PRIORITY HEALTHCARE CORP, DEF 14A, 1999-04-06

PRIORITY HEALTHCARE CORP
DEF 14A, 1999-04-06
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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<PAGE> 1

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

PRIORITY HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:

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2) Aggregate number of securities to which transaction applies:

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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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4) Proposed maximum aggregate value of transaction:

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5) Total fee paid:

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:

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2) Form, Schedule or Registration Statement No.:

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3) Filing Party:

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4) Date Filed:

<PAGE> 2
PRIORITY HEALTHCARE CORPORATION

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 10, 1999

The annual meeting of shareholders of Priority Healthcare Corporation will
be held at SunTrust Bank Central Florida, N.A., Second Floor Tower 2 Campus
Room, 200 South Orange Avenue, Orlando, Florida, on Monday, May 10, 1999, at
11:00 a.m., Orlando time, for the following purposes:

(1) To elect three directors to serve until the 2002 annual meeting of
shareholders and until their successors are elected and have qualified;

(2) To approve the appointment of PricewaterhouseCoopers LLP as auditors
for the Company for 1999;

(3) To approve the proposed amendment to the Company's 1997 Stock Option
and Incentive Plan, which increases from 1,250,000 to 2,250,000 the number of
shares of the Company's Class B Common Stock subject to issuance under the plan;
and

(4) To transact such other business as may properly come before the
meeting.

All shareholders of record at the close of business on March 9, 1999 will
be eligible to vote.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WHETHER OR
NOT YOU EXPECT TO BE PRESENT, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY FORM IN THE ACCOMPANYING ADDRESSED, POSTAGE-PREPAID ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.

Barbara J. Luttrell, Secretary

<PAGE> 3

PRIORITY HEALTHCARE CORPORATION

285 WEST CENTRAL PARKWAY
ALTAMONTE SPRINGS, FLORIDA 32714

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS
MAY 10, 1999

This statement is being furnished to shareholders on or about April 7, 1999
in connection with a solicitation by the Board of Directors of Priority
Healthcare Corporation ("the Company") of proxies to be voted at the annual
meeting of shareholders to be held at 11:00 a.m., Orlando time, Monday, May 10,
1999, at the SunTrust Bank Central Florida, N.A., Second Floor Tower 2 Campus
Room, 200 South Orange Avenue, Orlando, Florida, for the purposes set forth in
the accompanying Notice.

The holders of record of shares of the Company's Class A Common Stock,
$0.01 par value per share ("Class A Common Stock"), and Class B Common Stock,
$0.01 par value per share ("Class B Common Stock," together with the Class A
Common Stock, "Common Stock"), outstanding at the close of business on March 9,
1999, the record date for the meeting, are entitled to vote at the meeting. On
that date, there were 5,465,497 shares of Class A Common Stock and 7,093,759
shares of Class B Common Stock outstanding and entitled to vote at the meeting.
On all matters, including the election of directors, each shareholder will have
three votes for each share of Class A Common Stock held and one vote for each
share of Class B Common Stock held. Accordingly, the Common Stock outstanding on
the record date represents an aggregate of 23,490,250 votes.

If the enclosed form of proxy is executed and returned, it may nevertheless
be revoked at any time insofar as it has not been exercised. If a shareholder
executes more than one proxy, the proxy having the latest date will revoke any
earlier proxies. A shareholder attending the meeting will be given the
opportunity to revoke his or her proxy and vote in person.

Unless revoked, a proxy will be voted at the meeting in accordance with the
instructions of the shareholder in the proxy, or, if no instructions are given,
for the election as directors of all nominees listed under Proposal 1 and for
Proposals 2 and 3. Election of directors will be determined by the vote of the
holders of a plurality of the shares voting on such election. Approval of
Proposals 2 and 3 will be subject to the vote of the holders of a greater number
of shares favoring approval than those opposing it. A proxy may indicate that
all or a portion of the shares represented by such proxy are not being voted
with respect to a specific proposal. This could occur, for example, when a
broker is not permitted to vote shares held in street name on certain proposals
in the absence of instructions from the beneficial owner. Shares that are not
voted with respect to a specific proposal will be considered as not present and
entitled to vote on such proposal, even though such shares will be considered
present for purposes of determining a quorum and voting on other proposals.
Abstentions on a specific proposal will be considered as present, but not as
voting in favor of such proposal. As a result, with respect to all of the
proposals, neither broker non-votes nor abstentions will affect the
determination of whether such proposals will be approved.

The Board of Directors knows of no matters, other than those described in
the attached Notice of Annual Meeting, which are to be brought before the
meeting. If other matters properly come before the meeting, it is the intention
of the persons named in the accompanying form of proxy to vote such proxy in
accordance with their judgment on such matters.

The cost of the solicitation of proxies will be borne by the Company.

Through December 31, 1998, Bindley Western Industries, Inc., an Indiana
corporation ("BWI"), beneficially owned all of the outstanding shares of Class A
Common Stock, and therefore it held 81.6% of the outstanding Common Stock and
93.0% of the voting power of the outstanding Common Stock. On

<PAGE> 4

December 31, 1998, BWI distributed to its shareholders all of the shares of
Class A Common Stock that it owned (the "Distribution"). As a result of the
Distribution, BWI ceased to own any shares of Common Stock of the Company.

ELECTION OF DIRECTORS

NOMINEES

The Board of Directors of the Company consists of seven directors divided
into three classes. Two classes contain two directors each, and the third class
contains three directors. The term of one class of directors expires each year.
Generally, each director serves until the annual meeting of shareholders held in
the year that is three years after such director's election and until such
director's successor is elected and has qualified.

Three directors are to be elected at the meeting, each to hold office for a
term to expire at the 2002 annual meeting of shareholders and until his
successor is elected and has qualified. It is the intention of the persons named
in the accompanying form of proxy to vote such proxy for the election to the
Board of Directors of Messrs. Robert L. Myers, Donald J. Perfetto and Richard W.
Roberson. Each of the nominees for director is presently a director. If any such
person is unable or unwilling to accept nomination or election, it is the
intention of the persons named in the accompanying form of proxy to nominate
such other person as director as they may in their discretion determine, in
which event the shares will be voted for such other person.

Unless otherwise indicated in a footnote to the following table, the
principal occupation of each director or nominee has been the same for the last
five years, and such person possesses sole voting and investment power with
respect to the shares of Class B Common Stock and Class A Common Stock indicated
as beneficially owned by such nominee. The number of shares of Class B Common
Stock shown as beneficially owned by each director includes any shares of Class
A Common Stock beneficially owned by such director, as indicated, because any
holder of shares of Class A Common Stock may request to convert any or all of
such shares into shares of Class B Common Stock at any time on a one-for-one
basis. There is no family relationship between any of the directors or executive
officers of the Company.

CLASS B COMMON STOCK CLASS A COMMON STOCK
---------------------- ----------------------
SHARES SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT
PRESENT OWNED ON OF CLASS OWNED ON OF CLASS
PRINCIPAL DIRECTOR JANUARY 31, (IF MORE JANUARY 31, (IF MORE
NAME AGE OCCUPATION SINCE 1999 THAN 1%) 1999 THAN 1%)
---- --- ---------- ----- ----------- --------- ----------- ---------
NOMINEES FOR DIRECTOR
(Nominees for three-year term to expire at the annual meeting of shareholders in 2002)

<S> <C> <C> <C> <C> <C> <C>
Robert L. Myers 53 President and Chief Executive 1997 92,558 (1) 1.3% 8,741 ---
Officer of the Company (2)

Donald J. Perfetto 52 Executive Vice President, 1999 16,217 (3) --- 50 ---
Chief Financial Officer and
Treasurer of the Company (4)

Richard W. Roberson 52 President of Sand Dollar 1997 16,738 (5) --- 0 ---
Partners, Inc. (investment
and consulting firm) (6)

</TABLE>

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<PAGE> 5
<TABLE>
<CAPTION>
CLASS B COMMON STOCK CLASS A COMMON STOCK
---------------------- ----------------------
SHARES SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT
PRESENT OWNED ON OF CLASS OWNED ON OF CLASS
PRINCIPAL DIRECTOR JANUARY 31, (IF MORE JANUARY 31, (IF MORE
NAME AGE OCCUPATION SINCE 1999 THAN 1%) 1999 THAN 1%)
---- --- ---------- ----- ----------- --------- ----------- ---------
DIRECTORS CONTINUING IN OFFICE
(Term expiring at the annual meeting of shareholders in 2000)

<S> <C> <C> <C> <C> <C> <C>
William E. Bindley 58 Chairman of the Board of the 1994 2,014,720 (7) 22.1% 2,009,720(8) 36.8%
Company; Chairman, Chief
Executive Officer and
President of BWI (9)

Rebecca M. Shanahan 45 Vice President, Managed Care 1997 2,538 (5) --- 0 ---
of the University of Chicago
Hospitals and Health Systems
(10)

(Term expiring at the annual meeting of shareholders in 2001)

Michael D. McCormick 51 Executive Vice President, 1994 88,496 (11) 1.2% 83,496 (12) 1.5%
General Counsel and Secretary
of BWI (13)

Thomas J. Salentine 59 Executive Vice President and 1994 153,451 (14) 2.1% 103,451 1.9%
Chief Financial Officer of
BWI (15)
</TABLE>

- ----------
(1) Does not include shares subject to stock options which are not
exercisable within 60 days. Includes 8,741 shares of Class A Common Stock
and presently exercisable stock options to purchase 55,167 shares of
Class B Common Stock granted under the Company's 1997 Stock Option and
Incentive Plan.

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

(3) Does not include shares subject to stock options which are not
exercisable within 60 days. Includes 50 shares of Class A Common Stock.
Also includes presently exercisable stock options to purchase 14,167
shares of Class B Common Stock granted under the Company's 1997 Stock
Option and Incentive Plan.

(4) Prior to joining the Company in June 1997, and since 1986, Mr. Perfetto
was employed by Bimeco, Inc., a distributor of medical products. During
such time, Mr. Perfetto held the positions of vice president of finance
and operations and secretary/treasurer of Bimeco, Inc.

(5) Includes presently exercisable stock options to purchase 1,000 shares of
Class B Common Stock granted under the Company's Outside Directors Stock
Option Plan.

(6) From March 1993 to September 1996, Mr. Roberson served as president and
chief executive officer of Visionworks, Inc., a retail superstore optical
chain. Mr. Roberson is also a director of C. H. Heist Corporation, an
industrial cleaning and maintenance company.

(7) Includes 2,009,720 shares of Class A Common Stock (see footnote 8 below
for a description of the manner by which certain of such shares of Class
A Common Stock are held). Excludes 3,503 shares of Class A Common Stock
and 2,000 shares of Class B Common Stock held by Mr. Bindley's spouse;
Mr. Bindley disclaims beneficial ownership of such shares.

(8) Includes 28,925 shares of Class A Common Stock held by two family
foundations and 25,834 shares of Class A Common Stock held by a
charitable remainder trust of which Mr. Bindley is the trustee and has
investment control. Excludes 3,503 shares of Class A Common Stock held by
Mr. Bindley's spouse; Mr. Bindley disclaims beneficial ownership of such
shares.

(9) Mr. Bindley also serves on the Board of Directors of BWI and of Shoe
Carnival, Inc., a shoe retailer. Mr. Bindley was the Chief Executive
Officer of the Company from July 1994 until May 1997 and the President of
the Company from May 1996 until July 1996.

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<PAGE> 6

(10) From December 1996 to September 1997, Ms. Shanahan performed legal and
consulting services as an independent contractor for various entities in
the health care industry. From 1991 until December 1996, she held executive
officer positions with Methodist Medical Group and Beltway Services, a
600-member physician practice group affiliated with Methodist Hospital in
Indianapolis, Indiana, with her latest position being senior vice president
and chief operating officer.

(11) Includes 83,496 shares of Class A Common Stock (see footnote 12 below for a
description of the manner by which certain of such shares of Class A Common
Stock are held).

(12) Includes 1,326 shares held in a family foundation.

(13) Mr. McCormick also serves on the Board of Directors of BWI.

(14) Includes 103,451 shares of Class A Common Stock.

(15) Mr. Salentine also serves on the Board of Directors of BWI.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.

MEETINGS AND COMMITTEES

During 1998, the Board of Directors of the Company held four meetings.
During the period in 1998 for which he or she served as a director, no director
attended fewer than 75% of the total meetings of the Board of Directors and each
committee on which he or she served. The Board of Directors does not have a
nominating committee. The Board of Directors has a Compensation Committee, which
consists of Mr. Roberson and Ms. Shanahan. The primary functions of the
Compensation Committee are to consider and recommend overall compensation
programs, to review and approve compensation payable to management and to
administer all executive compensation and stock option plans of the Company. The
Compensation Committee met four times during 1998.

The Board of Directors of the Company has an Audit, Ethics and Compliance
Committee (the "Audit Committee"), the current members of which are Mr. Roberson
and Ms. Shanahan. The functions of the Audit Committee are to meet with the
independent accountants of the Company, to review the audit plan for the
Company, to review the annual audit of the Company with the accountants together
with any other reports or recommendations made by the accountants, to recommend
whether the accountants should be continued as auditors for the Company and, if
others are to be selected, to recommend those to be selected, to meet with the
chief accounting officer for the Company and to review with him and the
accountants for the Company the adequacy of the Company's internal controls, to
review related party transactions, to monitor corporate policies and procedures
with respect to the Company's ethics and compliance program and to perform such
other duties as shall be delegated to the Audit Committee by the Board of
Directors. The Audit Committee met four times during 1998.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of Common
Stock, to file reports of ownership with the Securities and Exchange Commission.
Such persons also are required to furnish the Company with copies of all Section
16(a) forms they file.

Based solely on its review of copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during 1998, all filing
requirements applicable to its executive officers, directors, and greater than
10% shareholders were complied with.

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<PAGE> 7
EXECUTIVE OFFICERS

As used throughout this Proxy Statement, the term "executive officers"
refers to William E. Bindley, Chairman of the Board, Robert L. Myers, President
and Chief Executive Officer, Guy F. Bryant, Executive Vice President - Priority
Healthcare Distribution, Steven D. Cosler, Executive Vice President - Priority
Pharmacy Services, Donald J. Perfetto, Executive Vice President, Chief Financial
Officer and Treasurer, Melissa E. McIntyre, Vice President - Clinical Services,
Barbara J. Luttrell, Vice President - Administration and William M. Woodard,
Vice President - Strategic Alliances.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

SUMMARY COMPENSATION TABLE

The following table sets forth certain information regarding compensation
paid during each of the Company's last three years to the Company's Chief
Executive Officer and to each of the Company's four other most highly
compensated executive officers, based on salary and bonus earned during 1998
(the "Named Executive Officers").
<TABLE>
<CAPTION>

Long Term
Annual Compensation Compensation
------------------- ------------
Awards
------
Name and Principal Year Salary Bonus (1) Securities All Other
Position ---- ------ --------- Underlying Compensation
------------------ Options (2) ------------
-----------
<S> <C> <C> <C> <C> <C>
Robert L. Myers
President and 1998 $ 262,620 $ 275,000 100,000 $ 21,592 (3)
Chief Executive Officer (4) 1997 233,450 200,000 100,000 21,236
1996 105,000 130,000 50,000 121

Steven D. Cosler 1998 $ 163,654 $ 83,161 40,000 $ 12,861 (5)
Executive Vice President-Priority 1997 152,004 65,000 46,000 12,896
Pharmacy Services (6) 1996 --- --- --- ---

Guy F. Bryant 1998 $ 149,738 $ 58,208 40,000 $ 12,929 (7)
Executive Vice President-Priority 1997 138,400 77,723 46,000 12,996
Healthcare Distribution 1996 125,735 55,500 15,000 11,861

Donald J. Perfetto 1998 $ 122,308 $ 68,439 40,000 $ 12,800 (8)
Executive Vice President, Chief 1997 55,000 40,000 36,000 ---
Financial Officer and Treasurer (9) 1996 --- --- --- ---

Melissa E. McIntyre 1998 $ 127,200 $ 56,972 15,000 $ 12,924 (10)
Vice President-Clinical Services 1997 125,234 51,839 40,000 12,993
1996 110,923 55,500 15,000 12,080
</TABLE>
- ---------------

(1) Reflects bonus earned during the specified year, which bonuses at times
have been paid in the following year.

(2) Includes options to acquire shares of Class B Common Stock of the Company
(for awards made in 1998 and 1997) and options to acquire shares of BWI
common stock (for awards made in 1996). The Company and BWI have no SAR
plan and did not grant restricted stock awards to the Named Executive
Officers.

(3) Consists of $12,800 in Company contributions to BWI's qualified profit
sharing plan (the "BWI Profit Sharing Plan"), $8,586 in Company
contributions to BWI's profit sharing excess plan and $206 in group life
insurance premiums.

(4) Mr. Myers joined the Company in July 1996 and became the Chief Executive
Officer of the Company in May 1997. The amounts disclosed in the table do
not include consulting fees paid to Mr. Myers prior to his being employed
by the Company in 1996 of $50,547, the majority of which was paid in the
form of shares of common stock of BWI.

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<PAGE> 8
(5) Consists of $12,800 in Company contributions to the BWI Profit Sharing Plan
and $61 in group life insurance premiums.

(6) Mr. Cosler began serving as Executive Vice President-Priority Pharmacy
Services in August 1997.

(7) Consists of $12,800 in Company contributions to the BWI Profit Sharing Plan
and $129 in group life insurance premiums.

(8) Consists of $12,800 in Company contributions to the BWI Profit Sharing
Plan.

(9) Mr. Perfetto joined the Company in June 1997.

(10) Consists of $12,800 in Company contributions to the BWI Profit Sharing Plan
and $124 in group life insurance premiums.

EMPLOYMENT AGREEMENTS AND TERMINATION BENEFITS AGREEMENTS

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

The Termination Benefits Agreement provides for payments to Mr. Myers upon
the occurrence of certain events. The Termination Benefits Agreement has an
initial term through December 31, 1998 and is automatically extended annually
for an additional one-year period unless notice is given by the Company or Mr.
Myers. The Termination Benefits Agreement is designed to protect Mr. Myers
against termination of his employment following a "Change in Control" of the
Company. For purposes of the Termination Benefits Agreement, "Change in Control"
is broadly defined to include, among other things, the acquisition by a person
or group of persons of 25% or more of the combined voting power of the stock of
the Company (other than the Distribution), the replacement of a majority of the
current Board of Directors, the approval by the shareholders of the Company of a
reorganization, merger or consolidation, or the approval by shareholders of a
liquidation or dissolution of the Company or the sale or disposition of all or
substantially all of the assets of the Company.

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

In addition, Mr. Myers is entitled to the benefits of the Termination
Benefits Agreement if, after a "Change in Control," he terminates his employment
with the Company within three years in response to certain actions by the
Company which include, among other things, a substantial reduction in his duties
or responsibilities, a reduction in the level of salary payable to him, the
failure by the Company to continue to provide him with benefits substantially
similar to those previously provided to him, the required relocation of Mr.
Myers, or the breach by the Company of any of the provisions of the Termination
Benefits Agreement.

Upon termination of employment, if Mr. Myers is entitled to the benefits
payable under the Termination Benefits Agreement, he shall receive within 30
days following the termination all earned but unpaid salary, bonus and incentive
payments through the date of his termination. In addition, he shall be entitled
to a lump-sum payment of an amount equal to 2.9 times his average annual
compensation paid by the Company for the past five years. Any lump sum payment
will be grossed up in an amount sufficient to cover any excise tax imposed upon
such payment pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code").

On June 1, 1997, the Company entered into an employment agreement with each
of Mr. Bryant, Mr. Cosler and Ms. McIntyre. The Company also entered into an
employment agreement with Mr. Perfetto on June 23, 1997. Each of the agreements
was for a term to expire on February 28, 1999. Under the terms of these
agreements, Mr. Bryant, Mr. Cosler, Ms. McIntyre and Mr. Perfetto were entitled
to receive base salaries of $11,050 per month, $12,283 per month, $10,600 per
month and $9,167 per month, respectively, subject to annual review for potential
increase. The employment agreements provided that the officers were

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<PAGE> 9
eligible to receive an annual bonus based on individual and Company performance,
up to 60% of annualized monthly salary for Mr. Bryant, Mr. Cosler or Ms.
McIntyre, as the case may be, and up to 48% of annualized monthly salary for Mr.
Perfetto. Effective March 1, 1999, the Company entered into new employment
agreements with each of Messrs. Bryant, Cosler and Perfetto, for a term to
expire on February 28, 2000. Pursuant to these employment agreements, Messrs.
Bryant, Cosler and Perfetto are entitled to receive base salaries of $12,916,
$14,166 and $12,500 per month, respectively. These employment agreements provide
that such officers are eligible to receive an annual bonus based on individual
and Company performance, up to 60% of annualized monthly salary. Pursuant to all
of the employment agreements described above, if the Company terminates the
officer without cause prior to the expiration of the employment agreement, the
Company shall pay to such individual the aggregate amount of regular
compensation that he or she would be entitled to receive under the agreement for
a six-month period.

The Company also entered into a non-compete agreement with each of Mr.
Bryant, Mr. Cosler and Ms. McIntyre on June 1, 1997 and with Mr. Perfetto on
June 23, 1997. The Company entered into new non-compete agreements with each of
Messrs. Bryant, Cosler and Perfetto on March 1, 1999. These non-compete
agreements contain confidentiality provisions and provide that, for one year
after termination of employment with the Company for any reason other than
termination by the Company without cause, in which event the period shall be six
months, the officer may not compete with the Company, solicit the Company's
customers or induce the Company's employees to terminate their employment.

COMPENSATION OF DIRECTORS

During 1998, the Company paid directors who are not employees of the
Company or BWI an annual retainer of $15,000 and a fee of $1,000 for each Board
meeting or committee meeting attended (or $500 for each committee meeting held
in conjunction with a Board meeting). The annual retainer is paid 50% in cash
and 50% in the form of shares of Class B Common Stock, valued at 100% of the
fair market value of such shares on the date of grant. Such shares are not
registered and are subject to the resale limitations of Rule 144 of the
Securities Act of 1933, as amended. Directors who are full-time employees of the
Company or BWI do not receive any additional compensation for serving as
directors or for attending meetings, but all directors are reimbursed for all
reasonable out-of-pocket expenses incurred in connection with attendance at
meetings.

On August 25, 1997, the Board of Directors and the then sole shareholder
adopted an Outside Directors Stock Option Plan (the "Directors Plan"). Pursuant
to the Directors Plan, each Eligible Director (as defined therein) is
automatically granted an option to purchase 1,000 shares of Class B Common Stock
on June 1 of each year beginning in 1998. The Directors Plan reserves for
issuance 25,000 shares of the Company's Class B Common Stock, subject to
adjustment in certain events. The option exercise price per share is equal to
the fair market value of one share of Class B Common Stock on the date of grant.
Each option becomes exercisable six months following the date of grant and
expires ten years following the date of grant. Subject to certain exceptions,
options may be exercised by the holder only if he or she has been in continuous
service on the Board of Directors at all times since the grant of the option.
There are currently four Eligible Directors - Messrs. McCormick, Roberson and
Salentine, and Ms. Shanahan. The Eligible Directors are not currently eligible
for grants or awards under any other stock, bonus or benefit plans of the
Company.

PROFIT SHARING PLAN

During 1998, the Company's eligible employees participated in the BWI
Profit Sharing Plan. All employees were generally eligible to participate in the
BWI Profit Sharing Plan as of the first January 1, April 1, July 1 or October 1
after having completed at least one year of service (as defined in the BWI
Profit Sharing Plan) and having reached age 21.

The annual contribution of the Company to the BWI Profit Sharing Plan was
at the discretion of the Board of Directors of BWI and was generally 8% of a
participant's compensation for the year. The employer contribution for a year
was allocated among participants employed on the last day of the year in
proportion

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<PAGE> 10

to their relative compensation for the year. Subject to limitations imposed by
the Code, a participant may, in addition to receiving a share of the employer
contribution, have a percentage of his or her compensation withheld from pay and
contributed to the BWI Profit Sharing Plan. Subject to applicable Code
requirements, employees may make "rollover" contributions to the BWI Profit
Sharing Plan of qualifying distributions from other employers' qualified plans.

In connection with the Distribution, and effective January 1, 1999, the
Company established the Profit Sharing Plan of Priority Healthcare Corporation
and Affiliates (the "Company Profit Sharing Plan"). As a result, employees of
the Company are no longer eligible to participate in the BWI Profit Sharing
Plan. All assets in the BWI Profit Sharing Plan relating to the Company's
employees were transferred to Company Profit Sharing Plan. All Company employees
are generally eligible to participate in the Company 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 Company Profit Sharing Plan) and
having reached age 21.

The annual contribution of the Company to the Company Profit Sharing Plan
is at the discretion of the Board of Directors. The employer contribution for a
year is allocated among participants employed on the last day of the year in
proportion to their relative compensation for the year. Subject to limitations
imposed by the Code, a participant may, in addition to receiving a share of the
employer contribution, have a percentage of his or her compensation withheld
from pay and contributed to the Company Profit Sharing Plan. Subject to
applicable Code requirements, employees may make "rollover" contributions to the
Company Profit Sharing Plan of qualifying distributions from other employers'
qualified plans.

NONQUALIFIED DEFERRED COMPENSATION ARRANGEMENT

Effective January 1, 1999, the Company established the Priority Healthcare
Corporation 401(k) Excess Plan (the "Excess Plan"), which is a non-qualified
deferred compensation plan for a select group of executive employees. Messrs.
Myers, Cosler, Bryant and Perfetto are currently eligible to participate in the
Excess Plan. The Excess Plan is designed to permit the eligible executives
voluntarily to defer portions of their pre-tax salary and bonus beyond what they
can defer under the 401(k) feature of the Company Profit Sharing Plan. Under the
Excess Plan, an eligible executive can elect to defer up to 100% of those
portions of his salary and bonus that he is not able to defer under the Company
Profit Sharing Plan.

Before the beginning of each year, the executive must decide the total
deferral he wants to make for the year and elect to have that deferral made
under the Excess Plan. Once the plan administrator of the Company Profit Sharing
Plan determines how much the executive can defer under the Company Profit
Sharing Plan's 401(k) feature for a year without exceeding Internal Revenue Code
limits, then that amount will be transferred from the Excess Plan to the
executive's Company Profit Sharing Plan 401(k) account.

Amounts credited to an executive's account under the Excess Plan are
credited with investment earnings or losses based on an investment option or
options that the executive elects (at the time he makes his deferral election
for a year) to serve as the measure of the investment earnings and losses on the
executive's deferrals for the year. The executive may select from among the
options available under the Company Profit Sharing Plan. Under the Excess Plan,
a participating executive, at the time he makes his deferral election, may
choose the form in which his benefits attributable to those deferrals will be
paid to him or his beneficiary upon his retirement or death. The three options
available are a single lump sum payment, quarterly installment payments for a
specified period of up to 15 years and annual installment payments over a
specified period of up to 15 years.

The Excess Plan also provides benefits for Mr. Myers which were formerly
provided under the Bindley Western Industries, Inc. Profit Sharing Excess Plan
and the Bindley Western Industries, Inc. 401(k) Excess Plan. The benefits Mr.
Myers accrued under those plans have been transferred from those plans and
credited to his account under the Excess Plan.

-8-
<PAGE> 11

STOCK OPTIONS

On August 25, 1997, the Company's Board of Directors and the then sole
shareholder adopted the 1997 Stock Option and Incentive Plan (the "1997 Stock
Option Plan"). On May 21, 1998, the shareholders of the Company approved the
adoption of the 1997 Stock Option Plan at the 1998 annual meeting of
shareholders. The 1997 Stock Option Plan reserves for issuance 1,250,000 shares
of the Company's Class B Common Stock, subject to adjustment in certain events.
The 1997 Stock Option Plan provides for the grant to officers, key employees and
consultants of the Company of options to purchase shares of Class B Common Stock
and restricted shares of Class B Common Stock. Stock options granted under the
1997 Stock Option Plan may be either options intended to qualify for federal
income tax purposes as "incentive stock options" or options not qualifying for
favorable tax treatment ("nonqualified stock options"). No individual
participant may receive awards for more than 300,000 shares in any calendar
year.

The Company's Board of Directors has proposed to amend the 1997 Stock
Option Plan. For a description of the proposed amendment, see "Approval of
Amendment to the Company's 1997 Stock Option and Incentive Plan."

On September 15, 1998, the Company's Board of Directors adopted 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 Broad Based Plan provides for the grant to
employees, other than officers and directors of the Company, of options to
purchase shares of Class B Common Stock. All options granted under the Broad
Based Plan are nonqualified stock options. No individual participant may receive
awards for more than 40,000 shares in any calendar year.

The following table sets forth information with respect to options granted
by the Company under the 1997 Stock Option Plan to the Named Executive Officers
during 1998.
<TABLE>
<CAPTION>

OPTION GRANTS IN LAST FISCAL YEAR

Individual Grants Grant Date Value
--------------------------------------------------------- ----------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Grant Date
Name Granted Fiscal Year Price Expiration Date Present Value (1)
- --------------------- ----------- ------------- --------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Robert L. Myers 100,000(2) 18.8% $13.875 February 24, 2008 $ 763,000(3)

Steven D. Cosler 5,000(4) 0.9% 20.00 September 15, 2008 47,350(5)
35,000(6) 6.6% 20.00 September 15, 2008 373,100(7)
Guy F. Bryant 5,000(4) 0.9% 20.00 September 15, 2008 47,350(5)
35,000(6) 6.6% 20.00 September 15, 2008 373,100(7)
Donald J. Perfetto 5,000(4) 0.9% 20.00 September 15, 2008 47,350(5)
35,000(6) 6.6% 20.00 September 15, 2008 373,100(7)
Melissa E. McIntyre 5,000(4) 0.9% 20.00 September 15, 2008 47,350(5)
10,000(6) 1.9% 20.00 September 15, 2008 106,600(7)

</TABLE>
- ---------------

(1) The Company does not believe that the Black-Scholes model or any other
valuation model is a reliable method of computing the present value of the
Company's employee stock options. The value ultimately realized, if any,
will depend on the amount by which the market price of the stock exceeds
the exercise price on the date of exercise. The grant date present value
calculation uses an expected option term based on past experience, rather
than the contract term of the options. The use of an expected term produces
a valuation adjustment for non-transferability of the options. There have
been no adjustments made for risk of forfeiture of the options.

(2) Nonqualified stock options to purchase Class B Common Stock granted at 100%
of the fair market value of the stock on the date of grant. The options are
exercisable at the rate of 25% per year, beginning February 24, 1999.

-9-
<PAGE> 12
(3) The grant date present value is based on a Black-Scholes model and assumes
a risk-free rate of return of 5.7%, an expected term of five years, a
dividend yield of 0.0% and a stock volatility of 56.90%.

(4) Incentive stock options to purchase Class B Common Stock granted at 100% of
the fair market value of the stock on the date of grant. The options are
exercisable in full on or after January 1, 2000.

(5) The grant date present value is based on a Black-Scholes model and assumes
a risk-free rate of return of 4.8%, an expected term of four years, a
dividend yield of 0.0% and a stock volatility of 54.97%.

(6) Nonqualified stock options to purchase Class B Common Stock granted at 100%
of the fair market value of the stock on the date of grant. The options are
exercisable at the rate of 25% per year, beginning January 1, 2000.

(7) The grant date present value is based on a Black-Scholes model and assumes
a risk-free rate of return of 4.83%, an expected term of five years, a
dividend yield of 0.0% and a stock volatility of 56.06%.

The following table sets forth information with respect to the exercise of
options to acquire Class B Common Stock by the Named Executive Officers during
1998.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End (1)
Acquired on Value ----------------------------- -----------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Myers --- --- 0 227,563 $0 $8,595,459
Steven D. Cosler --- --- 0 94,715 0 3,317,696
Guy F. Bryant --- --- 0 94,801 0 3,322,288
Donald J. Perfetto --- --- 0 81,299 0 2,797,676
Melissa E. McIntyre --- --- 0 63,723 0 2,301,202
</TABLE>

- --------------
(1) The closing price for the Company's Class B Common Stock as reported by the
Nasdaq National Market System on December 31, 1998 was $51.875. The value
is calculated on the basis of the difference between the Class B Common
Stock option exercise price and $51.875, multiplied by the number of
"In-the-Money" shares of Class B Common Stock underlying the option.

-10-
<PAGE> 13
The following table sets forth information with respect to the exercise of
options to acquire BWI common stock by the Named Executive Officers during 1998.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End (2)
Shares -------------------------- ----------------------
Acquired on Value
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Myers 37,633 $ 1,012,581 0 0 $0 $0
Steven D. Cosler 12,589 293,351 2,650 0 111,364 0
Guy F. Bryant 24,438 598,889 11,918 0 502,213 0
Donald J. Perfetto 7,752 155,282 0 0 0 0
Melissa E. McIntyre 24,145 600,026 0 0 0 0
</TABLE>

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

(1) The value is calculated based on the difference between the option exercise
price and the closing market price of the BWI common stock on the date of
exercise, multiplied by the number of shares to which the exercise relates.

(2) The closing price for BWI's common stock as reported by the New York Stock
Exchange on December 31, 1998 was $49.25. The value is calculated on the
basis of the difference between the BWI common stock option exercise price
and $49.25, multiplied by the number of "In-the-Money" shares of BWI common
stock underlying the option.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee's practice with respect to executive
compensation has been to: (a) conduct annual merit reviews for individuals
throughout the year; (b) grant stock options in the fall of each year or such
other times as deemed advisable by the Compensation Committee; and (c) approve
annual bonuses payable, in whole or in part, during the following March. The
Compensation Committee applied the criteria discussed below to the 1998 annual
merit reviews and the 1998 annual bonus amounts for the executive officers.

Executive Compensation Policy

The Company's compensation policy is designed to: (a) be competitive so
that the Company can attract, reward, and retain the quality talent that is
essential to its continued success; (b) motivate key employees through the use
of incentive compensation programs, including annual bonuses and stock option
grants; (c) treat employees fairly and, at the same time, be cost effective; (d)
foster teamwork within the Company so that employees share in the rewards and
risks of the Company; (e) offer executive officers the opportunity to achieve
significant levels of ownership in the Company's stock so that their interests
will be aligned with those of its shareholders; and (f) assure that executive
officers' compensation will be tax deductible to the maximum extent permissible.
Consistent with this policy, the compensation of executive officers has been and
will be related in substantial part to Company performance. Compensation for
executive officers consists of base salary, bonuses and stock option grants.

Cash Based Compensation

Base Compensation. In making compensation decisions, the Compensation
Committee's subjective review process primarily includes: (a) an analysis of
executive compensation levels within the specialty distribution and health care
services industry at other publicly-traded companies of comparable size and
stature by reviewing proxy statements and national compensation surveys and
reports; (b) individual efforts and accomplishments within the Company, the
industry, and the community; (c) management experience and development; (d) team
building skills consistent with the Company's best interests; (e) base

-11-
<PAGE> 14
compensation paid to other executive officers within the Company; and (f)
observance of the Company's ethics and compliance program. Base compensation for
1998 was established for the executive officers after a merit review was
conducted by the CEO.

Annual Bonus. A portion of the cash compensation of the executive officers
(and some other salaried employees) consists of annual bonus payments under the
Company's bonus program. Allocation of the bonuses to the executive officers
(other than the CEO) is based on recommendations made by the CEO to the
Compensation Committee. Bonus amounts to non-executive officers are generally
based on recommendations made by the Company's executive officers.

The Compensation Committee gives consideration to the Company's overall
performance and the executive officer's performance for the specific areas of
the Company under his or her direct control. This balance supports
accomplishment of overall objectives and rewards individual contributions by the
executive officers. The 1998 annual bonuses were approved by the Compensation
Committee after receiving input from the CEO based upon the subjective criteria
used for establishing base compensation as set forth above.

On March 26, 1998, the Compensation Committee adopted the following
performance standards to be used for purposes of establishing annual bonuses:
(a) sales; (b) net earnings; and (c) individual performance criteria. The
Compensation Committee deems such financial goals to be a valid measure of
performance within the specialty distribution and health care services industry
and consistent with the Company's best interests. Discretionary adjustments by
the Compensation Committee are possible should unforeseen or uncontrollable
events occur during the course of the year.

The Compensation Committee's intent is to make the executive officers'
total cash compensation package (base compensation plus annual bonus)
competitive with other publicly-traded companies of comparable size and stature
within the specialty distribution and health care services industry, based on
its analysis of total cash compensation for similar executive officers within
the industry.

Equity Based Compensation

The Compensation Committee believes that equity compensation, in the form
of stock options, is an important element of performance based compensation of
executive officers. By granting stock options, the Compensation Committee will
continue the Company's practice of increasing key employees' equity ownership in
order to ensure that their interests remain closely aligned with those of the
Company's shareholders. Stock options and equity ownership in the Company
provide a direct link between executive compensation and shareholder value.
Stock options also create an incentive for key employees to remain with the
Company for the long term because the options are not immediately exercisable
and, if not exercised, are in most cases forfeited if the employee leaves the
Company before retirement.

Consistent with the above philosophy, the Compensation Committee, based on
input from the CEO, approved the granting of stock options to 32 key employees
on September 15, 1998, and to other employees as they joined the Company during
the year. For the executive officers (other than the CEO) the Compensation
Committee considered: (a) the CEO's input; (b) subjective criteria with respect
to individual performance, including individual efforts and accomplishments,
experience, and team building skills; and (c) the relative number of stock
option grants to other executive officers within the Company.

Compensation of Robert L. Myers, President and Chief Executive Officer

Mr. Myers' cash compensation is based on the same factors as the other
executive officers. The Compensation Committee's decision to increase Mr. Myers'
cash compensation (base compensation plus annual bonus) was based on the
subjective criteria previously set forth in this report in the discussion with
respect to cash compensation.

-12-
<PAGE> 15

Since the approval of the 1997 Stock Option Plan, Mr. Myers has also
participated in the Company's equity based compensation program. By employing
the subjective criteria previously set forth in the discussion with respect to
cash and equity based compensation, the Compensation Committee granted to Mr.
Myers the stock options shown in the Option Grants In Last Fiscal Year table set
forth under "Compensation of Executive Officers and Directors--Stock Options."

It is the Compensation Committee's view that Mr. Myers' total compensation
package for 1998 was based on an appropriate balance of: (a) individual
performance; (b) Company performance; and (c) other CEO compensation packages
within the specialty distribution and health care services industry. The
Compensation Committee points out that the companies used for evaluation of
competitive compensation may not, in all cases, be the same as those companies
comprising the industry peer group described under "Compensation of Executive
Officers and Directors--Performance Graph."

Compensation Committee

Richard W. Roberson
Rebecca M. Shanahan

-13-
<PAGE> 16

PERFORMANCE GRAPH

The performance graph set forth below compares the cumulative total
shareholder return on the Company's Class B Common Stock with the Nasdaq Market
Index and with peer industries within SIC Code 5122 (Drugs, Drug Proprietaries
and Druggists' Sundries) for the period from October 24, 1997 through December
31, 1998. The Company's Class B Common Stock commenced trading on the Nasdaq
National Market System on October 24, 1997.

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
NASDAQ MARKET INDEX AND INDEX OF COMPANIES IN SIC 5122

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------

October 24, 1997 December 31, 1997 December 31, 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nasdaq Stock Market 100.00 98.77 139.30
- -------------------------------------------------------------------------------------------------
SIC 5122 Companies 100.00 102.35 140.93
- -------------------------------------------------------------------------------------------------
Priority Healthcare Corporation 100.00 104.34 357.79
- -------------------------------------------------------------------------------------------------

</TABLE>

[GRAPH]

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that may incorporate future filings (including
this Proxy Statement, in whole or in part), the preceding Compensation Committee
Report on Executive Compensation and the stock price Performance Graph shall not
be incorporated by reference in any such filings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

On October 29, 1997, the Board of Directors established the Compensation
Committee to approve compensation and stock option grants for the Company's
executive officers. The Compensation Committee members during 1998 were Mr.
Roberson and Ms. Shanahan. None of the Compensation Committee members are
involved in a relationship requiring disclosure as an interlocking executive
officer/director or under Item 404 of Regulation S-K or as a former officer or
employee of the Company.

-14-
<PAGE> 17
CERTAIN TRANSACTIONS

RELATIONSHIP AND TRANSACTIONS WITH FORMER SHAREHOLDER

The Company was incorporated in June 1994 as a wholly owned subsidiary of
BWI to operate the alternate site healthcare businesses acquired by BWI. On
August 25, 1997, the Company effected a recapitalization, whereby all of the
Company's outstanding shares of Common Stock were converted into 10,214,286
shares of Class A Common Stock, all of which were owned by BWI until December
31, 1998, when all of such shares were distributed to BWI's shareholders.
Following the initial public offering of the Class B Common Stock in October
1997 until December 31, 1998, BWI beneficially owned 81.6% of the outstanding
shares of Common Stock of the Company. Three of the seven members of the
Company's Board of Directors (Messrs. Bindley, McCormick and Salentine) are
directors and executive officers of BWI. Mr. Bindley is also a significant
shareholder of BWI.

Set forth below are descriptions of certain services provided by BWI to the
Company and certain agreements between the Company and BWI.

Distribution Agreement. In connection with the Distribution, the Company
and BWI entered into a Distribution Agreement (the "Distribution Agreement").
The Distribution Agreement contains a number of provisions relating to the
mechanics of the Distribution and the arrangements between the Company and BWI
subsequent to the Distribution.

The Distribution Agreement contains provisions regarding the ability of the
Company's employees to surrender any options to purchase BWI common stock held
by an employee of the Company on the date of the Distribution (the "Distribution
Date") in exchange for an option to purchase the Company's Class B Common Stock.
The number of shares of the Company's Class B Common Stock subject to and the
exercise price of such exchanged option was determined in accordance with the
requirements of Section 424 of the Code.

The Distribution Agreement provides that after the Distribution Date,
employees of the Company will no longer be eligible to participate in the BWI
Profit Sharing Plan. Pursuant to the Distribution Agreement, the Company
established the Company Profit Sharing Plan. See "Compensation of Executive
Officers and Directors--Profit Sharing Plan." All assets in the BWI Profit
Sharing Plan relating to Company employees were transferred to the Company
Profit Sharing Plan. The Company Profit Sharing Plan includes a fund which
invests in Class B Common Stock, and also provides for a fund which invests in
BWI's common stock into which any such common stock held by Company employees
under the BWI Profit Sharing Plan was transferred, but no future investments in
BWI's common stock may be made under the Company Profit Sharing Plan.

The Distribution Agreement provides that, except as otherwise provided in
the Tax Sharing Agreement, the Administrative Services Agreement and the
Indemnification and Hold Harmless Agreement between the Company and BWI (see
descriptions of each below), the Company will pay, perform and discharge all
obligations, liabilities and losses relating to, and will indemnify and hold
harmless BWI from and against, all contracts, agreements, undertakings,
liabilities, claims, suits and disputes arising out of or relating to the
Company, its subsidiaries and the Company's business, assets, liabilities,
operations, occupancies and employee benefit and other plans. In addition, BWI
will indemnify and hold harmless the Company against all losses, liabilities,
claims and damages in any way arising out of BWI, its subsidiaries (other than
the Company and the Company's subsidiaries) and BWI's business, assets,
liabilities, operations, occupancies and employee benefit and other plans. The
Distribution Agreement also provides that each of BWI and the Company will
waive, release, forever discharge and forever be barred from asserting against
the other and the other's executives all claims, suits, disputes, violations,
losses, liabilities and damages that each may have against the other for events,
acts or omissions occurring or taken on or prior to the Distribution Date.

Administrative Services. During 1998, BWI provided management and
consulting services to the Company pursuant to an Administrative Services
Agreement (the "Services Agreement") between BWI and

-15-
<PAGE> 18
the Company. The services covered by the Services Agreement include
administrative services for employee benefits and risk management, legal, tax
and treasury services. During 1998, the Company was charged a total of $65,000
for management and administrative services rendered by BWI to the Company. This
amount was based on an allocation of the actual services rendered by BWI.

BWI Profit Sharing Plan. During 1998, the Company's eligible employees
participated in BWI's Profit Sharing Plan. See "Compensation of Executive
Officers and Directors--Profit Sharing Plan." The Company's contribution for
Company employees for 1998 was $273,617.

Insurance Coverage. During 1998, the Company was provided coverage under
the BWI insurance plans. The expenses of these plans were charged to the Company
based on a combination of a pro rata allocation and the push-down of actual
expenses incurred, depending on the type of expenditure. The insurance expense
allocated to the Company was $163,000 for 1998.

Purchase of Inventory. During 1998, the Company purchased inventory from
BWI at the price paid by BWI for such inventory. Such purchases of inventory
from BWI aggregated $3.7 million in 1998.

Dividend Note. On March 31, 1997, the Company paid a dividend to BWI in the
form of a subordinated promissory note with a principal amount of $6.0 million
(the "Dividend Note"). The Dividend Note bore interest at the rate of 7.25% per
annum. Interest on the Dividend Note was payable by the Company on a quarterly
basis, with the principal amount due on March 31, 1999. The dividend returned a
portion of BWI's equity investment in the Company. During 1998, the Company paid
BWI $326,000 in interest on the Dividend Note. The Company paid the Dividend
Note in full on September 30, 1998.

Lendings. Since the Offering, the Company has loaned funds to BWI. The
largest amount outstanding during 1998 relating to this loan was approximately
$24.8 million. The average incremental borrowing rate applied to the loan was
6.3%. As of March 19, 1999, the amount outstanding under this loan was
approximately $12.9 million.

Tax Sharing Agreement. Prior to the Distribution, the results of operations
of the Company and its domestic subsidiaries that are at least 80% owned by the
Company (the "Company Group") were included in BWI's consolidated federal income
tax returns and in BWI's consolidated or combined state tax returns. In 1997,
BWI and the Company entered into a Tax Sharing Agreement that provides, among
other things, for the allocation between BWI and the Company of federal, state,
local and foreign tax liabilities for all periods through the Distribution Date.
Generally, the Company will be responsible for the portion of any tax
deficiencies of BWI assessed with respect to all periods up to and including the
Distribution Date that give rise to a tax benefit to the Company in a
post-Distribution period. The Company will also be entitled to tax refunds
received by BWI that result in a tax detriment to the Company for those
post-Distribution periods. The Company will also be responsible for all income
taxes imposed on the Company Group during the taxable period beginning on
January 1, 1998 and ending on or before the Distribution Date. Furthermore, the
Tax Sharing Agreement provides that, if the Distribution fails to qualify as a
tax-free distribution as a result of any event occurring prior to the second
anniversary of the Distribution Date that results from the breach of certain
covenants made by the Company in the Tax Sharing Agreement or involves either
the stock or assets (or any combination thereof) of any member of the Company
Group, then the Company must indemnify and hold BWI harmless, on an after-tax
basis, from any tax liability imposed upon it in connection with the
Distribution. The Tax Sharing Agreement also prohibits the Company from entering
into certain transactions or disposing of substantially all of its assets prior
to the second anniversary of the Distribution Date in the absence of a prior
opinion of independent tax counsel or the receipt of a private letter ruling
from the Internal Revenue Service that such transaction or disposition will not
cause the Distribution to be a taxable transaction. For 1998, the Company
Group's allocated federal income taxes were $5.9 million.

Indemnification and Hold Harmless Agreement. The Company and BWI entered
into an Indemnification and Hold Harmless Agreement dated as of September 30,
1997 (the "Indemnification Agreement"), in which each party agrees to indemnify

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<PAGE> 19
and hold harmless the other from and against certain obligations and contingent
liabilities. Specifically, the Indemnification Agreement provides that the
Company will indemnify and hold harmless BWI from obligations related to a
guarantee which BWI made in favor of the Company and from certain indemnity and
other obligations which BWI assumed, or which could be charged against BWI, in
connection with five acquisitions by or on behalf of the Company. The
Indemnification Agreement also provides that BWI will indemnify and hold
harmless the Company from and against contingent liabilities in connection with
certain litigation, which was settled and dismissed in January 1999. In 1998,
neither the Company nor BWI made any payments to the other under the
Indemnification Agreement.

The Company has adopted a policy that all agreements, including any
amendments to those described above, between the Company and BWI and its
affiliates will be subject to the review of the Company's Audit Committee and
will be on terms that the Audit Committee believes are no less favorable to the
Company than terms that would be available from unaffiliated parties.

APPOINTMENT OF AUDITORS

The appointment of PricewaterhouseCoopers LLP as auditors for the Company
during 1999 will be submitted to the meeting in order to permit the shareholders
to express their approval or disapproval. In the event of a negative vote, a
selection of other auditors will be made by the Board. A representative of
PricewaterhouseCoopers LLP is expected to be present at the meeting, will be
given an opportunity to make a statement if he or she desires and will respond
to appropriate questions. Notwithstanding approval by the shareholders, the
Board of Directors reserves the right to replace the auditors at any time upon
the recommendation of the Audit Committee of the Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP.

APPROVAL OF AMENDMENT TO THE COMPANY'S
1997 STOCK OPTION AND INCENTIVE PLAN

On February 25, 1999, the Board of Directors of the Company adopted an
amendment to the Company's 1997 Stock Option Plan and directed that the
amendment to the 1997 Stock Option Plan be submitted to the shareholders of the
Company for consideration and approval at the 1999 annual meeting. The amendment
would increase from 1,250,000 to 2,250,000 the number of shares of Class B
Common Stock available for issuance pursuant to awards made under the 1997 Stock
Option Plan.

As of March 9, 1999, options to purchase 867,003 shares of Class B Common
Stock were outstanding under the 1997 Stock Option Plan and options to purchase
99,400 shares of Class B Common Stock were outstanding under the Broad Based
Plan.

The following is a summary of the principal features of the 1997 Stock
Option Plan. The summary is qualified in its entirety by reference to the
complete text of the of the 1997 Stock Option Plan, as proposed to be amended.
The proposed amendment to the 1997 Stock Option Plan is set forth as Appendix A
to this Proxy Statement.

PURPOSE

The purpose of the 1997 Stock Option Plan is to promote the long-term
interests of the Company and its shareholders by providing a means of attracting
and retaining officers and key employees of the Company. The Company believes
that employees who own shares of the Company's Class B Common Stock will have a
closer identification with the Company and greater motivation to work for the
Company's success by reason of their ability as shareholders to participate in
the Company's growth and earnings.

-17-
<PAGE> 20
ELIGIBLE PERSONS

Recipients of incentive awards under the 1997 Stock Option Plan must be, or
have been at the time of grant, officers, consultants or key employees (as
determined by the Compensation Committee). The Company presently has
approximately 30 officers and employees who fall within the category of key
employees and may be considered for incentive awards under the 1997 Stock Option
Plan. No awards may be granted to directors who are not also employees of the
Company or one of its subsidiaries.

SHARES SUBJECT TO THE 1997 STOCK OPTION PLAN

If the amendment to the 1997 Stock Option Plan is approved by the
shareholders, the number of shares of the Company's Class B Common Stock subject
to the 1997 Stock Option Plan would be increased from 1,250,000 to 2,250,000.
The number of shares of Class B Common Stock subject to the 1997 Stock Option
Plan is subject to adjustment in certain events. No individual participant may
receive awards for more than 300,000 shares in any calendar year.

The number of shares covered by an award under the 1997 Stock Option Plan
reduces the number of shares available for future awards under the 1997 Stock
Option Plan; however, any shares of restricted stock that ultimately are
forfeited to the Company by the grantee will become available for further
incentive awards under the 1997 Stock Option Plan. Similarly, if any stock
option granted under the 1997 Stock Option Plan terminates or is surrendered or
canceled without having been exercised in full, the number of shares then
subject thereto is added back to the number of remaining available shares under
the 1997 Stock Option Plan.

The closing sale price of the Company's Class B Common Stock on March 9,
1999, as quoted on the Nasdaq Stock Market and reported in The Wall Street
Journal, was $41.625 per share.

ADMINISTRATION OF THE PLAN

The 1997 Stock Option Plan is administered by the Compensation Committee
which is presently composed of two directors who are not eligible to participate
in the 1997 Stock Option Plan. Subject to the terms of the 1997 Stock Option
Plan, the Compensation Committee has sole authority to determine and designate
those officers and key employees who are to be granted incentive awards under
the 1997 Stock Option Plan and the nature and terms of the incentive awards to
be granted, including the number of shares to be subject to such awards.

GRANT OF STOCK OPTIONS

With respect to the grant of stock options under the 1997 Stock Option Plan
that are intended to qualify as "incentive stock options" under Section 422 of
the Code, the option price must be at least 100% (or 110% in the case of any
holder of 10% or more of the voting power of the Company) of the fair market
value of the Company's Class B Common Stock on the date of the grant of the
stock option. The aggregate fair market value (determined on the date of grant)
of the shares of stock subject to "incentive stock options" that become
exercisable for the first time by a grantee in any calendar year may not exceed
$100,000. The Compensation Committee establishes the exercise price of
nonqualified stock options at the time the options are granted.

The number and class of shares subject to an option will be adjusted by the
Compensation Committee in the event of stock splits, stock dividends,
recapitalizations and certain other events involving a change in the Company's
capital.

During the time that the 1997 Stock Option Plan has been in effect, the
Named Executive Officers have received options to purchase the indicated numbers
of shares of Class B Common Stock (excluding any options which have been
canceled or forfeited) under the 1997 Stock Option Plan as follows: Mr. Myers,
President and Chief Executive Officer - 276,763; Mr. Cosler, Executive Vice
President-Priority Pharmacy

-18-
<PAGE> 21
Services - 110,515; Mr. Bryant, Executive Vice President-Priority Healthcare
Distribution - 110,601; Ms. McIntyre, Vice President-Clinical Services - 79,323;
and Mr. Perfetto, Executive Vice President, Chief Financial Officer and
Treasurer - 97,099. All current executive officers as a group have been granted
options under the 1997 Stock Option Plan to purchase 761,433 shares of Class B
Common Stock. Additionally, options totaling 156,770 shares have been received
by all employees of the Company as a group, other than executive officers,
pursuant to the 1997 Stock Option Plan. The preceding numbers represent all
option grants pursuant to the 1997 Stock Option Plan up to March 9, 1999 and do
not include any options which have been canceled or forfeited. None of the
current directors who are not executive officers have been granted any options
to purchase shares of Class B Common Stock.

EXERCISE OF STOCK OPTIONS

No incentive stock option granted under the 1997 Stock Option Plan may be
exercised more than ten years, or five years in the case of any holder of 10% or
more of the voting power of the Company, (or such shorter period as the
Compensation Committee may determine) from the date it is granted. Nonqualified
stock options may be exercised during such period as the Compensation Committee
determines at the time of grant.

Unless otherwise determined by the Compensation Committee, if a grantee's
employment with the Company or a subsidiary is terminated for cause or
voluntarily by the grantee for any reason other than death, disability or
retirement, such grantee's options expire at the date of termination, and the
grantee must (unless waived by the Compensation Committee) repay to the Company
the amount of any gain realized by the grantee upon any exercise within the
90-day period prior to the date of termination of any options granted to the
grantee on or after September 15, 1998.

Stock options granted under the 1997 Stock Option Plan become exercisable
in one or more installments in the manner and at the time or times specified by
the Compensation Committee at the time of grant.

RESTRICTED STOCK

Incentive awards may be made in the form of restricted stock, in which case
the participant would be granted shares of the Company's Class B Common Stock,
which shares would be subject to such forfeiture provisions and transfer
restrictions as the Compensation Committee determined at the time of grant.
Pending the lapse of such forfeiture provisions and transfer restrictions,
certificates representing restricted stock would be held by the Company, but the
grantee generally would have all of the rights of a shareholder, including the
right to vote the shares and the right to receive all dividends thereon.

While restricted stock would be subject to forfeiture provisions and
transfer restrictions for a period or periods of time, the 1997 Stock Option
Plan does not set forth any minimum or maximum duration for such provisions and
restrictions. It is expected that the terms of restricted stock awards
ordinarily will provide that the restricted stock will be forfeited to the
Company if the grantee ceases to be employed by the Company prior to the lapse
of the forfeiture provisions and transfer restrictions, subject to exceptions
for death, disability or retirement while employed by the Company. It is also
expected that a specified percentage of the restricted stock will become free of
the forfeiture provisions and transfer restrictions on each anniversary of the
date of grant of the restricted stock award.

As of the date of this Proxy Statement, the Company has not made any awards
of restricted stock.

PAYMENT FOR SHARES; LOANS BY THE COMPANY

The Compensation Committee may permit payment of the exercise price of
stock options to be made in cash, by the surrender of Class B Common Stock
valued at its then fair market value, or by such other means (including a
combination of stock so valued and cash) as it deems appropriate.

-19-
<PAGE> 22
The 1997 Stock Option Plan empowers the Company to make loans to grantees
in connection with the exercise of stock options or the ownership of restricted
stock, up to the following amounts:

(1) With respect to the exercise of stock options, the sum of the exercise
price and the amount of income taxes reasonably estimated to be payable by the
grantee in connection with such exercise; or

(2) With respect to restricted stock, the amount of income taxes reasonably
estimated to be payable by the grantee in connection with the ownership of the
restricted stock.

Loans made under the terms of the 1997 Stock Option Plan bear interest at
such rates as may be established by the Compensation Committee. No loan may have
an initial term exceeding three years, but the loan may be renewed at the
discretion of the Compensation Committee. With the consent of the Compensation
Committee, loans may be repaid in shares of Class B Common Stock at their then
fair market value. Loans may, but are not required to be, secured by shares of
Class B Common Stock.

MISCELLANEOUS PROVISIONS

The Compensation Committee may accelerate the period of exercise or vesting
of any incentive award, either absolutely or contingently, for such reasons as
the Compensation Committee may deem appropriate.

In general, if the employment of a recipient of restricted stock is
involuntarily terminated within 12 months following a change in control of the
Company, the forfeiture provisions and transfer restrictions applicable to such
stock lapse. In addition, in the event of a tender offer or exchange offer for
the Class B Common Stock or upon the occurrence of certain other events, all
options granted under the 1997 Stock Option Plan shall become exercisable in
full, unless otherwise provided by the Compensation Committee.

AMENDMENT OF THE PLAN

The Board, or the Compensation Committee with the approval of the Board,
may at any time terminate or amend the 1997 Stock Option Plan. No amendments to
the 1997 Stock Option Plan will require shareholder approval unless such
approval is required to comply with Rule 16b-3 under the Securities Exchange Act
of 1934, Section 422 of the Code or the requirements of the Nasdaq National
Market System.

FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of the principal federal income tax
consequences of awards under the 1997 Stock Option Plan. The summary is based on
current federal income tax laws and interpretations thereof, all of which are
subject to change at any time, possibly with retroactive effect. The summary is
not intended to be exhaustive.

Limitation on Amount of Deduction. The Company generally will be entitled
to a tax deduction for awards under the 1997 Stock Option Plan only to the
extent that the participants recognize ordinary income from the award. Section
162(m) of the Code contains special rules regarding the federal income tax
deductibility of compensation paid to the Company's Chief Executive Officer and
to each of the other four most highly compensated executive officers of the
Company. The general rule is that annual compensation paid to any of these
specified executives will be deductible only to the extent that it does not
exceed $1,000,000 or it qualifies as "performance-based compensation" under
section 162(m). The 1997 Stock Option Plan has been designed to permit the
Compensation Committee to grant awards which qualify for deductibility under
section 162(m).

Taxation of Ordinary Income and Capital Gains. Subject to certain
exceptions, the maximum federal tax rate on "Net capital gains" from the sale or
exchange of capital assets is 20%. "Net capital gain" is the excess of net
long-term capital gain over net short-term capital loss. Short-term capital
gains are taxed at the same rates applicable to ordinary income. Gains or losses
from the sale or exchange of capital assets will be "long-term" if the capital
asset

-20-
<PAGE> 23

was held for more than one year and "short-term" if the capital asset was
held for one year or less. For taxpayers with certain income levels, the
marginal tax rate applicable to ordinary income can range up to 39.6%. The
classification of income as ordinary compensation income or capital gain is also
relevant for income tax purposes for taxpayers who have capital losses and
investment interest.

Nonqualified Stock Options. An employee who is granted a nonqualified
option does not recognize taxable income upon the grant of the option, and the
Company is not entitled to a tax deduction. The employee will recognize ordinary
income upon the exercise of the option in an amount equal to the excess of the
fair market value of the option shares on the exercise date over the option
price. Such income will be treated as compensation to the employee subject to
applicable withholding requirements. The Company is generally entitled to a tax
deduction in an amount equal to the amount taxable to the employee as ordinary
income in the year the income is taxable to the employee. Any appreciation in
value after the time of exercise will be taxable to the employee as capital gain
and will not result in a deduction by the Company.

The employee may also be required to recognize gain or loss upon the sale
of the option shares. If the selling price of the option shares exceeds the
employee's basis in the shares, the employee will recognize long-term capital
gain if the option shares were held for more than one year, and short-term
capital gain if the shares were held for one year or less. If the selling price
of the option shares is less than the employee's basis in the shares, the
employee will recognize long-term or short-term capital loss depending on how
long the shares were held. The employee's basis in the option shares will equal
the amount of ordinary income recognized by the employee upon exercise of the
option, plus any cash paid to exercise the option.

Incentive Stock Options. An employee who receives an incentive stock option
does not recognize taxable income upon the grant or exercise of the option, and
the Company is not entitled to a tax deduction. The difference between the
option price and the fair market value of the option shares on the date of
exercise, however, will be treated as a tax preference item for purposes of
determining the alternative minimum tax liability, if any, of the employee in
the year of exercise. The Company will not be entitled to a deduction with
respect to any item of tax preference.

An employee will recognize gain or loss upon the disposition of shares
acquired from the exercise of incentive stock options. The nature of the gain or
loss depends on how long the option shares were held. If the option shares are
not disposed of pursuant to a "disqualifying disposition" (i.e., no disposition
occurs within two years from the date the option was granted nor one year from
the date of exercise), the employee will recognize long-term capital gain or
capital loss depending on the selling price of the shares. If option shares are
sold or disposed of as part of a disqualifying disposition, the employee must
recognize ordinary income in an amount equal to the lesser of the amount of gain
recognized on the sale, or the difference between the fair market value of the
option shares on the date of exercise and the option price. Any additional gain
will be taxable to the employee as a long-term or short-term capital gain,
depending on how long the option shares were held. The Company is generally
entitled to a deduction in computing its federal income taxes for the year of
disposition in an amount equal to any amount taxable to the employee as ordinary
income.

Restricted Stock. An employee who receives an award of restricted stock
generally will not recognize taxable income at the time of the award, nor will
the Company be entitled to a tax deduction at that time, unless the employee
makes an election under section 83(b) of the Code to recognize the income upon
the receipt of the restricted stock. If the election is not made, the employee
will recognize ordinary income at such time as the transfer and forfeiture
restrictions applicable to such stock lapse, in an amount equal to the aggregate
fair market value of the shares, as of the date such restrictions lapsed. If the
Company complies with applicable withholding requirements, it is generally
entitled to a deduction in computing its federal income taxes in an amount equal
to the ordinary income taxable to the employee. Such deduction would be
available in the year in which the income is taxable to the employee. Upon
disposition of the shares, any amount received in excess of the fair market
value of the shares on the date such restrictions lapsed would be treated as
long-term or short-term capital gain, depending upon the employee's holding
period following such lapse. Dividends or other distributions of property (other
than a distribution of Common Stock of the Company) with respect to restricted
stock prior to the lapse of the transfer and forfeiture restrictions related

-21-
<PAGE> 24
thereto would constitute ordinary income to the employee and the Company would
be entitled to a deduction at the same time and in the same amount.

Pursuant to the provisions of section 83(b) of the Code, an employee who
receives restricted stock may elect to be taxed at the time of the award. If the
employee so elects, the full value of the shares (without regard to
restrictions) at the time of the grant, less any amount paid by the employee,
will be taxed to the participant as ordinary income and will be deductible by
the Company. Dividends paid with respect to the shares during the period of
restriction will be taxable as dividends to the participant and not deductible
by the Company. If, after making an election pursuant to section 83(b), any
shares are subsequently forfeited, the employee will be entitled to a capital
loss deduction.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT.

PRINCIPAL OWNERS OF COMMON STOCK

The following table sets forth as of January 31, 1999, the number of shares
of each class of Common Stock of the Company owned by any person (including any
group) known by management to beneficially own more than 5% of each class of
Common Stock of the Company, by each of the Named Executive Officers, and by all
directors and executive officers of the Company as a group. Unless otherwise
indicated in a footnote, each individual or group possesses sole voting and
investment power with respect to the shares indicated as beneficially owned. The
number of shares of Class B Common Stock shown in the table below as
beneficially owned by each individual or entity includes any shares of Class A
Common Stock beneficially owned by such person or entity, as indicated, because
any holder of shares of Class A Common Stock may request to convert any or all
of such shares into shares of Class B Common Stock at any time on a one-for-one
basis.
<TABLE>
<CAPTION>

Steven D. Cosler 21,105 (2)(4) --- 1,342 ---

Guy F. Bryant 24,576 (2)(5) --- 6,909 ---

Melissa E. McIntyre 15,517 (2)(6) --- 0 ---

Donald J. Perfetto 16,217 (2)(7) --- 50 ---

William E. Bindley 2,014,720 (8) 22.1% 2,009,720 (9) 36.8%
8909 Purdue Road
Indianapolis, IN 46268

Bankers Trust Company 222,100 3.1% 0 ---
130 Liberty Street
New York, NY 10006 (10)*

Mentor Investment Advisors, LLC 197,350 2.8% 0 ---
One First Union Center
Charlotte, NC 28288 (11)*

Mutual Management Corp. 237,200 3.3% 0 ---
388 Greenwich Street
New York, NY 10013 (12)*

Morgan Stanley Dean Witter & Co. 361,671 5.1% 0 ---
1585 Broadway
New York, NY 10036 (13)*
</TABLE>

-22-
<PAGE> 25
<TABLE>
<CAPTION>

Class B Common Stock Class A Common Stock
-------------------- --------------------
Name and Address of Number of Shares Percent of Class Number of Shares Percent of
Individual or Beneficially (if more Beneficially Class (if more
Identity of Group Owned (1) than 1%) Owned (1) than 1%)
----------------- ------------ ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
AVZ, Inc. 418,066 5.9% 0 ---
AIM Management Group Inc.
AMVESCAP Group Services, Inc.
INVESCO, Inc.
INVESCO North American Holdings, Inc.
INVESCO Management & Research, Inc.
INVESCO (NY) Asset Management, Inc.
1315 Peachtree Street, N.E.
Atlanta, GA 30309 (14)*

All current directors and executive
officers as a group (12 persons) 2,465,536 (2)(15) 26.1% 2,214,395 40.5%
</TABLE>

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

*Information is based solely on reports filed by such shareholder under Section
13(d) of the Securities Exchange Act of 1934.

(1) For information regarding the beneficial ownership of shares of Class B
Common Stock and shares of Class A Common Stock held by non-employee
directors, see "Election of Directors--Nominees."

(2) Does not include shares subject to stock options which are not exercisable
within 60 days.

(3) Includes 8,741 shares of Class A Common Stock. Also includes presently
exercisable stock options to purchase 55,167 shares of Class B Common Stock
granted under the 1997 Stock Option Plan.

(4) Includes 1,342 shares of Class A Common Stock. Also includes presently
exercisable stock options to purchase 16,667 shares of Class B Common Stock
granted under the 1997 Stock Option Plan. Also includes 1,630 shares of
Class B Common Stock held jointly with Mr. Cosler's spouse.

(5) Includes 6,909 shares of Class A Common Stock. Also includes presently
exercisable stock options to purchase 16,667 shares of Class B Common Stock
granted under the 1997 Stock Option Plan.

(6) Includes presently exercisable stock options to purchase 15,167 shares of
Class B Common Stock granted under the 1997 Stock Option Plan.

(7) Includes 50 shares of Class A Common Stock. Also includes presently
exercisable stock options to purchase 14,167 shares of Class B Common Stock
granted under the 1997 Stock Option Plan.

(8) Includes 2,009,720 shares of Class A Common Stock (see footnote 9 below for
a description of the manner by which certain of such shares of Class A
Common Stock are held). Excludes 3,503 shares of Class A Common Stock and
2,000 shares of Class B Common Stock held by Mr. Bindley's spouse; Mr.
Bindley disclaims beneficial ownership of such shares.

(9) Includes 28,925 shares of Class A Common Stock held by two family
foundations and 25,834 shares of Class A Common Stock held by a charitable
remainder trust of which Mr. Bindley is the trustee and has investment
control. Excludes 3,503 shares of Class A Common Stock held by Mr.
Bindley's spouse; Mr. Bindley disclaims beneficial ownership of such
shares.

(10) The shareholder is a bank and a wholly owned subsidiary of Bankers Trust
Corporation, a parent holding company.

(11) The shareholder is an investment adviser and a subsidiary of First Union
Corporation, a parent holding company.

(12) The shareholder is an investment adviser and a wholly-owned subsidiary of
Salomon Smith Barney Holdings Inc., which is a parent holding company and a
wholly-owned subsidiary of Citigroup Inc., a parent holding company.

(13) The shareholder is an investment adviser.

(14) The shareholders are holding companies or investment advisers. Other
investment advisers that were reported as not holding any shares but which
are part of the same group are: INVESCO Capital Management, Inc., INVESCO
Funds Group, Inc., INVESCO Realty Advisors, Inc., INVESCO MIM Management
Limited and INVESCO Asset Management Limited.

(15) Includes 2,214,395 shares of Class A Common Stock. Also includes presently
exercisable stock options to purchase 137,669 shares of Class B Common
Stock granted by the Company.

-23-
<PAGE> 26
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING

The date by which shareholder proposals must be received by the Company for
inclusion in proxy materials relating to the 2000 Annual Meeting of Common
Shareholders is December 9, 1999.

In order to be considered at the 2000 Annual Meeting, shareholder proposals
must comply with the advance notice and eligibility requirements contained in
the Company's By-Laws. The Company's By-Laws provide that shareholders are
required to give advance notice to the Company of any nomination by a
shareholder of candidates for election as directors and of any business to be
brought by a shareholder before an annual shareholders' meeting. Specifically,
the By-Laws provide that for a shareholder to nominate a person for election to
the Company's Board of Directors, the shareholder must be entitled to vote for
the election of directors at the meeting and must give timely written notice of
the nomination to the Secretary of the Company. The By-Laws also provide that
for business to be property brought before an annual meeting by a shareholder,
the shareholder must have the legal right and authority to make the proposal for
consideration at the meeting and the shareholder must give timely written notice
thereof to the Secretary of the Company. In order to be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days prior to the meeting. In the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder must be
received not later than the close of business on the tenth day following the day
on which notice of the date of the meeting was mailed or public disclosure was
made. The notice must contain specified information about each nominee or the
proposed business and the shareholder making the nomination or proposal.

The specific requirements of these advance notice and eligibility
provisions are set forth in Section 1.4 and Section 1.5 of the Company's
By-Laws, a copy of which is available upon request. Such requests and any
shareholder proposals should be sent to the Secretary of the Company at the
principal executive offices of the Company.

-24-
<PAGE> 27
SECOND AMENDMENT TO
PRIORITY HEALTHCARE CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN

WHEREAS, the Board of Directors of Priority Healthcare Corporation (the
"Company") adopted the Priority Healthcare Corporation 1997 Stock Option and
Incentive Plan (the "Plan") on August 25, 1997; and

WHEREAS, the Plan was approved by the then sole shareholder of the
Company on August 25, 1997, and further approved by the shareholders of the
Company for purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended, on May 21, 1998; and

WHEREAS, the Plan was first amended by the Board of Directors of the
Company in certain respects not requiring shareholder approval, effective as of
September 15, 1998; and

WHEREAS, the Company now desires to further amend the Plan.

NOW, THEREFORE, the Plan is hereby amended as follows:

1. Section 5 of the Plan is hereby amended to read in its entirety as
follows:

5. SHARES SUBJECT TO PLAN. Subject to adjustment by the operation
of Section 11 hereof, the maximum number of Shares with respect to which
Awards may be made under the Plan is 2,250,000 Shares. The number of Shares
which may be granted under the Plan to any Participant during any calendar
year of the Plan under all forms of Awards shall not exceed 300,000 Shares.
The Shares with respect to which Awards may be made under the Plan may
either be authorized and unissued shares or unissued shares heretofore or
hereafter reacquired and held as treasury shares. With respect to any
Option which terminates or is surrendered for cancellation or with respect
to Restricted Stock which is forfeited, new Awards may be granted under the
Plan with respect to the number of Shares as to which such termination or
forfeiture has occurred.

2. This Second Amendment to the Plan shall become effective upon its
approval by the Board of Directors and shareholders of the Company.

APPROVED BY THE BOARD OF DIRECTORS OF PRIORITY
HEALTHCARE CORPORATION AS OF FEBRUARY 25, 1999

APPROVED BY THE SHAREHOLDERS OF PRIORITY HEALTHCARE
CORPORATION AS OF ______________, 1999

Appendix A
<PAGE> 28
PRIORITY HEALTHCARE CORPORATION

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P I hereby appoint William E. Bindley and Michael D. McCormick, or either of
them, my proxies, with power of substitution, to vote all shares of common
R stock of the Company which I am entitled to vote at the annual meeting of
common shareholders of said company, to be held at SunTrust Bank Central
O Florida, N.A., Second Floor Tower 2 Campus Room, 200 South Orange Avenue,
Orlando, Florida, on May 10, 1999 at 11:00 a.m., Orlando time, and at any
X adjournment, as follows:

Y Election of Directors, Nominees: (change of address)

Robert L. Myers, Donald J. Perfetto, ------------------------------
Richard W. Roberson
------------------------------

------------------------------
(If you have written in the
above space please mark the
corresponding box on the
reverse side of this card.)

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE SIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION AS DIRECTORS OF ALL NOMINEES LISTED UNDER PROPOSAL 1, FOR PROPOSAL
2 AND FOR PROPOSAL 3.
SEE REVERSE
SIDE
................................................................................

DETACH CARD

<PAGE> 29
<TABLE>
<CAPTION>
PRIORITY HEALTHCARE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<S> <C> <C> <C> <C> <C> <C> <C>
[ ]
For Withheld For All -----------------------------------------------------------------
All All Except:
1. Election of Directors - 3. To approve the proposed amendment For Against Abstain
Robert L. Myers, to the Company's 1997 Stock Option ___ ____ ____
Donald J. Perfetto, and Incentive Plan; and
Richard W. Roberson ___ ____ ____
4. In their discretion, to transact such
2. To approve the appointment For Against Abstain other business as may properly come
of PricewaterhouseCoopers LLP ___ ____ ____ before the meeting.
as auditors for the Company for
1999; Address Change Requested ____

Date:_________________, 1999

----------------------------
Signature(s)

----------------------------
Please sign exactly as name
appears hereon. Joint owners
should each sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign
in full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person. Please,
mark, sign, date and return
the proxy promptly in the
enclosed postage paid
envelope.

</TABLE>

................................................................................
FOLD AND DETACH HERE

PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.