PRIORITY HEALTHCARE CORP, 424B4, 1999-06-10

PRIORITY HEALTHCARE CORP
424B4, 1999-06-10
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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PROSPECTUS

2,600,000 SHARES

PRIORITY HEALTHCARE CORPORATION

CLASS B COMMON STOCK
-------------

WE ARE OFFERING AND SELLING 2,600,000 SHARES OF OUR CLASS B COMMON STOCK. WE
HAVE BOTH CLASS A AND CLASS B COMMON STOCK OUTSTANDING. THE CLASS A COMMON STOCK
IS CONVERTIBLE INTO CLASS B COMMON STOCK ON A SHARE-FOR-SHARE BASIS AT THE
HOLDER'S OPTION OR AUTOMATICALLY ON MOST TRANSFERS BY THE HOLDER. HOLDERS OF
CLASS A COMMON STOCK HAVE THREE VOTES PER SHARE AND HOLDERS OF CLASS B COMMON
STOCK HAVE ONE VOTE PER SHARE ON ALL MATTERS SUBMITTED TO A VOTE OF HOLDERS OF
OUR COMMON STOCK. HOLDERS OF CLASS A COMMON STOCK AND HOLDERS OF CLASS B COMMON
STOCK GENERALLY VOTE AS A SINGLE CLASS ON ALL MATTERS SUBMITTED TO A VOTE OF
STOCKHOLDERS. ON APRIL 20, 1999 THERE WERE 7,162,752 SHARES OF CLASS A COMMON
STOCK OUTSTANDING AND 11,705,707 SHARES OF CLASS B COMMON STOCK OUTSTANDING.

THE CLASS B COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "PHCC." THE LAST REPORTED SALE PRICE OF OUR CLASS B COMMON STOCK ON JUNE
9, 1999 WAS $34.0625 PER SHARE. THE CLASS A COMMON STOCK IS NOT PUBLICLY TRADED.

You should consider the risks which we have described in "Risk Factors"
beginning on page 8 before buying shares of our Class B common stock.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------ ------------------
<S> <C> <C>
Public offering price.................................................... $34.00 $88,400,000
Underwriting discount.................................................... $ 1.70 $ 4,420,000
Proceeds, before expenses, to us......................................... $32.30 $83,980,000
</TABLE>

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

The underwriters may purchase up to an additional 390,000 shares from us at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Raymond James & Associates, Inc., on behalf of the underwriters, expects to
deliver the shares to purchasers on or about June 15, 1999.

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

RAYMOND JAMES & ASSOCIATES, INC.

FIRST UNION CAPITAL MARKETS CORP.

BANC OF AMERICA SECURITIES LLC

SUNTRUST EQUITABLE SECURITIES

The date of this prospectus is June 10, 1999
<PAGE>

<TABLE>
<S> <C>
[Photo of pharmacists filling prescriptions] [Photo of Pharmacist and nurse]

Our JCAHO-accredited pharmacy fills Our pharmacists and registered nurses are
individual prescriptions for self-injectable always available for ongoing consultation
biopharmaceuticals for over 2,500 patients. with the patient and prescribing
physician
regarding the patient's therapy and
progress.

[Photo of biopharmaceuticals]

We provide patient-specific biopharmaceuticals
and disease treatment services to people with
chronic diseases and specialty
pharmaceuticals and related medical
supplies.

[Photo of patient with nurse] [Photo of computer operator]

We provide disease treatment services to Our systems provide important outcomes
patients and physicians through our highly data, cross-selling opportunities, and
trained clinical staff of pharmacists, nurses ease
and patient care coordinators. of ordering for our customers.

[Photo of distribution facility]

We generally ship products ordered before 6:00 p.m. for
delivery the next day and fill 99% of our
orders within one day of being ordered.
</TABLE>

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You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

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

FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this prospectus and in our public
documents which are incorporated by reference, which represent our expectations
or beliefs about future events and financial performance. Forward-looking
statements are subject to known and unknown risks and uncertainties, including:

- changes in interest rates;

- competitive pressures;

- changes in customer mix;

- changes in third party reimbursement rates;

- financial stability of major customers;

- changes in governmental regulations or the interpretation of these
regulations;

- asserted and unasserted claims; and

- our ability and the ability of entities with which we do business to
modify or redesign our and their computer systems to work properly in the
year 2000.

These risks, uncertainties, assumptions and other factors include, among
others, those described under "Risk Factors" and elsewhere in this prospectus.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur. In addition, actual results
could differ materially from those suggested by the forward-looking statements,
and therefore you should not place undue reliance on the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS
OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
RISK FACTORS AND THE FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE YOU DECIDE
WHETHER TO INVEST IN OUR CLASS B COMMON STOCK. UNLESS WE STATE OTHERWISE, ALL
FINANCIAL INFORMATION AND SHARE AND PER SHARE DATA IN THIS PROSPECTUS (1) GIVE
EFFECT TO THE 3-FOR-2 STOCK SPLIT EFFECTED AS A STOCK DIVIDEND PAID ON MAY 4,
1999, (2) ASSUME THAT THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT
OPTION AND (3) DO NOT INCLUDE SHARES RESERVED FOR ISSUANCE UNDER OUR STOCK
OPTION PLANS.

OUR COMPANY

Priority Healthcare Corporation provides patient-specific, self-injectable
biopharmaceuticals and disease treatment services to people with chronic
diseases, and specialty pharmaceuticals and related medical supplies to the
office-based physician, outpatient renal dialysis center and homecare markets.
We provide products that are administered by physicians or patients themselves
in an alternate site, or non-hospital, setting and that typically require
specialized shipping and support services. We currently sell most of our
products and services on a national basis for use in four large and growing
markets:

- oncology;

- gastroenterology;

- chronic renal dialysis; and

- vaccines.

To address the specific needs of physicians and patients within these markets,
we distribute our products and deliver our services directly to patients through
Priority Healthcare Pharmacy, and to physicians and clinics through Priority
Healthcare Distribution.

Through Priority Healthcare Pharmacy, we provide a comprehensive solution to
the chronic disease treatment challenges faced by patients, doctors,
biopharmaceutical manufacturers and third party payors. Priority Healthcare
Pharmacy currently provides disease treatment services for:

- hepatitis;

- melanoma;

- cancer;

- human growth deficiency; and

- the complications of HIV.

Currently, Priority Healthcare Pharmacy fills individual patient
prescriptions for self-injectable biopharmaceuticals for over 2,500 patients. We
fill these patient-specific prescriptions at our licensed pharmacy in Altamonte
Springs, Florida, where we prepare the physician-prescribed biopharmaceuticals
in sterile conditions. We prepare each prescription, including filling syringes,
so that it is ready to use upon delivery. We ship these products directly to the
patient overnight in specialized packages. Our disease treatment services are
designed to:

- increase patient compliance with the prescribed therapy;

- educate patients on the preparation and use of injectable
biopharmaceuticals;

- reduce the potential for patient errors in dosing or product waste;

- decrease patient and caregiver anxiety;

- reduce the overall cost of treatment; and

- collect better outcomes data on the results of patient treatment.

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Through Priority Healthcare Distribution, we sell over 3,500 SKUs of
specialty pharmaceuticals and medical supplies primarily to office-based
physicians in the oncology and infectious disease markets, outpatient renal
dialysis centers and office-based physicians administering vaccines. Priority
Healthcare Distribution offers value-added services to meet the specific needs
of these markets, such as shipping refrigerated pharmaceuticals overnight in
special packaging to maintain appropriate temperatures, and offering automated
order entry services and customized distribution for group accounts. From
distribution centers in Tustin, California and Grove City, Ohio, Priority
Healthcare Distribution services over 2,000 customers in all 50 states and
Puerto Rico, including approximately 600 office-based oncologists and 800 renal
dialysis clinics.

We were formed on June 23, 1994, by Bindley Western Industries, Inc., a
wholesale distributor of pharmaceuticals and related healthcare products, to
distribute products and provide services to the alternate site segment of the
healthcare industry. On October 29, 1997, we completed our initial public
offering of Class B common stock. On December 31, 1998, Bindley Western
distributed to its common stockholders all of our Class A common stock that was
owned by Bindley Western in a spin-off transaction and Bindley Western no longer
has any ownership interest in us. Our principal executive offices are located at
285 West Central Parkway, Altamonte Springs, Florida 32714 and our telephone
number at that address is (407) 869-7001. We maintain a website with the address
www.priorityhealthcare.com. None of the content of our website is a part of this
prospectus.

OUR GROWTH STRATEGY

Our net sales have increased from $107.4 million in 1994 to $275.6 million
in 1998, which represents a compound annual growth rate of 26.6%. In the same
period, earnings from operations have increased from $2.3 million in 1994 to
$15.9 million in 1998, which represents a compound annual growth rate of 62.2%.
Net earnings have increased from $1.3 million in 1994 to $10.1 million in 1998,
which represents a compound annual growth rate of 68.6%. Our goal is to continue
to grow rapidly by taking advantage of our business strengths and our market
position as a leading specialty distributor and by pursuing the following
strategies:

- accelerate growth of our higher margin, patient-specific pharmacy
business;

- provide services for additional diseases by targeting new product
categories and patient-specific biopharmaceuticals;

- enhance existing and create new relationships with biopharmaceutical
manufacturers;

- maintain intense cost control while investing in operating infrastructure;

- continue to focus on and further penetrate the alternate site market; and

- pursue acquisitions that complement existing product offerings or add new
product offerings.

RECENT DEVELOPMENTS

On April 12, 1999, we purchased for cash the majority of the operating
assets of Pharmacy Plus, Ltd. Pharmacy Plus is a specialty mail order pharmacy
in Philadelphia, Pennsylvania, that primarily provides injectable
biopharmaceuticals by overnight delivery. Pharmacy Plus should complement our
disease treatment services and national distribution capabilities and readily
fit within our existing operating systems for accounting and purchasing. The
Pharmacy Plus mail order services typically include a somewhat lower level of
disease treatment services than Priority Healthcare Pharmacy, which allows for
lower mail order pricing for those services. We believe that this will make us
more attractive to managed care organizations seeking to have prescriptions

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filled at lower costs. The Pharmacy Plus acquisition increases our market share
in the oncology, infectious disease and human growth hormone markets and gives
us an entree into additional diseases, such as rheumatoid arthritis and
fertility. Pharmacy Plus is an approved provider of injectable pharmaceuticals
to a large national managed care organization, and we believe that the mail
order component of Pharmacy Plus provides us an opportunity to compete for
additional managed care contracts. The total purchase price for the Pharmacy
Plus assets was approximately $3.5 million.

THE OFFERING

We have both Class A and Class B common stock outstanding. The Class A
common stock is not publicly traded, but is convertible into Class B common
stock on a share-for-share basis at the holder's option or automatically on most
transfers by the holder. Holders of Class A common stock have three votes per
share and holders of Class B common stock have one vote per share on all matters
submitted to a vote of holders of our common stock. Holders of Class A common
stock and holders of Class B common stock generally vote as a single class on
all matters submitted to a vote of stockholders of our common stock. You should
also be aware that we have stock option plans under which we must issue shares
of Class B common stock when the participants in the plans exercise their stock
options. As of April 20, 1999, there were (1) 1,788,494 shares issuable upon the
exercise of outstanding options, of which 277,823 were exercisable and (2)
617,631 shares were available for future awards of options under these plans. At
our annual meeting on May 10, 1999, our stockholders approved an increase in the
authorized shares under one of our stock option plans by 1,000,000 shares. As a
result, an additional 1,000,000 shares are available for future awards of
options under the plan. If and when we issue shares under these stock option
plans, the percentage of the Class B common stock you own will decrease. We base
the following information on 11,705,707 Class B common shares and 7,162,752
Class A common shares outstanding at April 20, 1999.

<TABLE>
<S> <C>
Class B common stock offered...... 2,600,000 shares

Class B common stock outstanding
after the offering.............. 14,305,707 shares

Class A common stock outstanding
after the offering.............. 7,162,752 shares

Use of proceeds................... We intend to use the proceeds for general corporate
purposes, including potential acquisitions and working
capital. See "Use of Proceeds."

Risk factors...................... You should consider the risks discussed in "Risk
Factors" and elsewhere in this prospectus before
deciding whether to invest in our Class B common stock.

Nasdaq National Market symbol..... PHCC
</TABLE>

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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THE FOLLOWING TABLE SUMMARIZES THE FINANCIAL INFORMATION FOR PRIORITY
HEALTHCARE CORPORATION. YOU SHOULD READ THIS INFORMATION WITH THE FINANCIAL
STATEMENTS AND NOTES TO THE FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales............................. $ 107,449 $ 123,990 $ 158,247 $ 230,982 $ 275,626 $ 58,129 $ 83,159
Cost of products sold................. 100,254 111,448 141,074 207,755 244,485 51,313 72,853
---------- ---------- ---------- ---------- ---------- --------- ---------
Gross profit.......................... 7,195 12,542 17,173 23,227 31,141 6,816 10,306
Selling, general and administrative
expense............................. 4,394 7,836 8,443 10,620 13,989 3,167 4,251
Depreciation and amortization......... 512 998 1,009 1,161 1,234 311 313
---------- ---------- ---------- ---------- ---------- --------- ---------
Earnings from operations.............. 2,289 3,708 7,721 11,446 15,918 3,338 5,742
Stock option expense.................. -- -- -- 350 -- -- --
Interest expense (income), net........ 200 511 437 887 (916) (109) (258)
---------- ---------- ---------- ---------- ---------- --------- ---------
Earnings before income taxes.......... 2,089 3,197 7,284 10,209 16,834 3,447 6,000
Provision for income taxes............ 835 1,311 2,915 4,058 6,691 1,370 2,382
---------- ---------- ---------- ---------- ---------- --------- ---------
Net earnings.......................... $ 1,254 $ 1,886 $ 4,369 $ 6,151 $ 10,143 $ 2,077 $ 3,618
---------- ---------- ---------- ---------- ---------- --------- ---------
---------- ---------- ---------- ---------- ---------- --------- ---------

EARNINGS PER SHARE (1):
Basic............................... $ 0.08 $ 0.12 $ 0.29 $ 0.39 $ 0.54 $ 0.11 $ 0.19
Diluted............................. $ 0.08 $ 0.12 $ 0.29 $ 0.39 $ 0.54 $ 0.11 $ 0.19

WEIGHTED AVERAGE SHARES OUTSTANDING
(1):
Basic............................... 15,321 15,321 15,321 15,934 18,773 18,773 18,831
Diluted............................. 15,321 15,321 15,321 15,940 18,854 18,818 19,234
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------
ACTUAL AS ADJUSTED(2)
-------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 67,230 $150,610
Receivable from Bindley Western (3).............................. 13,166 13,166
Total assets..................................................... 114,605 197,985
Total liabilities................................................ 39,479 39,479
Stockholders' equity............................................. 75,126 158,506
</TABLE>

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

(1) Adjusted to reflect the 3-for-2 stock split effected as a stock dividend
paid on May 4, 1999.

(2) As adjusted to reflect the estimated net proceeds from the issuance and sale
of 2,600,000 shares of Class B common stock at the public offering price of
$34.00 per share.

(3) Represents loans of Priority Healthcare to Bindley Western on a short-term,
interest-bearing basis. The loan balances are due on December 31, 1999.
Priority Healthcare does not intend to advance additional funds to Bindley
Western, including any proceeds from this offering.

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RISK FACTORS

INVESTING IN OUR CLASS B COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY
OWNERSHIP IN PRIORITY HEALTHCARE CORPORATION. AS A STOCKHOLDER YOU MAY BE
SUBJECT TO RISKS INHERENT IN OUR BUSINESS. PERFORMANCE OF YOUR SHARES WILL
REFLECT THE PERFORMANCE OF OUR BUSINESS RELATED TO, AMONG OTHER THINGS, OUR
COMPETITION, GENERAL, ECONOMIC AND MARKET CONDITIONS AND INDUSTRY CONDITIONS.
THE PRICE OF OUR STOCK MAY DECLINE AND COULD LOWER THE VALUE OF YOUR INVESTMENT.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS WELL AS OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR
CLASS B COMMON STOCK.

WE DEPEND ON A SINGLE SOURCE FOR SEVERAL OF OUR KEY PRODUCTS AND THE LOSS OF ANY
OF OUR KEY SUPPLIERS COULD ADVERSELY AFFECT OUR BUSINESS.

Any termination of, or adverse change in, our relationships with our key
suppliers or the loss of supply of one of our key products for any other reason,
could have a material adverse effect on our business, financial condition or
results of operations. During 1998, approximately 27% of our revenues were
attributable to sales of erythropoietin, known as EPO, to the renal care market.
EPO for the renal care market is available from only one manufacturer, Amgen,
Inc., with which we must maintain good working relations. We are involved in a
lawsuit in which this supplier is an adverse party. We have a single source of
supply for many of our other key products, including Neupogen-Registered
Trademark-, Procrit and Rebetron. In addition, we have few long-term contracts
with our suppliers. Our arrangements with most of our suppliers may be canceled
by either party, without cause, on minimal notice. Many of these arrangements
are not governed by written agreements.

OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL, WHICH COULD CAUSE OUR BUSINESS
AND FUTURE GROWTH PROSPECTS TO SUFFER.

We have built our current business in part through six acquisitions and we
expect to pursue acquisitions of complementary businesses in the future.
Acquisitions involve many risks, including:

- difficulties in identifying suitable acquisition candidates and in
negotiating and consummating acquisitions on terms attractive to us;

- difficulties in the assimilation of the operations of the acquired
company;

- the diversion of management's attention from other business concerns;

- risks of entering new geographic or product markets in which we have
limited or no direct prior experience;

- the potential loss of key employees of the acquired company; and

- the assumption of undisclosed liabilities.

In addition to the above risks, future acquisitions may result in the
dilution of earnings and the amortization or write-off of goodwill and
intangible assets, any of which could have a material adverse effect on our
business, financial condition or results of operations.

WE DEPEND ON REIMBURSEMENTS FROM THIRD PARTY PAYORS AND CHANGES IN REIMBURSEMENT
POLICIES COULD HAVE AN ADVERSE EFFECT ON OUR REVENUES AND RESULTS OF OPERATIONS.

The profitability of Priority Healthcare Pharmacy depends in large part on
reimbursement from third-party payors. In recent years, competition for
patients, efforts by traditional third-party payors to contain or reduce
healthcare costs, and the increasing influence of managed care payors, such as
health maintenance organizations, have resulted in reduced rates of
reimbursement. If

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these trends continue, they could adversely affect our results of operations
unless we can implement measures to offset the loss of revenues and decreased
profitability. The profitability of Priority Healthcare Distribution also
depends, indirectly, on reimbursement from third-party payors because our
office-based physician and clinic customers seek reimbursement from third-party
payors for the cost of pharmaceuticals and related medical supplies that we
distribute. Changes in reimbursement policies of private and governmental
third-party payors, including policies relating to the Medicare and Medicaid
programs, could reduce the amounts reimbursed to these customers for our
products and in turn, the amount these customers would be willing to pay for the
products. Although our revenues in 1998 did not include reimbursement from
Medicare and Medicaid, changes in those reimbursement policies affect our
customers, which in turn could have an adverse effect on us.

LOSS OF ONE OR MORE OF OUR LARGEST CUSTOMERS COULD HURT OUR BUSINESS BY REDUCING
OUR REVENUES AND PROFITABILITY.

During 1998, our largest 20 customers accounted for approximately 38% of our
revenues and one customer, Everest Healthcare Services Corporation, an operator
of dialysis clinics, accounted for 12% of our revenues. As is customary in our
industry, we generally do not have long-term contracts with our customers.
Significant declines in the level of purchases by one or more of these customers
or the loss of one of these customers through industry consolidation could have
a material adverse effect on our business, financial condition or results of
operations. Also, an adverse change in the financial condition of any of these
customers, including an adverse change as a result of a change in governmental
or private reimbursement programs, could have a material adverse effect on our
business, financial condition or results of operations. In addition, Pharmacy
Plus is an approved provider of injectable biopharmaceuticals to a national
managed care organization under a contract that may be terminated by either
party upon 90 days prior written notice. The loss of this contract could have a
material adverse effect on our business, financial condition or results of
operations. We also have a contract with a group purchasing organization for
physicians' offices under which we are a recommended supplier of
biopharmaceuticals. Failure to renew this contract could cause a reduction in
our sales through the loss of sales to members who determine not to purchase
from us on their own, which could result in a material adverse effect on our
business, financial condition or results of operations.

THE HIGH LEVEL OF COMPETITION IN OUR INDUSTRY PLACES PRESSURE ON OUR PROFIT
MARGINS AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

The alternate site segment of the healthcare industry in which we operate is
highly competitive and is experiencing both horizontal and vertical
consolidation. All of the products which we sell are available from sources
other than us. The high level of competition in our industry places pressure on
profit margins, particularly those of Priority Healthcare Distribution. Some of
our competitors have greater financial, technical, marketing and managerial
resources than we have. These competitive pressures could have a material
adverse effect on our business, financial condition or results of operations.
Our current and potential competitors include:

- regional and national full-line, full-service medical supply distributors;

- independent specialty distributors;

- national full-line, full-service wholesale drug distributors that operate
their own specialty distribution businesses;

- institutional pharmacies;

- hospital-based pharmacies;

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- home healthcare agencies;

- mail order distributors that distribute pharmaceuticals and medical
supplies on a regional or national basis; and

- manufacturers like Bristol-Myers Squibb Company that own distributors or
that sell their products both to distributors and directly to users,
including clinics and physician offices.

Bristol-Myers Squibb, a major pharmaceutical manufacturer, owns a
distributor which markets oncology-related products to the office-based
oncologist market, which is a market from which we derive substantial revenues.
As a result, that distributor has a significant price advantage over us on
Bristol-Myers Squibb products and currently controls a substantial portion of
the market for Bristol-Myers Squibb products. Other pharmaceutical
manufacturers, including those whose products account for a significant portion
of our revenues, also could limit the availability or change the terms of supply
of their products in the future.

THE DEVELOPMENT OF METHODS OTHER THAN INJECTION FOR PATIENTS TO TAKE
BIOPHARMACEUTICALS COULD ADVERSELY IMPACT US.

We dispense biopharmaceuticals in syringes to fill patient-specific
prescriptions. Most biopharmaceuticals must be injected subcutaneously, or under
the skin, to be effective. The development of other methods for patients to take
biopharmaceuticals, rather than by injection, could have a material adverse
effect on our business, financial condition or results of operations.

OUR BUSINESS AND OUR INDUSTRY ARE HIGHLY REGULATED AND IF GOVERNMENT REGULATIONS
ARE INTERPRETED OR ENFORCED IN A MANNER ADVERSE TO US OR OUR BUSINESS, WE MAY BE
SUBJECT TO ENFORCEMENT ACTIONS AND MATERIAL LIMITATIONS ON OUR OPERATIONS.

We and our customers and suppliers are extensively regulated by federal,
state and local government agencies. We are required to register our business
for permits and/or licenses with, and comply with certain operating and security
standards of, the United States Drug Enforcement Administration, or DEA, the
Food and Drug Administration, or FDA, state boards of pharmacy, state health
departments and other state agencies in states where we operate. Although we
believe that we have obtained or are obtaining the permits and/or licenses
required to conduct our business and operations, failure to have the necessary
permits and licenses could have a material adverse effect on our business,
financial condition or results of operations.

In addition, we are subject to federal and state regulations which govern
financial and other arrangements between healthcare providers, including the
federal anti-kickback statute and other fraud and abuse laws. Failure to comply
with these laws and regulations could subject us to significant civil sanctions
and could result in suspension of our operations.

Our pharmacy in Altamonte Springs, Florida has been inspected by the State
of Florida Board of Pharmacy and the FDA. In November 1995 and June 1997, the
FDA issued FDA Forms-483, which is the form used by FDA investigators to
identify any observed or suspected noncompliance with the laws administered by
the agency. The FDA Forms-483 identified the facility as a pharmacy/repackager
and listed three observations related to certain requirements that the FDA
typically imposes on manufacturers of sterile products. We believe that we are
not, under the statute or the regulations, a repackager or manufacturer.
Although we believe that our position is supported by an FDA Compliance Policy
Guide issued in 1992, and a 1997 amendment to the Federal Food, Drug and
Cosmetic Act, the criteria that differentiate drug manufacturing from pharmacy
operations are uncertain under the current state of the law. We cannot assure
you that our position is correct or that future legislation, future rulemaking,
or active enforcement by the

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FDA of a determination that we are a drug manufacturer will not have an adverse
effect on our business, financial condition or results of operations.

We are also subject to federal and state laws governing the confidentiality
of patient information. In addition, recent federal legislation will result in
new national standards for the protection of patient information in electronic
health information transactions. Failure to comply with all applicable laws and
regulations regarding medical information privacy could have a material adverse
effect on our business, financial condition or results of operations.

Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern the activities of many of our customers that depend upon
Medicare and Medicaid reimbursement in their businesses. We cannot assure you
that such increased enforcement activities will not indirectly have a material
adverse effect on our business, financial condition or results of operations.

Because the healthcare industry will continue to be subject to substantial
regulations, we cannot guarantee that our activities will not be reviewed or
challenged by regulatory agencies in the future. Any such action could have a
material adverse effect on our business, financial condition or results of
operations.

IF WE ARE UNABLE TO EFFECTIVELY ADAPT TO CHANGES IN THE HEALTHCARE INDUSTRY, OUR
CONTINUED SUCCESS COULD BE MATERIALLY ADVERSELY AFFECTED.

In recent years, the healthcare industry has experienced significant change
driven by efforts to reduce costs and improve standards of care. These efforts
include potential national healthcare reform, trends toward managed care,
purchasing groups and pharmacy benefit managers, cuts in Medicare and horizontal
and vertical consolidation within the healthcare industry. Our inability to
react effectively to these and other changes in the healthcare industry could
adversely affect our operating results. We cannot predict whether any healthcare
reform efforts will be enacted and what effect any such reforms may have on us
or our customers and suppliers.

A DISRUPTION IN OUR COMPUTER SYSTEM OR OUR TELEPHONE SYSTEM COULD INTERFERE WITH
OUR OPERATIONS AND HURT OUR RELATIONS WITH OUR CUSTOMERS.

Our success depends, in part, upon our telephone sales and direct marketing
efforts and our ability to provide prompt, accurate and complete service to our
customers on a price-competitive basis. Any continuing disruption in either our
computer system or our telephone system could adversely affect our ability to
receive and process customer orders and ship products on a timely basis, and
could adversely affect our relations with our customers, potentially resulting
in partial reduction in orders from customers or loss of customers.

OUR BUSINESS IS DEPENDENT ON SHIPPING AND PRICE INCREASES OR SERVICE
INTERRUPTIONS IN OUR SHIPPING SERVICES COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND OUR ABILITY TO DELIVER PRODUCTS ON A TIMELY BASIS.

Shipping is a significant expense and is essential to our operations. We
ship most of our orders by overnight courier or other delivery services, and we
typically pay the cost of shipment. As a result, any significant increase in
shipping rates could have an adverse effect on our results of operations.
Similarly, strikes or other service interruptions by couriers or other delivery
services would adversely affect our ability to deliver products on a timely
basis.

11
<PAGE>
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE EFFECTIVE CONTROL OVER ANY MATTER
SUBMITTED TO A VOTE OF OUR STOCKHOLDERS.

After the offering, our executive officers and directors, based on their
holdings and the number of shares of common stock outstanding as of April 20,
1999, will have the power to vote approximately 1.2% of the Class B common
stock, and 46.2% of the Class A common stock, giving them approximately 28.2% of
the combined voting power of the outstanding common stock. As a result, they
will be able to significantly affect the outcome of any corporate transaction or
other matter submitted to a vote of our stockholders, and they may be able to
prevent or cause a change in control of our company.

OUR RELATIONSHIP WITH BINDLEY WESTERN POSES RISKS.

Three of our directors, including our Chairman of the Board, are executive
officers and directors of Bindley Western. We currently have, and will continue
to have, a variety of contractual relationships with Bindley Western, including
a Distribution Agreement entered into in connection with Bindley Western's
spin-off of our Class A common stock, an Indemnification and Hold Harmless
Agreement by which we and Bindley Western will indemnify and hold harmless each
other from certain obligations and contingent liabilities, a Tax Sharing
Agreement relating to the allocation of tax liabilities between Bindley Western
and us created up to December 31, 1998, and an Administrative Services Agreement
relating to certain services to be provided by Bindley Western to us. Bindley
Western's interests under the above contracts are adverse to our interests and
we cannot be certain whether Bindley Western management will use its position in
a manner adverse to us, either in the context of these contracts or otherwise.
We also have loaned significant amounts of our cash balances to Bindley Western.
At March 31, 1999, loans to Bindley Western, which mature on December 31, 1999,
aggregated $13.2 million. We do not intend to advance additional funds to
Bindley Western, including any proceeds from this offering. Although we believe
Bindley Western will pay the outstanding loans at maturity, we cannot assure you
that it will do so.

WE DEPEND ON KEY EMPLOYEES AND THE LOSS OF A KEY EMPLOYEE COULD ADVERSELY AFFECT
OUR BUSINESS.

Our future performance will depend in part on the efforts and abilities of
our key employees, including Robert L. Myers, President and Chief Executive
Officer. The loss of the services of Mr. Myers or other key employees could have
an adverse effect on our business. We have no key man life insurance policies on
any of our employees.

IF WE BECOME SUBJECT TO LIABILITY CLAIMS THAT ARE NOT ADEQUATELY COVERED BY OUR
INSURANCE POLICIES, WE MAY HAVE TO PAY DAMAGES AND OTHER EXPENSES WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON US.

Our business exposes us to risks that are inherent in the distribution of
pharmaceuticals and the provision of ancillary services. A successful claim not
covered by our professional liability and products liability insurance or in
excess of our coverage under the insurance could have a material adverse effect
on our business, financial condition or results of operations. In addition, we
cannot guarantee that we will be able to maintain professional liability
insurance in the future on acceptable terms or with adequate coverage against
potential liabilities.

YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR BUSINESS.

The year 2000 will pose a unique challenge to industries that rely on
information technology. Because of the methods used by early programmers, many
software applications and operational

12
<PAGE>
programs may be unable to distinguish the year 2000 from the year 1900. If not
effectively addressed, this problem could result in the production of inaccurate
data, or, in the worst cases, the inability of the systems to continue to
function altogether. We and other companies in the same business are vulnerable
to this problem because of our dependence on distribution and communications
systems.

Since December 31, 1996, we have replaced all of our hardware and software
systems for reasons other than year 2000 compliance. Our hardware systems and
our three main software systems have been tested and we believe they are year
2000 compliant. We also have tested the recently acquired software and hardware
systems of Pharmacy Plus and estimate that it will cost approximately $10,000 to
make those systems year 2000 compliant. We believe that the costs required to
bring our systems into compliance have not had and will not have a material
adverse effect on us. However, the year 2000 problem is widespread and complex
and can affect any computer process. As a result, we cannot guarantee that the
year 2000 compliance can be achieved without additional unanticipated
expenditures and uncertainties that might affect future financial results. In
addition, the failure of our key third party service providers, customers,
suppliers or third party payors to adequately address their year 2000 issues
could result in a material adverse effect on our business, financial condition
or results of operations.

WE MAY BE UNABLE TO EFFECTIVELY MANAGE SIGNIFICANT UNALLOCATED NET PROCEEDS FROM
THIS OFFERING, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON US.

We have not allocated the net proceeds from this offering to a specific use,
other than for general corporate purposes. We will have broad discretion in how
we use the net proceeds of this offering, which may include potential
acquisitions and working capital. The failure of management to apply these
proceeds effectively could have a material adverse effect on our business,
financial condition or results of operations, and therefore the market price of
the Class B common stock.

AVAILABILITY OF SIGNIFICANT AMOUNTS OF CLASS B COMMON STOCK FOR SALE COULD CAUSE
THE MARKET PRICE OF THE CLASS B COMMON STOCK TO FALL.

Upon completion of this offering, based on the number of shares of common
stock outstanding on April 20, 1999, there will be approximately 7,162,752
shares of Class A common stock and 14,305,707 shares of Class B common stock
outstanding. Future sales of shares of Class B common stock, or the availability
of shares of Class B common stock for future sales, may cause the market price
of the shares of Class B common stock prevailing from time to time to fall. A
holder of Class A common stock can request to convert shares of Class A common
stock into shares of Class B common stock at any time on a share-for-share
basis. In addition, shares of Class A common stock will convert automatically
into shares of Class B common stock on a share-for-share basis upon any sale or
other transfer, except a transfer to family members of the transferor or trusts
for the benefit of or entities controlled by the transferor or family members of
the transferor. The outstanding Class B common stock and the Class B common
stock sold in this offering will be freely tradable without restrictions by
persons other than our affiliates. All of the shares of Class A common stock,
when converted into Class B common stock, will also be freely tradable without
restrictions by persons other than our affiliates. We, our executive officers
and our directors have generally agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Class B common stock, or any securities
convertible into or exercisable or exchangeable for shares of Class B common
stock, for a period of 120 days after the date of this prospectus without the
prior written consent of Raymond James & Associates, Inc.

13
<PAGE>
THE MARKET PRICE FOR CLASS B COMMON STOCK MAY BE VOLATILE.

Future developments concerning our business or our competitors, including
operating results, governmental regulation, changes in financial estimates by
financial analysts or our failure to meet these estimates, and other factors,
could have a significant impact on the market price of the Class B common stock.
In addition, in recent years the stock market has experienced a high level of
price and volume volatility, and market prices for the stock of many companies,
particularly small and emerging growth companies, have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of these companies. These broad market fluctuations could have a
material adverse effect on the market price of the Class B common stock.

ANTI-TAKEOVER PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND INDIANA LAW COULD
DETER TAKEOVER ATTEMPTS THAT STOCKHOLDERS MAY THINK ARE IN THEIR BEST INTERESTS.

Our Restated Articles of Incorporation and By-Laws contain provisions that
may have the effect of delaying, deferring or preventing a change in control of
our company, may discourage bids at a premium over the market price of the Class
B common stock and may adversely affect the market price of our common stock,
and the voting and other rights of the holders of the Class B common stock.
These provisions include:

- the division of our board of directors into three classes serving
staggered three-year terms;

- removal of directors only for cause and only upon a 66 2/3% stockholder
vote;

- requiring stockholders representing 80% of the voting power to call a
special meeting of stockholders;

- the ability to issue additional shares of our common stock or preferred
stock without stockholder approval; and

- advance notice requirements for raising business or making nominations at
stockholders' meetings.

The Indiana corporation law contains business combination provisions that,
in general, prohibit for five years any business combination with a beneficial
owner of 10% or more of our common stock unless the holder's acquisition of the
stock was approved in advance by our board of directors. The Indiana corporation
law also contains control share acquisition provisions that limit the ability of
certain stockholders to vote their shares unless their control share acquisition
was approved in advance.

USE OF PROCEEDS

We expect to receive approximately $83.4 million from the sale of the
2,600,000 shares of Class B common stock offered by us at the public offering
price of $34.00 per share, after deducting underwriting discounts and
commissions and estimated expenses to be paid by us. We expect to receive
approximately $96.0 million of net proceeds if the underwriters exercise their
over-allotment option in full.

We intend to use the net proceeds of this offering for general corporate
purposes, including potential acquisitions and working capital. Pending these
uses, we expect to invest the net proceeds from this offering in short-term
investment grade, interest-bearing securities. While we engage in discussions
relating to potential acquisitions from time to time, we are not currently a
party to any definitive agreement or letter of intent regarding any material
acquisition, nor are there any material acquisitions which we consider probable.

14
<PAGE>
PRICE RANGE OF COMMON STOCK

Our Class B common stock trades on the Nasdaq National Market under the
symbol PHCC. Before October 24, 1997, there was no public market for the Class B
common stock. The prices shown below are the high and low sales quotations for
the Class B common stock as reported on the Nasdaq National Market for the
calendar period indicated, beginning on October 24, 1997, as adjusted to reflect
a 3-for-2 stock split effected as a stock dividend paid on May 4, 1999. As of
March 31, 1999, there were approximately 45 holders of record of Class B common
stock.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997:
Fourth Quarter (from October 24, 1997)................................. $ 11.00 $ 9.33

1998:
First Quarter.......................................................... 12.72 8.83
Second Quarter......................................................... 13.50 11.33
Third Quarter.......................................................... 16.17 10.83
Fourth Quarter......................................................... 35.96 13.17

1999:
First Quarter.......................................................... 33.58 18.17
Second Quarter (through June 9, 1999).................................. 42.75 29.58
</TABLE>

On June 9, 1999, the last sale price of the Class B common stock as reported
on the Nasdaq National Market was $34.0625 per share. Our Class A common stock
is not listed for trading. However, because the Class A common stock is
automatically converted into Class B common stock on a one-for-one basis when it
is transferred (except in limited circumstances), the Class A common stock is
freely tradable except by our affiliates. Holders of Class A common stock have
three votes per share on matters submitted to a vote of our stockholders, and
holders of Class B common stock have one vote per share. Holders of Class A
common stock and holders of Class B common stock generally vote as a single
class on all matters submitted to a vote of stockholders. As of March 31, 1999,
there were approximately 780 holders of record of Class A common stock.

DIVIDEND POLICY

We do not expect to pay any cash dividends on our common stock in the
foreseeable future and we plan to retain our earnings to finance operations,
future growth and possible acquisitions. The payment of dividends on our common
stock will be at the discretion of our board of directors and must comply with
applicable law. In addition, the terms of our credit facility prohibit us from
paying dividends without the prior written consent of the lender, which may not
be unreasonably withheld. Any decisions to pay dividends in the future will
depend on a number of factors, including our financial condition, capital
requirements, future business prospects, the terms of any documents governing
our indebtedness and other factors that the board of directors deems relevant.

On March 31, 1997, we paid a dividend to Bindley Western in the form of a
subordinated promissory note with a principal amount of $6.0 million to return
to Bindley Western a portion of its equity investment in us. We satisfied in
full the dividend note on September 30, 1998.

On April 6, 1999, our board of directors declared a 3-for-2 stock split,
effected as a stock dividend paid on May 4, 1999, to stockholders of record at
the close of business on April 20, 1999. Holders of Class A common stock
received Class A common stock and holders of Class B common stock received Class
B common stock in the stock split.

15
<PAGE>
CAPITALIZATION

The following table shows (1) our actual capitalization as of March 31,
1999, after giving effect to a 3-for-2 stock split effected as a stock dividend
paid on May 4, 1999, and (2) our capitalization as adjusted to reflect our
receipt and application of the estimated net proceeds from the sale of Class B
common stock offered by this prospectus, at the public offering price of $34.00
per share. You should read this table with the financial statements and the
notes to the financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. This table excludes 2,420,900 shares of our Class B common stock
which may be issued under our option plans, as in effect on March 31, 1999.
Options to purchase an aggregate of 1,780,764 shares of Class B common stock
were outstanding under these plans on March 31, 1999.

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Long-term obligations.................................................................... $ -- $ --
--------- ------------
Stockholders' equity:
Preferred Stock, no par value, 5,000,000 shares authorized; none issued or
outstanding.......................................................................... -- --
Class A Common Stock, $0.01 par value; 15,000,000 shares authorized; 8,198,245 shares
issued and outstanding, actual and as adjusted....................................... 82 82
Class B Common Stock, $0.01 par value; 40,000,000 shares authorized; 10,655,439 issued
and outstanding, actual; and 13,255,439 shares issued and outstanding, as adjusted... 107 133
Additional paid-in capital............................................................. 54,325 137,679
Retained earnings...................................................................... 20,612 20,612
--------- ------------
Total stockholders' equity........................................................... 75,126 158,506
--------- ------------
Total capitalization................................................................. $ 75,126 $ 158,506
--------- ------------
--------- ------------
</TABLE>

16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

In the table below, we provide selected consolidated financial data of
Priority Healthcare Corporation. We prepared this information using our
unaudited consolidated financial statements for the three-month periods ended
March 31, 1998 and 1999 and from our audited consolidated financial statements
for the five years ended December 31, 1998. You should read this selected
consolidated financial data together with our consolidated financial statements
and notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this prospectus. In our opinion, our selected
consolidated financial data for the three-month periods ended March 31, 1998 and
1999 include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of such data. The selected consolidated
financial data do not necessarily indicate the results to be expected in the
future.

EARNINGS PER SHARE (1):
Basic............................... $ 0.08 $ 0.12 $ 0.29 $ 0.39 $ 0.54 $ 0.11 $ 0.19
Diluted............................. $ 0.08 $ 0.12 $ 0.29 $ 0.39 $ 0.54 $ 0.11 $ 0.19

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $ 12,955 $ 16,000 $ 20,792 $ 57,488 $ 61,875 $ 67,230
Receivable from Bindley Western (2)... -- -- -- 5,290 16,517 13,166
Total assets.......................... 36,849 41,584 57,220 91,728 107,519 114,605
Payable to Bindley Western............ 8,345 3,873 9,290 -- -- --
Long-term obligations................. 113 751 560 272 -- --
Note payable to Bindley Western....... -- -- -- 6,000 -- --
Total liabilities..................... 16,610 16,553 27,820 31,845 37,478 39,479
Stockholders' equity.................. 20,239 25,031 29,400 59,883 70,041 75,126
</TABLE>

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

(1) Adjusted to reflect the 3-for-2 stock split effected as a stock dividend
paid on May 4, 1999.

(2) Represents loans of Priority Healthcare to Bindley Western on a short-term,
interest-bearing basis. The loan balances are due on December 31, 1999.
Priority Healthcare does not intend to advance additional funds to Bindley
Western, including any proceeds from this offering.

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read with our consolidated financial
statements and related notes included elsewhere in this prospectus.

OVERVIEW

Priority Healthcare Corporation provides patient-specific self-injectable
biopharmaceuticals and disease treatment services to people with chronic
diseases, and specialty pharmaceuticals and related medical supplies to the
office-based physician, outpatient renal dialysis center and homecare markets.
From our formation in June 1994 through our initial public offering on October
24, 1997, we operated as a wholly owned subsidiary of Bindley Western. Since the
initial public offering, we have incurred and will continue to incur incremental
recurring legal, audit, risk management and administrative costs related to
operating as a stand-alone entity that we did not experience as a wholly owned
subsidiary of Bindley Western.

We have built our business through internal growth and acquisitions. The
acquisitions by Bindley Western or by us include:

- Charise Charles, Ltd., Inc., a specialty wholesale distributor of oncology
and renal care biopharmaceuticals, in February 1993;

- PRN Medical, Inc., a specialty wholesale distributor of renal care
supplies and dialysis equipment, in October 1993;

- 3C Medical, Inc., a specialty distributor of acute dialysis products, in
October 1994;

- IV-1, Inc., IV-One Services, Inc. and National Pharmacy Providers, Inc.,
three related companies that provided specialty pharmacy related
healthcare services, in January 1995;

- Grove Way Pharmacy, Inc., a vaccine and injectable drug distributor, in
August 1997; and

- Pharmacy Plus, Ltd., a specialty mail order pharmacy, on April 12, 1999.

Because these acquisitions were accounted for under the purchase method of
accounting, the results of operations of the acquired companies are, or in the
case of Pharmacy Plus will be, included in our financial statements from their
dates of acquisition. As a result, we believe that period-to-period comparisons
of financial position and results of operations may not be meaningful. You
should not rely on them to predict our future performance.

The majority of our net sales are currently derived from:

- the sale of Neupogen, Procrit, Intron-A and related oncological pharmacy
products and supplies to oncology practices through Priority Healthcare
Distribution;

- the sale of EPO, Calcijex, INFeD and related dialysis pharmacy products
and supplies to outpatient renal dialysis centers through Priority
Healthcare Distribution;

- the provision of Rebetron and related support services on a
patient-specific basis for treatment of hepatitis C through Priority
Healthcare Pharmacy; and

- the provision of Intron-A and related support services on a
patient-specific basis for treatment of hepatitis B and C and several
forms of cancer through Priority Healthcare Pharmacy.

We typically are reimbursed for products and services provided by Priority
Healthcare Pharmacy by third-party payors, primarily private insurers and
managed care organizations. Sales derived from agreements with managed care
organizations generally are made pursuant to

18
<PAGE>
established rates negotiated periodically. We typically are reimbursed for
products provided by Priority Healthcare Distribution directly by oncology
practices, renal dialysis centers and other healthcare providers and pricing is
negotiated directly with the providers. In 1998, our net sales did not include
reimbursement from Medicare or Medicaid. Net sales by Priority Healthcare
Pharmacy increased from 8% of total net sales in 1997 to 12% of total net sales
in 1998. The higher level of specialized services provided by Priority
Healthcare Pharmacy generates substantially higher margins than Priority
Healthcare Distribution. As a result, sales from pharmacy services have a
proportionately greater impact on our earnings than sales from our lower margin
distribution services.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, the percentages of
total revenues represented by the respective financial items:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................................. 89.1 89.9 88.7 88.3 87.6
--------- --------- --------- --------- ---------
Gross profit...................................................... 10.9 10.1 11.3 11.7 12.4
Selling, general and administrative expense....................... 5.3 4.6 5.1 5.4 5.1
Depreciation and amortization..................................... 0.6 0.5 0.4 0.5 0.4
--------- --------- --------- --------- ---------
Earnings from operations.......................................... 4.9 5.0 5.8 5.7 6.9
Stock option expense.............................................. 0.0 0.2 0.0 0.0 0.0
Interest expense (income), net.................................... 0.3 0.4 (0.3) (0.2) (0.3)
--------- --------- --------- --------- ---------
Earnings before income taxes...................................... 4.6 4.4 6.1 5.9 7.2
Provision for income taxes........................................ 1.8 1.8 2.4 2.4 2.9
--------- --------- --------- --------- ---------
Net earnings...................................................... 2.8% 2.7% 3.7% 3.6% 4.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998

NET SALES. Net sales increased to $83.2 million in the first three months
of 1999 from $58.1 million in the first three months of 1998, an increase of
43%. The growth primarily reflected the addition of new customers, new product
introductions, including the new Rebetron treatment for hepatitis-C, additional
sales to existing customers and inflationary price increases.

GROSS PROFIT. Gross profit increased to $10.3 million in the first three
months of 1999 from $6.8 million in the first three months of 1998, an increase
of 51%. Gross profit as a percentage of net sales increased in the first three
months of 1999 to 12.4% from 11.7% in the first three months of 1998. The
increase in gross profit reflected increased sales by both Priority Healthcare
Pharmacy and Priority Healthcare Distribution. The increase in gross profit as a
percentage of net sales was primarily attributed to the change in sales mix, as
Priority Healthcare Pharmacy experienced increased sales, which generate higher
gross margins than Priority Healthcare Distribution sales. Competition continues
to exert pressure on margins, particularly those of Priority Healthcare
Distribution.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased to $4.3 million in the first three months of
1999 from $3.2 million in the first three months of 1998, an increase of 34%.
Selling, general and administrative expense as a percentage of net sales
decreased in the first three months of 1999 to 5.1% from 5.4% in the first three

19
<PAGE>
months of 1998. The increase in selling, general and administrative expense
reflected the growth in our business. The decrease in selling, general and
administrative expense as a percentage of net sales resulted from the spreading
of fixed costs over a larger sales base. Management continually monitors
selling, general and administrative expense and remains focused on controlling
these increases through improved technology and efficient asset management.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$313,000 in the first three months of 1999 from $311,000 in the first three
months of 1998, an increase of 0.6%. The increase was primarily the result of
additional depreciation on new equipment, particularly management information
systems, offset, in part, by a decrease in amortization of intangible assets
that became fully amortized.

INTEREST EXPENSE (INCOME), NET. Interest income, net of expense, increased
to $258,000 in the first three months of 1999, from $109,000 in the first three
months of 1998. In the first three months of 1999, interest income of $45,000
was primarily related to amounts earned by investing excess cash balances in
overnight repurchase agreements with a major financial institution and interest
income of $213,000 was related to loaning funds to Bindley Western. In the first
three months of 1998, interest income of $111,000 was primarily related to
amounts earned by investing funds received from the October 1997 initial public
offering of Class B common stock in overnight repurchase agreements with a major
financial institution and interest income of $112,000 was related to loaning
funds to Bindley Western. This interest income was partially offset by interest
expense of $109,000 in the first three months of 1998 for interest due on the
subordinated note issued to Bindley Western on March 31, 1997. The subordinated
note issued to Bindley Western was paid on September 30, 1998. The interest
income on the loans to Bindley Western was calculated by applying Bindley
Western's average incremental borrowing rate to the average outstanding loans.
The average outstanding loans to Bindley Western were $13.5 million in the first
three months of 1999, and $7.0 million in the first three months of 1998.
Bindley Western's average incremental borrowing rate was 5.3% in the first three
months of 1999 and 6.4% in the first three months of 1998.

PROVISION FOR INCOME TAXES. Through December 31, 1998, we participated in
the consolidated federal and state income tax returns filed by Bindley Western.
Bindley Western charged federal and state income tax expense to us as if we
filed our own separate federal and state income tax returns. The provision for
income taxes in the first three months of 1999 and 1998 represented 39.7% of
earnings before taxes.

1998 COMPARED TO 1997

NET SALES. Net sales increased to $275.6 million in 1998 from $231.0
million in 1997, an increase of 19%. The growth was primarily from the addition
of new customers, new product introductions, including Rebetron, additional
sales to existing customers and, to a lesser extent, the acquisition of Grove
Way Pharmacy and inflationary price increases.

GROSS PROFIT. Gross profit increased to $31.1 million in 1998 from $23.2
million in 1997, an increase of 34%. The increase in gross profit reflected
increased sales by both Priority Healthcare Pharmacy and Priority Healthcare
Distribution. Gross profit as a percentage of net sales increased in 1998 to
11.3% from 10.1% in 1997. This increase was primarily the result of the change
in sales mix caused by the significant increase in sales by Priority Healthcare
Pharmacy which generated higher gross margins than those of Priority Healthcare
Distribution. Competition continues to exert pressure on margins, particularly
those of Priority Healthcare Distribution.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased to $14.0 million in 1998 from $10.6 million in
1997, an increase of 32%. Selling, general

20
<PAGE>
and administrative expense as a percentage of net sales increased to 5.1% in
1998 from 4.6% in 1997. We constantly monitor selling, general and
administrative expense and remain focused on controlling these increases through
improved technology and efficient asset management. The increase in selling,
general and administrative expense as a percentage of net sales resulted from
incurring expenses associated with our Grove City, Ohio facility, which opened
in November 1997, training and payroll costs from hiring additional sales
personnel at Priority Healthcare Pharmacy, and increased overall costs of being
a publicly traded company.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $1.2
million in both 1998 and 1997.

INTEREST EXPENSE (INCOME), NET. Interest income, net, was $916,000 in 1998,
as opposed to interest expense, net, of $887,000 in 1997. In 1998, interest
income of $348,000 was primarily related to amounts earned by investing funds
received from the October 1997 initial public offering of our Class B common
stock in overnight repurchase agreements with a major financial institution and
interest income of $1.1 million related to loaning funds to Bindley Western.
This interest income was partially offset by interest expense of $326,000 on the
subordinated note issued to Bindley Western on March 31, 1997, which was paid
September 30, 1998, and interest expense of $155,000 on the deferred
compensation of one of our executives. During 1997, the interest expense
primarily resulted from borrowings from Bindley Western and $324,000 of interest
expense on the subordinated note issued to Bindley Western. The interest income
or expense on the loans to or borrowings from Bindley Western is calculated by
applying Bindley Western's average incremental borrowing rate, which was 6.3%
for 1998 and 6.4% for 1997, to the average outstanding balances. During 1998,
the average outstanding loans to Bindley Western were $16.9 million, while in
1997 the average outstanding borrowings from Bindley Western were $10.3 million.

PROVISION FOR INCOME TAXES. Through December 31, 1998, we participated in
the consolidated federal and state income tax returns filed by Bindley Western.
Bindley Western charged federal and state income tax expense to us as if we
filed our own separate federal and state income tax returns. The provision for
income taxes in 1998 represented 39.7% of earnings before taxes and the
provision for income taxes in 1997 represented 39.8% of earnings before taxes.

1997 COMPARED TO 1996

NET SALES. Net sales increased to $231.0 million in 1997 from $158.2
million in 1996, an increase of 46%. The growth reflected the addition of new
customers, new product introductions, additional sales to existing customers
and, to a lesser extent, inflationary price increases of approximately 4%.

GROSS PROFIT. Gross profit increased to $23.2 million in 1997 from $17.2
million in 1996, an increase of 35%. The increase in gross profit reflected
increased sales by both Priority Healthcare Pharmacy and Priority Healthcare
Distribution. Gross profit as a percentage of net sales decreased in 1997 to
10.1% from 10.9% in 1996. This decrease was primarily attributable to the change
in sales mix resulting from the significant increase in sales by Priority
Healthcare Distribution which generated lower gross margins than those of
Priority Healthcare Pharmacy. Competition continues to exert pressure on
margins, particularly those of Priority Healthcare Distribution.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased to $10.6 million in 1997 from $8.4 million in
1996, an increase of 26%. Still, selling, general and administrative expense as
a percentage of net sales decreased to 4.6% in 1997 from 5.3% in 1996.
Management constantly monitors selling, general and administrative expense and
remains focused on controlling these increases through improved technology and
efficient asset

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<PAGE>
management. The decrease in selling, general and administrative expense as a
percentage of net sales resulted from the revenue growth in excess of the fixed
portion of selling, general and administrative expense.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.2 million in 1997 from $1.0 million in 1996, an increase of 20%. The increase
was primarily the result of depreciation of new equipment, particularly
management information systems.

STOCK OPTION EXPENSE. Upon completion of our initial public offering, we
granted one of our consultants a 10-year option to purchase 50,000 shares of
Class B common stock at the initial public offering price. The grant of this
option resulted in a one-time compensation expense charge of $350,000 in 1997.
The number of shares and the exercise price of this option have subsequently
been adjusted to reflect the 3-for-2 stock split.

INTEREST EXPENSE (INCOME), NET. Interest expense increased to $1.0 million
in 1997 from $457,000 in 1996. This expense was primarily related to financing
provided to us by Bindley Western through our initial public offering date. The
expense also included $324,000 of interest due on the subordinated note issued
to Bindley Western on March 31, 1997. The interest expense on the intercompany
borrowings was calculated by applying the Bindley Western average incremental
borrowing rate to the average outstanding borrowings, while interest on the
subordinated note was calculated at the fixed 7.25% face rate of the note. The
average outstanding borrowings, excluding the subordinated note, were $10.3
million during 1997 and $6.4 million during 1996, and the average incremental
borrowing rate charged was 6.4% in both 1997 and 1996.

Interest income increased to $153,000 in 1997 from $20,000 in 1996. This
income included $87,000 earned on short-term investments with outside financial
institutions and finance charges from customers. The remaining $66,000 of
interest income was from advances to Bindley Western subsequent to our initial
public offering date. This interest income was calculated by applying the
Bindley Western average incremental borrowing rate to the average outstanding
advances. During the last two months of 1997, the average outstanding balance
was $5.9 million and the average incremental borrowing rate was 6.4%.

PROVISION FOR INCOME TAXES. We participated in the consolidated federal and
state income tax returns filed by Bindley Western. Bindley Western charged
federal and state income tax expense to us as if we filed our own separate
federal and state income tax returns. The provision for income taxes in 1997
represented 39.8% of earnings before taxes as compared to 40.0% for 1996.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirements have been to fund working capital needs
to support internal growth, for acquisitions and for capital expenditures. Our
principal working capital needs are for inventory and accounts receivable.
Management controls inventory levels in order to minimize carrying costs and
maximize purchasing opportunities. We sell inventory to our customers on various
payment terms. This requires significant working capital to finance inventory
purchases and entails accounts receivable exposure in the event any of our major
customers encounter financial difficulties. Although we monitor closely the
creditworthiness of our major customers, we cannot assure you that we will not
incur some collection loss on major customer accounts receivable in the future.

We had cash of $5.7 million, cash advances to Bindley Western of $13.2
million and working capital of $67.2 million at March 31, 1999. In addition, we
have a $10.0 million unsecured line of credit under which we had at March 31,
1999 a $5.0 million letter of credit outstanding and $5.0 million of additional
availability.

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THREE MONTHS ENDED MARCH 31, 1999

NET CASH PROVIDED BY OPERATING ACTIVITIES. Our operations generated
$951,000 in cash during the first three months of 1999. Accounts receivable
increased $4.3 million during the first three months of 1999, primarily to
support the increase in sales and the extension of credit terms to meet
competitive conditions. Inventory increased $145,000 during the first three
months of 1999 to support the increase in sales. Trade accounts payable
increased $2.1 million to partially reduce the cash required for the accounts
receivable increase. This increase was attributable to the timing of payments,
the inventory increase and the credit terms negotiated with vendors.
Depreciation and amortization totaled $313,000 during the first three months of
1999.

NET CASH USED BY INVESTING ACTIVITIES. Capital expenditures during the
first three months of 1999 totaled $65,000. We expect that capital expenditures
during the last nine months of 1999 will be approximately $1.0 million and
during 2000 will be approximately $1.0 million. We anticipate that these
expenditures will relate primarily to the purchase of computer hardware and
software, telecommunications equipment, and furniture and equipment for our new
corporate office. We expect to complete the move to our new corporate office in
November of 1999.

NET CASH PROVIDED BY FINANCING ACTIVITIES. We have advanced excess cash to
Bindley Western on an interest-bearing basis under the terms of a $25.0 million
revolving credit promissory note which is effective through December 31, 1999,
at which time all outstanding amounts are due in full. During the first three
months of 1999, our receivable from Bindley Western decreased by $3.4 million.
During the first three months of 1999, we also received proceeds of $1.5
million, including the income tax benefit, from stock option exercises.

YEAR ENDED DECEMBER 31, 1998

NET CASH PROVIDED BY OPERATING ACTIVITIES. Our operations generated $10.4
million in cash during 1998. Accounts receivable increased $13.2 million,
primarily to support the increase in sales and the extension of credit terms to
meet competitive conditions. Inventory decreased $695,000 in 1998 due to our
conscious effort to closely monitor inventory and maintain it at an optimal
level. The $10.7 million increase in trade accounts payable partially reduced
the cash requirements for accounts receivable; this increase resulted from the
timing of payments and the credit terms negotiated with vendors. Depreciation
and amortization totaled $1.2 million in 1998.

NET CASH USED BY INVESTING ACTIVITIES. In 1998 we purchased $825,000 in
fixed assets, primarily computer hardware and software. We expect that capital
expenditures during 1999 will be approximately $1.1 million. We anticipate that
these expenditures will relate primarily to the purchase of computer hardware
and software, telecommunications equipment, and furniture and equipment for a
new corporate office.

NET CASH USED BY FINANCING ACTIVITIES. We have advanced excess cash to
Bindley Western on an interest-bearing basis under the terms of a $25.0 million
Revolving Credit Promissory Note which is effective through December 31, 1999,
at which time all outstanding amounts are due in full. In 1998 this receivable
from Bindley Western increased by $11.2 million. We also paid the $6.0 million
subordinated note payable to Bindley Western.

Management believes that cash from operations, the proceeds of this
offering, repayment by Bindley Western of advances made to it and availability
under our line of credit will be sufficient to meet our working capital needs
for at least two years.

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SELECTED QUARTERLY FINANCIAL RESULTS

The following table presents selected unaudited quarterly statement of
earnings items, and percentages of total sales represented by those respective
items, for each of the last six fiscal quarters ended March 31, 1999. This
information has been prepared on the same basis as the audited financial
statements appearing elsewhere in this prospectus, and includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of the information when read in conjunction with our
consolidated financial statements and notes thereto appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net sales................................ $ 61,682 $ 58,129 $ 63,924 $ 71,723 $ 81,850 $ 83,159
Gross profit............................. 6,207 6,816 6,930 8,053 9,342 10,306
Earnings from operations................. 3,037 3,338 3,571 4,070 4,939 5,742
Net earnings............................. 1,605 2,077 2,271 2,653 3,143 3,618

AS A PERCENTAGE OF NET SALES:
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............................. 10.1 11.7 10.8 11.2 11.4 12.4
Earnings from operations................. 4.9 5.7 5.6 5.7 6.0 6.9
Net earnings............................. 2.6 3.6 3.6 3.7 3.8 4.4
</TABLE>

INFLATION

Our financial statements are prepared on the basis of historical costs and
are not intended to reflect changes in the relative purchasing power of the
dollar. Because of our ability to take advantage of forward purchasing
opportunities, we believe that our gross profits generally increase as a result
of manufacturers' price increases in the products we distribute. Gross profits
may decline if the rate of price increases by manufacturers declines.

Generally, price increases are passed through to customers as we receive
them and therefore they reduce the negative effect of inflation. Other
non-inventory cost increases, such as payroll, supplies and services, have been
partially offset during the past three years by increased volume and
productivity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposure to market risk consists of changes in interest rates on
our loans to Bindley Western. Interest income on these loans is determined based
on Bindley Western's average incremental borrowing rate (a variable rate) with
its third-party lender. A decrease in interest rates would adversely affect our
operating results and cash flow available to fund operations and expansion.
Based on the average loan balance for the first three months of 1999, a decrease
of 10% in Bindley Western's average incremental borrowing rate would result in
an approximately $72,000 annual decrease in interest income. In contrast, a 10%
increase in Bindley Western's average incremental borrowing rate would result in
an approximately $72,000 annual increase in interest income.

YEAR 2000 COMPLIANCE

The year 2000 will pose a unique set of challenges to those industries that
rely on information technology. Because of the methods employed by early
programmers, many software applications

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<PAGE>
and operational programs may be unable to distinguish the year 2000 from the
year 1900. If not effectively addressed, this problem could result in the
production of inaccurate data, or, in the worst cases, the inability of the
systems to continue to function altogether. We and other companies in the same
business are vulnerable to this problem because of our dependence on
distribution and communications systems.

Since December 31, 1996, we have replaced all of our hardware and software
systems for reasons other than year 2000 compliance; we have spent approximately
$825,000 for these systems. The hardware systems have been successfully tested
for year 2000 compliance. In May 1998, we initiated the process of preparing our
software applications to make them year 2000 compliant. Two of the three main
software packages that we use were tested for year 2000 compliance during 1998
and the third software package was upgraded during January 1999. We believe
these software systems are now year 2000 compliant. The total costs relating to
the upgrade of our software programs was approximately $75,000. Funds for these
payments were generated from operations. In addition, we have tested the
recently acquired software and hardware systems of Pharmacy Plus and estimate
that it will cost approximately $10,000 to make those systems year 2000
compliant.

We believe that the payments required to bring our systems into compliance
have not had and will not have a material adverse effect on us. However, the
year 2000 problem is widespread and complex and can potentially affect any
computer process. As a result, we cannot assure you that the year 2000
compliance can be achieved without additional unanticipated expenditures and
uncertainties that might affect future financial results.

Also, to operate our business, we rely on governmental agencies, utility
companies, telecommunications companies, shipping companies, suppliers and other
third party service providers over which we have little control. Our ability to
conduct our business is dependent upon the ability of these third parties to
avoid year 2000 related disruptions. We are in the process of contacting our
third party service providers about their year 2000 readiness, but we have not
yet received any assurances from any of these third parties about their year
2000 compliance. The failure of our key third party service providers,
customers, suppliers or third party payors to adequately address their year 2000
issues could result in a material adverse effect on our business, financial
condition or results of operations.

We have not to date developed any contingency plans, because these plans
will depend in part on the responses from our third party service providers.

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<PAGE>
BUSINESS

OVERVIEW

Priority Healthcare Corporation provides patient-specific, self-injectable
biopharmaceuticals and disease treatment services to people with chronic
diseases, and specialty pharmaceuticals and related medical supplies to the
office-based physician, outpatient renal dialysis center and homecare markets.
We provide products that are administered by physicians or patients themselves
in a non-hospital setting and that typically require specialized shipping and
support services.

INDUSTRY AND MARKET OVERVIEW

INDUSTRY OVERVIEW. The alternate site, or non-hospital, specialty
pharmaceutical and medical supply industry is fragmented with many public and
private companies focusing on different product or customer niches. Few
companies offer a wide range of pharmaceuticals and related supplies targeted to
multiple customer groups, specifically office-based physicians and outpatient
renal dialysis centers. Historically, cancer therapy, renal dialysis and most
other treatments for chronic and life-threatening medical conditions were
administered almost exclusively in a hospital inpatient setting. During the
1990s, these treatments have been administered outside the hospital with more
frequency, primarily in response to cost control efforts.

The operations of office-based physicians and clinics are very different
from those of the hospital market, creating logistical challenges and increasing
administrative costs for those offices. Office-based physicians and clinics
generally order relatively small quantities of drugs at irregular intervals and
do not have inventory management systems or sufficient pharmacy staffing.
Challenges facing these caregivers include building necessary administrative and
financial resources, managing relationships with multiple suppliers, managing
inventories, billing patients and third-party payors and monitoring new clinical
developments. We believe that the shift from hospital-based to office-based or
home-based care has created a significant opportunity, particularly in the
oncology, gastroenterology, renal dialysis and vaccine markets.

ONCOLOGY. The number of cancer patients continues to grow in the United
States. According to estimates by the American Cancer Society, approximately 1.2
million cases of cancer will be diagnosed in the United States in 1999. The
overall incidence of cancer is expected to increase as the average age of the
U.S. population continues to increase. According to the National Institutes of
Health, or NIH, over 50% of all cancers are diagnosed in people age 65 or over.

The principal treatments for cancer are surgery and a regimen of radiation
and pharmaceutical treatments. Surgery usually involves hospitalization, but
radiation and chemotherapy are increasingly being delivered in alternate site
settings like the physician office and the home. The NIH estimates that direct
medical costs for the treatment of cancer in the United States will be $37.0
billion in 1999. Frost & Sullivan estimated the U.S. market for oncology
pharmaceuticals to be $4.1 billion in 1996 and projected it to grow at a
compound annual rate of 13.2% from 1996 through 2003. We believe that the
office-based segment of the oncology pharmaceutical market represents
approximately 25% of that market and has been growing faster than the oncology
pharmaceutical market. Growth in the oncology pharmaceutical market is expected
to be driven by the continued introduction of new pharmaceuticals and increases
in the incidence of cancer. Almost one-half of the 350 biotechnology medicines
currently in development are cancer related, according to a 1998 survey
conducted by Pharmaceutical Research and Manufacturers of America, or PhRMA.

GASTROENTEROLOGY. We operate in the gastroenterology market, mainly through
the sale of interferon and Rebetron for the treatment of hepatitis C. The NIH
estimates that nearly

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<PAGE>
four million Americans are infected with hepatitis C and that approximately
30,000 new acute hepatitis C infections occur each year. According to the NIH,
the occurrence of hepatitis C infection appears to be declining from its peak in
1989, but only 25% to 30% of new hepatitis C infections are currently diagnosed.
We believe the treated portion of this population is likely to increase as
awareness of hepatitis disease management programs increases. According to the
NIH, hepatitis C is responsible for 8,000 to 10,000 deaths annually and is
currently the leading reason for liver transplantation in the United States.

RENAL DIALYSIS. According to the Health Care Financing Administration, or
HCFA, the incidence of end-stage renal disease is growing by approximately 6%
per year. End-stage renal disease causes the irreversible loss of kidney
function and requires kidney transplantation or routine dialysis treatment,
including hemodialysis, which involves removing waste products and excess fluids
from the blood. According to HCFA, as of December 31, 1997, over 80% of dialysis
patients, which we believe is still valid, were receiving hemodialysis in
outpatient treatment centers. Hemodialysis typically uses various specialty
pharmaceuticals and related medical supplies as part of the treatment.
Hemodialysis treatments usually last three hours and are performed three times a
week at over 3,000 outpatient facilities in the United States. The medication
most frequently prescribed to hemodialysis patients is EPO, which stimulates the
production of red blood cells, as well as Calcijex-Registered Trademark-
(calcium), INFeD-Registered Trademark- (iron), hepatitis vaccine and other
nutrient compounds. According to HCFA, EPO was being used to treat approximately
230,000 hemodialysis patients in 1997. We estimate that the United States market
for EPO alone exceeds $1.0 billion. Growth in this market is driven by the
general aging of the population, favorable reimbursement trends and proposed
regulatory changes, expansion of ancillary services and increased managed care
contracts.

VACCINE MARKET. The worldwide vaccine market currently exceeds $3.0 billion
annually, and is expected to grow to $7.0 billion by 2001, according to
SmithKline Beecham, one of the leading vaccine manufacturers. Growth in the
vaccine market is expected to be driven by the growth of combination pediatric
vaccines, travelers' vaccines, vaccines for adolescent protection, vaccines for
the elderly and vaccines to treat chronic infectious disease and cancer. We
estimate that pediatric vaccines represent 40% of the world market, and
hepatitis vaccines represent over 20% of the world market. According to the 1998
PhRMA survey, 77 vaccines are currently in development.

BUSINESS STRENGTHS

We believe the following business strengths have been major contributors to
our business success to date.

CLINICAL EXPERTISE. We provide disease treatment services to patients and
physicians through our highly trained clinical staff of pharmacists, nurses and
patient care coordinators. These personnel are available for ongoing
consultation with the patient and the dispensing physician regarding the
patient's therapy and progress seven days a week, 24 hours a day. To serve the
specific needs of our Priority Healthcare Pharmacy customers, we operate a
licensed pharmacy in Florida, which has been accredited with commendation by the
Joint Commission on Accreditation of Healthcare Organizations.

KNOWLEDGEABLE SALES, MARKETING AND SUPPORT STAFF. We have a well-trained,
knowledgeable telemarketing and sales support staff of approximately 50
full-time associates. Our sales support staff and telemarketers are most
experienced in the areas of oncology, gastroenterology, renal care and vaccines.
We hold frequent meetings and training sessions with our suppliers to enable our
sales and support staff to be well-informed about current and new
biopharmaceuticals. The sales and support staff provides knowledgeable customer
service, and promotes the sale of new products.

27
<PAGE>
BROAD PRODUCT OFFERINGS TO TARGETED MARKETS. We sell over 3,500 SKUs of
pharmaceuticals and medical supplies which enables us to provide "one-stop
shopping" to our customers. We target our selling efforts of products and
services to customers in alternate site settings, such as office-based
physicians and renal dialysis clinics. We constantly evaluate new products that
we can add to our offerings to continue to meet the needs of these specialized
markets.

COMMITMENT TO HIGH LEVEL OF CUSTOMER SERVICE. We are committed to providing
superior customer service that includes shipping products ordered before 6 p.m.
for delivery the next day and filling 99% of our orders within one day of being
ordered. Our software enables our salespeople to quickly determine product
availability, pricing, customer order history and billing information. Also,
Priority Healthcare Pharmacy provides patient education, counseling and
follow-up with 24-hour on-call pharmacists, nurses and patient care coordinators
to assist our patients in better understanding and following their treatments.

ESTABLISHED RELATIONSHIPS WITH LARGE CUSTOMER BASE OF PHYSICIANS, CLINICS
AND PATIENTS. We have an established customer base of over 2,000 physicians and
clinics, and over 2,500 patients, which enables us to provide value-added
services to biopharmaceutical manufacturers that desire direct access to
physicians and patients. These services include educating patients, monitoring
patient compliance, assisting in clinical trials and assisting in the
introduction of new biopharmaceuticals.

EFFICIENT OPERATING INFRASTRUCTURE. In the last two years, we have focused
considerable time and expense on building an infrastructure, including computer
systems and training, to enable us to operate efficiently and manage rapid
growth. Our management also focuses on tightly controlling expenses and is
constantly re-evaluating the efficiency of its operations, including purchasing
and distribution.

GROWTH STRATEGY

Our goal is to continue to grow rapidly and enhance our market position as a
leading specialty distributor by taking advantage of our business strengths and
pursuing the following strategies.

ACCELERATE GROWTH OF OUR HIGHER MARGIN, PATIENT-SPECIFIC PHARMACY
BUSINESS. We intend to continue to add telemarketing and sales support
personnel in an effort to reach more potential pharmacy customers and referring
physicians. By adding new product offerings, we should be able to attract a
broader range of additional customers. We believe that a number of physicians
that order pharmaceuticals and supplies from us also treat patients who require
patient-specific, self-injectable biopharmaceuticals. We use our database of
over 2,000 customers, including physicians focusing on oncology,
gastroenterology, renal care and vaccines, to identify these cross-selling
opportunities. We believe we are well-positioned to capture increased revenue
from these customers.

PROVIDE SERVICES FOR ADDITIONAL DISEASES BY TARGETING NEW PRODUCT CATEGORIES
AND PATIENT-SPECIFIC BIOPHARMACEUTICALS. We intend to begin providing services
for additional chronic diseases such as rheumatoid arthritis. Also, by targeting
additional chronic disease therapies that require patient-specific,
self-injectable biopharmaceuticals, we continue to leverage our clinical and
operational expertise from our existing disease services and expand our market.

ENHANCE EXISTING AND CREATE NEW RELATIONSHIPS WITH BIOPHARMACEUTICAL
MANUFACTURERS. We believe that our physician, clinic and patient customer base
is of significant value to biopharmaceutical manufacturers and enhances our
ability to form alliances which could expand our products, services and
geographic scope. Our current relationships focus on oncology, gastroenterology,
chronic renal dialysis and vaccines. We intend to target additional physicians
and patients in the rheumatoid arthritis and fertility markets. By increasing
the number of

28
<PAGE>
specialists and the range of specializations in our customer base, we believe
that we enhance our value to biopharmaceutical manufacturers.

MAINTAIN INTENSE COST CONTROL WHILE INVESTING IN OPERATING
INFRASTRUCTURE. Our goal is to remain a low cost provider of specialty
distribution products, while increasing value-added services to customers, such
as 24-hour on-call nurse support, patient counseling, specialized shipping and
software to our larger customers.

CONTINUE TO FOCUS ON AND FURTHER PENETRATE THE ALTERNATE SITE MARKET. By
focusing our Priority Healthcare Distribution business on the alternate site
market, we have targeted growth segments of the healthcare industry. We intend
to increase our alternate site market presence by expanding our product and
service offerings, increasing our telemarketing and sales support personnel and
committing resources to developing additional group accounts.

PURSUE ACQUISITIONS THAT COMPLEMENT OUR EXISTING PRODUCT OFFERINGS OR ADD
NEW PRODUCT OFFERINGS. We believe that the highly fragmented specialty
distribution and pharmacy industries present us with an opportunity to grow
through selective acquisitions. By acquiring complementary businesses, we can
increase our customer base, expand our product and geographic scope and
supplement our existing infrastructure. For example, the acquisition of Grove
Way Pharmacy enabled us to enter the market for distribution of vaccines into
the alternate site market and our recent acquisition of Pharmacy Plus has added
a mail order capability to our business.

PRODUCTS AND SERVICES

PRIORITY HEALTHCARE PHARMACY. Priority Healthcare Pharmacy provides
patient-specific, self-injectable biopharmaceuticals and related disease
treatment services to individuals with chronic diseases. In Altamonte Springs,
Florida, Priority Healthcare Pharmacy fills patient-specific prescriptions and
ships them via overnight delivery in special shipping containers to maintain
appropriate temperatures. The following biopharmaceuticals are provided to
patients as one component of our comprehensive disease treatment services:

- Rebetron, an oral antiviral and a synthetic biopharmaceutical used to
treat hepatitis C;

- interferon, a synthetic biopharmaceutical used to treat hepatitis B and C
and oncology patients;

- epoetin alfa, a synthetic biopharmaceutical used to treat anemia; and

- octreotide, a synthetic hormone used to treat diarrhea associated with
intestinal peptide tumors.

Priority Healthcare Pharmacy continues to evaluate expanding its product
offerings.

In connection with the delivery of biopharmaceuticals, our pharmacy and
nursing staff provide disease treatment services, including education,
counseling and other services. We have a distinctive approach to interacting
with patients from the time of initial contact through completion of the disease
treatment program. Upon referral, after we verify insurance or other
reimbursement information, our intake nurses call the new patients, explain the
program and provide education on self-injection techniques, side effects and
potential adverse drug interactions. After the initial prescription delivery,
patients are contacted by patient care coordinators who listen to patient
concerns, direct questions to our clinical staff, assess patient compliance and
progress, and inquire regarding any potential side effects. In addition, our
pharmacists and registered nurses are available for ongoing consultation with
the patient and the dispensing physician regarding the patient's therapy and
progress seven days a week, 24 hours a day.

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<PAGE>
A key component of our disease treatment services is our preparation,
shipment and delivery of products. At initial contact, our patient care
coordinators arrange the next scheduled prescription delivery and verify the
shipping address in order to avoid any problems with delivery. Most parenteral,
or injectable, prescriptions are prepared in sterile conditions that are
maintained by using class 100 laminar flow hoods. We prepare each prescription,
including filling syringes, so that it is ready to use upon delivery. Licensed
pharmacists verify the prescription with the prescribing physician and recheck
the prescription before shipping. In order to ensure the safe delivery of
prescriptions to the patient, we call the patient several days before shipping
to confirm that the patient or another person will be at home to receive the
package upon delivery. In addition, we require the overnight delivery service
provider to obtain a signed receipt before leaving the prescriptions at a
residence.

We believe our disease treatment services offer many advantages to patients,
physicians, third-party payors and drug manufacturers. These advantages include:

- increased patient compliance with the prescribed therapy;

- education of patients on the preparation and use of injectable
biopharmaceuticals;

- reduced potential for patient errors in dosing or product waste;

- decreased patient and caregiver anxiety;

- reduced overall cost of treatment; and

- collection of better outcomes data on the results of patient treatment.

We also expect to offer additional services to patients and physicians
through our website at www.hepatitisneighborhood.com. Our goal is to provide
Internet users with helpful, health-related information, including information
about diseases as well as general well-being. Initially, we will build the
content of our website to include information regarding hepatitis C. In the
longer term, we plan to provide confidential patient-specific information,
including specific disease treatment services, accessible only by the particular
patient and the treating physician. We will continue to assess changes in and
additions to the content of our website based on the feedback that we receive
from patients, physicians and other Internet users who access the site. The
information on the website is not a part of this prospectus.

PRIORITY HEALTHCARE DISTRIBUTION. Priority Healthcare Distribution provides
a broad range of services and supplies to meet the needs of the alternate site
market, including office-based physicians in the oncology and infectious disease
markets, outpatient renal dialysis centers and office-based physicians
administering vaccines. Priority Healthcare Distribution offers value-added
services to meet the specialized needs of these markets such as shipping
refrigerated pharmaceuticals overnight in special packaging to maintain
appropriate temperatures and offering automated order entry services and
customized distribution for group accounts. Priority Healthcare Distribution
distributes its products from distribution centers in Tustin, California and
Grove City, Ohio. We sell over 3,500 SKUs of pharmaceuticals such as EPO,
Neupogen, Calcijex and INFeD and related medical supplies such as dialyzers,
blood tubing, fistula needles, IV sets, transducers, tape and sponges. During
1998, approximately 27% of our revenues were from sales of EPO to the renal care
market. EPO for the renal care market is available from only one manufacturer,
Amgen. Priority Healthcare Distribution services over 2,000 customers located in
all 50 states and Puerto Rico, including approximately 600 office-based
oncologists and 800 renal dialysis clinics.

We believe our knowledgeable salesforce gives us a competitive advantage for
selling into the alternate site market. Since a majority of customer orders are
placed by telephone, we offer our customers a toll-free telephone number and fax
line. Also, we are beginning to use electronic data interchange ordering
capability to accept electronically transmitted orders. Our telemarketing sales

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and service personnel typically receive customer orders. As part of our
commitment to superior customer service, we offer our customers easy order
placement. Once an order is received, it is electronically sent to the
appropriate distribution center where it is filled and shipped. We estimate that
approximately 98% of all items are shipped without back ordering, and that 99%
of all orders received before 6 p.m. are shipped on the same day that the order
is received.

SALES AND MARKETING

We currently employ approximately 50 full-time telemarketing and sales
support staff personnel. We strive to generate new customers and solidify
existing customer relationships through frequent direct marketing contact that
emphasizes our broad product lines in specialty markets, competitive prices,
responsive service and easy order placement. We telemarket to oncology clinics,
physician offices and dialysis centers. We target larger customers with
customized approaches developed by management and its key account team. We also
link the Priority Healthcare Distribution and Priority Healthcare Pharmacy
databases to facilitate cross-selling efforts. We believe that there is a
significant opportunity to provide our specialty pharmacy services to patients
of physicians that currently order pharmaceuticals and supplies from Priority
Healthcare Distribution.

Our sales personnel service both in-bound and out-bound calls and are
responsible for assisting customers in purchasing decisions, answering questions
and placing orders. Sales personnel also make calls to market our services to
customer accounts that we identify as high volume accounts, high order frequency
accounts or accounts with cross-selling opportunities. Our sales personnel use
PC-based computer systems to enter customer orders and to access information
about products, product availability, pricing, promotions and customer buying
and referral history. All telemarketing sales personnel work to establish
long-term relationships with our customers through regularly scheduled phone
contact and personalized service.

We provide training for sales personnel on a regular basis through
in-service meetings, seminars and field training, supported by print and video
materials. Initial and ongoing training focuses on industry and product
information, selling skills, ethics and compliance requirements and computer
software skills. We believe that our investment in training is critical to
establishing and maintaining our competitive position in the marketplace.

CUSTOMERS

Priority Healthcare Distribution serves over 2,000 customers located in all
50 states and Puerto Rico, including approximately 600 office-based oncologists
and 800 renal dialysis clinics.

During 1998, our largest 20 customers accounted for approximately 38% of our
revenues and one customer, Everest Healthcare Services Corporation, accounted
for approximately 12% of our revenues. Significant declines in purchases by one
or more of our largest customers could have a material adverse effect on our
business, financial condition or results of operations. In addition, Pharmacy
Plus is an approved provider of injectable biopharmaceuticals to a national
managed care organization under a contract that may be terminated by either
party upon 90 days prior written notice. We also have a contract with a group
purchasing organization for physicians' offices under which we are a recommended
supplier of biopharmaceuticals. As is customary in our industry, we generally do
not have long-term contracts with our customers. Management believes that the
retention rate for our customers is very favorable. Although we have not to date
failed to collect accounts receivable from our largest customers, an adverse
change in the financial condition of any of these customers, including an
adverse change as a result of a change in governmental or private reimbursement
programs, could have a material adverse effect on our business, financial
condition or results of operations.

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PURCHASING

We believe that effective purchasing is key to both profitability and
maintaining market share. Products from our largest supplier, Amgen, accounted
for approximately 42% of our revenues in 1996, approximately 40% of our revenues
in 1997 and approximately 32% of our revenues in 1998. We have a $5.0 million
standby letter of credit with a major financial institution with Amgen as the
beneficiary. We constantly evaluate our purchase requirements and anticipated
increases in manufacturer prices to obtain products at the best cost. We have
several partnership relationships with manufacturers that offer favorable
pricing, volume-based incentives and opportunities to reduce supply chain costs
for both parties.

COMPETITION

The alternate site specialty pharmaceutical and medical supply industry is
highly competitive and is experiencing both horizontal and vertical
consolidation. The industry is fragmented, with many public and private
companies focusing on different product or customer niches. Some of our current
and potential competitors include:

- regional and national full-line, full-service medical supply distributors;

- independent specialty distributors;

- national full-line, full-service wholesale drug distributors that operate
their own specialty distribution businesses;

- institutional pharmacies;

- hospital-based pharmacies;

- home healthcare agencies;

- mail order distributors that distribute pharmaceuticals and medical
supplies on a regional or national basis; and

- manufacturers like Bristol-Myers Squibb that own distributors or that sell
their products both to distributors and directly to users, including
clinics and physician offices.

Some of our competitors have greater financial, technical, marketing and
managerial resources than we have. While competition is primarily price and
service oriented, it can also be affected by depth of product line, technical
support systems, specific patient requirements and reputation.

GOVERNMENT REGULATION

As a provider of healthcare services and products, we are subject to
extensive regulation by federal, state and local government agencies.

LICENSING. We are required to register with the United States Drug
Enforcement Administration, or DEA, and appropriate state agencies for various
permits and/or licenses. We also must comply with the operating and security
standards of these agencies and the Food and Drug Administration or FDA. Our
Tustin, California and Grove City, Ohio distribution centers are licensed to
distribute pharmaceuticals in accordance with the Prescription Drug Marketing
Act of 1987. The Grove City location is also licensed to distribute or dispense
certain controlled substances in accordance with the requirements of the
Controlled Substances Act of 1970. Our pharmacy program and provider businesses
also are subject to licensing by the DEA and by the state boards of pharmacy,
state health departments and other state agencies where they operate.

On November 14, 1995, an investigator for the FDA and an inspector from the
State of Florida Board of Pharmacy inspected our pharmacy in Altamonte Springs,
Florida. At the end of the

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inspection, the FDA investigator issued an FDA Form-483, which is the form used
by FDA investigators to identify any observed or suspected noncompliance with
the laws administered by the agency. The FDA Form-483 identified the facility as
a pharmacy/repackager and listed three observations related to certain
requirements that the FDA typically imposes on manufacturers of sterile
products. We advised the FDA in December 1995 that we believe we are not, under
the statute or the regulations, a repackager or a manufacturer. The FDA
investigator and Florida pharmacy authorities inspected the same facility again
on June 26, 1997. The FDA investigator issued a substantially identical FDA
Form-483 at the end of that inspection. The Florida State Board of Pharmacy did
not issue any deficiencies regarding the operations of the Altamonte Springs
pharmacy in either of these inspections.

On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. Our response to the FDA in December 1995 cited this CPG
and explained our argument that, using the FDA's own criteria, the Altamonte
Springs pharmacy is properly regulated under state and local laws.

On November 21, 1997, the President signed into law the FDA Modernization
Act of 1997, which included a new section of the Federal Food, Drug and Cosmetic
Act on pharmacy compounding. In this provision, Congress clarified a gray area
by stating the circumstances in which pharmacies may compound drugs without
filing a New Drug Application, observing the FDA's Good Manufacturing Practice
regulations or complying with several other Federal Food, Drug and Cosmetic Act
requirements. Congress provided that "compounding" does not include mixing or
reconstituting done in accordance with directions in approved labeling provided
by the manufacturer of the product. We believe that, as a result of this
amendment, if we follow the manufacturer's approved labeling in each case, and
prepare drugs only for identified individual patients using licensed
practitioners, our activities should be regulated by the Florida State Board of
Pharmacy and not be subjected by the FDA to a full New Drug Application
requirement demonstrating the basic safety and effectiveness of the drugs.

If we are correct and our operations are limited to those engaged in by
pharmacies, there should be no material adverse effect from the FDA Form-483s
because we believe we are currently in compliance in all material respects with
applicable state and local laws. If we are deemed to be a sterile product
manufacturer or a sterile product repackager, we will be subject to additional
regulatory requirements. If for some reason the FDA or other legal authorities
decide that we must file for approval of a New Drug Application, this event
could have a material adverse effect on our business, financial condition or
results of operations.

We cannot guarantee that future legislation, future rulemaking or active
enforcement by the FDA of a determination that we are a drug manufacturer will
not have a material adverse effect on our business, financial condition or
results of operations.

The State of Florida Board of Pharmacy regulates the compounding activities
of Florida pharmacies, including some of our activities. We have a
Community/Special Parenteral/Enteral Compounding Pharmacy Permit. Over the past
several years, the Florida Board of Pharmacy has proposed several changes to its
compounding requirements. We believe that we are in compliance with the current
requirements, but we cannot guarantee that other conditions or requirements will
not be imposed in the future that will have a material adverse effect on our
business, financial condition or results of operations.

Additionally, state laws prohibit the practice of medicine and nursing
without a license. Many states interpret the practice of nursing to include
health teaching, health counseling, the provision of care supportive to or
restorative of life and well being and the execution of medical regimens
prescribed by a physician. Accordingly, to the extent that we assist patients
and providers in

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<PAGE>
helping patients comply with prescribed treatment programs, our activities could
be deemed by a state to be the practice of medicine or nursing. There can be no
assurance that our operations will not be challenged as constituting the
unlicensed practice of medicine or nursing. If such a challenge were made
successfully in any state, we could be subject to civil and criminal penalties
under that state's law and could be required to restructure our business in that
state. These results or the inability to successfully restructure our business
could have a material adverse effect on us.

REFERRAL RESTRICTIONS. We must comply with federal and state laws that
govern financial and other arrangements between healthcare providers. These laws
include the federal anti-kickback statute, which prohibits, among other things,
knowingly and willfully soliciting, receiving, offering or paying any
remuneration directly or indirectly, in return for or to induce the referral of
an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many states
have similar statutes which are not necessarily limited to items and services
for which payment is made by Medicare or Medicaid. Violations of these laws may
result in fines, imprisonment and exclusion from the Medicare and Medicaid
programs or other state-funded programs. The limited number of federal and state
court decisions interpreting these statutes have generally interpreted the
statutes to apply if "one purpose" of remuneration is to produce referrals or
other conduct covered by the statute.

In part to address concerns regarding the anti-kickback statute, the federal
government has issued regulations that provide exceptions, or "safe harbors,"
for transactions that will be deemed not to violate the anti-kickback statute.
Proposed regulations to clarify these safe harbors and to provide additional
safe harbors have been published but final regulations have not yet been
adopted. Although we believe that we are not in violation of the anti-kickback
statute, our operations do not fit within any of the existing or proposed safe
harbors.

Until recently, there were no procedures for obtaining binding
interpretations or advisory opinions from the Health and Human Services Office
of the Inspector General, or OIG, on the application of the federal
anti-kickback statute to an arrangement or its qualification for a safe harbor
upon which we can rely. However, the Health Insurance Portability and
Accountability Act of 1996, or HIPAA, requires the Secretary of Health and Human
Services to issue written advisory opinions regarding the applicability of
certain aspects of the anti-kickback statute to specific arrangements or
proposed arrangements. Advisory opinions are binding on the Secretary and the
party requesting the opinion.

The OIG has issued fraud alerts identifying certain questionable
arrangements and practices which it believes may implicate the federal
anti-kickback statute. The OIG has issued a fraud alert with its views on
certain joint venture and contractual arrangements between healthcare providers.
According to another fraud alert, certain prescription drug marketing practices
could violate the federal anti-kickback statute. These marketing activities may
be covered by the federal anti-kickback statute because drugs are often
reimbursed under the Medicaid program. According to the fraud alert, practices
that could violate the statute include some arrangements under which payment is
made to pharmacists to recommend a particular pharmaceutical product.

A number of states have recently undertaken enforcement actions against
pharmaceutical manufacturers involving pharmaceutical marketing programs,
including programs with incentives to pharmacists to dispense one product rather
than another. These enforcement actions arise under state consumer protection
laws which generally prohibit false advertising, deceptive trade practices and
the like. Also, a number of the states involved in these enforcement actions
have requested that the FDA increase its oversight in the area of pharmaceutical
promotional activities by pharmacists. It is not possible to determine whether
the FDA will take this action or what effect, if any, FDA or State involvement
would have on our operations.

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Congress enacted major prohibitions against physician referrals in 1993.
These prohibitions, commonly known as Stark II, amended prior physician
self-referral legislation known as Stark I by dramatically enlarging the field
of physician-owned or physician-interested entities to which the referral
prohibitions apply. As of January 1, 1995, Stark II prohibits a physician from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest,
or with which the physician has entered into a compensation arrangement. Stark
II also prohibits the entity from billing the government for services rendered
pursuant to a prohibited referral. The designated health services include
clinical laboratory services, radiology services, radiation therapy services and
supplies, physical and occupational therapy services, durable medical equipment
and supplies, parenteral and enteral nutrients, equipment and supplies,
prosthetic devices, orthotics and prosthetics, outpatient prescription drugs,
home health services, and inpatient and outpatient hospital services. The
penalties for violating Stark II include a prohibition on payment by these
government programs, civil penalties of as much as $15,000 for each violative
referral and $100,000 for participation in a "circumvention scheme," and
exclusion from further participation in Medicare or Medicaid.

In January 1998, HCFA published proposed regulations which implement Stark
II and interpret the Stark II provisions. Some of these interpretations are more
restrictive than previously assumed. As of the date of this prospectus, we
cannot predict when the proposed rules will be published in final form or what
changes may be made to the rules before they are finalized. We cannot determine
the impact of the anti-referral provisions of Stark II on our financial
condition and results of our operations.

In addition, HIPAA prohibits any person or entity from knowingly and
willfully committing a federal health care offense relating to a health care
benefit program. Under HIPAA, a "health care benefit program" broadly includes
"any public or private plan or contract, affecting commerce, under which any
medical benefit, item, or service is provided to any individual." Among the
"federal health care offenses" prohibited by HIPAA are health care fraud and
making false statements relative to health care matters. Any person or entity
that knowingly and willfully defrauds or attempts to defraud a health care
benefit program or obtains by means of false or fraudulent pretenses,
representations, or promises, any of the money or property of any health care
benefit program in connection with the delivery of health care services is
subject to a fine and/or imprisonment. HIPAA also provides that any person or
entity that knowingly and willfully falsifies or conceals or covers up a
material fact or makes any materially false or fraudulent statements in
connection with the delivery of or payment of health care services by a health
care benefit plan is subject to a fine and/or imprisonment . These provisions of
HIPAA represent the criminalization of situations which previously would have
been handled civilly through the administrative processes of repayment of
overpayments, offsets and fines.

We are also subject to federal and state laws, including the federal False
Claims Act, prohibiting an individual or entity from knowingly and willfully
presenting claims for payment by Medicare, Medicaid or other third party payors
that contain false or fraudulent information. These laws also provide for both
criminal and civil penalties. Also, providers found to have submitted claims
which they knew or should have known were false, fraudulent, or for items or
services that were not provided as claimed, may be excluded from Medicare and
Medicaid participation, required to repay previously collected amounts, and
subject to substantial civil monetary penalties.

Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules. Some of these laws and
regulations govern the activities of many of our customers. We cannot guarantee
that increased enforcement activities will not indirectly have a material
adverse effect on our business, financial condition or results of operations.

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<PAGE>
PATIENT CONFIDENTIALITY. Various federal and state laws establish minimum
standards for the maintenance of medical records and protect the confidentiality
of patient medical information. In the course of our business, we maintain
medical records for each patient to whom we dispense pharmaceuticals. As a
result, we are subject to one or more of these medical record and patient
confidentiality laws. Also, we may become subjected to new rules recently
mandated by HIPAA, and proposed by HCFA to ensure the integrity and
confidentiality of patient data by creating mandatory security standards for
entities which maintain or transmit health information electronically.
Unauthorized disclosure of confidential patient information, or other failure to
comply with any applicable laws and regulations regarding the maintenance of
patient records and the confidentiality of medical information could have a
material adverse effect on our business, financial condition or results of
operation.

PRACTICE OF PHARMACY. State laws prohibit the practice of pharmacy without
a license. Accordingly, our pharmacists are licensed in Florida and other states
where required. Although we monitor the professional aspects of their practice,
to the extent that our employees assist patients and providers in helping
patients comply with prescribed treatment programs, these activities could be
deemed by a state to be the practice of medicine, nursing or outside the scope
of permitted pharmacy practice.

LABELING AND MAIL ORDER. In addition, federal statutes and regulations
establish standards for the labeling, packaging, repackaging, advertising and
adulteration of prescription drugs and the dispensing of "controlled" substances
and prescription drugs. To the extent that we were to use the federal postal
service, Federal Trade Commission and United States Postal Service regulations
require mail order sellers to engage in truthful advertising, to stock a
reasonable supply of drugs, to fill mail orders within thirty days and, if that
is impossible, to inform the consumer of his or her right to a refund. We
believe that we are in substantial compliance with the above requirements.

OTHER REGULATORY ISSUES. Some states have adopted, or are considering
adopting, restrictions similar to the restrictions contained in the federal
anti-kickback and physician self-referral laws. Although we believe that our
operations do not violate applicable state laws, state regulatory authorities
could challenge our activities under these laws or challenge the dispensing of
patient-specific, self-injectable biopharmaceuticals by us as being subject to
state laws regulating out-of-state pharmacies.

We believe our pharmacy practices and our contract arrangements with other
healthcare providers and pharmaceutical suppliers are in compliance with these
laws. To address the risks presented by these laws, we have appointed an
employee trained as a lawyer as Vice President of Administration, arranged for
compliance reviews conducted by outside advisors and put in place an ethics and
corporate compliance program. We cannot guarantee that our interpretation and
application of these laws will be consistent with future interpretations of the
laws.

REIMBURSEMENT

A large portion of Priority Healthcare Pharmacy's sales is derived from
third-party payors, including private insurers and managed care organizations
such as HMOs and PPOs. Similar to other medical service providers, we experience
long reimbursement collection periods because of third party payment procedures.
As a result, effective management of accounts receivable through effective
patient registration, billing, collection and reimbursement procedures is
critical to our financial success.

Private payors typically reimburse a higher amount for a given service and
provide a broader range of benefits than governmental payors, although net
revenue and gross profits from private payors have been affected by the
continuing efforts to contain or reduce the costs of healthcare. A

36
<PAGE>
portion of our revenue has been derived in recent years from agreements with
HMOs, PPOs and other managed care providers. Although these agreements often
provide for negotiated reimbursement at reduced rates, they generally result in
lower bad debts and provide opportunities to generate greater volumes than
traditional indemnity referrals.

In 1998, our revenues did not include reimbursement from Medicare and
Medicaid. Nonetheless, because of the reliance of office-based oncologists and
renal dialysis clinics on Medicare and Medicaid reimbursement, changes in these
governmental programs could have a material effect on our business, financial
condition and results of operations.

Because the Medicare program represents a large portion of the federal
budget, Congress acts in almost every legislative session to reduce the amounts
payable from the Medicare program to healthcare providers. Legislation or
regulations may be enacted in the future that may significantly change the end
stage renal dialysis program or substantially reduce the amount paid for
dialysis or oncology treatments. Also, statutes or regulations may be adopted
which impose additional requirements on our customers to be eligible to
participate in the federal and state payment programs. It is possible that the
new legislation or regulations could adversely affect our business operations.

Additionally, the Balanced Budget Act of 1997, which was enacted in August
1997, contained numerous provisions related to Medicare and Medicaid
reimbursement. Although many of the details will not be known for the next
several years, the general thrust of the provisions dealing with Medicare and
Medicaid contained in the Budget Act is intended to significantly slow the
growth in Medicare spending. The Budget Act contains changes to reimbursement
rates for certain Medicare and Medicaid covered services, and limitations on the
coverage of these services. Although our revenues in 1998 did not include
reimbursement from Medicare and Medicaid, the Budget Act may affect our
suppliers and customers, which in turn could have an adverse effect on us.

Also, we expect that private payors will continue their efforts to contain
or reduce healthcare costs through reductions in reimbursement rates or other
cost-containment measures. These efforts could have a material adverse effect on
our business, financial condition and results of operations.

EMPLOYEES

At March 31, 1999, we had approximately 160 full-time equivalent employees.
None of our employees is currently represented by a labor union or other labor
organization. Approximately 8% of the employees are pharmacists or nurses. We
believe that our relationship with our employees is good.

FACILITIES

Our headquarters are located in Altamonte Springs, Florida, and consist of
approximately 33,000 square feet of space leased through December 1999. We have
signed a five year lease beginning in January 2000 for a new 38,000 square foot
corporate headquarters and pharmacy facility in nearby Lake Mary, Florida. The
lessor has agreed to allow us to move into the space prior to January 2000 and
we intend to do so in November 1999. We also have 600 square feet of office
space in Fort Lauderdale, Florida, which is leased through December 31, 1999.
Priority Healthcare Distribution has a 19,300 square foot distribution center in
Tustin, California, which is leased through November 2000 and a 36,000 square
foot distribution center in Grove City, Ohio, which is leased through July 2002.
Priority Healthcare Distribution also has a 1,200 square foot sales office in
San Ramon, California, which is leased through April 2001. Pharmacy Plus has an
approximately 1,500 square foot pharmacy in Philadelphia, Pennsylvania, which is
leased through March 2004.

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Our distribution centers have been constructed or adapted to our
specifications for climate control, alarm systems and, where required, separate
security areas for controlled substances.

Overall, we believe that our facilities are suitable and adequate for our
current needs, and for projected internal growth through at least 2000.

LEGAL PROCEEDINGS

IV-1, now known as Priority Healthcare Pharmacy, Inc., and IV-One Services,
which was merged into IV-1 on December 31, 1998, have been named as defendants
in a second amended counterclaim filed by Amgen on May 14, 1996, in the Circuit
Court of the Eighteenth Judicial District of Seminole County, Florida. Amgen has
asserted that these entities tortiously interfered with a license agreement
between Amgen and Ortho Pharmaceutical Corporation. Under this agreement, Amgen
licensed Ortho to sell EPO for use in the treatment of non-dialysis patients,
while Amgen reserved the exclusive right to sell EPO for use in the treatment of
dialysis patients. Amgen has asserted that, before we purchased IV-1 and IV-One
Services, these entities induced Ortho to sell EPO to them for resale in the
dialysis market in violation of the license agreement. Amgen has also alleged
that IV-1 and IV-One Services were involved in a civil conspiracy to circumvent
the terms of the license agreement to allow the resale of EPO to the dialysis
market. Amgen has also asserted unfair competition claims against IV-1,
including that IV-1 manufactured and distributed unapproved prefilled syringes
of EPO and another product manufactured by Amgen in container systems unapproved
by Amgen. Amgen did not state a time frame for the acts complained of in the
civil conspiracy and unfair competition allegations. In each count, Amgen has
demanded an unspecified amount of compensatory damages, including costs and
interest.

We believe that the sellers of IV-1, IV-One Services and Charise Charles
have a contractual obligation to provide legal defense and to indemnify us for
losses and liabilities with respect to this litigation, to the extent that the
alleged acts happened before we purchased these entities. To date, the sellers
have provided the legal defense for IV-1 and IV-One Services in the litigation.
Indemnification from the sellers of IV-1 and IV-One Services is limited to no
more than $1.5 million and indemnification from the sellers of Charise Charles
is limited to no more than $2.0 million. As of March 31, 1999, approximately
$161,000 of charges have been incurred on behalf of the sellers for claims for
indemnification.

We do not expect the Amgen litigation to be material to our results of
operations, financial condition or cash flows; however, we cannot guarantee that
this litigation will not have a material adverse effect on our business,
financial condition or results of operations. Also, Amgen is our largest
supplier. As a result, this litigation could adversely affect our business
relationship with Amgen, which could have a material adverse effect on our
business, financial condition or results of operations.

We are also subject to ordinary and routine lawsuits and governmental
inspections, investigations and proceedings incidental to our business, none of
which is material to our results of operations, financial condition or cash
flows.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table shows certain information about our directors and
executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
William E. Bindley................ 58 Chairman of the Board

Robert L. Myers................... 54 President, Chief Executive Officer and Director

Guy F. Bryant..................... 40 Executive Vice President--Priority Healthcare Distribution

Steven D. Cosler.................. 43 Executive Vice President--Priority Healthcare Pharmacy

Donald J. Perfetto................ 53 Executive Vice President, Chief Financial Officer, Treasurer and
Director

Melissa E. McIntyre............... 38 Vice President--Clinical Services

Barbara J. Luttrell............... 58 Vice President--Administration and Secretary

William M. Woodard................ 41 Vice President--Strategic Alliances

Michael D. McCormick.............. 51 Director

Richard W. Roberson............... 52 Director

Thomas J. Salentine............... 59 Director

Rebecca M. Shanahan............... 45 Director
</TABLE>

WILLIAM E. BINDLEY has served as our Chairman of the Board and director
since inception. Mr. Bindley was our Chief Executive Officer from July 1994
until May 1997 and our President from May 1996 until July 1996. Mr. Bindley is
the Chairman of the Board, Chief Executive Officer and President of Bindley
Western, positions he has held since founding Bindley Western in 1968. He is
also a director of Bindley Western and Shoe Carnival, Inc., a shoe retailer.

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

GUY F. BRYANT serves as the Executive Vice President--Priority Healthcare
Distribution, a position that he has held since September 1995. Prior to joining
Priority, he was employed in sales management positions by Major
Pharmaceuticals, a distributor of generic pharmaceuticals, since September 1992
and was vice president of sales from August 1994 to August 1995.

STEVEN D. COSLER became Executive Vice President--Priority Healthcare
Pharmacy in August 1997. Prior to that time and since July 1996, he was senior
vice president and general manager of Priority Healthcare Services Corporation,
a subsidiary of Bindley Western. From January 1992 to June 1996, he was senior
vice president of sales and operations for Coresource, a managed care and third
party administrator. Prior to that time and from 1978, Mr. Cosler held various
positions with IBM including business unit executive for consulting services.

DONALD J. PERFETTO became Executive Vice President in November 1998. Prior
to that time and since June 1997 he was a Vice President. Mr. Perfetto also has
served as Chief Financial Officer and Treasurer since June 1997. Mr. Perfetto
has served as a director since February 1999. From 1986 to May 1997, he was
employed by Bimeco, Inc., a distributor of medical products. During

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<PAGE>
that time, Mr. Perfetto held the positions of vice president of finance and
operations and secretary/ treasurer of Bimeco, Inc.

MELISSA E. MCINTYRE, RN, OCN, is the Vice President--Clinical Services, a
position that she has held since August 1997. She has also held various
positions with our subsidiaries since June 1994. Prior to joining Priority, and
since June 1991, she was employed by Intracare, an outpatient infusion center,
as clinical director of nursing.

BARBARA J. LUTTRELL is the Vice President--Administration, a position she
has held since May 1997. Ms. Luttrell has served as Secretary since February
1999. Prior to joining Priority in January 1997, she was employed by Physician's
Alliance, a physician group, as director of human resources since September
1996. She attended law school from May 1993 to December 1995 and practiced as an
attorney from May 1996 to September 1996. Ms. Luttrell has 15 years of
experience in human resource management.

WILLIAM M. WOODARD has held the positions of Vice President--Strategic
Alliances or Vice President--Marketing since May 1997. Prior to that time, Mr.
Woodard held various positions with our subsidiaries. From March 1990 until
April 1993, Mr. Woodard was a sales representative for Tri State Hospital
Supply, a distributor of medical supplies.

MICHAEL D. MCCORMICK is the Executive Vice President, General Counsel and
Secretary of Bindley Western, positions he has held for more than the past five
years, and a director of Bindley Western. Mr. McCormick was our Executive Vice
President and General Counsel from July 1994 until May 1997, was our Secretary
from July 1994 until February 1999 and has served as a director since June 1994.

RICHARD W. ROBERSON is the President of Sand Dollar Partners, Inc., an
investment and consulting firm, a position which he has held since November
1996. Prior to that time, Mr. Roberson served as president and chief executive
officer of Visionworks, Inc., a retail superstore optical chain, from March 1993
to September 1996. Mr. Roberson is also a director of C.H. Heist Corporation, an
industrial cleaning and maintenance company.

THOMAS J. SALENTINE is the Executive Vice President and Chief Financial
Officer of Bindley Western, positions he has held for more than the past five
years. He is also a director of Bindley Western. Mr. Salentine was our Executive
Vice President from July 1994 until May 1997, our Chief Financial Officer from
July 1994 until May 1995 and our Treasurer from May 1997 to June 1997. He has
served as a director since July 1994.

REBECCA M. SHANAHAN is the Vice President, Managed Care of the University of
Chicago Hospitals and Health Systems, a position she has held since September
1997, where she is responsible for the development and implementation of managed
care programs and products. From December 1996 until assuming her present
position, she performed legal and consulting services as an independent
contractor for various entities in the health care industry. From 1991 until
December 1996, she held executive officer positions with Methodist Medical Group
and Beltway Services, a 600 member physician practice group affiliated with
Methodist Hospital in Indianapolis, Indiana, with her latest position being
senior vice president and chief operating officer.

Our directors are divided into three classes with staggered three-year
terms. The terms of our current directors will expire at the annual meeting of
stockholders in the year shown as follows: Mr. Bindley and Ms. Shanahan--2000;
Messrs. McCormick and Salentine--2001; and Messrs. Myers, Perfetto and
Roberson--2002.

Our executive officers serve at the discretion of our board of directors.
There is no family relationship between any of our directors or executive
officers.

40
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes compensation paid by us for services rendered
in all capacities to us during each of the last three years to our Chief
Executive Officer and to each of our four other most highly compensated
executive officers, based on salary and bonus earned during 1998 (the "Named
Executive Officers").

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION
- ----------------------------------------------- --------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Robert L. Myers ............................... 1998 $ 262,620 $ 275,000 100,000 $ 21,592(3)
President and 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 Pharmacy 1997 152,004 65,000 46,000 12,896
Services (6) 1996 -- -- -- --

Guy F. Bryant ................................. 1998 $ 149,738 $ 58,208 40,000 $ 12,929(7)
Executive Vice President--Priority Healthcare 1997 138,400 77,723 46,000 12,996
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 Financial 1997 55,000 40,000 36,000 --
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 for awards made
in 1998 and 1997 and options to acquire shares of Bindley Western common
stock for awards made in 1996. The numbers in this column have not been
adjusted for the 3-for-2 stock split effected as a stock dividend paid on
May 4, 1999. We have never granted stock appreciation rights or restricted
stock. Under the terms of a Distribution Agreement that we have with
Bindley Western, holders of stock options to acquire Bindley Western common
stock surrendered some of those options at the time of the spin-off in
exchange for options to acquire shares of Class B common stock.

(3) Consists of $12,800 in contributions by us to Bindley Western's qualified
profit sharing plan, $8,586 in contributions by us to Bindley Western's
profit sharing excess plan and $206 in group life insurance premiums.

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

41
<PAGE>
(5) Consists of $12,800 in contributions by us to Bindley Western's qualified
profit sharing plan and $61 in group life insurance premiums.

(6) Mr. Cosler began serving as Executive Vice President--Priority Healthcare
Pharmacy in August 1997. This table includes amounts paid by Bindley
Western in 1997 for services of Mr. Cosler to Bindley Western prior to
joining our company.

(7) Consists of $12,800 in contributions by us to Bindley Western's qualified
profit sharing plan and $129 in group life insurance premiums.

(8) Consists of $12,800 in contributions by us to Bindley Western's qualified
profit sharing plan.

(9) Mr. Perfetto joined us in June 1997.

(10) Consists of $12,800 in contributions by us to Bindley Western's qualified
profit sharing plan and $124 in group life insurance premiums.

42
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS

We have entered into a Termination Benefits Agreement with Mr. Myers. The
purpose of the agreement is to encourage him to remain with us by assuring him
of certain benefits in the event of a change in control of our 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 us or Mr. Myers. The
Termination Benefits Agreement protects Mr. Myers against termination of his
employment following a change in control of our 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 our stock, the replacement of a majority of
the current board of directors, the approval by our stockholders of a
reorganization, merger or consolidation, or the approval by stockholders of a
liquidation or dissolution or the sale or disposition of all or substantially
all of our assets.

Following a change in control, we must provide to Mr. Myers the benefits
provided by the Termination Benefits Agreement if his employment is terminated
within three years for any reason other than his death, disability, or normal
retirement or is terminated by us for cause.

In addition, we must provide to Mr. Myers the benefits of the Termination
Benefits Agreement if, after a change in control, he terminates his employment
within three years in response to certain actions by us which include, among
other things, a substantial reduction in his duties or responsibilities, a
reduction in the level of salary payable to him, our failure 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 us of any of the
provisions of the Termination Benefits Agreement.

Upon termination of employment, if we must provide to Mr. Myers the benefits
payable under the Termination Benefits Agreement, we will pay to him within 30
days following his termination all earned but unpaid salary, bonus and incentive
payments through the date of his termination. In addition, we shall pay to him a
lump-sum payment of an amount equal to 2.9 times his average annual compensation
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.

Effective March 1, 1999, we entered into an employment agreement with each
of Messrs. Bryant, Cosler and Perfetto, each for a term to expire on February
28, 2000. Under the terms of these employment agreements, we are to pay to Mr.
Bryant a base salary of $12,916 per month, to Mr. Cosler a base salary of
$14,166 per month and to Mr. Perfetto a base salary of $12,500 per month. 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 the employment agreements, if we
terminate the officer without cause prior to the expiration of the employment
agreement, we shall pay to such individual the aggregate amount of regular
compensation that he would be entitled to receive under the agreement for a
six-month period.

We also entered into a non-compete agreement 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 for any reason other than termination by us without cause, in which
event the period shall be six months, the officer may not compete with us,
solicit our customers or induce our employees to terminate their employment.

43
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of each class of our common stock as of April 20, 1999 by the
following individuals or groups:

- each person (or group of affiliated persons) who is known by us to
beneficially own more than 5% of the outstanding shares of each class of
our common stock;

- each director;

- each Named Executive Officer; and

- all directors and executive officers as a group.

Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares beneficially owned
by them. The number of shares of Class B common stock shown in the table below
as beneficially owned by each individual or entity includes (1) 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 Class B common stock at any time on a one-for-one
basis and (2) options held by such person or entity which are exercisable for
Class B common stock within 60 days. Unless otherwise indicated, the address of
each director or executive officer is c/o Priority Healthcare Corporation, 285
West Central Parkway, Altamonte Springs, Florida 32714.

<TABLE>
<CAPTION>
CLASS B COMMON STOCK CLASS A COMMON STOCK COMBINED
-------------------------------------- -------------------------------------- VOTING
PERCENT OF CLASS PERCENT OF CLASS POWER (IF
NAME AND ADDRESS NUMBER OF SHARES (IF NUMBER OF SHARES (IF MORE THAN
OF INDIVIDUAL OR GROUP BENEFICIALLY OWNED MORE THAN 1%) BENEFICIALLY OWNED MORE THAN 1%) 1%)(1)
- -------------------------------- ------------------- ----------------- ------------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
William E. Bindley (2) ......... 3,016,589(3) 20.5% 3,009,089(4) 42.0% 27.2%
Robert L. Myers ................ 135,564(5)(6) 1.2% 6,619 -- --
Steven D. Cosler ............... 32,477(5)(7) -- 2,013 -- --
Guy F. Bryant .................. 36,864(5)(8) -- 10,363 -- --
Melissa E. McIntyre ............ 23,276(5)(9) -- 0 -- --
Donald J. Perfetto ............. 24,821(5)(10) -- 177 -- --
Michael D. McCormick ........... 132,741(11) 1.1% 125,241(12) 1.8% 1.2%
Richard W. Roberson ............ 25,107(13) -- 0 -- --
Thomas J. Salentine ............ 230,136(14) 1.9% 155,136 2.2% 1.6%
Rebecca M. Shanahan ............ 3,807(13) -- 0 -- --
Morgan Stanley Dean Witter &
Co. .......................... 625,324 5.3% 0 -- 1.9%
1585 Broadway
New York, NY
10036 (15)*
All current directors and
executive officers as a group
(12 persons) ................. 3,691,124(5)(16) 24.3% 3,309,815 46.2% 30.4%
</TABLE>

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

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

(1) Based on outstanding shares only. Holders of Class A common stock are
entitled to three votes for each share and holders of Class B common stock
are entitled to one vote for each share, on all matters submitted to a vote
of stockholders. Holders of Class A common stock and holders of Class B
common stock vote generally as a single class on all matters submitted to a
vote of holders of our common stock.

(2) The address of this stockholder is 8909 Purdue Road, Indianapolis, Indiana
46268.

44
<PAGE>
(3) Includes 3,009,089 shares of Class A common stock (see footnote 4 below for
a description of the manner by which certain of such shares of Class A
common stock are held). Excludes 5,254 shares of Class A common stock and
3,000 shares of Class B common stock held by Mr. Bindley's spouse; Mr.
Bindley disclaims beneficial ownership of such shares.

(4) Includes 43,387 shares of Class A common stock held by two family
foundations and 38,751 shares of Class A common stock held by a charitable
remainder trust of which Mr. Bindley is the trustee and has investment
control. Excludes 5,254 shares of Class A common stock held by Mr.
Bindley's spouse; Mr. Bindley disclaims beneficial ownership of such
shares.

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

(6) Includes 6,619 shares of Class A common stock. Also includes presently
exercisable stock options to purchase 82,751 shares of Class B common stock
granted under our stock option plans.

(7) Includes 2,013 shares of Class A common stock. Also includes presently
exercisable stock options to purchase 25,001 shares of Class B common stock
granted under our stock option plans.

(8) Includes 10,363 shares of Class A common stock. Also includes presently
exercisable stock options to purchase 25,001 shares of Class B common stock
granted under our stock option plans.

(9) Includes presently exercisable stock options to purchase 22,751 shares of
Class B common stock granted under our stock option plans.

(10) Includes 177 shares of Class A common stock. Also includes presently
exercisable stock options to purchase 21,251 shares of Class B common
stock granted under our stock option plans.

(11) Includes 125,241 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 1,989 shares held in a family foundation.

(13) Includes presently exercisable stock options to purchase 1,500 shares of
Class B common stock granted under our stock option plans.

(14) Includes 155,136 shares of Class A common stock.

(15) The stockholder is an investment adviser.

(16) Includes 3,309,815 shares of Class A common stock. Also includes presently
exercisable stock options to purchase 206,507 shares of Class B common
stock granted under our stock option plans.

45
<PAGE>
UNDERWRITING

Subject to the terms and conditions of an underwriting agreement, the
underwriters named below, through their representatives, Raymond James &
Associates, Inc., First Union Capital Markets Corp., Banc of America Securities
LLC and SunTrust Equitable Securities Corporation, have severally agreed to
purchase from us the respective number of shares of Class B common stock set
forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Raymond James & Associates, Inc.................................................. 910,000
First Union Capital Markets Corp................................................. 715,000
Banc of America Securities LLC................................................... 585,000
SunTrust Equitable Securities Corporation........................................ 390,000
-----------
Total........................................................................ 2,600,000
-----------
-----------
</TABLE>

The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us and our counsel and independent auditors. The
nature of the underwriters' obligation is such that they are committed to
purchase all shares of Class B common stock offered hereby if any of such shares
are purchased.

We have granted an option to the underwriters, exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of 390,000 shares of
Class B common stock at the public offering price, less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option solely to cover over-allotments, if any,
made on the sale of the Class B common stock. To the extent that the
underwriters exercise this option, each underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of Class B
common stock proportionate to such underwriter's initial amount set forth in the
table above.

The following table summarizes the underwriting discounts and commissions to
be paid by us to the underwriters and the expenses payable by us for each share
of Class B common stock and in total. This information is presented assuming
either no exercise or full exercise of the underwriters' option to purchase
additional shares of Class B common stock.

<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
--------- ------------- -------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions payable by us..................... $ 1.70 $ 4,420,000 $ 5,083,000
Expenses payable by us................................................... $ 0.23 $ 600,000 $ 600,000
</TABLE>

We have been advised by the representatives that the underwriters propose to
offer the shares of Class B common stock to the public at the public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession not in excess of $1.00 per share. The underwriters
may allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to certain other dealers. The offering of the shares of Class B common
stock is made for delivery when, as and if accepted by the underwriters and
subject to prior sale and to withdrawal, cancellation or modification of this
offering without notice. The underwriters reserve the right to reject an order
for the purchase of shares in whole or in part.

46
<PAGE>
We and our executive officers and directors have agreed that for a period of
120 days after the date of this prospectus, that we and they will not, without
the prior written consent of Raymond James & Associates, Inc., directly or
indirectly:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant for the sale of or otherwise dispose of or transfer any shares
of our common stock or securities convertible into or exchangeable or
exercisable for shares of our common stock, whether now owned or acquired
after the date of this prospectus by any such person or with respect to
which any such person acquires after the date of this prospectus the power
of disposition, or file any registration statement under the Securities
Act with respect to any of the foregoing; or

- enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of shares of our common stock whether any such
swap or transaction is to be settled by delivery of our common stock or
other securities, in cash or otherwise.

The foregoing restrictions, however, do not apply to:

- shares of Class B common stock being sold hereunder;

- any grant of options by us for our Class B common stock under our stock
option plans; or

- any shares of Class B common stock issued by us pursuant to the exercise
of stock options currently outstanding or granted under our stock option
plans.

Until the offering of the shares of Class B common stock is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters and certain selling group members to bid for and purchase the Class
B common stock. As an exception to these rules, the underwriters may engage in
certain transactions that stabilize the price of the Class B common stock. These
transactions may include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares of Class B common stock than they are
required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or retarding a
decline in the market price of the Class B common stock while the offering is in
progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class B common stock. As a result, the price of
the Class B common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the underwriters without notice at any time. These transactions may be
effected on the Nasdaq National Market, or otherwise.

Certain of the underwriters or their affiliates have in the past and may in
the future provide investment banking or other services for us.

We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments which the underwriters may be required to make in respect thereof.

47
<PAGE>
LEGAL MATTERS

The validity of the shares of Class B common stock offered by this
prospectus will be passed upon by Baker & Daniels, Indianapolis, Indiana.
Certain legal matters will be passed upon for the underwriters by Greenberg
Traurig, P.A., Miami, Florida.

EXPERTS

The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings and other information about us are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. The SEC's address in Washington, D.C. is 450 Fifth Street, N.W.,
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. You should know that we have filed with the SEC a
registration statement that contains this prospectus. We also have filed a copy
of the underwriting agreement under which the shares of Class B common stock are
being issued.

We "incorporate by reference" into this prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
after the initial filing of the registration statement that contains this
prospectus and before the time that we sell all the Class B common stock offered
by this prospectus:

(a) our Annual Report on Form 10-K for the fiscal year ended December 31,
1998;

(b) our Current Report on Form 8-K dated December 31, 1998;

(d) our Definitive Proxy Statement on Schedule 14A in connection with our
1999 Annual Meeting of Stockholders; and

(e) the description of our Class B common stock contained in our
Registration Statement on Form 8-A which was filed with the SEC on
December 14, 1998, under Section 12(g) of the Securities Exchange Act of
1934.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Priority Healthcare Corporation, 285
West Central Parkway, Altamonte Springs, Florida 32714, Attention: Barbara J.
Luttrell, Vice President--Administration, telephone (407) 869-7001.

You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. We are only offering these securities in states
where the offer is permitted. You should not assume that the information in this
prospectus or in any document we incorporate by reference is accurate as of any
date other than the date on the front of those documents.

48
<PAGE>
PRIORITY HEALTHCARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-1

Consolidated Statements of Earnings for the years ended December 31, 1996, December 31, 1997 and December
31, 1998 and (unaudited) for the three-month periods ended March 31, 1998 and March 31, 1999............. F-2

Consolidated Balance Sheets as of December 31, 1997 and December 31, 1998 and (unaudited) as of March 31,
1999..................................................................................................... F-3

Consolidated Statements of Cash Flows for the years ended December 31, 1996, December 31, 1997 and December
31, 1998 and (unaudited) for the three month periods ended March 31, 1998 and March 31, 1999............. F-4

Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, December 31, 1997
and December 31, 1998 and (unaudited) for the three-month period ended March 31, 1999.................... F-5

Notes to Consolidated Financial Statements................................................................. F-6
</TABLE>

49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Priority Healthcare Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Priority
Healthcare Corporation and its subsidiaries (the "Company") at December 31, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 19, 1999, except as to the restatement for the
stock split described in Note 1, which is as of May 4, 1999

F-1
<PAGE>
PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(000'S OMITTED, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 158,247 $ 230,982 $ 275,626 $ 58,129 $ 83,159
Cost of products sold.................... 141,074 207,755 244,485 51,313 72,853
------------- ------------- ------------- ------------- -------------
Gross profit............................. 17,173 23,227 31,141 6,816 10,306
Selling, general and administrative
expense................................ 8,443 10,620 13,989 3,167 4,251
Depreciation and amortization............ 1,009 1,161 1,234 311 313
------------- ------------- ------------- ------------- -------------
Earnings from operations................. 7,721 11,446 15,918 3,338 5,742
Stock option expense..................... -- 350 -- -- --
Interest expense (income), net (primarily
Bindley Western)....................... 437 887 (916) (109) (258)
------------- ------------- ------------- ------------- -------------
Earnings before income taxes............. 7,284 10,209 16,834 3,447 6,000
------------- ------------- ------------- ------------- -------------
Provision for income taxes:
Current................................ 3,061 4,495 6,875 1,370 2,428
Deferred............................... (146) (437) (184) -- (46)
------------- ------------- ------------- ------------- -------------
2,915 4,058 6,691 1,370 2,382
------------- ------------- ------------- ------------- -------------
Net earnings............................. $ 4,369 $ 6,151 $ 10,143 $ 2,077 $ 3,618
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------

Earnings per share:
Basic.................................. $ 0.29 $ 0.39 $ 0.54 $ 0.11 $ 0.19
Diluted................................ $ 0.29 $ 0.39 $ 0.54 $ 0.11 $ 0.19
Weighted average shares outstanding:
Basic.................................. 15,321,429 15,934,411 18,772,974 18,772,812 18,831,438
Diluted................................ 15,321,429 15,939,883 18,854,041 18,817,576 19,233,594
</TABLE>

(See accompanying notes to consolidated financial statements.)

F-2
<PAGE>
PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(000'S OMITTED, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------- MARCH 31,
1999
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................................ $ 7,910 $ 2 $ 5,706
Accounts receivable, less allowance for doubtful accounts of $402, $778
and $811, respectively................................................. 43,643 56,825 61,151
Receivable from Bindley Western.......................................... 5,290 16,517 13,166
Finished goods inventory................................................. 25,082 24,387 24,532
Deferred income taxes.................................................... 869 1,145 1,214
Other current assets..................................................... 166 284 724
--------- ---------- ------------
82,960 99,160 106,493
--------- ---------- ------------
Fixed assets, at cost...................................................... 2,492 3,279 3,344
Less: accumulated depreciation........................................... 997 1,459 1,602
--------- ---------- ------------
1,495 1,820 1,742
--------- ---------- ------------
Intangibles, net............................................................. 7,273 6,539 6,370
--------- ---------- ------------
Total assets........................................................... $ 91,728 $ 107,519 $ 114,605
--------- ---------- ------------
--------- ---------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities:
Accounts payable......................................................... $ 23,180 $ 33,857 $ 35,981
Other current liabilities................................................ 2,292 3,428 3,282
--------- ---------- ------------
25,472 37,285 39,263
--------- ---------- ------------
Long-term obligations........................................................ 272 -- --
--------- ---------- ------------
Deferred income taxes........................................................ 101 193 216
--------- ---------- ------------
Subordinated note payable to Bindley Western................................. 6,000 -- --
--------- ---------- ------------
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized, none issued
and outstanding........................................................ -- -- --
Common stock
Class A, $0.01 par value, 15,000,000 shares authorized, (and split
adjusted) 15,321,429, 15,321,429 and 8,198,245 issued and
outstanding, respectively............................................ 153 153 82
Class B, $0.01 par value, 40,000,000 shares authorized, (and split
adjusted) 3,451,383, 3,452,214 and 10,655,439 issued and outstanding,
respectively......................................................... 35 35 107
Additional paid in capital............................................. 52,844 52,859 54,325
Retained earnings...................................................... 6,851 16,994 20,612
--------- ---------- ------------
Total shareholders' equity........................................... 59,883 70,041 75,126
--------- ---------- ------------
Commitments and contingencies................................................ -- -- --
Total liabilities and shareholders' equity........................... $ 91,728 $ 107,519 $ 114,605
--------- ---------- ------------
--------- ---------- ------------
</TABLE>

(See accompanying notes to consolidated financial statements.)

F-3
<PAGE>
PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(000'S OMITTED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income............................................. $ 4,369 $ 6,151 $ 10,143 $ 2,077 $ 3,618
Adjustments to reconcile net income to net cash (used)
provided by operating activities:
Depreciation and amortization.......................... 1,009 1,161 1,234 311 313
Loss on disposal of fixed assets....................... -- 126 -- -- --
Compensation expense on stock and option grants........ -- 365 15 -- --
Deferred income taxes.................................. (146) (437) (184) -- (46)
Change in assets and liabilities, net of acquisitions:
Accounts receivable.................................... (12,208) (13,549) (13,182) 1,761 (4,326)
Finished goods inventory............................... (3,485) (8,554) 695 2,526 (145)
Trade accounts payable................................. 5,657 5,992 10,677 (4,460) 2,124
Other current assets and liabilities................... 280 877 1,018 (387) (587)
--------- --------- --------- --------- ---------
Net cash (used) provided by operating activities..... (4,524) (7,868) 10,416 1,828 951
--------- --------- --------- --------- ---------
Cash flow from investing activities:
Purchase of fixed assets............................... (405) (727) (825) (195) (65)
Acquisition of business................................ -- (250) -- -- --
--------- --------- --------- --------- ---------
Net cash used by investing activities................ (405) (977) (825) (195) (65)
--------- --------- --------- --------- ---------
Cash flow from financing activities:
Net change in amounts due to/from Bindley Western...... 5,417 (14,580) (11,227) (4,444) 3,351
Repayment of subordinated note payable to Bindley
Western.............................................. -- -- (6,000) -- --
Payments on long-term obligations...................... (191) (288) (272) (19) --
Proceeds from stock option exercises and related tax
benefit.............................................. -- -- -- -- 1,467
Proceeds from initial public offering, net............. -- 29,967 -- -- --
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities..... 5,226 15,099 (17,499) (4,463) 4,818
--------- --------- --------- --------- ---------
Net increase (decrease) in cash............................ 297 6,254 (7,908) (2,830) 5,704
Cash and cash equivalents at beginning of period........... 1,359 1,656 7,910 7,910 2
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period................. $ 1,656 $ 7,910 $ 2 $ 5,080 $ 5,706
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow information:
Interest paid.......................................... $ 445 $ 1,040 $ 361 $ 116 $ --
Income taxes paid...................................... $ 3,061 $ 4,495 $ 6,875 $ 1,370 $ 1,500
</TABLE>

(See accompanying notes to consolidated financial statements.)

F-4
<PAGE>
PRIORITY HEALTHCARE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(000'S OMITTED, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------------- ------------------------- ADDITIONAL
SHARES SHARES PAID IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY
------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995.... 15,321,429 $ 153 -- $ -- $ 22,547 $ 2,331 $ 25,031
Net earnings..................... 4,369 4,369
------------ ----- ------------ ----- ----------- ----------- -------------
Balances at December 31, 1996.... 15,321,429 153 -- -- 22,547 6,700 29,400
Net earnings..................... 6,151 6,151
Dividend to Bindley Western...... (6,000) (6,000)
Issuance of Class B common stock:
Initial public offering........ 3,450,000 35 29,932 29,967
Board of Directors'
compensation................. 1,383 15 15
Stock option grant............... 350 350
------------ ----- ------------ ----- ----------- ----------- -------------
Balances at December 31, 1997.... 15,321,429 153 3,451,383 35 52,844 6,851 59,883
Net earnings..................... 10,143 10,143
Issuance of Class B common stock:
Board of Directors'
compensation................. 831 15 15
------------ ----- ------------ ----- ----------- ----------- -------------
Balances at December 31, 1998.... 15,321,429 153 3,452,214 35 52,859 16,994 70,041
Net earnings (unaudited)......... 3,618 3,618
Issuance of Class B common stock:
Stock option exercises and
related tax benefit
(unaudited).................. 91,600 1 1,466 1,467
Conversions from Class A
(unaudited).................. (7,123,184) (71) 7,111,625 71
------------ ----- ------------ ----- ----------- ----------- -------------
Balances at March 31, 1999
(unaudited).................... 8,198,245 $ 82 10,655,439 $ 107 $ 54,325 $ 20,612 $ 75,126
------------ ----- ------------ ----- ----------- ----------- -------------
------------ ----- ------------ ----- ----------- ----------- -------------
</TABLE>

(See accompanying notes to consolidated financial statements.)

F-5
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION. Priority Healthcare Corporation (the "Company") was
formed by Bindley Western Industries, Inc. ("Bindley Western") on June 23, 1994,
as an Indiana corporation to focus on the distribution of products and provision
of services to the "alternate site" segment of the healthcare industry. On
August 1, 1994, Bindley Western transferred the net assets of its Charise
Charles and PRN divisions to the Company in exchange for 1,000 shares of common
stock, no par value. The Company now operates as a national distributor of
specialty pharmaceuticals and related medical supplies to the alternate site
healthcare market and is a provider of patient-specific, self-injectable
biopharmaceuticals and disease prevention programs to individuals with chronic
diseases.

On August 25, 1997, the board of directors and Bindley Western, as the sole
shareholder of the Company, completed a recapitalization of the Company.
Effective on that date, the Company's capitalization consisted of: (i)
15,000,000 authorized shares of Class A common stock, $0.01 par value,
10,214,286 shares (before adjustment for stock split) of which were issued and
outstanding and owned by Bindley Western, (ii) 40,000,000 shares of Class B
common stock, $0.01 par value (of which 2,300,000 shares (before adjustment for
stock split) were subsequently issued in an initial public offering described in
Note 2--Related Party Transactions), and (iii) 5,000,000 shares of Preferred
Stock, without par value, none of which are issued and outstanding. This
recapitalization has been given retroactive effect in these consolidated
financial statements.

The consolidated financial statements of the Company include certain
allocations of corporate overhead and other expenses incurred by Bindley Western
on behalf of the Company. These expenses and the basis of allocations are
discussed in Note 2--Related Party Transactions. The Company's financial
statements for 1997 and prior years are not necessarily indicative of the
results the Company would have reported had it existed as a stand-alone public
entity, or of the financial position, results of operations and cash flows of
the Company in the future.

On April 7, 1999, the Company announced that the Board of Directors
authorized a 3-for-2 stock split of the Company's common stock to be effected as
a stock dividend to all shareholders of record at the close of business on April
20, 1999, the Record Date. Shareholders on the Record Date received a stock
dividend of one share for each two shares held. The stock dividend was paid on
May 4, 1999. Holders of Class A common stock received Class A shares in the
split and holders of Class B common stock received Class B shares. Cash was paid
in lieu of fractional shares. All share and per share amounts in these
consolidated financial statements have been restated to give effect to the stock
split.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

REVENUE RECOGNITION. Revenues are recognized when products are shipped to
unaffiliated customers with appropriate provisions recorded for estimated
discounts and allowances.

INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. The accompanying
consolidated balance sheet as of March 31, 1999, the consolidated statements of
earnings and cash flows for the three months ended March 31, 1998 and 1999 and
the consolidated statement of shareholders' equity for the three months ended
March 31, 1999 are unaudited. In the opinion of management, these interim
unaudited consolidated financial statements have been prepared on the same basis
as the

F-6
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
audited financial statements and include all adjustments, consisting of only
normal recurring adjustments, necessary for fair presentation of the interim
periods. The disclosures in these notes related to these interim unaudited
consolidated financial statements are also unaudited.

CASH AND CASH EQUIVALENTS. The Company considers all investments with an
original maturity of less than 3 months to be a cash equivalent.

INVENTORIES. Inventories are stated on the basis of lower of cost or market
using the first-in, first-out ("FIFO") method.

FIXED ASSETS. Depreciation is computed on the straight-line method for
financial reporting purposes. Accelerated methods are primarily used for income
tax purposes. Assets, valued at cost, are generally being depreciated over their
estimated useful lives as follows:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS)
-------------
<S> <C>
Furnishings............................................................. 5-7
Leasehold improvements.................................................. 12
Transportation and other equipment...................................... 3-7
</TABLE>

In the event facts and circumstances indicate an asset could be impaired, an
evaluation of the undiscounted estimated future cash flows from operations is
compared to the asset's carrying amount to determine if a write-down is
required. At December 31, 1997 and December 31, 1998, no impairments existed.

INTANGIBLES. The Company continually monitors its cost in excess of net
assets acquired (goodwill), covenants not to compete and its other intangibles
(customer lists and consulting agreements) to determine whether any impairment
of these assets has occurred. In making such determination, the Company
evaluates the expected future cash flows from operations, on an undiscounted
basis, of the underlying businesses which gave rise to such amounts. Goodwill is
being amortized on the straight-line method, principally over 40 years. Other
intangibles are being amortized on the straight-line method over 4 to 15 years.

EARNINGS PER SHARE. The Company has adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," for all
periods presented. Basic earnings per share is computed by dividing net income
by the weighted average of Class A and Class B shares outstanding for the
period. Diluted earnings per share computations assume outstanding stock options
with a dilutive effect on earnings were exercised. These common stock
equivalents are added to the weighted average number of shares outstanding in
the diluted

F-7
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculation. A reconciliation of the basic and diluted weighted average shares
outstanding is as follows for the years ended December 31 (after giving effect
to the stock split):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (UNAUDITED)
Weighted average number of Class A and Class B common shares
outstanding used as the denominator in the basic earnings
per share calculation....................................... 15,321 15,934 18,773 18,773 18,831
Additional shares assuming exercise of dilutive stock
options..................................................... -- 6 81 45 403
--------- --------- --------- --------- ---------
Weighted average number of Class A and Class B common and
equivalent shares used as the denominator in the diluted
earnings per share calculation.............................. 15,321 15,940 18,854 18,818 19,234
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

INCOME TAXES. Through December 31, 1998, the Company participated in the
consolidated federal and state income tax returns filed by Bindley Western.
Bindley Western charged federal and state income tax expense to the Company as
if the Company filed its own separate federal and state income tax returns.

In accordance with the provisions of SFAS No. 109, "Accounting for Income
Taxes," the Company accounts for income taxes using the asset and liability
method. The asset and liability method requires the recognition of deferred tax
assets and liabilities for expected future tax consequences of temporary
differences that currently exist between the tax bases and financial reporting
bases of the Company's assets and liabilities.

USE OF ESTIMATES. The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates made
by management. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of cash, accounts
receivable, payable to/from Bindley Western, other current assets, accounts
payable and other current liabilities approximate their fair market values due
to the short-term maturity of these instruments.

PRIOR YEAR RECLASSIFICATIONS. Certain amounts in the prior year financial
statements have been reclassified to conform to the current year presentation.

NOTE 2--RELATED PARTY TRANSACTIONS

On October 29, 1997, the Company consummated an initial public offering
("IPO") of 2,000,000 (3,000,000 after giving effect to the stock split) shares
of Class B common stock. An additional 300,000 (450,000 after giving effect to
the stock split) shares of Class B common stock were sold on November 25, 1997
pursuant to the exercise of the underwriters' overallotment option. Prior to the
IPO, the Company was a wholly-owned subsidiary of Bindley Western. After

F-8
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--RELATED PARTY TRANSACTIONS (CONTINUED)
the IPO, Bindley Western owned over 80% of the Company's outstanding capital
stock. On October 23, 1998, the board of directors of Bindley Western declared a
distribution payable on December 31, 1998 to the holders of Bindley Western
common stock of the 10,214,286 (15,321,429 after giving effect to the stock
split) shares of Priority Class A common stock owned by Bindley Western on the
basis of .448 shares of Priority Class A common stock for each share of Bindley
Western common stock outstanding on December 15, 1998, which was the record date
for the Distribution. The fraction of a share of Priority Class A common stock
that was distributed for each share of Bindley Western Common Stock was based
upon the 10,214,286 shares of Priority Class A common stock owned by Bindley
Western divided by the 22,782,545 shares of Bindley Western common stock
outstanding on the record date. The Company and Bindley Western have entered
into certain related party transactions which are described below. Had the
Company operated as a stand-alone, non-public entity for all periods presented,
management believes the costs and expenses incurred by the Company would not
have differed materially from those reported in the financial statements. In
addition, the Company participated in the Bindley Western profit sharing plan,
as discussed in Note 8--Profit Sharing Plan, through December 31, 1998.

Bindley Western provided management and consulting services to the Company
which included, but were not limited to, legal, human resources, payroll and
tax. The Company was charged $65,000 during each of the years ended December 31,
1996, 1997 and 1998 for such services. These amounts were based on an allocation
of the actual services rendered by Bindley Western and were calculated in a
manner considered reasonable by management.

The Company was also provided certain coverage under the Bindley Western
insurance plans. These expenses were charged to the Company based on a
combination of a pro rata allocation and the push-down of actual expenses
incurred, depending on the type of expenditure. These methods are considered
reasonable by management. This insurance expense was $132,000, $151,000 and
$163,000 for 1996, 1997 and 1998, respectively.

At December 31, 1997 and 1998, Bindley Western owed the Company $5.3 million
and $16.5 million, respectively. These amounts are due on demand and represent
loans of excess cash balances of the Company to Bindley Western on a short-term,
interest-bearing basis. In 1996 and 1997 (until the October 24, 1997 date of the
IPO), the Company borrowed from Bindley Western to finance its operations, those
borrowings offset in part by cash collections from operations that were
transferred to Bindley Western. Net interest expense attributable to these
borrowings from Bindley Western were $408,000 for 1996 and $605,000 (net of
$66,000 of interest income) for 1997. Interest income attributable to loans to
Bindley Western was $1.1 million for 1998. These amounts were calculated by
applying Bindley Western's average incremental borrowing rate, which was 6.4%,
6.4% and 6.3% for 1996, 1997 and 1998, respectively, to the average outstanding
balances. During 1996 and 1997, the average outstanding borrowings from Bindley
Western were $6.4 million and $10.3 million, respectively, while in 1998 the
average outstanding loans to Bindley Western were $16.9 million.

On March 31, 1997, the Company declared and paid a dividend to Bindley
Western in the form of a $6.0 million subordinated promissory note that was to
become due on March 31, 1999. The Company paid the note on September 30, 1998.
The note carried an interest rate of 7.25% per annum. For 1997 and 1998,
interest expense associated with this note totaled $324,000 and $326,000,
respectively.

F-9
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--RELATED PARTY TRANSACTIONS (CONTINUED)
For 1996, 1997 and 1998, intercompany purchases of inventory from Bindley
Western (at the price paid by Bindley Western) totaled $1.8 million, $2.0
million and $6.0 million, respectively.

Certain employees of the Company were granted options to purchase Bindley
Western stock under a Bindley Western stock option plan. 155,750 and 15,000 such
options were granted by Bindley Western to Company employees in 1996 and 1997
(prior to the IPO), respectively, with exercise prices equal to the market price
of the Bindley Western stock at the date of grant. No compensation expense was
recognized on any Bindley Western option grants pursuant to Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". If
the Company had recognized compensation expense based on the grant date fair
value of those options as prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation", net income for the years ended December 31, 1996,
1997 and 1998 would have decreased $280,000, $377,000 and $54,000, respectively,
on a pro forma basis. See Note 9--Capital Stock for a calculation of pro forma
earnings per share required by SFAS No. 123. The weighted average fair value of
each 1996 and 1997 Bindley Western option granted of $6.04 and $7.21,
respectively, was estimated using the Black-Scholes option pricing model, and
certain assumptions relevant to those Bindley Western options and the underlying
Bindley Western common stock. On December 31, 1998, the unvested Bindley Western
stock options were converted to options to purchase shares of Class B common
stock of the Company. See Note 9--Capital Stock.

NOTE 3--ACQUISITIONS

The Company acquired Grove Way Pharmacy effective August 6, 1997. This
acquisition was accounted for as a purchase and its results of operations are
included in the consolidated financial statements from the effective date of
acquisition. Grove Way Pharmacy was a specialty distributor of vaccines and
medical supplies to the physicians market. The consideration exchanged for Grove
Way Pharmacy was approximately $250,000, which exceeded the fair value of net
assets acquired and resulted in approximately $156,000 of intangibles. These
intangibles include a three-year noncompete with the prior owner. The results of
operations of Grove Way Pharmacy for 1996 and for the pre-acquisition period in
1997 were not material to the Company's consolidated sales and net earnings.

NOTE 4--FIXED ASSETS (IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Furnishings.............................................................. $ 797 $ 857
Leasehold improvements................................................... 274 450
Transportation and other equipment....................................... 1,421 1,972
--------- ---------
2,492 3,279
Less: accumulated depreciation........................................... (997) (1,459)
--------- ---------
$ 1,495 $ 1,820
--------- ---------
--------- ---------
</TABLE>

F-10
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--INTANGIBLES (IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Goodwill................................................................ $ 6,019 $ 6,019
Accumulated amortization................................................ (616) (768)
--------- ---------
Goodwill, net......................................................... 5,403 5,251
--------- ---------
Other................................................................... 4,001 4,001
Accumulated amortization................................................ (2,131) (2,713)
--------- ---------
Other, net............................................................ 1,870 1,288
--------- ---------
Intangibles, net........................................................ $ 7,273 $ 6,539
--------- ---------
--------- ---------
</TABLE>

NOTE 6--SHORT-TERM BORROWINGS

The Company entered into an agreement with a major financial institution on
November 24, 1998 for a three year unsecured revolving credit facility. The
Company may use the entire $10.0 million credit facility for letters of credit
or direct borrowings. The Company made no direct borrowings during 1998; a $5.0
million standby letter of credit is outstanding as of December 31, 1998. The
annual interest rate on direct borrowings is a variable rate equal to LIBOR plus
thirty-seven and one-half basis points (0.375%). The letter of credit carries an
annual fee of one percent (1.0%) of the face amount. The Company is also
required to maintain all of its operating accounts with this financial
institution. The revolving credit facility contains covenants related to fixed
charge coverage, funded debt to capitalization and funded debt to EBITDA ratios.

NOTE 7--INCOME TAXES

The provision for income taxes includes state income taxes of $479,000,
$669,000 and $1.1 million in 1996, 1997 and 1998, respectively.

The following table indicates the significant elements contributing to the
difference between the U.S. federal statutory tax rate and the effective tax
rate:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Percentage of earnings before taxes:
U.S. federal statutory rate.......................................................... 35.0% 35.0% 35.0%
State and local taxes on income, net of federal income tax benefit................... 4.3% 4.3% 4.2%
Other................................................................................ 0.7% 0.5% 0.5%
--- --- ---
Effective rate......................................................................... 40.0% 39.8% 39.7%
--- --- ---
--- --- ---
</TABLE>

F-11
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--INCOME TAXES (CONTINUED)
Presented below are the significant elements of the net deferred tax balance
sheet accounts at December 31, 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax asset:
Current:
Accounts receivable.................................................... $ 491 $ 635
Inventories............................................................ 206 223
Deferred compensation and stock option expense......................... 172 287
--------- ---------
Subtotal............................................................. 869 1,145
--------- ---------
Long-term: -- --
--------- ---------
Total deferred tax assets............................................ $ 869 $ 1,145
--------- ---------
--------- ---------
Deferred tax liabilities:
Current: -- --
--------- ---------
Long-term:
Fixed assets........................................................... $ 60 $ 86
Intangibles............................................................ 41 107
--------- ---------
Subtotal............................................................. 101 193
--------- ---------
Total deferred tax liabilities....................................... $ 101 $ 193
--------- ---------
--------- ---------
</TABLE>

NOTE 8--PROFIT SHARING PLAN

The Company's eligible employees participated in the Bindley Western
qualified Profit Sharing Plan ("Bindley Western Plan") through December 31, 1998
at which time the Company established its own qualified Profit Sharing Plan
("Profit Sharing Plan"). On February 8, 1999, all employees of the Company and
their account balances transferred from the Bindley Western Plan to the
Company's Profit Sharing Plan. All employees are generally eligible to
participate in the Profit Sharing Plan as of the first January 1, April 1, July
1 or October 1 after having completed at least one year of service (as defined
in the Profit Sharing Plan) and having reached age 21 ("Participant"). The
annual contribution of the Company to the Bindley Western Plan was at the
discretion of the board of directors of Bindley Western and for the Profit
Sharing Plan is now at the discretion of the board of directors of the Company
and is generally 8% of the Participant's compensation for the year. The employer
contribution for a year is allocated among the Participants employed on the last
day of the year in proportion to their relative compensation for the year. The
contributions to the Bindley Western Plan with respect to the Company which are
included as expense in the statement of earnings for 1996 and 1997 were $230,000
and $260,000, respectively. The contribution to the Profit Sharing Plan which is
included as expense in the statement of earnings for 1998 was $394,000.

Subject to limitations imposed by the Internal Revenue Code of 1986, as
amended, a Participant may have a percentage of his or her compensation withheld
from pay and contributed to the Profit Sharing Plan and make "rollover"
contributions to the Profit Sharing Plan of qualifying distributions from other
employers' qualified plans.

F-12
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--PROFIT SHARING PLAN (CONTINUED)
A Participant's interest in amounts withheld from his or her pay and
contributed to the Profit Sharing Plan or in rollover contributions and in the
earnings on those amounts are fully vested at all times. A Participant's
interest in employer contributions made on his or her behalf and the earnings on
those contributions become 20% vested after one year of service and an
additional 20% vested during each of the next four years. A Participant's
interest in employer contributions made on his or her behalf and the earnings on
those contributions also become fully vested when the employee retires at age 65
or older, dies or becomes totally disabled.

All contributions to the Profit Sharing Plan are paid in cash to a
Cleveland, Ohio bank, as trustee, and are invested by the trustee until
distributed to Participants or their beneficiaries. Participants are permitted
to direct the trustee as to the investment of their accounts by choosing among
several investment funds that are offered, including one fund under the Bindley
Western Plan consisting of Bindley Western common stock. Under the Company's
Profit Sharing Plan, a Participant may elect to invest in the Company's common
stock, but may not make additional investments in Bindley Western common stock.
Participants may elect to invest in one fund or a combination of the available
funds according to their investment goals. If a Participant does not make an
investment election, his or her Profit Sharing Plan accounts will be invested in
a fund designated by the Company.

Except in certain cases of financial hardship, a Participant (or his or her
beneficiary) receives his or her interest in the Profit Sharing Plan only at
death, retirement or termination of employment.

NOTE 9--CAPITAL STOCK

As described in Note 1--Significant Accounting Policies, on August 25, 1997,
the board of directors and Bindley Western, as the sole shareholder of the
Company, approved a recapitalization of the Company. The recapitalization
resulted in the authorization of Class A common stock, Class B common stock and
Preferred Stock. The two classes of common stock entitle holders to the same
rights and privileges, except that holders of shares of Class A common stock are
entitled to three votes per share on all matters submitted to a vote of holders
of common stock and holders of Class B common stock are entitled to one vote per
share on such matters. The two classes of common stock vote together, as a
single class on all matters except as otherwise required by applicable law.

The Class A common stock will automatically be converted into shares of
Class B common stock on a share-for-share basis upon any transfer or purported
transfer to any person other than: (i) a dividend or other distribution of the
shares of Class A Common Stock to the shareholders of Bindley Western or; (ii)
family members of the holder of Class A common stock, or trusts for the benefit
of or entities controlled by the holder of Class A common stock or family
members of the holder.

On October 29, 1997, the Company consummated an initial public offering of
2,000,000 (3,000,000 after giving effect to the stock split) shares of Class B
common stock. An additional 300,000 (450,000 after giving effect to the stock
split) shares of Class B common stock were sold on November 25, 1997 pursuant to
the exercise of the underwriters' overallotment option. All shares were issued
at an initial price of $14.50 per share. Net proceeds to the Company, after

F-13
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--CAPITAL STOCK (CONTINUED)
deducting underwriting discounts and commissions and other expenses of the
offering, was $30.0 million.

On October 29, 1997 and October 22, 1998, 922 and 554 (1,383 and 831 after
giving effect to the stock split) shares, respectively, of Class B common stock
were granted to the two non-employee directors of the Company, representing the
stock portion of their annual retainer for serving on the board of directors.
Compensation expense relating to these grants was $15,000 in both 1997 and 1998.

On December 31, 1998, Bindley Western made a distribution to the holders of
Bindley Western common stock of the 10,214,286 (15,321,429 after giving effect
to the stock split) shares of Priority Class A common stock owned by Bindley
Western on the basis of .448 shares of Priority Class A common stock for each
share of Bindley Western Common Stock outstanding on December 15, 1998, which
was the Record Date for the Distribution. The fraction of a share of Priority
Class A common stock that was distributed for each share of Bindley Western
common stock was based upon the number of shares of Priority Class A common
stock owned by Bindley Western divided by the number of shares of Bindley
Western common stock outstanding on the Record Date.

On August 25, 1997, the board of directors and Bindley Western, as sole
shareholder of the Company, adopted the 1997 Stock Option and Incentive Plan
(the "1997 Stock Option Plan"). Under the 1997 Stock Option Plan, the Company
may award stock options and shares of restricted stock to officers, key
employees and consultants of the Company. The aggregate number of shares of
Class B common stock that may be awarded under the 1997 Stock Option Plan is
1,250,000 (pre stock split), subject to adjustment in certain events. This total
will increase to 2,250,000 subject to shareholder approval at the May 10, 1999
annual meeting of shareholders. No individual participant may receive awards for
more than 300,000 shares in any calendar year. Under the 1997 Stock Option Plan,
awards of restricted shares may be made, in which case the grantee would be
granted shares of Class B common stock, subject to any determined forfeiture or
transfer restrictions.

The Compensation Committee of the board of directors administers the 1997
Stock Option Plan and has the authority to select those officers and key
employees to whom awards will be made, to designate the number of shares to be
covered by each award, to establish vesting schedules, and to specify all other
terms of the awards. With respect to stock options that are intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code, the
option price must be at least 100% (or, in the case of a holder of more than 10%
of the total combined voting power of the Company's stock, 110%) of the fair
market value of a share of Class B common stock on the date of the grant of the
stock option. The Compensation Committee will establish the exercise price of
options that do not qualify as incentive stock options ("non-qualified stock
options"). No options may be exercised more than 10 years from the date of
grant, or for such shorter period as the Compensation Committee may determine at
the date of grant. Awards of options and shares of restricted stock as to which
restrictions have not lapsed are not transferable other than pursuant to the
laws of descent and distribution.

On August 25, 1997, the board of directors and Bindley Western, as sole
shareholder of the Company, approved the adoption of the Outside Directors Stock
Option Plan (the "Directors Plan"). The Directors Plan reserves for issuance
25,000 (pre stock split) shares of the Company's

F-14
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--CAPITAL STOCK (CONTINUED)
Class B common stock, subject to adjustment in certain events. Pursuant to the
Directors Plan, each non-employee director will be automatically granted an
option to purchase 1,000 shares of Class B common stock on June 1 of each year
beginning June 1, 1998. The option exercise price per share will be the fair
market value of one share of Class B common stock on the date of grant. Each
option becomes exercisable six months following the date of grant and expires 10
years following the date of grant.

On September 15, 1998, the board of directors of the Company approved the
adoption of the Broad Based Stock Option Plan (the "Broad Based Plan"). The
Broad Based Plan reserves for issuance 400,000 shares (pre stock split) of the
Company's Class B common stock, subject to adjustment in certain events. The
number of shares which may be granted under the Broad Based Plan during any
calendar year shall not exceed 40,000 shares to any one person. The Compensation
Committee of the board of directors administers the Broad Based Plan and
establishes vesting schedules. Each option expires 10 years following the date
of grant.

In accordance with the provision of SFAS No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), the Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related Interpretations in accounting for its stock
option plans, and accordingly, generally does not recognize compensation expense
related to options granted to employees. If the Company had elected to recognize
compensation expense based on the fair value of the options at the grant date,
whether granted by the Company or by Bindley Western as described in Note
2--Related Party Transactions, as prescribed by SFAS No. 123, pro forma net
income and earnings would have been (after giving effect to the stock split):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net earnings--as reported........................................................ $ 4,369 $ 6,151 $ 10,143
Pro forma impact of Bindley Western option grants (Note 2)..................... (280) (377) (54)
Pro forma impact of Company option grants...................................... -- (224) (1,718)
--------- --------- ---------
Pro forma net earnings........................................................... $ 4,089 $ 5,550 $ 8,371
--------- --------- ---------
--------- --------- ---------
Pro forma earnings per share:
Basic.......................................................................... $ 0.27 $ 0.35 $ 0.45
Diluted........................................................................ $ 0.27 $ 0.35 $ 0.44
</TABLE>

F-15
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--CAPITAL STOCK (CONTINUED)
The fair values of the Company's 1997 and 1998 option grants were estimated
on the date of grant using the Black Scholes option pricing model, with the
following weighted average assumptions:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Risk free interest rate................................................. 5.90% 5.02%
Expected dividend yield................................................. .00% .00%
Expected life of options................................................ 4.60 4.71
Volatility of stock price............................................... 54.79% 55.94%
Weighted average fair value of options (after giving effect to the stock
split)................................................................ $ 5.01 $ 6.43
</TABLE>

The board of directors granted a non-qualified stock option to a consultant
of the Company for 50,000 (75,000 after giving effect to the stock split) shares
of Class B common stock effective at the closing date of the IPO. This option
granted to the consultant of the Company (a non-employee under SFAS No. 123 and
APB 25) resulted in $350,000 of compensation expense that was recorded by the
Company in October, 1997. The compensation expense was determined based on the
fair value of those options at the date of grant as estimated by using the
Black-Scholes option pricing model.

As discussed in Note 2--Related Party Transactions, prior to the IPO,
certain employees of the Company were granted options to purchase Bindley
Western stock under a Bindley Western stock option plan. On December 31, 1998,
the unvested Bindley Western stock options held by these employees were
converted to options to purchase 67,033 (100,549 after giving effect to the
stock split) shares of Class B common stock of the Company. As these options
were converted in accordance with accounting principles issued by the Financial
Accounting Standards Board, no compensation expense was recorded on the
conversion.

Changes in stock options under all of the Company's plans are shown below
(after giving effect to the stock split):

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- ------------------
<S> <C> <C>
Options outstanding at December 31, 1996.................... -- --
Forfeited during 1997....................................... (20,700) $9.67 to $ 9.67
Granted during 1997......................................... 709,575 $9.67 to $10.00
Exercised during 1997....................................... -- --
-----------
Options outstanding at December 31, 1997.................... 688,875 $9.67 to $10.00
Forfeited during 1998....................................... (43,680) $9.67 to $13.33
Granted during 1998......................................... 802,380 $9.25 to $13.33
Exercised during 1998....................................... -- --
Converted from Bindley Western during 1998.................. 100,549 $8.16 to $11.91
-----------
Options outstanding at December 31, 1998.................... 1,548,124 $8.16 to $13.33
-----------
-----------
Exercisable at December 31, 1998............................ --
-----------
-----------
Available for grant at December 31, 1998.................... 964,376
-----------
-----------
</TABLE>

F-16
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--CAPITAL STOCK (CONTINUED)
Additional information regarding the Company's options outstanding at
December 31, 1998 is shown below (after giving effect to the stock split):

<TABLE>
<CAPTION>
EXERCISE PRICE RANGE
-----------------------------------------------------
$8.16-$9.61 $9.67-$11.91 $12.00-$13.33 TOTAL
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Number of options outstanding............................ 242,601 694,423 611,100 1,548,124
Weighted average exercise price.......................... $ 9.27 $ 9.73 $ 13.31 $ 11.07
Weighted average remaining contractual life.............. 8.62 8.84 9.78 9.18
Number of shares exercisable............................. -- -- -- --
Weighted average exercisable price....................... -- -- -- --
</TABLE>

NOTE 10--COMMITMENTS

The Company leases warehouse and office space under noncancelable operating
leases expiring at various dates through 2004, with options to renew for various
periods. Minimum commitments under leases aggregate $595,000 for 1999, $679,000
for 2000, $557,000 for 2001, $524,000 for 2002, $462,000 for 2003 and $473,000
for 2004.

The consolidated rent expense for 1996, 1997 and 1998 was $470,000, $515,000
and $635,000, respectively, of which approximately $75,000 in 1996, $89,000 in
1997 and $26,000 in 1998 pertained to leases with terms of one year or less.

NOTE 11--MAJOR CUSTOMERS AND OTHER CONCENTRATIONS

The Company services customers in 50 states and Puerto Rico. For the years
ended December 31, 1996, 1997 and 1998, the Company had one customer, Everest
Healthcare Services Corporation, which accounted for 12%, 11%, and 12%,
respectively, of the Company's revenues. The Company sells goods and services to
its customers on various payment terms which entail accounts receivable
exposure. Although the Company monitors closely the creditworthiness of its
customers, there can be no assurance that the Company will not incur a write-off
or writedown of a significant account in the future.

Products provided by the Company's largest vendor accounted for
approximately 42% of total revenues in 1996, 40% in 1997 and 32% in 1998. In
addition, the sale of one product supplied by this vendor accounted for 36% of
revenues in 1996, 35% in 1997 and 27% in 1998. This product is available from
only one manufacturer, with which the Company must maintain a good working
relationship. The Company is a party in a lawsuit involving this vendor. See
Note 12--Legal Proceedings.

NOTE 12--LEGAL PROCEEDINGS

IV-1, Inc. ("IV-1") and IV-One Services, Inc. ("IV-One Services") have been
named as defendants in a second amended counterclaim filed by Amgen, Inc.
("Amgen") on May 14, 1996, in the Circuit Court of the Eighteenth Judicial
District of Seminole County, Florida. Amgen has asserted that these entities
tortiously interfered with a license agreement (the "License Agreement") between
Amgen and Ortho Pharmaceutical Corporation ("Ortho"). Pursuant to this
agreement, Amgen licensed Ortho to sell EPO for use in the treatment of
non-dialysis patients, while Amgen reserved the exclusive right to sell EPO for
use in the treatment of dialysis patients.

F-17
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Amgen has asserted that, prior to the purchase of IV-1 and IV-One Services by
the Company, these entities induced Ortho to sell EPO to them for resale in the
dialysis market in contravention of the License Agreement. Amgen has also
alleged that IV-1 and IV-One Services were involved in a civil conspiracy to
circumvent the terms of the License Agreement to allow the resale of EPO to the
dialysis market. Furthermore, Amgen has asserted unfair competition claims
against IV-1, including that IV-1 manufactured and distributed unapproved
prefilled syringes of EPO and another product manufactured by Amgen in container
systems unapproved by Amgen. Amgen did not specify a time frame for the acts
complained of in the civil conspiracy and unfair competition allegations. In
each count, Amgen has demanded an unspecified amount of compensatory damages,
including costs and interest.

The Company believes that the sellers of IV-1, IV-One Services and Charise
Charles are contractually obligated to provide legal defense and to indemnify
the Company for losses and liabilities with respect to this litigation, to the
extent that the alleged acts occurred prior to the purchase of such entities by
the Company. To date, the sellers have provided the legal defense for IV-1 and
IV-One Services in the litigation. Indemnification from the sellers of IV-1 and
IV-One Services is limited to no more than $1.5 million and indemnification from
the sellers of Charise Charles is limited to no more than $2.0 million. The
Company does not expect the Amgen litigation to be material to the Company's
results of operations, financial condition or cash flows; however, no assurance
can be given that this litigation will not have a material adverse effect on our
business, financial condition or results of operations. In addition, Amgen is
the Company's largest supplier. Consequently, this litigation presents the risk
of adversely affecting the Company's business relationship with Amgen, which
could have a material adverse effect on the Company. See Note 11--Major
Customers and Other Concentrations.

The Company is also subject to ordinary and routine litigation incidental to
its business, none of which is material to the Company's results of operations,
financial condition, or cash flows.

On November 14, 1995, an investigator for the FDA, accompanied by an
inspector from the State of Florida Board of Pharmacy, inspected the Company's
pharmacy in Altamonte Springs, Florida. At the end of the inspection, the FDA
investigator issued an FDA Form-483, which is the form used by FDA investigators
to identify any observed or suspected noncompliance with the laws administered
by the agency. The FDA Form-483 identified the facility as a pharmacy/
repackager and listed three observations related to certain requirements that
the FDA typically imposes on manufacturers of sterile products. The Company
advised the FDA in December 1995 that the Company believes it is not, within the
statutory or regulatory meaning of these terms, a repackager or a manufacturer.
A second inspection of the same facility occurred on June 26, 1997, in which the
FDA investigator was again accompanied by Florida pharmacy authorities. The FDA
investigator issued a substantially identical FDA Form-483 at the end of that
inspection. The Florida State Board of Pharmacy did not issue any deficiencies
regarding the operations of the Altamonte Springs pharmacy in either of these
inspections.

On March 16, 1992, the FDA issued a Compliance Policy Guide (CPG 460.200),
which explains the criteria the FDA uses to distinguish between pharmacy
operations that are properly regulated under state law and drug manufacturing
regulated by the FDA. The Company's response to the FDA in December 1995 cited
this CPG and explained the Company's contention that,

F-18
<PAGE>
PRIORITY HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
according to the FDA's own criteria, the facility is a pharmacy properly
regulated under state and local laws.

On November 21, 1997, the President signed into law the FDA Modernization
Act of 1997, which, among a number of other items, adds a new section on
pharmacy compounding to the Federal Food, Drug and Cosmetic Act. In this
provision, Congress clarified a gray area by explicitly identifying the
circumstances in which pharmacies may compound drugs without the need for filing
a New Drug Application, observing the FDA's Good Manufacturing Practice
regulations or complying with certain other specific Federal Food, Drug and
Cosmetic Act requirements. Congress provided that the term "compounding" does
not include mixing or reconstituting that is done in accordance with directions
contained in approved labeling provided by the manufacturer of the product. The
Company believes that, as a result of this amendment, so long as it follows the
manufacturer's approved labeling in each case, and prepares drugs only for
identified individual patients using licensed practitioners, the Company's
activities should be regulated by the Florida State Board of Pharmacy and not be
subjected by the FDA to a full New Drug Application requirement demonstrating
the basic safety and effectiveness of the drugs.

If the Company is correct and its operations are limited to those engaged in
by pharmacies, there should be no material adverse effect from the FDA Form-483s
because the Company believes it is currently in compliance in all material
respects with applicable state and local laws. If the Company is deemed to be a
sterile product manufacturer or a sterile product repackager, it would be
subject to additional regulatory requirements. If for some reason the FDA or
other legal authorities decide that the Company must file for approval of a New
Drug Application, such an event could have a material adverse effect on the
Company.

There can be no assurance that future legislation, future rulemaking, or
active enforcement by the FDA of a determination that the Company is a drug
manufacturer will not have a material adverse effect on the business of the
Company.

NOTE 13--SUBSEQUENT EVENT (UNAUDITED)

On April 12, 1999, the Company completed an acquisition of the majority of
the operating assets of Pharmacy Plus, Ltd., a specialty mail order pharmacy in
Philadelphia, Pennsylvania, that primarily provides injectable
biopharmaceuticals by overnight delivery. The acquisition will be accounted for
using the purchase method of accounting and the results of operations will be
included in the consolidated financial statements subsequent to the date of
acquisition. The total purchase price for the Pharmacy Plus assets was
approximately $3.5 million, which includes approximately $450,000 for inventory
and fixed assets and results in approximately $3.1 million of goodwill. No
indebtedness was assumed. The results of operations of Pharmacy Plus would not
have been material to the results of the Company for the periods presented in
these financial statements.

F-19
<PAGE>
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THROUGH AND INCLUDING JULY 5, 1999 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Forward-looking Statements................................................ 3

Prospectus Summary........................................................ 4

Risk Factors.............................................................. 8

Use of Proceeds........................................................... 14

Price Range of Common Stock............................................... 15

Dividend Policy........................................................... 15

Capitalization............................................................ 16

Selected Consolidated Financial Data...................................... 17

Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 18

Business.................................................................. 26

Management................................................................ 39

Executive Compensation.................................................... 41

Principal Stockholders.................................................... 44

Underwriting.............................................................. 46

Legal Matters............................................................. 48

Experts................................................................... 48

Where You Can Find More Information....................................... 48

Index to Consolidated Financial Statements................................ 49
</TABLE>

2,600,000 SHARES

PRIORITY HEALTHCARE CORPORATION

CLASS B COMMON STOCK

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

PROSPECTUS

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

RAYMOND JAMES &
ASSOCIATES, INC.

FIRST UNION CAPITAL
MARKETS CORP.

BANC OF AMERICA
SECURITIES LLC

SUNTRUST EQUITABLE
SECURITIES

JUNE 10, 1999

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