.
SECTION 3.8 Patents, Trademarks, Franchises, Etc. The Borrower owns or
has the right to use all of the patents, trademarks, service marks, trade names,
copyrights, franchises and licenses, and all rights with respect thereto,
necessary for the conduct of its business as now conducted or proposed to be
conducted, without any conflict with the rights of others, and, in each case,
subject to no mortgage, pledge, lien, lease, encumbrance, charge, security
interest, title retention agreement or option. Each such asset or agreement is
in full force and effect, and the holder thereof has fulfilled and performed all
of its obligations with respect thereto. No event has occurred or exists which
permits, or after notice or lapse of time or both would permit, revocation or
termination, or which materially adversely affects or in the future may (so far
as the Borrower now foresees) materially adversely affect, the rights of such
holder thereof with respect thereto. No other license or franchise is known by
the Borrower to be necessary to the operations of the business of the Borrower
as now conducted or proposed to be conducted.
SECTION 3.9 Principal Place of Business. The Principal Place of
Business of the Borrower is at the address noted in the preamble of this
Agreement.
SECTION 3.10 Consents and Approvals. No authorization, license,
consent, approval, or undertaking is required under any applicable law in
connection with the execution, delivery and performance by the Borrower of this
Agreement, the Note or any of the other Loan Documents.
SECTION 3.11 Title to Properties and Assets, Liens, Etc. The Borrower
has good and marketable title to its respective real properties other than
properties which it leases and good title to all of its other personal property
and assets subject to no encumbrances, liens, security interests or other rights
of third
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parties except as previously disclosed to the Bank in the financial statements
provided to the Bank. The Borrower enjoys peaceful and undisturbed possession of
all leases necessary in any material respect for the operation of its properties
and assets, none of which contains any unusual or burdensome provisions which
might materially affect or impair the operation of such properties and assets.
All such leases are valid and subsisting and are in full force and effect.
SECTION 3.12 Outstanding Funded Debt. On the date of this Agreement,
the Borrower has no outstanding indebtedness except (i) as reflected on the
financial statements of the Borrower which have been provided to the Bank and
(ii) indebtedness incurred in the ordinary course of business subsequent to the
date of such financial statements.
SECTION 3.13 ERISA.
(a) No Reportable Event (whether or not waived) has occurred
or is continuing with respect to any Pension Benefit Plan.
(b) No Prohibited Transaction has occurred with respect to any
Employee Plan maintained for employees of the Borrower and covered by Part 4 of
Subtitle B of Title I of ERISA.
(c) With respect to each Pension Benefit Plan, the amount for
which the Borrower would be liable pursuant to the provisions of Sections 4062,
4063 or 4064 of ERISA would be zero if such Plans had terminated on the date
hereof.
(d) With respect to any self-funded "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA), such plan(s) are fully funded on a
present value actuarial basis.
(e) The Borrower is not now, and has not been during the
preceding five years, a contributing employer to a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) (a "Multiemployer Plan"). The Borrower
has not (i) ceased operations at a facility so as to become subject to the
provisions of Section 4062 of ERISA, (ii) withdrawn as a substantial employer so
as to become subject to the provisions of Section 4063 of ERISA, (iii) ceased
making contributions to any Pension Benefit Plan subject to the provisions of
Section 4064(a) of ERISA to which the Borrower made contributions during any of
the five years prior to the date hereof, (iv) incurred or caused to occur a
"complete withdrawal" (within the meaning of Section 4203 of ERISA) or a
"partial withdrawal" (within the meaning of Section 4205 of ERISA) from a
Multiemployer Plan that is a Pension Benefit Plan so as to incur withdrawal
liability under Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under sections 4207 or 4208 of ERISA),
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or (v) been a party to any transaction or agreement under which the provisions
of Section 4204 of ERISA were applicable. The Borrower's potential withdrawal
liability to the Multiemployer Plans as of the date hereof not exceed $10,000 in
the aggregate and its potential withdrawal liability to each such Plan as of the
date hereof does not exceed $5,000. The Borrower has heretofore furnished to the
Bank copies of all correspondence with the Multiemployer Plans and/or other
material that supports the representations made in the preceding sentence.
(f) No notice of intent to terminate a Pension Benefit Plan
(as required by Section 4041(a) of ERISA) has been filed, nor has any Pension
Benefit Plan been terminated, pursuant to the provisions of Section 4041 of
ERISA.
(g) The Pension Benefit Guaranty Corporation (the "PBGC") has
not instituted proceedings to terminate (or appoint a trustee to administer) a
Pension Benefit Plan, no event has occurred, or no condition exists that might
constitute grounds under the provisions of Section 4042 of ERISA for the
termination of (or the appointment of a trustee to administer) any such Plan.
(h) With respect to each Pension Benefit Plan that is subject
to the provisions of Title I, Subtitle B, Part 3 of ERISA, the funding method
used in connection with such Pension Benefit Plan is acceptable under ERISA, and
the actuarial assumptions used in connection with funding such Pension Benefit
Plan are, in the aggregate, reasonable. The assets of each such Pension Benefit
Plan (other than the Multiemployer Plans) are at least equal to the present
value of the greater of (i) accrued benefits (both vested and non-vested) under
such Pension Benefit Plan, or (ii) "benefit liabilities" (within the meaning of
Section 4001(a)(16) of ERISA) under such Pension Benefit Plan, in each case as
of the latest actuarial valuation date (within the twelve month period preceding
the date hereof) for such Pension Benefit Plan (determined in accordance with
the same actuarial assumptions and methods as those used by the Borrower's
actuary in its valuation of such Plan as of such valuation date). No such
Pension Benefit Plan has incurred any "accumulated funding deficiency" (as
defined in Section 412 of the IRS Code), whether or not waived.
(i) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of the Borrower, threatened,
that could reasonably be expected to be asserted, against any Employee Plan or
the assets of any such plan. No civil or criminal action brought pursuant to the
provisions of Title I, Subtitle B, Part 5 of ERISA or any other federal or state
law is pending or threatened against any fiduciary of any Employee Plan. None of
the Employee Plans or any fiduciary thereof has been, or is currently, the
direct or
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indirect subject of an audit, investigation or examination by any governmental
or quasi-governmental agency.
(j) All of the Employee Plans comply currently, and have
complied in the past, both as to form and operation, with their terms and with
the provisions of ERISA and the IRS Code, and all other applicable laws, rules
and regulations (including, but not limited to, each of the (1) Tax Equity and
Fiscal Responsibility Act of 1982 ("TEFRA"), (2) Deficit Reduction Act of 1984
("DEFRA"), (3) Retirement Equity Act of 1984 ("REA"), (4) Consolidated Omnibus
Budget Reconciliation Act of 1985, (5) Tax Reform Act of 1986 ("TRA '86"), (6)
Omnibus Budget Reconciliation Act of 1987 ("OBRA"), (7) Technical and
Miscellaneous Revenue Act of 1988 ("TAMRA") and (8) Revenue Reconciliation Act
of 1989 (the "'89 Act"); all necessary governmental approvals for the Employee
Plans have been obtained; a favorable determination (covering all changes or
amendments required by TEFRA, DEFRA and REA) as to the qualification under
Sections 401(a) and 501(a) of the IRS Code of each of the Pension Benefit Plans
thereto has been made by the Internal Revenue Service; each Pension Benefit Plan
is being operated and administered in compliance with ERISA and the IRS Code, as
amended by TRA '86, OBRA, TAMRA and the '89 Act, and has either obtained a
favorable determination (covering all changes or amendments required by TRA '86,
OBRA, TAMRA and the '89 Act) from the Internal Revenue Service as to the
qualification under Section 401(a) and 501(a) of the IRS Code of each of the
Pension Benefit Plans or is within the remedial amendment period (as provided in
Section 401(b) of the IRS Code), for making any required changes or amendments;
and a recognition of exemption from federal income taxation under Section 501(a)
of the IRS Code of each of the funded welfare benefit plans (within the meaning
of Section 3(1) of ERISA) has been made by the Internal Revenue Service, and
nothing has occurred since the date of each such determination or recognition
letter that would adversely affect such qualification.
(k) Except for its 401(k) Excess Plan, the Borrower is not a
party to, or has no liability under, any nonqualified plan of deferred
compensation (whether funded or unfunded).
(l) For purposes of all Sections of this Agreement dealing
with ERISA, the term "Borrower" shall mean the Borrower and each trade or
business (whether or not incorporated) that together with the Borrower would be
treated as a single employer under the provisions of Title I or IV of ERISA.
SECTION 3.14 Subsidiaries. As of the date of this Agreement, the
Borrower has only the Subsidiaries listed on EXHIBIT "C" attached hereto.
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SECTION 3.15 Environmental Matters.
(a) To the best of Borrower's knowledge, Borrower is in
compliance with all provisions of the Environmental Laws, and with any rules,
regulations, and administrative orders of any governmental agency, and with any
judgments, decrees or orders of any court of competent jurisdiction with respect
thereto.
(b) Borrower has not received any assessment, notice of
(primary or secondary) liability or notice of financial responsibility, and no
notice of any action, claim or proceeding to determine such liability or
responsibility, or the amount thereof or to impose civil penalties with respect
to a site listed on any federal or state listing of sites containing or believed
to contain Hazardous Substances, nor has Borrower received notification that any
Hazardous Substances that it has disposed of have been found in any site at
which any governmental agency is conducting an investigation or other proceeding
under any Environmental Law.
(c) To the best of Borrower's knowledge, no part of the
property used by Borrower in its business or any building, structure or facility
located thereon or improvement thereto contains or contained asbestos or
polychlorinated biphenyls (PCBs); have or have had asbestos-containing materials
or electrical transformers, fluorescent light fixture ballasts or other
equipment containing PCBs installed thereon or therein; is or has been used for
the handling, processing, storage or disposal of Hazardous Substances; or
contain or contained above-ground or underground storage tanks or other storage
facilities for Hazardous Substances, except as heretofore disclosed to Bank.
SECTION 3.16 Regulation U, Etc. The Borrower does not own any Margin
Securities. Neither the Borrower nor any agent acting on its behalf has taken
any action that might cause this Agreement or the Facility Documents to violate
Regulations T, U or X or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Act of 1933 or the
Securities Exchange Act of 1934, in each case as the same is now in effect or as
the same may hereafter be in effect. The Borrower is not engaged principally in,
and does not have as one of its important activities, the business of extending
credit for the purpose of purchasing or carrying any Margin Securities. No part
of the proceeds of the Loans hereunder will be used to carry on any margin
security transactions within the meaning of said Regulation.
SECTION 3.17 Holding Company Status. The Borrower is not a holding
company, or a subsidiary or affiliate of a holding company or a public utility,
within the
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meaning of the Public Utility Holding Company Act of 1935, as amended, or a
public utility within the meaning of the Federal Power Act, as amended.
SECTION 3.18 Investment Company Status. The Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or an "investment
advisor" within the meaning of the Investment Advisors Act of 1940, as amended.
SECTION 3.19 False or Misleading Statements. No representation,
warranty or other statement of the Borrower or any Guarantor in this Agreement
or the Facility Documents contains any false or misleading statement of a
material fact or omits the statement of a fact necessary to make the statements
made, in light of the circumstances under which they were made, not misleading.
SECTION 3.20 Securities Acts. Neither the Borrower nor any agent acting
on its behalf has, directly or indirectly, taken or will take any action which
would subject the issuance of the Notes to the provisions of Section 5 of the
Securities Act of 1993, as amended, or to the provisions of any securities or
Blue Sky law of any applicable jurisdiction.
SECTION 3.21 Governmental Consent. Neither the nature of the Borrower
nor of its business or properties nor any relationship between the Borrower and
any other Person, nor any circumstance in connection with the Facility or the
issuance and delivery of the Note is such as to require any consent, approval or
other action by or any notice to or filing with any court or administrative or
governmental body (other than routine filings after the date of any closing with
the Securities and Exchange Commission and/or State Blue Sky authorities) in
connection with the execution and delivery of this Agreement, the Facility or
the issuance and delivery of the Note or fulfillment of or compliance with the
terms and provisions hereof or of the Note.
SECTION 3.22 Year 2000 Compliance. The Borrower has developed a
comprehensive working plan (the "Y2K Plan") to insure that the Borrower's and
each Subsidiary's software and hardware systems which impact or affect in any
material way the business operations of the Borrower and its Subsidiaries will
be Year 2000 Compliant and Ready (defined below) by no later than March 31,
1999. Upon the request of the Bank, the Borrower will promptly deliver to the
Bank a copy of such Y2K Plan and a copy of any third party assessment of the Y2K
Plan (if available). The Borrower and its Subsidiaries have met all previous Y2K
Plan milestones and will hereafter meet all future Y2K Plan milestones so that
all hardware and software
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systems will be Year 2000 Compliant and Ready in accordance with the Y2K Plan,
except where the failure to meet such milestones has not had, or would not have,
a material adverse effect on the business, operations, assets or condition
(financial or otherwise) of the Borrower and its Subsidiaries on a consolidated
basis. As used herein, "Year 2000 Compliant and Ready" means that the Borrower's
and each Subsidiary's hardware and software systems with respect to the
operation of their business and their general business plan will (i) handle date
information involving any and all dates before, during and/or after January 1,
2000, including accepting input, providing output and performing date
calculations in whole or in part; (ii) operate accurately without interruption
on and in respect of any and all dates before, during and/or after January 1,
2000 and without any change in performance; (iii) respond to and process two
digit year input without creating any ambiguity as to the century; and (iv)
store and provide date input without creating any ambiguity as to the century.
ARTICLE IV
COVENANTS OF THE BORROWER
SECTION 4.1 Affirmative Covenants. The Borrower covenants, for so long
as any of the principal amount of or interest on the Note is outstanding and
unpaid or any duty or obligation of the Borrower or the Bank hereunder or under
any other Obligation remains unpaid or unperformed, as follows:
(a) Accounting; Financial Statements; Etc. The Borrower will
deliver to the Bank copies of each of the following:
(i) Quarterly, as soon as practicable and in any
event within forty five (45) days after the end of each quarter, (A)
internally generated financial statements for the Borrower and each
Guarantor, including, but not limited to, an income statement and
balance sheet, certified as true and correct to the Bank by an
authorized officer of the Borrower acceptable to the Bank, and (B) a
Covenant Compliance Certificate;
(ii) As soon as practicable and in any event within
ninety (90) Days after the end of each fiscal year, year end
consolidated audited financial statements (consisting of a profit and
loss statement, a reconciliation of surplus statement, a source and
application of funds statement of the Borrower for such year, and a
balance sheet) of the Borrower and its Subsidiaries as at the end of
such fiscal year, setting forth in each case in comparative
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form corresponding figures from the preceding annual statements, all in
form and scope acceptable to the Bank, compiled, prepared by, reviewed
by and certified to the Borrower by an independent public accounting
firm of recognized standing selected by the Borrower and acceptable to
the Bank, and certified to the Bank by an authorized financial officer
of the Borrower;
(iii) Promptly upon receipt thereof, a copy of each
other report submitted to the Borrower or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any Subsidiary; and
(iv) With reasonable promptness, such other data and
information as from time to time may be reasonably required by the
Bank.
Simultaneously with the delivery of each set of annual and quarterly financial
statements prior to April 1, 1999, the Borrower shall also deliver a statement
of the Borrower's chief executive officer, chief financial officer or chief
technology officer to the effect that nothing has come to his/her attention to
cause him/her to believe that the Y2K Plan milestones have not been met in a
manner such that the Borrower's and its Subsidiaries' hardware and software
systems will not be Year 2000 Compliant and Ready on or before March 31, 1999.
(b) Inspection. The Borrower will permit the Bank or Bank's
designated representative to (i) visit any place of business of the Borrower
and/or it Subsidiaries, (ii) inspect its properties, (iii) inspect and make
extracts from the Borrower's or any Subsidiary's books and records, and (iv)
discuss the affairs, finances and accounts of the Borrower or any Subsidiary
with the officers of the Borrower or such Subsidiary, all at such reasonable
times and as often as may reasonably be requested.
(c) Maintenance of Corporate Existence; Compliance with Laws.
The Borrower shall at all times preserve and maintain in full force and effect
its corporate existence, powers, rights, licenses, permits and franchises in the
jurisdiction of its incorporation; continue to conduct and operate its business
substantially as conducted and operated during the present and preceding fiscal
year of the Borrower; operate in full compliance with all applicable laws,
statutes, regulations, certificates of authority and orders in respect of the
conduct of its business; and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is necessary or
appropriate in view of its business and operations.
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(d) Notice of Default. The Borrower shall immediately notify
the Bank in writing upon the happening, occurrence or existence of any Event of
Default, or any event or condition which with the passage of time or giving of
notice, or both, would constitute an Event of Default, and shall provide the
Bank with such written notice, a detailed statement by a responsible officer of
the Borrower of all relevant facts and the action being take or proposed to be
taken by the Borrower with respect thereto.
(e) Maintenance of Properties. The Borrower shall maintain or
cause to be maintained in good repair, working order and condition all
properties used or useful in its businesses and from time to time will make or
cause to be made all appropriate repairs, renewals, improvements and
replacements thereof so that the businesses carried on in connection therewith
may be properly and advantageously conducted at all times. The Borrower will not
do or permit any act or thing which might impair the value or commit or permit
any waste of its properties or any part thereof (other than acts of nature
beyond their control), or permit any unlawful occupation, business or trade to
be conducted on or from any of its properties. To the extent the Borrower leases
any of its places of business, it shall maintain and keep current at all times
all leases for said places of business.
(f) Notice of Suit, Proceedings, Adverse Change. The Borrower
shall promptly give the Bank notice in writing (i) of all actions or suits (at
law or in equity) and of all investigations or proceedings by or before any
court, arbitrator or any governmental department, commission, board, bureau,
agency or other instrumentality, state, federal or foreign, affecting the
Borrower or its Subsidiaries the rights or other properties of the Borrower or
its Subsidiaries, (A) which involve uninsured liability of the Borrower in an
amount in excess of $1,000,000.00, or (B) which the Board of Directors of the
Borrower believes in good faith is likely to materially and adversely affect the
financial condition of the Borrower or to impair the right or ability of the
Borrower to carry on its business as now conducted or to pay the Obligations or
perform its duties under the Loan Documents, as the case may be; (ii) of any
material adverse change in the condition (financial or otherwise) of the
Borrower; and (iii) of any seizure or levy upon any part of the properties of
the Borrower under any process or by a receiver.
(g) Banking Relationship. The Borrower shall utilize the Bank
as its cash concentration and disbursement bank and all accounts of the Borrower
at the Bank shall be maintained in a manner satisfactory to the Bank.
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(h) Execution and Delivery of Facility Documents. The Borrower
and the Guarantors shall execute and deliver to the Bank all Facility Documents
as and when requested by the Bank.
(i) Insurance. The Borrower shall timely procure and maintain
and comply with such insurance and policies of insurance (including without
limitation public liability insurance) as may be required by law and such other
insurance including, but not limited to, coverage of real property and
improvements, to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated, or as the Bank may from
time to time reasonably request, and, if requested by the Bank, to furnish to
the Bank a certificate of said insurance and further providing for thirty (30)
Days notice to the Bank prior to any material amendment, expiration or
cancellation.
(j) Debts, Taxes and Liabilities. The Borrower shall pay and
discharge (i) all of its indebtedness and obligations in accordance with their
terms and before it shall become in default, (ii) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income and profits or
against its properties, prior to the date on which penalties attach thereto, and
(iii) all lawful claims which, if unpaid, might become a lien or charge upon any
of its properties; provided, however, that the Borrower shall not be required to
pay any such indebtedness, obligation, tax, assessment, charge, levy or claim
which is being contested in good faith by appropriate and lawful proceedings
diligently pursued and for which adequate reserves have been set aside on its
books. The Borrower shall also set aside and/or pay as and when due all monies
required to be set aside and/or paid by any federal, state or local statute or
agency in regard to F.I.C.A., withholding, sales or excise or other similar
taxes.
(k) Notification of Change of Name or Business. The Borrower
shall notify the Bank of each change in the name of the Borrower and of each
change of the location of any place of business and the office where the records
of the Borrower are kept, and, in such case, shall execute such documents as the
Bank may reasonably request to reflect said change of name or change of
location, as the case may be; provided, however, the Principal Place of Business
of the Borrower and the office where the records of the Borrower are kept may
not be kept out of or removed from its present location without the prior
written consent of the Bank.
(l) Financial Covenants. During the term of this Agreement,
the Borrower shall comply with the following financial covenants:
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(a) Fixed Charge Coverage Ratio. The Borrower's Fixed
Charge Coverage Ratio shall at all times exceed 2.0:1, tested
quarterly.
(b) Funded Debt to Capitalization Ratio. The
Borrower's Funded Debt to Capitalization Ratio shall never exceed
.45:1.
(c) Funded Debt to EBITDA Ratio. The Borrower's
Funded Debt to EBITDA Ratio shall never exceed 3.0:1.0.
(m) Use of Proceeds. The proceeds of the Facility shall be
used for general corporate purposes of the Borrower and such other purposes as
the Bank, in its sole discretion, may approve.
(n) Notice of Adoption of Plan. As soon as possible and in any
event within thirty (30) Days after the Borrower or any Related Entity adopts a
new Plan, the Borrower or such Related Entity shall notify the Bank of the
adoption of the new Plan. Adoption of a new Plan shall include the adoption of
the new Plan by the Borrower or such Related Entity as well as inclusion of
employees of the Borrower or such Related Entity under the Plan of another
corporation.
(o) Notice of Plan Events, Termination and Litigation. As soon
as possible and in any event within thirty (30) Days after the Borrower knows or
has reason to know that any Reportable Event or a Prohibited Transaction with
respect to any Plan has occurred or that the Pension Benefit Guaranty
Corporation or the Borrower or any Related Entity has instituted or will
institute proceedings under ERISA to terminate a Plan, or a partial termination
of a Plan has or is alleged to have occurred, or more than twenty percent (20%)
of the total number of employees who are participants in a Plan will sever, or
have severed, their employment due to a decision to cease operations at a
facility or facilities or to reduce the work force, or any litigation regarding
a Plan or naming the trustee of a Plan or the Borrower or any Related Entity
with respect to a Plan is threatened or instituted, or the purchase, acceptance,
holding or sale of customer notes by a Plan fails to comply with Prohibited
Transactions Exemption 85-68 published on April 3, 1985, the Borrower will
provide to the Bank copies of the written statement of the chief financial
officer of the Borrower setting forth details of such Reportable Event,
Prohibited Transaction, termination proceeding, partial termination, litigation
or prohibited transaction and the action being or proposed to be taken with
respect thereto, together with copies of the notice of such Reportable Event or
any other notices, applications or forms submitted to the Pension Benefit
Guaranty Corporation, Internal Revenue Service or the United States Department
of Labor, and copies of any notices or correspondence received from the Pension
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<PAGE> 36
Benefit Guaranty Corporation, Internal Revenue Service or the United States
Department of Labor, and copies of any pleadings, notices or other documents
relating to such litigation.
(p) Plan Annual Reports. Promptly after the filing thereof
with the Internal Revenue Service or the Pension Benefit Guaranty Corporation,
the Borrower will provide to the Bank copies of each annual report and annual
premium filing form which is filed with respect to each Plan for each plan year,
including (i) a statement of assets and liabilities of such Plan as of the end
of such plan year and statements of changes in fund balance and in financial
position, or a statement of changes in net assets available for plan benefits,
for such plan year, certified by the trustee of the Plan or the independent
certified public accountants for such and (ii) if required by law or applicable
regulations, an actuarial statement of such Plan applicable to such plan year,
certified by the actuary for the Plan.
(q) Acquisition or Formation of Subsidiaries. The Borrower
shall provide prior written notice to the Bank of any planned acquisitions or
mergers or the formation of any additional Subsidiaries. All acquisitions in
excess of (i) $5,000,000.00 in any single case or (ii) $10,000,000.00 in the
aggregate in any fiscal year, shall require the prior written consent of the
Bank which consent shall not be unreasonably withheld. Upon the acquisition or
formation of any new wholly-owned Subsidiary, the Borrower shall cause such
Subsidiary to execute and deliver to the Bank an absolute and unconditional
guaranty agreement, in form and content satisfactory to the Bank, guaranteeing
the Obligations.
SECTION 4.2 Negative Covenants. The Borrower covenants, for so long as
any of the principal amount of or interest on the Note is outstanding and unpaid
or any Obligation remains unpaid or unperformed, as follows:
(a) Sale of Assets. The Borrower will not sell, lease, assign,
transfer or otherwise dispose of any of its assets or properties, tangible or
intangible, to any Person without the prior written consent of the Bank;
provided, however, if no Event of Default has occurred and is continuing, the
Borrower may sell its inventory in the ordinary course of business and may also
replace its other assets (other than significant material assets) due to
depreciation, repair or obsolescence.
(b) Merger, Consolidation, Dissolution, Etc. The Borrower will
not consolidate with or merge into any other corporation or permit another
corporation to merge into it, (unless in the case of a merger or consolidation
involving the Borrower, the Borrower is the surviving corporation) or dissolve
or take or omit to take any action which would result in its
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<PAGE> 37
dissolution, or acquire all or substantially all the properties or assets of any
other Person in excess of the limits set forth in subparagraph (q) of Section
4.1, or enter into any arrangement, directly or indirectly, with any Person
whereby the Borrower shall sell or transfer any property, real or personal,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which the Borrower intends to use for substantially
the same purpose or purposes as the property being sold or transferred without
the prior written consent of the Bank.
(c) Plan Liabilities. Neither the Borrower nor any Related
Entity will permit the aggregate present value of accrued benefits of any Plan,
computed in accordance with actuarial principles and assumptions applied on a
uniform and consistent basis by an enrolled actuary of recognized standing
acceptable to the Bank, to exceed the aggregate value of assets of the Plans,
computed on a fair market value basis, or permit the aggregate present value of
vested benefits of the Plans, computed in accordance with actuarial principles
and assumptions applied on a uniform and consistent basis by an enrolled actuary
of recognized standing acceptable to the Bank, to exceed the aggregate value of
assets of the Plans, computed on a fair market value basis.
(d) Changes in Business. The primary business of the Borrower
will not change from that conducted by it on the date of this Agreement and
business of substantially the same type or reasonably related thereto without
the consent of the Bank.
(e) Other Agreements. The Borrower will not enter into any
arrangements, contractual or otherwise, which would materially and adversely
affect its duties or the rights of the Bank under the Facility Documents, or
which is inconsistent with or limits or abrogates the Facility Documents.
(f) Additional Indebtedness. The Borrower will not create,
incur, assume, or suffer to exist any indebtedness or Liabilities other than the
Facility, any indebtedness evidenced by notes, debentures or similar obligations
or any conditional sales or title retention agreements or capitalized leases,
which in any single case, or in the aggregate, exceed $500,000.00 during any
fiscal year, without the prior written consent of the Bank.
(g) Dividends. The Borrower will not during the term of this
Agreement pay any dividends to any of its stockholders upon any of its capital
stock without the prior written consent of the Bank which consent shall not be
unreasonably withheld.
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ARTICLE V
CONDITIONS OF LENDING
The obligations of the Bank to lend hereunder and to make any Advance
from time to time are subject to the following conditions precedent:
SECTION 5.1 Representations and Warranties. The representations and
warranties set forth in the Facility Documents are true and correct on and as of
the date hereof, and on the date of each Advance or disbursement hereunder.
SECTION 5.2 No Default. On the date hereof and on the date of each
Advance or disbursement, the Borrower shall be in compliance with all the terms
and provisions set forth in the Facility Documents on its part to be observed or
performed, and no Event of Default nor any event that, upon notice or lapse of
time or both, would constitute such an Event of Default, shall have occurred and
be continuing at such time.
SECTION 5.3 Validity of Guaranties. That the Guaranties continue to
remain valid and outstanding and none of the Guarantors has not attempted to
cancel its Guaranty or otherwise failed to perform the obligations imposed upon
it under its respective Guaranty.
SECTION 5.4 Facility Documents. The Borrower and the Guarantors shall
have delivered or caused to be delivered to the Bank, in fully executed form,
all the Facility Documents, in form and substance satisfactory to the Bank, as
the Bank may request and all of the Facility Documents shall be in full force
and effect.
SECTION 5.5 Supporting Documents. On or prior to the date hereof, the
Bank shall have received the following supporting documents, all of which shall
be satisfactory in form and substance to the Bank:
(a) a certificate or certificates, dated as of the
date hereof, of (i) the Secretary or any Assistant Secretary of the
Borrower certifying (A) that contained therein is a true and correct
copy of certain resolutions adopted by the Board of Directors of the
Borrower authorizing the execution, delivery and performance of the
Loan Documents and the performance of the obligations of the Borrower
and the borrowings thereunder, which resolutions have not been altered
or amended in any respect, and remain in full force and effect at all
times since their adoption; (B) that attached thereto is a true and
correct copy of the Articles of Incorporation of the Borrower, and that
such
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<PAGE> 39
Articles of Incorporation have not been altered or amended, and no
other charter documents have been filed, since the date of the filing
of the last amendment thereto or other charter document as indicated on
the certificate of the Secretary of State of the State of Indiana
attached thereto; (C) that attached thereto is a true and correct copy
of the Bylaws of the Borrower and that such Bylaws are in full force
and effect and no amendment thereto is pending which would in any way
affect the ability of the Borrower to enter into and perform the
Obligations contemplated hereby; and (D) the incumbency and signatures
of the officers of the Borrower signing the Loan Documents and any
report, certificate, letter or other instrument or document furnished
by the Borrower in connection therewith, and (ii) another authorized
officer of the Borrower certifying the incumbency and signature of the
Secretary or Assistant Secretary of the Borrower; and
(b) certificate or certificates of the Indiana and
Florida Secretaries of State dated as of a recent date, as to the good
standing of the Borrower.
SECTION 5.6 Additional Notes. To the extent the principal amount then
outstanding under the Facility together with the Advance requested would exceed
the face amount of the Note then outstanding (which collectively includes all
notes executed by the Borrower in favor of the Bank to evidence the Facility),
the Borrower agrees to then execute and deliver to the Bank the additional note
of the Borrower in such face amount as is necessary so that the total principal
amount outstanding on the Facility after the making of said Advance shall not
exceed the face amount of the Note (which collectively includes all Notes
executed by the Borrower in favor of the Bank concerning said Facility and will
include the note described in this Section). At the time of the execution of
said additional Note, the Borrower shall pay to the Bank all documentary and
other taxes required under applicable law.
SECTION 5.7 Loans Permitted by Applicable Laws. The Loans and the use
of the proceeds thereof shall not violate any applicable law or governmental
regulation (including, without limitation, Regulations T and X of the Board of
Governors of the Federal Reserve System) and shall not subject the Bank to any
tax, penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation, and the Bank shall have received such
certificates or other evidence as it may request to establish compliance with
this condition.
SECTION 5.8 Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
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documents incident thereto shall be satisfactory in substance and form to the
Bank, and the Bank shall have received all such counterpart originals or
certified or other copies of such documents as the Bank may reasonably request.
SECTION 5.9 Payment of Fees and Disbursements of Bank's Counsel.
Akerman, Senterfitt & Eidson, P.A., counsel to the Bank, shall have received
payment in full for all legal fees charged, and costs incurred, in connection
with the Facility Documents through the date hereof. Such payment shall be due
on the date of execution of this Agreement.
SECTION 5.10 Fees. The Bank shall have received the Non-Usage Fee and
the Letter of Credit Fee, when and as due.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1 Events of Default. The following each and all are Events of
Default hereunder:
(a) Monetary Default. If the Borrower shall default in any
payment of the principal of or interest on the Facility when and as the same
shall become due and payable, whether at maturity, by acceleration at the
discretion of the Bank or otherwise; or
(b) Non-Monetary Default. If the Borrower shall default in the
performance of or compliance with any term or covenant contained in this
Agreement or any of the other Facility Documents or any other instrument,
document or agreement evidencing or arising out of any present or future
Obligation of the Borrower to the Bank other than a term or covenant a default
in the performance of which or non-compliance with which is elsewhere
specifically dealt with under this Article Six and such default or
non-compliance shall continue and not be cured for a period of ten (10) Days
from the earlier of (i) the date the Borrower obtains knowledge of the
occurrence thereof or (ii) the date the Bank sends written notice thereof to the
Borrower; or
(c) Financial Condition of Borrower. If the Bank determines in
its sole and absolute discretion that the financial condition of the Borrower
shall have deteriorated from the date of this Agreement to the date of any such
determination; or
(d) Third Party Default. If the Borrower or any Guarantor
shall suffer a material default in the performance of
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any agreement with any Person other than the Bank with respect to any
liabilities of the Borrower or such Guarantor; or
(e) Misrepresentation. If any representation or warranty made
in writing by or on behalf of the Borrower or any Guarantor or in any other
Facility Document shall prove to have been false or incorrect in any material
respect on the date as of which made or reaffirmed; or
(f) Dissolution. Any order, judgment, or decree is entered in
any proceedings against Borrower or any Guarantor decreeing the dissolution of
Borrower or such Guarantor and such order, judgment, or decree remains unstayed
and in effect for more than thirty (30) Days; or
(g) Bankruptcy, Failure to Pay Debts Etc. If the Borrower or
any Guarantor shall admit in writing its inability, or be generally unable, to
pay its debts as they become due or shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver or trustee for the Borrower or any
Guarantor or a substantial part of assets, or shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect, or if there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against the
Borrower or any Guarantor, in which an order for relief is entered or which
remains undismissed for a period of thirty (30) Days or more, or the Borrower or
any Guarantor by any act or omission shall indicate its consent to, approval of
or acquiescence in any such petition, application, or proceeding or order for
relief or the appointment of a custodian, receiver or any trustee for the
Borrower or any Guarantor or any substantial part of any of its properties, or
shall suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of thirty (30) Days or more; or
(h) Default by Guarantors. If any Guarantor fails to meet or
comply with any term or condition of its respective Guaranty or seeks to cancel
its Guaranty for any reason whatsoever or defaults in the payment or performance
of any Obligations or any other indebtedness of such Guarantor to the Bank; or
(i) Fraudulent Conveyance. The Borrower or any Guarantor shall
have concealed, removed, or permitted to be concealed or removed, any part of
its properties, with intent to hinder, delay or defraud its creditors or any of
them, or made or suffered a transfer of any of its properties which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law, or shall
have made any transfer of its properties to or for
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the benefit of a creditor at a time when other creditors similarly situated have
not been paid, or shall have suffered or permitted, while insolvent, any
creditor to obtain a lien upon any of its properties through legal proceedings
or distraint which is not vacated within thirty (30) Days from the date thereof;
or
(j) Final Judgment. If a final judgment for the payment of
money shall be rendered against the Borrower or any Guarantor, and the same
shall remain undischarged for a period of thirty (30) consecutive Days during
which execution shall not be effectively stayed; or
(k) Reportable Event. If a Reportable Event, which the Bank
reasonably determines, in its sole discretion, has created or is likely to
create a material adverse effect on the Borrower's business operation, shall
have occurred in connection with any Plan maintained by the Borrower or any
Related Entity; or
(l) Contest of Facility Documents. The validity or
enforceability of this Agreement, or any other Facility Document shall be
contested by the Borrower, any Guarantor, or any shareholder of the Borrower; or
the Borrower shall deny that such Person has any or further liability or
obligation hereunder or thereunder.
ARTICLE VII
RIGHTS UPON DEFAULT
Upon the occurrence or continuing of any Event of Default, the Bank shall
have and may exercise any or all of the rights set forth herein (provided,
however, the Bank shall be under no duty or obligation to do so):
SECTION 7.1 Acceleration. To declare the indebtedness evidenced by the
Note and all other Obligations to be forthwith due and payable, whereupon the
Note and all other Obligations shall become forthwith due and payable, both as
to principal and interest, without presentment, demand, protest or any other
notice or grace period of any kind, all of which are hereby expressly waived,
anything contained herein or in the Note or in such other Obligations to the
contrary notwithstanding, and, upon such acceleration, the unpaid principal
balance and accrued interest upon the Note shall from and after such date of
acceleration bear interest at the Default Rate.
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SECTION 7.2 Right of Setoff. To exercise its right of setoff as
permitted under Section 2.10.
SECTION 7.3 Other Rights. To exercise such other rights as may be
permitted under any of the Loan Documents or applicable law.
SECTION 7.4 Uniform Commercial Code. To exercise from time to time any
and all rights and remedies of a secured creditor under the UCC and any and all
rights and remedies available to it under any other applicable law.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Cumulative Remedies. The remedies provided in this
Agreement and in the Facility Documents are cumulative and not exclusive of any
remedies provided by law or in equity. Upon an Event of Default, the Bank may
elect to exercise any one or more of such remedies and such election shall not
waive or cause the Bank to have elected not to subsequently exercise any other
such remedies available to it under the Agreement or any Facility Document.
SECTION 8.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of this Agreement, the Note or the other Facility
Documents, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Bank,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 8.3 Addresses for Notices, Etc. All notices, requests, demands
and other communications provided for hereunder shall be in writing and shall be
deemed to have been given (i) in the case of delivery, when addressed to the
other party and delivered to the address set forth below, (ii) in the case of
mailing, three (3) Days after said notice has been deposited in the United
States Mails, postage prepaid, by certified or return mail, and addressed to the
other party as set forth below, and (iii) in all of the cases, when received by
the other party. The address at which notices may be sent under this Section are
the following:
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If to the Borrower: PRIORITY HEALTHCARE CORPORATION
285 W. Central Parkway, Suite 1704
Altamonte Springs, Florida 32714-2554
Attention: Mr. Donald J. Perfetto,
Executive Vice President,
Chief Financial Officer and
Treasurer
If to the Bank: SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL
ASSOCIATION
200 South Orange Avenue
P. 0. Box 3833
Orlando, Florida 32897
Attention: Christopher A. Black,
First Vice President
with a copy to: AKERMAN, SENTERFITT & EIDSON, P.A.
255 South Orange Avenue, 17th Floor P.O. Box 231
Orlando, FL 32802-0231 Attention: Charles T.
Brumback, Jr.,Esq.
Any party may at any time change the address to which notices may be sent under
this Section by the giving of notice of such change to the other party in the
manner set forth herein.
SECTION 8.4 Applicable Law. This Agreement, and each of the Facility
Documents and transactions contemplated herein (unless specifically stipulated
to the contrary in such document) shall be governed by and interpreted in
accordance with the laws of the State of Florida.
SECTION 8.5 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained herein or made
in writing by the Borrower in connection herewith shall survive the execution
and delivery of this Agreement, the Note and the other Facility Documents and be
true and correct during the term of the Facility.
SECTION 8.6 Time of the Essence. Time is of the essence of this
Agreement, the Note and the other Facility Documents.
SECTION 8.7 Headings. The headings in this Agreement are intended to be
for convenience of reference only, and shall not define or limit the scope,
extent or intent or otherwise affect the meaning of any portion hereof.
SECTION 8.8 Severability. In case any one or more of the provisions
contained in this
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Agreement, the Note or the other Facility Documents shall for any reason be held
to be invalid, illegal or unenforceable in any respect, the same shall not
affect any other provision of this Agreement, the Note or the other Facility
Documents, but this Agreement, the Note and the other Facility Documents shall
be construed as if such invalid or illegal or unenforceable provision had never
been contained therein; provided, however, in the event said matter would in the
reasonable opinion of the Bank adversely effect the rights of the Bank under any
or all of the Facility Documents, the same shall be an Event of Default.
SECTION 8.9 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
SECTION 8.10 Conflict. In the event any conflict arises between the
terms of this Agreement and the terms of any other Facility Document, the Bank
shall have the option of selecting which conditions shall govern the loan
relationship evidenced by this Agreement and, if the Bank does not so indicate,
the terms of this Agreement shall govern in all instances of such conflict.
SECTION 8.11 Term. The term of this Agreement shall be for such period
of time until the Facility and Note have been repaid in full, the Borrower has
no further right to request any Advance on the Facility and all Obligations have
been paid to the Bank in full. At such time, the Bank shall mark all the Loan
Documents "Canceled" and return them to the Borrower.
SECTION 8.12 Cross Defaults. A default under any Facility Document,
including a default under this Agreement, shall be and constitute a default
under each and every Facility Document, including this Agreement. A default
under any other Obligations of the Borrower to the Bank shall be and constitute
a default under this Agreement and the Facility Documents and a default under
this Agreement or any of the Facility Documents shall constitute a default under
any other such Obligations.
SECTION 8.13 Expenses. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to pay, and save Bank
harmless against liability for the payment of, all out-of-pocket expenses
arising in connection with this transaction, all taxes, together in each case
with interest and penalties, if any, and any income tax payable by Bank in
respect of any reimbursement therefor, which may be payable in respect of the
execution, delivery and performance of this Agreement or the execution,
delivery,
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acquisition and performance of any Note issued under or pursuant to this
Agreement (excepting only any tax on or measured by net income of Bank
determined substantially in the same manner, other than the rate of tax, as net
income is presently determined under the IRS Code), all Hazardous Materials
Liabilities and the reasonable fees and expenses of any special counsel to Bank
in connection with this Agreement and any subsequent modification or enforcement
thereof or consent thereunder including, without limitation, attorneys fees and
court costs incurred in any legal proceeding whether at the trial or appellate
level or in any bankruptcy proceeding. The obligations of Borrower under this
Section 8.13 shall survive payment of any Note.
SECTION 8.14 Successors and Assigns. All covenants and agreements in
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not; provided, however, this clause shall
not by itself authorize any delegation of duties by the Borrower or any other
assignment which may be prohibited by the terms and conditions of this
Agreement.
SECTION 8.15 Further Assurances. The Borrower shall, from time to time,
execute such additional documents as may reasonably be requested by the Bank or
the counsel, to carry out and fulfill the intent and purpose of this Agreement
and the Facility Documents.
SECTION 8.16 No Third Party Beneficiaries. The parties intend that this
Agreement is solely for their benefit and no Person not a party hereto shall
have any rights or privileges under this Agreement whatsoever either as the
third party beneficiary or otherwise.
SECTION 8.17 WAIVER OF JURY TRIAL. THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY, AFTER CAREFUL CONSIDERATION AND AN OPPORTUNITY TO
SEEK LEGAL ADVICE, WAIVES ITS RIGHT TO HAVE A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF OR IN ANY WAY CONNECTED WITH ANY OF THE PROVISIONS OF
THIS AGREEMENT, THE NOTE OR ANY OTHER DOCUMENT EXECUTED IN CONJUNCTION WITH THE
FACILITY EVIDENCED BY THIS AGREEMENT.
SECTION 8.18 No Waiver. No failure or delay on the part of the Bank in
exercising any right, power or remedy hereunder, or under the Note or the other
Facility Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any such
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right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy hereunder or thereunder.
SECTION 8.19 Entire Agreement. Except as otherwise expressly provided,
this Agreement and the other Facility Documents embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof.
THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed, sealed and delivered, as applicable, by their duly
authorized officers on the day and year first above written.
BORROWER:
PRIORITY HEALTHCARE CORPORATION
By: /s/ Donald J. Perfetto
-----------------------
Donald J. Perfetto,
Executive Vice
President, Chief Financial
Officer and Treasurer
SUNTRUST BANK, CENTRAL
FLORIDA, NATIONAL ASSOCIATION
By: /s/ Christopher A. Black
-------------------------
Christopher A. Black,
First Vice President
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JOINDER AND CONSENT OF GUARANTORS
THE UNDERSIGNED GUARANTORS hereby join in, consent to and approve the
foregoing Loan Agreement (the "Loan Agreement"). Without limiting the generality
of the foregoing:
1. Each Guarantor hereby acknowledges reading the Loan Agreement and
specifically consents to all references to the Guarantor and all agreements or
representations of the Guarantor set forth therein.
2. Each Guarantor acknowledges that it will be receiving adequate
consideration for his guaranty of the Liabilities and/or its joinder in the Loan
Agreement because monies provided to the Borrower or retained by the Borrower
pursuant to the Loan Agreement will benefit the Guarantor as a wholly-owned
Subsidiary of the Borrower.
3. Each Guarantor hereby agrees to be bound by all the terms of the
Loan Agreement applicable to it.
4. The Bank is hereby expressly authorized to rely upon this Joinder
and Consent of Guarantors.
5. Capitalized terms used in this Joinder and Consent of Guarantors and
not otherwise defined shall have the same meanings herein as in the Loan
Agreement.
IN WITNESS WHEREOF, the undersigned Guarantors have executed and
delivered this Joinder and Consent of Guarantors as of the date of the Loan
Agreement referenced above.
IV-1, INC.
By: /s/ ROBERT L. MYERS
------------------------------
Robert L. Myers,
President and Chief Executive
Officer
IV-ONE SERVICES, INC.
By: /s/ ROBERT L. MYERS
------------------------------
Robert L. Myers,
President and Chief Executive
Officer
NATIONAL PHARMACY PROVIDERS, INC.
By: /s/ ROBERT L. MYERS
------------------------------
Robert L. Myers,
President and Chief Executive
Officer
45
<PAGE> 50
EXHIBIT "A"
Notice of Borrowing
SunTrust Bank, Central Florida,
National Association
200 So. Orange Avenue
Orlando, Florida 32801
Attn: Christopher A. Black,
First Vice President
Re: Advances under that certain Loan Agreement by and between
Priority Healthcare Corporation (the "Borrower") and SunTrust
Bank, Central Florida, National Association (the "Bank")
The undersigned duly authorized officer of the Borrower hereby
furnishes the Bank a "Notice of Borrowing" and specifies that:
1. The date the Advance is requested (which shall be a Banking Day) is
_________________.
2. The amount of the proposed borrowing is $__________.
3. This is a request for a _____________ Loan (insert "LIBOR" or "Prime
Rate"). If a LIBOR Loan, the requested Interest Period is _______________ months
(insert the number of months requested from among the choices available to the
Borrower for Loans under the above referenced Loan Agreement).
4. The Advance requested hereby under the above referenced Loan
Agreement shall be made by the Bank depositing such Advance in an account of the
Borrower at SunTrust Bank, Central Florida, National Association or any other
subsidiary bank of Sun Banks of Florida, Inc.
5. That as of the date hereof there has been no material adverse change
in the financial condition of the Borrower from that set forth in the most
recent annual financial statements furnished to the Bank.
As used herein, the terms "Advance," "Banking Day," "Day," "Interest
Period," "LIBOR" and "Prime Rate" shall have the respective meanings assigned to
such terms in the above-referenced Loan Agreement.
46
<PAGE> 51
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Notice of Borrowing as of the ____ day of _________, _____.
PRIORITY HEALTHCARE CORPORATION
By:_____________________________
Name:________________________
Title:_______________________
47
<PAGE> 52
EXHIBIT "B"
Notice of Conversion/Continuation
SunTrust Bank, Central Florida,
National Association
200 So. Orange Avenue
Orlando, Florida 32801
Attn: Christopher A. Black,
First Vice President
Re: Notice of Conversion/Continuation effecting Loans under that
certain Loan Agreement by and between Priority Healthcare
Corporation (the "Borrower") and SunTrust Bank, Central
Florida, National Association (the "Bank")
The undersigned duly authorized officer of the Borrower, hereby
furnishes the Bank a "Notice of Conversion/Continuation" and specifies that:
1. The requested conversion/continuation date (which shall be a Banking
Day) is _________________.
2. (a) This is a request for a conversion to a Loan (insert "LIBOR" or
"Prime Rate") or (b) This is a requested continuation of a Loan (insert "LIBOR"
or "Prime Rate"). (Complete only subparagraph (a) or (b), whichever is
applicable)
3. If this request is a conversion to, or a continuation of a LIBOR
Loan, the requested Interest Period is __________ months (insert 1, 2, 3 or 6).
4. The amount of the borrowing subject to the Notice of
Conversion/Continuation is $____________.
As used herein, the terms "Banking Day," "LIBOR," "Prime Rate," "Interest
Period" and "Day" shall have the respective meanings assigned to such terms in
the above-referenced Loan Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Notice of
Conversion/Continuation as of the ____ day of _________, _____.
PRIORITY HEALTHCARE CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
48
<PAGE> 53
EXHIBIT "C"
List of Subsidiaries
IV-1, Inc. is the sole subsidiary of the Borrower. IV-One Services, Inc. and
National Pharmacy Providers, Inc. are the sole subsidiaries of IV-1, Inc.
49
<PAGE> 1
EXHIBIT 10-P(ii)
FIRST AMENDMENT TO
PRIORITY HEALTHCARE CORPORATION
BROAD BASED STOCK OPTION PLAN
WHEREAS, the Board of Directors of Priority Healthcare Corporation
(the "Company") adopted the Priority Healthcare Corporation Broad Based Stock
Option Plan (the "Plan") on September 15, 1998; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 7 of the Plan is hereby amended to read in its
entirety as follows:
7. EXERCISE OF OPTIONS.
(a) Except as provided in Section 12, 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 or its designated agent 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 or its designated agent. 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 or its designated agent withhold the value of Shares
sold 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.
2. Section 15 of the Plan is hereby amended to read in its
entirety as follows:
15. WITHHOLDING TAX. Where a Participant or other person is
entitled to receive Shares pursuant to the exercise of an Option
pursuant to the Plan, the Company, at the request of the Participant,
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 minimum amount required to be withheld.
3. This First Amendment to the Plan shall become effective upon
its adoption by the Board of Directors of the Company.
ADOPTED BY THE BOARD OF DIRECTORS OF PRIORITY
HEALTHCARE CORPORATION AS OF FEBRUARY 25, 1999
<PAGE> 1
PRIORITY HEALTHCARE CORPORATION EXHIBIT 10-R
401(K) EXCESS PLAN
ARTICLE I
NATURE AND PURPOSE OF PLAN
Section 1.1. Type of Plan. The Company hereby establishes the
Priority Healthcare Corporation 401(k) Excess Plan as an unfunded, non-qualified
deferred compensation plan for a select group of the Employer's management or
highly-compensated employees.
Section 1.2. Purpose of Plan. The purpose of the Plan is to
provide a means for the payment of deferred compensation to a select group of
key senior management employees of the Employer, in recognition of their
substantial contributions to the operation of the Employer, and to provide those
individuals with additional financial security as an inducement to them to
remain in employment with the Employer.
ARTICLE II
DEFINITIONS AND RULES OF CONSTRUCTION
Section 2.1. Definitions. As used in the Plan, the following words
and phrases, when capitalized, have the following meanings except when used in a
context that plainly requires a different meaning:
(a) "Beneficiary" means, with respect to a Participant, the person
or persons designated pursuant to Section 5.8 to receive benefits under
the Plan in the event of the Participant's death.
(b) "Board of Directors" means the Board of Directors of the
Company.
(c) "Change in Control" means an event described in Subsection
5.4(b).
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and interpretive rules and regulations.
(e) "Committee" means a committee composed of those members of the
Compensation and Stock Option Committee of the Board of Directors who
are not Participants in the Plan.
(f) "Company" means Priority Healthcare Corporation.
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<PAGE> 2
(g) "Compensation" means, with respect to a Participant for a Plan
Year, the Participant's salary and bonus for the Plan Year, reduced by
any salary reductions made by the Participant under a Code Section 125
cafeteria plan for the Plan Year.
(h) "Deferral Account" means, with respect to a Participant, the
bookkeeping account that serves as a record of the deferrals, Prior
Plan accumulations, and earnings and losses credited to the Participant
under the terms of this Plan.
(i) "Deferral Agreement" means the written agreement entered into
between an Eligible Employee and the Employer pursuant to which the
Eligible Employee elects to participate in the Plan.
(j) "Disability" means, with respect to a Participant, the
Participant's inability by reason of illness or other physical or
mental disability to perform the duties required by his employment for
any consecutive 180 day period. The existence of a Disability shall be
determined by the Committee on the basis of competent medical evidence.
(k) "Effective Date" means January 1, 1999.
(l) "Eligible Employee" means a key management Employee who is
selected by the Committee as an individual who has the opportunity to
impact significantly the annual operating success of the Employer.
(m) "Employee" means any person employed by the Employer on a
full-time salaried basis, including officers of the Company or a
Related Employer.
(n) "Employer" means the Company and any Related Employer.
(o) "Insolvent" means, with respect to the Company, the Company
being unable to pay its debts as they are due, or the Company being
subject to a pending proceeding as a debtor under the United States
Bankruptcy Code.
(p) "Investment Options" means, with respect to any Plan Year, the
investment options available under the Profit Sharing Plan as of the
first day of the Plan Year.
(q) "Participant" means an Eligible Employee who becomes a
Participant in the Plan pursuant to Section 3.2.
(r) "Plan" means this instrument, as amended from time to time,
and the non-qualified deferred compensation plan so established.
(s) "Plan Year" means a calendar year commencing on or after
January 1, 1999.
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<PAGE> 3
(t) "Prior Plans" means the Bindley Western Industries, Inc.
401(k) Excess Plan and the Bindley Western Industries, Inc. Profit
Sharing Excess Plan.
(u) "Profit Sharing Plan" means the Profit Sharing Plan of
Priority Healthcare Corporation and Subsidiaries.
(v) "Rabbi Trust" means the grantor trust that the Company, in its
sole discretion, may establish pursuant to Subsection 4.5(b) for the
deposit of funds to be used for the exclusive purpose of paying
benefits accrued under the Plan, subject to the claims of the Company's
general creditors in the event the Company becomes Insolvent.
(w) "Related Employer" means any Employer that, together with the
Company, is under common control or a member of an affiliated service
group, as determined under Code Subsections 414(b), (c), (m), and (o).
(x) "Retirement" means, with respect to a Participant, the
Participant's Termination of Employment, other than a Termination for
Cause, on or after the date the Participant attains age 65.
(y) "Schedule A" means the Schedule A attached to this Plan for
the purpose of determining the benefits payable under Section 5.7 in
connection with a Participant's death.
(z) "Termination for Cause" means, with respect to a Participant,
a Termination of Employment due to fraud, dishonesty, theft of
corporate assets, or other gross misconduct by the Participant.
Notwithstanding the foregoing, a Participant shall not be deemed to
have incurred a Termination for Cause unless and until there shall have
been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership
of the Board of Directors at a meeting called and held for the purpose
(after reasonable notice to the Participant and an opportunity for the
Participant, together with his counsel, to be heard before the Board of
Directors), finding that, in the good faith opinion of the Board of
Directors, the Participant was guilty of conduct constituting cause and
specifying the particulars of the conduct in detail.
(aa) "Termination of Employment" means, with respect to a
Participant, the cessation of the relationship of Employer and Employee
between the Participant and the Employer for any reason other than the
Participant's death or Disability. A Participant shall not be treated
as having incurred a Termination of Employment until the employment
relationship between the Participant and all Related Employers has
terminated.
(bb) "Trustee" means the trustee of the Rabbi Trust that the
Company, in its sole discretion, may establish pursuant to Subsection
4.5(b).
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<PAGE> 4
(cc) "Unforeseeable Emergency" means, for the purpose of Section
5.6, with respect to a Participant or Beneficiary, a severe financial
hardship to the Participant or Beneficiary resulting from a sudden and
unexpected illness or accident of the Participant, Beneficiary, or his
or her dependents; loss of the Participant's or Beneficiary's property
due to casualty; or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the Participant's or
Beneficiary's control.
Section 2.2. Rules of Construction. The following rules of
construction shall govern in interpreting the Plan:
(a) The provisions of this Plan shall be construed and governed in
all respects under and by the internal laws of the State of Indiana, to
the extent not preempted by federal law.
(b) Words used in the masculine gender shall be construed to
include the feminine gender, where appropriate, and vice versa.
(c) Words used in the singular shall be construed to include the
plural, where appropriate, and vice versa.
(d) The headings and subheadings in the Plan are inserted for
convenience of reference only and are not to be considered in the
construction of any provision of the Plan.
(e) If any provision of the Plan shall be held to be illegal or
invalid for any reason, that provision shall be deemed to be null and
void, but the invalidation of that provision shall not otherwise impair
or affect the Plan.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
Section 3.1. Eligibility. Participation in the Plan is limited to
Eligible Employees.
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<PAGE> 5
Section 3.2. Election to Participate.
(a) Election Procedure. Within a reasonable time before the
beginning of each Plan Year, the Committee shall provide each Eligible
Employee with a Deferral Agreement. An Eligible Employee may become a
Participant in the Plan by delivering a completed Deferral Agreement to
the Committee prior to the first day of the Plan Year. On the Deferral
Agreement, the Eligible Employee shall indicate the amount or
percentage of his Compensation to be deferred to the Plan for the Plan
Year as an elective contribution, subject to the provisions of
Subsections (b) and (c). The Eligible Employee also shall indicate
whether to contribute to the Profit Sharing Plan that portion of his
Compensation deferred pursuant to the preceding sentence that he can
contribute to the Profit Sharing Plan for the Plan Year without
exceeding the limitations of Code Subsection 402(g) and Paragraph
401(k)(3) for the Plan Year. Subject to Subsection (d), an election
made under this Section shall be effective as of the first day of the
Plan Year, and subject to Subsection (e), the election for any Plan
Year shall be irrevocable.
(b) Annual Deferrals. For each Plan Year, each Eligible Employee
may elect to defer under the Plan up to 100% of his Compensation for
the Plan Year. The Participant may elect to defer a different portion
of his bonus for the Plan Year than he elects to defer with respect to
the remainder of his Compensation for the Plan Year.
(c) New Participant Deferrals. The Committee, in its sole
discretion, may permit a new Eligible Employee to enroll in the Plan
during a Plan Year and, no later than 30 days after becoming an
Eligible Employee, make an irrevocable prospective election to defer a
portion of his Compensation for the remainder of the Plan Year.
(d) Suspension or Cessation of Deferrals. With the written consent
of the Committee, a Participant may suspend or cease deferrals, in
whole or in part, during the course of a Plan Year, due to an
Unforeseeable Emergency. Suspension or cessation of deferrals shall not
in any way affect a Participant's rights or benefits with respect to
amounts already deferred under the Plan. In the event a Participant
suspends or ceases deferrals pursuant to this Subsection, the
Participant shall not be permitted to resume deferrals before the first
day of the following Plan Year or such later date as specified by the
Committee.
Section 3.3. Cessation of Participation. Any Participant who
ceases to be an Eligible Employee, but continues to be an Employee, shall cease
to be eligible to make deferrals under this Article but shall continue to have a
Deferral Account and to be credited with earnings and losses on his Deferral
Account under Section 4.2 (until that Deferral Account is fully distributed
pursuant to Article V), and the Participant shall be entitled to receive
benefits under Article V.
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ARTICLE IV
PARTICIPANTS' DEFERRAL ACCOUNTS
Section 4.1. Establishment of Accounts. The Committee shall create
and maintain adequate records to disclose the interest in the Plan of each
Participant and Beneficiary. Records shall be in the form of individual
bookkeeping accounts, which shall be credited with deferrals pursuant to Section
3.2, accumulations under Prior Plans pursuant to Section 4.4, and earnings and
losses pursuant to Section 4.2, and debited with any contributions to the Profit
Sharing Plan pursuant to Section 4.8 and any payments pursuant to Article V.
Each Participant shall have a separate Deferral Account. The Participant's
interest in his Deferral Account shall be fully vested at all times.
Notwithstanding the preceding sentence, the Participant's interest in his
Deferral Account shall be subject to the claims of the Company's general
creditors in the event the Company becomes Insolvent.
Section 4.2. Earnings and Losses.
(a) Deemed Investment of Deferral Accounts. During each Plan Year,
a Participant's Deferral Account shall be credited with investment
earnings and losses as though it is invested, in accordance with the
Participant's election pursuant to Subsection (b), in one or more of
the Investment Options. The deemed investment of a Participant's
Deferral Account among the Investment Options in accordance with the
Participant's election is solely the measure of the investment
performance of the Deferral Account. It does not give the Participant
any ownership interest in any Investment Option, nor does it bind the
Company, the Committee, or the Trustee as to the investment of any
Rabbi Trust or any other amounts represented by the Deferral Accounts.
(b) Election Procedure. Each Participant, upon first becoming an
Eligible Employee, may make an initial election, on a form provided by
the Committee, to allocate his Deferral Account among the Investment
Options. If the Participant fails to make an initial election, he shall
be deemed to have elected to allocate his Deferral Account among the
Investment Options in the same manner as he had allocated the
investment of his accounts in the Profit Sharing Plan as of the date he
first became an Eligible Employee. A Participant may change his
Investment Option designations (for his future deferrals, his existing
Deferral Account, or both) once each Plan Year, as of the first day of
the Plan Year, by filing an appropriate election form with the
Committee by the prior December 30. Until a Participant timely files a
new investment election form, his prior Investment Option designation
shall control.
Section 4.3. Credits to Deferral Accounts. A Participant's
deferrals pursuant to Section 3.2 shall be credited to his Deferral Account as
of the first day of the month in which the deferred amount would have otherwise
been paid to the Participant as salary or bonus. Amounts accumulated by a
Participant under Prior Plans and credited to his Deferral Account pursuant to
Section 4.4 shall be credited to the Participant's Deferral Account as of the
Effective Date.
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Earnings and losses on the deemed investment of the Participant's Deferral
Account under Section 4.2 shall be credited monthly, on the last day of each
month, based on the value of the Participant's Deferral Account as of the first
day of the month.
Section 4.4. Accumulations Under Prior Plans. If an Eligible
Employee became an Eligible Employee on the Effective Date and was a participant
in one or both of the Prior Plans immediately prior to the Effective Date, then
as soon as practicable after the Effective Date, the Eligible Employee's
Deferrals Account shall be credited with the total of any amounts credited to
the Eligible Employee's accounts under the Prior Plans as of December 31, 1998.
Section 4.5. Accounts Unfunded.
(a) Deferral Accounts shall be accounting accruals, in the names
of Participants, on the Employer's books. Deferral Accounts shall be
unfunded, so that the Employer's obligation to pay benefits under the
Plan is merely a contractual duty to make payments when due under the
Plan. The Employer's promise to pay benefits under the Plan shall not
be secured in any way, and except as provided in Subsection (b) the
Company shall not set aside or segregate assets for the purpose of
paying amounts credited to Participants' Deferral Accounts.
(b) Notwithstanding the provisions of Subsection (a), the Company,
in its sole discretion, may establish a Rabbi Trust. The Employer, in
its sole discretion, may make such contributions to the Rabbi Trust as
the Committee determines are appropriate to enable the Employer to pay
benefits under the Plan. Any Rabbi Trust established under this Section
shall be created pursuant to a written trust document that conforms to
the model form of rabbi trust agreement approved by the Internal
Revenue Service in Revenue Procedure 92-64 (as amended from time to
time).
Section 4.6. Valuation of Deferral Accounts. The value of a
Participant's Deferral Account as of any date shall equal the dollar amount of
any deferrals credited to the Deferral Account pursuant to Section 3.2 and Prior
Plan accumulations credited to the Deferral Account pursuant to Section 4.4,
increased or decreased by the earnings and losses deemed to be credited to the
Deferral Account in accordance with Section 4.2, and decreased by the amount of
any contributions made or to be made from the Deferral Account to the Profit
Sharing Plan pursuant to Section 4.8 and any payments made from the Deferral
Account to the Participant or his Beneficiary pursuant to Article V. In the
event that a Participant dies before his Deferral Account has been distributed,
the value of the Participant's Deferral Account shall be adjusted in accordance
with Section 5.7.
Section 4.7. Annual Report. Within 120 days following the end of
each Plan Year, the Committee shall provide to each Participant a written
statement of the amount standing to his credit in his Deferral Account as of the
end of that Plan Year.
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Section 4.8. Determination and Treatment of Amounts Contributable
to Profit Sharing Plan. As soon as possible for each Plan Year, the Committee
shall determine the amount that each Eligible Employee electing deferrals
pursuant to Section 3.2 can contribute to the Profit Sharing Plan for the same
Plan Year without exceeding the limitations of Code Subsection 402(g) and
Paragraph 401(k)(3) for the Plan Year. If an Eligible Employee elected to
contribute to the Profit Sharing Plan that portion of his deferrals that did not
exceed the determined amount, that portion shall be transferred directly to the
Profit Sharing Plan no later than March 15 of the following Plan Year.
Alternatively, if the Eligible Employee elected to receive a lump sum
distribution of that portion of his deferrals that did not exceed the determined
amount, that portion shall be distributed to him no later than March 15 of the
following Plan Year. The earnings and losses credited to the transferred or
distributed portion pursuant to Section 4.3 shall remain in the Eligible
Employee's Deferral Account until distributed pursuant to Article V.
ARTICLE V
DISTRIBUTION OF BENEFITS
Section 5.1. General Distribution Rules.
(a) General Provisions. Except as otherwise provided in Section
5.2 through 5.6, a Participant's Deferral Account shall be distributed
to the Participant (or to his Beneficiary in the event of his death) as
provided in this Section.
(b) Participant's Election. As part of his Deferral Agreement for
each Plan Year, a Participant may select, from among the options
described in this Section, the form and time for the payment of his
deferrals for the Plan Year (and any investment earnings attributable
to those deferrals). A Participant's election for each Plan Year shall
be irrevocable, but the Participant may make a new election for each
Plan Year's deferrals.
(1) Form of Distribution. A Participant may elect to have
his deferrals (and attributable earnings) for a Plan Year
distributed in one of the following forms:
(A) A lump sum payment; or
(B) Substantially equal annual or quarterly
installments over a specified number of years not exceeding
15.
(2) Time of Distribution. Distribution of a Participant's
deferral shall commence no later than 30 days after the earlier of
the Participant's death or his Retirement.
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<PAGE> 9
(c) Accumulations Under Prior Plans. With respect to amounts
accumulated by a Participant under a Prior Plan and credited to his
Deferrals Account pursuant to Section 4.4, the payment election(s) made
by the Participant under the Prior Plan will be treated as an election
made pursuant to Subsection (b) for purposes of this Plan.
(d) Default Procedure. If a Participant fails to make an election
pursuant to this Section, then, except as otherwise provided in
Sections 5.2 through 5.7, the Participant's deferrals (and attributable
earnings) shall be distributed in five substantially equal annual
installments commencing no later than 30 days after the earlier of the
Participant's death or his Retirement.
Section 5.2. Distribution Upon Disability. Notwithstanding Section
5.1, if a Participant incurs a Disability, the Participant's Deferral Account
shall be distributed to the Participant (or, in the event of his death, to his
Beneficiary) in a lump sum payment no later than 30 days after the Committee
determines that the Participant has incurred a Disability.
Section 5.3. Distribution Upon Termination of Employment Before
Retirement. Notwithstanding Section 5.1, if a Participant incurs a Termination
of Employment other than a Retirement, the Participant's Deferral Account shall
be distributed to the Participant (or, in the event of his death, to his
Beneficiary) in a single lump sum payment no later than 30 days after the
Participant's Termination of Employment.
Section 5.4. Distribution Upon Plan Termination Due to a Change in
Control.
(a) Notwithstanding any other Section, if the Plan terminates
upon a Change in Control as provided in Section 7.2, a Participant's
Deferral Account shall be distributed to the Participant (or, in the
event of his death, to his Beneficiary) in a single lump sum payment no
later than 30 days after the Change in Control occurs.
(b) As used in this Plan, the term "Change in Control" means any
of the following events:
(1) The acquisition by any individual, entity, or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended, the "Exchange Act")
("any Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act as in effect from time to
time) of 25% or more of either (A) the then outstanding shares of
common stock of the Company or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to
vote generally in the election of directors; provided, however,
that the following acquisitions shall not constitute an
acquisition of control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of a
conversion privilege); (ii) any acquisition by the Company; (iii)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Related
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<PAGE> 10
Employer; (iv) any acquisition by any corporation pursuant to a
reorganization, merger, or consolidation, if, following that
reorganization, merger, or consolidation, the conditions described
in clauses (A), (B), and (C) of paragraph (3) of this subsection
(b) are satisfied; (v) any acquisition by William E. Bindley; or
(vi) upon the death of William E. Bindley, any acquisition
triggered by this death by operation of law, by any testamentary
bequest, or by the terms of any trust or other contractual
arrangement established by him.
(2) Individuals who, as of the Effective Date, constitute
the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Board of the Directors; provided, however, that any individual
becoming a director subsequent to the Effective Date whose
election or nomination for election by the Company's shareholders,
with approval by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.
(3) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, unless
following that reorganization, merger, or consolidation, (A) more
than 60% of, respectively, the then outstanding shares of common
stock of the corporation resulting from that reorganization,
merger, or consolidation and the combined voting power of the then
outstanding voting securities of that corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were then beneficiary owners,
respectively, of the outstanding Company common stock and
outstanding Company voting securities immediately prior to that
reorganization, merger, or consolidation in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger, consolidation of the outstanding Company
stock and outstanding Company voting securities, as the case may
be; (B) no Person (excluding the Company, any employee benefit
plan or related trust of the Company, or the corporation resulting
from the reorganization, merger, or consolidation, in any Person
beneficially owning, immediately prior to such reorganization,
merger, or consolidation, directly or indirectly, twenty-five
percent (25%) or more of the outstanding Company's common stock or
Company voting securities, as the case may be) beneficially owned,
directly or indirectly, twenty-five percent (25%) or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from that reorganization, merger, or
consolidation, or the combined voting power of the then
outstanding voting securities of that corporation entitled to vote
generally in the election of directors;
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<PAGE> 11
and (C) at least a majority of the members of the board of
directors of the corporation resulting from the reorganization,
merger, or consolidation were members of the Incumbent Board at
the time of the execution of the initial agreement providing for
the reorganization, merger, or consolidation.
(4) Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) the sale
or other disposition of all or substantially all of the assets of
the Company, other than to a corporation with respect to which
following such sale or other disposition (i) more than 60% of,
respectively, then outstanding shares of common stock of the
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively of the
outstanding Company common stock and outstanding Company voting
securities immediately prior to the sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to the sale or other disposition, of the outstanding Company
common stock and outstanding Company voting securities, as the
case may be; (ii) no Person (excluding the Company and any
employee benefit plan or related trust of the Company or the
corporation and any Person beneficially owning, immediately prior
to the sale or other disposition, directly or indirectly, 25% or
more of the outstanding Company common stock or outstanding
Company voting securities, as the case may be) beneficially owns,
directly or indirectly, 25% or more of, respectively, the then
outstanding shares of common stock of the corporation and the
combined voting power of the then outstanding voting securities of
the corporation entitled to vote generally in the election of
directors; and (iii) at least a majority of the members of the
board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of the assets of the Company.
Section 5.5. Distribution of Small Amounts. Notwithstanding
Section 5.1, if a Participant's Deferral Account is distributable pursuant to
this Article on account of death, Retirement, or Termination of Employment and
the remaining value of his Account does not exceed $10,000.00, the balance of
his Account shall be distributed in a lump sum payment to the Participant (or,
in the event of his death, to his Beneficiary).
Section 5.6. Distribution Upon Financial Emergency. A Participant
or Beneficiary, upon written petition to the Committee, may withdraw some or all
of the balance of the Participant's Deferral Account if the Committee, in its
sole discretion, determines that the requested withdrawal is on account of an
Unforeseeable Emergency and that the amount to be withdrawn does not exceed the
amount necessary to satisfy the Unforeseeable Emergency. The balance of the
Participant's Deferral Account shall not include any amount that the Participant
elected to contribute to the Profit Sharing Plan pursuant to Section 3.2 but
that has not yet been
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<PAGE> 12
transferred to the Profit Sharing Plan pursuant to Section 4.8. Withdrawals
under this Section shall not be permitted to the extent that the Unforeseeable
Emergency may reasonably be relieved through (a) reimbursement or compensation
by insurance or otherwise, (b) liquidation of the Participant's or Beneficiary's
assets (to the extent liquidation would not itself cause a financial hardship),
or (c) suspension or cessation of elective deferrals under this Plan or the
Profit Sharing Plan.
Section 5.7. Death Benefits. In the event that a Participant dies
before his Deferral Account is completely distributed, his Beneficiary shall be
entitled to a death benefit. The amount of the death benefit payable to the
Beneficiary shall be determined under Schedule A. If the amount of the death
benefit determined under Schedule A is greater than the amount credited to the
Participant's Deferral Account immediately before his death, then the value of
the Participant's Deferral Account shall be adjusted to equal the death benefit
determined under Schedule A. The form and timing of the payment of death benefit
shall be determined pursuant to Section 5.1, subject to Sections 5.2 through 5.6
Section 5.8. Designation of Beneficiary. A Participant's
Beneficiary shall be the person or persons, including a trustee, designated by
the Participant in writing pursuant to the practices of, or rules prescribed by,
the Committee, as the recipient of any benefits payable under the Plan following
the Participant's death. To be effective, a Beneficiary designation must be
filed with the Committee during the Participant's life on a form prescribed by
the Committee; provided, however, that finalized divorce or marriage (other than
a common law marriage) shall automatically revoke a previously filed Beneficiary
designation, unless in the case of divorce the former spouse was not designated
as the Beneficiary or in the case of marriage the Participant's new spouse is
already the designated Beneficiary. If no person has been designated as the
Participant's Beneficiary, if a Participant's Beneficiary designation has been
revoked by marriage or divorce, or if no person designated as Beneficiary
survives the Participant, the Participant's estate shall be his Beneficiary.
ARTICLE VI
ADMINISTRATION
Section 6.1. Administrator. The Committee shall be the
Administrator of the Plan. All decisions of the Committee shall be by a vote of
a majority of its members and shall be final and binding.
Section 6.2. Notices. Any notice or filing required or permitted
to be given to the Committee under the Plan shall be sufficient if it is in
writing or hand delivered, or sent by registered or certified mail, to any
member of the Committee. The notice or filing shall be deemed made as of the
date of delivery, or if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
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<PAGE> 13
Section 6.3. Powers and Duties of the Committee. Subject to the
specific limitations stated in this Plan, the Committee shall have the following
powers, duties, and responsibilities:
(a) To carry out the general administration of the Plan;
(b) To cause to be prepared all forms necessary or appropriate for
the administration of the Plan;
(c) To keep appropriate books and records;
(d) To determine amounts to be distributed to Participants and
Beneficiaries under the provisions of the Plan;
(e) To determine, consistent with the provisions of this
instrument all questions of eligibility, rights, and status of
Participants and Beneficiaries under the Plan;
(f) To issue, amend, and rescind rules relating to the
administration of the Plan, to the extent those rules are consistent
with the provisions of this instrument;
(g) To exercise all other powers and duties specifically conferred
upon the Committee elsewhere in this instrument; and
(h) To interpret, with discretionary authority, the provisions of
this Plan and to resolve, with discretionary authority, all disputed
questions of Plan interpretation and benefit eligibility.
ARTICLE VII
AMENDMENT AND TERMINATION
Section 7.1. Amendment. The Company reserves the right to amend
the Plan at any time by action of the Board of Directors, with written notice
given to each Participant in the Plan. The Company, however, may not make any
amendment that reduces a Participant's benefits accrued as of the date of the
amendment unless the Participant consents in writing to the amendment.
Notwithstanding the foregoing, the Company may not amend any of the provisions
of Section 5.4 within three years of a Change in Control.
Section 7.2. Termination. The Company reserves the right to
terminate the Plan, by action of the Board of Directors, at any time it deems
appropriate. In addition, the Plan shall terminate upon the occurrence of a
Change in Control and all Participants' Accounts shall be distributed in
accordance with Section 5.4. Upon termination of the Plan, no further
contribution shall be made to the Plan. Distribution following termination of
the Plan, other than a
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<PAGE> 14
termination upon a Change in Control, shall be made at the time and under the
terms and conditions as the Company, in its sole discretion, shall determine,
which shall commence no later than the earliest of a Participant's death,
Disability, Retirement or other Termination of Employment.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Relationship. Notwithstanding any other provision of
this Plan, this Plan and action taken pursuant to it shall not be deemed or
construed to establish a trust or fiduciary relationship of any kind between or
among the Company, Participants, Beneficiaries or any other persons. The Plan is
intended to be unfunded for purposes of the Code and the Employee Retirement
Income Security Act of 1974, as amended. The rights of Participants and
Beneficiaries to receive payment of deferred compensation under the Plan is
strictly a contractual right of payment, and this Plan does not grant, nor shall
it be deemed to grant Participants, Beneficiaries, or any other person any
interest or right to any of the funds, property, or assets of the Employer other
than as an unsecured general creditor of the Employer.
Section 8.2. Other Benefits and Plans. Nothing in this Plan shall
be deemed to prevent Participants from receiving, in addition to the benefits
provided for under this Plan, any funds that may be distributable to them at any
time under any other present or future retirement or incentive plan of the
Employer.
Section 8.3. Anticipation of Benefits. Neither Participants nor
Beneficiaries shall have the power to transfer, assign, anticipate, pledge,
alienate, or otherwise encumber in advance any of the payments that may become
due under this Plan, and any attempt to do so shall be void. Any payments that
may become due under this Plan shall not be subject to attachment, garnishment,
execution, or be transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise.
Section 8.4. No Guarantee of Continued Employment. Nothing
contained in this Plan or any action taken under the Plan shall be construed as
a contract of employment or as giving any Participant any right to be retained
in employment with the Employer. The Employer specifically reserves the right to
terminate any Participant's employment at any time with or without cause, and
with or without notice or assigning a reason, subject to the terms of any
written employment agreement between the Participant and the Employer.
Section 8.5. Waiver of Breach. The Company's or the Committee's
waiver of any Plan provision shall not operate or be construed as a waiver of
any subsequent breach by the Participant.
-14-
<PAGE> 15
Section 8.6. Protective Provisions. Each Participant shall
cooperate with the Company and the Committee by furnishing any and all
information requested by the Company or the Committee in order to facilitate the
payment of benefits under the Plan, by taking any physical examinations the
Committee may deem necessary and by taking any other relevant action as may be
requested by the Company or the Committee. If any Participant refuses so to
cooperate, the Company shall have no further obligation to the Participant or
his Beneficiary under this Plan, other than to distribute to the Participant the
cumulative deferrals he has already made pursuant to the Plan. If a Participant
makes any material misstatement of information or nondisclosure of medical
history, then no distributions with respect to any affected deferrals shall be
made under this Plan to the Participant or his Beneficiary, other than payment
to that Participant or his Beneficiary of any cumulative deferrals he has
already made pursuant to the Plan; provided, however, that the Committee may
determine that benefits may be payable in an amount reduced to compensate the
Company for any loss, cost, damage, or expense suffered or incurred by the
Company as a result in any way of the Participant's action, misstatement, or
nondisclosure.
Section 8.7. Benefit. This Plan shall be binding upon and inure to
the benefit of the Employer and its successors and assigns.
Section 8.8. Responsibility for Legal Affect. Neither the
Committee nor the Company makes any recommendations or warranties, express or
implied, or assumes any responsibility concerning the legal context or other
implications or affects of this Plan.
Section 8.9. Tax Withholding. The Employer shall withhold from any
deferrals or from any payment made under the Plan such amount or amounts as may
be required by applicable federal, State, or local laws.
Priority Healthcare Corporation has caused this Plan to be
executed by its duly authorized officers, as of the 25 day of November, 1998.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
------------------------------
(Signature)
President
------------------------------
(Office)
ATTEST:
By: /s/ BARBARA J. LUTTRELL
------------------------
Barbara J. Luttrell
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<PAGE> 16
(Signature)
Asst. Secretary
----------------------
(Office)
-16-
<PAGE> 1
EXHIBIT 10-S(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of
March, 1999, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Guy F. Bryant (the "Employee").
RECITALS
1. The Company is engaged in the business of the provision of health
care services and in various related activities.
2. The Company desires to have the Employee serve as an employee of the
Company, and the Employee desires such employment, all on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the Company and the Employee agree as
follows:
ARTICLE I
EMPLOYMENT
The Company hereby agrees to the Employee's employment with the Company
in accordance with the terms and conditions of this Agreement, and the Employee
hereby agrees to the terms and conditions of this Agreement. The Employee shall
serve as Executive Vice President of Priority Healthcare Corporation and shall
have duties, responsibilities and powers as shall be determined from time to
time by, and all of his duties, responsibilities and powers shall at all times
be subject to the order, direction and supervision of any superior officers
within the Company.
ARTICLE II
TERM OF AGREEMENT
The term of employment which this Agreement establishes shall commence
as of the date of this Agreement and end on February 28, 2000. Notwithstanding
the foregoing, the term of employment established by this Agreement is subject
to prior termination as hereinafter provided.
ARTICLE III
DEVOTION TO DUTIES
During the term of employment, the Employee shall devote his full time,
attention, skill and effort to the operations of the Company and shall not,
during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
<PAGE> 2
ARTICLE IV
REGULAR COMPENSATION
The Company shall pay to the Employee and the Employee shall accept
from the Company, as compensation for his services and for his covenants and
other obligations hereunder, the gross bi-weekly salary of $5,961.54. Employee's
salary will be reviewed annually, consistent with the Company's compensation
policies.
ARTICLE V
EXPENSES AND BENEFITS
The Company shall reimburse the Employee for all ordinary and necessary
business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall receive a monthly auto
allowance of $400, shall be reimbursed by the Company for such auto's gasoline
and oil charges and the Company will pay up to $900 annually for auto insurance
on such auto. The Employee shall be entitled to participate in such other fringe
benefit programs as the Company from time to time shall establish for all of its
other full time employees of similar status, if he is otherwise eligible to
participate in such programs. The Company retains the right to establish limits
on the types or amounts of business expenses that the Employee may incur and to
abolish or alter the terms of any fringe benefit program that it may establish.
The Employee shall be paid a bonus up to 60% of the gross salary paid
to Employee during the year. Such bonus shall be based on individual and Company
performance and shall be paid to the Employee no later than March 31 of the year
following the year in which the bonus is earned.
During the term of this Agreement, the Employee shall be eligible to
participate in any stock option plans generally available to the Company's key
employees.
ARTICLE VI
TERMINATION
Section 6.01. Reasons for Termination. The Employment of the Employee
shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
(b) At the Company's option, upon the Employee's violation of Company
policy or failure to perform any of his duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a permanent
disability. For purposes of this Agreement, "permanent disability" shall be
defined as the Employee's inability through physical or mental illness or other
cause to perform, in the opinion of an independent physician chosen by the
parties to this Agreement, duties assigned to him hereunder for the continuous
period of three months during the term of this Agreement.
-2-
<PAGE> 3
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a), (c) or (d) (except as modified by Section 6.02(c) below) of
Section 6.01 of this Agreement, the Company shall pay to the Employee (or the
Employee's personal representative), within 10 business days after the date of
termination, a sum equal to the aggregate amount of regular compensation that
was paid to the Employee under this Agreement for the one-month period preceding
such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee a sum payable in bi-weekly installments equal to the aggregate amount
of regular compensation that the Employee would be entitled to receive under
this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01, the severance pay provided for by this
Section 6.02 shall constitute the entire obligation of the Company to the
Employee and full settlement of any claim under law or in equity that the
Employee might otherwise assert against the Company or any of its employees,
officers or directors on account of such termination.
Section 6.03. Reimbursement for Certain Litigation Expenses. In the
event of litigation to determine whether the Employee's employment was properly
terminated under subsection (b) of Section 6.01, the prevailing party shall be
entitled to recover all reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
CONFIDENTIAL INFORMATION
In connection with his employment by the Company, the Employee has and
will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Exhibit A.
ARTICLE VIII
GENERAL
Section 8.01. Severability. Should any clause, portion or section of
this Agreement be unenforceable or invalid for any reason, such unenforceability
or invalidity shall not affect the enforceability of validity
-3-
<PAGE> 4
of the remainder of this Agreement. Should any particular covenant in this
Agreement be held unreasonable or unenforceable for any reason, including,
without limitation, the time period, geographical area, and scope of activity
covered by such covenant, then such covenant shall be given effect and enforced
to whatever extent would be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This Agreement, being
personal to the Employee, may not be assigned by him. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the performance of the
parties under this Agreement shall be construed in accordance with the laws of
Indiana, and any action or proceeding that may be brought, arising out of, in
connection with, or by reason of this Agreement shall be governed by the laws of
Indiana, to the exclusion of the law of any other forum, and regardless of the
jurisdiction in which the action or proceeding may be instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions of this Agreement shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No modification,
amendments, extension or alleged waiver of this Agreement or any provision
thereof will be binding upon the Employee or the Company unless in writing and
signed by the Employee and a duly authorized officer of the Company. This
Agreement constitutes the entire employment arrangement between the Employee and
the Company and supersedes and replaces any and all prior agreements and
understandings, written or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
--------------------------------------
Title: President
-----------------------------------
EMPLOYEE
/s/ GUY F. BRYANT
-----------------------------------------
Signature
-----------------------------------------
Address
-----------------------------------------
City, State, Zip
-----------------------------------------
Social Security Number
-4-
<PAGE> 1
EXHIBIT 10-S(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into this 1st
day of March, 1999, by and between Priority Healthcare Corporation, an Indiana
corporation, (the "Company") and Guy F. Bryant (the "Employee").
AGREEMENT
1. Employment. The parties hereto acknowledge that the terms of the
employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof, (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual promises
contained herein and in the Employment Agreement, Employee agrees and promises
that for a period of one year after termination of employment with the Company
for any reason other than termination by the Company without cause, in which
event the period shall be six months, employee will not, directly or indirectly,
for Employee or any other person, firm, corporation, entity or business:
(a) Compete with Company. Own, manage, operate, control or
otherwise be in any manner affiliated or connected with, or
engage or participate in the ownership, management, operation
or control of (as principal, agent, proprietor, partner,
member, shareholder, director, trustee, officer,
administrator, employee, consultant, independent contractor,
or otherwise), any business or entity which as one of its
business activities competes directly or indirectly with the
Company within any county in which the Company does business;
or attempt to sell, offer or provide to any person or entity
which is a customer of the Company a product or service
substantially similar to products or services offered by the
Company.
(b) Solicit Customers. Divert or take away or attempt to divert
or take away, call on or solicit or attempt to call on or
solicit any customers, potential customers, or prospects to
which goods were sold or services were rendered by Employee
while he was an employee of the Company.
(c) Employees. Induce or influence or attempt to induce or
influence, any person who is engaged as an employee, agent,
independent contractor or otherwise by the Company to
terminate his or her employment or engagement.
<PAGE> 2
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties hereto
acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the Company's
purchasing, accounting, merchandising or marketing methods;
(b) Information and material related to business plans and
methods of operations or methods of doing business or
relating to marketing plans developed or to be developed by
the Company;
(c) Customer lists, potential customers lists, prospect lists,
account lists, billing information, salesmen reports,
territory reports, pricing lists, quotation forms,
advertising or marketing materials and techniques and lead
lists;
(d) Any of the information of the type described above which the
Company obtained from another source and which the Company
treats as proprietary or designates as confidential, whether
or not owned or developed by the Company.
5. Use of Information. Employee acknowledges and agrees that he is in
a fiduciary relationship with the Company and as a consequence of this fiduciary
relationship and the trust and confidence reposed in the Employee by the
Company, Employee will receive proprietary and confidential information and/or
trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
2
<PAGE> 3
6. Availability of Injunctive Relief. The parties acknowledge that
compliance with the covenants in paragraphs 2, 4, and 5 is necessary to protect
the business, goodwill and proprietary interests of the Company. The parties
further agree that the remedy at law for breach of any of the provisions of such
covenants is inadequate and that the Company shall be entitled, in addition to
other such remedies as it may have, to injunctive relief for any breach or
threatened breach of paragraphs 2, 4, and 5 without proof of any actual damages
that may have been or may be caused to the Company by such breach or threatened
breach.
7. Assignment. Neither this Agreement nor any right or obligation
created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment Agreement
dated the date hereof constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the provisions
contained in this Agreement, or any portion of any such provisions, shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, or any portion of any such provision, but the Agreement shall
be construed as if such invalid, illegal or unenforceable provision, or portion
thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations and
liabilities arising hereunder shall be construed and enforced in accordance with
the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of this
Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and shall be binding on the
successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall not inure
to the benefit of any third party who is not a signatory hereto except as
otherwise provided for in paragraph 12.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have hereto executed this Agreement as
of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
--------------------------------------
The "Company"
/s/ GUY F. BRYANT
--------------------------------------
Guy F. Bryant
"Employee"
4
<PAGE> 1
EXHIBIT 10-T(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st
day of March, 1999, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Steven D. Cosler (the "Employee").
RECITALS
1. The Company is engaged in the business of the provision of
health care services and in various related activities.
2. The Company desires to have the Employee serve as an
employee of the Company, and the Employee desires such employment, all on the
terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions set forth herein, the Company and the Employee
agree as follows:
ARTICLE I
EMPLOYMENT
The Company hereby agrees to the Employee's employment with
the Company in accordance with the terms and conditions of this Agreement, and
the Employee hereby agrees to the terms and conditions of this Agreement. The
Employee shall serve as Executive Vice President of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of his duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
TERM OF AGREEMENT
The term of employment which this Agreement establishes shall
commence as of the date of this Agreement and end on February 28, 2000.
Notwithstanding the foregoing, the term of employment established by this
Agreement is subject to prior termination as hereinafter provided.
ARTICLE III
DEVOTION TO DUTIES
During the term of employment, the Employee shall devote his
full time, attention, skill and effort to the operations of the Company and
shall not, during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
<PAGE> 2
ARTICLE IV
REGULAR COMPENSATION
The Company shall pay to the Employee and the Employee shall
accept from the Company, as compensation for his services and for his covenants
and other obligations hereunder, the gross bi-weekly salary of $6,538.46
Employee's salary will be reviewed annually, consistent with the Company's
compensation policies.
ARTICLE V
EXPENSES AND BENEFITS
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall receive a monthly auto
allowance of $400, shall be reimbursed by the Company for such auto's gasoline
and oil charges and the Company will pay up to $900 annually for auto insurance
on such auto. The Employee shall be entitled to participate in such other fringe
benefit programs as the Company from time to time shall establish for all of its
other full time employees of similar status, if he is otherwise eligible to
participate in such programs. The Company retains the right to establish limits
on the types or amounts of business expenses that the Employee may incur and to
abolish or alter the terms of any fringe benefit program that it may establish.
The Employee shall be paid a bonus up to 60% of the gross
salary paid to Employee during the year. Such bonus shall be based on individual
and Company performance and shall be paid to the Employee no later than March 31
of the year following the year in which the bonus is earned.
During the term of this Agreement, the Employee shall be
eligible to participate in any stock option plans generally available to the
Company's key employees.
ARTICLE VI
TERMINATION
Section 6.01. Reasons for Termination. The Employment of the
Employee shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
(b) At the Company's option, upon the Employee's violation of
Company policy or failure to perform any of his duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a
permanent disability. For purposes of this Agreement, "permanent disability"
shall be defined as the Employee's inability through physical or mental illness
or other cause to perform, in the opinion of an independent physician chosen by
the parties to this Agreement, duties assigned to him hereunder for the
continuous period of three months during the term of this Agreement.
-2-
<PAGE> 3
(d) At the Company's option, without cause.
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a), (c) or (d) (except as modified by Section 6.02(c) below) of
Section 6.01 of this Agreement, the Company shall pay to the Employee (or the
Employee's personal representative), within 10 business days after the date of
termination, a sum equal to the aggregate amount of regular compensation that
was paid to the Employee under this Agreement for the one-month period preceding
such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee a sum payable in bi-weekly installments equal to the aggregate amount
of regular compensation that the Employee would be entitled to receive under
this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01, the severance pay provided for by this
Section 6.02 shall constitute the entire obligation of the Company to the
Employee and full settlement of any claim under law or in equity that the
Employee might otherwise assert against the Company or any of its employees,
officers or directors on account of such termination.
Section 6.03. Reimbursement for Certain Litigation Expenses.
In the event of litigation to determine whether the Employee's employment was
properly terminated under subsection (b) of Section 6.01, the prevailing party
shall be entitled to recover all reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
CONFIDENTIAL INFORMATION
In connection with his employment by the Company, the Employee
has and will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Exhibit A.
ARTICLE VIII
GENERAL
Section 8.01. Severability. Should any clause, portion or
section of this Agreement be unenforceable or invalid for any reason, such
unenforceability or invalidity shall not affect the enforceability of validity
-3-
<PAGE> 4
of the remainder of this Agreement. Should any particular covenant in
this Agreement be held unreasonable or unenforceable for any reason, including,
without limitation, the time period, geographical area, and scope of activity
covered by such covenant, then such covenant shall be given effect and enforced
to whatever extent would be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This
Agreement, being personal to the Employee, may not be assigned by him. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Company, and the heirs, executors and
personal representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the
performance of the parties under this Agreement shall be construed in accordance
with the laws of Indiana, and any action or proceeding that may be brought,
arising out of, in connection with, or by reason of this Agreement shall be
governed by the laws of Indiana, to the exclusion of the law of any other forum,
and regardless of the jurisdiction in which the action or proceeding may be
instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance
with any of the terms, covenants or conditions of this Agreement shall not be
deemed a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No
modification, amendments, extension or alleged waiver of this Agreement or any
provision thereof will be binding upon the Employee or the Company unless in
writing and signed by the Employee and a duly authorized officer of the Company.
This Agreement constitutes the entire employment arrangement between the
Employee and the Company and supersedes and replaces any and all prior
agreements and understandings, written or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
-----------------------------------------------
Title: President
--------------------------------------------
EMPLOYEE
/s/ STEVEN D. COSLER
--------------------------------------------------
Signature
--------------------------------------------------
Address
--------------------------------------------------
City, State, Zip
--------------------------------------------------
Social Security Number
-4-
<PAGE> 1
EXHIBIT 10-T(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into
this 1st day of March, 1999, by and between Priority Healthcare Corporation, an
Indiana corporation, (the "Company") and Steven D. Cosler (the "Employee").
AGREEMENT
1. Employment. The parties hereto acknowledge that the terms
of the employment of the Employee by the Company are governed by an Employment
Agreement dated as of the date hereof, (the "Employment Agreement"), by and
between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual
promises contained herein and in the Employment Agreement, Employee agrees and
promises that for a period of one year after termination of employment with the
Company for any reason other than termination by the Company without cause, in
which event the period shall be six months, employee will not, directly or
indirectly, for Employee or any other person, firm, corporation, entity or
business:
(a) Compete with Company. Own, manage, operate, control
or otherwise be in any manner affiliated or connected
with, or engage or participate in the ownership,
management, operation or control of (as principal,
agent, proprietor, partner, member, shareholder,
director, trustee, officer, administrator, employee,
consultant, independent contractor, or otherwise),
any business or entity which as one of its business
activities competes directly or indirectly with the
Company within any county in which the Company does
business; or attempt to sell, offer or provide to any
person or entity which is a customer of the Company a
product or service substantially similar to products
or services offered by the Company.
(b) Solicit Customers. Divert or take away or attempt to
divert or take away, call on or solicit or attempt to
call on or solicit any customers, potential
customers, or prospects to which goods were sold or
services were rendered by Employee while he was an
employee of the Company.
(c) Employees. Induce or influence or attempt to induce
or influence, any person who is engaged as an
employee, agent, independent contractor or otherwise
by the Company to terminate his or her employment or
engagement.
<PAGE> 2
3. Severability. The parties hereto intend that the covenants
contained in paragraph 2 shall be construed as a series of separate covenants,
one for each county in which the Company has customers. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenants contained in paragraph 2. If, in any judicial proceeding, a court
shall refuse to enforce any of the separate covenants deemed included in this
paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties
hereto acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the
Company's purchasing, accounting, merchandising or
marketing methods;
(b) Information and material related to business plans
and methods of operations or methods of doing
business or relating to marketing plans developed or
to be developed by the Company;
(c) Customer lists, potential customers lists, prospect
lists, account lists, billing information, salesmen
reports, territory reports, pricing lists, quotation
forms, advertising or marketing materials and
techniques and lead lists;
(d) Any of the information of the type described above
which the Company obtained from another source and
which the Company treats as proprietary or designates
as confidential, whether or not owned or developed by
the Company.
5. Use of Information. Employee acknowledges and agrees that
he is in a fiduciary relationship with the Company and as a consequence of this
fiduciary relationship and the trust and confidence reposed in the Employee by
the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
2
<PAGE> 3
6. Availability of Injunctive Relief. The parties acknowledge
that compliance with the covenants in paragraphs 2, 4, and 5 is necessary to
protect the business, goodwill and proprietary interests of the Company. The
parties further agree that the remedy at law for breach of any of the provisions
of such covenants is inadequate and that the Company shall be entitled, in
addition to other such remedies as it may have, to injunctive relief for any
breach or threatened breach of paragraphs 2, 4, and 5 without proof of any
actual damages that may have been or may be caused to the Company by such breach
or threatened breach.
7. Assignment. Neither this Agreement nor any right or
obligation created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment
Agreement dated the date hereof constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings of the parties, and there are
no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the
provisions contained in this Agreement, or any portion of any such provisions,
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, or any portion of any such provision, but the
Agreement shall be construed as if such invalid, illegal or unenforceable
provision, or portion thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations
and liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of
this Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
on the successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall
not inure to the benefit of any third party who is not a signatory hereto except
as otherwise provided for in paragraph 12.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have hereto executed this
Agreement as of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
------------------------------------
The "Company"
/s/ STEVEN D. COSLER
----------------------------------------
Steven D. Cosler
"Employee"
4
<PAGE> 1
EXHIBIT 10-U(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st
day of March, 1999, by and between Priority Healthcare Corporation, an Indiana
corporation (the "Company"), and Donald J. Perfetto (the "Employee").
RECITALS
1. The Company is engaged in the business of the provision of
health care services and in various related activities.
2. The Company desires to have the Employee serve as an
employee of the Company, and the Employee desires such employment, all on the
terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions set forth herein, the Company and the Employee
agree as follows:
ARTICLE I
EMPLOYMENT
The Company hereby agrees to the Employee's employment with
the Company in accordance with the terms and conditions of this Agreement, and
the Employee hereby agrees to the terms and conditions of this Agreement. The
Employee shall serve as Executive Vice President and CFO of Priority Healthcare
Corporation and shall have duties, responsibilities and powers as shall be
determined from time to time by, and all of his duties, responsibilities and
powers shall at all times be subject to the order, direction and supervision of
any superior officers within the Company.
ARTICLE II
TERM OF AGREEMENT
The term of employment which this Agreement establishes shall
commence as of the date of this Agreement and end on February 28, 2000.
Notwithstanding the foregoing, the term of employment established by this
Agreement is subject to prior termination as hereinafter provided.
ARTICLE III
DEVOTION TO DUTIES
During the term of employment, the Employee shall devote his
full time, attention, skill and effort to the operations of the Company and
shall not, during such term, engage in any other business activity requiring any
substantial amount of his time (whether or not such business activity is pursued
for gain, profit or pecuniary advantage).
-1-
<PAGE> 2
ARTICLE IV
REGULAR COMPENSATION
The Company shall pay to the Employee and the Employee shall
accept from the Company, as compensation for his services and for his covenants
and other obligations hereunder, the gross bi-weekly salary of $5,769.23.
Employee's salary will be reviewed annually, consistent with the Company's
compensation policies.
ARTICLE V
EXPENSES AND BENEFITS
The Company shall reimburse the Employee for all ordinary and
necessary business expenses incurred by him while carrying out his employment
responsibilities under this Agreement. The Employee shall be entitled to
participate in such other fringe benefit programs as the Company from time to
time shall establish for all of its other full time employees of similar status,
if he is otherwise eligible to participate in such programs. The Company retains
the right to establish limits on the types or amounts of business expenses that
the Employee may incur and to abolish or alter the terms of any fringe benefit
program that it may establish.
The Employee shall be paid a bonus up to 60% of the gross
salary paid to Employee during the year. Such bonus shall be based on individual
and Company performance and shall be paid to the Employee no later than March 31
of the year following the year in which the bonus is earned.
During the term of this Agreement, the Employee shall be
eligible to participate in any stock option plans generally available to the
Company's key employees.
ARTICLE VI
TERMINATION
Section 6.01. Reasons for Termination. The Employment of the
Employee shall be terminated upon the occurrence of any of the following events:
(a) Death of the Employee.
(b) At the Company's option, upon the Employee's violation of
Company policy or failure to perform any of his duties or obligations under this
Agreement in a satisfactory manner, or upon any dishonesty of any kind or
willful misconduct of the Employee, including, but not limited to, theft of or
other unauthorized personal use of Company funds or other remuneration from
Company suppliers or potential suppliers. Employee may be terminated under this
paragraph 6.01(b) only following prior notice to the Employee of the reason for
termination and an opportunity to dispute such reason.
(c) At the Company's option, if the Employee shall suffer a
permanent disability. For purposes of this Agreement, "permanent disability"
shall be defined as the Employee's inability through physical or mental illness
or other cause to perform, in the opinion of an independent physician chosen by
the parties to this Agreement, duties assigned to him hereunder for the
continuous period of three months during the term of this Agreement.
(d) At the Company's option, without cause.
-2-
<PAGE> 3
(e) At the Employee's option, without cause.
Section 6.02. Compensation Upon Termination.
(a) Should the employment of the Employee be terminated under
subsections (a), (c) or (d) (except as modified by Section 6.02(c) below) of
Section 6.01 of this Agreement, the Company shall pay to the Employee (or the
Employee's personal representative), within 10 business days after the date of
termination, a sum equal to the aggregate amount of regular compensation that
was paid to the Employee under this Agreement for the one-month period preceding
such date of termination.
(b) Should the employment of the Employee be terminated under
subsections (b) or (e) of Section 6.01 of this Agreement, the Employee shall be
paid his regular compensation up to the date of termination.
(c) Should the employment of the Employee be terminated under
subsection (d) of Section 6.01 of this Agreement, the Company shall pay to the
Employee a sum payable in bi-weekly installments equal to the aggregate amount
of regular compensation that the Employee would be entitled to receive under
this Agreement for a six-month period.
(d) Payments to the Employee under this Section 6.02 shall be
considered severance pay in consideration of the Employee's past service and in
consideration of his continued service from the date hereof. The Company may, at
its discretion, withhold from such payments any federal, state, city, county or
other taxes. In the event of the termination of the employment of the Employee
for any reason described in Section 6.01, the severance pay provided for by this
Section 6.02 shall constitute the entire obligation of the Company to the
Employee and full settlement of any claim under law or in equity that the
Employee might otherwise assert against the Company or any of its employees,
officers or directors on account of such termination.
Section 6.03. Reimbursement for Certain Litigation Expenses.
In the event of litigation to determine whether the Employee's employment was
properly terminated under subsection (b) of Section 6.01, the prevailing party
shall be entitled to recover all reasonable costs and expenses, including
reasonable attorneys' fees, incurred in connection with such litigation.
ARTICLE VII
CONFIDENTIAL INFORMATION
In connection with his employment by the Company, the Employee
has and will become acquainted with the affairs of the Company, its officers and
employees, its sources of supply, its customers, and other trade information
which the Company has acquired or will acquire at great cost and expenses.
Therefore, as an essential ingredient and consideration of this Agreement, the
Employee has entered into the Noncompete Agreement attached hereto as Exhibit A.
ARTICLE VIII
GENERAL
Section 8.01. Severability. Should any clause, portion or
section of this Agreement be unenforceable or invalid for any reason, such
unenforceability or invalidity shall not affect the enforceability of validity
of the remainder of this Agreement. Should any particular covenant in this
Agreement be held unreasonable or unenforceable for any reason, including,
-3-
<PAGE> 4
without limitation, the time period, geographical area, and scope of activity
covered by such covenant, then such covenant shall be given effect and enforced
to whatever extent would be reasonable and enforceable.
Section 8.02. Assignment; Successors in Interest. This
Agreement, being personal to the Employee, may not be assigned by him. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the Company, and the heirs, executors and
personal representatives of the Employee.
Section 8.03. Governing Law. This Agreement and the
performance of the parties under this Agreement shall be construed in accordance
with the laws of Indiana, and any action or proceeding that may be brought,
arising out of, in connection with, or by reason of this Agreement shall be
governed by the laws of Indiana, to the exclusion of the law of any other forum,
and regardless of the jurisdiction in which the action or proceeding may be
instituted.
Section 8.04. Waiver. Failure to insist upon strict compliance
with any of the terms, covenants or conditions of this Agreement shall not be
deemed a waiver of such term, covenant or condition, nor shall any waiver or
relinquishment of any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.
Section 8.05. Modification and Entire Agreement. No
modification, amendments, extension or alleged waiver of this Agreement or any
provision thereof will be binding upon the Employee or the Company unless in
writing and signed by the Employee and a duly authorized officer of the Company.
This Agreement and the June 2, 1997 letter from Robert L. Myers constitutes the
entire employment arrangement between the Employee and the Company and
supersedes and replaces any and all prior agreements and understandings, written
or oral, relative to such employment.
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first above written.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
-----------------------------------------------
Title: President
--------------------------------------------
EMPLOYEE
/s/ DONALD J. PERFETTO
--------------------------------------------------
Signature
--------------------------------------------------
Address
--------------------------------------------------
City, State, Zip
--------------------------------------------------
Social Security Number
-4-
<PAGE> 1
EXHIBIT 10-U(ii)
NONCOMPETE AGREEMENT
THIS NONCOMPETE AGREEMENT (the "Agreement") is entered into
this 1st day of March, 1999, by and between Priority Healthcare Corporation, an
Indiana corporation, (the "Company") and Donald J. Perfetto (the "Employee").
AGREEMENT
1. Employment. The parties hereto acknowledge that the
terms of the employment of the Employee by the Company are governed by an
Employment Agreement dated as of the date hereof, (the "Employment Agreement"),
by and between the Employee and the Company.
2. Restrictive Covenants. In consideration of the mutual
promises contained herein and in the Employment Agreement, Employee agrees and
promises that for a period of one year after termination of employment with the
Company for any reason other than termination by the Company without cause, in
which event the period shall be six months, employee will not, directly or
indirectly, for Employee or any other person, firm, corporation, entity or
business:
(a) Compete with Company. Own, manage, operate, control
or otherwise be in any manner affiliated or connected
with, or engage or participate in the ownership,
management, operation or control of (as principal,
agent, proprietor, partner, member, shareholder,
director, trustee, officer, administrator, employee,
consultant, independent contractor, or otherwise),
any business or entity which as one of its business
activities competes directly or indirectly with the
Company within any county in which the Company does
business; or attempt to sell, offer or provide to any
person or entity which is a customer of the Company a
product or service substantially similar to products
or services offered by the Company.
(b) Solicit Customers. Divert or take away or attempt to
divert or take away, call on or solicit or attempt to
call on or solicit any customers, potential
customers, or prospects to which goods were sold or
services were rendered by Employee while he was an
employee of the Company.
(c) Employees. Induce or influence or attempt to induce
or influence, any person who is engaged as an
employee, agent, independent contractor or otherwise
by the Company to terminate his or her employment or
engagement.
<PAGE> 2
3. Severability. The parties hereto intend that the
covenants contained in paragraph 2 shall be construed as a series of separate
covenants, one for each county in which the Company has customers. Except for
geographic coverage, each such separate covenant shall be deemed identical in
terms to the covenants contained in paragraph 2. If, in any judicial proceeding,
a court shall refuse to enforce any of the separate covenants deemed included in
this paragraph, then this unenforceable covenant shall be deemed eliminated from
these provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
4. Proprietary and Confidential Information. The parties
hereto acknowledge and agree that proprietary and confidential information means
information or material which is not generally available to or used by others
outside the Company or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details are in
the public domain. Information and material which is considered proprietary and
confidential by the Company includes, but is not limited to, the following:
(a) Information and material which relates to the
Company's purchasing, accounting, merchandising or
marketing methods;
(b) Information and material related to business plans
and methods of operations or methods of doing
business or relating to marketing plans developed or
to be developed by the Company;
(c) Customer lists, potential customers lists, prospect
lists, account lists, billing information, salesmen
reports, territory reports, pricing lists, quotation
forms, advertising or marketing materials and
techniques and lead lists;
(d) Any of the information of the type described above
which the Company obtained from another source and
which the Company treats as proprietary or designates
as confidential, whether or not owned or developed by
the Company.
5. Use of Information. Employee acknowledges and agrees
that he is in a fiduciary relationship with the Company and as a consequence of
this fiduciary relationship and the trust and confidence reposed in the Employee
by the Company, Employee will receive proprietary and confidential information
and/or trade secrets of the Company, as previously defined in this Agreement. In
partial consideration for the mutual promises contained herein, the Employee
agrees not to directly or indirectly divulge, publish, communicate, use to the
detriment of the Company, use for the benefit of any person, firm, corporation,
or business or misuse in any way any such proprietary and confidential
information and/or trade secrets either during or subsequent to employment with
the Company, whether or not conceived, originated, discovered or developed in
whole or in part by Employee.
2
<PAGE> 3
6. Availability of Injunctive Relief. The parties acknowledge
that compliance with the covenants in paragraphs 2, 4, and 5 is necessary to
protect the business, goodwill and proprietary interests of the Company. The
parties further agree that the remedy at law for breach of any of the provisions
of such covenants is inadequate and that the Company shall be entitled, in
addition to other such remedies as it may have, to injunctive relief for any
breach or threatened breach of paragraphs 2, 4, and 5 without proof of any
actual damages that may have been or may be caused to the Company by such breach
or threatened breach.
7. Assignment. Neither this Agreement nor any right or
obligation created hereunder shall be assignable or delegated by Employee.
8. Entire Agreement. This Agreement and the Employment
Agreement dated the date hereof constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede all prior
and contemporaneous agreements and understandings of the parties, and there are
no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver or continuing waiver of any other provision hereof.
9. Partial Invalidity. In the event one or more of the
provisions contained in this Agreement, or any portion of any such provisions,
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, or any portion of any such provision, but the
Agreement shall be construed as if such invalid, illegal or unenforceable
provision, or portion thereof, had never been contained herein.
10. Governing Law. This Agreement and all rights, obligations
and liabilities arising hereunder shall be construed and enforced in accordance
with the laws of the State of Indiana.
11. Titles and Headings. Titles and headings to provisions of
this Agreement are for the purpose of reference only and shall in no way limit,
define or otherwise affect the interpretation or construction of such
provisions.
12. Binding Agreement. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
on the successors and assigns of the Company.
13. No Third Parties. The provisions of this Agreement shall
not inure to the benefit of any third party who is not a signatory hereto except
as otherwise provided for in paragraph 12.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have hereto executed this
Agreement as of the day and year first written above.
PRIORITY HEALTHCARE CORPORATION
By: /s/ ROBERT L. MYERS
--------------------------------------
The "Company"
/s/ DONALD J. PERFETTO
-------------------------------------
Donald J. Perfetto
"Employee"
4
<PAGE> 1
PRIORITY HEALTHCARE CORPORATION
EXHIBIT 21 - LIST OF SUBSIDIARIES
Priority Healthcare Pharmacy, Inc. - Altamonte Springs, FL
45
<PAGE> 1
PRIORITY HEALTHCARE CORPORATION
EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-69921, 333-61479 and 333-65927) of Priority
Healthcare Corporation of our report dated February 19, 1999 appearing in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Indianapolis, Indiana
March 29, 1999
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<PERIOD-TYPE> 12-MOS
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<PERIOD-END> DEC-31-1998
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<INVENTORY> 24,387
<CURRENT-ASSETS> 99,160
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0
0
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<SALES> 275,626
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<CHANGES> 0
<NET-INCOME> 10,143
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
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